EFTA01473332.pdf

Deutsche Bank Markets Research Rating Hold North America United States Industrials Oil & Gas Exploration & Production Company Pioneer Natural Resources Reuters PXD.N Bloomberg PXD UN Exchange Ticker NYS PXD Laying the Foundation Looking to set the stage into a 2H acceleration With arguably amongst the largest core positions in what could be the leading asset of the next oil cycle, the investment case at PXD largely rests on it ability to translate resource potential into leading, capital efficient growth. Despite encouraging signs, noisy 10 operations (weather downtime, ethane rejection, completion deferrals) prevent a clean look at improving operations. Going forward, we look for efficiency gains in a narrowed, focused Permian development program as an indicator for future broad asset potential as activity accelerates in 2H15. Hold. What to look for on the call? IILeading the charge? PXD expects to add two horizontal rigs per month in the northern Spraberry/Wolfcamp beginning in July contingent on continued strength in the oil markets and following a sale of its Eagle Ford midstream business. We look for timing of potential production impact and growth and capital implications for 2016. IICost Reductions: Look for detailed updates on the pace of remaining cost reductions. Realized D&C cost reductions of 15% vs. 2014 to date, with year-end target of 20%+. Lifting costs -8% YoY driving further profitability gains. Look for additional clarity on potential/timing of reductions, including 15% and 10% in facilities costs and lifting costs respectively. IIDeferring to Save: Expect some discussion on portfolio benefit of its decision to defer 25 hz well completions (of 90 planned in 1H15) in the Permian in order to exclusively utilize Pioneer Pumping Services. The shift will reduce 2Q volumes expectations (198-203 Mboe/d vs. Street 207), but increase and flatten 2H volumes (-200 Mboe/d). Also look for impact of shift on ability to accelerate in 2H15. EFTA01473332 II Highgrading and the Production Outlook: Although operational noise on the quarter obscured underlying operations somewhat (Permian production --4 Mboe/d QoQ), impacted by weather (3 Mboe/d), ethane rejection (5 Mobe/d), production of 194 Mboe/d still hit the guidance range (192-197) despite materially lower well completions than planned (deferrals). Look for read through to efficiency gains, the impact of highgraded inventory, and potential of upper Eagle Ford resource. Conference Call LOAM EST, dial-in # 888-399-3503, passcode: 7269838 Forecasts And Ratios Year End Dec 31 FY EPS (USD) P/E (x) Revenue (USD) Source: Deutsche Bank estimates, company data 1 Includes the impact of FAS123R requiring the expensing of stock options. Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. 2014A 4.77 40.2 3,639.8 2015E 0.93 175.4 2,335.0 2016E 0.0 0.0 David Fernandez Research Associate (+1) 212 250-3191 david.fernandez@db.com Price/price relative 120 160 200 240 40 80 5/12 11/12 5/13 11/13 5/14 11/14 Pioneer Natural Reso EFTA01473333 S&P 500 INDEX (Rebased) Performance (%) Absolute S&P 500 INDEX Source: Deutsche Bank lm 3m 12m 2.8 -17.8 1.3 10.9 -4.6 1 1 Valuation and Risk Our $182 PT is based on our NAV at LT prices of $80/$4.50. Upside risks include a greater than expected production growth rate, meanwhile downside risks include operational missteps which will adversely affect production. Date 6 May 2015 Results Price at 5 May 2015 (USD) Price Target 52-week range Ryan Todd 163.05 182.00 233.07 - 130.60 Igor Grinman Research Analyst EFTA01473334 Pioneer Natural Resources Oil & Gas Exploration & Production 6 May 2015 Page 2 Deutsche Bank Securities Inc. Figure 1: PXD Q4 Results Q1 Results Actuals Consensus DB Est +1= =1 =1 Outlook Volumes Pricing Capital Expenditure - Q2 guidance of 198 - 203 mboepd - FY15 guidance of 200mboe/d, representing 10% overall growth and 20% oil growth. 