PXD Update - March 29

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

PXD Update - March 29

Post by dan_s »

PXD Stock Thoughts from TPH

Equity gaining momentum as management continues to focus on improving capital efficiency
Sector: NAm E&P | Ticker: PXD | Recommendation: BUY | Target: $208 | Close: $152.91
Equity remains a topical name in the upstream space as recent management transition has brought renewed interest in the strategic vision for go forward development, capital allocation and return of capital. Simply put, we believe the company is doubling down on initiatives to improve capital efficiency metrics to more closely align with peers such as CXO and FANG.
This in our view could come from multiple initiatives. On the G&A side, our recent work suggests that PXD has a relatively elevated cost structure vs peers and if metrics moved towards a blend of CXO, EOG and FANG our current $380MM 2019 G&A estimate could come down by $50-100MM. Secondly, an exit of the Targa midstream JV would not only raise TPHe $1B in cash, which could be redeployed to buybacks, but would also remove ~$150-175MM of annual spend. Third, field level facility costs appear elevated at ~15% of D&C vs. best in class comps of 8-10%. Shifting towards large pad development (only 10% of wells on pads of 4 or more in 2018) would likely allow the company to reuse facilities and lower facility cost, which on TPHe ~280 TILs in 2019 would be meaningful for go forward metrics.
Finally, an exit of the Eagle Ford should materially lower the MVC burden (TPHe $150-200MM/yr). Rolling in these cost savings (ex-EF sale) would reduce PXD's 2020 EV/EBITDA multiple by -0.3x to 6.4x in 2020 at $62 Brent and increase FCF from <$100MM to $450MM (2% FCF yield).
Dan Steffens
Energy Prospectus Group
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