A look at enterprise multiple
As of 1Q16, Pioneer Natural Resources’ (PXD) adjusted EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio is ~17x. That’s higher than its historical average of ~12.4x over the last five years.
As you can see in the above graph, PXD’s EV-to-EBITDA ratio has increased over the last two quarters. This was mainly due to increased EV and the fall in EBITDA.
Let’s look at the enterprise multiples for other upstream companies in the S&P 500 (SPY):
Pioneer Natural Resources’ forward EV-to-EBITDA multiple is ~15x, which is higher than its historical average of ~12.4x. For 2016, Wall Street analysts estimate Pioneer Natural Resources’ EBITDA to increase ~9% YoY (year-over-year) to ~$1.6 billion.
Why enterprise multiple?
EV-to-EBITDA ratio is also called enterprise multiple. It’s preferred over PE (price-to-earnings) ratio, especially for upstream companies, because it takes into account a company’s debt. In enterprise multiple, enterprise value is the sum of market capitalization and market value of debt minus total cash and cash equivalents.
PXD’s proved reserves
As of December 31, 2015, Pioneer Natural Resources’ proved reserves totaled ~664 million boe (barrels of oil equivalent). That’s a decline of ~135 million boe since December 31, 2014.
As of December 31, 2015, ~47% of PXD’s proved reserves consisted of crude oil, ~34% for natural gas, and ~19% for natural gas liquids. All of PXD’s proved reserves are located in the United States.
According to PXD’s 2015 annual report, the discounted value of its reserve base at the end of 2015 was ~$3.2 billion.
In the next part of the series, we’ll see how Pioneer Natural Resources’ valuation compares to its peers.