Introduction
Pioneer Natural Resources Company (PXD) is one of the largest independent E&P companies in the United States.
The company produces exclusively in the Permian Basin and owns extensive acreage. The company said it holds a deep inventory of high-quality locations in the Midland Basin, tier 1 & 2.
This solid oil company has been added to my domestic E&P recently, which includes EOG Resources (EOG), Occidental Petroleum (OXY), Devon Energy (DVN), and two US supermajors, Chevron Corp (CVX) and Exxon Mobil (XOM).
On February 22, 2023, Pioneer Natural Resources reported its 4Q22 and Full-year 2022 results.
Since then, we learned early this month that Exxon Mobil might acquire the company and another one in the Permian basin. Thus, it is the right time to look at the PXD fundamentals to evaluate such a significant acquisition and its benefits for PXD Shareholders.
Note: I have followed PXD quarterly since 2022. This new article is a quarterly update of my article published on December 21, 2022.
1 - Investment Thesis
Pioneer Natural Resources came out with adjusted quarterly earnings of $5.91 per share in 4Q22, beating analysts' expectations, compared to earnings of $4.58 per share a year ago.
The company estimates production for 2023 between 670K Boep/d and 700K Boep/d and an estimated $4+ billion in free cash flow.
However, oil prices have been highly volatile recently and retraced significantly due to rampant inflation forcing the FED to hike interest rates numerous times in 2023 by 25 points again.
Recently OPEC+ surprised the market and indicated that it would cut production by an extra 1.6 Million barrels to prevent the prices from sliding further and create support.
However, the risk of recession due to the FED's action may not help oil prices for long as demand may tumble in 3Q. Furthermore, the natural gas price has crashed significantly in the past few months, representing about 30% of the total output. Thus, I expect weak first quarter 2023 results and warn investors about a possible stock slide soon, assuming no unexpected news.
Natural gas prices are down 67% on a one-year basis, while oil prices are down 17%. See the chart below:
On the positive side, we learned from WSJ on April 3, 2022, that Exxon Mobil has held preliminary, informal talks with Pioneer Natural Resources about a possible acquisition.
Exxon Mobil (NYSE:XOM) has held preliminary, informal talks with Pioneer Natural Resources (NYSE:PXD) about a possible acquisition, The Wall Street Journal reported Friday. Exxon also has discussed a potential tie-up with at least one other company, as it seeks a blockbuster deal in the shale patch, according to the report.
I think XOM and PXD would benefit from this merger, but It will only help PXD in the short term, hurting XOM's stock price. Therefore, I have mixed feelings about it. The synergies are pretty apparent and justify a business association in the Permian. But as always, the XOM shareholders will pay for it and will likely lift PXD by a few percentage points.
Thus, using any upticks to take short-term profit LIFO is crucial as I have advocated for many years in my marketplace, "the Gold and oil corner."
2 - Stock Performance And Commentary
PXD continues to underperform its peers significantly, especially Exxon Mobil, up 33% on a one-year basis. However, PXD rewards shareholders with a very high dividend policy. PXD is now down 18% on a one-year basis.
Pioneer Resources - Financial Table 4Q22 - The Raw Numbers
Pioneer Natural Resources 4Q21 1Q22 2Q22 3Q22 4Q22 Revenues in $ Million 5,576 6,147 7,005 6,057 5,174 Total Revenues + other in $ Million 4,317 6,172 6,920 6,093 5,108 Net Income in $ Million 763 2,009 2,371 1,984 1,481 EBITDA $ Million 1,693 3,212 3,681 3,164 2,562 EPS diluted in $/share 2.97 7.85 9.30 7.93 5.98 Operating cash flow in $ Million 2,225 2,584 3,221 2,945 2,598 CapEx in $ Million 978 917 917 972 1,114 Free Cash Flow in $ Million 1,246 1,667 2,304 1,973 1,484 Cash and cash equivalent $ Million 4,040 3,256 3,252 1,822 1,204 Total Debt in $ Million 6,932 5,690 5,693 5,214 4,904 Dividend per share in $ 3.64 3.78 7.38 8.57 5.58 Shares outstanding (diluted) in Millions 258 256 254 250 249 Oil Production 4Q21 1Q22 2Q22 3Q22 4Q22 Oil Equivalent Production in K Boep/d continuing operations) 687.143 637.756 642.844 656.582 661.573 Global Natural gas price ($/MMBtu) 5.20 4.81 6.72 7.58 4.98 Price per $/Boe 58.78 68.48 79.31 69.93 57.76
Source: PXD press release
Analysis: Revenues, Earnings Details, Free Cash Flow, Debt, An Oil & Gas Production
1 - Total Revenue and Others was $5,174 million in 4Q22
Note: Revenues from oil and gas and others were $5,108 million in 4Q22.
