In a move to cut debt and costs by reducing its propertyinventory, Dallas-based Pioneer Natural Resources agreed to sellcertain oil and gas properties to Costilla Energy Inc. for $410million. The transaction will be effective Oct. 1 and is expectedto close by year-end. Despite the recent volatility in oil and gasprices, the company said the price falls within its expectations.

“This agreement helps us do two very important things,” saidScott D. Sheffield, CEO. “One, reducing the number of propertiesallows us to streamline our operations and two, reducing our debtby $410 million significantly improves our financial flexibility.”

The sale properties represent about 425 domestic fields,primarily in Texas. Current production from these fields isestimated at eight million barrels of oil equivalent annually, ofwhich about 57% is natural gas. The properties represent about 95%of the company’s domestic fields but only about 10% of year-end1997 proved reserves. The sale will result in Pioneer’s domesticoperations now being focused on its core properties. The companywill be concentrating on the Permian Basin, Gulf Coast,Midcontinent, Canada, and Argentina. About 80% of the propertiesare in the United States, and the oil-gas mix is 50-50, saidspokesman James Leahy.

Efforts will be focused on gas and oil activities in Canada andArgentina and on gas in the United States, particularly the GulfCoast region and the Gulf of Mexico. Low domestic prices makedrilling for oil in the United States questionable, Leahy said. Thecompany plans to begin drilling in the second quarter of next yearon Mississippi Canyon 305.

Including the resulting decline in interest expense, Pioneerexpects its total cost structure (lease operating expense, generaland administrative expense, depreciation, depletion andamortization expense, and interest expense) will be reduced by morethan $3.00 per barrel oil equivalent since the end of 1997. Afterdeducting the $410 million sale price, Pioneer’s debt will stand atabout $1.7 billion, Leahy said. “Longer term, our goal continues tobe to reduce our debt.” Leahy said the company expects to grow at anormalized rate of 10% per year, excluding exploration successes.

In announcing a $891 million net loss in 1997 ($17.14 pershare), Pioneer Natural Resources – which was created a year ago bythe merger of Parker and Parsley and Mesa Petroleum-said inFebruary it would sell 95% of its domestic fields in 1998 to”unlock the value” contained in its long-lived reserve base andacreage position (See Daily GPI Feb. 11, 1998). At the time, thesale was estimated to bring in $375-$550 million. About 95% of thecompany’s fields were generating only 15% of its total cash flow,said CEO Scott Sheffield. “The purpose of this program is to shednon-strategic properties, re-deploying the proceeds into higherreturn assets. Exact timing of the sales will depend on marketconditions.” The vast majority of these fields were acquired byParker and Parsley prior to 1995. Last December the company boughtChauvco Resources.

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