Last week, Pioneer Natural Resources (PXD 0.48%) floated 12 million new shares of its stock at $117 each -- this, at a time when most of the sector was, and still is, being hammered by the apparently ever-sinking price of oil.
In this video segment, Sean O'Reilly, Taylor Muckerman, and Tyler Crowe explain what Pioneer is planning to do with the funds it raised from the issue, what to make of the slight dip in stock price that it caused, how the company compares to its peers, and how the move fits into Pioneer's bigger plans for 2016.
A full transcript follows the video.
This podcast was recorded on Jan. 14, 2016.
Sean O'Reilly: Leland Paine of Fairview, Texas, writes: "I'm really interested in what you, Taylor, and Tyler think about PXD. In the past, Motley Fool has high regard for the company, and last week, they sold $12 million shares at a price of $117. They announced the offering late Tuesday, Jan. 5, after closing at $125, and the stock opened up the next morning at $115. The funds are being used to fund production increases. Does this make sense for this company? WTI trading at $31, trending downwards." What do you guys think? Taylor?
Taylor Muckerman: Well, that's Pioneer Natural Resources, you were talking about the ticker --
O'Reilly: Oh, yeah.
Muckerman: No big deal.
O'Reilly: I just assumed everybody knew. Just kidding.
Muckerman: Well, now they do.
Tyler Crowe: It is the energy show, after all.
Muckerman: That's right.
O'Reilly: This stock hasn't fallen much in the last year and a half.
Muckerman: Compared to its peers.
Crowe: Let me pull it up for you guys while you keep going.
Muckerman: Compared to the peers, no. Especially lately. And if you look at its multiples, it is trading higher than its peers. So relative to its peers, maybe a stock issuance wasn't a terrible idea.
O'Reilly: Right, get the money while the gettin's good.
Muckerman: Yeah, maybe they want to go buy a cheaper, smaller peer, or some assets from one of them. But you look at 7.6 EV-to-EBITDA multiple versus a peer group of about 12 people that I looked at, averaged 4.6. So it is trading higher. Much better debt profile. And it was, I guess, Wall Street looked at it as kind of an encouraging fact that this deal was fully subscribed.
O'Reilly: It wasn't surprising that --
Muckerman: Oil assets --
O'Reilly: -- it opened up a little down, because it was priced a little bit below the market. So that's fair.
Muckerman: But still, the $117 that it was offered at is still valuing shares much higher than its large-cap E&P peers. I think rightfully so. It's growing production thanks to some efficiencies that it's still getting from optimization, reduced cycle time from well to well, and longer frack lines. So it's doing things that are going to keep it competitive in this low-price market. And it's got tremendous assets in the Mid-Con.
Crowe: Yeah, and one of the things they do slightly have going for them is, if you look at the way the cash lays out, it seems to be they're getting to the point where all of these efficiencies and price gains, and now, with, I guess you could say, the services companies giving them such a larger discount than what they were used to getting, they're starting to see a point where, for a while there, I think it was even when David Einhorn was looking at them as one of the staple examples of what's wrong in the shale patch. But they're starting to get to the point where there's capital discipline there, and those efficiencies are finally starting to catch up. Actually, pulling it up here, in the past 18 months, right about July of 2014 --
Crowe: That's when we started to see shakiness in the market, Pioneer's down 47% from there compared to then. To put that in a bit of perspective, Continental Resources is down 75% over that time. And Chesapeake Energy, everybody's favorite, is down 87%.
Muckerman: Speaking of Continental, they have zero hedges this year, because Harold Hamm stripped all those away, whereas Pioneer Natural Resources has like 80%-85% of its 2016 production hedged.
Crowe: Yeah, they made some decent moves. It's hedged at $60, which doesn't sound fantastic.
O'Reilly: It sounds good right now.
Crowe: When you're comparing it to $29, $30, it sounds amazing.
O'Reilly: Looking like friggin' geniuses over here.
Muckerman: And that's what Harold Hamm just declared. He thinks the price is going to end in 2016 at $60 a barrel. So even if his prediction comes true, Pioneer isn't losing money on those hedges.
Crowe: Yeah. Another little added bonus that they have is, last year, they sold assets to Enterprise Products Partners, they netted about $1 billion, but only got half of it. So this half of the year, they're getting an extra $500 million, which will help to pay for that capital spending. They kept their capital spending for 2016 just about level what they did last year, while still predicting 10%-15% production growth. If you can get that kind of efficiency, you can't really fault them too much for being a little bit more aggressive while everybody else is reeling.
O'Reilly: I mean, it's been a little greedy while everyone else is being a little fearful. I don't know.
Crowe: It's not the worst thing in the world.