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Morningstar | Pioneer Natural Resources Backs Off Its Overly Aggressive 2026 Production Target

With Scott Sheffield returning as CEO, Pioneer Natural Resources has backed off its explicit goal to push total production to more than 1 million barrels per day of oil equivalent by 2026. Sheffield believes that Pioneer will deliver 1 million boe/d "over the next several years," but 1 million is no longer a focus for the company. This is not all that surprising. We had believed that Pioneer would fall well short of this ambitious target. With other Permian producers also looking to aggressively grow production from attractive acreage, we think the ramp-up in overall basin activity implied by 1 million boe/d of production for Pioneer would be too much oil for the market to handle.

We've dialed back our long-term rig count forecasts slightly, which was the primary factor contributing to a modest decline in our fair value estimate to $175 per share from $180. Given the de-emphasis on production growth, we expect management to be even more focused on returns on capital and shareholder returns--ultimately a good result for shareholders.

Narrow-moat Pioneer generated Permian volumes of 320 mboe/d in the quarter, above the top end of guidance. Permian production was up 6% sequentially, and we think solid growth will continue for Pioneer. We expect double-digit production growth for the next five years. The company held steady on its capital program for the year.

Pioneer also announced that it would seek to divest its 27% interest in its Targa-operated Midland Basin gas processing infrastructure. And the company plans to significantly cut its general and administrative expenses with a target of $100 million in annual savings. That's a dramatic cut given total G&A expenses in 2018 were only $380 million. We've materially dialed back our forecast for G&A expense versus our previous estimates but not nearly to the level implied by management's goals.