While reviewing the year-end report by Pioneer Natural Resources (NYSE: PXD), a company that I haven't followed very closely in the past, a few things grabbed my attention.
The first was that more than half of Pioneer's reserves are oil and liquids, which isn't as common as you'd think. Many more mid-sized independents, like Newfield Exploration (NYSE: NFX) and Cimarex Energy (NYSE: XEC), are natural gas-weighted. Pioneer's oiliness owes in large part to its leading position in the Spraberry field in West Texas, which is the largest onshore oil field in the lower 48. The company is earning about 50% rates of return in this field, which is not bad for a legacy asset. EOG Resources (NYSE: EOG) is reporting more eye-popping figures in the Williston basin, but Pioneer won't go hungry at anything like current oil prices.
I was already aware of Pioneer's strong presence in the Eagle Ford shale, which is shaping up to be one of the more interesting new shale plays, but the fact that the company is looking to bring in a joint-venture partner is news to me. The company is thus going the route of Carrizo Oil & Gas (Nasdaq: CRZO) and EXCO Resources (NYSE: XCO), rather than shouldering the entire drilling burden, as Petrohawk Energy (NYSE: HK) prefers to do. As for the growing popularity of the Eagle Ford, this is summed up by a recent Ross Smith Energy Group report, which found that rigs operating in the play quadrupled from 11 in August to 45 in January. That's some serious heat down in South Texas.
A third thing that struck me is how heavily hedged Pioneer is in 2010. With derivatives covering 85% of forecasted oil production and 85% of expected gas output, that doesn't leave a lot of room for doubt as to Pioneer's $1 billion cash flow projection. Planned capital spending, 90% of which is oil-focused, falls well within this cash flow forecast.
Pioneer is a sturdy-looking outfit that may hold a lot of appeal for those who don't want to have to worry about which way oil and gas prices zig or zag in any given week. If you want me to add this one to my roster of routine coverage, just say the word.
Disclosure: Author doesn't have a position in any company mentioned.