Pioneer Natural Resources (PXD) Q2 Results
Posted: Thu Aug 09, 2018 11:21 am
Pioneer reported second quarter net income attributable to common stockholders of $66 million, or $0.38 per diluted share. Without the effect of noncash mark-to-market (MTM) derivative losses of $170 million after tax, or $0.99 per diluted share, and asset divestiture related net charges of $7 million, or $0.04 per diluted share, adjusted income for the second quarter was $243 million after tax, or $1.41 per diluted share. < Compares to my forecast of $1.71 EPS.
Second quarter financial and operating highlights included:
• producing 280 thousand barrels oil equivalent per day (MBOEPD) in the Permian Basin (272 MBOEPD after adjusting for the unanticipated impact of certain items1); Permian Basin oil production increased to 175 thousand barrels of oil per day (MBOPD) (177 MBOPD after adjusting for the same items2); placing 67 horizontal wells on production;
• producing 328 MBOEPD companywide (320 MBOEPD after adjusting for the same items3); adjusted production was near the top end of Pioneer’s second quarter production guidance range of 312 MBOEPD to 322 MBOEPD;
• continuing to maintain a strong balance sheet with cash on hand at the end of the second quarter of $1.5 billion (including liquid investments); cash on hand reflects the repayment of $450 million of senior notes in May 2018; net debt to forecasted 2018 operating cash flow was 0.2 times and net debt-to-book capitalization was 6% at the end of the second quarter;
• repurchasing $51 million of common stock during the first half of 2018; purchases were attributable to the Company’s $100 million authorized share repurchase program and share-based employee awards that vested in 2018; share purchases are intended to offset dilution associated with employee stock awards;
• delivering approximately 165 MBOPD of the Company’s Permian Basin oil production to the Gulf Coast under firm transportation (FT) contracts; the Company exported 103 MBOPD of the total volumes delivered to the Gulf Coast; FT uplift associated with Gulf Coast refinery and export sales added $69 million of incremental cash flow; greater than 90% of Pioneer’s forecasted Permian Basin oil production is covered under FT contracts through early 2021, with these volumes receiving Brent-related pricing;
• executing contract option to receive West Texas Intermediate (WTI) Cushing pricing on the Company’s Permian Basin oil production volumes in excess of Gulf Coast FT commitments; beginning in September 2018, Pioneer will have no exposure to Midland oil pricing through 2020;
• delivering approximately 70% of the Company’s Permian Basin gas production under firm pipeline contracts tied to the southern California gas price index; the remainder is sold primarily under term contracts at Waha pricing; southern California priced sales received an uplift of $0.25 per thousand cubic feet of gas (MCF) versus Waha sales; and
• placing a three-well Wolfcamp D pad on production in the southern Wolfcamp joint venture acreage utilizing Version 3.0 completions; pad delivered 90-day cumulative production of 373 MBOE (60% oil), representing an improvement of approximately 75% over 2014 and 2015 Wolfcamp D wells drilled and completed in this area.
Pioneer’s full-year 2018 update includes:
• operating 20 horizontal rigs in the Permian Basin; planning to add four rigs to support the 2019 plan, two in August and two during the fourth quarter of 2018; expecting to place 250 to 275 wells on production during 2018; drilling wells in the Permian Basin that deliver strong cash operating margins and high rates of return;
• expecting to add approximately 60 Version 3.0+ completions4 during the second half of 2018; Version 3.0+ completions to date continue to show strong results and improved economics;
• planning to place 19 wells in the Spraberry horizontal appraisal program on production in second half of 2018; program will help determine the optimal long-term development strategy for the Middle Spraberry Shale, Jo Mill and Lower Spraberry Shale;
• expecting noncore asset divestiture process to be completed by year end, resulting in Pioneer becoming a Permian Basin “pure play”; closed sales of Raton Basin and selected Eagle Ford acreage for $182 million; signed purchase and sale agreement to sell West Panhandle field for $201 million, with the sale expected to close during the third quarter of 2018; progressing divestiture of Eagle Ford and other South Texas assets;
• adjusting 2018 capital program to $3.3 billion to $3.4 billion (excluding acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and IT system upgrades); capital spending to be funded from forecasted operating cash flow of approximately $3.3 billion at current strip prices for the remainder of 2018 ($69 per barrel for oil and $2.80 per MCF for gas) and proceeds from asset divestitures; the 2018 capital budget adjustment reflects adding four rigs in support of the 2019 plan, adding approximately 60 Version 3.0+ completions4 in the second half of 2018 and the effects of operating in a higher oil price environment; and
• forecasting Permian Basin production growth in 2018 of 19% to 24% compared to 2017; production is currently trending toward the upper half of this range.
President and CEO Timothy L. Dove stated, “The Company delivered another great quarter, with healthy earnings, solid execution, strong production growth and excellent horizontal well performance in the Permian Basin. Our world-class Permian Basin asset is considered by many to be the top oil shale play in North America. We are drilling the most productive wells in the Basin, resulting in strong cash operating margins and high rates of return.”
“The Company’s marketing strategy continues to provide incremental cash flow and margin improvements that flow directly to our bottom line. Our firm transportation agreements on greater than 90% of our Permian Basin oil volumes continue to be a key differentiator. These contracts for oil transportation to the Gulf Coast not only expose us to Brent-related pricing, but also insulate us from domestic oil price and differential volatility. In addition, the execution of a contract option will allow us to receive WTI Cushing pricing through 2020 on the remaining Permian Basin oil volumes in excess of our Gulf Coast firm transportation commitments. As a result, beginning next month, the Company will have no exposure to Midland oil pricing.”
