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spk04: Good day, ladies and gentlemen, and welcome to Pioneer Natural Resources' second quarter earnings conference call. Joining us today will be Scott Sheffield, Chief Executive Officer, Richard Daly, President and Chief Operating Officer, and Neil Shah, Senior Vice President and Chief Financial Officer. Pioneer has prepared presentation slides to supplement comments made today. These slides are available on the internet at www.pxd.com. Again, the internet website to access this slide's presentation for today's call is www.pxd.com. Navigate to the Investors tab at the top of the webpage and then select Investor Presentations. For information, today's conference is being recorded and a replay of the call will be archived on www.pxd.com through August 28, 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 turn the call over to Pioneer's Senior Vice President and Chief Financial Officer, Mr. Neil Shaw. Please go ahead, sir.
spk07: Thank you, George. Good morning, everyone, and thanks for joining us for Pioneer's second quarter earnings call. Today we will be discussing Pioneer's strong second quarter financial and operating results and our peer leading return of capital strategy. We will also detail our best in class margins and unmatched depth of high quality inventory, along with our leading ESG strategy, which is also detailed in our recently published 2022 sustainability report. We will then open the call for your questions. With that, I will turn it over to Scott.
spk05: Thank you, Neil. Good morning. We'll be starting on slide three. Pioneer delivered strong results, generating $2.7 billion in free cash flow in the second quarter. Additionally, this quarter, we increased our base dividend by more than 40%, which is supported by our high-quality assets, deep inventory, peer-leading margins, and strong balance sheet. This is the third base dividend increase in the previous four quarters. and represents a greater than 95% increase to the base dividend over the previous 12 months. This annualized base dividend of $440 per share has a yield that exceeds the S&P 500 average at our current share price. Inclusive to this base increase, the quarter's base plus variable dividend results in a total dividend payout of $857 per share to be paid in mid-September. As I've always said, we would aggressively repurchase shares when the market presented opportunity. Consistent with this, we repurchased $750 million since the end of the first quarter, including $500 million during the second quarter, an additional $250 million repurchased in July at an average share price of $213 million. Since reinitiating stock buybacks in the fourth quarter of last year, we have retired approximately 2.5% of our shares outstanding. Additionally, we recently published our 2022 sustainability report, which highlights our focus and significant progress on ESG initiatives, including accelerating our target to end routine clearing to 2025 and joining the Oil and Gas Methane Partnership 2.0. Pioneer places a high priority on environmental stewardship and continues to make progress toward our goals. Going to slide number four, Pioneer's strong execution continued during the second quarter. with total production in the upper half of our guidance range, supporting significant free cash flow generation of $2.7 billion. Our horizontal LOE continues to be low, and our strong balance sheet is one of the best in the sector. Going to slide number five, we believe that maintaining a strong and growing base dividend is the foundation of our capital return strategy. As I mentioned earlier, we have further strengthened our base dividend with a significant increase of greater than 40% from last quarter. This material increase is underpinned by our balance sheet strength and our durability of our cash flow across commodity price cycles. Inclusive of this increase, our base dividend has grown by an average of 95% annually over the previous six years. This increase significantly outpaces both peers and majors over the same period, many of which have cut or suspended their dividend. On to slide number six. Complementing our strong shareholder cash returns through dividends, we continue to repurchase our shares opportunistically. We've executed 1.25 billion since the fourth quarter of 2021, an average share price of 218. This represents a reduction of total shares outstanding by approximately 2.5%. Consistent with our statements to be aggressive during market opportunities, We repurchased an additional $250 million of stock during the market pullback in July at an average share price of $213. As evidenced by the repurchase during July, we will continue to utilize 10B-5 programs to take advantage of market opportunities. To date, we have utilized one quarter of our current $4 billion authorization, leaving $3 billion remaining. Going to slide number seven, we remain committed to our core investment thesis underpinned by low leverage strong corporate return, and low reinvestment rate. This delivers all production growth of up to 5% annually and generates significant free cash flow. The majority of this free cash flow was returned to shareholders in the form of base plus variable dividends, with total cash return being dividends representing approximately 80% of our free cash flow. This compelling cash return is