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spk01: 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, and Neil Shaw, 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 slides presented in today's call is www.pxd.com. Navigate to the Investors tab found at the top of the webpage and then select Investor Presentations. Today's call is being recorded. A replay of the call will be archived on www.pxd.com through November 22, 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 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.
spk13: Thank you, Melinda. Good morning, everyone, and thank you for joining us for Pioneer's third quarter earnings call. Today, we will highlight Pioneer's excellent third quarter financial and operating results and peer-leading return of capital strategy. Importantly, we will discuss the increased return thresholds we are instituting beginning with our 2023 program, as well as the strong benefit we are seeing through our long lateral development. We're also excited to highlight our participation in two renewable energy projects that will help reduce our emissions profile and further strengthen our leading ESG strategy. We will then open up the call for questions. With that, I will turn it over to Scott.
spk10: Thank you, Neil. Good morning. Starting on slide three, Pioneer delivered strong results, generating over $1.7 billion in free cash flow during the third quarter, contributing to the return of $1.9 billion back to the shareholders. The majority of this capital is being returned through our base plus variable dividend of $5.71 per share, which will be paid in mid-December. Additionally, we continue to execute on opportunistic share repurchases. With 500 million of shares retired in the third quarter, an average price of $218, representing approximately 2.3 million shares. This strong return of capital through both dividends and share repurchases represents approximately 108% of our third quarter free cash flow. When including all repurchase to date and dividends to be paid in 2022, we will return approximately $7.5 billion to shareholders this year. This robust return clearly demonstrates our commitment to our investment framework that is supported by our significant free cash flow generation. We are also pleased to announce that we're participating in a 140 megawatt wind generation project with Nextera. This project utilizes Pioneer's own service acreage to generate renewable energy that we will utilize in our operation. On this slide four, On our third quarter results, Pioneer's strong execution continued during the third quarter with both oil and total production in the upper half of our guidance range, driving substantial free cash flow generation of greater than $1.7 billion. Our leverage profile remains top tier, which we forecast to be less than 0.3 net debt, EBITDA, at year end. Going to slide five. Supplementing our best-in-class dividend payout, we continue to repurchase our shares opportunistically. Now, I've executed $1.5 billion since the fourth quarter of 2021, an average share price of $219. This represents a reduction of total shares outstanding by approximately 3% at a strong discount to our current share price. Of the $500 million repurchased during the third quarter, an average price of $218. Per share, $250 million of stock was repurchased in the month of July at an average share price of $213 through our 10B5 program. To date, we've utilized $1.25 billion of our current $4 billion authorization, leaving nearly $3 billion remaining under the program. Going to slide number six, our core investment thesis remains unchanged, underpinned by low leverage, strong corporate returns, and a low reinvestment rate. This delivers moderate oil production growth, which generates significant free cash flow. Majority of this free cash flow was returned to shareholders through our strong and growing base dividend and our peer-leading variable dividend, which represents up to 75% of post-base dividend free cash flow. We strengthened this quarter's total return by leveraging our strong balance sheet to aggressively repurchase shares. In total, this resulted in returning $1.9 billion to shareholders, which equates to an annualized yield of greater than 12%. Going to slide number seven, Pioneer's high-quality assets, low break-even, and moderate R growth provides the ability to pay significant dividends from our peer-leading free cash flow through cycle. As seen on the graph, we're able to deliver a compelling base plus variable dividend with a yield far exceeding the S&P average at all prices of $60. Conversely, shareholders have significant upside to sustained higher oil prices as well, with a greater than a 10% dividend yield at all prices higher than $100 WTI. Going to slide number eight, total dividends to be paid in 2022 result in a yield in excess of 10% at today's share price. This yield exceeds all peers, majors, and the average yield of the S&P 500. Going to slide number nine, when looking beyond our peer group to the broader market, Pioneer's dividend yield exceeds every S&P 500 sector. Our double-digit dividend yield demonstrates the cash flow generative power and underlying quality of Pioneer's assets and the strength of our peer-leading return of capital strategy. I'll now turn it over to Rich.
