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Pioneer Natural Slashes 2020 Capex by 45%, Expects $500M FCF

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Pioneer Natural Resources Company (PXD - Free Report) recently announced its plan to reduce 45% of its capex guidance for 2020 drilling, completion and facilities to the tune of $1.6-$1.8 billion, from its prior guidance of $3-$3.3 billion. The move comes at a time when the ongoing turmoil in the hydrocarbon market slashed oil prices. Moreover, the company will likely cut its water infrastructure expense to $100 million.

Pioneer Natural expects its capital spending to be funded by cash flow from operations, which is expected at $2.3 billion. Notably, the company anticipates generating $500 million of free cash flow from operations if WTI Crude prices average at $35 per barrel for the rest of the year. The free cash flow will likely be used for dividend payments and maintaining balance sheet strength. As of Dec 31, 2019, the company’s long-term debt summed $1,839 million, reflecting a debt-to-capitalization ratio of 15.9%, much lower than the industry average of 41.7%.

The company intends to slash its rig count from 22 to 11 within the next two months. During this time period, it will also curb its contracted completion crews to the 2-3 range from the current level of six crews. It expects 2020 oil production to average at around 211 thousand barrels of oil per day (MBbls/d), flat with the 2019 Permian production levels. However, the figure indicates a decrease from its prior guidance of 235-245 MBbls/d.

Markedly, the company increased its derivative coverage to obtain a downside price protection. Around 90% of its estimated oil production for this year is under derivative coverage. This can help the company counter the volatile price environment.

With the capex reduction move, Pioneer Natural joins other energy companies including Matador Resources Company (MTDR - Free Report) , Apache Corporation (APA - Free Report) and Occidental Petroleum Corporation (OXY - Free Report) . These companies intend to navigate through this tough phase while maintaining financial strength and strong operational efficiency. Strikingly, fortifying the companies’ financials at a time when oil prices are unprofitable for most producers, is touted to be a smart strategic move. There are only 16 companies in the U.S. shale plays operating in fields, in which average new well costs are lower than $35 per barrel mark, per Rystad Energy.

Price Performance

The Zacks Rank #3 (Hold) company’s shares have lost 60.5% year to date compared with 65% decline of the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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