We maintain our long-term Neutral recommendation on
Pioneer Natural Resources Company
(
PXD
) - an independent oil and gas exploration and production
company.
The company's oil-weighted reserves base, large drilling
inventory and impressive production growth profile are somewhat
overshadowed by the lower price environment.
Pioneer's oil-weighted reserves base and large drilling inventory
− with more than 20,000 liquids-rich drilling locations in
low-risk resource plays − with significant resource potential are
catalysts to unlock value for shareholders. It offers a deep
inventory of high-return, liquids-leveraged drilling
opportunities.
The third largest driller in the country, Pioneer now remains
busy with oil- and liquids-rich drilling as evidenced by its
speeding up of activities in the horizontal Wolfcamp Shale play -
in which
EOG Resources Inc.
(
EOG
) is also a leaseholder. Pioneer holds the key position occupying
more than 400,000 potential acres.
Earlier, the company raised its estimated ultimate recovery (EUR)
for the southern portion of the play to 575 thousand barrels of
oil equivalent (MBoe), which is above its prior guidance range of
350-500 MBoe. Again, in Upton County, drilling will likely
continue to focus on the southern region where Pioneer holds
200,000 acres and expects to drill 90 wells by the end of 2013 to
hold the expiring 50,000 acres.
Moreover, the company's third quarter yield surpassed the
guidance range buoyed by its core growth assets, i.e. Spraberry
field and Eagle Ford Shale. Encouraging drilling results from the
horizontal Wolfcamp Shale play are also expected to contribute
considerably to production growth in the future.
Pioneer expects 2012 production growth in the range of 27% to 28%
based on year-to-date results. It also boosted its drilling capex
to $2.5 billion from $2.4 billion, with $0.5 billion planned for
vertical integration. We see the guidance as a positive, given
encouraging results from its horizontal Wolfcamp program.
However, we remain on the sidelines considering Pioneer's
sensitivity to gas/oil price volatility, as well as drilling
results, costs, geo-political risks and project timing delays.
Its third quarter earnings fell year over year, mainly due to
lower price realization.
Increasing cost pressure in the highly competitive shale plays is
also a cause of concern. Additionally, the Permian operations
carry high execution risk owing to transition from the Spraberry
vertical development program to the horizontal appraisal of the
Wolfcamp.
Hence, considering the above pros and cons, we expect the Pioneer
stock to perform in line with the broader market indices. The
company retains a Zacks #3 Rank, which is equivalent to a
short-term Hold rating.
EOG RES INC (EOG): Free Stock Analysis Report
PIONEER NAT RES (PXD): Free Stock Analysis
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