spk14: Thanks, Scott, and good morning, everybody. I'm going to start on slide 10, where you can see that our full year 2022 production and capital guidance remains unchanged from our previous update in August. Updating for actual results for the third quarter and forecasted strip prices for the fourth quarter, we are now estimating that we will generate over $12 billion in operating cash flow for the year and deliver more than $8 billion of free cash flow for the year. As you can see in the upper right, Our average activity level remains unchanged, and we plan to run between 22 and 24 rigs and approximately six frac fleets, with two of those being simul-frac fleets for the remainder of the year. Turning to slide 11, as you would expect, we continually strive to be more efficient, improve return, and implement the learnings into our development program. Consistent with this DNA inside the company, we have been not satisfied with the 2022 well-performance and have made a significant step change to our well-return thresholds going forward. This material threshold increase will substantially improve well productivity for 2023 and subsequent years. Implementing these more stringent thresholds will result in the productivity of our future development programs surpassing the 2021 program levels, which are significantly higher than the 2022 levels, and result in better capital efficiency and higher free cash flow per BOE. Over the course of 2022, our development strategy has fully transitioned to a full stack approach, which includes drilling up to six highly productive zones. We have also significantly reduced our delayed developments and are taking advantage of our contiguous acreage position to drill extended 15,000 foot laterals that generate 20% higher returns than a 10,000 foot well. Given the quality and depth of our inventory, This higher threshold program is consistent and highly repeatable for many years past the 2023 to 2027 period highlighted on the graph in the right. Turning to slide 12, and as I mentioned on the previous slide, we are realizing improved returns and strong productivity from drilling 15,000-foot lateral wells. Developing these long laterals provides significant efficiency gains that reduce capital costs, resulting in an average drilling and completion savings of approximately 15% per lateral foot. The combination of these savings and the strong productivity drive increased returns, with IRRs increasing by more than 20 percentage points when compared to 10,000-foot laterals. Pioneer's extensive, contiguous acreage position in the Midland Basin, which approaches nearly 1 million gross acres, supports our development of high-return 15,000-foot lateral wells. To date, we have identified more than 1,000 locations for long lateral development and expect to place more than 100 of those wells online in 2023, up from the 50 or so that we plan to put online in 2022. Turning to slide 13, as you can see in the left, Pioneer has the longest duration of high-quality inventory when compared to PEERS. This third-party data highlights Pioneer as a premier independent oil and gas company with decades of high-quality inventory in the core of the Midland Basin. Turning to slide 14, this slide highlights the powerful combination of Pioneer's highest free cash flow per BOE amongst our peers, combined with having the longest duration of high-quality inventory in the U.S. unconventional space. This combination of robust free cash flow generation and decades of high return inventory supports Pioneer's ability to return significant capital to shareholders over a long period of time and differentiates Pioneer from its peers. I'll stop there and turn it over to Neil.
spk13: Thank you, Rich. Turning to slide 15. For multiple consecutive quarters, Pioneer has delivered the highest cash margin of our entire peer group. Our unhedged oil-weighted production underpins strong price realizations, which, when netted against our low cash costs, drive these unmatched results. As we've discussed previously, our low cash costs are a function of a robust infrastructure, low coupon debt, and top tier G&A. This best in class margin paired with our highly efficient operations support the highest free cash flow per BOE produced. Turning to the next slide. Pioneer continues to offer an attractive investment case for shareholders through the combination of leading corporate returns and an inexpensive valuation. Pioneer's projected ROCE continues to exceed all other sectors within the S&P 500 as well as the majors and the broader energy sector. Pairing our strong return profile with our discounted valuation, we believe, results in an extremely compelling and durable investment opportunity for shareholders. With that, I'll turn it back to Scott.
spk10: Thank you. Go to slide 17. We published our 2022 sustainability report earlier this year, which highlights Pioneer's focus and significant progress on our ESG initiatives. We believe that these actions demonstrate our commitment and focus on ESG and further strengthen Pioneer's position as a leader in the industry. Our updated sustainability report can be found on our website, and we expect to publish an updated climate risk report later this quarter. Going to slide 18, we're excited to announce our participation in a wind development project on Pioneer's owned surface acreage as well as the Contra Valley solar project. Both renewable energy projects will supply power to both Pioneer's field operations and Targa and Pioneer's jointly owned middle and basin gas processing system. This renewable energy and the renewable energy credits generated will reduce our scope to emissions and contribute to our emission reduction goals. The Concho Valley solar project is currently operational and the hot wind development being built by Nextera is expected to be operational in 2024. We are pleased to have Nextera as a partner and they have unmatched experience in developing wind and solar resources. We continue to evaluate further wind and solar development on Pioneer's own service acreage in addition to these two initial projects. On the final slide, on slide 19, this is a summary of our key attributes that we have discussed today, which highlight our commitment to creating value for our shareholders. We will now open the call for questions.
