Pioneer Natural Resources' (NYSE:PXD) fourth-quarter results can be summed up pretty simply, as lousy oil prices ruined what would have been a great quarter. In fact, despite the weak oil market, the company's operations were really strong in the quarter, as its production continued to grow. That said, the company's well-oiled drilling machine is about to run out of gas, as the weak oil market starts to have an impact on future growth.
Drilling down into the numbers
For the quarter, Pioneer Natural Resources reported adjusted earnings of $116 million, or $0.80 per share. That's about $0.15 less than analysts were hoping to see, and the decline was largely the function of lower oil prices, as the company realized $66.64 per barrel of oil during the quarter, well below the $90.88 it enjoyed in the fourth quarter of 2013.
Despite weaker oil prices, the company's underlying business was strong last quarter. Production increased 8% over the third quarter to top 201,000 barrels of oil equivalent per day. Oil production was particularly strong, as it increased 13% quarter over quarter. That would have been great news if the price of oil hadn't fallen off a cliff in the quarter.
Still, despite the weakness in the oil market, Pioneer Natural Resources remains in a solid position. The company's oil and gas hedges have helped to mitigate some of the impact of lower oil prices, as its non-adjusted earnings were $431 million, or $2.91 per share, largely because of gains on its hedge portfolio. Meanwhile, Pioneer's strong balance sheet continues to provide it with ample liquidity, as it has a billion dollars of cash on hand to weather the current storm.
A look ahead
Because the oil market remains weak, Pioneer Natural Resources is making changes to its growth plans. The company is cutting its rig count by 50% and overall spending by 45% for 2015. That move have 16 rigs running next year, with a total capital spend of $1.85 billion. Those rigs are expected to deliver production growth of about 10%, which is well below the previous plan of at least 16% production growth in 2015 and 2016. Further, the company is slowing spending on several infrastructure projects that had been designed to help facilitate its long-term growth plan. However, its spending plan will be funded by its expected cash flow of $1.7 billion, which assumes a $55 oil price, along with its $1 billion of cash on hand, which is important to note, as the company isn't stretching its balance sheet to grow during this weak oil market.
What's most interesting about Pioneer's plan is that its growth is really front-loaded to the first half of the year. The company sees its production peaking by mid-year and then declining by the end of the year, so that its 2015 exit rate will be right around its 2014 exit rate. But should oil prices improve, or oilfield service costs dramatically drop, the company does have the flexibility to add more drilling rigs later in the year, which could push production higher than forecast.
Overall, Pioneer Natural Resources' quarter was about as good as could be expected, given the terrible oil market at the end of last year. Meanwhile, its tepid outlook is also to be expected, as the price of oil remains unstable because of an oversupplied oil market. That's why the company is being prudent by cutting its spending and its growth: There's no reason to grow as quickly as it had been, given where oil prices are right now.