Pioneer Natural Resources (NYSE:PXD) is on a mission to become a cash-flow growth machine in the coming decade. The oil and gas company believes it can leverage its prime position in the Permian Basin to generate a 20% compound annual growth rate (CAGR) in production and cash flow through 2026, which would put it in elite company. Because it's still in the early days of that plan, it's crucial that it stays on track, which is why investors should keep an eye on its progress in the second quarter. Here are a few things to watch when the company reports those results later this week.

Check if production met expectations

Pioneer Natural Resources got off to a great start in 2018 by producing 260,000 barrels of oil equivalent per day (BOE/D) in the Permian, which was up 3% from the fourth quarter and at the high end of its guidance range. The company expects output to continue rising in the second quarter to between 268,000 to 276,000 BOE/D. Investors should see if Pioneer produced at that level since it would keep the company on track to achieve its full-year growth guidance to boost production from the region by 19% to 24%, which would likewise keep it on pace to hit its 10-year goal.

A drilling rig site with the sun setting in the background.

Image source: Getty Images.

See if inflation or pipeline constraints are affecting its strategy

Pioneer currently expects to spend $3.2 billion to achieve its full-year production growth target. However, two issues have developed over the past few months that bear watching since either could affect the company's ability to meet its goal while sticking to its budget.

First, because of faster-than-expected production growth, the Permian is getting close to maxing out its available pipeline capacity. According to an estimate by Pioneer in late June, pipelines will reach their limit in three to four months. Because of that, "some companies will have to shut in production, some companies will move rigs away, and some companies will be able to continue growing because they have firm transportation," according to company Chairman Scott Sheffield.

Several companies have already announced changes to their plans, including Noble Energy (NYSE:NBL) and ConocoPhillips (NYSE:COP). Noble Energy CEO David Stover stated in the company's second-quarter earnings release that "given industry constraints in the Permian, we plan to reallocate some near-term investment to our other U.S. onshore basins." ConocoPhillips, likewise, plans to shift gears, saying it will reallocate at least one rig from the Permian to the Eagle Ford.

The other issue is cost inflation. Several large oil companies increased their capital budgets during the second quarter, including ConocoPhillips, in part because of cost inflation. In ConocoPhillips' case, this was due to rising service costs as a result of higher activity levels this year as well as from tariffs on steel. ConocoPhillips noted that the price of steel used in pipes and valve fittings already increased by 26% since the start of the year.

Given that these issues are affecting peers, investors should see if they're also affecting Pioneer's ability to achieve its Permian growth plan while sticking to its budget.

Stacks of drilling pipe.

Image source: Getty Images.

Look for any changes to its plan to become a Permian pure play

Pioneer Natural Resources announced earlier this year that it plans to sell all its assets outside of the Permian so it can become a pure-play on that fast-growing region. The company has already sold several positions, including some acreage in the Eagle Ford Shale.

However, given the pipeline constraints in the Permian, investors should see if the company still plans to sell that position since it would give up its flexibility, which has proven to be an important strategic advantage for rivals like Noble Energy and ConocoPhillips.

Watching for potential speed bumps

Pioneer Natural Resources laid out its vision for the future, which would see the company expand production and cash flow at a fast pace for a decade. It's still in the early days of that ambitious plan, which is why investors should see if it's on track in light of some potential issues that cropped up for other drillers during the quarter. If it's still on pace, that increases the likelihood that this oil producer could produce tech-stock-like gains in the coming years.

Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.