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Pioneer Natural Resource Q3 2010 Earnings Call Transcript

Pioneer Natural Resource Q3 2010 Earnings Call Transcript

Pioneer Natural Resource (PXD)

Q3 2010 Earnings Call

October 27, 2010 10:00 am ET


Scott Sheffield - Chairman and Chief Executive Officer

Richard Dealy - Chief Financial Officer and Executive Vice President

Timothy Dove - President and Chief Operating Officer

Frank Hopkins - Vice President of Investor Relations


Daniel Morrison - Global Hunter Securities, LLC

Michael Hall

Brian Singer - Goldman Sachs Group Inc.

Brian Corales - Howard Weil Incorporated

Ellen Hannan - Weeden & Co. Research

Brian Lively - Tudor, Pickering & Co. Securities, Inc.

Curtis Trimble - MKM Partners LLC

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Gil Yang - BofA Merrill Lynch

David Kistler - Simmons & Company

Michael Jacobs - Private Investor

Joseph Allman - JP Morgan Chase & Co

David Heikkinen - Tudor, Pickering & Co. Securities, Inc.

Leo Mariani - RBC Capital Markets Corporation

John Nelson - State of Wisconsin Investment Board

Kenneth Carroll - Johnson Rice & Company, L.L.C.

Mitchell Wurschmidt - KeyBanc Capital Markets Inc.

Rehan Rashid - FBR Capital Markets & Co.



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Good day, ladies and gentlemen, and welcome to Pioneer Natural Resources Third Quarter Conference Call. Joining us today will be Scott Sheffield, Chairman and Chief Executive Officer; Tim Dove, President and Chief Operating Officer; Rich Dealy, Executive Vice President and Chief Financial Officer; and Frank Hopkins, Vice President of Investor Relations.

Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at (sic) []. At the website, select Investors, then select Investor Presentation.

The company's comments today will include forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements and business prospects of Pioneer are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties are described in Pioneer's news release on Page 2 of the Slide presentation and in Pioneer's public filings made with the Securities and Exchange Commission.

At this time, for opening remarks and introductions, I would like to turn the call over to Pioneer's Vice President of Investor Relations, Frank Hopkins. Please go ahead, sir

Frank Hopkins

Good day, everyone, and thank you for joining us. Let me briefly review the agenda for today's call. Scott's going to be up first. He'll review the financial and operating highlights for the third quarter of 2010, another solid quarter for PXD. I'll then comment on the company's plans for the remainder of this year and talk a little bit about the future and where we go from here. After that, Scott's going to turn the call over to Tim, he'll update you on our drilling results and plans for the Spraberry, the Eagle Ford Shale and the Barnett Combo Play. Rich will then cover the third quarter financials in more detail and give you our guidance for the fourth quarter. After that, we'll open up the call for your questions. So with that, I'll turn the call over to Scott.

Scott Sheffield

Thanks, Frank. Good morning. We appreciate everyone taking the time to listen to the call. On Slide #3 on the Highlights. As Frank said, we had another very strong quarter. We had adjusted income of $42 million or $0.35 per share. We were essentially met or under all of our guidance items, we put out three months ago. This does exclude net gain from a couple of unusual items of $7 million or $0.06 a share. But also excludes mark-to-market derivative gains of $63 million or $0.53 per share. We hit above our midpoint of guidance in regard to production of 114,600 barrels a day equivalent. We're up 1% from the second quarter. That's primarily driven by the production growth in the Spraberry with enough rigs now. We're starting to see Spraberry begin to shine like we saw in 2008. This is a quarter we'll talk a lot obviously about the Spraberry, the Strawberry and the Wolfberry.

In regard to our ramp up in the Spraberry, it's on schedule. Production growth is exceeding forecast, primarily driven by the Wolfcamp. And we'll start to see the strong starting to show up as we see over the next several quarters. We're running 25 rigs. We'll be at 30 rigs by year-end and expect to run 30 rigs during 2011.

The Eagle Ford Shale, I sort of look at it, it will have its heyday like the Spraberry this quarter to the next quarter with strong production rates going into the fourth quarter with all of our CGPs coming on and going into 2011. We're already up to seven rigs now in Eagle Ford Shale, continue to have more rigs as we go into 2011 and 2012.

In addition, we announced that we we're working with a large midstream company, we announced that over this week, in regard to enterprise, I will talk more about that in regard to processing transporting and fractionating our products coming out of the Eagle Ford area. In addition, all the seismic that we've been working on, we're doing our 3D seismic over the last 12 to 18 months since late 2008, it's turned out very, very successful as we drill three successful operating Wells in Tunisia with one well testing near 6,000 barrels a day.

In addition we've added very old attractive all derivative positions with the recent runoff in crude prices for 2012, 2013, primarily all oil with upside to $150 to $120. The worst on reports out this morning we heard and cost that we were doing knockouts, one thing we do not do is knockouts, and secondly, we are not selling calls on crude to prop up dry gas drillings. So those two things we do not do. These are continued three-way calls that we've been doing for the last two years.

Turning to Slide #4. Again, what's important based on our forecast on fourth quarter 2010, we're going to be hitting our target of 10% plus in regard to production growth, primarily driven by obviously by Eagle Ford in Spraberry. Our drilling capital stayed fairly consistent at about $960 million. We're forecasting 15% production growth. We see no problems compete [ph] in your production growth from all '11 to '13, we really see no problems hitting that, especially with the results that we're seeing out of the Spraberry, the Wolfcamp and the Strawn, they continued great Eagle Ford results, while it continue to spend within cash flow as we've done this year going to '11, '12, '13. Liquids production will continue to increase significantly as we get into 2013.

If we look at the little box in going into the fourth quarter, off the right-hand side of Slide #4, we expect obviously Spraberry to continue to growth and overperform. Eagle Ford obviously with on several wells coming on production in fourth quarter, they'll be up a couple thousand barrels a day. In Tunisia, with the recent results would be up at least 1,000 barrels a day, but most of the impact, you'll see will be in the first quarter 2011 from our three wells and also continued drilling -- appraisal drilling in Tunisia going throughout the rest of this year.

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