Pioneer Natural Resources Permian

Source: Pioneer Natural Resources, Sands Weems.

Oil companies have really delivered surprisingly strong second-quarter results as they've significantly cut their costs, resulting in much better-than-expected earnings, Pioneer Natural Resources (NYSE:PXD) included. However, that wasn't the only surprise the company had in store for investors during the quarter. Here's a closer look at the top three.

1. Surprise: We beat the estimates
As mentioned, Pioneer Natural Resources was one of a growing number of oil producers that beat analysts expectations during the quarter. In fact, its adjusted income of $15 million, or $0.10 per share, was twice what analysts were expecting.

Driving this better-than-expected result was the company's strong production, which averaged 197,000 barrels of oil equivalent per day, or BOE/d, during the quarter. Sprayberry/Wolfcamp production was especially strong in the quarter as it more than offset production weakness from the company's Eagle Ford Shale and West Panhandle Field assets.

2. Surprise: We've really cut our costs
The other big driver of the earnings beat was the surprising reduction Pioneer Natural Resources is seeing in its overall cost structure. So far this year, the company has captured a 20%-25% year-over-year reduction in drilling and completion costs, a 20% reduction in horizontal tank battery construction costs, and a 17% decrease in lease operating costs on a per barrel basis.

Looking ahead, the company expects to extract even greater cost reductions by early next year. Its current expectation is for drilling and completion costs and horizontal tank batter construction costs to decline by 30% and 25%, respectively, over last year's levels.

3. Surprise: We're still planning to add rigs
Because of these solid cost reductions, Pioneer Natural Resources is still planning to add rigs during the second half of this year to drive production growth next year. This is in spite of the fact that oil prices plunged 20% in July and are now down to just $45 per barrel. The reason it's still adding rigs is because it's flush with cash after having sold its Eagle Ford midstream business, as well as the fact that it can earn a 45% to 60% internal rate of return on new wells, even at the currently projected future oil price.

Under its current plan, Pioneer Natural Resources will add two rigs per month through the second half of the year and has already added four rigs. Further, it plans to add eight more in the first half of next year, which will bring its activity level back to where it was before oil prices began to collapse late last year. While these new rigs won't boost production this year, they are expected to drive 15% production growth per year from 2016 to 2018, assuming no further adjustments.

Investor takeaway
Pioneer Natural Resources unveiled a lot of surprise for investors as it really cut deeply into its cost structure to deliver much better-than-expected profitability during the quarter. However, the most surprising revelation is the fact that the company is not changing its future drilling plans despite a more than 20% plunge in the oil price over the past month. The company is banking that this is just a temporary blip, as it's focusing on the longer-term oil price, which is expected to be higher than the current price and drive solid drilling returns for the company.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.