Pioneer Nat Res (PXD) Q3 Results

[dan_s]

Pioneer reported a third quarter net loss attributable to common stockholders of $23 million, or $0.13 per diluted share. Without the effect of noncash mark-to-market derivative losses of $103 million after tax, or $0.61 per diluted share, adjusted results for the third quarter were earnings of $80 million after tax, or $0.48 per diluted share. < Adjusted EPS compares to my forecast of $0.34.

Third quarter financial, production and other recent highlights included:

producing 276 thousand barrels oil equivalent per day (MBOEPD), an increase of 17 MBOEPD, or 6%, compared to the second quarter of 2017; third quarter production was negatively impacted by 3,500 barrels oil equivalent per day (BOEPD) due to Hurricane Harvey and unplanned downtime at a third-party gas processing facility; production would have been at the top end of Pioneer’s third quarter guidance range of 274 MBOEPD to 279 MBOEPD without these negative impacts; third quarter production growth was driven by the Company’s Spraberry/Wolfcamp horizontal drilling program;
producing 162 thousand barrels per day (MBPD) of oil, an increase of 15 MBPD, or 10%, compared to the second quarter of 2017;
increasing Spraberry/Wolfcamp horizontal production by 22 MBOEPD, or 13%, compared to the second quarter of 2017; horizontal oil production increased by 17 MBPD, or 15% quarter over quarter; internal rates of return (IRRs) from the Spraberry/Wolfcamp drilling program continue to be strong;
reducing production costs (excluding taxes) to $6.01 per barrel oil equivalent (BOE) compared to $6.19 per BOE in the second quarter of 2017 and $6.79 per BOE in 2016; third quarter production costs benefited from continuing low horizontal Spraberry/Wolfcamp production costs of $1.85 per BOE (excluding taxes);
adding 2018 derivatives for 59 MBPD of oil and 83 million cubic feet per day (MMCFPD) of gas; Pioneer’s 2018 derivative positions now cover more than 80% of forecasted oil production and more than 35% of forecasted gas production;
continuing to maintain a strong balance sheet with cash on hand at the end of the third quarter of $2.1 billion (includes liquid investments); net debt to forecasted 2017 operating cash flow was 0.3 times at the end of the third quarter and net debt-to-book capitalization was 5%; and
exporting 1.4 million barrels of Pioneer’s Midland Basin oil production during the third quarter and expecting to export over 2.3 million barrels during the fourth quarter; customers are located in Asia and Europe.
Pioneer’s third quarter drilling update and other recent operations activity included:

adding two rigs recently in the Spraberry/Wolfcamp to improve operational flexibility by increasing Pioneer’s inventory of wells that have been drilled and are awaiting completion (DUCs); once an adequate DUC inventory is built in the second half of 2018, the Company expects to use these two rigs to achieve longer-term production growth targets, which is consistent with the Company’s previously discussed plans to add drilling rigs in the second half of 2018; the Company is now operating 20 rigs in the Spraberry/Wolfcamp, with 16 of these rigs in the northern area and 4 rigs in the southern Wolfcamp joint venture area where Pioneer holds a working interest of 60%; the 2017 capital budget is being increased by $50 million, primarily to reflect the capital associated with the two additional Spraberry/Wolfcamp rigs and higher than anticipated completion costs in the Eagle Ford Shale;
utilizing four-string casing design successfully in areas of the Spraberry/Wolfcamp where this design is necessary;
placing 61 horizontal wells on production in the Spraberry/Wolfcamp during the third quarter; 59 wells were Version 3.0 completions that continue to outperform Version 2.0 completions; two wells were completed in the Jo Mill interval; early production results from both Jo Mill wells continue to support the successful appraisal of this interval;
continuing to see encouraging results from the 12 Spraberry/Wolfcamp wells that were placed on production in the second quarter of 2017 with higher intensity completions (referred to as Version 3.0+ completions);
expecting to place approximately 70 wells on production in the Spraberry/Wolfcamp during the fourth quarter of 2017, resulting in approximately 230 wells being placed on production during 2017; IRRs for this year’s Spraberry/Wolfcamp drilling program are expected to range from 40% to 75%, assuming an oil price of $50 per barrel and a gas price of $3 per thousand cubic feet (MCF);
drilling and completing 11 new wells and completing nine DUC wells in the Eagle Ford Shale during 2017 (Pioneer has a 46% working interest); the objective of this limited new well drilling program is to test longer laterals with wider spacing and higher intensity completions; IRRs on this year’s drilling program are expected to range from 30% to 40%, assuming an oil price of $50 per barrel and a gas price of $3 per MCF; two new drills and nine DUCs were placed on production in the Eagle Ford Shale during the second and third quarters; the average cumulative production per well from the new drills and DUCs after approximately 80 days and 140 days of production, respectively, is more than double the average cumulative production per well for the same time period from all wells placed on production during 2015 and 2016; two additional new drills were placed on production in early October; and
resuming production (approximately 8 MBOEPD) in the West Panhandle field in late October after volumes were temporarily shut in due to a fire at a third-party gas processing facility in mid-September; downtime from the fire impacted third quarter production by approximately 1,300 BOEPD.
President and CEO Timothy L. Dove stated, “The Company delivered another excellent quarter, with solid earnings, significant oil production growth, strong horizontal well performance in the Spraberry/Wolfcamp and reduced production costs. Our world-class Spraberry/Wolfcamp asset is located in the Midland Basin, considered by many to be the top oil shale play in North America. We are drilling low-cost, highly productive wells that generate high returns and have industry-leading breakeven oil prices.”

“Despite the drilling delays that we experienced in the second quarter, our operations are back on track and we remain committed to our 10-year plan of drilling high-return wells that will deliver organic compound annual production growth of 15%+. Achieving this target will result in oil production of approximately 700 MBPD in 2026 and total production greater than 1 million barrels oil equivalent per day. This plan will allow us to maintain a steady pace of activity, spend within cash flow by 2020 at an oil price of $50 per barrel, maintain a strong balance sheet and improve corporate returns.”

[dan_s]

I have updated my forecast / valuation model for PXD and it will be posted to the EPG website this afternoon.

My valuation increases by $6.00 to $196.00/share. First Call's price target is $186.77/share.

20 Wall Street firms have submitted forecast / valuations for PXD to First Call. Their valuations range from $147 to $248 per share. Most of the low valuations are dated in May and June, so they have not been updated since Q1 results. Just telling you this so that when you look at First Call price targets it is a good idea to see what goes into the average. I'm always more interested in the most recent analysts' reports.