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spk05: Welcome to Pioneer Natural Resources' third quarter conference call. Joining us today will be Scott Sheffield, Chief Executive Officer, Rich Daley, 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 November 30, 2021. The company's comments today will include forward-looking statements made pursuant to the Safe Harbor's 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 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 Shaw. Please go ahead, sir.
spk14: Thank you, David. Good morning, everyone, and thank you for joining us for Pioneer's Third Quarter Earnings Conference Call. Today, we will be discussing our excellent third quarter results and the strategic divestiture of our Delaware basin assets. We will also discuss our peer leading return of capital strategies and the strong ESG focus as outlined in our recently published 2021 sustainability report and climate risk report. Then we will open up the call for your questions. With that, I will turn the call over to Scott.
spk03: Thank you, Neil. Good morning. I think obviously you can see from the headlines on slide three that's probably one of the best quarters in Pioneer's 25-year history, which is coming up next year, our 25th year anniversary. It's hard to imagine a company like Pioneer throwing out just in one quarter $1.1 billion in free cash flow, obviously during the quarter, and returning $880 million of that in regard to a dividend return. including base plus variable. Our dividend payments from the third quarter is 358 a share, made up of 302 variable and 56 cents on the base. Probably the big headline from the quarter, tremendous transaction for Pioneer divesting of our Delaware assets for 3.25 billion, expected to close by year end. And when you add the $250 million recent divestiture from Glasgow County, That makes a total for the quarter of about $3.5 billion. We're increasing our base. After talking to a lot of our shareholders over the last several weeks, I think it's very important to continue to increase our base. So we're increasing it over 10%. That'll commence in January with that base dividend payment. And we'll continue to look at the significant increases over the next few years. as our balance sheet continues to improve and if commodity prices continue to perform like they have been. Then lastly, again, Neil talked about it. We released our two reports. We'll talk about it later. But again, increasing our goals to 50% in greenhouse gas intensity reduction and 75% in regard to methane intensity. Turning to the next slide, on slide number four, again, production in the upper half of the third quarter guidance. Rich will give you more detail in a few minutes in regard to the effect of what the Delaware sale does to us. I think the most important point here with both divestitures of Glasgow County and the Delaware, obviously we're now focused on the high margin, high return Midland Basin. We'll end up having the strongest balance sheet in the company's history at debt to EBITDA 0.4. by the end of the year. Going to our long-term thesis on slide number five. Again, our focus deliver mid-teens total return. When you look at one of the later slides with a dividend yield of about 11% going to 2022, growing at 5% a year, that gets us to that mid-teens total return. When you look at just return on capital employed in Croche, going into 22 and beyond. We're in that low to mid-20s on both of those numbers. It's really unheard of in regard to the change in the strategy to keep production fairly flat, minimal growth, and return most of the cash flow back to the investor. Reinvestment rate of 50 to 60. When you look at next year, it's really down in the 30 to 40% range. When you look at free cash flow generation, Our free cash flow generation next year will be up 88% from 2021. When you look at a five-year strip, we'll generate over $25 billion of free cash flow. If you just take current oil price today in the low 80s to the mid-80s and keep it flat for the next five years, we're over $35 billion of free cash flow. When you just look at the strip pricing, by the end of next year, we'll essentially, for the first time, be essentially debt-free by the end of 2022. So Pioneer will end up continuing to have one of the best balance sheets in the industry. As I mentioned in regard to our strong and growing annual base dividend, we went up over 10%, and we see as long as our balance sheet stays in great shape, which we expect commodity prices continue to stay strong, we'll continue to look at increases over and above our growth rate of 5%. Again, the variable dividend up to 75% of previous quarter's free cash flow of deducting the base dividend. We'll be distributing about 80% of free cash flow back to the shareholders. Again, we restated. We had a share repurchase program where we had spent about $900 million in 2019 and 2020. We actually are one of the few companies that bought during the pandemic our stock back in the energy sector. We spent about $900 million and bought the stock back around 130. If you go back in history, the other time we bought our stock was back in 2005, 2006, after we sold our deepwater assets. We spent $1.1 billion at 45. We do think it's important over the next five years, if we do generate $25 to $35 billion of free cash flow, that we significantly reduce the share count over time. but it is going to be opportunistic and during market dislocations. I think the last key point here is that the fact our EBITDA will be up about 45% to 50% next year, primarily due to the full year of both acquisitions, and secondly, with very minimal hedging in 2022. Going to slide number six. Again, significant increases in our variable dividend and also our base dividend. Basically a 9x growth from 22 annual dividend over the 2020, returning $1.6 billion in dividends in 2021, a 3x increase from 2020. So we're estimating something near about $20 per share total payout. in 2022. When you go to slide number seven to show Pioneer's dividend yield, it'll exceed all peers, majors in the S&P 500. We're already at 8% just based on the one we declared for the fourth quarter of 2021. When you look at next year, we'll be 11%. The other two strong companies below us, obviously, are Devon and Cotera with strong variable dividends. But then you see a significant drop to the U.S. majors, European majors. Our dividend yield is over 2X versus the U.S. and European majors. And when you look over the rest of the peers, excluding Devin and Guterra, we're basically a 10X dividend times or 10 higher over the rest of the peers. When you look at the S&P 500, which is around 1.6%, we're over 6 to 7X times the S&P 500. I'll now turn it over to Neil to talk about our base.
