Pioneer Natural Resources Company (PXD) Q4 2022 Earnings Call Transcript

Pioneer Natural Resources Company (NYSE:PXD) Q4 2022 Earnings Conference Call February 23, 2023 10:00 AM ET

Company Participants

Neal Shah – Senior Vice President and Chief Financial Officer

Scott Sheffield – Chief Executive Officer

Rich Dealy – President and Chief Operating Officer

Conference Call Participants

Neil Mehta – Goldman Sachs

John Freeman – Raymond James

Scott Gruber – Citigroup

Neal Dingmann – Truist

Operator

Good day, everyone, and invited to Pioneer Natural Resources Fourth Quarter Earnings Conference Call. Joining america coming will beryllium Scott Sheffield, Chief Executive Officer; Rich Dealy, President and Chief Operating Officer; and Neal Shah, Senior Vice President and Chief Financial Officer.

Pioneer has prepared position slides to supplement comments made today. These slides are disposable connected nan Internet astatine www.pxd.com. Again, nan Internet website to entree nan slides presented successful today's telephone is www.pxd.com. Navigate to nan Investor tab recovered astatine nan apical of nan web page and past prime quarterly results. Today's telephone is being recorded. A replay of nan telephone will beryllium archived connected www.pxd.com done March 23, 2023.

The company's comments coming will see forward-looking statements made pursuant to nan safe harbor provisions of nan Private Securities Litigation Reform Act of 1995. These statements and nan business prospects of Pioneer are taxable to a number of risks and uncertainties that whitethorn origin existent results successful early periods to disagree materially from those forward-looking statements. These risks and uncertainties are described successful Pioneer's news merchandise connected Page 2 of nan descent position and successful Pioneer's nationalist filings made pinch nan Securities and Exchange Commission.

At this clip for opening remarks, I would for illustration to move nan telephone complete to Pioneer's Senior Vice President and Chief Financial Officer, Neal Shah. Please spell ahead, sir.

Neal Shah

Thank you, April. Good greeting everyone and convey you for joining america for Pioneer's 4th fourth net call. Today, we will talk nan beardown 4th fourth and afloat twelvemonth 2022 results that Pioneer delivered, which resulted successful nan grounds 30% return connected superior employed and nan procreation of complete $8 cardinal successful free rate flow. These results were underpinned by our world-class assets, our dedicated employees and businesslike operations. We're besides excited to item our 2022 – and nan beardown efficiencies nan teams proceed to deliver. We will past unfastened up nan telephone for your questions.

With that, I will move it complete to Scott.

Scott Sheffield

Thank you, Neal. Good morning. On today's call, we'll beryllium discussing our 4th fourth and afloat twelvemonth 2022 results arsenic good arsenic nan outlook for 2023. Pioneer delivered beardown results successful 2022 arsenic seen done nan galore accomplishments connected Slide Number 3. During 2022, Pioneer was nan astir progressive driller and nan largest lipid shaper successful nan authorities of Texas, achieved our 5th consecutive twelvemonth of drilling and completion ratio gains. Also, Pioneer delivered a grounds twelvemonth connected full production, besides achieving a return connected superior employed of 30%, a record. Strengthening our fortress-like equilibrium expanse and stay disciplined pinch nan reinvestment complaint astatine astir 30% of our rate flow.

These beardown results supported highly charismatic free rate travel generation, which we returned greater than 95% of free rate travel to shareholders done our $26 per stock successful dividends and $1.65 cardinal successful stock repurchases. We scheme to build connected these beardown 2022 results and expect to present a compelling 2023 pinch astir 2 months of beardown execution already completed.

We stay highly constructive connected lipid prices. I'm still very optimistic that we'll move backmost into that $90 to $100 scope sometime earlier this summertime arsenic we move it and get distant from this $78 to $80 plaything successful Brent prices.

Turning to Slide 4, during nan 4th quarter, Pioneer generated $1.7 cardinal successful free rate flow, bringing yearly free rate travel to $8.4 billion, of which we returned astir $8 cardinal done dividends and stock repurchases passim nan year. For nan 4th quarter, we are returning conscionable complete 100% of our free rate travel comprised of our first 4th [Technical Difficulty].

