Pioneer Misses, but Volumes up

Pioneer Natural Resources Company (PXD - Snapshot Report) reported its third quarter results of 2 cents per share, well below than the Zacks Consensus Estimate of 6 cents and year-earlier quarter earnings of 91 cents. Before adjusting one-time items, loss per share was 6 cents. 

Despite the increased production volumes and lower production expenses, earnings were down due primarily to weak realized prices. Revenue for the quarter was $410.1 million, down nearly 32% from the year-earlier level. 

Total production for the quarter averaged approximately 113 thousand barrels oil equivalent per day (MBOE/d), up 2% year over year, reflecting the strong performance of Pioneer’s low-decline assets. Oil production averaged at 31.7 thousand barrels per day (MBbl/d), up approximately 7% year over year. Natural gas liquids production slightly decreased to 18.6 MBbl/d. Natural gas production also modestly increased to 374.2 MMcf/d. 

On an oil equivalent basis, average realized price was $39.57 per barrel versus $59.04 per barrel in the year-ago quarter. Average realized price for oil in the quarter was $78.20, compared to $80.37 in the third quarter of 2008. Average natural gas price was to $3.64 per Mcf, significantly down from the year-earlier level of $7.98 per Mcf. 

Year-to-date, all geographical production areas experienced growth. Production from the Spraberry field (in West Texas), South Texas area, Tunisia and South Africa increased 8%, 4%, 13% and 51%, respectively, from the same period in the last year. 

At the end of the quarter, cash balance was nearly $56 million. Long-term debt balance stood at $2.87 billion, representing debt-to-capitalization ratio of 44.8%. 

The company is guiding towards fourth quarter production ranging between 105 MBOE/d to 110 MBOE/d. Production costs are expected to average $11.50 to $13.50 per BOE and DD&A expense is expected to average $15.50 to $17.00 per BOE. 

Based on the uptrend in oil prices and the solid hedging position, management is confident about the company’s operating cash flow generating capacity to the tune of $1 billion and $1.4 billion in 2010 and 2011, respectively. The company hinted that it will ramp up its production activity in the Spraberry field and will continue its successful oil development program in Alaska. 

After having underperformed the peer group for last few years, the company is gaining investor attention with its attractive production growth and resource potential. Another potential catalyst for the company is its ongoing cost reduction initiatives. However, while we like Pioneer’s efforts of reducing debt level, there are other names in the group that have asset bases better positioned to deliver growth. We recommend a Neutral rating for the stock.