EUR 850.00 For Business Accounts Only

Morningstar | Pioneer Puts Together Another Solid Quarter of Permian Growth; Fair Value Unchanged as Shares Rise

We're maintaining our $200 per share fair value estimate for Pioneer Natural Resources after the company released third-quarter results. Our narrow moat rating is also unchanged.

Pioneer posted Permian volumes of 288 thousand barrels of oil equivalent per day in the quarter, hitting the top end of guidance for a 5% sequential increase versus the second quarter. Permian oil production exceeded the top end of guidance at 186 mb/d. Over the long run, we’re expecting impressive production growth from Pioneer. We think total production can more than double by 2026. However, we would preach caution on the likelihood of the company meeting its optimistic goal to push total production to more than 1 million barrels per day of oil equivalent by 2026. 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 remind investors that even after dropping nearly 20% from October highs to about $62 per barrel, oil prices remain above our midcycle estimate of $55/bbl West Texas Intermediate. There are about 100 more U.S. tight oil rigs active than necessary to balance the market in the long run, and even lower prices are required--sooner or later--to catalyze a slowdown in the shale patch and avoid a painful glut.

Still, we think the market isn't giving Pioneer and some other Permian-focused producers a fair shake. Even with a gain today of about 8% as we write, shares still trade at a roughly 20% discount to our fair value estimate.

For more information on our long-term crude outlook, please see our June report "Oil Prices Are Unsustainably High, Stretching Energy Valuations."