Pioneer Natural Resources (NYSE: PXD ) is exiting its Alaskan oil operations and it's taking a loss to do so. The company simply sees better opportunities in Texas. The fact that it's sitting on what it believes to be the world's second largest oil field certainly doesn't hurt.
Pioneering the Alaskan frontier
For Pioneer, Alaska represented just a drop in the bucket compared to its vast potential in the Spraberry/Wolfcamp in the Permian Basin. Its production in Alaska has steadily fallen over the past year as it has gone from 4,875 barrels of oil per day in the second quarter of 2012 to 4,209 barrels of oil per day as of last quarter. At the same time its Spraberry/Wolfcamp oil production has grown by more than twice its total Alaskan output.
This is why Pioneer's decision to exit Alaska makes a whole lot of sense. It can grow so much faster in Texas where it has a massive scale position and a large runway of future opportunities. What it is lacking is cash to invest in that growth.
In the sale of its Alaskan assets, Pioneer is picking up two streams of cash. First, it'll take a $550 million cash infusion from the buyer. But in addition to this Pioneer will now be able to reallocate the cash it has been investing into its Alaskan operations. This year the company had earmarked $190 million of its $2.75 billion capital budget to the state. All that cash can be reinvested to its Texas oil assets.
The Market seems to think this is a good move PSE / PXD both up big time today. Looks like the so-called shorts bought the big one today.