spk14: Thank you, Scott. Slide eight demonstrates maintaining a strong and growing base dividend is a commitment to our shareholders and a key pillar of our investment thesis. As Scott stated earlier, we are further strengthening our base dividend with an increase of greater than 10 percent, which is an acceleration of our 2022 base dividend increase. Inclusive of this increase, as you can see in the graph, Our five-year base dividend compound annual growth rate of greater than 95% exceeds all peers and U.S. majors. Additionally, over the same period, while many peers have cut or suspended their base dividends, Pioneer has consistently maintained and grown its base dividend, demonstrating our steadfast commitment to our shareholders and creating value through dependable through-cycle return of capital. Turning to the next page, slide nine. Even with inflationary pressures surfacing in 2021, we continue to reduce our controllable cash costs, which are comprised of cash interest, cash G&A, and Midland Horizontal LOE. As a result of our high operational efficiencies and acquisition synergy capture, we expect 2021 cash costs to be approximately 30 percent lower than 2019 levels. Pioneer's unique combination of high oil cut, low controllable cash costs, and top-tier NRI drive compelling cash margins that underpin our strong free cash flow generation and return of capital strategies. Now, I will hand it over to Rich to cover our outlook update.
spk13: Thanks, Neil. Good morning, everybody. I'm going to start on slide 10, where we show our updated production guidance for 2021. You'll see here that we've narrowed our full-year production our oil production range to 356,000 to 359,000 barrels of oil per day, and total production to 613,000 to 619,000 BOEs per day. This narrowed guidance reflects the combination of our reported production through September 30th and our Q4 guidance, which includes the impact of the Glasscock divestiture that happened in October. Due to the Delaware divestiture not closing until near year end, our production guidance includes Delaware for a full year And our capital guidance is unchanged, but also includes Delaware for a full year as well. I did see in the notes, you know, over the night that there was a couple comments on our third quarter capital. Just wanted to, you know, hit that up front that our capital in Q3 did include a fair amount of integration work that we did related to the parsley and double point assets where we were upgrading their tank batteries and facilities to our standards. So that's what was driving a little higher capital. If you move to the fourth quarter, our capital is expected to come down as we do have less integration activity, and we'll be on average running one less rig and one less frac fleet during the quarter. Turning to slide 11, as Scott mentioned and Neal's talked about, we did announce the Delaware divestiture. As you can see from the slide here, about 3.25 billion of cash consideration, about 92,000 net acres that is being sold, and production currently is running about 50,000 BOEs per day. We did have a drilling program there, and so once those wells are completed, first quarter, that'll be about 55,000 BOEs a day of production once those are completed in the first quarter and placed on production. As we've mentioned, the transaction is expected to close at year end. Post this transaction, it does return Pioneer to being 100% focused on our core acreage position in the high-margin, high-return Midland Basin. Also, we did announce or close in October the 20,000 net acre sale of our Glasgow County acreage to Laredo for about $230 million, monetizing our long-dated inventory that we weren't going to get to for a while. At the time of the sale, this acreage was producing about 4,400 BOEs a day or 2,600 barrels of oil per day. So on a combined basis, we're divesting about $3.5 billion of assets in the fourth quarter of this year, which will further strengthen our balance sheet. Similar to these transactions, we'll continue to pursue strategic acreage trades and we'll continue to evaluate drill codes and small-scale divestments on long-dated inventory to accelerate value to shareholders. Looking forward to 2022, after adjusting for both Delaware and Glasscock divestitures, we do expect to keep our Midland Basin production relatively flat with Q4 levels, so we're seeing 2022 production adjusted for the divestitures at 355,000 to 360,000 barrels of oil per day, or 630,000 to 640,000 BOEs per day. This is expected to result in a 2022 annual oil growth rate consistent with our long-term investment framework of growing production between 0% and 5%. I might also note that as we look at 2022 capital, we are still in the midst of evaluating that. We were expected to spend about $250 million to $300 million in the Delaware basin to grow production there starting in 2022. So I'll stop there and turn it over to Joe for more details on operations.