enhanced by opportunistic share repurchases and continued balancing fortification. When including second quarter share repurchases, we're returning greater than 95% of second quarter free cash flow, which equates to an annualized yield of approximately 19%. Going to slide number eight, Pioneer's capital return framework remains best in class. With the return of capital framework described on the prior slide, you can see here Pioneer is forecasting to lead all peers in the percentage of free cash flow being returned to shareholders through dividend and share repurchases. Going to slide number nine, dividends through cycle, pioneer high-quality assets, low break-even, disciplined oil growth of up to 5% provides ability to return significant free cash flow through dividends over a wide range of commodity prices, inclusive of the impact of expected cash taxes. As seen on the graph, if all prices were to average $60 per barrel over the next five years, Pioneer shareholders would receive approximately 5% annual yield at current share prices. This yield is over 2.5 times more than the S&P 500 average. Again, that is $60 WTI flat. At a $100 WTI flat, which I believe will be the most likely outcome over the next five years as we march forward, As demand continues to increase with minimal supply increases, the yield is 12%. So significant upside. On to slide number 10, the third quarter dividend payments outlined previously results in an extremely compelling annualized yield of approximately 15%. This yield exceeds all peers, majors, and the average yield of the S&B 500. Going to slide number 11, Pioneer's 15% annualized dividend yield surpasses the S&P 500 average by greater than seven times. Looking beyond our peer group to the broader market, Pioneer's dividend yield exceeds every S&P 500 sector and remains higher than any individual company in the S&P 500. With our double-digit dividend yield, complementary share repurchases, and up to 5% oil growth, The case for owning Pioneer stock is compelling. I will now turn it over to Rich. Thanks, Scott.
spk08: Good morning, everybody. I'm going to start on slide 12 where you can see our current full year 2022 production guidance remains unchanged at 350,000 to 365,000 barrels of oil per day and 623,000 to 648,000 VOEs per day. You can see we revised up our 2022 capital to 3.6 to 3.8 billion, up from 3.3 to 3.6 previously, really reflecting the inflationary pressures we have seen in diesel and steel primarily, and to a lesser extent in sand and chemicals and labor. Our plan is expected to generate greater than $13 billion in operating cash flow, which is up from $10.5 billion at the beginning of the year, so $2.5 billion increase relative to midpoint to midpoint, $250 million on capital. This is going to result in over $9 billion of forecasted free cash flow in 2022. Consistent with our investment framework that Scott outlined, we expect modest production growth this year and a reinvestment rate of less than 30% and returning the vast majority of our free cash flow back to investors via dividends and opportunistic share repurchases. On average, our activity locally remains unchanged. We expect to run 22 to 24 drilling rigs and approximately six frac fleets, of which two of those are simul-frac fleets. This will result in placing roughly 500 wells on production in 2022. Turning to slide 13, and thanks to the hard work and focus of our teams across the company, we continue to realize operational efficiency improvements. Our implementation of SimulFrac has been a great success in both reducing cycle time and cost. As evidenced by the chart on the left, we have established ourselves as a leading SimulFrac operator, having completed the most SimulFrac wells of any operator. As you can see on the right side of the graph, the implementation of SimulFrag combined with continued operational improvements have significantly benefited our completion efficiency. We have doubled our completed peak per day since 2018 and are targeting further improvement in 2023 with the addition of a third SimulFrag fleet early next year. Turning to slide 14, which highlights Pioneer's best-in-class cash margins, Our high oil percent realizations and our strong marketing arrangements drive top tier price realizations for BOE. And when you combine that with Pioneer's low cost structure as a result of our highly efficient field operations, our low corporate overhead, and our inexpensive borrowing cost at below 2%, you get peer leading cash margins that support our strong return of capital framework. Turning to slide 15. This slide really highlights the sustainability of those best-in-class margins by showing our unmatched depth and quality of drilling inventory. This third-party data shows the durability of our position with decades of high-quality inventory in the Midland Basin. You can see on the right side that the Midland Basin has more than two times the remaining top-tier inventory than the Delaware Basin. Turning to slide 16, this slide complements the prior slide quite well. It matches our inventory duration with free cash flow per BOE, highlighting Pioneer's favorable position with the longest inventory and highest free cash flow per BOE. This combination provides Pioneer the ability to distribute significant free cash flow to shareholders for decades, considering the quality and depth of our inventory.
