Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Is Pioneer Natural Resources Doomed?

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I think Pioneer Natural Resources (NYSE: PXD) is a poster child for the oil and gas industry’s problems.

For instance, this company’s management cannot admit they are in the oil and gas business. Instead, they call the business a natural resources company. However, Pioneer’s business is extracting oil and gas in West Texas’s Permian Basin.

Pioneer Natural Resources (PXD) is growing. Pioneer will pay $6.4 billion to acquire DoublePoint Energy, The Houston Chronicle reports. The company will trade 27.2 million shares of its common stock, $1 billion in cash, and take on $900 million in debt to get 89% of DoublePoint.

The Chronicle claims Pioneer’s DoublePoint purchase is the largest acquisition of a private US energy exploration and production company since 2011. Buying DoublePoint will add 97,000 net acres to Pioneer’s Permian Basin Operations. The Chronicle claims Pioneer can increase production by 100,000 barrels when it absorbs DoublePoint’s operations.

The Potential Value at Pioneer Natural Resources

The DoublePoint deal was only the latest expansion at Pioneer (PXD). Pioneer paid $7.6 billion for Parsley Energy in 2020.

The Houston Chronicle estimates that Pioneer leases over one million net acres of oil and gas sites in the Permian Basin. Pioneer’s oil and gas leases could be more valuable because they are on private land.

To explain President Joe Biden (D-Delaware) put an indefinite moratorium on new oil and gas leases on federal lands in a 27 January 2021 Executive Order, The Oil & Gas Journal reports. Biden’s action could boost the value of Pioneer’s stock and leases because the company has no leases on federal lands.

However, Biden could change his mind. In addition, a future president could overturn Biden’s action with the stroke of a pen.

Does Pioneer Natural Resources Make Money?

Pioneer (NYSE: PXD) is making less money from its oil and gas resources.

For instance, Pioneer’s quarterly operating income fell from $563 million on 31 December 2020 to $14 million on 31 December 2021. Similarly, Pioneer’s quarterly gross profit fell from $1.169 billion on 31 December 2019 to $543 million on 31 December 2020.

Additionally, Pioneer Natural Resources’ revenue growth has shrunk for six quarters. For example, Stockrow estimates Pioneer’s revenue growth fell by -34.16% in the quarter ending on 31 December 2020.

Additionally, Pioneer Natural Resources’ revenue growth has shrunk for six quarters. For example, Stockrow estimates Pioneer’s revenue growth fell by -34.16% in the quarter ending on 31 December 2020.

Pioneer Generates less cash

Predictably, Pioneer (PXD) is generating less cash as its business shrinks.

For example, Pioneer’s quarterly operating cash flow fell from $828 million on 31 December 2019 to $537 million on 31 December 2020. Similarly, the quarterly ending cash flow fell from $192 million on 31 December 2019 to $110 million on 31 December 2020.

Tellingly, the only way Pioneer can generate large amounts of cash is to borrow it. Pioneer reported a quarterly ending cash flow of $1.142 billion on 30 September 2020. Most of that money came from a quarterly financing cash flow of $986 million on the same day.

Pioneer is paying back that debt. Pioneer reported a quarterly financing cash flow of -$101 million on 31 December 2020. In 2020, Pioneer’s total debt grew from $2.289 billion on 31 December 2019 to $3.3 billion on 31 December 2020.

What Value Does Pioneer Natural Resources Have?

Pioneer Natural Resources’ (PXD) value grew on paper in 2020. To explain, Pioneer’s total assets grew from $19.088 billion on 31 December 2019 to $19.229 billion on 31 December 2020.

Similarly, Pioneer’s cash and short-term investments grew from $705 million to $1.501 billion in the same period. Thus, Pioneer’s theoretical violence grew in 2020.

Moreover, Pioneer’s share price grew from $76.24 on 6 April 2020 to $153.53 on 5 April 2021. Consequently, I think Mr. Market over values Pioneer because I see nothing in the financial numbers to justify the share price.

I think Pioneer’s share price should have fallen over the past year because it makes less money. My suspicion is that Pioneer’s share price will collapse because its moneymaking capacity is shrinking.

A respectable dividend stock?

I consider Pioneer Natural (PXD) a respectable dividend stock because it will pay a 56₵ quarterly dividend on 14 April 2021.

That dividend will grow from 55₵ on 14 January 2021. In total, Pioneer Natural Resources shares offered a $2.24 annualized dividend and a 1.47% dividend yield on 7 April 2021.

On the other hand, I consider Pioneer Natural a lousy stock because Mr. Market overprices it and the income is falling. I think Pioneer Natural is a terrible stock because it has rising share price and a low margin of safety. Investors who don’t want to lose money need to avoid PXD.