spk01: Thank you, sir. If you would like to ask a question, you may do so by pressing star 1 on your telephone keypad. Please remove your mute function to allow your signal to reach our equipment. Once again, that is star 1 if you would like to ask a question. And we'll go to our first caller, Neil Mehta with Goldman Sachs.
spk11: Good morning, team, and thank you for all the great color here. So I just wanted to turn to slide 11, and Rich, maybe you can expand on it a little bit more here. So as you think about the path for when you expect well productivity to inflect, are you saying 22 represents sort of the trough year and 23 gets sequentially better, or do we have to look out further in that 2023 to 2027 stack to see that inflection?
spk14: Yeah, Neil, great question. Yeah, it's really 22 will be the trough. I mean, we've started and made the change immediately. But as you know, there's a planning process and permitting process. So you'll start to see those wells spud in the first quarter and see the results of the higher thresholds as we move through the course of 2023. So that's really the game plan going forward. I mean, Basically, it means every well in the program, we've got a higher bar, and it's going to increase our program productivity. It's going to increase our annual capital efficiency and result in higher free cash flow generation from that program into 23.
spk11: Thanks, Rich. And just to build on this, because it's gotten so much investor focus here over the last couple of months, is what is the confidence interval about the improvement that you expect in productivity? What is the biggest risk? to achieving this shift?
spk14: You know, Neil, just given that, you know, having over 3,000 horizontal wells out there and having a big database of data, you know, I think it's very low risk. We're really just reshuffling the portfolio and bringing forward higher return wells and deferring some of the wells that were, you know, great wells, but, you know, we can do, we've got higher thresholds that we can hit, and so we've just deferred those and reallocated the capital, but The reality is we have high confidence that we're going to achieve the results that we've laid out here.
spk11: Thanks, Rick.
spk01: And moving on to John Freeman of Raymond James. Good morning, guys.
spk08: Good morning. When we look at the 2023 plan, I know that you all have got the vast majority of what you all need sort of already secured. But when you just sort of think about the supply chain, just any – Anything that you're seeing that's sort of loosening versus what areas are still remaining pretty tight when you sort of try to nail down your plan for next year?
spk14: Yeah, John, I think we've pretty well got most of it tied up in terms of what we need from an activity level. I mean, just to give you a flavor of what 23 kind of is going to look like, think about it as 24 to 26 rigs, probably six to seven frat crews, And of which, you know, three of those will probably be E-Fleets over the course of the year as those come in is really what we're looking at, you know, as we look at 23. And, you know, that's going to put our, you know, still early and we're still working on, but, you know, growth in that mid-0% to 5% range is where I'd, you know, kind of say given where we're at today. So, but I don't really see anything from, you know, hopefully we'll see which is the biggest inflation item we've had this year has been steel and And casing prices, you know, having talked to a number of suppliers, you know, it sounds like that's flattening a bit, but we'll see if that, you know, comes to fruition or not. But otherwise, everything else, I think, you know, seems like we're not at the same level of inflation. I think we've talked about before that we're still seeing, you know, 23 relative to our program and 22, you know, kind of that 10% type inflation level. It could be slightly higher, but, you know, that's generally where we're seeing it. Hopefully that helps. Thanks, Rich.
spk08: Absolutely. You mentioned the three EFRAC fleets that you've got that are going to be delivered next year. I know that you'll have plans over the next couple of years to move to nearly all electric in the field, and you've got some electric substations that are going to be installed over these next few years. Can you just talk to me about the timeline of how all that stuff plays out when those substations get installed and when you know, realistically you could be, you know, nearly all electric in the field, just how that sort of timeline looks.
spk14: Sure. And I think, you know, a 23-wide call would be a transition year. So I think we'll, and maybe I've mentioned on previous calls that, you know, this year we're virtually running, you know, everything on diesel. Next year you'll see us as we get these E-fleets and some dual fuel engine and fleets going forward that will probably, you know, be kind of that transition of, part diesel, part CNG is where we're headed. And then as the substations get built, we'll be able to start doing more of our operations. It won't be 100%, but more of our operations on high-line power when we get to 2024 and then continue to move closer to 100% 24, 25, 26 time period. But I think that's the general evolution. Obviously, the E-Fleet activity, longer life engines, you know, lower cost. And so it's better for emissions and better from a cost structure standpoint. So, you know, directionally that's where we want to go. It's just going to take time to get there. And really waiting on, you know, the build out of transmission and then, you know, what's that, you know, if everybody does it, the power demand is going to be higher. So we need power generation to come online as well.