spk07: With that, I'm going to turn it over to Neil. Thank you, Rich. Turning to slide 17. Pioneer's compelling value proposition is further evidenced through the combination of the two graphs on this slide, high corporate returns and an inexpensive valuation. The graph on the left demonstrates the culmination of our high-quality assets, capitally efficient development, our people, and our best-in-class margins, which drive our strong corporate returns. In fact, Pioneer's projected ROCE exceeds all other sectors within the S&P 500, to also include the majors and the broader energy sector. Pairing the strong returns profile with our discounted valuation on the right graph, we believe, results in an extremely compelling and durable investment opportunity. With that, I'll turn it over to Scott.
spk05: Finishing up on slide number 18, a leading sustainability plan. We recently published our 2022 sustainability report, which highlights Pioneer's focus and significant progress on our ESG initiatives. The comprehensive report details our environmental initiatives and targets, including those highlighted on the right side of this slide. Since our last earnings call, we announced our membership into OGMP 2.0 and the addition of Asento Hernandez to our board of directors, who brings decades of investment experience. We believe that these actions demonstrate our commitment and focus on ESG and further strengthen Spiner's position as a leader in the industry. Our updated sustainability report can be found on our website. And additionally, we expect to publish an updated climate risk report later this year. Slide 19 just summarizes all the things that we're doing in regard to enhancing shareholder value. We will now open it up for Q&A. Thank you.
spk04: Thank you very much, sir. Ladies and gentlemen, if you'd like to ask an audio question, please press star 1 on your telephone keypad at this time. Please also ensure that your mute function is not activated to allow you to signal to reach your equipment. So once again, ladies and gentlemen, please press star 1 to ask a question. It's just possible to give everybody a chance to signal. Today's first question is coming from Mr. John Freeman, colleague from Raymond James. Your line is open, sir.
spk09: Good morning, guys.
spk07: Hey, John, how are you doing?
spk09: Good, thanks. Very impressive dividend. You know, specifically I wanted to focus on the base dividend. You know, a year or so ago when y'all first introduced the base plus variable dividend sort of framework, you know, the outlook was, you know, you'll have sort of this kind of couple percent kind of, you know, rate of growth on the base dividend. And obviously y'all have done dramatically better than that since it was introduced. Just trying to get a sense, maybe you can just remind us when you all think about where to take the base dividend, like how much of this is, you know, the commodity environment was far better, so the balance sheet got rapidly stronger than you would have initially expected versus maybe other things that we wouldn't be as aware of, like something about the underlying asset reinvestment rate, some change in your view on the mid-cycle pricing just Anything else that sort of goes into the confidence of that base dividend so we have a little better idea going forward how we should think about that?
spk05: Yeah, John, great question. As I said before, we believe in a stable and growing base dividend and we'll continue to increase our base dividend over time. We've materially increased our base dividend in recent quarters, increasing it by 95% over the past year, including this 40% increase. Over the past five years, we've demonstrated our commitment to the base dividend, increasing it by 55x without cutting it or suspending it like many of our peers. We have the ability to still grow the base dividend even when stress testing at lower oil prices between $45 to $50 WTI. In addition, I'll finish up by saying we expect to continue to increase the base dividend commensurate with our production growth. So if we're able to grow 5% a year long term, you would anticipate a 5% increase in the base dividend on an annual basis.
spk09: Great. Thanks. Thanks, Scott. And then my final question, you know, Rich, last quarter, you kind of mentioned how it was actually, you know, pretty easy for you all to pick up that spot track crew when you needed it because you all had, you know, ready access to things like sand and diesel and I guess I'm just interested in sort of maybe an update as, you know, three months later here, you know, service companies keep talking about how they're pretty much maxed out on the frac side. The U.S. frac count has sort of stalled out here, you know, the last couple months, even as the overall rig count's gone higher. And just sort of any updated thoughts you've got on that. Is it still, do you think, relatively easy for someone like you all to pick up, you know, crews, or are you starting to see a lot more tightening?
