In what has become a regular occurrence, Pioneer Natural Resources (PXD +0.00%) once again exceeded expectations. The Permian Basin-focused driller not only trounced analysts' earnings estimates during the second quarter but also beat its production guidance. Meanwhile, the company is outperforming its cost-reduction initiatives. That's enabling it to generate more free cash flow, which it's increasingly returning to investors.
Drilling down into the numbers
|
Metric |
Q2 2019 |
Guidance or Expectations |
Difference at Midpoint |
|---|---|---|---|
|
Permian production |
330,000 BOE/D |
313,000 to 328,000 BOE/D |
9,500 BOE/D |
|
Adjusted earnings per share |
$2.01 |
$1.86 |
$0.15 |
Data source: Pioneer Natural Resources. BOE/D = barrels of oil equivalent per day.
Pioneer Natural Resources' second-quarter production came in above the top end of its guidance range and 3% higher than its first-quarter total. Oil output, meanwhile, averaged 206,000 barrels per day, which was near the top end of its guidance range. Fueling the company's high-end result was the continued outperformance of newly drilled wells in the Permian Basin.
The company complemented its high-end production by continuing to drive down costs. Its production costs came in below the midpoint of its guidance range, while general and administrative expenses were well below its forecast.
Meanwhile, the company continues to seek out ways to maximize the value of every barrel it produces by working on getting its output to premium-priced markets. Those efforts enabled it to generate an extra $81 million of revenue during the second quarter.
Image source: Getty Images.
A look at what's ahead
Pioneer's robust results so far this year have it well on track to achieve its full-year forecast to produce between 320,000 and 335,000 BOE/D out of the Permian. That outlook represents a 12% to 17% increase from 2018's level.
Meanwhile, the company's success in reducing costs is allowing it to trim the top end of its capital expense budget by $150 million. That will reduce the company's range to between $3.05 billion and $3.25 billion, which it can fully fund with its anticipated cash flow of $3.5 billion. As a result, the company will produce even more free cash flow this year.
The Permian driller is increasingly returning that money to shareholders. It bought back $200 million of its stock during the quarter. That pushed its year-to-date total to $528 million of its $2 billion authorization. Meanwhile, Pioneer boosted its dividend once again, this time to an annualized rate of $1.76 per share, payable quarterly, which implies a 1.4% yield at the current stock price. That's a jaw-dropping 2,100% increase since the start of 2017.
The company continues to work on further narrowing its focus to its core Permian exploration and production business. As a result, it's seeking a buyer for its 27% interest in a gas-processing joint venture with Targa Resources. The sale of this stake would reduce the amount of money Pioneer needs to invest in expanding that business, which helps support its operations. The company is also evaluating the long-term strategy for its water infrastructure. It currently expects to invest $250 million in these midstream assets this year, so a sale of those businesses would bring in more cash as well as improve its free cash flow, giving the company more money to return to shareholders.
Pioneer's Permian-focused strategy continues to pay dividends
Pioneer Natural Resources is working hard to maximize the value of its prime position in the Permian Basin. The company is driving down costs while also trying to get the most money for every barrel it produces. That's enabling it to generate an increasing amount of free cash flow that it's returning to investors, which should enrich them over the long term.
