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Home / Business / Pioneer Natural Resources, the & # 39; Frac Factory & # 39; delivers Alpha – Pioneer Natural Resources Company (NYSE: PXD)

Pioneer Natural Resources, the & # 39; Frac Factory & # 39; delivers Alpha – Pioneer Natural Resources Company (NYSE: PXD)



Introduction

If you had the foresight to invest in Pioneer Natural Resources (PXD) a few years ago, in February 2016, you probably spend many happy hours looking at a bar chart of your portfolio, and Planning ocean cruises. The Daily Drilling Report welcomes you and asks you to send us postcards of exotic island destinations, where to bring your newly discovered PXD wealth. Of course we will still work here, looking for new investment opportunities, after your return. Ocean cruises are expensive and you can be prepared to earn some money once you have unpacked your bags!

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PXD names some industries a frac factory & # 39; calls a & # 39; Henry Ford – like a model of mechanical efficiency that trains Well, as Henry did with Model T. What this means in the real world is that, through reckless standardization, they have controlled the variables that can affect the cost of delivering wells. Efficiency in oil wells is often sought, but rarely achieved. But when it does happen, the profits that come in can be impressive.

We will review the continued investment thesis for this company at current prices. In the last nine months, the stock has risen higher, along with oil, to reach the 2014 highs. Touching territory indeed, as the oil is far from its 2014 high.



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The question then becomes, is it time to cut and run? Is it time to take your profits and go on this cruise? Or do we think there is more room to run? That means we will stay here and take this juggernaut to new heights. We will try to assess in which direction this report will best serve. The answer, as it usually occurs, may depend on it. Depending on what you perceive, this will happen with the macro events that impact our investments. That's just the natural perversity of the universe and not a flu doc ​​mistake.

Technical Analysis

As a technical novice, it looks like PXD made a double bottom on April 10 and rose from there. This has potential bullish impact on the stock as the usual next section of the pattern is pending. You can see that PXD did just that at the rally that took place on Friday, May 3rd.

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The Plan

What we find is a company that has a plan to destroy the competition and generate increasing profits. Forget the expensive Deepwater stuff, forget the HPHT exploration material, PXD has focused its attention on a legacy resource base in the Perm that promises to live up to its promise.

The Fluidsdoc likes to plan it! Let's unpack the plan and see what we think piece by piece.

Resource Concentration

The first aspect of the plan is to become a pure perm producer. It has lost non-permissive assets or is in the process of divesting them. This has the effect of focusing capital efficiency. Fewer offices, less travel, faster response times and of course … really, really understanding your resource base.

  Image Result for Pioneer Natural Resources Permian Acreage

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Wells 3.0- Maximizing Contact with the Reservoir

The high concept here is better, if a bit good, mo . PXD has found that they can drill a few thousand feet while in the reservoir. With a better understanding of their three main reservoir horizons, they will be able to fine-tune wellbores to minimize harmonics with adjacent wells, fine-tune fracture levels and volumes, and well placement.



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PXD also spends a sizable portion of the coin on 3D seismic surveys. I'm an avid admirer of 3D seismic. It basically gives you a look under the ground. "What's the use of this", one may ask

 Result image for Pioneer Natural Resources 3d Seismics

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Good question! The above slide gives you some ideas about the technology standard that PXD uses to develop its perspectives. I could write a few paragraphs on each ball and how it fits into the overall picture and eventually, maybe. Stay tuned, but we talked about 3D seismic.

Among other things, you can use it to determine how you can optimally position the wells in the reservoir. As an example, in a horizontal, the "heel" of the wellbore should land in the sweet spot (or maximum natural permeability region) of the reservoir. You know this stuff and it's amazing! When I think of the way the industry started when I started almost 40 years ago, I'm just blown away by the technology that's been developed to improve performance. There are other reasons, but this is a financial article, and I have to go on.

Comparison of Lifting Costs

Henry would admire this commitment to manufacturing efficiency. Investors should do that as well. PXD aims to be the cheap manufacturer in its cohort for the Permian. There is currently only catch in this category. That means more money gets in the way. The graph below compares the cost forecasts for various large independent perm producers after the BOE, including: Concho Resources, (CXO), Diamondback Energy, (FANG), and EOG Resources, (EOG).