spk08: I would say it's generally gotten tighter, John, over time. I just think you've seen it continue to pick up a little bit of rig activity in some rack fleets. I don't know if there's a lot of spare capacity out there. I think there are some new fleets that you've seen, electric fleets that are coming into the market later this year. Early next year, that'll help on the pressure pumping side. So I think it's what it's caused all of us to do is move up our contracting timeline for 2023 earlier than in prior years. And so I think all that work's underway. I don't have any concern about Pioneer getting the equipment or services that we need or materials, but it's definitely a tighter market, so we're starting earlier.
spk09: Thanks, guys. I appreciate it.
spk08: Thanks, John.
spk04: Thank you. Thanks, sir. Well, now we'll move to Jenny White calling from Barclays. Please go ahead.
spk00: Hi. Good morning, everyone. Thanks for taking our questions.
spk05: Yeah, Janine, good morning.
spk00: Good morning, Scott. Our first question is on the tank battery expansions. That work, I think you're starting to do that in Q3. Is there more of that work that needs to be done beyond whatever you're going to handle pretty soon? And is that work concentrated in certain areas?
spk08: Yeah, Janine, I'd say, you know, our tank battery program is consistent with how we laid out at the beginning of the year. The timing of it hasn't changed. We had a little bit of that capital that was planned for second quarter that's sliding into third quarter just for various reasons, but nothing that's impacting production at all. Nothing new there. Our tank battery size is still the same that we've done before. We're really focused on the wells that we're selecting going into existing tank batteries where we have excess capacity.
spk00: already so nothing really unusual on the tank battery side and you know work is going on it and as normal as we would have planned at the beginning of the year okay perfect thank you and our second question maybe we can just move to the capex number so I don't know if Pioneer thinks about it in this way or not but some companies they've marked to market their 22 budgets based on a certain price outlook and that just kind of helps the analyst understand directionally how CapEx could change if prices change, oil prices change. So is your update at 3.6 to 3.8 billion budget, is that based on a certain oil price? And do you have an update on what percent of 2022 or 2023 is locked in on price? Thank you.
spk08: Sure, Janine. I would say, you know, we don't pick a specific price, but I think, you know, that capital budget range of 3.6 to 3.8 is you can kind of target around, you know, $100 to $120 Brent fits into. The biggest variable on that is tied to oil prices is really diesel because it all fluctuates with that. In terms of 2022 capital, in terms of locked in, obviously the longer we go through the year, the more of it is locked in. I think last quarter I talked about being 60%. I don't have the exact number, but my guess, just given where we're at, we're in that probably 70% to 80% range at this point. Most of it's pretty well In 2023, we're still in the midst of contract deaths. It's still a little bit early. I think just in general, as we think about 2023, as I think we've talked on previous calls, that we're probably going to see another roughly 10% increase for inflation in 2023, just based on early indications. It's still early, but just for planning purposes, I think that would be a good number to plan around.
spk00: Very helpful. Thank you, gentlemen.
spk04: Thank you. Thank you very much, ma'am. Ladies and gentlemen, once again, if you have any questions, please press star 1. Thank you. Now we'll go to Neil Mehta calling from Goldman Sachs. Please go ahead.
spk01: Yeah, good morning, team. I just wanted to build on that last comment around how you're thinking about 2023. And, Scott, given... We have a little bit more visibility, it seems, on the oil markets into 2023 as we've worked our way through the year. Do you think it makes sense to grow in 2023? How do you think about the production profile at this point, both for your company and for the broader US E&P industry?