spk08: Great. Thank you. I appreciate it. Sure.
spk01: Next, we'll hear from Doug Legate of Bank of America.
spk03: Thank you. Good morning, everybody. Rich, I wonder if I could just pick your brain a little bit on the, I guess it's on the philosophy behind the way you're going to develop the asset going forward. Was this a surprise to you that the deferral, I guess, going back to the deferred targets resulted in lower productivity. Is that something that you anticipated? And I guess what I'm really trying to get to is when you think about your capital program going back to the, for want of a better expression, cube development, are there any impacts on your capital expectation relative to the deferred target or delayed target philosophy you had previously?
spk14: Yeah, I'd say the delayed targets have underperformed where we would have anticipated. They still have great returns. It's just we have better locations in our portfolio. And so as we've gotten those results over the course of this year, we've decided that's not satisfactory to us and we want to move forward with a higher threshold. And so we've just reshuffled the deck, as I said earlier, and are moving to full stack basically across the field. And we'll defer those delayed targets to a later date down the road. So really that's been the game plan and the learnings that we've had this year as we get smarter and better as we move forward.
spk03: But to be clear, presumably you had the benefit of existing pads. So is there a capital implication for the change in the way you'll be developing going forward?
spk14: It's probably small, Doug, but it's not as significant. The pad cost is relatively small in the grand scheme of things. And in some cases, we were still having to expand tank batteries. So yes, to a small extent, but overall, I think you'll see that the new programs going forward are going to be more capital efficient than we were in 22, which is the objective, and higher productivity and better free cash flow generation.
spk03: That's what I was after. Thank you. I'm sure Neil can wait for my follow-up. It's my cash tax question, Neil, and I wonder if you could just give us a quick update as to The NOL position, it looks like deferred tax has started to trend a little bit lower over time, at least based on the third quarter. So any update there would be appreciated on your expected timing.
spk13: Yeah, Doug, I mean, we've essentially utilized our, first of all, good morning. But yes, that's right. We've essentially utilized our full NOL balance. So, you know, we've got a little bit that we'll utilize here over the next several years. But for the most part, I'd model it as being utilized. You know, if you look at our federal cash taxes paid to date based upon estimated taxes, it was based on a higher commodity price earlier in the year. So you saw that change for Q4 guidance. So based on our current commodity price outlook, which is lower based on where we were earlier in the year, we believe we have minimal remaining 2022 federal cash tax obligations. And then if you're going to fast forward to 2023, based on the triple, somewhere being that, as I said before, mid to high teens,
spk03: Understood. Thanks for the clarity, Neil. Appreciate it.
spk01: Moving on to Scott Hanold of RBC Capital Markets.
spk06: Thanks. Good morning. You know, maybe just stick with the budget or 2023 a little bit and just that high level budget. I think you've got some pretty good color, but when I think about sort of a 10 plus percent service cost inflation and then, you know, potentially adding a couple of rigs, it's kind of feels like a 4.4 to 4.5 kind of overall capital range. Does that generally make sense? And can you talk about some, you know, pushes and pulls that, you know, may occur around that?
spk14: Yeah, Scott, I mean, I think that's directionally right. I mean, we've talked about as we add, you know, those one to two rigs, you know, those, you know, with where they sit today are, you know, kind of $175, $200 million capital spend, and then you add the 10%. where we see that. So, you know, from where we sit today at the 3.6 to 3.8 and add those increases to it, it gets you to that, you know, 4.5 general range. And we're still working on it. Obviously, increasing the return thresholds has implications, too, and capital efficiency improvements. And so we're still working through all that. But, you know, I think directionally you've got it right.
spk06: Okay. I appreciate that. And, you know, if I can go back to sort of the change in the drilling strategy and targeting higher return wells and just, you know, at a high level, can you give us some sense of, you know, coming, you know, into 2022, um, you know, when, when you laid out the program and, and obviously it wasn't as optimized, um, you know, at the end of the day, but, um, When you think about where you were targeting, was it generally kind of going back to existing areas where you drilled wells to whether earn acreage or for whatever reason and drilling in some of the, I guess, other not as core stack part of the portfolio? And my kind of question kind of then thinks about like 2023 when you do the full stack development is really less about you know, drawing some of those, say, other than, you know, the best targets versus more of the deferred completion impact?