spk08: Thanks, Rich, and good morning to everybody. I'm going to be picking up on slide 12. Our 2021 plan remains unchanged and is set to average between 22 and 24 rigs for the full year. We did mobilize several rigs to the Delaware in Q3, which I would equate to approximately one rig for the full year. Drilling and completions continue their strong track record of efficiency gains with greater than 70% and 80% increases on their respective foot-per-day metrics when compared to 2017. We are still operating two simulfrac fleets, which further increases efficiencies and is reducing cost. Our drilling and completions teams are also successfully executing on 15,000-foot laterals And at the same time, our land and development planning teams continue adding future 15K laterals across our acreage position. Once again, congrats to the team for great execution in Q3. I'm going to move on to slide 13. Piner's been committed to sustainable operations for a long time, and this has resulted in Piner having one of the lowest current emissions intensities amongst our peers. As you can see, Pioneer's 2019 starting point is lower than the majority of our peers' projected intensities for 2025 and 2030. Pioneer's 2030 emissions intensity goals represent one of the most aggressive reduction targets in the industry, demonstrating continued progress on our trajectory to net zero. This was only made possible through years of thoughtful planning and investments to minimize emissions at our facilities, coupled with our comprehensive leak detection and repair program, including routine aerial surveys. Now moving to slide 14 and continuing the same storyline from the previous slide, Pioneer also produces extremely low emission intensity oil on a global scale, which will improve as we progress toward our 2030 reduction targets. This combined with our low break-even results and exceptionally resilient production that we expect will compete in the global marketplace for a very long time. And with that, I'll turn it back over to Scott to wrap things up.
spk03: Yeah, thanks, Joey. On slide number 15, we talked about our new targets. We've had significant reduction from our baseline in 19 to 20, as indicated with our progress, 27%, 50, and 50. I think we're one of the only companies that has targets for freshwater, reducing freshwater incompletions in the U.S., Our new targets are 50% by 2030 for greenhouse gas emissions for both Scope 1 and 2, and 75% for methane. Previously, it was 40%. Also, 2020 flaring intensity was 0.2%, significantly less than our goal of 1%. Again, we expect to end routine flaring as defined by the World Bank by 2030. with aspiration to accomplish it by 2025. And as Neil said, we just recently published our first climate risk report. Going to slide number 16, and focused on ESG leadership. I think you can see the significant changes we made over the last two years in our annual incentive compensation components for all the executives. I'm still the only CEO in the industry that's 100% tied to performance shares. Most of our other executives, it's around 60%. You can see that we've increased our targets on ESG and HSE up to 20% last year. Goals are 100% aligned with shareholders' interest. We expanded the responsibilities of the Board of Directors Sustainability and Climate Oversight Committee, which is led by our non-executive chairman, Ken Thompson. And we recently added a second director this year, Maria Gillespie Dreyfus, who has two key focuses, one on ESG, and secondly, was a managing director for Goldman Sachs Investment Partners and an expert in asset management over the last several years. Again, we have a picture of our two reports. We encourage everyone to read these reports. Going to the last slide, enhancing shareholder value, slide number 17. Again, focus on returns. Just to remind you, I mentioned that we'll be in the low to mid-20s on both ROCE and also QROG. Capital discipline, I mentioned that we'll be returning roughly or spending about 30% to 40% over the next several years is our reinvestment rate. Return of capital to our shareholders, I mentioned that we have about $25 to $35 billion in a couple different price cases, strip and flat price. We'll be returning about 80% of that back to shareholders, plus any buybacks that we do during that time period. Preserving a strong balance sheet, as I mentioned earlier, we'll have the best balance sheet in the company's history by the end of this quarter. And secondly, moving to zero debt by the end of 2022. Significant inventory. We've probably got the largest and longest inventory of any company in the U.S. today. And we continue on ESG leadership to be performing at the highest level. I'm going to stop there. We'll open it up for Q&A.
spk05: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.
spk16: We'll take our first question from Doug Leggett with Bank of America. Doug, your line is live. Let's go to the next question.
spk05: Thank you. Our next question comes from Neil Mehta of Goldman Sachs.
spk04: Good morning, team. Thanks for the content this morning. The first question I had was on 2022 capital spending. I'm tying it into slide number six where you give us an early look of what the dividend payout could look like. Can you share with us where the reinvestment rate you think you'll be as the base case as you think about 2022 in that 30% to 40% range? And then how do you think about managing different elements of cost inflation that might pop up here as you make the turn into next year?
