Pioneer Natural Resources Company (PXD) reported its fourth quarter 2010 adjusted earnings of 51 cents per share, beating the Zacks Consensus Estimate of 43 cents and the year-earlier income of 18 cents. Better-than-expected results were mainly attributable to production growth in Spraberry field and Eagle Ford Shale.
Revenues in the quarter shot up 57% to $486.7 million from $310.1 million in the year-ago quarter, but remained well below the Zacks Consensus Estimate of $533 million.
Operational Performance
Total production in the reported quarter averaged approximately 111 thousand barrels of oil equivalent per day (MBOE/d), up 11% year over year. Oil production averaged 30.9 thousand barrels per day (MBbl/d), up nearly 23% year over year.
Natural gas production increased more than 7% year over year to 361.3 million cubic feet per day (MMcf/d). Natural gas liquids production increased 7.5% year over year to 20 MBbl/d.
On an oil equivalent basis, average realized price was $46.14 per barrel versus $45.41 per barrel in the year-ago quarter. The average realized price for oil was $94.38, compared with $91.71 in the fourth quarter of 2009.
Average natural gas price was $3.79 per Mcf, down from the year-earlier level of $4.53 per Mcf. Natural gas liquids had an average price of $42.03 per barrel, up from $37.54 per barrel recorded in the year-ago quarter.
Financials
At the end of the quarter, cash balance was $111.2 million. Long-term debt balance was $2.60 billion, representing a debt-to-capitalization ratio of 38.1% (versus 37.9% in the preceding quarter).
Company Guidance
The company expects its first quarter 2011 production to range from 114−118 MBOE/d, primarily based on improved fourth quarter production results in the Spraberry field as well as in its key shale play, the Eagle Ford Shale.
Production costs are expected to average between $11.75 and $13.75 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.
First quarter exploration expense guidance is $25–$35 million and the tax rate is expected in the 35–45% range.
For 2011, Pioneer pointed out that its accelerated drilling program will be funded from operating cash flow and proceeds from the pending $866 million sale of its Tunisian subsidiaries. The company has targeted operating cash flow of $1.4 billion for the current year.
Our Take
Eagle Ford Shale is a lucrative prospect for exploration and production players owing to its low break-even cost, high liquids content and large lease sizes relative to other shale plays. We believe the joint venture with Reliance will augment Pioneer’s position, making it the technology leader in the Eagle Ford Shale.
Further, the divestment of non-core assets complemented by the company’s activity ramp-up in the Spraberry oil field and the Eagle Ford Shale would aid Pioneer to spur production by 18% per year until 2013. This would inevitably lead to enhanced earnings and growth outlook. The company also intends to increase its rig count to 35 from 30 in Spraberry by mid 2011 and to 40 or more rigs by 2012.
However, Pioneer’s premium valuation compared with its peer such as Apache Corp. (APA), as well as its poor historical performances keeps us on the sidelines for the time being.
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 company.
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