Pioneer Natural Resources Company (PXD) has reported second quarter 2011 adjusted earnings of 94 cents per share, outpacing the Zacks Consensus Estimate of 83 cents and showing a decent improvement from the year-earlier adjusted income of 43 cents. Better-than-expected results were mainly attributable to production growth in Spraberry field, Eagle Ford Shale and the Barnett Shale Combo.
Revenues in the quarter registered an almost 35% growth to $602.1 million from $446.6 million in the year-ago quarter.
Production
Total production in the reported quarter averaged approximately 118.6 thousand barrels of oil equivalent per day (MBOE/d), up almost 10% year over year, attributable to the company’s three core growth assets, i.e. Spraberry field, Eagle Ford Shale and the Barnett Shale Combo. However, a shortage of third-party oil transport trucks in the Spraberry field reduced the quarter’s production by 2 MBOE/d.
Oil production averaged 36.5 thousand barrels per day (MBbl/d), up 30% year over year. Natural gas liquids production surged 13.2% year over year to 21.8 MBbl/d. However, natural gas production dropped marginally to 361.5 million cubic feet per day (MMcf/d) from the year-ago quarter level of 362.7 MMcf/d.
Price Realization
On an oil equivalent basis, average realized price was $54.11 per barrel versus $43.01 in the year-ago quarter. The average realized price for oil was $104.35 per barrel, compared with $89.21 in second quarter 2010.
Average natural gas price climbed 6.4% to $4.31 per Mcf from the year-earlier level. Natural gas liquids were sold at $48.16 per barrel, up 40% from $34.40 per barrel in the year-ago quarter.
Cash, Debt & Capex
At the end of the second quarter, cash balance was $352.4 million. Long-term debt balance was $2.6 billion, representing a debt-to-capitalization ratio of 34.8% (versus 36.0% in the preceding quarter).
Pioneer raised its 2011 capital expenditure budget to $2.1 billion (versus its prior plan of $1.8 billion), of which $1.8 billion is apportioned for drilling activities and $0.3 billion for vertical integration and facilities. The drilling operations will focus on the liquid-rich Spraberry and Eagle Ford Shale plays.
Company Guidance
The company expects its production to grow approximately 10 MBOE/d per quarter for the second half of 2011, as its three core assets continue to deliver quarterly production growth and incremental oil transportation capacity is added in the Spraberry field.
Pioneer reaffirmed its production outlook for full-year 2011 between 125 MBOE/d and 130 MBOE/d. However, the company highlighted that production is likely to be at the lower end of the range due to the severe weather and unplanned third-party impacts that it experienced during the first half of the year.
Again, Pioneer boosted its rig count for the Spraberry field to 45 from 35 by year-end 2011. The company also raised its 2012 production growth target from 18% to 20% and extended its compound annual production growth target of 18% through 2014. This was mainly based on the accelerated drilling operations, along with production additions from the Spraberry field, the Eagle Ford Shale and Barnett Shale Combo plays.
For the next quarter, production costs are expected to range between $12.00 and $14.00 per BOE (based on current NYMEX price), and depletion, depreciation and amortization expense is expected to average around $13.50 to $15.00 per BOE.
The third quarter exploration expense guidance is $25–$35 million and the tax rate is expected in the 35–45% range.
Our Take
Pioneer’s oil-weighted reserves base and large drilling inventory (over 20,000 liquids-rich drilling locations in low-risk resource plays) with significant resource potential are likely to unlock value for shareholders.
With a ramp up in activity at Spraberry oil field and Eagle Ford Shale, Pioneer has set a goal to increase production at a compounded annual growth rate of more than 18% through 2014, which would in turn improve its earnings and growth outlook. Consequently, the company focuses on oil and liquids rich drilling, as evidenced by its programs. Notably, 75% of the capital is allocated to the Spraberry oil field and Eagle Ford Shale.
However, taking into consideration Pioneer’s sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project timing delays, we see limited upside potential for its shares. Increasing cost pressure in the highly competitive shale plays is also a cause for concern. As such, we expect Pioneer to perform in line with the broader market.
The company holds a Zacks #3 Rank, which is equivalent to a short-term ’Hold’ rating. We maintain our long-term “Neutral” recommendation on the stock.
Pioneer Natural Resources competes with Apache Corp. (APA) and Chesapeake Energy Corporation (CHK).
APACHE CORP (APA): Free Stock Analysis Report
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
PIONEER NAT RES (PXD): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment