Pioneer Natural Resources: Has Crude Oil Bottomed?

  PUBLISHED ON: Jan 26, 2016
The last 18 months have been miserable for majority of the companies in the energy sector. Due to the magnificent plunge in crude oil prices, many stocks have come crashing down in the reference period. With crude oil prices still hovering around $30 per barrel, many companies are struggling.

Some companies in the sector, however, have managed to perform a little better than the others. One such company is Pioneer Natural Resources (PXD). Although Pioneer Natural Resources has lost around 25% of its value over the last 12 months, the stock has still fared better than many of its competitors.
Investors looking to benefit from a recovery in oil prices should bet on companies like Pioneer Natural Resources that have remained profitable during the downturn.

In Q3FY15, Pioneer Natural Resources reported earnings per share of $0.01, $0.02 greater than the consensus estimate of $0.03. Revenue for the quarter came in at $557 million compared to analyst estimate of $784.71 million. The company was able to convey relative outperformance mainly due to its robust balance sheet and its leading position in the Permian Basin.

However, recently, like the other companies, the company’s stock has taken a beating and is off to a bad start in 2016. Since the beginning of 2016, crude oil prices have dropped roughly 15 percent. Some analyst believes that crude oil price can drop further to $25 or $20 per barrel at its crucial bottom.

If oil does fall to under $25 per barrel, Pioneer Natural Resources as it will lose money at a considerable rate. Apart from Pioneer Natural Resources, many other peers will also struggle if oil drops under $25.

Most of its peers such as Oasis Petroleum and Whiting Petroleum are also losing money at a fast rate. Both Oasis petroleum and Whiting petroleum need the oil price to surge up to $50 per barrel in 2016 in order to maintain cash flow with capex.

On the other hand, both Pioneer Natural Resources and Chesapeake Energy need an even greater oil price to maintain its cash flow with capex, as both the companies are sharply focused on escalating their overall production in spite of over supplied market.

This clearly indicates that if oil price carries on moving downward, it is only flaring a previously built wide gap, which has the potential to fade its balance sheet. Such an incidence could introduce more anxiety in the industry and could probably take the company’s stock down with it.

Conclusion

It is impossible to currently predict the direction of crude oil prices. However, investors who believe that prices have bottomed should bet on companies like Pioneer Natural Resources that have stayed profitable during the downturn. But if oil continues dropping and falls to under $25, Pioneer Natural Resources’ stock will definitely take a huge hit.

Copyrighted 2016. Content published with author's permission.

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