Wednesday, 09 March 2016 00:00

Pioneer Natural Resources: Liquidity Analysis And Implications

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Analysis Summary – Pioneer Natural Resources (NYSE: PXD) is fully financed for 2016 and 2017 and the company is likely to maintain investment grade rating through this period.

Pioneer Natural Resources is the best stock for investors considering exposure to the Permian Basin and this article discusses the company’s liquidity position for 2016 and 2017 and its implications on the stock price.

The chart below provides the company’s liquidity analysis for the year 2016 based on potential cash inflow and outflow through the year.

Pioneer Natural Resources Liquidity Analysis 2016

The operating cash flow and capital expenditure estimate is from the company’s guidance and the following conclusions are worth noting –

First, Even with planned capital expenditure of $2.0 billion, Pioneer Natural Resources is likely to close FY16 with liquidity of $1.8 billion.

Second, Considering FY17 operating cash flow at a conservative $1.3 billion (same as FY16), the company’s total cash buffer for FY17 is $3.1 billion. Even if capital expenditure for 2017 is increased to $2.5 billion, Pioneer Natural Resources is fully funded for FY17.

Third, Pioneer Natural Resources has undrawn credit facility of $1.5 billion that provides additional liquidity buffer and including the credit facility, the company’s total liquidity as of end FY16 is likely to be $3.3 billion.

Fourth, The company issued equity in the beginning of 2016, but I expect no further equity dilution in the next 24 months. This is comforting for existing shareholders.

The company’s debt is likely to remain around the same level in the next 24 months. If oil prices trend higher meaningfully, the undrawn credit facility might be utilized for expanding investment plans. However, higher operating cash flow will ensure that the net debt position remains largely the same.

Pioneer Natural Resources has an investment grade rating from S&P and I expect the company to maintain this rating in the next 24 months.

The carnage in the energy industry has provided some excellent long-term investment opportunities and Pioneer Natural Resources is attractive from a 3-5 year investment horizon.

However, my opinion is to remain cautiously optimistic and consider small exposure to deep value stocks in the energy industry.


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