With its participation in two of the largest natural gas projects offshore the United States already under its belt this year, Pioneer Natural Resources has generated a cash windfall and expects to have nearly $1 billion in free cash flow for the next two years with a return on equity in the 20-22% range, CEO Scott Sheffield said Wednesday.

Sheffield, who spoke at the Lehman Brothers CEO Energy/Power Conference, said much of the new cash has come from its work in the Gulf of Mexico (GOM) deepwater’s Canyon Express and the Falcon Corridor, which together are delivering nearly 650 MMcf/d to the U.S. marketplace.

Canyon Express, which ramped up in September 2002, “will give us stable production for the next several quarters,” said Sheffield. The joint subsea natural gas development, is currently the deepest gas play in the world in terms of water depth, and in the first six months of 2003 provided Pioneer with $100 million in cash flow.

Meanwhile, Falcon, which ramped up its first wells in March, provided $75 million in cash flow in the second quarter. There’s more to come from this discovery, however, and Falcon, which has several satellite fields still in preliminary stages, now is being expanded to handle 400 MMcf/d “in the next few months,” he said.

The offshore GOM plays, along with its diversified portfolio around the world, will give Pioneer a “huge amount of cash flow this year, next year and in 2005,” Sheffield said. “We will continue to generate a lot of cash flow, and plan to use the excess cash flow to be able to grow the company like we have in 2003 and 2004.”

However, Sheffield noted there are only two areas left to explore for oil and gas in the United States — Alaska and the deepwater — and even though Pioneer plans to expand its assets in those territories, many of its future opportunities will be found overseas.

Pioneer, with 83% of its operations now based on and offshore North America, is expanding its holdings overseas because of declining fields and fewer discoveries here, said Sheffield. However, if the right opportunity came along in North America to complement its base, he said the company was interested.

“There are certain assets we would like to get ahold of…that the majors hold, but so far, the majors may turn loose of an asset in the U.S. market but chances so far are fairly slim,” he said. Sheffield added that “a lot of people have to fight to continue to grow in North America.”

In its core U.S. onshore plays in Hugoton, West Panhandle, Spraberry and Pawnee, Sheffield said Pioneer had $265 million in operating cash flow in the first six months of this year. Holding 100% ownership in the fields, Pioneer drilled 155 wells in its U.S. locations in the first half of the year, with 135 more planned through the rest of 2003.

Globally, said Sheffield, Pioneer is building a well-balanced portfolio, with its North American assets spread through Alaska, Canada, in the Lower 48 and offshore. Elsewhere, Pioneer is based in South America’s Neuquen and Austral basins, and in Tunisia, Gabon and South Africa.

“We are now hitting our stride in production,” he said, with a 45% gain from the second quarter of 2002, when Pioneer produced 110 Mboe/d, to the second quarter of 2003, when it jumped to 159 Mboe/d.

Still, several projects have yet to show up in the production results, said Sheffield, including its Sable field offshore South Africa, which only came on line in the past two weeks. Also still to begin production are GOM deepwater fields Harrier and Devil’s Tower, both scheduled to ramp up in the first quarter of 2004.

©Copyright 2003 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.