Analyst Gabriele Sorbara maintained his ‘Buy’ rating for Pioneer Natural Resources following the disclosure as he views the company as “a unique Permian player with a clear variable dividend framework that could garner interest from the generalist investor,” he wrote in a Siebert Williams Shank research note. (Source: Shutterstock.com)
Pioneer Natural Resources Co. warned in a regulatory filing on July 27 it would be hit by an $832 million second-quarter loss primarily as the result of hedges.
Many producers last year locked in sales when oil prices rose above $40/bbl following a catastrophic first half of 2020 including WTI briefly trading below $0. However, as crude has since jumped to above $60/bbl this year, these same producers, including Pioneer, are now facing losses on hedges for the quarter.
In a filing with the U.S. Securities and Exchange Commission, Pioneer reported a total cash derivative payments of $570 million, larger than estimate of $512.7 million made by Siebert Williams Shank & Co. LLC, according to Gabriele Sorbara, equity research analyst at the New York-based firm.
In total, Pioneer is expecting to report a net loss on derivatives of about $1.5 billion for the first half of the year, the filing said.
Additionally, Pioneer reported a second-quarter net loss of its third party purchases and sales of oil and gas of $53 million, slightly worse than the estimated loss of $47.5 million by Siebert Williams Shank but in line with the company’s initial guidance of a loss of $40 million to $70 million.
In a research note on July 27, Sorbara maintained his ‘Buy’ rating for Pioneer on the discounted 2022 and 2023 EV/EBITDA valuation, especially following the recent underperformance, which he attributed to a selling shareholder’s overhang after funds managed by affiliates of Quantum Energy Partners launched the sale of its entire 2.5% stake in the company.
Double Eagle Energy Holdings III LLC, which is majority owned by funds managed by affiliates of Apollo Global Management Inc., also sold its holdings in Pioneer during the past quarter. Pioneer closed on its $6.4 billion purchase of DoublePoint Eagle LLC, a company formed by Double Eagle Energy through a partnership with FourPoint Energy LLC in the Permian basin, in May.
“As the selling shareholders wind down, we expect PXD shares to begin outperforming as it screens attractively on a relative basis,” Sorbara wrote in the note.
“Specifically,” he continued, “we view PXD as a unique Permian player with a clear variable dividend framework that could garner interest from the generalist investor, considering we estimate nearly $27.0 billion of free cash flow through year-end 2025.”
Pioneer will release its second-quarter earnings results on Aug. 2. The Irving, Texas-based independent oil and gas company claims to be the largest producer in the Permian Basin with an acreage position of over 1 million net acres.
Reuters contributed to this article.
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