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Pioneer Returns Over 95% of Free Cash Flow to Investors in Earnings

Latest / August 3, 2022 / Admin / 0

Investing Club holding Pioneer Natural Resources (PXD) reported better-than-expected earnings after the closing bell on Tuesday. Total revenue of $6.92 billion exceeded expectations of $6.89 billion. Adjusted diluted earnings of $9.36 per share were better than the $8.81 per share expected by the street. Operating cash flow for the quarter of $3.22, a bit short compared to the $3.45 billion expected. After taking into account all capital requirements, free cash flow of $2.66 billion is well above expectations of $2.49 billion. Conclusion This was an excellent release from Pioneer that once again demonstrated management’s commitment to shareholder performance. With plans to return more than 95% of its free cash flow in the fiscal second quarter through dividends and buybacks, our investment thesis – based on returning the majority of cash generated to shareholders – remains entirely intact. Additionally, with 20+ years of inventory that provides an equilibrium price below $40, we see great ability for cash returns to continue even if WTI prices drop a bit from here. . With the latest increase in companies’ more variable base dividend payout to $8.57 per share in the third quarter (ongoing), Pioneer is the highest dividend yielding company in the S&P 500 at 15%. Pioneer is scheduled to host its post-earnings conference call Wednesday at 10 a.m. ET. We look forward to hearing what management has to say and will update members after the call. Capital Allocation We pay particular attention to cash flow metrics because our investment thesis is that the producing and exploration holdings – Devon Energy (DVN), Coterra (CTRA) and Pioneer – will generate significant cash flow , then turn around and distribute that money to shareholders via dividends and buybacks. In the earnings presentation, management estimated the payout that investors can expect at given WTI oil prices. At $60 oil, we are looking at a 5% return; at $80 of oil, a yield of 8%; at $100 of oil, a yield of 12%; at $120 of oil, a yield of 16%; and at $140 of oil, a return of 20%. Bottom Line: There is a significant cushion and even if WTI prices were to decline in the future, Pioneer has the ability to offer an attractive cash dividend payout. Dividend payments are only one means by which management returns capital to shareholders; the other being share buybacks. Since the end of the first quarter, the company has repurchased $750 million in stock, including $500 million during the second quarter at an average price of $235. Another $250 million in July at an average price of $213 per share. The combination of the third quarter dividend payment with the second quarter share buyback activity cancels out to achieve a total shareholder return of approximately 19%. Going forward, management has $3 billion remaining under the current share buyback authority. This represents approximately 5.5% of the company’s valuation. Guidance For the third quarter, management is targeting oil production of 345 to 360 MBoe/d (one thousand barrels of oil per day), against 359 MBoe/d expected. Total oil equivalent production is expected to be between 635 and 660 Mboe/d, slightly above the 644 expected at mid-term. For the 2022 financial year, management has proposed the following guidance: Oil production in the range of 350 to 365 MBoe/d, in line with mid-term expectations. Total oil equivalent production between 623 and 648 MBoe/d, against 643.7 MBoe/d expected. Operating cash flow above $13 billion, slightly above the $12.7 billion expected. Free cash flow above $9 billion, slightly above the $8.98 billion expected. Capital budget of $3.6 billion to $3.8 billion, versus $3.6 billion planned, with management noting the budget will be fully funded by 2022 cash flow. Quarterly Production and Pricing total oil equivalent production was 643 Mboe/d, exceeding our expectations of 642 Mboe/d. The composition of this production was as follows: Oil: 347.96 against 348.2 expected MBbls/d (one thousand standard barrels of 42 US gallons per day) LGN: 160.18 against 157.9 expected MBbls/d Gas: 808, 18 vs. expected 799.0 MMcf/d (one million cubic feet per day) Pricing, excluding the impact of derivatives (hedging activity such as selling futures contracts to lock in prices in future periods and therefore operate with increased certainty), the average realized price for Oil was $110.56 vs. $107.40 expected, while Natural Gas was $44.21 vs. $45.30 expected and Gas was $6.72 versus $6.70 expected. (Jim Cramer’s Charitable Trust is long PXD. See here for a full stock list.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.

Scott Sheffield, CEO of Pioneer Natural Resources.

Adam Jeffrey | CNBC

Investing Club holding Pioneer Natural Resources (PXD) reported better-than-expected earnings after the closing bell on Tuesday.

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