Managing Director Don Wordell of Ceredex Value Advisors says Pioneer Natural Resources (NYSE:PXD) has been able to generate returns even with lower oil prices, and will grow faster than its peers as oil prices rise in the future.
This is a company that is in E&P, which is exploration and production. This is a company that drills for oil, primarily in the Permian Basin, which is in Texas.
This company has a very attractive cost base, meaning they are a very low-cost producer. Even earlier this year, when oil prices were well-below where they are now, in the $20s, Pioneer was still able to generate returns that were above their cost of capital.
So Pioneer has the three things that we think you have to have to invest in an energy company: good rock, so that means they have reserves and a great piece of land to drill on. You have to have good management, which this team has, having been around a long time and proven themselves. You need to have a great balance sheet, which this company has. I believe it’s really close to net debt zero. So they’re not in a big over-levered position.
So that’s why we really like Pioneer because we think that, over the next two years, at $46 oil here, and as the strip moves out and you look out further, you can see $50, $60 oil over the next two years, they’re going to be able to generate returns and grow faster than any of their peers.
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