NEW YORK (TheStreet) -- As oil producers mull scaling back their operations in the face of a double-digit drop in oil prices, Pioneer Natural Resources (PXD) has gone the other way by ramping up its 2014 capital spending budget, and analysts are expecting further increases for next year.

Pioneer released third-quarter results last week that were better than the market's expectations, as per data compiled by Thomson Reuters.

The company reported a 7% increase in adjusted earnings from the same quarter last year to $1.35 a share due to a 22% increase in production to more than 186,000 barrels of oil equivalents a day. This offset the threat coming from 11% and 8% drops in oil and natural-gas-liquids realized prices, respectively.

But more importantly, the Irving, Texas-based company that gets most of its output from Texas' Permian Basin has raised its capital expenditure budget for this year, excluding one-off items and acquisitions, to $3.4 billion, from $3.28 billion. The increase is mainly related to additional work on more than two dozen wells and the development of a water distribution system that could lower the company's well development costs in the long run.

The company is still in the process of developing its capital budget for next year, which "will not be announced until early 2015," Pioneer spokesman Tadd Owens wrote in an e-mail.

However, Brian Singer and Gabriele Sorbara, analysts at Goldman Sachs and Topeka Capital Markets respectively, wrote in two separate November reports that the company's total capital expenditure for next year could be close to $4 billion.

That would stand in stark contrast to ConocoPhillips (COP) and Royal Dutch Shell (RDS.A) . During their recent conference calls, the former predicted it could cut its capital spending by about $700 million next year, while the latter said that it is in no hurry to develop its shale oil and gas assets at the Permian Basin in a weak pricing environment.

Pioneer, on the other hand, has a high quality of assets that can still generate "returns in the neighborhood of 40% to 80%" even if oil prices remain between $70 and $80 a barrel, Chief Operating Officer Timothy Dove said during the recent conference call. 

The futures of benchmark WTI crude have been hovering in this range since the end of last month, now at $77.29 a barrel, showing a decline of 20% over the past three months.

Pioneer has said that it will continue to target annual production growth of between 16% and 21% through 2016, despite deteriorating crude prices.

Further, the company could increase its production by more than 20% next year, likely beating its aforementioned guidance, Singer wrote in his report.

Pioneer's "solid balance sheet" and "a strong hedging program in place through 2016" puts it in "a strong position to continue to grow production," according to Owens.

Sorbara agrees, writing that Pioneer can easily "weather the current commodity price downturn," due, in part, to its financial strength, which will be buoyed through the recently announced $1 billion equity offering.

Although the company has a funding gap of $1.9 billion going through the end of next year, according to Sorbara's calculations, this will be filled on the back of future cash flows and sale of its stake in EFS Midstream, the owner of gas-gathering and pipelines systems in South Texas. The sale was announced in conjunction with third-quarter results.

Pioneer is the operator of EFS Midstream with a 50.1% stake in the business, while the remainder is held by India's Reliance Industries. The Mumbai-based industrial conglomerate is also selling its share.

Pioneer, however, could fetch between $800 million and more than $1 billion from the sale, according to Sorbara's conservative estimates.

Pioneer's shares have dropped by 7.4% this year, currently trading around $171 a piece. Topeka Capital Markets has a "hold" while Goldman Sachs has a "buy" rating on the stock.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates PIONEER NATURAL RESOURCES CO as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate PIONEER NATURAL RESOURCES CO (PXD) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, expanding profit margins, growth in earnings per share and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

You can view the full analysis from the report here: PXD Ratings Report

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