spk14: Yeah, Scott, you know, I'd say, you know, when you got a million gross acres, we had our rig spread out across the field to really, you know, handle all the things that you, you know, laid out there. But as we move that threshold re-hire, it just, it focuses more on areas that have those higher rate of returns. So, you know, in general, that's going to you'll move probably a little more activity to the north across the field. But that's really, you know, the allocation of capital here is really the focus in generating higher rates of return. And so that's going to drive it. The longer laterals obviously has a higher rate of return, as we talked about on the call. And so there's a focus on that. We're going to have over 100 of those wells in the 2023 program. And so that's really how we've gone about that selection. And we're just, you know, we're still doing the full stack. We're just, you know, prioritizing those wells that are those pads and locations that have higher rates of return.
spk06: Okay. Okay. So I guess my question was more specific on that, the, the, the illustrates you have on chart 11. So in 2023, we can expect you, you targeting pretty much the, the, all of these six zones in, in the development program, right?
spk14: Oh, absolutely.
spk06: Okay. Got it. Thank you.
spk01: Sure. And once again, as a reminder, if you would like to ask a question, you may do so by pressing star 1 on your telephone keypad at this time. Moving on to Charles Mead with Johnson Rice.
spk00: Good morning, Rich and Scott and Neil and to the rest of the team there. Rich, my first question is kind of along the same lines of most of these questions you've got this morning. I think I heard you say in your prepared remarks that you were a little disappointed or your 22 program came in a little bit under where you thought. And so I want to understand, is the change that you're making in 23 essentially just reversing some of the changes you made for 22 versus 21, or is there another dimension to your evolution here?
spk14: Yeah, Charles, I'd say it's more about just the allocation of capital and moving to higher return you know, locations and areas, and so the returns that we are generating from the program in 22 are still fantastic. I mean, so I don't want anybody to take away that they're not great returns. It's just, you know, the productivity came in a little less than we anticipated, and we wanted to rectify that and fix that, and we weren't satisfied with it, and so we've got a depth of portfolio that we can, you know, move things around, and so we've made those changes, and going into 23, we're going to drill, you know, just wells that have higher productivity and higher rates of return, and that's really just what we're charged with from a capital allocation standpoint to make happen. And so that's where our focus is, and the team's highly focused on it, and we're going to execute that program going forward.
spk00: Great. Thank you for that. And the second, my follow-up is probably for Scott. Scott, I wanted to, you know, first off, congratulate you guys. They're buying back shares in the quarter. That's a great price that you guys were able to execute at. I just wanted to Take your temperature and get an update from you on how you're thinking about the mix of buybacks versus variable dividends now.
spk10: As we laid out our program, it's still heavily weighted toward dividends, which was all the feedback that we've been getting from our long-term investors over the last three years. So we'll continue with that. We got the balance sheet to be very opportunistic, obviously, and we've shown that also, and we'll continue that also. Thank you.
spk01: And next we'll hear from Derek Whitfield of Stiefel.
spk04: Thanks. Good morning, all. With my first question, I wanted to ask on why is it important With the understanding that you have limited exposure to Waha and the recent weakness is driven by maintenance with Gulf Coast Express and EPNG pipelines, could you speak to your macro views on in-basin gas prices for 2023 and if egress tightness could lead to shut-ins for some of your peers?
spk14: Yeah, I mean, obviously, we've got pipelines coming and incremental compression coming, but as you can look at the forward curve on Waha prices, Obviously, they're trading at a discount to IMEX and SoCal and other places. For Pioneer specifically, I think we've talked about having about 25% in that range of exposure to Waha. It's been a little bit higher because of the SoCal maintenance on El Paso. Being down, we haven't been able to move as many volumes out west as we would have liked. But we've got incremental capacity on firm transportation coming in. you know, 23 and then more in 24 when Matterhorn comes on. We're also moving our parsley and double point volumes that were on Waha. We'll be moving them out of basin, you know, in 23, 24 time period as well as we take those volumes in kind. And so from Pioneer's standpoint, you know, we'll have very little exposure, you know, kind of in that 23, late 23, 24 time period at Waha is for us. You know, others, you know, it is a, for those that, you know, are smaller operators that don't have firm transportation and you know, obviously they're going to, until those new pipes come, they're going to probably be getting discounted prices. And, you know, we'll see. I mean, I haven't seen any or forecasted seeing any shut-ins at this point, but that, you know, could be an ultimate result for some, but at this point I'm not aware of any that are expected.