“Our transition to a Permian Basin ‘pure play’ is expected to be complete by year end. We have closed the sales of both the Raton Basin assets and selected Eagle Ford Shale acreage, plus we have signed a purchase and sale agreement to sell the West Panhandle field. Once the divestitures of the non-Permian assets are complete, 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.”
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PXD and Concho (CXO) are now the "Big Fish" in the Permian Basin.
Second quarter financial and operating highlights included:
• producing 280 thousand barrels oil equivalent per day (MBOEPD) in the Permian Basin (272 MBOEPD after adjusting for the unanticipated impact of certain items1); Permian Basin oil production increased to 175 thousand barrels of oil per day (MBOPD) (177 MBOPD after adjusting for the same items2); placing 67 horizontal wells on production;
• producing 328 MBOEPD companywide (320 MBOEPD after adjusting for the same items3); adjusted production was near the top end of Pioneer’s second quarter production guidance range of 312 MBOEPD to 322 MBOEPD;
• continuing to maintain a strong balance sheet with cash on hand at the end of the second quarter of $1.5 billion (including liquid investments); cash on hand reflects the repayment of $450 million of senior notes in May 2018; net debt to forecasted 2018 operating cash flow was 0.2 times and net debt-to-book capitalization was 6% at the end of the second quarter;
• repurchasing $51 million of common stock during the first half of 2018; purchases were attributable to the Company’s $100 million authorized share repurchase program and share-based employee awards that vested in 2018; share purchases are intended to offset dilution associated with employee stock awards;
• delivering approximately 165 MBOPD of the Company’s Permian Basin oil production to the Gulf Coast under firm transportation (FT) contracts; the Company exported 103 MBOPD of the total volumes delivered to the Gulf Coast; FT uplift associated with Gulf Coast refinery and export sales added $69 million of incremental cash flow; greater than 90% of Pioneer’s forecasted Permian Basin oil production is covered under FT contracts through early 2021, with these volumes receiving Brent-related pricing;
• executing contract option to receive West Texas Intermediate (WTI) Cushing pricing on the Company’s Permian Basin oil production volumes in excess of Gulf Coast FT commitments; beginning in September 2018, Pioneer will have no exposure to Midland oil pricing through 2020;
• delivering approximately 70% of the Company’s Permian Basin gas production under firm pipeline contracts tied to the southern California gas price index; the remainder is sold primarily under term contracts at Waha pricing; southern California priced sales received an uplift of $0.25 per thousand cubic feet of gas (MCF) versus Waha sales; and
• placing a three-well Wolfcamp D pad on production in the southern Wolfcamp joint venture acreage utilizing Version 3.0 completions; pad delivered 90-day cumulative production of 373 MBOE (60% oil), representing an improvement of approximately 75% over 2014 and 2015 Wolfcamp D wells drilled and completed in this area.
Pioneer’s full-year 2018 update includes:
• operating 20 horizontal rigs in the Permian Basin; planning to add four rigs to support the 2019 plan, two in August and two during the fourth quarter of 2018; expecting to place 250 to 275 wells on production during 2018; drilling wells in the Permian Basin that deliver strong cash operating margins and high rates of return;
• expecting to add approximately 60 Version 3.0+ completions4 during the second half of 2018; Version 3.0+ completions to date continue to show strong results and improved economics;
• planning to place 19 wells in the Spraberry horizontal appraisal program on production in second half of 2018; program will help determine the optimal long-term development strategy for the Middle Spraberry Shale, Jo Mill and Lower Spraberry Shale;
• expecting noncore asset divestiture process to be completed by year end, resulting in Pioneer becoming a Permian Basin “pure play”; closed sales of Raton Basin and selected Eagle Ford acreage for $182 million; signed purchase and sale agreement to sell West Panhandle field for $201 million, with the sale expected to close during the third quarter of 2018; progressing divestiture of Eagle Ford and other South Texas assets;
• adjusting 2018 capital program to $3.3 billion to $3.4 billion (excluding acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and IT system upgrades); capital spending to be funded from forecasted operating cash flow of approximately $3.3 billion at current strip prices for the remainder of 2018 ($69 per barrel for oil and $2.80 per MCF for gas) and proceeds from asset divestitures; the 2018 capital budget adjustment reflects adding four rigs in support of the 2019 plan, adding approximately 60 Version 3.0+ completions4 in the second half of 2018 and the effects of operating in a higher oil price environment; and
• forecasting Permian Basin production growth in 2018 of 19% to 24% compared to 2017; production is currently trending toward the upper half of this range.
President and CEO Timothy L. Dove stated, “The Company delivered another great quarter, with healthy earnings, solid execution, strong production growth and excellent horizontal well performance in the Permian Basin. Our world-class Permian Basin asset is considered by many to be the top oil shale play in North America. We are drilling the most productive wells in the Basin, resulting in strong cash operating margins and high rates of return.”
“The Company’s marketing strategy continues to provide incremental cash flow and margin improvements that flow directly to our bottom line. Our firm transportation agreements on greater than 90% of our Permian Basin oil volumes continue to be a key differentiator. These contracts for oil transportation to the Gulf Coast not only expose us to Brent-related pricing, but also insulate us from domestic oil price and differential volatility. In addition, the execution of a contract option will allow us to receive WTI Cushing pricing through 2020 on the remaining Permian Basin oil volumes in excess of our Gulf Coast firm transportation commitments. As a result, beginning next month, the Company will have no exposure to Midland oil pricing.”
“Our transition to a Permian Basin ‘pure play’ is expected to be complete by year end. We have closed the sales of both the Raton Basin assets and selected Eagle Ford Shale acreage, plus we have signed a purchase and sale agreement to sell the West Panhandle field. Once the divestitures of the non-Permian assets are complete, 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.”
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PXD and Concho (CXO) are now the "Big Fish" in the Permian Basin.