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Analyst Blog

On Aug 21, 2014, we issued an updated research report on the third largest driller in the country, Pioneer Natural Resources Company (PXD - Analyst Report). The Irving, TX-based independent oil and gas exploration and production company is focused on enhancing its operational effectiveness. The asset base of the company is mainly located in the Spraberry oil field in West Texas, the Hugoton gas field in Southwest Kansas and the West Panhandle gas field in Texas Panhandle.

Management’s focus on improving operational effectiveness is reflected in the company’s reported output. Total production in the second quarter of 2014 averaged approximately 182.7 thousand barrels of oil equivalent per day (MBOE/d), up 11.8% year over year.

Pioneer Natural Resources has delivered positive earnings surprises in two of the last four quarters, with an average beat of 5.52%. The company reported mixed financial results for the second quarter of 2014 with earnings beating estimates, but revenues lagging the same. Earnings were boosted by higher price realization. On an oil equivalent basis, the average realized price was $57.64 per barrel versus $52.52 in the year-ago quarter.

Going forward, Pioneer Natural Resources’ oil-weighted reserve base and large drilling inventory (over 20,000 liquids-rich drilling locations in low-risk resource plays) with significant resource potential would be catalysts to unlock value for shareholders. The company offers a deep inventory of high-return, liquids-leveraged drilling opportunities.

Pioneer expects production to average 181–186 MBOE/d for the third quarter of 2014. Production costs are expected between $13.50 and $15.50 per BOE, and depletion, depreciation and amortization expense is expected to average $14.00 to $16.00 per BOE. The projected range is $70–$75 million for general and administrative expense, $44–$49 million for interest expense and $25–$35 million for other expenses. Exploration and abandonment expense guidance is $25–$35 million while the expected tax rate is 35–40%. We see the guidance as a positive, given encouraging results from its horizontal Wolfcamp program.

However, as is the case with other independent exploration and production companies, results of Pioneer Natural Resources are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.

Stocks that Warrant a Look

Pioneer Natural Resources carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include Weatherford International plc (WFT - Analyst Report), Sanchez Energy Corporation (SN - Snapshot Report) and Sunoco Logistics Partners L.P (SXL - Analyst Report). All of these sport a Zacks Rank #1 (Strong Buy) and would offer above-average returns to investors.
 

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