PIONEER NATURAL RES. (PXD) Message Board

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Gold/Mining/Energy : PIONEER NATURAL RES. (PXD)

PXD 269.62

0.0%

May 3 4:00 PM EDT

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From: Dennis Roth	8/8/2007 8:51:21 AM
	of 233

Rising costs and spending clouding credit for production growth - Goldman Sachs - August 08, 2007 What's changed Pioneer reported adjusted 2Q 2007 EPS of $0.40, below First Call consensus of $0.53 and our $0.46 estimate. Total production after adding back volumetric production payment volumes was 725 MMcfe/d, higher than our 712 MMcfe/d estimate. Operating cash flow was $307 million versus our $186 million, mostly due to tax-related issues. The company raised its 2007 capital expenditures budget by $150 million to $1.45 billion. Pioneer management expects costs to improve after the Oooguruk and South Coast Gas projects come online in the second half of 2007. Implications We believe that Pioneer's greater than expected spending relative to its cash flow is affecting its overall stock performance and outweighing the progress the company is making in growing production. The combination of higher capital spending, announced acquisitions and a seeming greater willingness of management to be more acquisitive in the future have clouded somewhat the path to free cash flow for Pioneer. Importantly, however, we and the company expect meaningfully less spending going forward since key development projects in Alaska and South Africa are nearing startup. We think the key to outperformance for Pioneer is the ability to deliver better than expected production growth that translates to better than expected free cash flow. Valuation Pioneer trades at 6.3x 2008E EV/DACF, above the midpoint of the 5.7x-6.6x range for other E&Ps that have onshore more conventional longer lived reserves. We see 30% potential upside to our $55 12-month discounted cash flow based target price. Of this value, we assume $10 for MLP value creation from the Spraberry and Raton Basin. Key risks Commodity price volatility, drilling results, cost pressures and yields for MLPs all pose key risks.

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