Pioneer Natural Resources Co. last Thursday said its board of directors has approved a number of strategic initiatives, such as buying back company stock and selling deepwater Gulf of Mexico properties, to bolster shareholder value and returns.
The Dallas, TX-based producer said plans call for it to repurchase $1 billion in company stock; divest properties in the deepwater Gulf of Mexico and in southern Argentina; exit exploration in the deepwater Gulf; reduce its exploration budget to 15-20% of total capital from 30%; reallocate capital to North America onshore development and drilling; hedge eligible oil and gas production for 2006 and 2007 using costless collars; and increase the dividend on common shares by 20% to 12 cents a share.
Pioneer estimated it has sold $300 million in assets so far this year. And it has declared a semi-annual cash dividend on Pioneer's outstanding common stock of 12 cents per share, payable Oct. 14.
"The current commodity pricing environment offers a unique opportunity to deliver near-term value to our shareholders by repurchasing shares at attractive prices and increasing the dividend," said Pioneer CEO Scott Sheffield. "We also reduce our risk profile with an increased focus on onshore North America and the planned divestiture of short-lived and non-strategic assets. At the same time, by hedging our eligible oil and gas production using costless collars for 2006 and 2007, we maintain our financial flexibility."
The $1 billion share repurchase authorization represents about 15% of Pioneer's total equity market value as of Aug. 31, and will be funded by the company's credit facility and asset sale proceeds. Pioneer said it will immediately begin a program to buy back up to $650 million of shares through open-market transactions by the end of the year. Upon completion of this phase of the repurchase program but before considering asset divestitures, the company said it expects debt-to-book capitalization would be less than 50% at the end of this year and 35% by the end of 2006.
To carry out the $650 million in stock repurchases, Pioneer said it will adopt a plan that will allow it to buy shares during the period from Oct. 3 until two trading days following its third-quarter 2005 earnings announcement, a period during which it ordinarily would not be in the market because of a self-imposed trading blackout.
The energy company also plans to repurchase approximately $223 million of its outstanding bonds, and buy an additional $350 million of stock upon completion of the bond repurchases and certain asset sales.
The $1 billion stock buyback program will be in addition to the $300 million share repurchase program that Pioneer completed this month. So far, the company has repurchased nine million shares or about 6% of its shares outstanding since October 2004.
As for its deepwater Gulf assets that it plans to sell, Pioneer said they include 33 successful exploration and development wells, working interests in three producing deepwater projects, interests in several discoveries that are being considered for commercialization, and interests in 90 deepwater blocks with attractive but high-risk exploration opportunities.
In addition to its Gulf of Mexico properties, Pioneer said it will seek to sell its non-operated position in Tierra del Fuego in southern Argentina, and noted it has received "attractive expressions of interest from several potential purchases."
The producer said it has expanded and balanced its exploration portfolio in onshore North America, Alaska and Africa, and believes these opportunities are better aligned with its current exploration objectives.
"Onshore North America, we are aggressively developing our multi-year inventory of low-risk opportunities. We are significantly expanding our development drilling programs in our Spraberry and South Texas fields in the U.S. and the Chinchaga and Horseshoe Canyon fields in Canada, and coming into this year, expanded our Raton domestic drilling program," said Pioneer President Tim Dove.
"We are also pursuing the commercialization of two discoveries in Alaska and have an active exploration program focused on prospects with nearer-term production impact planned for this winter season," he said. "By the end of this year, we will have initiated drilling activities in several of our Piceance and Uinta fields in the Rockies and will be testing our Mannville coalbed methane potential in Canada, and we will work to continue to expand our unconventional and tight gas positions in these areas and the onshore Gulf Coast."
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