25 hz wells in spraberry/wolfcamp to be deferred to the latter part of the year so as to leverage the use of its pumping servcies - 90% of 2015 oil production is hedged at $71/bbl and 100% of Permian production is protected against Midland-Cushing diff, while 90% of gas volumes are hedged with Three Way Collars - 2015 capex budget reflects the challenging price environment with PXD only planning on spending $1.6bn on drilling and $250mm on Spraberry/Wolfcamp water infrastructure, vertical integration and facilities. - Northern Wolfcamp: HZ rig count is being reduced 16 to 6 that will drill 60 wells in 2015 (90% in Wolfcamp B); 85-90 HZ wells will be placed on production due to backlog (113 in 2014). No completed Hz wel is in Ql, being def erred to later in the year so as to uti 1 ize Pioneer pumping sery ices. - D&C costs are expected to $8mm with an average lateral length of 9,000ft and EURs of 900mboe - The vertical drilling program will be shut down by the end of February; PXD looks to have re-negotiated continuous drilling provisions on existing spraberry leases or converted to HZ development assumptions -- 36 wells were drilled in Q4 with an average 24-hr IP of 1,700boe/d (76% oil) representative of high grading efforts in 2015 Assets +1= while the Jo Mill well had the highest 24-hr IP in the area with 914boe/d (81% oil) on a 4,850ft lateral - Southern Wolfcamp: Reducing rig count to 4 by the end of February which will drill 45 new wells in 2015; PXD expects 75-80 wells to be placed on production during the year with an average well cost EFTA01473335 of $8mm and EURs of 750mboe - Eagle Ford: 16 hz wells on production in 1Q15 (9 upper, 7 lower). 30 Hz wells were placed on production during Q4, with 16 being in the Upper Eagle Ford; HZ rigs are being reduced to 6 by February, which will focus on Karnes and DeWitt. - PXD expects 95-100 HZ wells to be placed on production in 2015, with the production relatively flat for the year due to the timing of the wells Investment View Thesis Hold PXD has delineated a high-quality, multi-zone resource in the Midland basin that provides a top-tier resource opportunity amongst the peers. While market's willingness to pay has outstripped our own valuation framework, the development plan was expected to hit an inflection point in 2015 which has now been delayed. Our view remains unchanged. Source: Thomson Reuters, Company data, Deutsche Bank Volume (mboepd) CFPS Vs. DB Expectations 194 $2.42 196 194 $2.56 Met mid-piont of guidance despite deferring hz well completions in 1Q in the spraberry/wolfcamp. Impacts from weather (3 mboepd) and ethane rejection (5 mboepd) were previously disclosed. Cash margins were lower than expected on lower realizations (ex impact from unrealized hedging gains) - Reported adj EPS of -$.03 vs. DBe $0.05, driven by lower realizations for oil and NGLs (—$2.65/bbl and $2 25/bbl delta from our estimates) - Higher production taxes and g&a costs were more than offset by lower lifting costs ($10.32/boe vs. Dbe $11.22/boe) Spraberry / Jo Mill: 4 Lower Spraberry and 1 Jo Mill well were completed in Q4. The Lower Spraberry wells had mixed results, EFTA01473336 6 May 2015 Oil & Gas Exploration & Production Pioneer Natural Resources Figure 2: PXD Results vs. DB Estimates Q115 DB Snapshot DB(E) Q115 Income Statement: ($ in Millions) Total Revenues EBITDA Depreciation Expense Net Income Per Share: Operating EPS Operating CFPS Shares Outstanding (Diluted) Cash Flow Statement: ($ in Millions) Funds from Operations (FFO) Balance Sheet: ($ in Millions) Total