Following on the heels of an agreement with ConocoPhillips Alaska to acquire up to 50% working interest of the offshore Cosmopolitan unit in the Cook Inlet of Alaska, Pioneer Natural Resources reported last week that its second quarter earnings more than doubled from a year ago.

The Dallas-based independent reported 2Q earnings of $185.6 million ($1.28/share), compared with $69.7 million (58 cents) in 2Q2004. Revenue also rose, to $592.6 million from $426.1 million, boosted by higher realized prices for oil, gas and natural gas liquids.

Pioneer’s natural gas production also was up from the same period a year earlier. In 2Q2005, Pioneer’s gas production was 726 MMcf/d, with total production at 183,000 boe/d. Average daily gas sales in the United States were 554 MMcf/d, up from 536 MMcf/d in 2Q2004, while Canadian gas sales were 36 MMcf/d, up from 35 MMcf/d a year earlier.

CEO Scott Sheffield, who presided over a conference call with financial analysts Tuesday, said the quarter’s performance reflected “robust market conditions” for Pioneer. He said Pioneer was continuing to look for discoveries — like the Alaskan Cosmopolitan assets — by the majors that were available, because he said Pioneer can produce them at a lower cost.

Under terms of the agreement announced last Monday, Pioneer’s Alaska subsidiary will acquire 10% interest, with the option to acquire up to 50% working interest and possible operatorship in ConocoPhillips’ Cosmopolitan unit offshore Cook Inlet. The 25,000-acre unit is located 120 miles southwest of Anchorage and two miles from the shoreline of the Kenai Peninsula.

Three wells and a sidetrack already have been drilled there, and Pioneer plans a new 3-D seismic survey later this year to refine the estimate of recoverable reserves, which is expected to be completed by November.

Responding to an analyst’s question about the potential of the Cosmopolitan acquisition, Sheffield said, “We wouldn’t be in this if we didn’t think it was a sizable resource.” He said the assets add “an established resource to our portfolio of commercialization projects and exciting new growth potential for Alaska.”

Because of the acquisition, as well as continued growth in North American operations and worldwide, Pioneer increased its 2005 exploration and production budget to $1.1 billion, up from $950 million.

The increase encompasses expenditures related to Pioneer’s success in extending its acreage positions in West Africa, the U.S. onshore Gulf Coast, the Rocky Mountains, Alaska and Canada, adding a five-well Gulf of Mexico shallow shelf exploration program and an increase in drilling in the Spraberry field and the Horseshoe Canyon coalbed methane play in Canada.

Pioneer noted that the increased budget also “reflects the rising costs associated with drilling and completion activities given higher commodity prices.” The capital budget excludes costs associated with recent acquisitions.

Despite some weather and regulatory delays, Pioneer continued with the aggressive pace of development set earlier in the year. Currently, the company has 16 onshore rigs running in the United States, nine in Argentina and five in Canada.

Full-year production is now expected to be 63-65 MMboe, excluding production from discontinued operations. The new range reflects the production impact of closed and pending asset sales in Canada, East Texas and the inland waters of the Gulf of Mexico, the company’s third volumetric production payment transaction, production lost from the Devil’s Tower due to storms and West Panhandle fields, which were covered by business interruption insurance, pipeline capacity limitations delaying the ramp up of production from the Raton Basin and the impact of weather and rig shortages in the deepwater Gulf of Mexico.

The new range also reflects the impact of directives from the Minerals Management Service, which required that uphole recompletions scheduled for Devil’s Tower wells be postponed to maximize the recovery of oil and gas from less prolific deeper zones, Sheffield said.

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