Pioneer Natural Resources Company

You are currently on hold for the Pioneer Natural Resources second quarter conference call. At this time, we are assembling today's audience and plan to be underway shortly. We appreciate your patience and please remain on the line. Welcome to Pioneer Natural Resources second quarter conference call. Joining us today will be Scott Sheffield, Chief Executive Officer, Rich Daly, President and Chief Operating Officer, Joey Hull, Executive Vice President of Operations, and Neil Schatz, 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 August 30th, 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, Neil Shah. Please go ahead, sir.

Thank you, Kian. Good morning, everyone, and thank you for joining us for Pioneer's second quarter earnings call. Today, we will be discussing Pioneer's strong second quarter results and our enhanced return of capital strategy. We will also present our continued strong execution, underpinning our low reinvestment rate and best-in-class break-even oil price. This is all accomplished while maintaining our focus on safe operations and environmental stewardship in the field. After that, we will open up the call for your questions. With that, I'll turn it over to Scott.

Thank you, Neil. Good morning. Obviously, we're very excited after talking about it for 18 months to announce that we are both accelerating our first variable dividend payment into the third quarter of this year, as well as increasing the payment to reflect 75% of second quarter free cash flow. After payment of the base dividend, as our balance sheet continues to strengthen, we do the higher strip pricing as a result of improved oil demand and a successful vaccine. In addition, we had two highly accretive transactions that also led us to making this decision and accelerating. When combined with the base dividend, total dividend payments in third quarter will be greater than $2 per share or a total of approximately 490 million returned to shareholders during the third quarter alone. The initiation of our variable dividend payments marks a significant milestone in our investment framework as shareholders will begin receiving material cash returned through eight dividend checks per year. Pioneer's strong execution continued during the second quarter with production near the top end of guidance, delivering over $600 million of free cash flow, driving estimated 2021 free cash flow up to about $3.2 billion. Lastly, Pioneer is the largest producer in the Permian, with the largest inventory of Tier 1 locations, over 15,000, and the lowest break-even price in the lower 48. Both recent acquisitions were highly accretive and added significant Tier 1 inventory. We are not looking at any more Midland Basin large acquisitions. We bought the best two available. Apollo, who was the largest shareholder from DoublePoint, our largest shareholder from DoublePoint has sold down from 13 million shares to about 2 million shares and now own less than 1% of the outstanding of the company. Going to slide number four, Pioneer's Execution. remain strong as total production and oil production were in the upper half of our guidance ranges as we successfully integrated DoublePoint's operations into our program. Horizontal lease operating expenses dropped by nearly 25 cents per BOE when compared to the first quarter. In total, Pioneer generated approximately $1 billion in free cash flow in the first half of 21. We'll go on to slide number five. Our strong balance sheet underpinned by improved oil price outlook supports both the acceleration and increase of our inaugural variable dividend. The first variable dividend will be paid during the third quarter, accelerated from 22. We'll be based on second quarter free cash flow. Additionally, we're increasing the third quarter variable dividend payment to 75% post-based dividend free cash flow from the previous 50%. The increase up to 75% in our variable dividend program is approximately 18 months sooner than previously planned. These changes result in over a billion dollars of incremental cash to be returned to shareholders in 2021 with total dividends to exceed $6 per share. On slide number six, we remain committed to our core investment thesis predicated on low leverage, strong corporate returns to average over the next five years in the mid-teens, low investment rate around 50% over the next five years, and generating significant free cash flow. This durable combination creates significant value for our shareholders, delivering a mid-teens total return through our stable and growing base dividend, compelling variable dividend program, and high return all growth up to 5%. Obviously, when you look at 2022, the total return is much higher. because the all strip over the next five years is about $10 in backwardation. When including the base dividend, approximately 80% of the company's free cash flow is expected to be returned to shareholders through eight separate dividend checks per year, inclusive of both the base and the variable dividend. We will continue to maintain a pristine balance sheet as we allocate the remaining portion of free cash flow to the balance sheet. Go on to slide number seven. As you can see on slide seven, the product of Pioneer's high-quality assets and top-tier capital efficiency drives significant free cash flow generation amounting to greater than 23 billion through 2026. Again, I want to remind you that the strip is in backwardation. It drops about $10 in backwardation over the next five years. This cumulative free cash flow, which is based on current strip pricing, represents greater than 50% of our enterprise value and more than 65% of our market cap. Considering the greater than $23 billion of cumulative free cash flow, this program generates over $18 billion of total dividends through 2026, with the remaining free cash flow allocated towards strengthening our balance sheet, driving net debt EBITDA to less than 0.5. Go on to slide number eight, positioning a leading dividend yield across all sectors. The combination of Pioneer's expected free cash flow and return to capital framework creates a compelling investment opportunity with a total dividend yield that will exceed all S&P 500 sectors as well as companies and the average yield of the major oil companies and all other energy companies in the S&P 500. Annualized expected dividends paid in the second half of 2021 leads to a dividend yield of approximately 8%, which increases 22 through 26 time period to an average greater than 9% due to significant free cash flow. Again, when you look at just focus on 22, the dividend yields about 12%. Again, a reminder, the strip with these numbers is about $10 in backwardation. This highly competitive yield is underpinned by the greater than $18 billion of cumulative cash returned to shareholders outlined on the previous slide and speaks to the power and underlying quality of Pioneer's assets. Let me turn it over to Rich for the outlook.