Just highlighted, underpin our expertise to return important superior to shareholders. As you tin spot from nan chart, successful 2022, Pioneer returned nan highest percent of free rate travel to investors compared to peers. This includes returning much than 95% of our free rate travel to shareholders done dividends and stock repurchases. Our beardown equilibrium sheet, disciplined reinvestment complaint and compelling firm returns enables our expertise to return important superior to shareholders.

Turning to Slide 7, Pioneer continues to connection a compelling dividend pinch 1 of nan highest dividend yields successful nan S&P 500. Our first 4th dividend [Technical Difficulty] – 11%, which you tin spot from this slide, exceeds our power peers, nan fields successful each S&P 500 sector.

Turning to Slide 8. In summation to nan beardown dividend payout, we proceed to spot charismatic worth successful repurchasing our shares. We judge waste and acquisition astatine a important discount to our intrinsic value. Demonstrating this commitment, during nan 4th quarter, Pioneer repurchased $400 cardinal of stock, further reducing shares outstanding, which benefits semipermanent stock returns and importantly, improves per stock metrics. In summation to nan 4th fourth stock repurchases, we completed an further $250 cardinal of stock repurchases during nan first 4th of 2023 nether a 10b5-1 plan, exhibiting our willingness to actively repurchase shares.

In total, Pioneer has repurchased $1.9 cardinal successful equity since nan opening of 2022, reducing shares outstanding by astir 3.5%. With $2.1 cardinal remaining nether our $4 cardinal authorization, we person further opportunities to trim our stock count further successful 2023.

Turning to Slide 9. We outlined our 2023 superior programme which builds connected our 2022 successes. The institution plans to present 2023 afloat twelvemonth reduction, ranging from 357,000 to 372,000 barrels of lipid per time and full accumulation ranging from 670,000 to 700,000 BOEs per day. Consistent pinch my commentary past quarter, our drilling completions and accommodation superior fund of $4.45 cardinal to $4.75 cardinal reflects astir 10% ostentation and 2 incremental rigs which thief support our yearly accumulation maturation targets.

Our exploration, environmental, and different superior for nan years expected to scope from $150 cardinal to $200 million. As we've discussed previously, cardinal projects wrong this class includes exploration drilling of 4 wells, targeting nan Barnett and Woodford formations successful nan Midland Basin, arsenic good arsenic continued appraisal of our enhanced lipid betterment project.

We're looking guardant to nan Barnett and Woodford trial arsenic early results by immoderate peers person shown immoderate beardown early lipid rates and we person a important acreage position successful respective 1000 locations related to Barnett and Woodford imaginable successful nan future.

As nan economical imaginable of these projects, some nan exploration drilling and nan ER projects go much certain, those will beryllium included successful our early capital. So this is not expected to beryllium recurring capital. Based connected nan midpoints of our superior and accumulation ranges astatine portion pricing, we expect to make greater than $4 cardinal of free rate travel successful 2023 from astir $9 cardinal of projected operating rate flow.

Slide 10 provides immoderate further item connected our 2023 superior profile. Throughout 2023, we expect to run betwixt 24 and 26 drilling rigs and placed betwixt 530 wells connected production. This programme is expected to present quarterly accumulation maturation passim nan year.

Our 2023 drilling and completions activity is distributed crossed our ample contiguous Midland Basin acreage, pinch astir 3 drilling rigs operating successful our associated task area. As I’ve discussed successful nan past, nan contiguous quality of our acreage position provides aggregate operational benefits including drilling and completing 15,000-plus ft laterals pinch greater than 100 of these expected to beryllium placed connected accumulation successful 2023.

These longer laterals [indiscernible] thrust improved returns and higher productivity that I’ll talk further successful a minute. We besides use from nan continued utilization of simulfrac operations, which reduces costs by astir $200,000 per good and provides incremental operational efficiencies.

Additionally, our important h2o infrastructure provides diversified disposal and reuse web that spans crossed astir of our acreage position.

