Sweet 16 Q4 Results
Posted: Wed Feb 07, 2018 2:49 pm
I am reviewing the updated profile for PXD, but I want to pause and point out a few things. Quotes below are from the PXD press release.
"The NYMEX prices used for 2017 proved reserves reporting purposes were $51.34 per barrel for oil and $2.98 per million British thermal units (MMBTU) for gas. The oil and gas prices for 2017 were 20% above the oil and gas price used to calculate proved reserves for 2016 of $42.82 per barrel and $2.48 per MMBTU, respectively. The increases in the 2017 oil and gas prices, as compared to 2016, led to the Company’s positive price revisions of 52 MMBOE."
"The commodity prices used to determine proved reserves for 2017 resulted in an after-tax present value of the future net cash flows discounted at 10% (PV-10) of $8.2 billion. The after-tax present value of the proved reserves includes the benefit of the lower federal income tax rate enacted with the Tax Cuts and Jobs Act."
Higher commodity prices and lower income tax rates used in the year-end proved reserves report extents the economic lives of the properties. This results in an upward proved reserve revision. More proved reserves lowers the DD&A rate going forward, thus lowering DD&A expense (the largest expense on the Sweet 16 Income Statements) and increasing reported earnings. Higher reported earnings and more proved reserves also makes the bankers and the Wall Street Gang happy.
PXD reported OUTSTANDING Q4 results and the stock would be up a lot more today if not for the overhang of declining oil prices.
Note that when I update the Sweet 16 forecast/valuation models going forward, I will be using $60/bbl for WTI and $2.75/mcf for HH natural gas for 2018 and 2019. As I pointed out earlier, NGL prices spiked in December when winter arrived. PXD reported realized NGL prices much higher than what I had in my forecast. The U.S. NGL market is MUCH TIGHTER than it was a year ago, so NGLs should be 40% to 50% of WTI all year. Higher NGL prices will give several of our model portfolio companies a big revenue boost.
"The NYMEX prices used for 2017 proved reserves reporting purposes were $51.34 per barrel for oil and $2.98 per million British thermal units (MMBTU) for gas. The oil and gas prices for 2017 were 20% above the oil and gas price used to calculate proved reserves for 2016 of $42.82 per barrel and $2.48 per MMBTU, respectively. The increases in the 2017 oil and gas prices, as compared to 2016, led to the Company’s positive price revisions of 52 MMBOE."
"The commodity prices used to determine proved reserves for 2017 resulted in an after-tax present value of the future net cash flows discounted at 10% (PV-10) of $8.2 billion. The after-tax present value of the proved reserves includes the benefit of the lower federal income tax rate enacted with the Tax Cuts and Jobs Act."
Higher commodity prices and lower income tax rates used in the year-end proved reserves report extents the economic lives of the properties. This results in an upward proved reserve revision. More proved reserves lowers the DD&A rate going forward, thus lowering DD&A expense (the largest expense on the Sweet 16 Income Statements) and increasing reported earnings. Higher reported earnings and more proved reserves also makes the bankers and the Wall Street Gang happy.
PXD reported OUTSTANDING Q4 results and the stock would be up a lot more today if not for the overhang of declining oil prices.
Note that when I update the Sweet 16 forecast/valuation models going forward, I will be using $60/bbl for WTI and $2.75/mcf for HH natural gas for 2018 and 2019. As I pointed out earlier, NGL prices spiked in December when winter arrived. PXD reported realized NGL prices much higher than what I had in my forecast. The U.S. NGL market is MUCH TIGHTER than it was a year ago, so NGLs should be 40% to 50% of WTI all year. Higher NGL prices will give several of our model portfolio companies a big revenue boost.