After suffering due to an oil slump in the second half of 2015, Pioneer Natural Resources (PXD, Financial) has started well in 2015. Year-to-date, the stock has moved higher by 9.9% and I believe that there is more potential in the rally for the stock. This article discusses some positive related to the company that makes me bullish on the stock for 2015. Even for the long-term, Pioneer Natural Resources is a good stock to gradually accumulate amidst the depression in the energy sector.
Before taking about the positives, I must first mention here that a potential nuclear deal with Iran and subsequent lifting of sanctions against the country can flood the market with oil supply. Therefore, investors need to remain cautious and watch for the outcome of the nuclear deal before considering big exposure to any energy stock.
Coming to Pioneer Natural Resources, the company has a robust capital expenditure of $1.85 billion for 2015 and the capital expenditure is likely to be funded through internal cash flows and existing cash. A strong investment plan for 2015 with potentially no impact on the company’s debt is the first reason to be bullish on the stock for the year.
According to the company’s presentation dated March 24, 2015, the likely operating cash flow in 2015 is $1.7 billion. With these projections coming after discounting current oil prices, I believe that operating cash flows for FY15 will certainly be in the range of $1.5 billion to $1.7 billion. Considering an operating cash flow of $1.5 billion for FY15, the remaining investments for FY15 can be covered with cash on hand of $1.0 billion as of December 2014. Therefore, Pioneer Natural Resources has an excellent liquidity position that will ensure that the company’s balance sheet remains healthy during the year.
I must mention here that the company’s strong operating cash flow projection for FY15 comes from well hedged positions. The company has derivatives covered for 90% of 2015 oil production, with most volumes protected by swaps at $71 per barrel. Further, 90% of gas production for 2015 has also been hedged by 3-way collars. As a result of these hedged positions, the operating cash flow outlook is firm for the year and it implies that an investment outlook of $1.85 billion is also firm.
From a long-term perspective, Pioneer Natural Resources has proved reserves of 799mmboe as of FY14. The company’s reserves translate into proved reserves to production life of 11 years, providing long-term cash flow visibility. Further, with 81% proved developed reserves, the company’s EBITDA economics will be attractive once oil prices recover.
Another factor from a long-term perspective is the point that 44% of the company’s proved reserves is oil and 21% is natural gas liquids. A high percentage of oil and NGL reserve is positive for the company’s EBITDA margin, besides the point that the company’s assets have an attractive IRR. For 4Q14, the company’s production cost was $13.61 per barrel and I believe that low production cost is one of the major long-term positives.
In conclusion, Pioneer Natural Resources has one of the best assets in the United States, the company has a strong liquidity position and is well hedged for 2015, the company’s long-term cash visibility is strong considering the reserve life and PXD is well positioned to navigate the current crisis. This makes the stock an attractive investment for 2015 and for the next few years.
