The currency devaluation instituted last Sunday in Argentina is expected to impact both the sales and costs of Dallas-based Pioneer Natural Resources Co., which has 17% of its oil and gas reserves in the South American country. The company expects it will likely recognize non-cash charges to reflect the impact of the peso devaluation, but it is too early to assess what those charges may be.

“Pioneer continues to monitor the political and economic environment in Argentina,” the company announced, saying it has postponed discretionary capital spending “pending clarification.”

Argentina’s fifth president in the last two months began the implementation of several reforms intended to stabilize the economic environment in the country, including the immediate devaluation of the Argentine peso from a one-for-one exchange to a current rate of 1.4 pesos per U.S. dollar and temporary restrictions on the transfer of funds from Argentina. “Although Pioneer’s current natural gas sales contracts are denominated in U.S. dollars, the company could be required to renegotiate such contracts. The peso devaluation is also expected to reduce the cost of Argentine operations and administration,” the company said.

Pioneer said it “is not yet able to accurately determine the timing or quantify the amount,” of its write-off or the impact of other changes on its Argentine activities.

Several other U.S. companies with interests in Argentina also have exposure and are watching the situation. Duke Energy International and Sempra Energy said Tuesday their natural gas and power operations in the South American country were small relative to their other holdings and not expected to have a significant impact on their financial results (see Daily GPI, Jan. 8). A four-year economic recession sparked riots in Buenos Aires recently in which a number of people were killed. The country’s latest president has defaulted on the country’s foreign debt and is attempting to partially devalue the currency. It is not likely that the official devaluation level will hold. Analysts fear continued harsh economic conditions will lead to further unrest.

Duke Energy International has about $200 million in hydroelectric facilities in Argentina, which “is a relatively small part of our total assets,” said Deborah Witmer, Duke International vice president of public affairs. “We’re watching the situation very closely, but we don’t see a huge impact occurring.” Duke’s current power contracts are dollar-denominated but expire in the first quarter. It’s not clear if new contracts will be in dollars or pesos, she said.

Updating its fourth quarter 2001 results in Argentina, Pioneer said natural gas sales have been lower than expected due to excess availability of hydroelectricity and an extended plant turnaround by a large gas customer in Chile. The company’s Argentine subsidiaries generated total liquids and natural gas revenues of approximately $15 million and $7 million, respectively. During the same three months, the Argentine subsidiaries incurred approximately $7 million of operating costs and $2 million of administrative expenses. Total liquids sales for 2001 averaged approximately 10,000 b/d, of which 12% was exported. Natural gas sales for the same period were approximately 87 MMcf/d, with 13% exported.

Throughout its operations, Pioneer said fourth quarter production is expected to average 110,000 boe/d. The company’s fourth quarter realized prices, including the effects of hedges, are expected to average $2.45 to $2.60/Mcf for natural gas, $22.00 to $22.25/bbl of oil and from $11.90 to $12.15/bbl of natural gas liquids.

Pioneer said it has significant oil and natural gas hedges in place to protect its cash flow and lock in strong returns. In addition to the hedges monetized during 2001, Pioneer recently monetized 60 MMcf/d of its 2004 natural gas hedge position at $3.20/Mcf for a profit of $14 million that will be recognized as natural gas revenue over the contract period in 2004. Pioneer has also increased its oil hedge position for the second half of 2002, adding swaps on 5,000 b/d of oil at $21.54/bbl for the second half of 2002. The intrinsic value of Pioneer’s remaining 2002 through 2005 oil and natural gas hedges was $187 million, or $1.80 per share, based on Friday’s closing Nymex prices for oil and natural gas.

During 2002, Pioneer has hedges covering 60% of expected North American natural gas production at an average Nymex equivalent price of $4.30 per Mcf or greater and 45% of expected worldwide oil production at an average Nymex equivalent price of $25.32/bbl or greater. Pioneer has natural gas hedges that extend into 2005 and oil hedges through June of 2003. Pioneer’s hedges are with a diverse group of intermediaries, principally large U.S. banks.

The producer noted its previous disclosure of hedge contracts valued at $7.8 million with Enron North America. The company expects to take a $6 million charge related to this receivable during the fourth quarter but will continue to pursue the full value of its claim.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.