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'Kitchen-sinked' with bad news, Pioneer Natural Resources shares take a beating

Shares of Pioneer Natural Resources Co. took a pummeling Aug. 2, after the company predicted production totals near the low end of its guidance and revealed a $100 million cut in CapEx for the full year.

During Pioneer's second-quarter earnings call Aug. 2, company executives talked up production growth of 10,000 barrels of oil equivalent per day, or 4% over the first quarter. That increase was credited to operations in the unconventional plays of the Permian Basin, where Pioneer placed 61 wells on production during the second quarter. The news from the Permian was not all good, however: Pioneer CEO Timothy Dove reported some "unforeseen drilling delays" that pushed back production and forced the company to alter its plans for the remainder of the year.

Pioneer also said its overall production growth rate would be at the lower end of its 15%-to-18% 2017 guidance, with only 230 of the originally planned 260 wells going on production.

"Although we would have had the opportunity a month or two ago to make a change, we decided not to. We decided not to accelerate activity to catch up … especially in light of the current commodity price environment," Dove said. "With our strategy, you have to realize also that if we were to come out and increase rig count today, for instance, with our three-well pads, we would have basically zero impact on this year's production. So the decision was made ... to basically not rev up the engine and chase the issue with additional capital in rigs, especially as I said with what's going on the commodity world. And since those 30 [wells placed on production] are moving into 2018, this results in a reduction on our capital this year by about $100 million."

Displeased with the commentary, shareholders sold with a vengeance, dropping Pioneer stock more than 11%, to $145.68 per share, in late afternoon trading Aug. 2. In a note to investors, Sanford C. Bernstein & Co. LLC analyst Bob Brackett said the miss on oil production and concern over oil production rates at wells falling faster than gas production had caused more excitable investors to sell off.

"We continue to see [Pioneer] as one of the lowest-risk growth stories in the E&P industry, driven by a large inventory of low-cost oil inventory and a clean balance sheet. PXD kitchen-sinked the bad news this quarter and investors clearly responded," he said. "Nonetheless, we believe investors should look past the 'reveal' and we continue to rate [Pioneer] outperform."

For the quarter, Pioneer reported adjusted profit of $38 million, or 21 cents per share. That topped S&P Capital IQ's consensus normalized earnings estimate of 11 cents per share.