spk13: Yeah, Neil, appreciate the question. I think, as Scott mentioned, you know, the reinvestment rate isn't at 30% to 40% of cash flow projections for 2022. When you think about inflation, you know, it's similar to what I've talked about before. We have seen, you know, some upward pressure, mainly on materials when you think about tubulars, diesel, cement, sand, chemicals. And we're starting to see some in labor as it's gotten a little tighter on the labor side. We've been able to offset that with some efficiency improvements, and our long-term contracts help dampen that impact. But overall, for the year, we're expecting to see mid-single-digit inflation for the year, probably as we move towards the end of the year, closer to 10% inflation, which will push us up in our capital guidance range towards probably the higher end of that capital range. As you look at 2015, 2022, we're looking at probably something in the mid-single digits from an inflationary standpoint, and hopefully we'll still be able to offset, and we still plan to offset some of that with efficiency gains. But having said all that, I think with the higher commodity prices, we'll still be able to offset the inflation and really still allow for stronger overall margins, which is driving up or allowing our reinvestment rate to come down from the 50 to 60 to 30 to 40 for 2022.
spk04: Appreciate the color. And then just spend some time talking about the asset sales. Why did you think monetizing the Delaware made sense? It sounds like a big part of it is just to core up here into Midland. And how do you think about use of proceeds? It doesn't sound like a buyback is imminent as you want to be pro-cyclical with it. Is this just really to bolster the dividend payout?
spk03: Yeah, Neil, first of all, we knew that when we acquired the Delaware and ranked it versus the Midland Basin, that it doesn't compete under various price scenarios long term. And so we wanted to take roughly a period of several quarters and evaluate it. And as I had mentioned last call, that we had been approached by a company. And so we started the process, completed that process. and decided to go into VEST. It's going to the balance sheet, I think, going forward. We've stated our new debt targets. They used to run debt to EBITDA 0.75. We lowered it to 0.5, and I prefer to have zero debt long-term. It gives us a lot of options. I stated already on the buybacks, we like to reduce shares significantly, but I like to do it at a good price. We think definitely we'll be buying back CREEP, And we've had several dislocations during 2021, and it wouldn't surprise me if we had some dislocations during 2022. So you'll see us be buying shares in the marketplace during 2022. Thanks, Scott.
spk17: We'll take our next question from Doug Leggett with Bank of America. Guys, can you hear me now?
spk06: Yeah, Doug. Perfect. Awesome. Thank you. I don't know what happened. I do apologize and I appreciate you calling on me. So, Scott, you've got probably the best inventory of any E&P in the industry in terms of longevity, visibility, and so on. You've also got the lowest sustainable break-even. My issue or my question is that I don't know that variable dividends get the recognition that an ordinary dividend does. Think about the dividend discount models of a major oil company. You've got the longevity to get that recognition.
spk17: Why not raise the base dividend?
spk03: We've already made, this is only our second variable dividend payment, Doug. Devin has made, it'll be their third when they make it. And so the variable dividend is just now getting started. So I'm a firm believer when a lot of companies get used and see an 11% yield coming at them in 2022, that we'll get more credit. So I'm being patient in that regard. Plus, I don't want to get into a habit. You can increase the base. We are going to increase the base. We increased it over 10%. We'll continue to increase the base. But I don't want to get in the habit what Neil talked about. I mean, over half our peers had to cut their base. Over half the majors cut their base last year. So you don't want to get into a situation where you increase your base to a point to where you have to cut it. It impacts the stock price long-term significantly. So we have to be very careful. I think having a great balance sheet and zero debt, we have lots of choices between buybacks, variable dividends, and base dividends. And so our goal is to return most of that to the shareholders in those three forms.
spk06: I understand the answer, and I guess we'll keep plugging away on that. But thanks for the answer, Scott. My follow-up is a little bit of a technical issue, so maybe this one's for Neil. I want to talk about cash taxes and the IDC coverage of sustaining capital as your NOLs roll off. It seems to me that as we transition into this business model that you guys have clearly embraced and are leading the market on, the concern now is that break-evens are going to start to move back up as cash taxes become real. As NOLs run off, maybe for Neil, but you're still spending at sustaining levels, how should we think about the current tax on a cash basis going forward?
spk14: Hey, Doug. Good morning. If you think about that break-even where we're really talking about where that operating cash flow equals your capital on a go-forward basis, in that environment, you could think about net income as being relatively zero, really, you won't see an impact on your break-even. Now, the break-even will migrate ever so slightly higher, but in that environment, Doug, I'd say the way we view break-even and we quantify it, where, again, it's that operating cash flow equaling that capital program, I'd say on the margin it won't be impactful.
spk06: That's helpful. Thanks a lot, Neil.
spk17: Of course. We'll take our next question from Janine Y. of Barclays.
spk00: Hi. Good morning, everyone. Thanks for taking our questions. So I guess our first question is for you, Scott. I think I heard in your prepared remarks that you mentioned that you may consider growing oil above 5%. I'm not sure if I caught that correctly. But if I did, is this primarily based on your updated macro view on oil supply demand or Is it more related to company-specific factors such as the right efficiencies and your great balance sheet?
