Pioneer Natural Resources Company (NYSE:PXD) stock is up 24.26% so far in 2022, but insiders still see it as a trade.
The “oil bust,” which began in 2014, ran for seven years. The latest boom has been going on for one year. The bust killed dozens of companies. It left others as “dead men drilling,” existing only to pay down debt. It left a mark even on strong players like Pioneer, whose West Texas assets can be fracked to produce oil vertically all the way down.
As oil prices rose in 2021, Pioneer acted as a wise consolidator. In January, it closed the acquisition of Parsley Energy for $7 billion in stock. In May 2021, it bought DoublePoint Energy for $6.4 billion, again, mostly in stock.
Then, later in the year, Pioneer sold $3.1 billion in assets to Continental Resources (NYSE:CLR) for cash. These included rights to 92,000 acres producing 50,000 barrels of “oil equivalent,” which includes natural gas, each day.
Pioneer ended 2021 with $6.68 billion of long-term debt, but $6.1 billion in current assets, including $3.8 billion in cash and short term notes. For the year, it reported a net income of $2.1 billion and $8.61 per share fully diluted on revenue of $14.6 billion.
While oil prices have been rising for two years, they have been volatile. West Texas Intermediate (WTI), the grade on which Pioneer mostly trades, hit $70 per barrel in July and $80 per barrel in October. WTI was also at $65 per barrel in August and $66 per barrel in December. The latest bull run, spurred by the Russia-Ukraine crisis, had WTI trading at $93 per barrel on Feb. 23. But even the possibility of peace can knock it back and Pioneer knows it needs long-term investment to grow production.
The key to getting that investment lies in dividends. Its latest regular payout was 62 cents per share last month. Pioneer also delivered a “variable dividend” of $3.02 per share in December. The total payout, $5.57 per share, yields 2.37% to current shareholders, but most of it is contingent on results.
Chief Executive Officer Scott Sheffield predicted in December that oil prices would rise to $100 per barrel based on low U.S. investment and production cutbacks by the Organization of the Petroleum Exporting Countries (OPEC). “Things are going to get very tight in 2022, going into 2023,” he said.
But there are no guarantees on prices in 2024 or much later than that. Exxon Mobil (NYSE:XOM) has found 10 billion barrels off Guyana and production there could be 440,000 barrels per day by mid-decade. The auto industry is in the process of replacing America’s gas-powered car fleet with electric vehicles. There is a thumb coming down on prices and Sheffield knows it is growing heavier all the time.
Despite predictions by Bank of America (NYSE:BAC) of $120 per barrel in the near term, big producers like Saudi Arabia are still complaining about underinvestment. The American oilpatch isn’t about to stick its neck out.
The Bottom Line on PXD Stock
Pioneer stock offers an easy way to speculate on oil prices with a multi-month lag. But it is still not a long-term investment and management isn’t pretending otherwise.
While the current situation is dire, even Russia sees current oil prices as unsustainable.
A decade ago, with the costs of solar power much higher than those of oil, high prices motivated the last oil boom. Today, with renewable energy prices competitive with natural gas, they’re renewing global determination to go beyond oil.
What producers like Pioneer want are profitable and sustainable prices, which the market can’t deliver. Thus, oil stocks will remain a trade and not an investment.
On the date of publication, Dana Blankenhorn held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack.