Three large and gas-heavy North American independents, Pioneer Natural Resources Co., Nexen Inc. and Pogo Producing Co., revealed encouraging second quarter production reports last week, with the best news coming from the companies’ operations in the deepwater Gulf of Mexico (GOM).
Dallas-based Pioneer Natural Resources Co. said it set a new record for quarterly gas production in North America, announcing ahead of its earnings report that it produced 48 Bcf of gas in the second quarter, a 39% sequential increase. Deepwater GOM production from its Canyon Express and Falcon gas projects matched the producer’s expectations, and will put its quarterly worldwide oil and gas production at 14.5 MMboe.
According to a Lehman Brothers analysis of preliminary second quarter production, which was released earlier this month, Pioneer led all domestic producers, building its gas production volumes up 139% from a year ago (see NGI, July 14). In the survey, Pioneer was expected to increase its second quarter sequential production by 47% from the first quarter, which would be 8% higher than Pioneer’s numbers on Thursday.
First production from Pioneer’s Harrier field, a Falcon satellite, is expected in early 2004. Well completion activities are scheduled to begin in August, and Pioneer plans to drill two additional satellite prospects, Tomahawk and Raptor, under the same rig contract. The Devils Tower project, another deepwater development, remains on schedule for start-up during the first quarter of 2004. Both projects were impacted by recent severe weather and strong currents in the Gulf of Mexico, but required no “meaningful” schedule changes, according to the company. However, Pioneer noted that “future weather-related delays, if extensive, may result in unavoidable schedule changes.”
Production from the Aconcagua field in the GOM “has met expectations and total proved reserves are unchanged,” but Pioneer said that recent well pressure data indicates that a future sidetrack “will likely be required to fully produce the proved gas reserves.” Pioneer has a 23.5% interest in the Canyon Express gas gathering system in the deepwater, which links wells in the Aconcagua, Camden Hills and Kings Peak gas fields to the Canyon Station platform located in Main Pass 261.
Hurricane Claudette’s production cutbacks were minimal, Pioneer said. Employees were evacuated from several shallow-water platforms, but, with production from these fields averaging less than 1,000 boe/d, Pioneer expected a minimal impact on total production. The deepwater Falcon gas field production was reestablished early Thursday, and the impact, while not material, will be included in third quarter production guidance expected to be issued with its quarterly earnings on July 30.
Calgary-based Nexen, meanwhile, reported that record production in GOM operations — notably its Aspen field in the deepwater — along with favorable commodity prices, boosted net income 160% in the second quarter compared with a year ago. Production-wise, Nexen has charted a course for 6-10% growth this year.
Sequentially, Nexen reported that natural gas production in the second quarter climbed 6% from the first quarter, to 316 MMcf/d, while crude was up 7%, averaging 227,700 bbl/d. Nexen said it expects to produce between 190,000 and 196,000 boe/d after royalties this year. With production in this range, cash flow will approximate C$1.7 billion (C$13.35 per share), assuming oil prices average US$27/bbl, gas prices average US$4.50/Mcf and the U.S./Canadian exchange rate averages $0.75 for the rest of the year. The average sales price realized for the quarter was C$36.71/boe, compared with C$35.18 in 2Q02.
“Our operations at Aspen in the deepwater of the Gulf of Mexico are having a dramatic impact on our financial results,” said CEO Charlie Fischer on Thursday. “Margins at Aspen are more than twice our corporate average and the cash flow from Aspen’s 27,000 boe/d is equivalent to about 58,000 boe/d from our other operations. The Gulf of Mexico is now our strongest cash contributor and will grow further with the addition of high margin volumes from our Gunnison project which will commence production in about six months time.”
Lehman Brothers analysts said Thursday that Nexen has demonstrated the “potential to provide attractive returns” outside of its international operations because of discoveries in the GOM deepwater. Nexen, noted the analysts, expects to spend C$1.3 billion this year without acquisitions, and based on this level of spending, they estimate production net of royalties will grow 6%. For longer-term growth, Nexen is “testing coalbed methane potential in Canada,” and also is targeting deep gas prospects in northeast BC, “particularly on the highly prospective Slave Point trend.”
Nexen now is soliciting bids for a package of non-core light oil properties located in the Williston Basin of southeast Saskatchewan. These properties currently produce approximately 9,100 boe/d (7,100 after royalties), and Nexen expects to close the sale by the end of the third quarter.
