Recently, I noticed one oil & gas company got a lot of attention from famous investors like George Soros, Jim Simons, John Paulson and even the oil guru T Boone Pickens. Moreover, this company was his company’s largest position, accounting for as much as 12.8% of Pickens’ portfolio as of March 2013. It is Pioneer Natural Resources (NYSE:PXD). Since the market bottom of 2009, the company has advanced significantly, from nearly $13 per share in March 2009 to more than $144.60 per share at the time of this writing. Let’s take a closer look to see whether or not we should get in Pioneer Natural Resources at its current price.
Spraberry/Wolfcamp potential is huge
Pioneer Natural Resources (NYSE:PXD) focuses its business growth in several geographic areas, including Spraberry oil field, Eagle Ford shale field and Barnett shale Combo field in Texas. Pioneer is considered the third largest oil producer in Texas, and the largest producer in the Spraberry oil field with 900,000 acres and 27 operating rigs. In 2012, Pioneer Natural Resources (NYSE:PXD) had around 1.1 billion BOE in its proved reserves, with the total reserves and resources of more than 9 billion BOE. What might make investors excited is that its main field, Spraberry/Wolfcamp, is considered the second largest oil field in the world, with the potential of 50 billion BOE in recoverable resources, only after Ghawar in Saudi Arabia.
What I like about the company is its consistent positive operating cash flow generation. Since 2010, Pioneer Natural Resources (NYSE:PXD) has produced consistent increasing operating cash flow, from $1.28 billion in 2010 to $1.84 billion in 2012. However, because of the large capital expenditure in 2012, the 2012 free cash flow came in at a negative number of more than -$1.2 billion. Nonetheless, Pioneer Natural Resources (NYSE:PXD) seems to have quite a strong balance sheet. As of March 2013, it had more than $7 billion in equity, $430 million in cash and only just over $3 billion in long-term debt. Interestingly, Pioneer booked more than $2.2 billion in deferred tax liabilities, which could be considered a interest-free loan from the government.
But it is quite expensive
In 2013, Pioneer Natural Resources (NYSE:PXD) expected to spend around $3 billion in capital expenditures, including $2.75 billion in drilling. Most of its capital expenditure, nearly $1.23 billion, would be spent on the northern Spraberry/Wolfcamp area including $400 million for its horizontal program and $625 million for the vertical program. According to the company, the production cost per BOE for the past five quarters fluctuated in the range of $13.30 to $15.61. The company is trading at $144.60 per share, with the total market cap of around $19.75 billion. The market values the company quite expensively at 13.3 times its trailing EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).