spk03: No, I did not mention anything about growing above 5%. So I've stated publicly that we are not going to grow above 5%. In regard to the macro, I do think that we're getting in a very, very tighter market over the next several years. Unused capacity in OPEC Plus is going to be used up in the next two years. There's no extra supply. I'm a firm believer that we're going to be an $80 to $100 scenario over the next several years, if not higher.
spk00: My apologies. Sounded weird, so we wanted to check in on that. Thank you.
spk09: Okay.
spk00: Thank you. And then on the buyback, on our numbers, you'll be well below your half-a-turn debt target after closing the Delaware sale. Okay. Can you talk about how you think buybacks create the most value for pioneer shareholders, meaning you say that you'll execute opportunistic buybacks during market dislocations? Does that really refer to just crude price dislocations, or would you consider doing buybacks that are more correlated to keeping leverage, say, at that half a turn? Thank you.
spk03: Yeah, no, I think one of the things our industry has done a poor job of is they always buy back at the top. If you look at all the companies that and all the CEOs, and look at their purchases. They always buy back at the top of the cycle. They never buy back at the bottom. I don't know of one company, major or independent, that bought last year during the pandemic, except Pioneer. We bought some in the second quarter of last year. So that's point one. I'd rather buy a lot more shares when they're dislocated. And if you look at our price, we had several dislocations during 2021. And so you'll see us go into the market when you see those dislocations. So I expect to be several dislocations. And at the end of the day, over a five-year time period, we hope to reduce the share count by at least 10%. We should be able to if we see the type of prices that are out there in the strip or in just a flat price case. So that's what I hope happens, and that's what should happen. Great.
spk00: Thank you.
spk17: Our next question comes from Scott Hanold of RBC Capital Markets.
spk10: Thanks. Congratulations on the quarter. My question is going to be a little bit on the buyback again as well, but can you just discuss the interplay between buybacks and fixed and variable dividends? When you look at the max cap of 75%, You're looking at the variable. Would buybacks be in addition to that, or would you kind of keep that level fairly firm with all-inclusive between buybacks and variables?
spk03: No, we've stated that we would seriously look at buybacks when our debt to EBITDA gets below 0.5. So it gets below 0.5 at the end of this year. It gets to almost zero in the next year. So as we generate free cash, it goes on the balance sheet, so we'll have significant firepower for buybacks. So our current buyback that we bought in 19 and 20 is still outstanding. It's still in play, and so obviously we'll use that. After that one's used, then the board will look at whether or not to go ahead and announce another buyback. And so there's nothing magic about it. I think it's long-term. It's important to reduce shares over time.
spk10: Right, right. So I guess the crux of my question is, in theory, you guys could, you know, obviously when you look at a total cash return to shareholders fixed variable and buyback, if I were to look at it that way, I mean, certainly it could be, you know, in excess of that 75 kind of cap limit you utilize for the variable dividends structure, right?
spk03: Yes. Yeah, it's in excess of the 80% we're returning already. So we're generating so much free cash flow. that there's no use, you know, once you go to zero debt, you've got huge firepower. In addition to distributing 80% in regard to dividends, you've got firepower to reduce shares also.
spk10: Got it. Okay. Makes sense. Great to hear. And, you know, my next question is on hedging and how you look at hedging going forward considering all of, you know, the above with where leverage is in the macro area. And last quarter, I think you commented that, you know, over the coming weeks back then, you were going to be talking to investors about evaluating, you know, what the right long-term hedge strategy is. Do you have any kind of feedback from that at this point?
spk13: Yeah, Scott. Rich here. Yeah, a couple of things. Really, no plans to do any incremental hedging at this point in time. As Scott talked about, we're, you know, bullish on oil prices and think there's, you know, more room to move up than down, and just given our size and scale after doubling the size of the company with the acquisitions, strong balance sheet, low investment rate, and then you combine that with the current tight supply demand situation, and then just the backwardation of the strip. If you look at the strip, the front month WTI is kind of 83, and you go out five years, and it's 59, so almost a $25 drop on WTI, so really no plans today, and from talking to Shareholders, they agree with that. There's really no reason to hedge in this environment, and you really just can't hedge out anything long-term. So the best hedge we have is a strong balance sheet, and as Scott talked about, we're going to be at 0.4 at the end of this year and virtually zero at the end of next year. So that's really, from a hedging standpoint, no incremental hedges planned.
spk17: Appreciate it. Thank you. Our next question comes from John Freeman of Raymond James.
spk01: Good morning, guys. Hey, John. The first question I had, you know, last quarter, Rich, you talked about, you know, just as the integration went really well, those continued completion and drilling efficiency gains. And again, that was touched on again on slide 12 in your presentation. You talked about how You know, last quarter that led to, you know, the higher pop cadence, and I saw that you all have updated the four-year pop guidance from the previous 470 to 510 range to, you know, call it 9% higher now, the 535 pops. And I guess I'm just curious if that has sort of any implications for how you sort of think about the longer-term sort of plan that you all talked about in the past of needing to add you know, one to two rigs to sort of support that longer-term growth profile. You know, if these efficiency gains are letting you do sort of more with less, you know, since.
