Pioneer Natural Resources Company

Welcome to Pioneer Natural Resources fourth quarter conference call. Joining us today will be Scott Sheffield, Chief Executive Officer, Rich Daly, President and Chief Operating Officer, Joey Hall, Executive Vice President of Operations, and Neil Shaw, Senior Vice President and Chief Financial Officer. Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at www.pxd.com. Again, the Internet site to access the slides related to today's call is www.pxd.com. At the website, select Investors, then select Earnings and Webcasts. This call is being recorded. A replay of the call will be archived on the Internet site through March 22, 2021. The company's comments today will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements and the business prospects of Pioneer are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties are described in Pioneer's news release on page two of the slide presentation and in Pioneer's public filings made with the Securities and Exchange Commission. At this time, for opening remarks, I would like to turn the call over to Pioneer's Senior Vice President and Chief Financial Officer, Neal Shah. Please go ahead, sir.

Thank you, Orlando. Good morning, everyone, and thank you for joining us. During today's conference call, we will be discussing our strong fourth quarter results in addition to reviving our 2021 outlook, detailing our strong financial position, and discussing the initiation of our variable dividend policy. We will also include an update on the synergies we're achieving through our Parsi transaction and our significant ESG momentum with new goals and targets set at the end of last year. After that, we will open up the call for your questions. So with that, I'll turn it over to Scott.

Thank you, Neil. Good morning. We're going to start off on slide number three. We had very, very strong free cash flow generation of approximately $300 million, driven by a strong production of low-cap acts due to continued efficiency improvements from the operational teams at all levels. We're announcing our formalized long-term variable dividend structure which we have several slides, we'll be returning up to 75% of post-based dividend free cash flow to shareholders, and we'll give you some examples later on. Significantly improving return of capital to shareholders. We'll generate significant free cash flow generation of approximately $2 billion expected in 2021 at $55 WTI. Currently, the strip is about $60 WTI, so we hope to beat that, driven by peer-leading corporate breakeven in the high 20s per barrel range. Synergies from partially acquisition are exceeding previous guidance, especially on our recent bond deal, interest savings additional 25 million, and we expect to achieve better savings on GMA as we go into the second and third quarters. We expect synergies there of about 100 million. We also expect to realize our full operational synergy run rate of 150 million per year by year end 21, Rich will talk more, give more detail about that and fully benefit in 2022 and thereafter. We remain focused on environmentally responsible operations with new emission reduction goals announced during our fourth quarter of 20 with the release of our comprehensive sustainability report. Going to slide number four, our execution continues to remain strong. Both total production and oil production in the upper half of our guidance ranges for both fourth quarter and for full year. We generated $700 million in free cash flow despite averaging $39 WTO price during 2020. In addition, we're continuing to gain on lease operating expenses. They were down 15% from 2019 levels. Going to slide number five, our outlook. In 2020, obviously many EMPs experienced year-on-year production declines. Pioneer continued its trajectory of strong performance, setting up a robust 21, especially going into 22. As seen on slide 5, we're expecting to generate approximately $2 billion in free cash flow at $55 WTI. Again, the strip is about $60, so we hope to beat that. Our 2021 production outlook was impacted by the harsh winter weather encountered across the state of Texas last week. that left millions without power for an extended period of time. Our 2021 production outlook reflects these impacts, which amounts to approximately 8,000 barrels of oil per day on a full year basis, a little above 2% of our total oil production. With our announced capex range of 2.4 to 2.7 billion, we're expecting to produce between 307 and 322,021, which includes the impacts of the winter storm and also excludes 11 days of parsley production from January the 4th through January 11th prior to the close. Our current production trajectory will drive strong exit-to-exit growth of approximately 8%, which sets up a very highly capital efficiency 2022 and beyond. Going into slide number six, the framework for the variable dividend, and discuss more detail over the next several slides. Top tier inventory supports a low maintenance capital break-even price of about $29 per barrel. And as you look, our maintenance capital is about $2 billion now with both companies combined together. At $55 oil, the 2021 plan generates $2 billion of free cash flow That's WTI. As I said already, the strip is about 60 for the rest of the year, allowing for substantial return of capital to our shareholders via a base and a variable while concurrently further strengthening our balance sheet. Going to slide number seven, we've been talking about this for 18 months. We've been exploring it with shareholders, both long-term and short-term, for about 18 months. We're happy to announce The initiation of our variable dividend policy significantly enhances our long-term shareholder returns. Specifically, after the base dividend is paid, we expect up to 75% of the remaining annual free cash flow to be returned to shareholders in the form of variable dividend, which we paid out quarterly the following year. To further strengthen Pioneer's balance sheet, which we think is critical and has been critical long-term for us, The 2022 variable payout will be up to 50% of the 21 post-based dividend free cash flow. We believe that a strong capital return strategy, one that encompasses a stable and growing base dividend paired with a significant variable dividend, presents an attractive value proposition for our shareholders. Now I'm going to go into some mechanics for 21 and 22 to make sure it's clear. In 21, let's assume we do generate the $2 billion of free cash flow. We have a base of about 500 million. We're left with 1.5 billion. We're gonna split that 50-50 for 21 payable and 22. So 750 million will be for the variable and 750 will go to debt reduction. The 750 will be split equally into four equal payments paid in the quarter, each quarter. It'll be offset, it'll be a different part of the month of that quarter So we want each shareholder to receive eight checks a year from Pioneer. The estimated dividend yield based on current stock price is about 4.5% when you add the base plus the barrel. Let's go to 2022. Right now, at the current script, we expect to generate about $3 billion of free cash flow. Take away about $500 million for the base. You're left with $2.5 billion. Now we split that 75-25. That's $1.9 billion as a variable and $600 million for debt reduction. That equates at the current stock price to a 7.5% dividend yield. So we hope that is clear as we move forward in 21 and 22 in those examples. Going to slide number eight, our long-term thesis. We've had this slide before. It remains the same. Remains focused on driving free cash flow generation and creating significant value for shareholders. At the current strip, our long-term reinvestment rate is 50% to 60% of cash flow, which supports a program that delivers approximately 5% annual growth, adding one to two rigs per year long-term. We expect this framework to generate approximately $16 billion in free cash flow during 21 through 26 at $52 WTI, which is greater than 50% of our current market capitalizations. We believe this differentiated strategy positions Pioneer to be competitive across all sectors and a leader within our industry. Let me now turn it over to Rich.