Pioneer Natural Resources Provides Production and Financial Update for the Second Quarter of 2012
Pioneer Natural Resources Company (NYSE: PXD) today provided updates on the Company's expected production and commodity price realizations for the second quarter of 2012 and the Company's commodity derivative positions for 2014 and 2015.
Second Quarter 2012 Production Update
Pioneer's production from continuing operations averaged 150,506 barrels oil equivalent per day (BOEPD) in the second quarter of 2012. The Company's production guidance for the quarter was 149 thousand barrels oil equivalent per day (MBOEPD) to 154 MBOEPD. Production from the Spraberry field in West Texas was negatively impacted by approximately 4,800 BOEPD due to unplanned third-party natural gas liquids (NGL) fractionation downtime and tight industry NGL fractionation capacity at Mont Belvieu, Texas as described below. Had these third-party processing issues not occurred during the second quarter and all of Pioneer's NGL volumes could have been fractionated and sold, Pioneer's production would have been above the top of the guidance range at approximately 155 MBOEPD.
The Spraberry field produces oil and associated liquids-rich gas. The gas includes NGLs, which are separated at the Midkiff/Benedum and Sale Ranch gas processing facilities in West Texas. These NGLs are then transported to third-party fractionation facilities at Mont Belvieu. During May, a significant third-party facility was shut down for planned maintenance. When it came back on line in late May, it had operating problems and was not able to achieve its pre-shutdown fractionation capacity. As a result of this problem and tight fractionation capacity across the Mont Belvieu complex, Pioneer built an NGL inventory of 256 thousand barrels that could not be processed for sale in June, thereby negatively impacting production for the second quarter by approximately 2,800 BOEPD. Within the next month, the fractionation facility is expected to increase processing rates to its pre-shutdown processing capacity, thereby allowing Pioneer's NGL inventory and ongoing production to be fractionated and sold over the remainder of 2012. Based on the Company's second quarter NGL price realization per barrel, the NGL inventory has a sales value of approximately $8 million.
The Midkiff/Benedum gas processing plants were also forced to reject ethane into the residue gas stream during the second quarter as a result of tight NGL capacity at Mont Belvieu. The net impact of this shift was a loss in production of approximately 2,000 BOEPD. Ethane rejection continues and is expected to impact Pioneer's production over the remainder of 2012 based on the outlook for continuing tight fractionation capacity at Mont Belvieu. Due to low ethane prices, there is not a significant economic impact to rejecting ethane versus producing it. Pioneer estimates that its revenues are lower as a result of rejecting ethane by approximately $18 thousand per day at current gas and NGL prices. Despite the unanticipated NGL inventory build in the second quarter and the reduced production resulting from ethane rejection, Pioneer continues to expect to deliver full-year 2012 production ranging from 148 MBOEPD to 153 MBOEPD, an increase of 23% to 27% compared to full-year 2011.
Second Quarter 2012 Commodity Prices
In the second quarter of 2012, Pioneer's oil sales averaged 61 thousand barrels per day (MBPD), NGL sales averaged 27 MBPD and gas sales averaged 373 million cubic feet per day. For the second quarter, Pioneer expects to report an approximate before-tax net gain of $276 million on mark-to-market derivative contracts, of which approximately $119 million is a before-tax noncash net gain and $157 million is a before-tax cash net gain. The Company's derivative mark-to-market results are outlined on the attached schedule.
In the second quarter, the NYMEX West Texas Intermediate (WTI) oil price averaged $93.49 per barrel. Pioneer's second quarter oil average realized price per barrel before derivative transactions was $86.87 per barrel. Including the impact of VPPs and all derivatives, the second quarter average oil price was $87.94 per barrel. The NGL average realized price per barrel before derivative transactions was $32.62, or approximately 35% of WTI. Including the impact of all derivatives, the average NGL price was $34.48 per barrel.
In the second quarter, the NYMEX gas price averaged $2.21 per thousand cubic feet (MCF). Pioneer's second quarter average realized gas price before derivative transactions was $2.00 per MCF. Including the impact of all derivatives, the average gas price was $4.43 per MCF.
Commodity Derivative Positions For 2014 and 2015
Pioneer has a strong financial position and is committed to maintaining this position. In June and July 2012, Pioneer liquidated swap, collar and three-way collar derivatives for 250,000 million British thermal units per day (MMBTUPD) of 2014 gas production and 80,000 MMBTUPD of 2015 gas production. These liquidated volumes represent 100% and 43% of Pioneer's gas derivative positions in 2014 and 2015, respectively. The Company also liquidated 140,000 MMBTUPD of gas basis swaps for 2014. As a result of these liquidations, the Company realized approximately $143 million of net cash proceeds, of which $72 million was realized during June.
The gas derivatives were unwound when gas prices were at low levels to partially offset the reduction in cash flow the Company is now expecting for 2012 resulting from lower price realizations on oil and NGL sales. Despite the monetization of the gas derivatives for 2014 and a portion for 2015, Pioneer continues to have one of the best commodity derivatives positions in the industry. Derivative swap, collar and three-way collar contracts cover approximately 90% of the Company's oil production over the remainder of 2012, 85% in 2013 and 40% in 2014. For gas, swap, collar and three-way collar derivative contracts are in place to cover 90% of Pioneer's production over the remainder of 2012, 65% in 2013 and 20% in 2015.
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