Pioneer Poised at Neutral - Analyst Blog
07 March 2013 - 5:00AM
Zacks
We reaffirmed our Neutral recommendation on Pioneer
Natural Resources Company (PXD) 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), Range
Resources Corporation (RRC) and NGL Energy
Partners LP (NGL), which are expected to perform
impressively over the next few months and carry a Zacks Rank #1
(Strong Buy).
ENERPLUS CORP (ERF): Free Stock Analysis Report
NGL ENERGY PART (NGL): Free Stock Analysis Report
PIONEER NAT RES (PXD): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
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