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Will Pioneer Natural Resources’ Free Cash Flow Improve?

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Sep. 17 2015, Published 12:40 p.m. ET

Pioneer Natural Resources’ cash flows

Did Pioneer Natural Resources (PXD) generate enough cash to finance its capex programs, or did it have to resort to external financing? We’ll examine this question in this article.

In 2Q15, Pioneer Natural Resources’ operating cash flow (or CFO) improved significantly to $328 million from $104 million a quarter ago. However, on a year-to-date basis, it decreased 63%. The fall was primarily due to lower oil and gas prices, which translated into lower revenues. In comparison, Cenovus Energy’s (CVE) 1H15 CFO dropped 61% over 1H14. Meanwhile, Suncor Energy’s (SU) 1H15 CFO decreased 34% over 1H14. Parsley Energy’s (PE) 1H15 CFO increased 47% over the same period. Pioneer Natural Resources makes up 1.3% of the iShares US Energy ETF (IYE).

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Pioneer Natural Resources’ free cash flows

Pioneer Natural Resources’ free cash flows (or FCF), defined as operating cash flows less capital expenditure, have mostly remained negative in the past 13 quarters. In 2Q15, despite falling energy prices, its FCF improved to a negative $164 million from a negative $617 million recorded in 1Q15. Compared to 2Q14, however, it displayed cash flow deterioration, when PXD’s FCF was a negative $43 million. The only time FCF was mildly positive was in 3Q13 when WTI crude oil price was approximately 70% higher than the 2Q15 level.

PXD’s capex decreased from 1Q15 to 2Q15. This, combined with the improvement in CFO reflects higher 2Q15 FCF. In 2015, the company plans to increase capex to $2.2 billion led by higher expenditures on Spraberry/Wolfcamp water infrastructure, vertical integration, and facilities. PXD had been spending cash in investing activities, while cash flows from financing activities remained weak in the past two quarters. In 2Q15, PXD disclosed plans to refinance part of it existing debt with new debt. It has also sold assets to generate cash, as described in Part 6 of the series. Given its $219 million cash and marketable securities, it may sustain the cash bleed for some more time.

Free cash flow trend

Pioneer Natural Resources’ capex will continue to stay strong for the rest of 2015. FCF may continue to stay negative unless there is a swift change in energy prices leading to higher cash flow from operations.

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