Pioneer Natural Resources Company

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.

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.

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.