Turning to Slide 11. As I conscionable mentioned, our 15,000-plus ft lateral magnitude developments delivered beardown productivity and accrued returns erstwhile compared to a 10,000-foot lateral well. Drilling and completing these agelong laterals thrust important ratio gains that trim superior costs, nan D&C savings of astir 15% connected a costs per lateral ft basis.

The operation of these savings and beardown productivity thrust accrued returns pinch IRRs expanding by much than 20 percent points erstwhile compared to a 10,000-foot lateral. To date, we’ve identified much than 1,000 locations for agelong lateral improvement and expect much than 100 of these wells to beryllium placed connected accumulation successful 2023.

Turning to Slide 12. And looking astatine nan floor plan connected nan left, you tin spot that Pioneer’s multi-year way grounds of peer-leading completion efficiencies continued during 2022.

In summation to our execution team’s awesome efforts, nan implementation of simulfrac completions is simply a awesome contributor to our ratio improvements and costs savings complete nan past mates of years. We proceed to build connected that occurrence pinch nan deployment of a 3rd full-time simulfrac fleet earlier this quarter.

Additionally, during nan first half of 2023, Pioneer will utilize 2 localized soil mines to supply soil to our wells. The usage of section soil is expected to present mean costs savings of astir $200,000 per well, principally owed to reduced trucking costs arsenic a consequence of nan mine’s adjacent proximity to our wells. Consistent pinch our committedness to sustainable operation, Pioneer expects 100% of our completion fleets to beryllium either electrical aliases dual substance powered by nan 2nd half of 2023.

Turning to Slide 13. Our 2023 improvement scheme remains highly competitory and is underpinned by our best-in-class assets and highly businesslike operations. This operation resulted successful 2023 firm attraction breakeven WTI lipid value of $39 a barrel, which includes nan impacts of nan 10% ostentation that I talked astir earlier and estimated rate taxes that are forecasted to beryllium successful that mid to precocious teens of book income for nan year. Including our guidelines dividend, our attraction programme is afloat funded astatine $47 WTI, which demonstrates nan resilience and durability of our programme done cycles. At portion pricing, aft backing our 2023 program, we expect to make important free rate flow, nan mostly of which we scheme to return to shareholders done dividends and stock repurchases.

On Slide 14, you tin spot connected nan near that Pioneer has nan deepest inventory of high-quality Permian drilling locations erstwhile compared to peers. This third-party study substantiates Pioneer independent lipid and state usability pinch decades of high-quality inventory successful nan halfway of nan Midland Basin. As seen connected nan right, Pioneer’s Midland Basin acreage is highly contiguous, which is simply a cardinal driver to nan efficiencies that I highlighted earlier.

So pinch that, I’ll move it complete to Neal.

Neal Shah

Thank you, Rich. Turning your attraction to Slide 15. The chart connected nan near builds connected our peer-leading inventory extent that Rich noted connected nan erstwhile descent and item a operation of this unmatched inventory extent pinch our expertise to make nan highest free rate travel per BOE. Our charismatic free rate travel procreation sustained done our heavy inventory provides a durable finance done cycle.

Turning to Slide 16. Pioneer’s peer-leading free rate travel per BOE from nan erstwhile descent is supported by our best-in-class margins. These robust margins are generated done our apical tier value realizations, lipid hedges and debased operating costs, inclusive of G&A and liking expense. Additionally, our broad infrastructure, highly diversified trading strategy and businesslike operations underpin and lend to these beardown results.

On Slide 17, it illustrates nan compelling free rate travel procreation and durability of our programme done cycle, which is nan merchandise of our world-class assets, lipid maturation and our highly businesslike operations. This free rate travel provides ample opportunity to return important superior to our shareholders done dividends and stock repurchases astatine various lipid prices and is sustained by our debased firm breakeven that Rich discussed earlier.

Now turning to Slide 18. At existent portion prices, we expect to present an charismatic ROCE exceeding each sectors wrong nan S&P 500 of nan fields and nan wide power sector. Additionally, Pioneer continues to connection a discounted valuation contempt generating this precocious ROCE erstwhile compared to nan S&P 500. In summary, we judge our starring firm return floor plan paired pinch our inexpensive valuation results successful a compelling finance opportunity.

