Pioneer Natural Resources (PXD 0.07%) has been growing at a brisk pace in recent years thanks to its prime position in the resource-rich Permian Basin. That trend likely continued during the third quarter, and it's one of a few things investors should keep an eye on when the company reports those results later this week.
Check if production hit the target
Pioneer Natural Resources currently anticipates that its output in the Permian Basin will range between 278,000 to 288,000 barrels of oil equivalent per day (BOE/D) during the third quarter. Meanwhile, it sees its oil production from the region averaging 178,000 to 184,000 barrels per day. At the midpoint, both forecasts imply a 3% increase from the second quarter.
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Investors should see if the company hit that target since that means it's still on track to achieve its full-year production forecast, which would see it boost its output 19% to 24% compared to 2017's level. It's important that the company stay on pace with that outlook since it's in year two of a 10-year plan to boost its production in the region up to 1 million BOE/D by 2026.
Look for any changes to its forecast due to the pipeline issues in the Permian
In Pioneer's second-quarter earnings release, the company noted that it was increasing its full-year capital budget from $2.9 billion to a range of $3.3 billion to $3.4 billion. Driving the higher spending was a decision to add four more drilling rigs to support its 2019 plan as well as complete more wells using an enhanced technique during the second half of the year.
What's noteworthy about Pioneer's plan to ramp up its drilling activities is that it's coming even though the industry is experiencing significant pipeline capacity issues in the Permian Basin. Those problems forced several rivals to reduce their activity levels until new pipelines start up at the end of next year. However, Pioneer isn't experiencing those problems because it has already locked up firm transportation contracts for more than 90% of its oil through early 2021. Given the company's proactive nature, investors should see if it was able to take advantage of the region's current activity slowdown to lock up more rigs or service contractors for 2019 at good prices to accelerate its activities even further.
Image source: Getty Images.
See if it's close to finding a buyer for its Eagle Ford Shale assets
As part of Pioneer's shift to the Permian, it has been selling off its other assets. So far this year, it found buyers for the Raton Basin, West Panhandle Field, South Texas, and some of its Eagle Ford Shale acreage. Its biggest remaining position is the rest of its Eagle Ford Shale assets, which it plans to sell by year end.
The fact that it hasn't yet sold the bulk of its Eagle Ford Shale assets is worth noting given the heightened level of M&A activity in that region over the past few months. In July, for example, oil giant BP (BP -1.17%) sealed a deal to buy the bulk of resource giant BHP Billiton's (NYSE: BHP) shale assets, including those in the Eagle Ford, for $10.5 billion. Meanwhile, in the past week, Chesapeake Energy (CHKA.Q) and Denbury Resources (DNR) made multibillion-dollar acquisitions in the Eagle Ford. BP, Chesapeake, and Denbury each believe that the Eagle Ford can accelerate their growth prospects and boost cash flow as they drill into its oil-rich rocks.
Given all of the recent M&A activity in the region, investors should see if it has any impact on Pioneer's plans to sell its Eagle Ford assets by year end. For example, if that trio were among the bidders for Pioneer's assets, then it's possible it might not get a deal done by the end of the year. On the other hand, the renewed interest in buying land in the region could be drawing in more bidders, which might boost the value of Pioneer's position.
The focus continues to shift to the Permian
All eyes will be on Pioneer Natural Resources' steady pivot to the Permian Basin. Ideally, the company will report that it met its production expectations during the third quarter while also taking advantage of recent industry trends to not only further ramp its activities in that region, but also cash in on its position in the Eagle Ford. If it accomplished all of that during the quarter, it could provide the stock with the fuel needed to reaccelerate after it sputtered during October's market swoon.
