Pioneer Natural Resources, a Dallas-based independent producer,announced an agreement last week to sell $245 million in oil andgas properties to Prize Energy Co., a Tulsa, OK-based producer.Last month, Pioneer had planned to sell most of these same assetsto Costilla Energy, but Costilla was unable to close the deal (seerelated story this issue). The Prize acquisition is expected toclose June 29 with an effective date of July 1.

The sale is composed of 400 domestic onshore fields in Texas andOklahoma. Proven reserves are estimated at 60 million Boe. APioneer spokesperson said 1998 gas production from these fieldsaveraged 29 MMcf/d. “The fields only made up 10% of our overallproduction last year, but there is much more work to be done downthere,” 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 millionnon-refundable payment to Pioneer.

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

These fields represent Prize Energy’s initial assets. Thecompany is headed by CEO Philip Smith and Director Kenneth Hersh,who are in the process of retiring from Pioneer’s board ofdirectors. Lon Kile, who is presently Pioneer’s executive vicepresident, will soon be taking Prize Energy’s COO position, Pioneersaid. “We are confident that they will maximize the value of ournew equity ownership in Prize,” Sheffied said. Once Prize Energyentered its bid, these executives were removed from thedecision-making process.

This sale represents 93% of the properties included in thenow-terminated Pioneer-Costilla deal, which was officially canceledin April.

For Costilla, this announcement continues a string of bad news.Last month, Oneok terminated a plan to invest a total of $95million in Costilla, because the agreement was contingent uponCostilla closing the property acquisition with Pioneer. Also lastmonth, Costilla recorded a net loss applicable to common equity of$55.9 million, or $4.36 per share.

“Our unsuccessful pursuit of the Pioneer properties was verycostly to Costilla and our recovery will clearly take time,” saidCadell Liedtke, chairman of Costilla’s board of directors. “We arefirmly committed to re-building our company, and have initiatedmeasures we believe will assist in achieving this goal. We have cutoverhead expenses substantially and are actively marketing some ofour oil and gas assets to address our short-term obligations. Forthe long-term, we intend to retain our interests in our keyproducing areas and the properties we believe hold significantexploration and development potential.”

John Norris

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