The Wall Street Journal reported Friday, April 7, that Exxon Mobil (XOM) has held talks with Pioneer Natural Resources (PXD) about a possible acquisition.
The Journal reported that Exxon also has discussed a potential acquisition with at least one other company as the company looks for a big deal to expand its presence in U.S. oil shale.
The Journal characterized the talks as informal and exploratory. Only two weeks ago Pioneer was subject to rumors that had the company making an acquisition of another producer.
On Friday, Shares of Pioneer Natural Resources were down 1.06% in the short Good Friday/Easter session. Shares of ExxonMobil were off 1.66%. Today, shares of Pioneer Natural Resources are up 6.00% as of 1:45 p.m. New York time.
U.S. oil benchmark West Texas Intermediate rose a scant 0.11% to $80.70 for May delivery.
It’s not clear to me how enthusiastic current Pioneer shareholders would be about such an acquisition. Many of them own the shares because of the company’s generous variable rate dividend policy and might worry that Exxon’s dividend wouldn’t match that payout.
The projected forward yield on shares of Pioneer was 13.09% on Friday. The projected forward yield on shares of Exxon was 3.11%
On Sunday, April 2 OPEC+ announced a surprise oil production cut of more than 1 million barrels a day. The organization had not so long ago promised that it would hold supply steady. Saudi Arabia led the move by pledging its own 500,000 barrel-a-day supply reduction. Fellow members including Kuwait, the United Arab Emirates, and Algeria followed suit. Russia, a member of the larger OPEC+ cartel, said it would implement a production cut already announced in March for the period from March to June and then continue that cut until the end of 2023.
Monday the prices of oil and oil stocks soared.
At 11:20 a.m. New York time U.S. crude benchmark West Texas Intermediate was up 5.37% to $79.73 a barrel. International benchmark Brent crude was higher by 5.24% to $84.08 a barrel.
Among oil stocks, Pioneer Natural Resources (PXD) was up 3.53%; ExxonMobil (XOM ) was up 5.48%; Chevron (CVX) was up 3.73%; Equinor (EQNR) was up 5.91%; and ConocoPhillips (COP) was up 7.79%.
The U.S. Oil Fund (USO) was higher by 5.40%.
Airline stocks were down on the news on expectations of higher jet fuel prices with American Airlines (AAL) off 2.31% and Delta Air Lines (DAL) down 1.27%.
Stocks of oil refiners are modestly lower with Marathon Petroleum (MPC) off 0.13% and Valero (VLO) down 1.15% on uncertainty about what higher crude prices mean for refining margins.
One final inflation note: The timing of this supply reduction couldn’t be much worse for gasoline prices with oil companies looking to build supplies ahead of the summer driving season.
Oil stocks were modestly lower today, Tuesday. April 4, with Pioneer Natural Resources, for example, off 1.22%.
Oil rallied today, Monday, March 27, for the first time in, well, quite a while. Oil is likely to finish with a loss in March, for a fifth monthly drop.
So today’s move, which saw West Texas Intermediate jump by almost 55, marked quite a shift in direction.
You can put the rally down to relief that the banking crisis didn’t get worse on Monday, or to a legal dispute between Iraq, its semi-autonomous region of Kurdistan, and Turkey that halted have halted 400,000 barrels a day of exports, or the oil market getting over its disappointment that the Biden administration isn’t moving more aggressively to refill the Strategic Oil Reserve. Or just a snap back after so many down days.
Oil traders don’t seem willing to say a longer rally is in the cards. Very contained optimism seems to be the mood of the day as in this quote on Bloomberg: “It does look like the panic of the past fortnight is abating, which should allow crude to float back up,” said Vandana Hari, the founder of Vanda Insights in Singapore. “The situation is still fragile, I don’t think anyone is 100% sure that the Western banking sector is out of the woods.”
Oil stocks moved up on Monday with Pioneer Natural Resources (PXD) gaining 1.14% and ConocoPhillips (COP) picking up 2.15%.
On Friday, shares of Pioneer Natural Resources (PXD) fell on a Bloomberg story reporting rumored talks between the Permian Basin oil shale producer and Appalachian natural gas producer Range Resources (RRC).
On Monday shares of Pioneer rebounded as the company denied that it was in acquisition talks.
The lesson? Investors really don’t want Pioneer to spend money on acquiring more assets.