spk05: Good morning. I'm still very optimistic that the oil price is going to continue to march forward with probably more upside than downside demand coming back around the world. People are flying more. China's going to come back. And as you know, there's not much supply. The OPEC agreement, OPEC Plus, announced a minuscule increase today, obviously to give the Biden administration some important ammunition. even though it was minuscule today. They just don't have the supply. Very little left in UAE and in Saudi. And so on the basis that oil price will continue to march forward, our focus will be on that 5% production growth of oil. So I see if we ever enter a downturn, that's a different question. We can actually ratchet back in that regard. But we're still focused on that long-term 5% production
spk01: on oil and next year should be one of those positive years to do it okay that's helpful Scott and then the follow-up is around the share repurchase program and you highlighted that you ended up buying up back stock here opportunistically in July just talk about your framework around it should we think of this as a level loaded program which supplements the dividend or one where you're going to look to use weakness to add? Thank you.
spk05: Yeah, I mean, we've averaged about two and a half over the last, call it, seven, call it nine to ten months. We've bought back two and a half percent of our stock. A lot of it is in the, what I call, opportunistic. Obviously, it depends on where share price goes. As I said in the past, we'll always continue to buy a little bit each quarter. And then when we see pullbacks is when we will step up. And that's really our policy and we'll continue to do that. We've got the firepower and the free cash flow to be able to transact on that policy.
spk01: Thank you, Scott.
spk04: Thank you very much, sir. The next question is coming from Bertrand Donis calling from Truist Securities. Please go ahead.
spk02: Good morning. I'm just going to piggyback on that last one on the share repurchases. You characterized it as opportunistic. Obviously, oil pulled back and so did the stock. So I'm just wondering, is it a nominal level of the Pioneer stock or was Pioneer in a better relative position during the pullback? Or is it just maybe your optimistic view on oil? So anytime oil pulls back, it kind of creates an opportunity.
spk05: Yeah, I mean, we do run our net asset value on the company. We like to get a great return when we go into the market and buy a lot of the stock like we did. Obviously, we don't know where the stock is going to go based on the marketplace. So our policy is continue to buy back a little each quarter. And if for some reason we see big dips, whether it's in oil or something else affecting the marketplace, then we'll be more aggressive like we have. So the Hopefully that's about as simple as we can describe it.
spk02: That sounds good. And then maybe shifting gears, across your acreage position, could you maybe talk about what the returns look like in Martin and Howard versus your southern position versus your JV and maybe how that will influence where you run your rigs maybe at the end of this year or next year?
spk08: Yeah, you can really look at where we have our rigs running across the basin, and we spread the rigs out to manage water and supply and moving things around. But our returns, when you look at our top tier inventory and the depth of our inventory that we've talked about, it's really consistent across the basin for our acreage position, so we're just less in that regard. We're tier one acreage, over 15,000 locations, 20-year inventory, and so they just don't look that different amongst locations. So that's really how we have, you've seen over the last couple years, we're not concentrating on any one area. We spread our activity out and the returns are great in all those areas.
spk02: Okay. Is it fair to say that the infrastructure is more important because of the kind of uniformity of the returns?
spk08: Well, yeah, that's what I think really separates fine here is the water infrastructure that we've, there's really the ability to move water around so we can actually add, you know, be it two simul-frag fleets consistently and get to that third simul-frag fleet is really that infrastructure allows us to do it at scale where others may not have the ability to do that at the same scale.
spk02: Thanks. That's all for me.
spk01: Sure.
spk04: Thank you, Mr. We'll now go to Derek Whitfield calling from Stifel. Please go ahead, sir.
spk06: Thanks, and good morning, all. For my first question, I wanted to touch on the Inflation Reduction Act, which could be voted on this week, focusing on the minimum tax and methane fee components. Could you speak to the expected implications for Pioneer?
spk08: Yeah, I'll hit the methane fee, and Neil can talk about the tax. Really, we've looked at it and if passed, we don't expect the proposal of material impact on Pioneer just based on our goal of continuing to reduce methane emissions and where we are on that curve so far and what we've done to reduce emissions. We'll continue to monitor, but feel that we're well positioned to reduce our emissions intensity with our production as we've laid out in our sustainability report and our goals that we outlined this morning. So, really not expecting anything material based on our analysis of it so far.