And pinch that, I’ll manus it backmost to Rich.

Rich Dealy

Thanks, Neal. As you tin spot connected Slide 19, we’ve continued to our committedness to sustainable operations successful 2022. You tin spot we joined OGMP 2.0 arsenic Scott talked astir earlier, collaborated pinch NextEra Energy to create a 140-megawatt upwind procreation task that should beryllium online successful 2024.

And additionally, during nan 4th quarter, we published our 2022 ambiance consequence report, which accompanies our antecedently published 2022 sustainability report. Both reports item Pioneer’s attraction and important advancement connected ESG initiatives and their impacts connected our business. We judge these actions demonstrates our committedness and attraction connected ESG and further strengthens Pioneer’s position arsenic a leader successful nan industry. You tin find some our sustainability study and our ambiance consequence study connected our website.

Turning to Slide 20. Pioneer continues to supply debased emissions barrels to nan market, producing immoderate of nan astir sustainable barrels successful nan world down only Norway connected a CO2 strength basis, arsenic you tin spot from nan chart. When mixed pinch our debased breakeven lipid price, Pioneer provides exceptionally resilient accumulation that we expect will person a spot successful nan world marketplace for decades to come.

Lastly, concluding connected Slide 21, you tin spot nan Pioneer’s cardinal characteristics connected nan descent that support our committedness to creating important worth for our shareholders.

And truthful pinch that, I’ll unfastened up nan telephone for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we’ll first perceive from Doug Leggate of Bank of America. And Doug, your statement is open.

Unidentified Analyst

Hello. Can you perceive me?

Scott Sheffield

Yes.

Unidentified Analyst

Can you perceive me?

Scott Sheffield

Yes, Doug, spell ahead.

Unidentified Analyst

[Indiscernible] connected for Doug. I’ve sewage 2 questions here. So nan very first 1 is conscionable connected nan spending fund for nan year. So you guys person a very heavy group of inventory locations that’s successful nan industry, but you are spending $200 cardinal connected exploration. Can you dive into immoderate of nan specifications of what you’re readying to walk connected this twelvemonth and why you consciousness nan request to walk connected exploration this year?

Rich Dealy

Sure. Yes, I deliberation arsenic we’ve looked astatine – arsenic I talked about, we’ve sewage respective 1000 locations nether our existing footprint successful nan Midland Basin. And we deliberation it’s important pinch 4 wells to really understand what that productivity is going to look like, what nan economics are going to look for illustration and really it would compete for superior pinch our remainder of our portfolio. So we deliberation it’s money good spent conscionable to understand that this twelvemonth arsenic portion of our ongoing operations. And truthful we’ve seen, arsenic I mentioned successful nan comments, immoderate bully results from peers truthful far. So, we’re excited to spot what those results look like. They’re going to beryllium successful nan 2nd half of nan year. But that’s why we’re focused connected spending connected it.

And past nan different 1 I’d conscionable adhd is our enhanced lipid betterment project, we’ve talked astir that successful anterior quarters. We had a affirmative rate successful 2022, and we wanted to do immoderate much cycles connected that and spot what uplift we tin get successful 2023 from those projects arsenic well. Hopefully, that helps?

Unidentified Analyst

It does. The 2nd mobility is conscionable connected deferred tax. Obviously, location was a use present successful nan 4th quarter. It looks for illustration that use continues to show up present successful nan first quarter, fixed guidance. Can you talk astir nan trajectory of rate taxation arsenic you spot it playing retired location down to 2023?

Neal Shah

Hey bully morning. It’s Neal Shah. Again, our taxable income is limited connected lipid prices. But astatine existent portion prices, arsenic Rich said earlier, our effective taxation – rate taxation complaint comparative to book income is going to beryllium successful that mid-to-high teens scope passim nan year. So first 4th rate taxes are a small spot little than that scope arsenic a consequence of america utilizing nan Safe Harbor proviso for our rate taxation costs successful nan first quarter. But you’ll spot going forward, Q2, Q3 and Q4 that it’s going to mean backmost to that mid-to-high teens connected a go-forward basis.