spk04: That's great. And perhaps for my follow-up, I wanted to go back to slide 11 and just wanted to focus on your new economic threshold commentary. Could you help frame the degree of increase in returns you'd expect to see in that 2023 to 2027 program? And what percent of your 20-plus year inventory falls into that category?
spk14: Yeah, well, I mean, it's a meaningful increase from where we were in 22 to what we're doing in that 23-27 time period. And just given the depth of our inventory, we've got 15,000 Tier 1 locations out there, so we've got a long way runway to execute it at that same economic threshold that we've set to, you know, get these higher returns and higher productivity. So, you know, we're just – we're blessed to have the inventory we have, and we can execute this for a long period of time.
spk04: Thanks. Great updates on your PPAs in 2020. See your well productivity.
spk14: Oh, great. Thank you.
spk01: Thank you. Next, we'll hear from Arun Jayaran with JPMorgan.
spk02: Yeah, good morning. Rich or Scott, I was wondering if you could just help us understand what the new IRR and return on investment thresholds are that you've shifted to.
spk14: Yeah, Arun, I think it's just, like I said in the last question, it's really we've made a meaningful impact to increase them. And that threshold is really what we're building our 2023 and subsequent year programs on. And so it's a substantial shift, you know, I'll tell you that. And, you know, I think you'll see from that slide on 11 that's demonstrated there that the productivity is getting higher and capital efficiency, therefore, will be better and our free cash flow generation will be better. So, you know, that's really been the focus of the team as we've, as I said before, not been satisfied with our 22 results. And we've made a dramatic shift to improve that.
spk02: Understood. It just may be a follow-up, Rich. You know, just looking at some of the historical data in the northern Midland Basin, you know, between 2017 and 2019, you know, Pioneer was completing about 85% of its wells in the Wolf Camp A and B intervals. That declined to, call it, the mid to upper 60s between 22 and 21. This year, in 22, you've done about 51% of your wells in the spray barrier and less than half in the Wolf Camp A and B. So is the plan on a go-forward basis to shift back to a higher mix of Wolf Camp A and B wells, you know, consistent with previous years? Or is it you're targeting new zones or new areas? Just trying to understand what shifts in early 2023 are.
spk14: I think it's more of a, you know, geographically where we're drilling. I think you're still going to see us. I mean, as you know, across the field, you know, some zones are more prolific than others. And so, you know, in general for the 23 program, I haven't looked at it, you know, specifically, but I think it's going to be, you know, probably in that, you know, I think it's going to be probably evenly split between spray beret and wolf camp zones for the most part. Okay. You know, maybe it's slightly weighted towards the wolf camp zones. as we look at that program, but it'll be area-specific, and we're going to maximize the returns by each zone in the different areas across the basin.
spk02: Great. Thanks a lot, Rich. Sure.
spk01: Moving on to Matt Portilou with TPH.
spk12: Good morning, all. Matt? Just a quick question around spacing design. You've had an extremely consistent spacing design on a horizontal perspective over the last couple of years, which has led to pretty consistent well results in the Wolf Camp in particular. I'm curious, as you've gone to full field development, are there any learnings on a vertical basis in how you guys think about vertical communication moving forward from a spacing design perspective?
spk14: Matt, we continue to learn like everybody as we go. But in general, I'd say our spacing really hasn't changed that much. I mean, it's still generally rule of thumb, 800 to 900 feet spacing on the wells. Here and there, it's different as we learn new things. But if you think broadly across our acreage position, it really hasn't changed over the last two or three years at all. So nothing big is how I'd characterize it.
spk12: Perfect. And just to follow up on the differentiation between zones, again, I know there's a lot of noise in the state data. The Wolf Camp results have generally been pretty consistent. It looks like the spray barrier may be a bit more volatility in the data set over the last few years. As you guys look forward into 2023 and that improvement in the overall development program, Is part of this just some high grading occurring in the zones you're focused on in the spray berry moving forward? And any color you can kind of give around just some variances we've seen in the spray berry data over the last couple of years?
spk14: Yeah, I think on the spray berry data, some of it will depend on whether they were full stack development or single targets or delayed targets. So you just get different data based on the vintage of when those wells were completed. you know, overall on our program, you know, the threshold, you know, applies on a kind of a per zone per well basis of how we set it up. So in areas where, you know, zones are less prolific, then we will drop those from the full stack development. And so it's really just a case of we'll continue to maximize value in how we select the wells across each of those pads in full stack. So it's you know, full economic analysis and, you know, kind of gives us the highest rate of return and the highest productivity that we're looking for.
