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spk11: Please stand by, we're about to begin. Good day everyone and welcome to Pioneer Natural Resources fourth quarter earnings 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 the slides presented in today's call is www.pxd.com. Navigate to the Investor tab found at the top of the webpage and then select Quarterly Results. Today's call is being recorded. A replay of the call will be archived on www.pxt.com through March 23, 2023. 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 protocol prospects of Pioneer are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from those 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 an 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.
spk16: Thank you, April. Good morning, everyone, and thank you for joining us for Pioneer's fourth quarter earnings call. Today, we will discuss the strong fourth quarter and full year 2022 results that Pioneer delivered, which resulted in a record 30% return on capital employed and a generation of over $8 billion in free cash flow. These results were underpinned by our world-class assets, our dedicated employees, and efficient operations. We're also excited to highlight our 2023 and the strong efficiencies the teams continue to deliver. We will then open up the call for your questions. With that, I will turn it over to Scott.
spk13: Thank you, Neil. Good morning. On today's call, we'll be discussing our fourth quarter and full year 22 results, as well as the outlook for 2023. Pioneer delivered strong results in 22, as seen through the many accomplishments on slide number three. During 22, Pioneer was the most active driller and largest oil producer in the state of Texas, achieved our fifth straight year of drilling and completion efficiency gains. Also, Pioneer delivered a record year on total production, also achieving a return on capital employed of 30%, a record. strengthening our fortress-like balance sheet, and remain disciplined with a reinvestment rate at approximately 30% of our cash flow. These strong results supported highly attractive free cash flow generation, of which we returned greater than 95% of free cash flow to shareholders through our 26% share in dividends and $1.65 billion in share repurchases. We plan to build on these strong 22 results and expect to deliver a compelling 23%. with nearly two months of strong execution already completed. We remain highly constructive on all prices. I'm still very optimistic that we'll move back into that $90 to $100 range sometime earlier this summer as we move in and get away from this $78 to $88 swing in Brent prices. Turning to slide four. During the fourth quarter, Pioneer generated $1.7 billion in free cash flow, bringing yearly free cash flow to $8.4 billion, of which we return approximately $8 billion through dividends and share repurchases throughout the year. For the fourth quarter, we are returning just over 100% of our free cash flow, comprised of our first quarter
spk15: just highlighted underpin our ability to return substantial capital to shareholders. As you can see from the chart, in 2022, Pioneer returned the highest percentage of free cash flow to investors compared to peers. This includes returning more than 95% of our free cash flow to shareholders through dividends and share repurchases. Our strong balance sheet, disciplined reinvestment rate, and compelling corporate returns enables our ability to return significant capital to shareholders. Turning to slide seven, Pioneer continues to offer a compelling dividend with one of the highest dividend yields in the S&P 500. Our first quarter dividend.
spk08: All participants are now unmuted. Please proceed.
spk15: Eleven percent, which as you can see from this slide, exceeds our energy peers, the majors, and every S&P 500 sector. Turning to slide eight, in addition to the strong dividend payout, we continue to see attractive value in repurchasing our shares. We believe trade is a significant discount to our intrinsic value. Demonstrating this commitment, during the fourth quarter, Pioneer repurchased $400 million of stock, further reducing shares outstanding, which benefits long-term share returns, and importantly, improves per share metrics. In addition to the fourth quarter share repurchases, we completed an additional $250 million of share repurchases during the first quarter of 23, under a 10b-5-1 plan, exhibiting our willingness to actively repurchase shares. In total, Pioneer has repurchased $1.9 billion in equity since the beginning of 2022, reducing shares outstanding by approximately 3.5%. With $2.1 billion remaining under our $4 billion authorization, we have additional opportunities to reduce our share count further in 2023. Turning to slide 9, we outline our 2023 capital program, which builds on our 2022 successes. The company plans to deliver 2023 full-year production ranging from 357,000 to 370,000 barrels of oil per day, and total production ranging from 670,000 to 700,000 BOEs per day. Consistent with my commentary last quarter, our drilling, completions, and facilities capital budget of $4.45 billion to $4.75 billion reflects approximately 10% inflation and two incremental rigs which help support our