Current PXD Stock Info

Pioneer expects to place ~260 horizontal wells on production in 2017

Pioneer produced 234 MBOEPD in 2016, up 15% from prior year

One of the best years in Pioneer’s 20-year history: Dove

Exported 525,000 barrels of Permian basin oil in Q4 2016

Looks to ship two 525,000 barrel cargoes to Asia in Q1

2017: $2.5 billion D&C CapEx targets 18 Spraberry/Wolfcamp rigs, 20 Eagle Ford completions—9 DUCs, 11 new wells—all to be funded from 2017 projected cash flow and cash on hand

Expects IRRs 50%-100% for 20...

Analyst Commentary

From KLR

PXD ($181.68, B, $273, Gerdes) Further Decline in Capital Intensity Increases Fair Value: We are increasing our PXD target price $19 to $273 per share due to an approximate 7% improvement in capital intensity and slightly higher liquids price realizations. Our ’17 production expectation of ~269 Mboepd is at the low end of guidance (269-276 Mboepd). Pioneer’s production growth should accelerate to ~20% per annum through ’21. We anticipate the company increases northern Spraberry development by five to seven rigs per annum with capital spending inside of cash generation.

From Johnson Rice

Key Takeaway:
On the 4Q16 results call, Pioneer management filled in some details on its "1 Mmboe/d in 10 years" target, but the core message for us is that the company simply extended the runway on its 15% CAGR outlook that was first articulated in late 2016. Viewed in that framework, the 1 Mmboe/d headline seems less amazing and than natural, as Pioneer already has the assets, people, and processes in place to execute on this path.

Assuming $55 WTI, Pioneer expects to reach a free cash flow positive state before the end of 2018, or roughly 18 months from now. Of course, moves in the oil price could alter that target or even render it meaningless, but the point still stands that Pioneer has distinguished itself in positioning the company to lock into a growth plus free cash path if the prevailing commodity outlook holds. Underlying this outlook is management's motivation to keep the steady operational pace that is conducive to preserving and extending operational efficiencies. Also key to this goal is the ongoing commitment to manage commodity risk with ample hedge exposure, a commitment which management continues to deliver on.

By clearly articulating such an outlook, Pioneer is serving up what the market typically rewards: a visible and credible long term growth path, with upside beyond the 15% CAGR, and with the risks identified and mitigated where possible. We foresee PXD doing what is necessary, and more, to maintain a premium multiple in the group, and we reiterate our Buy rating.

For analysis of quarterly results, operational highlights, and a variance, please see our earlier note.

Key Points:
Next Permian Rig Add in March, Then Locked in for 12+ Months - Pioneer expects to add one more rig in March of 2018 to bring its total company wide to 18. After that point, the company will be running at a steady state of 18 rigs in the Permian, with the next rig addition in the play currently forecast for 2H18. In the Eagle Ford, 2017 plans do call for a resumption of activity in 2Q17, including drilling nine new wells.

Five New Activity Areas for 2017 in the Spraberry/Wolfcamp . . . With the advantage of new seismic data coverage, PXD is expanding activity in 2017 into five new areas of the Spraberry/Wolfcamp trend. Activity in these newer areas will initially require disproportionately high facilities capex, which could degrade capital efficiency, but an offsetting dynamic could come into play . . .

From Capital One

PXD 4Q Follow-Up
$174.95, Overweight, $216.00 Target, Johnston
• Market reaction: PXD outperforming E&P index by ~250 bps, likely driven by several positives in the release, plus comments on the call that the slight mix shift of activity to the southern Midland Basin JV area will be focused on its northern flank, where returns are competitive w/ PXD’s acreage to the north of the basin. Positives in the release included a mild beat on 4Q oil production, CAPEX, and EPS/CFPS, along w/ a 1% bump to FY17 production guidance, fueled in part by a slight increase in rig count to 18 from 17. Moreover, the introduction of a 10-yr plan that targets >1 MMboe/d of net production by 2026 intimates confidence in mgmt’s outlook. The plan implies 15%+/18%+ CAGR in total production/oil production over that time frame.
• Our take: We came away a bit more neutral, as the positives noted above are balanced by a few factors. First, updated FY17 guidance is basically in line w/ our prior forecast, which is relatively unchanged. The midpoint is also below the Street est. Moreover, 1Q production guidance is soft given the outlook for fewer well completions, implying a more back-end loaded growth profile in '17 than we (and likely Street) envisioned. Upside to Street ests thus may be limited. Also, PXD’s 10-year plan is consistent w/ our prior forecast of 1.03 MMboe/d in 2026, which is also relatively unchanged. We are slightly raising our NAV est to $216 from $215.
• Our view on stock: Maintain Overweight. PXD has ~20% upside to our new $216 NAV est and trades at ’18/’19 EV/EBITDA multiples of 11.3x/6.9x. These represent premiums vs the Permian peer group medians of 9.0x/5.0x. However, we continue to believe that the stock’s premium is well justified given the company’s enormous high-quality Midland Basin drilling inventory. Specifically, we model 13,300 net locations in the Midland Basin, which implies a >50-year inventory based on this year’s projected net well count of 244. None of its peers come close to this inventory life. Furthermore, as we look out to '20, PXD’s multiple contraction vs '17 is greater than most of our companies under coverage. On an absolute basis, the stock trades at ~5.5x when looking to '20.
• Model changes: Our NAV est increases by $1 to $216 driven by slightly higher production in ’18 and beyond, partially offset by modestly higher well cost assumptions. Our ’17 production est is unchanged, but we raised ’18/’19/’20 production ests by +5%/+6%/+3%. We also boosted ‘17/’18/’19 CFPS ests by +3%/+9%/+10% as improved oil differential assumptions augment the higher production. Our new ests imply production growth of +15%/+19%/+14% in ‘17/‘18/’19.
• Potential catalysts ahead: We are expecting well results from the new completion design in the Eagle Ford and further delineation of additional zones in Midland Basin sometime in 2H17. PXD plans to drill 11 gross wells in the Eagle Ford w/ a new design that includes longer laterals (7,500 ft vs 5,200 ft), tighter cluster spacing (30 ft vs 50 ft), and higher proppant loads (2,000 lb/ft vs 1,200 lb/ft). It also plans to complete 9 gross DUCs. We believe the increased activity and new testing could be an attempt to stabilize production declines and provide some new well results w/ an eye toward potentially divesting its Eagle Ford properties in the next few yrs. In the Midland Basin, appraisal of the Clearfork, Jo Mill, and Wolfcamp D zones in ’17 will provide some insight into potential inventory upside.  


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