Pioneer Natural Resources reported a net income of $1,481 million, or $5.98 per diluted share, for the fourth quarter of 2022 compared to $763 million or $2.97 in 4Q21.
The net cash provided by continuing operations activities in 4Q22 was $2,598 million, compared with $2,221 million in 4Q21.
Below are the 2022 highlights from the Presentation:
2 - Free Cash Flow was $1,484 million in 4Q22
For the first quarter of 2023, the Company's Board of Directors (Board) has declared a quarterly base-plus-variable dividend of $5.58 per share, comprised of a $1.10 base dividend and a $4.48 variable dividend. 4Q22 dividend was $5.71 per share.
The fourth quarter dividend represents a dividend yield of 11%, a record in the industry.
Also, Pioneer Resources has an ongoing $4 billion share buyback program and has bought $1.9 billion worth of shares since January 1, 2023, or $400 million executed in 4Q23.
3 - Production was a Total of 661.573k Boep/d in 4Q22
3.1 - Quarterly Oil Equivalent Production
The company produced 661.573K Boep/d in the fourth quarter, comprising 78% of liquids (Oil+NGL). Production comes from the Permian Basin.
Production costs, including taxes, averaged $11.08 per barrel of oil equivalent, which is impressive progress from $13.62 per BOE in the preceding quarter.
3.2 - Equivalent production is spread between oil, NGL, and natural gas.
Liquids represented 78% of the total input.
3.3 - Realized prices per Boe
Prices of oil and NG have been strong the past few quarters and have nearly doubled on a year-over-year basis. However, oil prices have dropped significantly since 2Q22 and will be much lower for 1Q23, hurting revenues.
4 - Net Debt was $3.7 billion in 4Q22
Pioneer Natural Resources had cash and cash equivalents of $1,204 million as of December 31, 2022, compared with $4,040 million as of December 31, 2021. Cash has been falling every quarter, as shown in the graph below.
5 - 1Q23 Oil Equivalent Production Guidance is expected at 673K Boep/d (mid-point)
Revenues for the first quarter of 2023 will probably go down again due to oil prices that have retreated from their record high in June and the massive drop in natural gas.
Technical Analysis (Short Term) And Commentary
Note: The chart is adjusted for the dividend.
PXD forms an ascending wedge pattern with resistance at $216 and support at $203. The ascending wedge patterns are bearish patterns that often mean a reversal of the current trend.
Thus, I recommend selling PXD between $215 and $218.3 with possible higher resistance at $226.3. Conversely, as indicated in the chart above, I think it is safe to accumulate PXD between $205.7 and $201, with possible lower support at $193. I will add below $200.
However, it is crucial to base your expectation on oil and gas prices and adjust depending on the forecast. Also, any news about an acquisition could push PXD higher. However, those talks and subsequent due diligence will require many weeks or months. Thus, I am afraid PXD will not fare well in the next few months due to anticipated weaker-than-expected 1Q23 results.
Trading LIFO is the most suitable solution, in my opinion. It lets you keep a long-term position delivering a sizeable dividend and allowing you to trade short-term fluctuations and accumulate short-term gain.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
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