Pioneer Natural Resources Company (PXD), a Texas-based independent oil and gas exploration and production company, continues its successful Eagle Ford Shale (“EFS”) drilling program.
The company yesterday announced its third successful well (the Charles Riedesel GU 1-1 well) in this play. Initial production rate from this well was 15.7 million cubic feet of gas equivalent per day (MMcfe/d). This consists of approximately 11.6 million cubic feet of gas per day (MMcf/d) and 680 barrels of condensate per day.
The new find is a really giant well and Pioneer’s most liquids-rich EFS well till date. The liquids content may be one of the keys to the competitiveness of the Eagle Ford play, compared to the other shale plays. We favor the stock, given its significant drilling potential at EFS and low-risk exploitation-driven growth.
We believe that EFS has enough potential to supplement shareholders’ value, with a gross resource potential of more than 11 trillion cubic feet equivalent (Tcfe). Based on an expected accelerating development of this oil-rich resource and spending discipline, we believe Pioneer will be able to deliver a double-digit growth in the coming years.
The company is heading towards the development of its huge unproven resource base. In addition to the EFS program, continued success of the Spraberry oil field, will definitely improve the company’s long-term earnings and cash flow visibility.
Though the company is currently experiencing an oil-rich production, on an overall basis, approximately 50% of Pioneer’s production is natural gas. This is our current concern for the stock, which could put some pressure on cash flow despite the significant hedge profile. Consequently, we are unchanged with our Neutral rating.
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