spk12: Perfect. Thank you very much.
spk14: Sure.
spk01: Next we'll hear from Leo Marigliani with MKM.
spk15: Hey, guys. Just in terms of the 2022 program here, Just looking at kind of the data in terms of well pops to date, are we looking at kind of a pretty meaningful step down in the fourth quarter in terms of pops? It looks like even if you do see that step down, you'll kind of still be at the high end of the range, or do you think just based on how the program's going, sounds like you're still running, you know, 20-something rigs that maybe we'll get a few more pops than the guidance here in 22? Yeah.
spk14: No, Leo, I think you're right. I mean, the plan all along had us having less pops in the fourth quarter. So, you know, we're going to be, you know, roughly call it 25 pops less in the fourth quarter than we were in the third quarter just by the nature of the plan and just timing of how it's working out. So, you know, I wouldn't read anything other than that. It was planned and timing, and that's where the program shakes out for Q4 and laid out in our guidance.
spk15: Okay. Okay. That's helpful. And then just wanted to ask a little bit on oil cut. Just kind of looking at the guidance here for fourth quarter, you know, high level, looks like you are expecting maybe the oil cut to come down slightly in terms of where it was in 2Q and 3Q. Just wanted to get, you know, a little sense in terms of, you know, why the cut's kind of been coming down during the course of 2022. And then in 23, do you guys have kind of a rough estimate of what you think the oil cut might be? Do you see that maybe improving a little bit with kind of the high grading, you know, of the wells? Any color would be appreciated.
spk14: Yeah, sure. You're right. I mean, our general forecast has been in that 53%, 54% oil range. You know, I don't anticipate it changing. Much has come down over the years as we've, you know, just the GOR of these wells continues to grow. It hasn't changed our oil forecast at all, but the gas continues to come out of solutions, so that's just part of what we've been getting. But in general, I would think, as you think about 23 programs, it would be in that same 53-54% range.
spk15: Okay. Thanks, guys. Sure.
spk01: And next we'll hear from Neil Dingman with Truist Securities.
spk05: Morning, Donna. All in nice order. But first, just a quick one, guys, on just the continued development. Scott, I think last time you mentioned on the call tackling a couple of gas wells next year or targeting a couple of gas wells in Woodford, Barnett. Could you just say your thoughts on that? Obviously, gas continues to very well. And so I'm wondering, is that still the plan and sort of the rationale behind that?
spk14: Yeah, Neil, it's rich, but yeah, we still plan on testing a couple of wells in each of the Woodford and Barnett zones next year. That's, you know, part of what we're planning for. We expect, you know, those wells obviously to be, as they're deeper, to be gasier, and we're really, you know, we'll find resource there, and so really just what's the productivity of those wells, and given where gas prices, you know, are higher, Maybe lower at Wauha today, but where are we expecting to be longer term on the forward curve? We just want to understand what that resource is, and so we think it's worthwhile to spend some capital next year to test those zones, and then we'll see what the productivity looks like and go from there.
spk05: Makes sense. And then, Rich, why have you maybe just the follow-up is just what do you all think? I know you talked about the POPs going down a little bit. Ducks at the end of the year, will it just sort of be a normal level, or what could you comment on how many you would have? I didn't know if you'd think about having... a little bit more than normal because of the timing and, you know, might help a little bit in starting in 23?
spk14: Yeah, I don't think it'll be materially different than just our normal working capital of what I'd call ducks that are, you know, pads that are ahead of the frack fleet. So nothing that is going to be a big change from where it's been through most of the year. So it'll be business as usual is how I'd put it.
spk05: Okay, very good. Thank you all for the time.
spk14: Sure, thank you.
spk01: And next we'll hear from Bob Brackett with Bernstein Research.
spk07: Good morning. A question coming back to the relative underperformance of the delayed target strategy. Could that just simply be that the frack heights in the initial wells exceeded their target zones and you're getting some contributions from those delayed targets? What's the responsibility of that?
spk14: Yeah, Bob, I think there's definitely some level of communication, and so we've seen that as The reservoirs, we've come back and done those delayed wells, and so that's impacted the productivity some from those wells that we didn't anticipate. But at the end of the day, like I said earlier, the returns have been still very, very strong returns on those delayed wells, and there's still plenty of resource there. It's just we can get better returns by moving to the full stack in other locations.
spk07: That's clear. The other question would be, clearly your opportunistic share repurchases have been effectively retiring shares at a low price. How do I respond to the buy side that argues, well, Bob, you've got a $283 target price. Pioneer, who knows more about Pioneer than anyone, is buying in the 220s, so no thanks.
