Pioneer Natural Resources Company
) reported third quarter 2012 adjusted earnings of 82 cents per
share, missing the Zacks Consensus Estimate of 99 cents. The
quarterly earnings also plunged from the year-earlier adjusted
income of $1.35 per share. The underperformance was mainly due to
lower price realization.
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PIONEER NAT RES (PXD): Free Stock Analysis
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Revenues and other income in the quarter dipped more than 38%
year over year to $603.4 million, and missed the Zacks Consensus
Estimate of $771.0 million.
Total production in the reported quarter averaged approximately
153.0 thousand barrels of oil equivalent per day (MBOE/d), up
27.9% year over year, attributable to the company's core growth
assets, i.e. Spraberry field and Eagle Ford Shale. Again, its
encouraging drilling results from the horizontal Wolfcamp Shale
play is also expected to contribute considerably to its
production growth in the future.
Oil production averaged 63.1 thousand barrels per day (MBbl/d),
showing a significant improvement of more than 52% year over
year. Natural gas liquids (NGLs) production surged 39.6% year
over year to 30.4 MBbl/d. Natural gas production increased to
357.2 million cubic feet per day (MMcf/d) from the year-ago level
of approximately 338.3 MMcf/d.
On an oil equivalent basis, the average realized price was $49.40
per barrel in the reported quarter versus $52.18 in the year-ago
quarter. The average realized price for oil was $89.87 per
barrel, compared with $92.11 in third quarter 2011.
Average natural gas price dropped 35.3% to $2.62 per Mcf from the
year-earlier level. Natural gas liquids were sold at $31.28 per
barrel, down from $48.33 in the year-ago quarter.
Cash, Debt & Capex
At the end of the quarter, the cash balance was $333.9 million.
Long-term debt was $3.6 billion, representing a
debt-to-capitalization ratio of 38.0% (versus 36.3% in the
Pioneer plans to spend $3.0 billion this year that includes
drilling capex of $2.5 billion (prior expectation was $2.4
billion) and capital for vertical integration of $0.5 billion.
However, the budget excludes acquisitions, asset retirement
obligations, capitalized interest and geological and geophysical
The increment in its drilling capex mainly reflects ramp-up of
its appraisal activity in the horizontal Wolfcamp Shale. Pioneer
continues to concentrate on liquids-rich drilling, with
approximately 75% apportioned for Spraberry vertical and
horizontal Wolfcamp Shale drilling and 10% for Eagle Ford Shale
Pioneer expects its production to average between 154 MBOE/d and
158 MBOE/d for the fourth quarter of 2012.
Production costs are expected to range between $14.50 and $16.50
per BOE, and depletion, depreciation and amortization expense is
expected to average around $13.50 to $15.50 per BOE. The fourth
quarter exploration expense guidance is $25-$35 million and the
tax rate is expected in the 35-40% range.
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 aims to boost its
production, which would in turn improve its earnings and growth
In particular, Pioneer's stepped-up activities in the horizontal
Wolfcamp Shale play - where
EOG Resources Inc.
) is also a leaseholder - provides a multi-year inventory of
development drilling opportunities.
Again, Pioneer remains well on track to divest all its properties
in the Barnett shale region of Texas in order to focus on other
core assets in the U.S. as well as reduce debt. The company hopes
to complete the sale in the first quarter of 2013. The
Dallas-based oil and gas company aims to redirect the proceeds to
more high-return, core properties in the Spraberry vertical play,
the horizontal Wolfcamp Shale play and the Eagle Ford Shale.
However, we remain skeptical about the company's
lower-than-expected earnings for two quarters in a row. Earnings
got a beating from lower price realization and higher expenses.
As such, we expect Pioneer to perform in line with the broader
market. We maintain our long-term Neutral recommendation on the
The company holds a Zacks #3 Rank, which is equivalent to a
short-term Hold rating.