Unidentified Analyst

That’s great. I admit nan answers.

Operator

Next we’ll perceive from Neil Mehta of Goldman Sachs.

Neil Mehta

Yes, bully greeting team. Thanks for taking my question. The first is, there’s been a batch of attraction connected good productivity. And you talked a batch astir this lapping providing an outlook for 2023 to 2027 and nan improvements that you anticipate. So, I conscionable emotion to perceive wherever we are successful that journey, talk astir connected nan ground, what changes person been made to execute against that plan? And erstwhile do you spot it really manifesting itself successful 2023 numbers?

Rich Dealy

Sure, Neal. I admit it and bully morning. So, I would opportunity our 2023 programme is disconnected to really a awesome start, and we expect to present a overmuch much productive programme this twelvemonth and really successful early years fixed nan extent of our inventory going forward. So, we look guardant to reporting connected nan advancement of that. But I’d opportunity that we made those changes successful nan fall. You’re going to spot a constricted activity successful nan 2nd quarter, but past 2nd half of nan year, you’ll spot nan benefits of those, what I’ll telephone it, changes, but it’s really conscionable emphasizing afloat stack improvement crossed nan basin.

Neil Mehta

That’s helpful. And we’ll support our eyes unfastened for that. The follow-up was conscionable astir superior this quarter. We saw a bigger payout than what astir of america model. Just talk astir really you’re reasoning astir a normalized dividend payout? And past arsenic it relates to buybacks, will you proceed to return a much countercyclical attack erstwhile shares person sold off? Thank you.

Scott Sheffield

Yes. Thanks, Neil. It’s Scott. We’ll proceed arsenic I’ve said connected past calls to sojourn pinch our shareholder guidelines annually to solicit their thoughts and feedback are committed to returning important superior to shareholders and spot nan benefits of some dividends, buybacks going forward. So we will proceed much of nan aforesaid arsenic you’ve seen us.

Operator

And was location thing further?

Scott Sheffield

Operator?

Operator

Next, we’ll perceive from John Freeman of Raymond James.

John Freeman

Good morning, guys.

Scott Sheffield

Hi, John.

Neal Shah

Hi, John.

Rich Dealy

Hi, John.

John Freeman

The first question, it’s bully to spot that successful nan 2nd half of nan year, nan completion fleets will each beryllium electrical aliases dual substance power. Is nan scheme still to beryllium a 100% electrical by 2024? I deliberation you each request to instal 3 electrical substations. Just benignant of an update possibly connected that timeline?

Rich Dealy

Yes, I wouldn’t opportunity it’s by 2024. I mean, I deliberation we will – we’re moving that way. But it’s astir apt much 2025 erstwhile you get to astir of our activity will beryllium electrified. It’s conscionable depends connected nan buildup of that, but it’s each progressing. As you know, it conscionable takes clip moving pinch nan transmission accommodation and providers to get that done. But that’s portion of that 150 cardinal to 200 cardinal is besides to thief let america to beryllium successful a position to person nan section electrified erstwhile that powerfulness is disposable to us. So it’s each moving guardant arsenic we would’ve expected, and really astir apt a bigger attraction successful 2025 than, but there’ll beryllium immoderate successful 2024.

John Freeman

Great. And past conscionable my follow-up question, connected nan fund you each said you’re benignant of assuming astatine 10% costs ostentation astatine nan clip of your past net call. I judge you person each said that astir location astir 35%, 40% of your services this twelvemonth were nether fixed value contracts versus benignant of floating complaint your spot. Can you benignant of springiness an update arsenic we guidelines today, for illustration conscionable really overmuch of your contracts are fixed versus floating your spot?

Rich Dealy

Yes, I’d opportunity that 100% of our activity is contracted astatine this point, and past 55% to 60% is what I’d opportunity is beautiful good fixed astatine this point. And nan remainder is really conscionable taxable to what I’d call, WTI prices that are linked to that aliases alloy prices that are linked to those things. And truthful astir of its extremity is tied to commodities, which is what’s going to thrust nan astir of nan remainder of it. That would up and down immoderate labor, but those are nan main things that are still retired location that will fluctuate.

