Pioneer Natural Resources and Mariner Energy announced plans to start producing up to 175 MMcf/d of gas in early 2003 from the Falcon field in the deepwater Gulf of Mexico. Gas reserves currently are estimated to range from 175 to 240 Bcfe. The Falcon field is located 100 miles east of Corpus Christi in 3,400 feet of water in East Breaks 579/623 and is among four major prospects Pioneer expects will boost its production by up to 50% over the next two years.

“Falcon is Pioneer’s fourth major exploration project being developed for first production in 2002 or 2003, following the previously approved Canyon Express, Devils Tower and Sable projects,” said Pioneer CEO Scott D. Sheffield. “Compared to our current production rate, Falcon alone is expected to add 10%, and when all four projects are fully on-stream during 2003, our daily production is expected to be approximately 45% to 50% above current levels. At estimated peak rates, the combined natural gas production from Falcon, Canyon Express and Devils Tower represents approximately 75% of our current North America natural gas production.” Pioneer’s production in the third quarter was 374.5 MMcf/d, down 4% from the same quarter last year.

The Falcon field will be produced via a two-well subsea development tied back to a host platform located on the shelf 30 miles away. The system will be expandable in order to accommodate future subsea tie-backs from numerous other prospects owned by Pioneer and Mariner in the surrounding area.

In August, the partners were the apparent successful bidders on 12 deepwater blocks covering 69,120 gross acres concentrated near the Falcon discovery. Pioneer and Mariner will each have a 50% working interest in the blocks when awarded. Pioneer has a 45% working interest in the Falcon field, and Mariner operates the field with a 50% working interest.

Pioneer Tuesday also announced that its third quarter earnings were down 65% to $24.6 million, or $0.25/share, compared to $69.3 million, or $0.69/share, in 3Q2000. The company said its overall realized price for natural gas averaged $2.66/Mcf compared to $2.87 in 3Q2000. U.S. realized gas prices averaged $3.54/Mcf compared to $3.65 in the same period a year earlier. Realized prices for oil and natural gas liquids for the third quarter averaged $25.06 and $15.01 per barrel, respectively, compared to $25.48 and $20.73 in the same period last year.

“Since June 30, we have made several announcements highlighting the actions we are taking to add to Pioneer’s value,” Sheffield said, noting the announcement about the Falcon field and the other three prospects. “To protect the attractive returns on these and other projects, we have a significant hedge position that was valued at $198 million as of Sept. 30, 2001. We remain committed to investing in the right projects and protecting our returns.”

During the quarter Pioneer monetized a portion of its 2003 natural gas hedges on 135 MMcf/d for $35.8 million. The natural gas was hedged at $3.99/Mcf and was unwound at $3.14/Mcf for an 85-cent/Mcf profit. As natural gas futures markets strengthened in October, the company reestablished a portion of the 2003 position for natural gas. In early September, Pioneer added to its crude oil hedge position for 2001 and 2002. The company also hedged the incremental natural gas volumes associated with the acquisition of additional interests in the Aconcagua field and the Canyon Express pipeline project for 2003 through 2005.

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