spk13: Yeah, John, great question. And I would say that, you know, we still view it in that one to two rigs. You know, that was with, you know, a bigger company when we had Delaware, so that probably, you know, tweaks it a little bit. But generally, I think it's still in that same range. I don't think it's moved. I mean, obviously, we'd love to see that move down as we continue to, you know, capture some of these efficiency gains and get better at what we're doing. Overall, I think it's going to be very similar to what we've talked about in the past. On the pop side of things, for 2021, what I'd say is there's obviously a lot of noise this year with the two acquisitions. A lot of it is just timing of whether those wells were popped prior to us closing the transaction or after. We expected a number of the wells that we ended up popping the double point would have popped before we got to closing, and so I wouldn't read too much into that other than it's just timing of whose watch were those wells under is why we got to a higher pop count. Hopefully that helps.
spk01: Got it. No, that does. Thanks. And then you all talked about potentially the expansion of doing more of the 15,000-foot laterals, and obviously you all are one of the few companies, given the contiguous nature of y'all's acreage to be able to do that over a large part of your position. Is there any sort of, I guess, context or additional color y'all could give on how the 15,000-foot laterals this year have kind of performed relative to, you know, what's called a more traditional kind of 10,000-foot laterals? Just any additional color would be helpful.
spk08: Yeah, John, from an execution perspective, we had No issues executing on the drilling and completion side. We did about a dozen this year, and we'll be looking to probably double that next year, if not a little bit more. From a well productivity perspective, we expect that the wells will perform similar to like our 12.5s and 13s, which is a very positive impact from an economics perspective. So we see continuing to add these into our program as time goes on. We see these as being a huge value adder to our program.
spk01: Thanks, guys.
spk17: Appreciate it. Once again, if you would like to ask a question, please press star 1 now.
spk05: We'll take our next question from Aaron Jayaram of JP Morgan.
spk15: Yeah, good morning. Arun Jharam with J.P. Morgan. Neil, perhaps for you, I wanted to get a sense for the Delaware Basin as well as the Laredo transaction in Glasscock, that would be $3.5 billion in cash proceeds. Could you talk about any tax implications from those two transactions? And perhaps the follow-up there would be, Any thoughts on how much debt would you plan to retire in 2022 if the strip holds based on how you're thinking about the world today?
spk14: Hey, Arun. I'm going to focus on the Delaware and then follow up with your question on the debt here. Think about from the Delaware perspective, if you look at the book value that we booked, it was $4.1 billion due to purchase accounting. We had a carryover tax base of $1.9 billion on those assets. So if you think about the proceeds of, let's call it 3.25, you will have adjustments that we make due to the effective date. We would expect a book loss of approximately $1 billion and a taxable gain of approximately $1.2 billion. So a little bit difference there between the book and the tax. Now, if you're referencing Scott's discussion on debt and debt retirement and use of proceeds, if you look at the debt towers in the appendix, in 2022, we have about $244 million, and that's roughly called 4% debt. In 2023, $750 million, that's 55 basis points. In 2024, it's $750 million at 75 basis points. Now, that 2024 is callable in 2022. So if you think about the free cash flow profile that Scott's articulated in the return of capital that we've discussed, we actually have it staggered into the model of repaying that debt. So really already is factored into how we talk about return of capital. Any acceleration of free cash flow or increase in free cash flow due to greater commodity prices really would provide that opportunity to get that net debt lower and pay down our gross debt as well, which really then would, as Scott said, free up more of the balance sheet to be opportunistic with buybacks. And Scott articulated 0.5x as kind of that that target, I'd say that we kind of look at a long-term target. Well, by the end of the year, due to the divestiture, we'll be at 0.4. So it kind of sets us up in a good position to be opportunistic as we look forward to 2022. And, you know, as you and I all know, and everyone on this call, the market's highly volatile. You know, there's always opportunities within the market to buy back stock. And if you look at energy as potentially being higher beta, I'd say that provides even more entry points. So it's our shareholders' money. That's how we think about it. We try to be really smart and thoughtful in terms of how we allocate capital and we return capital to shareholders. So I think you'll see that from us as we move forward into 2022.
spk13: Hey, Arun, just one follow-up on the tax question is also just to, I know you know, but we'll be able to shelter 100% of that tax gain with our $8 billion of NOL. So really just, you know, we're still forecasting in 2023 the earliest that we'd be paying in cash taxes.
