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We reaffirmed our Neutral recommendation on Pioneer Natural Resources Company (PXD - Analyst Report) on Feb 26, 2013. Its drilling venture helped it to deliver production beyond its expectation. However, increasing cost pressure in the highly competitive shale plays is also a cause for concern. The company holds a Zacks Rank #3, which is equivalent to a short-term Hold rating.

Why Maintained?
 
Pioneer – an independent oil and gas exploration and production company – has enjoyed continued successes in the Wolfcamp operations and a new joint venture in its southern Wolfcamp acreage. These are likely to act as potential catalysts for growth.
 
The company’s oil-weighted reserves base, large drilling inventory (over 20,000 liquids rich drilling locations in low-risk resource plays) as well as significant resource potential are catalysts to unlock value for shareholders. The company offers a deep inventory of high-return, liquids-leveraged drilling opportunities. 
 
Pioneer has also entered into a joint venture to speed up development of the 200,000 acre focus area in the southern portion of the Midland Basin. The company has inked a farm out agreement with Sinochem Group for 40% of its 100% holding in the shale, in the southern portion of the Spraberry trend area field for $1.7 billion. The proceeds from the JV will go toward addressing next year’s funding issues. 
 
Further, an equity offering of 8 million shares worth about $1 billion is likely to accelerate activity in the northern Wolfcamp Shale.
 
Pioneer has estimated its 2013 production growth in the range of 38 thousand barrels of oil equivalent (MBoe) per day to 42 MBoe per day, reflecting an increase of 36% to 50% from the 2012 levels. 
 
However, the company’s long-term production and reserve growth depends on its acquire-and-exploit model, to a certain extent. Pioneer may therefore find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.
 
Other Stocks to Consider
 
While we prefer to remain on the sidelines for Pioneer, there are other stocks in the sector that appear rewarding. Among these, Enerplus Corporation (ERF - Snapshot Report), Range Resources Corporation (RRC - Analyst Report) and NGL Energy Partners LP (NGL - Snapshot Report), which are expected to perform impressively over the next few months and carry a Zacks Rank #1 (Strong Buy).

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