On a company-specific level, the rumors made no sense. Pioneer is an oil-centered producer that gets the benefit of strong oil prices. Natural gas prices are depressed at the moment. I think they’re headed for a seasonal rally but in the longer term, I think the supply-demand case favors oil over natural gas. And there’s also the little question of the cost of production. Because of the high quality of Pioneer’s assets in the Permian Basin, the company has an extraordinarily low breakeven cost at $39 a barrel for West Texas Intermediate. The company’s relatively modest capital spending budget of $4.45 to $4.75 billion for 2023–up 21% from 2022–is focused on increasing production from the company’s low-cost assets. Any deal would have to result in higher cash flow from equally low-cost assets. That’s a high bar.
Second, on an oil industry level, the deal runs against the logic in the sector which concentrates on increasing returns to shareholders through buybacks and high dividend payouts. In the fourth quarter of 2022, Pioneer returned 95% of free cash flow to investors in dividends and buybacks. Any deal, from a Wall Street, perspective should work to increase free cash flow so that an oil company, such as Pioneer, can continue this level of distribution.
The most recent dividend payout from Pioneer–base dividend and bonus dividend–resulted in a yield of 11%. I think Pioneer is a good candidate for producing a dividend of 8% or more–maybe solidly more if oil prices climb toward $100 a barrel.
Which is why I recently added the stock to my Dividend Portfolio. Pioneer has been a member of my Jubak Picks Portfolio since January 2, 2022. That position is down–without counting dividends–by 2.9% to February 28
Wednesday, February 22, Pioneer Natural Resources (PXD) reported better-than-expected adjusted earnings for the fourth quarter of 2022 while revenues came up short of Wall Street estimates. Revenue was still up 18% year-over-year to $5.1 billion.
Fourth quarter net income nearly doubled to $1.48 billion or $5.98 a share, from $763 million, or $2.97 a share, in the fourth quarter of 2021.
The company declared a quarterly total dividend of $5.58/share, made up of a $1.10 base dividend and a $4.48 variable dividend. The total annualized dividend yield is approximately 11%.
Which is why I’m adding the shares to my Dividend Portfolio today. (The stock is already in my Jubak Picks Portfolio.) The dividend is payable on Mach 7 to shareholders of record on March 6.
In the fourth quarter Pioneer said oil production fell 11% year over year to 350,600 barrels per day and total output fell 3.7% to 661,500 barrels of oil equivalent a day.
The company’s average realized price in the quarter for oil rose 9.4% year over year to $83.53 per barrel, while its average realized price for natural gas liquids was $27.67 per barrel and its average realized price for gas was $4.98/Mcf.
For fiscal 2023, Pioneer projects a capital budget of $4.45 billion to $4.75 billion for drilling, completions, facilities and water infrastructure, plus a $100 million to $200 million capital budget for exploration, environmental, and other capital.
For the first quarter of 2023, Pioneer forecasts oil production of 349,000 to 364,000 barrels per day and a total output of 659,000 to 687,000 barrels of oil equivalent a day.
It is impossible, of course, to predict the price of oil in the coming quarters but the consensus among oil analysts is that at least in the first half of 2023 oil prices are likely to rise from current levels as demand for oil from China increases as the Chinese economy picks up speed after the latest surge in Covid infections and deaths.
Today I posted my two-hundred-and-fifth YouTube video.
This week’s Trend of the Week: U.S. Oil Production is Not Rising as Expected. Oil prices have averaged $100 per barrel over 2022–a figure that would normally lead oil companies to expand production and capital spending, but it hasn’t this time. According to the Energy Information Administration, U.S. oil production is only up about 3% from December 2021. Projections had the U.S. at 12 million barrels a day by the end of this year, but we’re currently only at 9.77 million barrels a day. Why is the production not going up? Oil shale fields deplete faster than traditional fields and we may have reached peak production in some of these oil shale basins. The best properties may have been exhausted and we’re now seeing companies move to their more inferior properties. The drilling and fracking may be happening at a steady pace, but we’re not getting as much out of the wells and properties currently being drilled. Companies that had a stock of drilled, but uncompleted have now worked through those “spare” wells and don’t have the motivation to drill new ones as Wall Street and investors would prefer high dividends instead of capital spent on a commodity that has an unclear future. The two oil companies I would look at are Pioneer Natural Resources Company (NYSE: PXD) and ConocoPhillips (COP) because of their mix of resources.
Here’s the link:
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