Pioneer Natural Resources Company (PXD) has reported fourth quarter 2011 adjusted earnings of $1.19 per share, outpacing the Zacks Consensus Estimate of $1.01. Better-than-expected results were mainly attributable to production growth in liquids-rich growth assets in Texas, Spraberry field, Eagle Ford Shale and the Barnett Shale Combo. However, the quarterly earnings showed a marked deterioration from the year-earlier adjusted income of $1.38.
Revenues in the quarter shot up more than 50% to $703.1 million from $467.5 million in the year-ago quarter, and exceeded the Zacks Consensus Estimate of $686 million.
Production
Total production in the reported quarter averaged approximately 136.7 thousand barrels of oil equivalent per day (MBOE/d), up more than 28.8% year over year, attributable to the company’s three core growth assets, i.e. Spraberry field, Eagle Ford Shale and the Barnett Shale Combo.
Oil production averaged 50.2 thousand barrels per day (MBbl/d), showing a significant improvement of almost 64% year over year. Natural gas liquids production surged 30.9% year over year to 26.2 MBbl/d. Natural gas production increased to 361.8 million cubic feet per day (MMcf/d) from the year-ago quarter level of approximately 333.2 MMcf/d.
Price Realization
On an oil equivalent basis, the average realized price was $52.86 per barrel in the reported quarter versus $46.48 in the year-ago quarter. The average realized price for oil was $95.75 per barrel, compared with $94.48 in fourth quarter 2010.
Average natural gas price dropped 6.4% to $3.37 per Mcf from the year-earlier level. Natural gas liquids were sold at $45.70 per barrel, up 8.7% from $42.03 per barrel in the year-ago quarter.
Cash, Debt & Capex
At end of 2011, cash balance was $537.5 million. Long-term debt was $2.5 billion, representing a debt-to-capitalization ratio of 30.9% (versus 33.2% in the preceding quarter).
Pioneer has provided its 2012 capital expenditure budget of $2.5 billion and plans to fund it from the projected operating cash flow of $2.2 billion and proceeds of approximately $300 million from Pioneer’s recent equity offering. The company aims to concentrate on the drilling operations in its Spraberry field, the horizontal Wolfcamp Shale, the Eagle Ford Shale and the Barnett Shale Combo.
Guidance
Pioneer expects its production to average between 141 MBOE/d and 146 MBOE/d for the first quarter of 2012, as its three core assets continue to deliver quarterly production growth, and oil transportation capacity is added to the Spraberry field.
Production costs are expected to range between $13.00 and $15.00 per BOE (based on the current NYMEX price), and depletion, depreciation and amortization expense is expected to average around $13.00 to $15.00 per BOE. The first quarter exploration expense guidance is $35-$60 million and the tax rate is expected in the 35-40% range.
On the basis of the drilling plans for the Spraberry field, the Eagle Ford Shale and the Barnett Shale Combo play, the company expects to deliver production growth of 23% to 27% in 2012.
The company also expects to maintain its compound annual production growth target at more than 20% through 2014 with liquids increasing from 56% of total production in 2011 to 65% in 2014. This strong, liquids-focused production growth is forecast to generate a compound annual operating cash flow growth of 25% over 2012-2014.
Our Take
Pioneer’s oil-weighted reserves base and large drilling inventory with significant resource potential are likely to unlock value for shareholders. With a ramp-up in activity at its three core liquids-rich growth assets in Texas, Pioneer has set a goal to increase production at a compounded annual growth rate of more than 20% through 2014, which would in turn improve its earnings and growth outlook.
In particular, the company focuses on oil- and liquids-rich drilling, as evidenced by its programs. Pioneer’s 2011 drillbit reserve replacement stood at 313% at a drillbit finding and development cost of $13.83 per BOE. The company holds a Zacks #2 Rank, which is equivalent to a short-term Buy rating.
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. We maintain our long-term Neutral recommendation on the stock.
Pioneer Natural Resources competes with Apache Corp. (APA) and Chesapeake Energy Corporation (CHK), which are scheduled to release their year-end 2011 financial results on February 16 and February 22, respectively.
APACHE CORP (APA): Free Stock Analysis Report
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
PIONEER NAT RES (PXD): Free Stock Analysis Report
