David Einhorn,founder and president of the Greenlight Capital hedge fund,has bitterly criticised shale oil extractor Pioneer Resources.The fracking company loses about 12.00 for each barrel of oil equivalent production,by Mr.Einhorn's reckoning,and its cash flow generation is falling,even as it spends too much on such amenities as cars and buildings.He conducted a discounted cash flow analysis that revealed a negative value.Among other problems,Pioneer has not adjusted its resource estimates to account for lower oil and gas prices.
Mr.Einhorn is consequently shorting several shale oil companies such as Pioneer and Whiting Petroleum.He thinks Pioneer's stock will drop precipitously.*
Such companies get better at drilling wells,counters Leo Mariani of RBC Capital Markets.Over time,we expect materially better returns.I certainly don't believe you're seeing losses of that magnitude;you're seeing operating and personnel costs drop.Certainly we've seen more than 16 billion of equity raised.Pioneer is selling some assets from the Eagle Ford,Texas shale holdings.There certainly is no issue with the balance sheet of Pioneer.It's one of the strongest companies in the sector.
All shale is not created equal.There are haves and have-nots.He makes some valid points,but there's no doubt that the strongest plays can make good returns in certain parts of the country.Even if the stock were to tank,I don't see the company selling itself.I guess it's possible,but I don't think it's a certainty Pioneer would sell itself,Mr.Mariani concluded.*
Pioneer Resources Inc (PXD)
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