What happened

Shares of Pioneer Natural Resources (PXD) tumbled 13% in February, according to data provided by S&P Global Market Intelligence. Weighing on the oil stock were lower oil prices, its fourth-quarter results, and an acquisition rumor. 

So what

Crude oil prices dipped in February. West Texas Intermediate, the primary U.S. oil price benchmark, fell 2.3% for the month, closing down near $77 per barrel. Several factors weighed on oil prices last month, including unseasonably warm weather across the U.S. and Europe, impacting demand for home heating fuels. Lower oil prices will impact the cash flow that companies like Pioneer Natural Resources can produce. 

That was evident in the fourth quarter. While Pioneer's average realized price for crude rose 9.4% year over year to $83.53 a barrel, that was its lowest quarterly average for the year: 

A slide showing Pioneer's realized prices for oil and gas over the last several quarters.

Image source: Pioneer Natural Resources Investor Relations Presentation.

The company also realized lower natural gas and natural gas liquids (NGLs) prices. As a result, free cash flow has fallen from $2.7 billion at the peak in the second quarter to $1.7 billion in the fourth quarter. Because of that, Pioneer's total dividend payment (fixed plus variable) has fallen from $8.57 per share in the second quarter to $5.58 per share for the fourth quarter due to its payout policy. 

This year, free cash flow could fall even further if oil prices remain lower because the company increased its capital spending. Pioneer set its budget between $4.6 billion and $4.95 billion. That's an increase from $3.8 billion last year, partly due to service cost inflation. That prospect of less free cash flow and a lower total dividend outlay put additional pressure on shares last month. 

The final factor weighing on the stock was a report by Bloomberg that Pioneer Natural Resources was considering an acquisition of natural gas producer Range Resources (RRC 0.06%). The rumored deal would diversify the company away from oil and the Permian Basin. However, Pioneer quickly doused cold water on the notion, putting out a press release stating that it's "not contemplating a significant business combination or other acquisition transaction." 

Now what

Lower oil prices have weighed on Pioneer Natural Resources stock in recent months as shares have fallen more than 25% from their peak. However, that weight could lift in the coming months. CEO Scott Sheffield believes oil prices will heat up this summer, potentially reaching the triple digits again. Several potential catalysts back that view, including the likelihood that demand will outpace supplies in the second half of the year. 

Higher oil prices would benefit Pioneer, enabling it to produce more free cash flow. That would give it more money to pay dividends and repurchase its beaten-down shares. This possible catalyst makes Pioneer look like a compelling buy for investors seeking an oil-fueled income stream with upside potential.