spk10: We run NAVs on all of our assets, and I think it's better. We're always going to buy a little bit each quarter. but I'd rather be stronger and try to buy the stock at a discount. So that's just the way we are. Okay.
spk13: Appreciate that. Bob, as a follow-up to that, look, in terms of the conversations that we've had with our shareholders and their desired method of return of capital, it's been primarily, as we've discussed, the base dividend combined with the variable dividend. That takes you to 80% of free cash flow. So the majority of the free cash flow is spoken for, And that being said, even over above that, we've been very opportunistic and not shy to deploy that capital incrementally to buy back shares. So we do step into the market and repurchase equity. It's just that the return to capital, as it's been communicated to us by our shareholders, there's been a preference for the base plus the variable. So that's a big part of that rationale, of course.
spk10: And you've got to look at the total stock. And you've got to look at the total stock return. You take our current – we paid out $26 today. So people, when you look at a total TSR, a lot of charts don't show that $26 payout. So you just got to think about that also, Bob.
spk07: Yep, very clear.
spk01: And moving on to Phillips Johnston with Capital One.
spk16: Hey, guys, thanks. Rich, just to follow up on Arun and Matt's questions, It sounds like there's clearly a geographic mix shift element to the new approach. And if I heard correctly, you aren't necessarily changing the mix of zones within any given area. So there's no real mix shift towards Wolf Camp and away from Stackberry. But it sounds like you are just going to sort of be more selective within a given section. Is that correct?
spk14: Yeah, I think just given our expansive acreage position that we'll move things around to maximize the return thresholds by the geographic area where we're in. So, yeah, as I mentioned, I think there's definitely, you know, we're going to go to locations and areas that have the highest rates of return, and, you know, that will move to a certain extent a little bit north.
spk16: Okay. So is that going to wind up, I guess, yielding fewer wells per section?
spk14: No, I don't think it's changing what we're – I mean, we're not changing, like I said earlier, the spacing on the wells. Anywhere, it's just going to those higher productivity areas that therefore has higher rates of return that we're targeting. But it's not really, like I said, it's not changing our depth of inventory or how long it's going to last. It's just what we're drilling today versus what we're drilling tomorrow. So we've just deferred some things that we had in the portfolio that we're going to push back in time and bring some things forward that have higher rates of return.
spk16: Yeah, okay. Thanks, Rich.
spk01: Then we have time for one final question. Janine Y. with Barclays.
spk09: Hi. Good morning, everyone. Thanks for taking our questions. Our first question is on the renewables update that you provided. Just wondering if you could give a little bit of commentary about any capital requirements that come with those projects and anything around maybe the economics or the cost of the electricity that you're going to be buying relative to what you would be paying if you didn't have these agreements?
spk14: Sure, Janine. In terms of capital, Nextera is developing the project on our surface location and on the Concho Valley one that's being developed by them. And so no capital from our side that's going to be invested in that. We are signing, as you mentioned, power purchase agreements to you know, take that power and, you know, based on where the forward curve on, you know, the electricity market looks like, you know, these are at favorable prices to that. So, you know, we're excited to get those projects on it and, you know, get the benefit of that power purchase agreement pricing. So they're good pricing is the way we look at it. And then on top of it, we get, you know, the renewable energy credits that come with that that can reduce our scope to emissions. So overall, we think it's, you know, two great projects and look forward to doing some more.
spk09: Okay, great. Thank you. And then as the second question, I apologize for going back to the full stack development topic and if I missed this in another question. But, you know, we love our fun with maps. And just wondering if you have a rough estimate of how much of Pioneer's overall acreage would qualify for more virgin stack development versus, you know, something that would be more impaired. Thank you.
spk14: Janine, I don't have a rough estimate. I mean, just given the size and scale of our footprint, I would say there's still a significant amount of virgin, but I don't have a percent that I could quote that I would just be guessing, and I don't want to do that. So we can probably find it, but I don't know that off the top of my head.
spk09: Okay. We thought we'd try. Thank you.
spk14: Thanks, Janine.
spk01: And that's all the time we have for questions today. We'll turn the conference back over to Scott Sheffield for any additional or closing remarks.
spk10: Again, thank you very much for participating, and everybody over the next couple months have a happy holidays and travel safely. Thank you.
spk01: And that does conclude today's conference. We thank you for your participation. You may now disconnect.
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