Debt Cash Balance Net Debt Production: Oil (MMboe/d) NGLs (MMboe/d) Natural Gas (MMcfe/d) Total Production (Mboe/d) Unhedged Realizations Oil ($/bbl) NGL ($/bbl) Gas ($/mcf) Unit Costs (US$/boe) : O&G Revenue LOE Production Taxes SG&A Cash Margin DD&A Operating Costs Source: Company data, Deutsche Bank 733 362 313 7 $0.05 $2.56 147 346 2,690 1,042 1,648 EFTA01473337 97 41 337 194 $45.68 $17.23 $2.72 $31.12 $11.22 $1.96 $4.47 Actua 1 Q115 Dif f . Actua 1 Q414 867 18.3% 1,666 337 310 -6.8% -1.0% (5) -175.4% ($0.03) 4444440 1.4% Pioneer Natural Resources Actua 1 Q114 Seq. 714 313 118 $0.80 $2.42 -5.3% $3.68 149 147 334 2,668 -3.5% 567 -0.8% 2,665 383 -63.2% 1,025 2,285 38.6% 1,640 99 35 359 194 $43.02 $15.00 $2.70 $29.64 EFTA01473338 $10.32 $2.24 $4.70 $13.46 $12.38 $17.93 $35.59 $35.03 $17.77 2% -14% 7% 0.0% 101 43 347 201 -6% $66.64 -13% $18.50 -1% $3.60 -5% $43.48 -8% $10.82 $3.26 $4.81 143 1.4% 4.2% 466 (41.1%) (28.3%) 2,706 257 0.1% (1.4%) (62.6%) 49.0% 2,449 39.33% -6.70% 79 36 346 172 $92.38 $33.38 $4.81 14% 5% -8% $24.58 -1% $16.93 -2% $35.32 $58.83 $10.66 $3.68 $5.23 $39.25 $14.28 $33.86 -17% 4% EFTA01473339 -2% 25% -1% 4% -4% 13% -35% -53% -19% -55% -25% -44% -32% -50% -5% -31% -39% -2% -10% -50% -68% 5% -1% 963 499 221 Y/Y (48.0%) (10.0%) (52.8%) (32.5%) (1.0%) 40.3% 180 (104.2%) (102.8%) $1.26 ####### ####### $3.90 (34.1%) (37.9%) -3% 24% 3% Deutsche Bank Securities Inc. Page 3 EFTA01473340 6 May 2015 Oil & Gas Exploration & Production Pioneer Natural Resources Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company Pioneer Natural Resources Ticker PXD.N Recent price* 163.05 (USD) 5 May 15 Disclosure 8 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=PXD.N Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Ryan Todd Page 4 Deutsche Bank Securities Inc. EFTA01473341 6 May 2015 Oil & Gas Exploration & Production Pioneer Natural Resources Historical recommendations and target price: Pioneer Natural Resources (PXD.N) (as of 5/5/2015) 250.00 12 8 200.00 7 150.00 5 1 100.00 23 4 6 1011 9 1314 16 15 Current Recommendations Buy Hold Sell Not Rated Suspended Rating 50.00 *New Recommendation Structure as of September 9,2002 0.00 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Nov 13 Feb 14 May 14 Aug 14 Nov 14 Feb 15 Date 1. 2. 3. 4. 5. 6. 7. 8. 05/18/2012: 07/16/2012: 08/01/2012: 10/15/2012: 01/31/2013: 06/04/2013: 08/06/2013: EFTA01473342 10/16/2013: Hold, Target Price Change USD116.00 Hold, Target Price Change USD113.00 Hold, Target Price Change USD124.00 Hold, Target Price Change USD111.00 Hold, Target Price Change USD125.00 Hold, Target Price Change USD145.00 Hold, Target Price Change USD175.00 Hold, Target Price Change USD210.00 9. 10. 11. 12. 13. 14. 15. 16. 12/09/2013: 03/17/2014: 04/01/2014: 07/18/2014: 10/16/2014: 11/10/2014: 12/11/2014: 01/06/2015: Hold, Target Price Change USD201.00 Hold, Target Price Change USD208.00 Hold, Target Price Change USD209.00 Hold, Target Price Change USD233.00 Hold, Target Price Change USD230.00 Hold, Target Price Change USD219.00 Hold, Target Price Change USD208.00 Hold, Target Price Change USD182.00 Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Previous Recommendations Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months EFTA01473343 out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period Deutsche Bank Securities Inc. 100 200 300 400 500 600 0 Buy Hold Sell Companies Covered Cos. w/ Banking Relationship North American Universe 50 % 58 % 44 % 2 %33 % 48 % Page 5 Security Price EFTA01473344 6 May 2015 Oil & Gas Exploration & Production Pioneer Natural Resources Regulatory Disclosures 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. 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