spk07: Hey, Derek. Good morning. This is Neil. As Rich said, we took a look at the Act, and as we anticipate becoming full cash taxpayers in 2023, our festive tax rate is going to be above that 15% threshold. So we wouldn't anticipate this proposal to have any impact on us and our cash tax profile.
spk06: Terrific. That's what I was expecting on the tax side. But maybe as my follow-up, in thinking about the second half, 22 and 2023 capital projections, Could you help frame the degree of self-help you're attaining in your simulfrac operations and long lateral development?
spk08: I think the simulfracs, we've talked about, saves about $200,000 per well. The cost benefit is there, but we're also, what's driving that is we're completing roughly 50% more feet per day. It's just been a big benefit. As I mentioned earlier, our water infrastructure really is allowing us to get to that third track fleet early next year. And then a longer lateral is really one we've seen great productivity out of the wells, but it just saves us 15% on a drilling and completion cost per foot. And so it's just a more capital efficient way to do it in our contiguous acreage position. And the blockings of acres allow us to, you know, we've got about a thousand of those locations that we've identified today. But with trades and small acreage locations, acquisitions that we continue to work at, we're adding to that inventory and our acreage position just sets up well for just given how contiguous it is.
spk06: Terrific. Great update and thanks for your time.
spk08: Thanks, Dirk.
spk04: Thank you, Ms. Whitfield. The next question is coming from Arun Jayaram calling from JPMorgan Chase. Please go ahead, sir.
spk03: Yeah, good morning. On slide 13, you highlight some of the efficiency gains you're getting on the FRAC side. I want to get your thoughts on just Pioneer's kind of future procurement strategy on FRAC. We all know that your relationship with PUMP kind of ends around year end, and I just want to get your thoughts on what you plan to do with your future FRAC needs, Is electrification in the future or a shift towards more Tier 4 DGB equipment? So I wanted to get your thoughts on that.
spk08: Yeah, Wren, I'll take that. And really, as I mentioned earlier, we are in the midst of contracting 2023. As you mentioned, we have a great relationship with Pump. They do a terrific job, and they'll definitely be part of our 2023 program. Will they be 100% of it? Probably not in the green, but they're going to still be part of it. And in terms of moving to electric fleets and DGP, we're in the process of moving that. We're definitely looking at contracting some electric fleets. I think it'll be a transition to get to high-line power. We'd love to get there sooner, but the infrastructure and the current basis is going to take some time to build that out. And so it's probably going to be a progression where we'll move off the useful and move to CNG, LNG that we're evaluating right now first, and then get to high-line power later next year, 2024 timeframe. But it's definitely the path we're going on. And in the midst of that, we'll also have some DGB equipment. So we're going to have, you know, we're moving that way. And ultimately, we'll be more 100% electricity, but that's, you know, still a couple years out. Hopefully that helps.
spk03: That's super helpful. And just my follow-up would be, we've been getting just a couple of questions around, you know, well productivity, you know, as you have, you know, completely integrated the Parsley system. and the double-point assets, but Rich, I was wondering if you could give us a sense of how you would gauge year-to-date well productivity for Pioneer relative to historical trends. I'll leave it there.
spk08: Yeah, we're continuing to complete our wells across the field, and so each bench has a little bit different profile, but overall, the returns that you've seen from our free cash flow per VOE that we generate are significant. I'd say they're consistent with the last year or so of production profiles. They're probably not quite as high as they were in 18-19. We're just doing Wolf Camp A and Wolf Camp B because we're doing the full stack because it just avoids some parent-child issues longer term and a better way to develop the field and maximize NAB. But overall, we've had consistent results relative to the last couple of years.
spk04: Great. Thanks a lot, Rich. Thank you much, sir. Ladies and gentlemen, that will conclude today's question and answer session. I'd like to turn the call back over to Mr. Sheffield for any additional or closing remarks. Thank you.
spk05: Again, thank you for participating in the call today. I look forward to seeing everybody either on the road or next quarter's call. Again, thank you very much.
spk04: Thank you, Mr. Sheffield. Ladies and gentlemen, this concludes today's call. We thank you much for your participation. You may now disconnect. Have a good day and goodbye.
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