Pioneer Natural Resources (PXD, Financial) delivered a solid performance in the recently reported fourth quarter. The company is now well positioned for a better performance in 2015. The main contributor to Pioneer’s upbeat performance was a strong growth in production, mainly led by impressive performance in the SpraBerry/Wolfcamp.
It is now successfully transforming its SpraBerry/Wolfcamp position to a world-class horizontal play. The lower oil price environment is still a challenging situation for Pioneer. However, it is undertaking many initiatives such as cost reduction to be still profitable in the soft pricing environment. Let us have a detailed look.
The way forward
There is no second thought to the fact that Pioneer is in a solid position in terms of production. In the recently reported quarter, its production rose impressively by 18%. These production levels are expected to further increase in 2015 as its highly productive plays such as Eagle Ford and Wolfcamp are showing positive signs. It is focusing well on the Eagle Ford shale. Pioneer is ramping up its pricing, drilling and reinvesting initiatives in the Eagle Ford program to make it more contributory to its growth story.
In addition, cost reduction has always been Pioneer’s key priority and has helped it to maintain good margins. The company is planning to ramp up these cost reduction efforts in 2015. The company is expecting this to further bring down drilling costs by 20% in 2015. This will be good progress and will also contribute well to its bottom line growth in future.
Besides the cost reduction, Pioneer is also achieving better capital efficiency. Under this, it is mainly focusing on returns and has also reduced its spending in this regard. These initiatives are going on well for Pioneer, and the company is pleased to deliver up to 70% in Eagle Ford as well as 55% returns from SpraBerry/Wolfcamp. This is a good sign and it has definitely got much steam for future growth.
The company is now focusing on the brackish water for future benefits. It is essentially shutting down vertical drilling, and it is drilling its last well in the same. The focus on the brackish water is expected to further reduce the drilling cost per well in the Wolfcamp region which will not only improve margins but also drive meaningful returns to the shareholders.
Oil industry prospects
The oil market has been disappointing, but recent studies and researches reveal that oil prices are expected to rise in the future. If this happens, Pioneer will be in a solid position to capture this recovery in the oil industry. According to some analysts, oil prices can even reach $100 per barrel by 2016. Studies carried out by EIA suggest that the demand for oil is going to ramp up in 2015; projected oil growth is expected to be 2.9% in 2015. All these facts indicate solid growth opportunities for Pioneer in the future.
Moving on to the fundamentals, the stock looks reasonable with a trailing P/E of 25.65 while the forward P/E of 92.96 demonstrates solid earnings growth in the future. A profit margin of 21.58% is highly commendable, and it shows concrete signs of the stock gaining market share in the future. Further, the anticipated recovery in the oil prices can further help the company to gain market share in future. So, as of now Pioneer is a good pick.
