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Pioneer Natural Finds New Buyer for Properties

Pioneer Natural Finds New Buyer for Properties

Pioneer Natural Resources, a Dallas-based independent producer, announced an agreement Monday to sell $245 million worth of oil and gas fields to Prize Energy Co., a Tulsa, OK-based producer. Last month, Pioneer had planned to sell most of these same properties to Costilla Energy, but Costilla was unable to close the deal. The Prize acquisition is expected to close June 29 with an effective date of July 1.

The sale is composed of 400 domestic onshore fields in Texas and Oklahoma. Proven reserves are estimated at 60 million Boe. A Pioneer spokesperson said 1998 gas production from these fields averaged 60 Mcf/d. "The fields only made up 10% of our overall production last year, but there is much more work to be done down there," she said. Prize Energy will pay $215 million in cash and $30 million in convertible preferred stock, giving an initial 32% equity interest to Pioneer. The deal also includes a $15 million non-refundable payment to Pioneer.

"This agreement offers superior value, a timely closing, and allows Pioneer as a preferred shareholder of Prize to retain a significant interest in the upside related to these properties. This transaction is a great start toward meeting our debt reduction and asset divestiture targets. Another advantage of this sale is that it allows the company to focus on its core domestic properties. Coupled with improved commodity prices, we should begin to see real operational and financial benefits from our core properties," said Scott Sheffield, CEO of Pioneer.

These fields represent Prize Energy's initial assets. The company is headed by Philip Smith (CEO) and Kenneth Hersh (Director), who are in the process of retiring from Pioneer's board of directors. Lon Kile, who is presently Pioneer's executive vice president, will soon be taking Prize Energy's COO position, Pioneer said. "We are confident that they will maximize the value of our new equity ownership in Prize," Sheffied said. Once Prize Energy entered its bid, these executives were removed from the decision-making process.

This sale represents 93% of the properties included in the now-terminated Pioneer-Costilla deal, which was officially canceled in April (See Daily GPI, April 19).

For Costilla, this announcement continues a string of bad news. Last month, Oneok terminated a plan to invest a total of $95 million in Costilla, because the agreement was contingent upon Costilla closing the property acquisition with Pioneer. Also last month, Costilla reported a first quarter loss of $7.67/share compared to a loss of $3.54 in 1Q98.

"Our unsuccessful pursuit of the Pioneer properties was very costly to Costilla and our recovery will clearly take time,'' said Cadell Liedtke, chairman of Costilla's board of directors. "We are firmly committed to re-building our Company, and have initiated measures we believe will assist in achieving this goal. We have cut overhead expenses substantially and are actively marketing some of our oil and gas assets to address our short-term obligations. For the long-term, we intend to retain our interests in our key producing areas and the properties we believe hold significant exploration and development potential."

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