Pioneer Natural Resources (NYSE: PXD) joined several of its peers in postingsomewhatdisappointing second-quarter results. In Pioneer's case, production in the Permian came in at the midpoint of its guidance range after adjustments, which is somewhat surprising for a company that has a history of producing at or above the high end of its forecast. In addition to that, the company also missed analysts' expectations for adjusted earnings. However, while the second quarter might not have been as good as hoped, it was still a solid showing and keeps the company on pace to achieve its ambitious 10-year plan.
Drilling down into the numbers
|Metric||Q2 2018||Guidance or Expectations||Difference|
|Permian production||272,000 BOE/D||268,000-276,000 BOE/D||0%|
|Earnings per share||$1.41||$1.49||(5.4%)|
Data source: Pioneer Natural Resources. BOE/D=Barrels of oil equivalent per day.
Overall, Pioneer Natural Resources produced an average of 328,000 BOE/D during the quarter, which was well ahead of its guidance range. However, about 8,000 BOE/D was attributable to the first quarter due to severe weather downtime and other issues in that period. After making that adjustment, output attributable to the second quarter was 320,000 BOE/D, which was still toward the high-end of its guidance range. Meanwhile, production in the Permian Basin was in the middle of its forecast after adjustments.
"The company delivered another great quarter" according to CEO Tim Dove "with healthy earnings, solid execution, strong production growth and excellent horizontal well performance in the Permian Basin." While earnings might have come in a little lower than analysts anticipated, all of Pioneer's costs were within its guidance range. Most noteworthy was production costs, which came in toward the low end of its forecast.
A look at what's ahead
Pioneer noted that its solid production results in the second quarter have it on pace to grow output in the Permian toward the upper end of its 19% to 24% guidance range. That keeps it firmly on track to increase production at a more than 20% compound annual growth rate through 2026, which would enable it to produce an average of 1 million BOE/D that year.
However, Pioneer did note that it plans to adjust its 2018 capital program. The company now expects to spend between $3.3 billion to $3.4 billion, which is an increase from its initial $2.9 billion budget. The main driver of this increase is the four rigs it's adding to support its 2019 plan.
That increase in the rig count is worth noting since several peers have announced that they're reducing their activity levels as a result of the current pipeline constraints in the region. Both ConocoPhillips (NYSE: COP) and Halcon Resources (NYSE: HK) said that they were cutting one rig from their fleet this year due to the infrastructure issues. ConocoPhillips is reallocating this work to the Eagle Ford so that it won't see much impact on production. Halcon, on the other hand, has nowhere else to go, which is why its output will grow at a slower pace until the pipeline issues go away later next year. Noble Energy (NYSE: NBL) has also decided to "reallocate some near-term investment to our other U.S. onshore basins" in light of the constraints in the Permian. In the meantime, the company plans to complete fewer wells in the Permian this year, which will cause production to come in at the lower end of its guidance range.
Pioneer isn't facing these issues because it proactively locked up pipeline space for more than 90% of its Permian oil. As a result, it's able to add rigs at a time when others can't and is the reason why the company still plans to complete its transition to a Permian pure-play by selling off its remaining acreage in the Eagle Ford. Once it completes that sale, the "company will report stronger cash operating margins and corporate returns due to an increase in revenue per barrel oil equivalent (BOE) and a decrease in operating costs per BOE," according to Dove.
Well-positioned to achieve its growth objectives
While Pioneer's second-quarter earnings missed analysts' overly optimistic expectations, the company still reported a solid quarter overall. Because of that, its Permian position is on pace to produce toward the upper end of its guidance range, which is impressive considering the troubles its peers are having in the region. The company can do this because it thought ahead and got out in front of these problems, which keeps it on track to achieve its ambitious goal to grow nearly four-fold in the next eight years.
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