Pioneer Natural Resources Goes Where Others Don’t in Tough Market

NEW YORK (TheStreet) -- As oil producers mull scaling back their operations in the face of a double-digit drop in oil prices, Pioneer Natural Resources has gone the other way by ramping up its 2014 capital spending budget, and analysts are expecting further increases for next year.

Pioneer released third-quarter results last week that were better than the market's expectations, as per data compiled by Thomson Reuters.

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The company reported a 7% increase in adjusted earnings from the same quarter last year to $1.35 a share due to a 22% increase in production to more than 186,000 barrels of oil equivalents a day. This offset the threat coming from 11% and 8% drops in oil and natural-gas-liquids realized prices, respectively.

But more importantly, the Irving, Texas-based company that gets most of its output from Texas' Permian Basin has raised its capital expenditure budget for this year, excluding one-off items and acquisitions, to $3.4 billion, from $3.28 billion. The increase is mainly related to additional work on more than two dozen wells and the development of a water distribution system that could lower the company's well development costs in the long run.

The company is still in the process of developing its capital budget for next year, which "will not be announced until early 2015," Pioneer spokesman Tadd Owens wrote in an e-mail.

However, Brian Singer and Gabriele Sorbara, analysts at Goldman Sachs and Topeka Capital Markets respectively, wrote in two separate November reports that the company's total capital expenditure for next year could be close to $4 billion.

That would stand in stark contrast to ConocoPhillips and Royal Dutch Shell . During their recent conference calls, the former predicted it could cut its capital spending by about $700 million next year, while the latter said that it is in no hurry to develop its shale oil and gas assets at the Permian Basin in a weak pricing environment.

Pioneer, on the other hand, has a high quality of assets that can still generate "returns in the neighborhood of 40% to 80%" even if oil prices remain between $70 and $80 a barrel, Chief Operating Officer Timothy Dove said during the recent conference call. 

The futures of benchmark WTI crude have been hovering in this range since the end of last month, now at $77.29 a barrel, showing a decline of 20% over the past three months.

Pioneer has said that it will continue to target annual production growth of between 16% and 21% through 2016, despite deteriorating crude prices.

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