Stock in Pioneer Natural Resources (NYSE:PXD), left for dead in the oil bust, is roaring back on rising prices and rumors of war. PXD stock opened at $216.01 on Jan. 26.
With U.S. prices for crude oil over $85 per barrel, and natural gas imported to Europe at over $90/mcf, producers are even seeking to prove new fields. (Domestic natural gas still comes in at $4.31 per mcf.)
The price of PXD stock has nearly doubled from a year ago. The last time the stock price was this high was in 2018. The rising stock price has sent its dividend yield down to 1.1% and the price to earnings ratio up to 31. By way of comparison, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has a P/E of 26.
Why PXD Stock Is Rising
Pioneer stock is rising because it’s considered a best of breed producer with high-quality assets and financial discipline.
Pioneer still had nearly $7 billion in debt at the end of September, but nearly half could disappear as it sold interest in 92,000 West Texas acres at the end of 2021 for $3.25 billion in cash. Analysts estimate earnings for the fourth quarter at $4.42/share on revenue of $4.95 billion. During all of 2020 the company lost $1.21/share on revenue of $7 billion.
The disparity shows just how volatile the oil patch remains and how tightfisted oil companies now need to be to survive.
Get Your War On
Sites that cover the oil patch are almost giddy in their coverage, delighted with supply chain pressure pushing the cost of new solar and wind energy up. Oil analysts are predicting record U.S. production next year. The U.S. rig count of 604 drills operating is the highest it’s been in years.
Excitement is growing among U.S. producers because OPEC and Russia are no longer carrying their weight. Russia seems to be using its oil and gas production as a weapon as it looks to invade Ukraine. It has already helped put down a popular revolt in oil-producing Kazakhstan.
Last month OPEC produced almost 800,000 barrels/day less than its publicly-stated target, and Russia is also pumping less than its quota. Saudi Arabia is refusing to make up the difference, and the U.S. is releasing oil from its strategic reserves to keep prices down.
Love the Oilman
This makes the U.S. once again a “swing producer,” able to increase production to stabilize prices and control the market. Output could rise by 900,000 barrels/day this year, with prices in the range of $65-85/barrel.
That’s fine by Pioneer, which said last year its breakeven price for oil is now below $30/barrel. Even while it sold its Delaware Basin lands, it added to its Midland Basin holdings by buying Doublepoint Energy and Parsley Energy.
Pioneer no longer funds drilling with debt, as was often the case in the 2010s. Instead it uses operating cash flow, which came to $8 billion in the first three quarters alone. Most of the rest goes out as dividends, with $3.81 per share going out during 2021, including a special dividend of $1.51. (The regular dividend was recently raised from 56 cents/share to 62.)
The Bottom Line on PXD Stock
Most investors see dividend stocks as stable. Oil dividends are volatile.
When the good times roll, as they’re rolling right now, Pioneer and companies like it pay out like slot machines. When oil prices drop, dividends dry up, too.
Right now, oil prices are firm. Both the price of Pioneer shares and their dividends are rising. But every boom in this business is followed by a bust. U.S. shale producers could easily overshoot, and an oil glut could be in the forecast for 2023.
If you do choose to buy PXD Stock, watch the headlines.
On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.