Pioneer Natural Resources: Production Growth Will be a CatalystPXD) has done badly this year since the company is down 17% on the stock market. However, the company is expected to continue to benefit from the ongoing expansion in oil production at the key shale areas of the company, somewhat offset by a slow recovery in the global commodity pricing environment.
However, the company’s fiscal year 2015 oil production is expected to be severely impacted by harsh winter conditions during the first and second quarters. Despite this, its oil production is forecasted to grow at 3 year CAGR of over 20 percent till the fiscal year 2018.
Moves to improve production
Pioneer placed 28 horizontal wells on production in the second quarter with a majority placed at Lower Spraberry and Wolfcamp B shale areas. The initial production results is achieved from 16 wells in the Wolfcamp B interval at an average tracking EURs of over 1 MMBOE and from 5 major wells in the Lower Spraberry Shale interval at an average tracking EURs of approximately 1 MMBOE.
Other outstanding wells placed on production during the second quarter were in the Wolfcamp A (3 wells), Wolfcamp D (3 wells) and Middle Spraberry Shale (1 well). 1 Lower Spraberry Shale well and 6 Wolfcamp B wells is believed to be the first 7 wells of Pioneer’s active 25-well completion optimization schedule.
Pioneer is significantly increasing its oil production from the existing wells as well as from planned newly drilled wells while optimizing its drilling operations through the implementation of innovative drilling technologies replacing the traditional drilling methods. The company is focused on optimizing the oil and gas drilling operations while utilizing the savings from this strategic process optimization in delivering outstanding shareholder returns.
Also, in a move to optimize its assets, Pioneer recently declared the sale of Eagle Ford Shale Midstream Business for $2.15 billion and estimates net cash proceeds after tax from the transaction of approximately $900 million.
A majority of the key investment analysts are extremely positive about the growth prospects of Pioneer Natural Resources given its well-diversified and cost-optimized drilling operations.
Due to the weakness in the oil market, Pioneer’s valuation is not in good shape. The stock is overvalued with trailing P/E and forward P/E ratios of 34.84 and 130.14, respectively, as compared to the industry’s average P/E of 12.01. However, Pioneer’s profit margin of 14.20% is satisfactory, though the company is heavily debt burdened with total debt of $2.67 billion as against a weaker cash position of $219 million only. But, since Pioneer is focused on improving its production profitably, it should continue getting better in the long run, making it a good investment.
Published on Sep 28, 2015By Vinay Singh