For oil producers like Whiting Petroleum (NYSE:WLL) and Baytex Energy (OTC:BTEG.F), crude's recent rise to $50 a barrel has been a lifesaver. That's because $50 a barrel is a critical level for both cash flow and drilling returns, putting both companies' operations on a more sustainable level. However, for Pioneer Natural Resources (NYSE:PXD), $50 oil means something even more exciting. That's because it's the price where the company could potentially accelerate its drilling activities to fuel stronger growth for its shareholders.

Off to a fast start

Pioneer Natural Resources is already projecting strong production growth in 2016, with the company recently boosting its growth outlook to a 12%+ increase in output over last year's average daily rate. That's up from the company's previous production growth target of 10% thanks to much stronger well results in the first quarter. It was a quarter where the company blew past its guidance, delivering average daily production of 222,000 barrels of oil equivalent per day, or BOE/d, against a guidance range of 211,000 BOE/d to 216,000 BOE/d.

Few producers can rival that growth rate during the current environment, with several oil companies unable to even match last year's output because of steep decline rates or uneconomic production. Whiting Petroleum, for example, had to cut its capex budget by 80% because of weakening cash flow. That initially led to the expectation that Whiting Petroleum's production would slump 18.5% over last year's rate, with the company originally expecting to wind down its fracking operations by mid-year. While that wind-down is now off the table thanks to a financial arrangement signed last quarter, it's still unlikely Whiting Petroleum will grow its production this year, even if oil continues to rally.

Meanwhile, Baytex Energy needed to shut in 7,500 barrels per day of production during the first quarter, or 9% of its total output, due to very weak economics. In addition to that, Baytex Energy had to cease drilling in two of its core areas because those plays needed oil in the mid-$40s in order to simply break even. While these two options are now back on the table with oil around $50, that isn't likely going to be enough to enable the company to increase its output this year. 


Image source: Pioneer Natural Resources, Sands Weems. 

Accelerating at $50 a barrel

Oil's recent rise to around $50 a barrel will significantly improve the cash flow and drilling returns of both Whiting Petroleum and Baytex Energy. Pioneer Natural Resources, likewise, will see a boost in both its cash flow and returns at $50 oil. However, that price is key for another reason: It's the trigger point at which the company can accelerate drilling to drive even stronger production growth.

In Pioneer Natural Resources' first-quarter earnings release, the company noted it was "expecting to add five to 10 horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive." For perspective, the company is currently running just 12 rigs, so the increase to 17 or 22 is substantial.

That said, the company did note that oil hitting $50 wasn't the only trigger, but that it also had to be comfortable that oil was sustainable above that key level. Crude has yet to be able to hold that level, with oil seemingly hitting a ceiling at $50, and sinking below that price in recent days. However, as the crude oil market fundamentals continue to improve thanks to solid demand and weakening supplies from the continued projected production declines of companies like Whiting Petroleum and Baytex Energy, it's possible crude will find firm footing at or above $50 before the year is out. When that happens, Pioneer Natural Resources plans to put those rigs back to work so it can accelerate production growth.

Investor takeaway

Oil has finally reached an exciting level for Pioneer Natural Resources. As long as crude can stick at $50 a barrel, it should give the company the confidence to start adding rigs, which will accelerate its already-strong production growth. That puts that company well ahead of most peers, which don't have much hope to get production back up to its prior peak before the end of this year, let alone grow it.

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