“Surplus cash flow, expected proceeds from dispositions and a stronger Canadian dollar are combining to significantly reduce our net debt,” said Fischer. “By improving our balance sheet this year, we are enhancing our ability to finance major growth opportunities like Nigeria and our Premium Synthetic Crude project.” Fischer noted that Nexen also is “building strong competitive positions in the deepwater Gulf of Mexico, offshore West Africa, in the Middle East and in the Athabasca oil sands. These strategic basins offer significant growth opportunities and strong investment returns.”
Nexen’s Gunnison deepwater development project in the GOM remains on budget and on schedule, with production scheduled to begin in early 2004. Production is estimated at 30 MMcf/d and 2,000 bbl/d, net to Nexen, increasing to 50 MMcf/d and 9,000 bbl/d by the end of 2004. The current development plan will fill approximately 75% of the design capacity of the facility, which will leave room for growth from exploration and the processing of third-party volumes.
Nexen also expects to begin drilling a third development well at its GOM Aspen field in the fourth quarter. With success, this will be followed by an exploration well at Crested Butte, a direct offset to Aspen. An exploratory test of the Gotcha prospect, located on Alaminos Canyon Block 856, adjacent to Shell’s announced Great White discovery, is expected to begin drilling late in the fourth quarter or early next year.
“The coming months will be exciting ones at Nexen as we drill major exploration wells in the Gulf of Mexico, Yemen and offshore West Africa, delineate our recent discoveries in Yemen, finalize plans to proceed with commercial development of Long Lake and Block 222, and commence production at Gunnison,” said Fischer.
Houston-based Pogo also reported natural gas and liquid hydrocarbons production both up for the quarter, and earnings more than doubled from a year ago. Encouraging production results in the GOM also convinced the producer to increase its ’03 capital budget 11%.
Second quarter production of liquid hydrocarbons, including oil, condensate and plant products, rose to 69,137 bbl/d, up 35% from the same quarter of 2002. Natural gas production also rose, to 301.7 MMcf/d from 285.6 MMcf/d a year earlier. Natural gas prices averaged $4.48/Mcf, up from $2.91/Mcf in Q202. Crude oil and condensate prices rose to an average of $27.44/bbl, up from $24.29/bbl a year ago.
“As a result of Pogo’s very successful drilling program during the last couple of years, we are now enjoying record production rates for both crude oil and natural gas,” said CEO Paul G. Van Wagenen. “Fortunately, this dovetails with a period of unusually favorable energy prices. Our challenge, and I believe we are up to it, is to continue the successful drilling.”
Van Wagenen said the board of directors had authorized a $35 million increase in this year’s capital and exploration budget, which will bring the budget to $355 million. “The additional dollars will be directed to the drilling of at least six new high-potential Gulf of Mexico exploration prospects,” he said. “The leases were acquired, in most cases, in the federal and Louisiana state lease sales held in 2002 and 2003.”
Pogo recorded second quarter 2003 net income of $79.7 million ($1.29 per share), on revenues of $295.6 million, compared to net income in Q202 of $28.6 million (51 cents) on revenues of $184.4 million. For the first half of 2003, Pogo’s net income was $168.2 million ($2.73 per share), on revenues of $606.3 million, compared to first half 2002 net income of $37.6 million (68 cents), on revenues of $327.3 million.
In its Gulf of Mexico operations, Pogo has planned at least six exploratory tests slated in the Main Pass, Eugene Island and Ewing Bank areas of the Outer Continental Shelf in the last six months of this year. The third quarter, said Pogo, is expected to include the spudding of natural gas tests at Eugene Island Block 250 and Main Pass Block 128, and the drilling of a crude oil prospect on Ewing Bank Block 830. Each of the exploratory wells will be solely owned by Pogo, drilled on recently acquired leases.
Pogo has enjoyed success in its domestic divisions during the quarter, with seven successful wells drilled in the onshore Gulf Coast area. In the Permian Basin, Pogo participated in 32 second quarter wells, all of which were successful and half of which were drilled on the lower interest Spraberry Aldwell field. Pogo also conducted some shallow drilling at the Madden field in the Wind River Basin in central Wyoming, a field where Pogo owns approximately 11%.
The Madden field’s Lost Cabin gas plant was shut in on June 19, and Pogo said its net production there was reduced by about 20 MMcf/d. About one-fourth of that production was restored on June 30. The operator is continuing to study and make repairs as necessary, Pogo said.
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