Pioneer Natural Resources (PXD, Financial) is under pressure. The industry is soft with less rigs this year, and the declining oil prices are eating away at its margins. The company now needs to be defensive with its strategy as the oil price weakness is expected to continue for a while. Pioneer is also worried about the falling market share of U.S. oil in Saudi Arabia. It is now therefore focusing on various initiatives to improve its market share in the long run until the oil prices start improving again.
The way ahead
If Pioneer succeeds in holding its position in this soft environment, it is positive about its long-term growth prospects. By 2016 it is expecting a 16% to 21% growth in the annual production which will lead to a 40% to 80% improvement in returns before tax. In addition, Pioneer is making certain adjustments in its structure and is also brining in many new alterations and expansion to hold a stiff edge in the market.
Under this Pioneer is engaged in building large horizontal tank batteries also, and it has plans to bring in several gas-processing facilities. This is not the end; Pioneer is further expanding its sand mine by threefold. With all these efforts, Pioneer is focusing on maintaining a strong balance sheet and financial that will attract investors. It is expecting to maintain a debt-to-book ratio below 35% to debt-to-cash flow below 1.5 in the next two years. With such a growth story, Pioneer is expected to position itself as the largest oil field in the U.S.
Smart moves
To secure its long-term prospects, Pioneer has made some strong moves in the past which are paying off for it. It has grown its resource potential and has now doubled production from 45,000 barrels per day to 100,000 barrels per day over 20,000 drilling locations. In addition, it has also entered in to joint venture with Sinochem. The company has made efforts to secure its long-term prospects. It has entered a long-term contract to move water away from fresh water for several upcoming years. This is a good long-term opportunity for Pioneer on which it can count on.
It is further seeing some positive exportation signs from Eagle Ford facility. The company is expecting better improvement in the exports. It is seeing impressive increases in pricing related to export of the condensate. Moreover, in this low-price environment, Pioneer is focusing on optimizing its results. It is actively working with other service providers to seek cost reductions in 2015. This will help the company improve its margins even in the soft price environment.
Pioneer also has expansion plans. It is bringing in two new plants out of them – one is already in production. In addition, it is also introducing a new WTG plant. These initiatives are expected to add meaningfully to company’s top line. To further support this, Pioneer is earmarking about $175 million of capital for the next two years.
Conclusion
Looking at the fundamentals, the stock doesn’t have a trailing P/E as it is still making losses due to the soft pricing environment of oil. But the forward P/E of 35.90 shows good growth in the earnings in the near term which is a good attraction. Even in the next five years, the company earnings are growing at a CAGR of 18.23% which is more than the industry average of 15.77%. Also, the company has good expansion plans and the analysts are also anticipating good come back for the oil prices which will further benefit the company. Thus as of now Pioneer Natural Resources is a good pick and the investors should definitely include it in their portfolio.
