Pioneer Natural Held in Balance - Analyst Blog

We issued an updated research report on Pioneer Natural Resources Company PXD on May 26, 2014. Pioneer Natural Resources' oil-weighted reserves base and a large drilling inventory (over 20,000 liquids-rich drilling locations in low-risk resource plays) with significant resource potential are catalysts to unlock value for shareholders. The company offers a deep inventory of high-return, liquids-leveraged drilling opportunities.

This Zacks Rank #2 (Hold) stock has delivered positive earnings surprises in all the last 4 quarters with an average beat of 3.3%. The company's first-quarter earnings of $1.28 per share beat the Zacks Consensus Estimate of $1.05. Also, the results increased from the year-earlier adjusted income of $1.02 per share.

Pioneer – an independent oil and gas exploration and production company – has enjoyed continued successes in the Wolfcamp operations and a new joint venture in its southern Wolfcamp acreage. These are likely to act as catalysts for growth.
 
The company's oil-weighted reserves base, large drilling inventory (over 20,000 liquids-rich drilling locations in low-risk resource plays) as well as significant resource potential are catalysts to unlock value for shareholders. The company offers a deep inventory of high-return, liquids-leveraged drilling opportunities.

Pioneer, the third largest driller in the country, focuses on oil- and liquids-rich drilling, as evidenced by the speeding up of activities in the horizontal Wolfcamp Shale play, where it holds the key position.

Pioneer expects production to average 173–178 MBOE/d for the second quarter of 2014. Production costs are expected between $13.50 and $15.50 per BOE, and depletion, depreciation and amortization expense is expected to average $13.50 to $15.50 per BOE. The projected range is $70–$75 million for general and administrative expense, $44–$49 million for interest expense and $25–$35 million for other expenses. Exploration and abandonment expense guidance is $25–$35 million while the expected tax rate is 35–40%. We see the guidance as a positive, given encouraging results from its horizontal Wolfcamp program.

However, the company's long-term production and reserve growth depends on its acquire-and-exploit model, to a certain extent. Pioneer may therefore find it difficult to complete accretive transactions in the future, which could hurt its growth rate.
 
Key Picks in the Sector

Currently, we prefer to remain at the periphery regarding Pioneer. However, some top-ranked stocks in the oil and gas sector such as Talisman Energy Inc. TLM, CVR Refining, LP CVRR and Boardwalk Pipeline Partners, LP BWP, all sporting a Zacks Rank #1 (Strong Buy), are worth reckoning.