PXD - Pioneer Natural Resources

[rkbabang]

I've been trying to think of a way to invest in the new shale oil finds and have come across PXD.  They have leases for 900,000 acres in the in the "Wolfcamp formation" in Texas.  They have two wells drilled already there which are producing around 900 barrels/day each.  There is another company drilling in the area (EOG) whose 35 wells average about 2000 barrels/day, but they only have 100,000 acres.

PXD plans to drill about 35 well by the end of 2012 and 80 wells by the end of 2013.

 

Even at 900 barrels/day this would be a lot of additional revenue at $100+/barrel for a company with a current market cap of $15B. 

 

  (900barrels*80wells*365days*$100/barrel)=$2.6B/year

 

A best case would be over 2000 barrels per day average per well and over $110/barrel oil:

 

  (2000barrels*80wells*365days*$110)=$6.4B/year.

 

Worst case would probably be something like

 

  (800barrels*80wells*365days*$80)=$1.9B/year.

 

I don't think it is likely that oil will be back below $80/barrel anytime soon.

 

I just started looking at this company today and haven't dug in to the details much.  A quick look shows they have a few $B in debt and about $0.5B in cash.  I was just wondering if anyone else has looked at it already yet?

 

I don't consider an oil drilling company to be within my circle of competence.  I've never invested in this area before, it will take me quite a while to come up to speed before putting any money in this area.  So I'm just throwing this idea out there to see what people think.  I'd appreciate any feedback people can give me on how to evaluate this type of company, what to look for, what to lookout for, etc...

 

Thanks,

 

--Eric

 

 

 

[bathtime]

PXD is a good midcap by most accounts. I have followed the energy sector for a long time, but I'm not an expert at doing the math. It does seem your analysis is naive in an A+B=C kind of way. A big variable you haven't mentioned is decline rates. A well may produce an average of 900/bopd for the 30 days, but the decline rate can be quite rapid.

 

I'd recommend anyone looking to bone up on energy investing and related valuation metrics read a bunch of Steve Zachritz's articles at Seeking Alpha, he really has a handle on it:

 

http://seekingalpha.com/author/steve-zachritz

 

 

[rkbabang]

PXD is a good midcap by most accounts. I have followed the energy sector for a long time, but I'm not an expert at doing the math. It does seem you're analysis is naive in an A+B=C kind of way. A big variable you haven't mentioned is decline rates. A well may produce an average of 900/bopd for the 30 days, but the decline rate can be quite rapid.

 

I'd recommend anyone looking to bone up on energy investing and related valuation metrics read a bunch of Steve Zachritz's articles at Seeking Alpha, he really has a handle on it:

 

http://seekingalpha.com/author/steve-zachritz

 

Thanks for the reply.  I knew I was probably missing something big (or many things). That makes sense.  Of course, a well can't produce forever.  I've got a ways to go to get a handle on this stuff.  Thanks for the link.

 

[Alex.N.B]

Wanted to bump this up!

 

Has anyone looked at this company recently, seems like they have done very well over the past few years and are well positioned to continue to perform going forward... haven't seen much written up on the name..

 

from a recent investor letter:

 

"Meanwhile, our lone investment with direct commodity exposure, Pioneer Natural Resources, is performing well operationally and is one of the few companies in the exploration and production industry capable of growing production profitably in a low commodity price environment. Pioneer has one of the largest reserve positions, perhaps the best, in the Permian basin, which is the most prolific basin in the U.S. While most of its peers are cutting back, Pioneer is drilling wells with 30 percent returns at current oil prices and expects to increase production 10 to 15 percent in 2016. Though all energy stocks were hit in the latter part of the year, Pioneer held up relatively well against the sector, and we expect the stock to continue to perform well once oil prices stabilize. Pioneer has a pristine balance sheet, is well hedged through 2016 and recently completed an equity offering in order to ensure its ability to prosper in a low priced environment that may persist for some time. We have owned Pioneer for over ten years through several commodity cycles and continue to admire management’s skill in allocating capital intelligently in any type of environment"