Sean O'Reilly: Leland Paine of Fairview Texas writes: "I'm really interested in what you,
Taylor, and Tyler think about PXD. In the past, Motley Fool has high regard for the
company, and last week, they sold $12M shares at a price of $117. They announced the offering
late Tuesday, January 5th, after closing at $125, and the stock opened up the next morning
at $115. The funds are being used to fund production increases. Does this make sense
for this company? WTI trading at $31, trending downwards." What do you guys think? Taylor?
Taylor Muckerman: Well, that's Pioneer Natural Resources, you were talking about the ticker--
O'Reilly: Oh, yeah.
Muckerman: No big deal.
O'Reilly: I just assumed everybody knew. Just kidding.
Muckerman: Well, now they do.
Tyler Crowe: It is the energy show, after all.
Muckerman: That's right.
O'Reilly: This stock hasn't fallen much in the last year and a half.
Muckerman: Compared to its peers.
Crowe: Let me pull it up for you guys while you keep going.
Muckerman: Compared to the peers, no. Especially lately. And if you look at its multiples,
it is trading higher than its peers. So, relative to its peers, maybe a stock issuance wasn't
a terrible idea.
O'Reilly: Right, get the money while the gettin's good.
Muckerman: Yeah, maybe they want to go buy a cheaper, smaller peer, or some assets from
one of them. But you look at 7.6 EV-to-EBITDA multiple versus a peer group of about 12 people
that I looked at, averaged 4.6. So it is trading higher. Much better debt profile.
And it was, I guess, Wall Street looked at it as kind of an encouraging fact that this
deal was fully subscribed.
O'Reilly: It wasn't surprising that--
Muckerman: Oil assets--
O'Reilly: --it opened up a little down, because it was priced a little bit below the market.
So that's fair.
Muckerman: But still, the $117 that it was offered at is still valuing shares much higher
than its large cap E&P peers. I think rightfully so. It's growing production thanks to some
efficiencies that it still getting from optimization, reduced cycle time from well to well, and
longer frack lines. So, it's doing things that are going to keep it competitive in this
low-price market. And it's got tremendous assets in the Mid-Con.
O'Reilly: Cool.
Crowe: Yeah, and one of the things they do slightly have going for them is, if you look
at the way the cash lays out, it seems to be they're getting to the point where all
of these efficiencies and price gains, and now, with, I guess you could say, the services
companies giving them such a larger discount than what they were used to getting, they're
starting to see a point where, for a while there, I think it was even when David Einhorn
was looking at them as one of the staple examples of what's wrong in the shale patch. But they're
starting to get to the point where there's capital discipline there, and those efficiencies
are finally starting to catch up. Actually, pulling it up here, in the past 18 months,
right about July of 2014--
... that's when we started to see shakiness in the market, Pioneer's down 47% from there
compared to then. To put that in a bit of perspective, Continental Resources is down
75% over that time. And Chesapeake Energy, everybody's favorite, is down 87%.
O'Reilly: Ow.
Muckerman: Speaking of Continental, they have zero hedges this year, because Harold Hamm
stripped all those away, whereas Pioneer Natural Resources has like 80-85% of its 2016 production hedged.
O'Reilly: Wow.
Crowe: Yeah, they made some decent moves. It's hedged at $60, which doesn't sound fantastic.
O'Reilly: It sounds good right now.
Crowe: When you're comparing it to $29, $30, it sounds amazing.
O'Reilly: Looking like friggin' geniuses over here.
Muckerman: And that's what Harold Hamm just declared. He thinks the price is going to
end in 2016 at $60 a barrel. So, even if his prediction comes true, Pioneer isn't losing
money on those hedges.
Crowe: Yeah. Another little added bonus that they have is, last year, they sold assets
to Enterprise Products Partners, they netted about $1B, but only got half of it. So this
half of the year, they're getting an extra $500M, which will help to pay for that capital
spending. They kept their capital spending for 2016 just about level what they did last
year, while still predicting 10-15% production growth. If you can get that kind of efficiency,
you can't really fault them too much for being a little bit more aggressive while everybody
else is reeling.
O'Reilly: I mean, it's been a little greedy while everyone else is being a little fearful.
I don't know.
Crowe: It's not the worst thing in the world.