In the wake of Enron, "financial engineering" are dirty words. But Paul Lee not only admits to using them, he recommends them. "With Andy Fastow on the cover of the Financial Times today talking about financial engineering in court, it doesn't sound very good, but my definition is much simpler than his," Lee, the director of corporate finance for Pioneer Natural Resources, said at a Society of Petroleum Engineers program in Houston recently. "For me, financial engineering is about creating stakeholder value by utilizing long-lived legacy asset value to maximize growth." Lee and the financial team at Pioneer led the company through some creative financial engineering last year when they announced three volumetric production payments (VPPs) that raised a total of $900 million. "We were able to fast-forward our capital at a rate of about 5%," he said. "It sent a good message to the Street because after all three VPPs were announced, our stock went up. Then we announced we weren't going to do them anymore, and our stock started to fall." Lee said the VPP provides an elegant way to capture the value of near-term production on long-lived assets while retaining the value of the tail reserves. Not everyone was enthusiastic. "The rating agencies were not very comfortable with what we had done. The more they thought about it, the more they looked at our VPPs as debt. We didn't look at them as debt, but they did, so we got downgraded." As for timing divestments, he said, "the most obvious...is if the perceived value of your assets by the market exceeds the carrying value in the company-it's a good time to sell," he said. "We monetized assets because we wanted to change our corporate risk profile." Pioneer has sold its Argentine assets for $675 million and is selling a great deal of its deepwater Gulf of Mexico properties for $1.3 billion. "We got out of Argentina because we weren't sure what the government was going to do there," Lee said. "We got out of the deepwater (Gulf) because it was risky and was lowering our reserve life. The larger you get, the harder it is to replace your reserves. If you sell, you can achieve a lower base from which you can grow." Following the completion of its asset sales, Pioneer will become what Lee calls "the new Pioneer." "We're now half the size we were last year production-wise," he said. "But our reserves-to-production ratio is 25 and we now have projected double-digit growth from our reserves."