spk15: In 2023, that's helpful, Rich. And then maybe my follow-up is for Joey. We've seen a couple of your peers really highlight some of the efficiency gains in the Midland Basin from Simulproc. It sounds like you're at two crews today. And how do you think about the adoption of that on a go-forward basis? And what type of efficiency gains are you seeing relative to a standard zipper frac crew?
spk08: Yeah, Arun, we continue to see great success like others with SAML frac. As I said in my prepared comments, we do have two SAML frac fleets, and we're looking at the possibility of adding a third SAML frac fleet at some point in time in the near future. You know, seeing... significant efficiency gains, well cost reductions in the neighborhood of $200,000 to $300,000. I know I get asked all the time, why don't you just immediately convert all of your fleets to Simulfrac? But you know, it's a significant, well, number one, some of the pads aren't conducive. If you have an odd number of wells on a pad, that can play a little bit of a difficult part in Simulfrac. but also just the water and sand logistics. In essence, the demand at one point in time is 50% greater. So we don't want to overcapitalize on our water infrastructure. We do have one of the most vast water infrastructures. And that's why we're able to support two continuous simulfrac fleets. These are going nonstop, not just coming and going. But we will continue to add simulfrac fleets as our water infrastructure grows and we'll adopt it as it makes sense from a capital perspective.
spk17: Great. Thanks a lot. Our next question comes from Derek Whitfield with Stifle.
spk12: Thanks and good morning all and congrats on your quarter and the Delaware divestiture. Building on your... Building on your divestiture success and your prepared comments, could you comment on your desire to move more of the longer-dated Midland inventory similar to the Laredo transaction and speak to the potential size of that opportunity set based on the improvement we've experienced in both really the oil and capital markets?
spk13: Yeah, Derek, I think as we've talked about on previous calls and like you've seen demonstrated with the Laredo transaction, we're going to continue to evaluate that every year. And similar over the last three or four years, you know, we've had packages that we've done, whether it's, you know, outright sales or drill codes. And so, you know, I think the market is there. People are interested in those. And so I think we'll continue to, you know, look at those and be strategic about those on an annual basis. So real no change. I mean, we're still going to obviously, you know, look to add in terms of acreage trades as well. And so that'll be part of our portfolio and balancing between acreage trades, but then divesting the longer dated stuff that we're not going to get to for a while.
spk12: Great, and with my follow-up, I wanted to focus on ops, perhaps for Joey. Could you elaborate on how you're using predictive analytics and machine learning to improve D&C efficiencies, and comment on the maturity of this technology and progressing your efficiencies to date?
spk08: Yeah, I'd love to. I really appreciate that question. I'll give one specific example. When you look at the waterfall charts of where we're getting our cost reductions Now it's not big things, it's a bunch of little things. And one example of where we use predictive analytics was on our chemicals for whenever we're delivering our stimulations on our wells. We've gone back and used machine learning to determine, based on what the outcome is during the delivery of the frack, how we can throttle back our chemicals on the well and thus you know, use less chemical. And whenever you look at that on an individual well basis, it may not be big bucks, but when you multiply that times 500, it turns into huge dollars. Another on the drilling side, we have a stuck pipe predictive tool where we've gone back and looked at the events where we've had stuck pipe in a drilling activity. And by doing that, we could use machine learning and predictive analytics to know how we can see that coming and thus prevent it. And it's been hugely successful for us. And, you know, I could go on and name numerous examples. So I would say from my perspective that it's a very mature methodology that we have adopted and used continuously, but the opportunities for it are limitless and we continue to expand it. So appreciate the question, but no, it's been a huge success for us and we look forward to its benefits going forward. That's great, and thanks for your time.
spk17: We'll take our next question from Paul Chang of Scotiabank.
spk05: Thank you.
spk07: Good morning. Two questions, please. The first one, on the cash tax, did I hear it right that in 2023, you're still not going to be a cash taxpayer in any meaningful way? Because if the 8 billion NOL look like you will fully used up in next year.
spk14: No, Paul, you're right. I think you misheard. We actually do become a cash taxpayer in 2023.
spk07: I see. And at that point, what kind of cash tax rate that we should assume?
spk14: Well, I mean, you'll have the 21%, then the 1% state, and then we do have a deferred tax liability that that starts to filter in at probably 2024 and beyond. So you'll have those impacts that weigh into the model as well. But we'll become a full cash taxpayer in 2023.
spk07: So 100% of your reported tax will be cash tax by 2023?
spk14: Yeah, I'd say slightly a smaller portion than that, but then it does step up.
spk07: I see. Okay.
spk14: Then we have the deferred tax that we'll be rolling off.
spk07: I see. The second question is on the Delaware assets. Do you have a EBITDA contribution from those assets in the third quarter you can share? Or as a minimum, can you tell us that on a per-bill EBITDA is that at a lower EBITDA margin, I assume, compared to your overall portfolio? And also just curious that if you already plan to sell those assets, why increase the drilling activity and the rig activity in the third quarter related to those assets? Or that the deal just come unexpectedly or much sooner than you had thought?
