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, 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 18, 2022. 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 Shaw. Please go ahead, sir.

Thank you, Lauren. Good morning, everyone, and thank you for joining us for Pioneer's fourth quarter earnings call. Today, we will be discussing our strong fourth quarter results and our best-in-class return of capital program. In addition, we will discuss our 2022 outlook, which encompasses a low reinvestment rate significant free cash flow generation, and shareholder return, all through our high-margin Midland Basin asset. We will then open up the call for your questions. With that, I will turn it over to Scott.

Good morning. Thank you, Neil. Good morning, everyone. Starting on slide number three, Pioneer delivered a great fourth quarter, closing out a strong year, which we generated a record $3.2 billion of free cash flow and returned $1.9 billion. back to the shareholders through dividends and share repurchases. With a material-based dividend increase of greater than 25%, this quarter's base plus variable dividend of 378 will be paid in March. This dividend payment represents approximately a 7% yield on an annualized basis, and an 8% yield would include the additional 62% base dividend paid in the first week of January. We have now merged our quarterly base and variable dividend components into one dividend payment or one check to ensure that third-party data providers properly represent our dividend yield and reflect our return to capital. I want to thank FactSet and Bloomberg in working with us. FactSet will look in the past, the past four quarters, and Bloomberg will take the current dividend yield, which will show about 7% going forward and that's how they'll do it. So we're getting recognized now with our variable dividend. Additionally, due to our unhedged oil position and strong commodity prices, our second quarter variable dividend is poised to increase by greater than 60% from the first quarter. Payable in the second quarter and will equate to about 11% yield. When taken into account, fourth quarter share repurchase of $250 million and dividend payments of approximately $875 million we return greater than 100% of our fourth quarter free cash flow to shareholders. In addition to our fourth quarter repurchases, our board has authorized a new $4 billion share repurchase program, replacing our previous authorization, which provides increased capacity to repurchase a significant amount of stock. These record results are driven by high-quality asset base, which generated a 17% return on capital employed in 2021, We expect this to increase this year to the mid-20s, current strip prices of mid-20s, around 25% return on capital employed. Going to slide number four, again, solid execution drives strong fourth quarter results. Continued during the fourth quarter is both oil production and total production in the upper half of our guidance when adjusting for the volume sold with the Delaware divestiture. And you can see it in the boxes here. Then we showed two numbers, one with Delaware until the end of the year and one without the last 11 days. As I've mentioned on the prior slide, this production supported another quarter of strong cash flow, resulting in record free cash flow of $3.2 billion in 2021. Our Midland Horizontal LOE remained low at $2.68 and peer leading during the quarter and $2.46 for the year. Looking forward, we expect to maintain a very low leverage profile at approximately 0.2 net debt to EBITDA at year-end 2022. Essentially, we have the best balance sheet in the company's 25-year history. Going to slide number five, committed to significant return of capital. We remain committed to our core investment thesis, underpinned by low leverage, strong corporate returns, and a low reinvestment rate. which generates significant free cash flow. Majority of this free cash flow is returned to shareholders in the form of base plus variable dividends, with total shareholder return through dividends representing almost 80% of our free cash flow. At current strip prices, total dividends are expected to exceed $20 per share in 2022, representing approximately three times increase from 2021. We will continue to maintain a pristine balance sheet and supplement our compelling base plus variable dividend framework with opportunistic share repurchases under our new $4 billion share repurchase authorization. Our free cash flow over the next five years at the five-year strip is over $28 billion. In addition, we run our model out through life of inventory. Our free cash flow over the life of our assets until the last well is drilled and the last well is produced, it's well over $200 billion at long-term strip pricing. Going to slide number six, best in class cash returns to shareholders. Obviously, with a high base plus variable, we're at the highest percent of returning cash back to the shareholders. Our investment framework returns the highest percentage of free cash flow to investors through dividends when compared to anyone of our peers or majors. This cash is directly returned to the investor. We have seen a tremendous benefit attracting dividend value funds over the last several quarters and also seen a significant change among the culture of our employees who all own the stock and always are looking forward to that dividend check. Slide number seven, compelling dividend yield amongst the peers. As a function of our strong free cash flow generation and the high percentage return to shareholders, Our dividend yield exceeds all peers, majors, and the average yield of the S&P 500 based on current share price. This top-tier yield demonstrates the cash flow, power, and underlying quality of Pioneer's assets and strength of our peer-leading return of capital strategy. Again, we had 7% first quarter. We exclude the return, the extra base dividend, which would bring it up to 8% for the first quarter, and that's increasing to approximately 11%. next quarter. Slide number eight, in comparison to that same yield versus all industries in the S&P 500. When looking beyond our peer group, Pioneer's expected yield all far surpasses every S&P 500 sector. In fact, based on strip pricing, Pioneer's yield, 2022 yield, is more than six times the average of the S&P 500 and almost two and a half times the average of the all majors. With this strong dividend yield, share repurchases, and modest growth from the investor perspective, the case for owning Pioneer stock is compelling. Going to slide number nine, return of capital framework. We believe a strong and growing base dividend is a commitment to our shoulders and a key pillar of our investment thesis. As I mentioned earlier, we have further strengthened our base dividend with an increase of greater than 25% from last quarter's increase. This increase is predicated on our balance sheet strength and durability of our cash flow across commodity price cycles. This is the second straight quarterly base dividend increase and represents 40% base dividend growth since the third quarter of 2021. And going forward, we will continue to increase the base significantly. Inclusive of the increase, our six-year base dividend compound annual growth rate of greater than 80% exceeds all peers in the U.S. majors. Further augmenting our strong shareholder returns, our Board of Directors has approved a new $4 billion share repurchase authorization. This new authorization excludes the impact of the $250 million already purchased in the fourth quarter under the prior authorization. We will continue to buy shares on a quarterly basis. A long-term objective is to reduce share count. We have one of the best balance sheets in the industry to repurchase a significant amount of stock opportunistically. Going to slide number 10, dividends through the cycle. Pioneers, this is a chart a lot of people have asked us in regard to the dividend funds and also the retail sector as we continue to get on calls, promoting more to the retail sector. Pioneers, high-quality assets, low break-evens. Of around $30, capital discipline provides the ability to return significant free cash flow through commodity price cycles. As I mentioned, it's well over $200 billion at strip prices long term. As seen on the graph, Pioneer shareholders have significant upside to higher oil prices as we have zero 2022 oil hedges and going forward, with dividends greater than $24 per share at oil prices above $90. Additionally, dividends remain resilient at lower oil prices, providing materials sustainable return of capital at lower commodity prices. Also, it generates a significant amount of free cash flow, but our current strip prices generates a mid-20s return of capital employed in 2022. I'll now turn it over to Rich.