Pioneer Natural Resources (PXD), Valero Energy Corporation (VLO): Three Oil Companies Fueling Growth Prospects

The volatility of oil prices has brought a lot of uncertainty about the stable revenues for oil and gas companies. This has pushed companies to focus mainly on increasing production to maintain their revenue, even in lower-price scenarios. Let’s take a closer look at three of companies –  Pioneer Natural Resources (NYSE:PXD), Southwestern Energy Company (NYSE:SWN) , and Valero Energy Corporation (NYSE:VLO) – which are increasing their production capacities, either by acquiring new fields or by entering into joint ventures.

Pioneer Natural Resources (NYSE:PXD)

Profitable joint venture

Pioneer Natural Resources (NYSE:PXD) has recently posted the first-quarter results with revenue of $831.6 million, which was $784.5 million a year ago. The reason for its good performance is that it has  surpassed target production numbers. Its first-quarter production was 171,000 barrels of oil equivalent per day, which is up 6,000 barrels a day, or 4%, from the last quarter. This was the result of continued production growth of the company’s three liquids and resource-rich core assets in Texas, the Spraberry vertical, the horizontal Wolfcamp Shale, and the Eagle Ford Shale.

Under its production expansion plan, Pioneer Natural Resources (NYSE:PXD) entered into a Joint Venture with Sinochem Petroleum, a U.S. subsidiary of the Sinochem Group on Jan.30, 2013. Pioneer has a deep resource base and much of it is not explored yet. Under this JV, it has agreed to sell 40% of its 207,000 net acres in the southern portion of the Spraberry Trend. This has helped to increase production to 911 barrels of oil equivalent per day in this quarter from its prior 675 barrels of oil equivalent per day in the previous quarter. Currently, Pioneer is operating seven horizontal rigs in the area and expects to increase it to 10 by the end of the year, and 24 in next five years. Also the horizontal oil wells in the area are expected to reach 86 by the end of this year, 140 in 2014, and 165 in 2015. Sinochem will pay $500 million in cash when the JV closes, expected by the mid-2013, which will enhance the shareholders’ value with the substantial cash flow.

Talking about its Northern Wolfcamp region, Pioneer Natural Resources (NYSE:PXD) is running the $1 billion capital program for 2013-2014 to increase the horizontal well drilling. Presently, there is only one horizontal rig in the area; the company is planning to increase its count to five by the second quarter of 2013 and eight by the end of 2013. Due to the impressive performance of DL Hutt C No.1H – a well – the company decided to increase the rig count. The well has outperformed with the production of 100 million barrels of oil equivalent, or Mboe, over 100 days. These additions will help increase production from Pioneer Natural Resources (NYSE:PXD)’s wide area of operations.

Acquisition of the new profitable areas

In recent quarterly results, Southwestern Energy Company (NYSE:SWN) posted profit of $127.5 million, up from $107.7 million a year earlier. This increase was due to more production within the company, compensating for the weaker natural gas prices. The company’s Fayetteville and Marcellus shale properties showed an impressive rise of 10% in revenue. Looking at the present condition and future growth, Southwestern has increased its production expectation for 2013 to 631 billion to 642 billion of cubic feet equivalent, up from its earlier estimate of 628 billion  to 640 billion of cubic feet equivalent. The revised outlook represents a 13% increase in the production over the 2012 level.

To overcome the impact of natural gas prices, the company recently announced that it has acquired 162,000 Marcellus Shale acres in northeastern Pennsylvania from Chesapeake Energy for $93 million. Southwestern Energy Company (NYSE:SWN)’s purchase has nearly doubled its coverage in the Marcellus Shale, and being in the “dry gas” area of the region will provide a healthy opportunity to extract gas.

Presently, the net production of the Marcellus Shale is approximately 2 million cubic feet per day from 17 gross wells, which is expected to rise to double digits by the end of 2013.

Southwestern Energy Company (NYSE:SWN)’s holdings in the Fayetteville Shale in Northern Arkansas offer high-quality natural gas. In 2013, the company expects to spend about $830 million in the region under its expansion plan. It expects to drill around 400 wells in 2013, which is down from the 2012 level of 533. This lower count is the result of its focus on its newly acquired Marcellus Shale acres. Despite the reduction in capital spending in the region, the company’s plan of increasing production remains the same. The Fayetteville Shale contributes about 80% of the company’s production. Earlier, Southwestern had more than 700 million cubic feet equivalent per day capacity. But, after the addition of new regions, Southwestern now has a 2,700 million cubic feet equivalent per day capacity.

Share repurchases will boost investors’ confidence

Valero Energy Corporation (NYSE:VLO) reported solid first-quarter results, with operating income of $1.1 billion, compared to an operating loss of $244 million in the first quarter of 2012. This result was driven by the company’s refining activity, which increased by 11,000 barrels per day from the first quarter of 2012. It invested $3 billion in two hydrocracker projects recently. In the first quarter, the Port Arthur hydrocracker contributed $94 million to the earnings, before interest and tax, or EBIT, of the company. Its St. Charles hydrocracker is expected to begin by the end of June 2013. Based on the contribution of the Port Arthur hydrocracker, investors can expect a boost of $600 million – $1 billion in the company’s earnings before interest, taxes, depreciation, and amortization, or EBITDA, during the second half of 2013. It is also planning to increase the capacities of the new hydrocrackers along with the hydrocracker at Meraux.

With its strong cash flow, the company returned $415 million of cash to its shareholders through dividends and stock buybacks in the first quarter. It distributed $111 million through dividends and paid $304 million to purchase 6.9 million shares of its common stock. With the expected continued cash flow of $4 billion in the second quarter, Valero Energy Corporation (NYSE:VLO) is on track to retire 4%-5% of the shares annually, which will increase shareholders’ value.

Additionally, Valero Energy Corporation (NYSE:VLO) completed the spin-off process of its retail business, CST Brands, in the first week of May 2013. 80% of its CST Brand shares have been distributed. Valero Energy Corporation (NYSE:VLO) will retain 20% stake in CST after distribution, which it will sell in the market within 18 months. The company expects its spin-off business will derive higher profits in the shareholders account, being the largest independent retailer of motor fuels and convenience merchandise in the U.S. and Canada.

Conclusion

Pioneer Natural Resources (NYSE:PXD) Natural Resources will benefit from its joint venture, which will enhance its production as well as revenue. Southwestern Energy Company (NYSE:SWN)’s acquisition helped it in doubling the exploration area, which will help it in better production and revenue generation. Valero Energy Corporation (NYSE:VLO), with the strategic move of spinning off of its retail business and the substantial cash flow, will continue driving profits to shareholders. I recommend buying these three stocks for the long-term gain.

The article 3 Oil Companies Fueling Growth Prospects originally appeared on Fool.com is written by Shweta Dubey.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!