spk13: Yeah, Paul, it's Rich. I'd say, you know, a couple of things. One, the wells were just planned as our normal routine. And so, you know, we had whether or not we were going to be divest of it was still unknown as Scott talked about. I mean, we had the unsolicited interest and which led us to the process. So I would just say that was normal course and drilling those wells was on the schedule and planned and we were going to proceed ahead. In terms of the asset, it's kind of a catch-22 in the sense of that it's higher oil cut and so obviously you get a higher oil price on a bigger part of those barrels, but it did have higher operating costs. And so margin-wise in a higher price environment, it was very competitive with what was in the Midland Basin. But in a lower price environment, the margins were better in Midland. So that's really from a standpoint of free cash flow generation and cash flow generation of how that asset stacks up. And in terms of the cash flow basis, I don't have the exact third quarter numbers, so we'd have to get back to you on that.
spk07: All right.
spk17: Thank you. Our next question comes from David Deckelbaum of Cohen & Company.
spk02: Thanks, everyone, for taking the questions this morning. I just wanted to follow up on just one of the longer-term points maybe that you were making earlier, Scott. As you accrue more and more cash and you get below that leverage target, and theoretically, if we're entering this world of, you know, limited spare capacity, $80-plus, $100 crude, the 75% excess free cash payout beyond the base dividend is still like a very good long-term vision. We would just think about future cash accrued being either used opportunistically and hoarded for buybacks over time or just used to support sort of a base dividend increase at that point, particularly as you get to a point where you're debt-free.
spk03: No, I think you'll see a combination of us over time in that strong commodity price market shift variable to base. Number one, secondly, you'll see us in the $80 plus market. Just to give you an idea, we easily have over $10 billion of firepower to buy back stock at various prices. And so it just shows you the potential of firepower that we have over and above distributing 80% of our free cash flow for both base and variable over time. So we're starting to see additional dividend funds invest. We're starting to see our ownership change. More and more dividend funds are buying PXD stock for the dividends. Secondly, we're starting to see more retail come in. We're making an all-out effort to go into all the firms, trying to get more retail to shift into PXD because of the dividend yields. but we still think it's important to reduce the share count over time too. That's another way, besides growing 5% a year, to increase EBITDA to reduce the share count to increase EBITDA.
spk02: Certainly. I appreciate that, Scott. And maybe just a follow-up, maybe just a little bit in the weeds, but maybe this is for you, Joey, but interested just as we've seen more private activity in the Permian in general pick up significantly, outpacing public activity Has any private activity that's increasing in and around your acreage position in Midlands created sort of increased downtime that you hadn't necessarily planned for in 21?
spk08: No. We stay in pretty close contact with the private operators as well, but no, it hasn't impacted us at all. Thank you. I appreciate it, guys.
spk05: And our next question comes from Bertrand Donis of Truist Securities.
spk11: Hi, good morning, guys. Thanks for sneaking me in at the end. I'll just ask one so you can wrap it up. Could you maybe just talk about your self-positioning for the retail investor? I think you maybe addressed it a little bit, but is that mostly just covered by maybe ESG initiatives? you know, you have strong shareholder returns, and then you are broadcasting kind of the, you know, disciplined commentary, which is very well appreciated. But is there anything else going on behind the scenes that maybe we're not privy to that retail is asking of you?
spk14: Yeah, it's a great question. And I think you can tell by the slide deck and how we position the discussion on the variable plus the base, how we view the return of capital and that yield to be to be competitive, not across on the institutional investor, but as with the retail investor. So we are taking steps, and we are making those overtures, and we've had discussions with some of the private wealth managers across some of the large institutions, and we will continue to do so. And I think we've had a lot of traction there, and we've had a lot of discussions there, and a lot of positive momentum and a lot of positive feedback, which is really part of how you've seen us position, as Scott pointed out, the increase in the base dividend, as well as the continued focus on the variable dividend. So there has been traction. There's been a number of inbound calls, and we've made a number of outbound overtures as well in discussions. So it's our hope and our anticipation that you'll see increased retail presence within the Pioneer equity holder.
spk11: Sounds good. It sounds like they appreciate the yield. That's all from me, guys. Thanks. They do. They do. Thanks.
spk05: That concludes today's question and answer session. Scott Sheffield, at this time, I will turn the conference back to you for any additional or closing remarks.
spk03: Again, thank everyone for listening to probably one of the best quarters in Pioneer's history. I know we won't see you again until early next year, and so hope everybody have a happy holiday and travel safely. Again, thank you.
spk05: This concludes today's call. Thank you for your participation. You may now disconnect.
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