Moody's raises Pioneer to high grade

Moody's Investors Service upgraded Pioneer Natural Resources Co.'s senior unsecured debt to Baa3 from Ba1. The outlook is stable.

Moody's said the rating upgrade is based on Pioneer's demonstrated success in growing its reserves and production at reasonably competitive costs, its fairly diverse mix of development opportunities that can support production growth for at least the next two years, and the company's improved financial flexibility resulting from debt repayment with free cash flow and common equity issuance to finance acquisitions.

Pioneer has more than replaced its reserves over the past three years through increased exploration drilling activity and through positive performance-related revisions, supplemented by acquisitions to enhance its reserve base in key areas or to diversify geographically, Moody's noted. The company's proven reserves have increased from 671 million boe to 789 million boe, and its PD reserves have grown from 471 million boe to 513 million boe over the 2001-2003 period. Although proved undeveloped reserves (PUDs) as a portion of total proven reserves have increased from 30% to 35%, Moody's notes that a large portion of Pioneer's current PUDs represent low-risk infill drilling opportunities.

Management is targeting a debt-to-capitalization ratio in the 37-43% range, as compared to 47% at year-end 2003, Moody's said. Pioneer has demonstrated a willingness to finance acquisitions with common equity.

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