Pioneer Natural Resources (PXD) - Solid Q1

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Pioneer reported a first quarter net loss attributable to common stockholders of $42 million, or $0.25 per diluted share. Without the effect of noncash mark-to-market derivative gains and other unusual items, adjusted results for the first quarter were earnings of $42 million after tax, or $0.25 per diluted share.< Compares to my forecast of $0.14 EPS.

First quarter 2017 and other recent highlights included:

> producing 249 thousand barrels oil equivalent per day (MBOEPD), of which 59% was oil; quarterly production grew by 7 MBOEPD, or 3%, compared to the fourth quarter of 2016, and was above the top end of Pioneer’s first quarter production guidance range of 243 MBOEPD to 248 MBOEPD; the eighth consecutive quarter of production growth since the oil price collapse in late 2014; first quarter production growth was driven by the Company’s Spraberry/Wolfcamp horizontal drilling program; total Spraberry/Wolfcamp production increased 13 MBOEPD, or 7%, compared to the fourth quarter of 2016; first quarter oil production was in line with expectations while gas and NGL production was higher than expected due to lower line pressures across the field and improved NGL yields;
> reducing production costs (excluding taxes) to $6.31 per barrel oil equivalent (BOE) in the first quarter compared to $6.42 per BOE in the fourth quarter of 2016; production costs benefited from continuing low horizontal Spraberry/Wolfcamp production costs of $2.33 per BOE for the quarter;
> maintaining a strong balance sheet with cash on hand at the end of the first quarter of $2.4 billion (includes liquid investments); this strong cash position takes into account the repayment of a March debt maturity of $485 million from cash on hand; the Company was upgraded to mid-investment grade by all three rating agencies during the first quarter; net debt to forecasted 2017 operating cash flow was 0.2 times at the end of the first quarter and net debt to book capitalization was 3%;
> adding derivative positions that cover approximately 85% of forecasted oil and gas production for the remainder of 2017; increasing 2018 derivative coverage to approximately 20% of forecasted oil production and 15% of forecasted gas production;
> high-grading Pioneer’s Permian acreage position by closing the sales of approximately 5,600 net acres in Upton and Andrews counties during the first quarter for proceeds of $63 million and closing the sale of approximately 20,500 net acres in northeastern Martin County during April for proceeds of $266 million;
> increasing the northern Spraberry/Wolfcamp horizontal rig count from 17 rigs to 18 rigs during the first quarter;
> placing 38 horizontal wells on production in the Spraberry/Wolfcamp during the first quarter, with continuing strong performance; all of the wells benefited from Pioneer’s Version 3.0 completion optimization design; Version 3.0 wells are continuing to outperform earlier wells that utilized the Version 2.0 completion optimization design;
> seeing encouraging results from the Jo Mill appraisal program in the Spraberry/Wolfcamp; and
> exporting approximately one million barrels of Permian oil during the first quarter to Asia and Latin America; expect to export another one million barrels of Permian oil to Europe during the second quarter.

Pioneer’s full-year 2017 update is summarized below:

> operating 18 horizontal rigs in the Spraberry/Wolfcamp during 2017; of these, 14 rigs are in the northern area and four rigs are focused in the northern portion of the southern Wolfcamp joint venture area (Pioneer has a 60% working interest in the joint venture); completions in both areas will incorporate Version 3.0, with some wells testing larger completions during the year;
> drilling and completing 11 new wells and completing nine drilled but uncompleted wells in the Eagle Ford Shale during 2017 (Pioneer has a 46% working interest); the objective of the limited new well drilling program is to test longer laterals with wider spacing and higher-intensity completions; the Company is currently operating two horizontal rigs and commenced completing the drilled but uncompleted wells during April;
> transferring West Panhandle gas processing operations from the Company’s Fain plant to a third-party facility in late April;
> forecasting production growth in 2017 ranging from 15% to 18% compared to 2016 (oil growth expected to increase 24% - 28%); Spraberry/Wolfcamp production growth is expected to be the primary contributor, with production growth ranging from 30% to 34% in 2017 compared to 2016 (Spraberry/Wolfcamp oil growth expected to increase 33% - 37%);
> reducing the forecasted 2017 oil production percentage as a percent of total production from 62% to 60%; this reduction reflects (i) the loss of approximately 1,500 barrels oil equivalent per day (approximately 80% oil) from the aforementioned Martin County acreage sale, (ii) approximately one thousand barrels per day of light condensate production in the West Panhandle field being processed and therefore recognized as NGL production as a result of transferring the gas processing operations to a third-party facility and (iii) higher Spraberry/Wolfcamp gas and NGL recoveries;
> expecting internal rates of return (IRRs) for the 2017 drilling program, including tank battery and saltwater disposal facility investments, ranging from 50% to 100% assuming an oil price of $55.00 per barrel and a gas price of $3.00 per thousand cubic feet (MCF);
> maintaining capital expenditures for 2017 at $2.8 billion; capital expenditures include $2.5 billion for drilling and completion activities and $275 million for water infrastructure, vertical integration and field facilities; this capital program assumes that further efficiency gains will offset the Company’s estimated cost inflation of 5%; Pioneer’s vertical integration operations are expected to mitigate the impact of the 10% to 15% cost inflation forecasted for the industry in 2017;
> funding the 2017 capital program from forecasted cash flow of $2.2 billion and cash on hand;
> forecasting net debt to 2017 operating cash flow to remain below 1.0 times; and
> evaluating offers to sell approximately 10,500 net acres in the Eagle Ford Shale.

President and CEO Timothy L. Dove stated, “Our continued focus on strong execution and efficiency gains resulted in the Company delivering another great quarter, with solid earnings, production above the top end of our first quarter guidance range, continued impressive horizontal well performance in the Spraberry/Wolfcamp and reduced production costs, excluding taxes. Oil growth in the Spraberry/Wolfcamp is on track, and we are benefiting from improved gas and NGL recoveries in the field. We are drilling high-return and highly productive wells that have us on a trajectory to deliver annual production growth ranging from 15% to 18% in 2017 and to be in a position to spend within cash flow in 2018. This assumes an oil price of $55.00 per barrel and a gas price of $3.00 per MCF.”

“We have received very positive feedback from our shareholders in response to the Company’s previously announced vision to organically grow production by 15%+ per year through 2026 and achieve a production rate of approximately one million barrels oil equivalent per day. In addition, we expect to maintain a strong balance sheet and improve corporate returns. Since innovation will be a key contributor to continuing to deliver efficiency gains, we are partnering with national labs and service companies on several technology initiatives.”