Dallas-based independent Pioneer Natural Resources, which lost a Gulf of Mexico platform during Hurricane Rita, reported a 53% increase in net income on strong commodity prices in the third quarter, to $124 million (88 cents/share) from $81 million (67 cents) for the same period of 2004. Income from continuing operations was $105 million (74 cents/share), from $77 million (64 cents).
Pioneer's net income for the quarter included discontinued operations of $30 million ($19 million after-tax) related to the sale of some noncore assets on the Gulf of Mexico shelf. Net income also included a $33 million pre-tax charge ($21 million after-tax) related to the incremental abandonment obligation for its offshore East Cameron 322 field, which was lost during Hurricane Rita. Insurance is expected to cover this cost as well as the value of the platform and lost revenues, which will be recognized in future quarters. Higher commodity prices pushed cash flow up 33% to $318 million, compared with $239 million for the same period in 2004.
Pioneer is abandoning the East Cameron 322 field because the pre-hurricane production of a 600 boe/d and future production profile "do not justify the cost of replacing the platform, it said in a statement. However, the offshore Devils Tower production is in the process of being restarted, and production is expected to return to pre-hurricane levels of approximately 5,000 boe/d net shortly after start up. The subsea wells at the Triton and Goldfinger satellite fields have been tied back to the Devils Tower platform and are ready to flow. Further increases in production from these subsea wells and Devils Tower well recompletions will occur over the next few months as additional repairs are completed on Chevron's Empire Terminal.
Pioneer's remaining operations in the Gulf experienced limited disruptions from Hurricanes Katrina and Rita. Deepwater facilities at Falcon, Canyon Express and Devils Tower had little to no damage. By Oct. 1, Falcon and Canyon Express were fully operational and producing at pre-hurricane levels.
"We had a strong quarter and have made significant progress in executing the strategic initiatives we announced in September," said CEO Scott D. Sheffield. "We completed most of the first phase of our share repurchase program, repurchased $217 million of bonds and increased our semiannual dividend by 20%. In October, we opened data rooms covering the assets we have targeted for divestiture in the deepwater Gulf of Mexico and Tierra del Fuego in southern Argentina. Our increased 2005 drilling programs are on track, and we've made significant progress towards sanctioning a project to commercialize our gas reserves offshore South Africa."
Gas sales averaged 640 MMcf/d in the quarter, up from 632 MMcf/d reported in 3Q2004. North American gas prices averaged $7.10/Mcf, including $.48/Mcf associated with the volumetric production payment transactions. Production costs averaged $7.61/boe, with an increase in lease operating costs attributed to increases in higher production taxes, decreases in deepwater Gulf of Mexico production (which has lower per boe operating costs), and price increases in services and supplies related to field operations. Exploration and abandonment costs were $64 million for the quarter and included $33 million of incremental abandonment charges associated with the East Cameron 322 field.
In the Raton Basin, production is increasing as a result of a pipeline expansion that was completed in October. Pioneer drilled 36 Raton wells during October, 234 wells year-to-date, and expects production growth from the field of 5-7% during 2005. In Canada, Pioneer has drilled 90 wells of a 180 well program in the Horseshoe Canyon coalbed methane play and expects to complete the balance of the program by the end of the year. An additional 180-well program is planned for 2006.
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