Pioneer Natural To Sell Portion Of Its Reserves
Pioneer Natural Resources Co. agreed to sell a portion of its future oil and natural-gas production to subsidiaries of Wachovia Corp. for $593 million, cashing in at today's high commodity prices.</br></br>The Irving, Texas, energy company said it would sell about 20.5 million barrels of oil equivalent -- about half oil and half gas -- that it has discovered and slated for production over the next five to seven years. This is about 2% of the company's total reserves. Instead of selling the future production at market prices, the company sold an overriding royalty interest to Wachovia for a present value of $28.97 a barrel. Pioneer will book the sale as deferred revenue.</br></br>Chairman and Chief Executive Scott D. Sheffield said the stock market placed a lower value on these future reserves than it was able to obtain through the deal. Pioneer was able to "capture the arbitrage opportunity presented by the equity market's failure to appropriately value companies with longer-lived reserves," he says. Analysts, however, noted the move was tantamount to a bank loan, which uses future production as collateral.</br></br>Pioneer's stock price rose on the news, up 6.2%, or $2.24, to $38.52 in 4 p.m. New York Stock Exchange composite trading.</br></br>The announcement also overshadowed another announcement yesterday that the company is facing rising costs for finding and producing oil and gas through its drilling program. The so-called drill-bit finding and developing costs rose to more than $22 a barrel of oil equivalent. Facing these higher costs to drill oil and gas, the company said it will increase its spending on buying back its shares. The board approved spending $300 million in 2005 on share repurchases, up from $92 million last year.