Pioneer Natural Resources Co. will operate its first deepwater Gulf of Mexico project, after picking up an additional 30% working interest in the Falcon field development and acreage in the deepwater Gulf of Mexico for $55 million, it said Tuesday. The Dallas-based independent also signed an agreement to purchase the assets and remaining 23% of the rights it doesn’t already own in its core area West Panhandle Field in Texas. The company is in final negotiations on another agreement to acquire the related West Panhandle field gathering system for a total of $138 million. To fund the acquisitions, Pioneer will publicly offer and sell 10 million newly issued shares of its common stock.

Pioneer, which appears to be acquiring more U.S.-based assets as it faces economic uncertainty with its large asset base in Argentina, said Tuesday it “continues to monitor the political and economic environment in Argentina, where 17% of its oil, natural gas liquids and gas reserves were held as of Dec. 31, 2001.” This year, said Pioneer in a statement, the Argentina government has “continued to implement reforms that are intended to stabilize the economy, including the imposition of a 20% tax on oil exports beginning March 1, 2002.”

Pioneer said it expects to resume production in Argentina in the third quarter of 2002, but noted that its oil and gas revenues “will be reduced as a result of the Argentine peso devaluation and recent export tax; however, the reduction will be mitigated by decreases in the cost of Argentine operations and administration as a result of the peso devaluation.” Pioneer said, “the continuing devaluation of the Argentine peso during the first quarter of 2002 will result in a noncash charge to results in that period of approximately $5-$7 million…Once the exchange rate of Argentine pesos to U.S. dollars stabilizes, the impact of future re-measurement assessments should be minimal.”

Regarding its North American acquisitions, Pioneer picked up the Falcon interest and acreage from Mariner Energy Inc. The acreage is located in the East Breaks 579, 580 and 623 blocks, in approximately 3,400 feet of water, 100 miles east of Corpus Christi, TX. Pioneer plans to drill exploration prospects that have already been identified on these blocks in an effort to enhance production through the Falcon development system. The Mariner transaction has an effective date of January 1, 2002. The transactions give Pioneer a 75% ownership stake, along with operating the development and exploration blocks.

Through the acquisitions, Pioneer expects incremental initial gas production of approximately 50 MMcf/d beginning in the first quarter of 2003. Pioneer also will be assuming approximately $31 million of additional 2002 capital requirements related to the 30% working interest with the Falcon transactions. Pioneer has implemented new natural gas hedges for 40 MMcf/d for the first three years of production related to the acquisitions at an average price of $3.60/Mcf.

Pioneer has also signed a definitive purchase and sale agreement with Colorado Interstate Gas Co. (CIG) and CIG Production Co. LP, both subsidiaries of El Paso Corp. The deal gives Pioneer CIG’s working interest and other rights in the gas produced from the West Panhandle gas field and CIG’s 100% entitlement to all field fuel. Pioneer is also in final negotiations with CIG to acquire CIG’s wholly-owned gathering system related to the West Panhandle field.

In connection with the settlement of a capital cost obligation related to the CIG assets, Pioneer said it expects to recognize an extraordinary charge of approximately $14 million for the early retirement of the obligation in the quarter in which the transaction closes. Annual interest savings of $9 million would be realized as a result of settling the capital cost obligation. In addition, Pioneer is acquiring a 100% working interest from El Paso Production GOM Inc. in 10 deepwater Gulf of Mexico blocks that surround the Falcon discovery. The CIG transactions are subject to regulatory approval.

The CIG acquisitions would give Pioneer 100% working interest in the West Panhandle field and gathering system, which is expected to have production of approximately 20 MMcf/d. Pioneer anticipates continuing its successful program of horizontal drilling in the field, where it has identified approximately 330 drilling locations.

“We are very excited about these acquisitions, as they further our strategy of acquiring assets in our own backyard, high-quality assets that we know best,” said CEO Scott D. Sheffield. “We are acquiring 137 Bcf of proved reserves at an acquisition cost of $0.93/Mcf, settling related net obligations and purchasing a gathering system. We are looking forward to operating the Falcon project, a cornerstone asset in our deepwater Gulf of Mexico portfolio.”

Sheffield said the Falcon acquisitions would “significantly enhance our gas production when it comes on stream next year, and as we explore the 24 prospective blocks that we will control in the area after these transactions, we expect to add even more value to the project.”

The West Panhandle field, Sheffield said, “is a legacy long-lived gas field that has been a foundation asset for Pioneer. Owning and operating 100% of the field will allow us to drill wells more economically and implement significant cost efficiencies. These transactions, in combination with the planned issuance of 10 million new common shares to fund them, are anticipated to be accretive to cash flow per share in 2003 and accretive to Pioneer’s net asset value per share.”

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.