John Freeman

Great. Thanks Rich. Appreciate it.

Rich Dealy

Sure.

Operator

[Operator Instructions] Next, we'll perceive from Scott Gruber of Citigroup.

Scott Gruber

Yes. Good morning.

Rich Dealy

Good morning, Scott.

Neal Shah

Yes, Scott.

Scott Gruber

Just a benignant of a explanation mobility present connected nan fund for this year. In comparison to nan attraction capital, you guys mention connected Slide 13 astatine $3.9 cardinal I deliberation that's conscionable nan D&C question, but it is astir $700 cardinal aliases truthful beneath nan midpoint of nan D&C fund for this year. And you guys talked astir moving 2 much rigs this year. Just looks for illustration that $700 cardinal spread is bigger than 2 rigs, possibly person to 4 rigs, but I'm judge I'm missing immoderate pieces. Can you guys conscionable thief benignant of span nan spread betwixt nan attraction superior of $3.9 cardinal and nan D&C fund for this year?

Rich Dealy

Yes, I really deliberation about, arsenic we talked astir nan 2 rigs being astir $200 cardinal a portion truthful that's $400 cardinal of nan delta you're looking there. And that's really conscionable a matter of timing of really activity comes ebbs and flows successful there. And past nan truth that immoderate of our superior programme moreover for this year, that was – towards nan extremity of this twelvemonth would person generated maturation into 2023. And truthful really, Scott, that's really nan delta quality is conscionable that timing of things that hap betwixt years to thrust that difference. So there's thing magical astir it. It's conscionable really nan mathematics useful retired and timing.

Scott Gruber

Okay. Okay. Well, admit that. That was all. Thank you.

Rich Dealy

Sure.

Operator

And next, we'll perceive from Neal Dingmann of Truist.

Neal Dingmann

Good greeting everyone. My first mobility is pinch respect to nan NextEra Energy and nan 140 megawatts Texas upwind project. Can you elaborate a spot much connected what are nan steps, I guess, successful position of identifying nan wide contractor and nan guys get into nan building start? The 2nd portion excessively is conscionable study a spot much astir imaginable description connected this upwind project?

Rich Dealy

Yes. Neal, truthful possibly a mates of things. One, nan building starting this twelvemonth and pinch nan thought of being successful work successful 2024 NextEra is 1 that are constructing it. We're – they're nan proprietor of nan task and we will beryllium taking nan energy that's generated from nan task and utilizing successful our operations and our state works operations pinch Targa.

And past successful position of future, we still person 3 different ample ranches retired location that we’ll look to for different renewable projects successful nan early on. And truthful we still person a batch of imaginable to adhd incremental renewable projects that we could usage that energy successful our operations complete nan people of time. So we’re not stopping here. We proceed to advancement it. It’s conscionable going to return immoderate time.

Neal Dingmann

Good worldly there. As a follow-up question, I was funny successful stacking up each these projects, whether it’s nan wind. I was besides funny it was astir c seizure and sequestration. How is c seizure stacking up comparative to nan different projects that you have? Thanks.

Rich Dealy

I’d opportunity our bigger attraction coming is on, arsenic I talked earlier, astir electrifying nan section and really moving much of our operations to nan grid. So I deliberation that’s nan biggest emanation and deliberation we tin do first. I mean I deliberation we’re assessing c seizure successful it complete time, but – and sequestration. But for nan astir portion today, our attraction is connected really getting much of our operations electrified.

Neal Dingmann

Sounds bully there. Thanks very much.

Rich Dealy

Sure.

Operator

And it appears location are nary further questions astatine this time. I will move nan telephone backmost complete to Scott Sheffield for immoderate further aliases closing comments.

Scott Sheffield

Again, convey you very overmuch for listening connected this call. Look guardant to visiting pinch everybody connected nan May call. Thank you.

Operator

That does reason today’s call. Thank you each for your participation. You whitethorn now disconnect.