Source, Company 1- Q's Seeking Alpha, Chart by Author

Production Factors

In Econ 101, we learned classically about the factors of production; Land, labor and capital. In the case of well fracturing, these are primarily pressure, sand and water. PXD has taken steps to ensure that it controls them as much as possible.

  • Pressure . Internally, PXD operates 75% of the frac spreads it uses. This will fix costs and give them control over scheduling and scheduling.
  • Sand . PXD owns its own sand company – Pioneer Sand (formerly Premier Silica) and produces sand for the Permian plant in Brady, Texas. Although it's not directly in the Perm, that's pretty good stuff compared to Texas Brown. And it's a hell of a lot closer than Wisconsin! It measures at 99.49% SiO2. Less trace substances mean more sphericity, higher crush strength, and less damaging components for chewing gum the Frac .

"Gum up the Frac", you say? In one of these times, we talk about formation damage … and yes, formation damage is a problem in a frac. If you do not see it in the next few months, please remind me.



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  • Water. Long distance water transport is extremely inefficient. A tanker truck can usually transport about 6,800 gallons of water. In a 10mm gallon frac, that's nearly 1,500 charges. Distance is important! In order to meet some of the water needs, PXD has contracted with the large communities in Perm to use treated wastewater for fracking. It is building a pipeline to bring this water to its operations center. It also investigates how brackish (salty) water from its sources is mixed with fresh (FW) to reduce the overall FW consumption.

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What will drive the stock price?

The answer here is Two Things. Maybe three things, I think that as PXD grows, it becomes a take-out target. I've discussed this in an earlier article focusing on Exxon Mobil's (XOM) need to increase reserves, and possibly by drilling on Wall Street. XOM is not alone in this category. Historically, when companies do well, the majors take notice of them and acquire them.

Two key factors that will drive the PXD share higher.

  • Continued stability in the current oil price range for WTI of $ 60- $ 70 / bbl [19659043] Growth in PXD production forecast. They intend to increase the daily production from currently 250K BOEPD to> 1mm BOEPD by 2026. One-fifth, essentially, in eight years.

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Takeout

Pioneer delivers Alpha to its shareholders. Most E & P companies are now. But PXD is something special, as the stock price rise has shown in recent years. What makes it special is that it acts like an oil major while avoiding the high cost structure that often inhibits profits among the big ones.

You are probably now ready to tell me that PXD is a SWAN sleep well At night, camp, and you can plan Caribbean cruise that your wife and family have bugged you. Go straight ahead. Do it. You deserve it, and hey, you have the money.

But, as I said above, the answer to staying or making a profit is not cut off. As Tonto once might have told the lonely ranger, "There are rumors in the hills, Kemosabe."

Rumbling in the hills

At the oil horizon, a cloud has formed. The USD has strengthened against the euro in recent weeks. This is mainly due to the Fed's propensity to tighten economic conditions and to improving economic data coming from the US. You will remember that one of the cornerstones of our thesis for oil is a weakening dollar. Oil is priced in dollars. We have to watch that pretty much.



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Another cloud on the horizon for oil. Crude oil stocks have been building up over the last few weeks after they went down almost the entire year. Part of this is due to the production of almost 11mm BOEPD, and some are due to the increase in imports over the same period. Whatever the cause, this is anti-bullish for oil (you might say bearish), and we should pay attention to this factor and follow it closely in the future.

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Most forecasters still predict net draws will continue when spring turns summer. But that looks too.

Conclusion. It could come in the near future to reduce our oil positions to minimize the impact on our portfolios in case of retracement and to have some dry powder to benefit from lower prices. My strategy, if I choose to trim, will be to take about a third off the table. I want to stay in the game, but if I get a bloody nose, I want to be sure that I can fix it.

My long-term thesis for oil remains intact, and I believe that if there is a retracement, it will do so only temporarily, followed by another leg higher for oil.

I will soon have a longer article on the direction in which I take oil. Be sure to look for it, though I should mention that my subscribers will have it first.

Disclaimer and Final Application

I am not an accountant or CPA. This article is intended to provide information to interested persons. Since I have no knowledge of individual investor circumstances, objectives and / or portfolio concentration or diversification, readers are expected to complete their own due diligence prior to purchasing the named or recommended stock.

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