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Gold/Mining/Energy : Big Dog's Boom Boom Room
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To: Bearcatbob who wrote (181865)12/26/2013 12:40:58 PM
From: Jim P.2 Recommendations

Recommended By
Bocor
Spekulatius

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My pick this year is PXD Pioneer Natural resources.

There are 3 reasons to own Pioneer.

1, Management has proven to be value creators and very conservative when it comes to the use of debt.

2, Eagleford acreage has some upside with down spacing and success in another zone.

3, The Midland basin acreage valuation upside.

PXD is taking lessons learned in the Eagleford and applying them to the Midland basin. There are other players doing the same and apparently the industry players know each other well enough that the exchange of successful well results and methods become known quickly.

PXD is showing through its purchase of PSE for Midland basin acreage that management believes has very high confidence in the future value of its own holdings.

Research reports and PXD’s own presentations leave a lot of room for upside as the Wolfcamp D zone and the Jo Mill sand are proved to be economic.

PXD valuation is high relative to current production.

Although PXD management has shown increasing confidence in the potential of the Midland basin in every presentation and conference call for the last 3 years, other players and analyst have been slow to believe the overall potential.

PXD is proving up the Spraberry shale, Jo Mill silt, Wolfcamp B and Wolfcamp D as horizontal drilling home runs. Stacked oil fields with lots of infrastructure already in place seems to becoming more of the normal in a lot of plays but PXD has an edge with old leases having some of the lowest royalty rates anywhere.

It seems that every conference call has PXD moving up the schedule of testing, drilling, production ramp and estimates of recoverable reserves.

I expect the same to happen this next year and also expect the soon to be announced Jo Mill horizontals to be competitive with returns from the Wolfcamp B zone.

I expect PXD will slow down on science wells next year and start high grading acreage with million barrel wells.

I do not have a short term price expectation on PXD but see the potential of 30% capital gains annually for many years.

As acreage is proved up and drilling ramp is accelerated asset valuations should be increased and pulled forward in time. This may be reflected in the stock price but reading the analyst reports makes me believe it is not.

jim
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