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Pioneer to Expand Alaska Exploration, Ups Budget

Pioneer to Expand Alaska Exploration, Ups Budget

Pioneer Natural Resources Co. is poised to become the third largest net land holder in Alaska following its announcement Thursday to expand its existing acreage on the North Slope. As part of a wide-sweeping plan, the Dallas-based producer is launching a joint exploration program in the first quarter with co-owners ConocoPhillips and Anadarko Petroleum Corp., with an eye on establishing a new core division in the state.

The Dallas-based producer signed an agreement with ConocoPhillips and Anadarko for an undisclosed amount to acquire a 20% interest in 452,000 additional acres and the rights to extensive seismic and geologic data in the National Petroleum Reserve-Alaska (NPR-A) Northeast Planning Area. It also plans to spend more than $50 million this year on North Slope exploration.

"This new joint venture agreement positions us to participate in near-term, high-impact exploration opportunities on trend with existing discoveries," said CEO Scott Sheffield. "The new acreage complements our existing NPR-A acreage as it is much closer to infrastructure and could provide a bridge to our large holdings in the northwest. When all of the related assignments have been approved, Pioneer will have amassed an Alaskan undeveloped acreage portfolio in excess of 1.6 million gross acres and will hold the third largest net position in the state."

The latest agreement ties in with one Pioneer set up in early 2003 with the same companies, in which it acquired a 20% interest in 167,000 acres in the NPR and adjacent federal offshore waters. Pioneer also participated in a Northwest Planning Area lease sale and acquired working interests that range from 20-30% in 808,000 acres.

Since Pioneer entered Alaska with the successful drilling of three discovery wells within its Oooguruk Unit in 1Q2003, it has assembled an extensive portfolio of North Slope opportunities. Chris Cheatwood, Pioneer's executive vice president of Worldwide Exploration, said the North Slope portfolio offered a "good balance between development and exploration and with opportunities that will spur drilling activity for the next five to 10 years."

Pioneer last week also approved a 12% increase in its capital budget. and said it will drill 800 development wells and 20 "higher-impact" exploration wells this year. Total spending will be $950 million, up from $900 million in 2004, with most of the capital set aside for U.S. projects.

The producer plans to spend $200-250 million for exploration this year, with approximately 75% of the 2005 capital budget directed toward development activities, including facilities, with 25% allocated to exploration. About 20% is allocated to Rocky Mountain assets acquired in late 2004, 25% to other onshore U.S. assets, 25% to the Gulf of Mexico and 5% to Alaska. About 25% of 2005 capital is designated for international projects, with 15% allocated to Argentina and 5% directed to projects in Africa and Canada.

"In 2005, we plan to step up our activity level and drill more development and exploration wells," said Tim Dove, president. "Our prior investments in land and seismic should begin to pay off as we test new exploration prospects in each of our focus areas and expand our onshore development program." Pioneer also plans to designate "considerable capital dollars" to develop its proved reserves.

Overall, Pioneer's capital spending plan accounts for "only" about two-thirds of the discretionary cash flow the company expects to have for investment this year, according to Sheffield. The plan, he said, "calls for an increase in drilling activity in our core areas, especially the Rockies, continued expansion of our gas play in Argentina, an active Canadian program including key coalbed methane (CBM) tests and a significant increase in high-impact wells in our four exploration focus areas."

In the Raton Basin, Pioneer plans to drill approximately 300 wells, up 50% from 2004 activity levels. To handle the stepped-up drilling schedule and deliver on the expected double-digit production growth, Pioneer has added staff, purchased additional fracture stimulation and drilling equipment and secured additional pipeline capacity.

"The company believes that the Raton Basin offers sufficient opportunity to sustain this accelerated level of drilling for a minimum of five years, allowing for the execution of a measured program to deliver incremental reserves annually," the company said. Pioneer added significant acreage in the Piceance and Uinta basins with the purchase of Evergreen Resources Inc. last year, and the company expects to complete a comprehensive evaluation of the resource potential and gas marketing alternatives for these assets during 2005 (see NGI, May 10, 2004).

Other onshore U.S. drilling will include approximately 260 development wells primarily concentrated in the legacy Spraberry, Pawnee and West Panhandle fields where Pioneer has a multi-year inventory of development drilling locations. In the Gulf of Mexico, Pioneer plans to invest approximately $100 million on appraisal wells related to field discoveries that are expected to add new production in 2006 and 2007 and sidetracks expected to capture additional reserves and extend the production life of key wells in the Canyon Express and Falcon areas.

In Canada, Pioneer will concentrate its winter drilling activities in the Chinchaga field of northeastern British Columbia, with more than 50 wells planned, a 40% increase over 2004. In southern Alberta where the drilling is not limited to the winter season, Pioneer plans to drill as many as 80 wells targeting CBM in the Horseshoe Canyon area. Pioneer also has identified several non-strategic fields in Canada that it plans to sell in the first quarter, and said it had included the impact of the sales in its 2005 production forecasts.

"Exploration is a cyclical process," said Chris Cheatwood, Pioneer's executive vice president of Worldwide Exploration. "We drilled fewer high-impact wells in 2004 and focused most of our time and dollars on refining existing prospects and building our exploration inventory. In 2005, we plan to test approximately 20 high-impact prospects and increase our exploration drilling expenditures by about 150%."

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