How Pioneer Natural Resources Is Better Positioned than Devon Energy
The energy industry is prone to dramatic highs and dizzying lows thanks to the commodity nature of oil and natural gas. Some companies, like ExxonMobil (NYSE: XOM), seek to soften the peaks and valleys, while others have chosen to embrace them. That's basically the case with Pioneer Natural Resources (NYSE: PXD) and Devon Energy (NYSE: DVN), which both have performance-linked dividends. But these two drillers aren't the same in all ways.
The energy sector is broadly broken into three parts: the upstream, midstream, and downstream. They all face vastly different market dynamics, even though each is an integral part of the global energy system. Midstream companies like Enbridge own pipelines and other assets that help to move energy and largely charge fees for the use of their assets. Midstream companies tend to have consistent cash flows that support high dividend yields.
Downstream companies process energy into things like gasoline and chemicals. Not only does that expose these companies to volatile energy prices, which are an input cost, but their outputs (chemical and gasoline) are often commodities too. That said, low oil prices can be a net benefit for downstream companies, since it means lower costs. Energy majors like Exxon have material downstream operations to help offset the impact of weak energy markets.
Source Fool.com
