Pioneer Natural Resources (NYSE:PXD) defied expectations once again, trouncing analysts' expectations on how much money it can make from shale drilling. This latest beat came despite facing several production-related headwinds during the quarter.

Further, while the company didn't unveil any bombshells like it did last quarter, it did reveal its intention to reaccelerate drilling activities. Because of that, the company remains confident it can hit its ambitious long-term growth targets, even as many rivals are rethinking theirs.

An oil pump with the sun setting in the background.

Image source: Getty Images.

Drilling down into the numbers


Q3 2017

Guidance or Expectations



276,000 BOE/D

274,000-279,000 BOE/D


Earnings per share




Data source: Pioneer Natural Resources. BOE/D=barrels of oil equivalent per day.

Pioneer Natural Resources' production came in just below the mid-point of its guidance range which was very impressive. That's because the company faced several headwinds in the quarter, which impacted output. Between Hurricane Harvey and a fire at a third-party natural gas processing facility, Pioneer had to hold back 3,500 BOE/D during the quarter. If it wasn't for those issues, output would have hit the high-end of its guidance range.

Pioneer also continues doing a great job pushing down costs. The company noted that production expenses were down to $6.01 per BOE during the quarter, which is an improvement from $6.19 per BOE last quarter and $6.79 per BOE in the third quarter of last year. Because of that, Pioneer is earning more per barrel, which helped boost profitability.

An oil field at sunset.

Image source: Getty Images.

A look at what lies ahead

One of the few surprises in the report was that Pioneer Natural Resources plans to boost spending by $50 million this year, bringing its budget up to $2.75 billion. That comes just one quarter after the company cut $100 million in spending due to a drilling issue and low oil prices. It plans to use this extra money to add two additional drilling rigs and build an inventory of drilled uncompleted (DUC) wells, which are those that are drilled but not fracked and therefore won't produce any oil and gas. The reason for this is that Pioneer wants to take advantage of low rig rates in the current environment to get these wells started, which gives it the flexibility to complete them at a later date, such as when oil is higher, or fracking service rates are lower.

The company had intended on adding two drilling rigs to its fleet in the second half of next year in support of its long-term growth plan. However, by adding them now, it further reaffirms Pioneer's commitment to that strategy, which would see it grow production by a more than 15% annual rate through 2026, boosting output up to 1 million BOE/D. That said, the company did make one slight change, which is that it can now fund that plan within cash flow at $50 oil by 2020. That's a minor adjustment from the initial promise that it would finance capital expenses within cash flow by next year, though at $55 oil. While the company currently has $2.1 billion in cash and one of the lowest leverage ratios in the industry to bridge the gap, the current strategy is a bit more aggressive, especially since many rivals have shifted their focus to generating free cash flow and not excess growth.

For example, Encana (NYSE:ECA) recently updated its five-year plan, shifting the focus from how much it could grow production to cash flow. Encana now sees cash flow rising by a 25% compound annual rate through 2022, which will enable the company to produce $1.5 billion in excess cash over that timeframe at $50 oil. Meanwhile, Occidental Petroleum's (NYSE:OXY) goal is to reposition its operations so that it can fund its massive dividend and mid-single-digit production growth while living within cash flow at $50 oil. While Occidental needs to make more progress before it can live within cash flow at $50 oil, it will get there well in advance of 2020. Those are just two of a growing number of oil companies that are building their business to thrive at $50 oil in the near-term. That makes Pioneer appear like it's a second-class oil stock, which might start turning off investors.

A great quarter, but...

Overall, Pioneer Natural Resources posted exceptional third-quarter results since it overcame some production constraints to blow past analysts' estimates. That said, the company's decision to reaccelerate its drilling activities and reaffirm its growth outlook might not sit well with investors since the focus of most rivals is on thriving at $50 oil in the immediate future, not several years down the road. Because of that, it appears to be falling behind rivals, which could keep a lid on its stock price.