Pioneer Natural Resources (PXD)
Posted: Mon Jun 20, 2016 4:03 pm
RBC Capital Markets has increased their price target on PXD to $187.00/share. Compares to my valuation of $185.00.
You can find my current valuation for each Sweet 16 company on the EPG website. I update them each weekend. Just log onto the website and click on the Sweet 16 tab.
RBC comments below:
Our view: PXD's acquisition seems a bit surprising with its large footprint
but makes strategic sense. The focus of the purchase was 15,000 acres in
the Sale Ranch area, which management believes is some of the best in the
Basin. PXD owned shallower rights on two-thirds of the acquired acreage
in the Sale Ranch area, so we think they were the only logical acquirer.
Key points:
The acquisition value can be more than recouped from just the 70
Wolfcamp B locations in the Sale Ranch area. Overall, PXD acquired
28,000 net acres from in the Northern Midland Basin from Devon Energy
(DVN) for $435 million. We estimate PXD is paying around $14,000/acre,
on average (adjusted for PDP value). However, we estimate near $20,000/
acre for the more core area. This is an attractive price and well below
recent comps for midland acreage at around $25,000-30,000/acre. The
transaction is expected to close in 3Q16. We don't expect PXD to evaluate
further consolidation. This was one of the final areas on its core Permian
acreage where it did not hold Wolfcamp rights.
Value in the Sales Ranch. There are 15,000 net acres located in Sale Ranch
(Martin County), where two recent PXD wells achieved 24-hour IP rates of
3,000+ boe/d. Both wells are tracking above a 1 MMboe typecurve. Since
2014, 41 Wolfcamp B wells PXD operated are among the industry best.
Management indicated that NPV's exceed $10 million per well at current
prices. The remaining 13,000 net acres and existing acreage will be used
to consolidate further to support future development.
An equity offering funds the acquisition, capital to accelerate drilling,
and fire-power for more drilling in the future. The offering was priced at
a 3% discount to the prior close. We estimate new shares are 3-4% dilutive
to existing shares. Gross proceeds will raise $950 million including the
over-allotment. Our NAV was relatively unchanged as the share dilution
was somewhat offset by the value attributed to the core acreage upside.
The 2016 budget was increased by $100 million to $2.1 billion to support
2017. PXD plans to add five-rigs in 2H16, all in Northern Midland Basin.
This is consistent with recent management commentary and somewhat
expected by the market, in our view. We do not expect 2016 rig additions
to meaningfully increase 2016 with 120-150 cycle times. The first rig is
planned September, with two more in both October and November. In
2017, PXD is guiding to 13-17% production growth with a 17-rig program,
including 28-32% growth in Midland Basin. We think this growth profile is
achievable and could increase if oil prices are above $60/bbl.
Leverage profile remains attractive. Proforma, 2016/2017 net debt-to-
EBITDA remains comfortable at 0.2x/0.4x and well-below PXD's target of
below 1.50x.
You can find my current valuation for each Sweet 16 company on the EPG website. I update them each weekend. Just log onto the website and click on the Sweet 16 tab.
RBC comments below:
Our view: PXD's acquisition seems a bit surprising with its large footprint
but makes strategic sense. The focus of the purchase was 15,000 acres in
the Sale Ranch area, which management believes is some of the best in the
Basin. PXD owned shallower rights on two-thirds of the acquired acreage
in the Sale Ranch area, so we think they were the only logical acquirer.
Key points:
The acquisition value can be more than recouped from just the 70
Wolfcamp B locations in the Sale Ranch area. Overall, PXD acquired
28,000 net acres from in the Northern Midland Basin from Devon Energy
(DVN) for $435 million. We estimate PXD is paying around $14,000/acre,
on average (adjusted for PDP value). However, we estimate near $20,000/
acre for the more core area. This is an attractive price and well below
recent comps for midland acreage at around $25,000-30,000/acre. The
transaction is expected to close in 3Q16. We don't expect PXD to evaluate
further consolidation. This was one of the final areas on its core Permian
acreage where it did not hold Wolfcamp rights.
Value in the Sales Ranch. There are 15,000 net acres located in Sale Ranch
(Martin County), where two recent PXD wells achieved 24-hour IP rates of
3,000+ boe/d. Both wells are tracking above a 1 MMboe typecurve. Since
2014, 41 Wolfcamp B wells PXD operated are among the industry best.
Management indicated that NPV's exceed $10 million per well at current
prices. The remaining 13,000 net acres and existing acreage will be used
to consolidate further to support future development.
An equity offering funds the acquisition, capital to accelerate drilling,
and fire-power for more drilling in the future. The offering was priced at
a 3% discount to the prior close. We estimate new shares are 3-4% dilutive
to existing shares. Gross proceeds will raise $950 million including the
over-allotment. Our NAV was relatively unchanged as the share dilution
was somewhat offset by the value attributed to the core acreage upside.
The 2016 budget was increased by $100 million to $2.1 billion to support
2017. PXD plans to add five-rigs in 2H16, all in Northern Midland Basin.
This is consistent with recent management commentary and somewhat
expected by the market, in our view. We do not expect 2016 rig additions
to meaningfully increase 2016 with 120-150 cycle times. The first rig is
planned September, with two more in both October and November. In
2017, PXD is guiding to 13-17% production growth with a 17-rig program,
including 28-32% growth in Midland Basin. We think this growth profile is
achievable and could increase if oil prices are above $60/bbl.
Leverage profile remains attractive. Proforma, 2016/2017 net debt-to-
EBITDA remains comfortable at 0.2x/0.4x and well-below PXD's target of
below 1.50x.