annual production growth targets. Our exploration, environmental, and other capital for the year is expected to range from $150 million to $200 million. As we discussed previously, key projects within this category includes exploration drilling of four wells targeting the Barnett and Woodford formations in the Midland Basin, as well as continued appraisal of our enhanced oil recovery project. We're looking forward to the Barnett-Woodford test as early results by some peers have shown some strong early oil rates. And we have, you know, a significant acreage position in several thousand locations related to Barnett and Woodford potential in the future. As the economic potential of these projects, both the exploration drilling and the EOR projects become more certain, those will be included in our future capital, so this is not expected to be recurring capital. Based on the midpoints of our capital and production ranges at strip pricing, we expect to generate greater than $4 billion of free cash flow in 2023 from approximately $9 billion of projected operating cash flow. Slide 10 provides some additional detail on our 2023 capital program. Throughout 2023, we expect to operate between 24 and 26 drilling rigs and place between 530 wells on production. This program is expected to deliver quarterly production growth throughout the year. Our 2023 drilling and completions activity is distributed across our large contiguous Midland Basin acreage with approximately three drilling rigs operating in our joint venture area. As I've discussed in the past, the contiguous nature of our acreage position provides multiple operational benefits, including drilling and completing 15,000-plus foot laterals, with greater than 100 of these expected to be placed on production in 2023. These longer lateral developments provide improved returns and higher productivity that I'll discuss further in a minute. We also benefit from the continued utilization of simulfrac operations, which reduces costs by about $200,000 per well and provides incremental operational efficiencies. Additionally, our significant water infrastructure provides diversified disposal and reuse network that spans across most of our acreage position. Turning to slide 11, as I just mentioned, our 15,000 plus foot lateral length developments deliver strong productivity and increased returns when compared to a 10,000 foot lateral well. Filling and completing these long laterals drive significant efficiency gains that reduce capital costs. The DNC savings of approximately 15% on a cost per lateral foot bases. The combination of these savings and strong productivity drive increased returns with IRRs increasing by more than 20 percentage points when compared to a 10,000 foot lateral. To date, we've identified more than 1,000 locations for long lateral development and expect more than 100 of these wells to be placed on production in 2023. Turning to slide 12. And looking at the chart on the left, you can see that Pioneer's multi-year track record of peer-leading completion efficiencies continued during 2022. In addition to our execution team's great efforts, the implementation of SimulFrac completions is a major contributor to our efficiency improvements and cost savings over the last couple of years. We continue to build on that success with the deployment of a third full-time SimulFrac fleet earlier this quarter. Additionally, during the first half of 2023, Pioneer will utilize two localized sand mines to provide sand to our wells. The use of local sands is expected to deliver average cost savings of approximately $200,000 per well, principally due to reduced trucking costs as a result of the mine's close proximity to our wells. Consistent with our commitment to sustainable operation, Pioneer expects 100% of our completion fleets to be either electric or dual-fuel powered by the second half of 2023. Turning to slide 13, our 2023 development plan remains highly competitive and is underpinned by our best in class assets and highly efficient operations. This combination results in 2023 corporate maintenance break even WTI oil price of $39 a barrel, which includes the impacts of the 10% inflation that I talked about earlier and estimated cash taxes that are forecasted to be in that mid to high teens of book income for the year. Including our base dividend, our maintenance program is fully funded at $47 WTI, which demonstrates the resilience and durability of our program through cycles. At strip pricing, after funding our 2023 program, we expect to generate substantial free cash flow, the majority of which we plan to return to shareholders through dividends and share repurchases. On slide 14, you can see on the left that Pioneer has the deepest inventory of high-quality Permian drilling locations when compared to peers. This third-party analysis substantiates Pioneer independent oil and gas operator with decades of high-quality inventory in the core of the Midland Basin. As seen on the right, Pioneer's Midland Basin acreage is highly contiguous, which is a key driver to the efficiencies that I highlighted earlier. So with that, I'll turn it over to Neil.
spk16: Thank you, Rich. Turning your attention to slide 15, the graph on the left builds on our peer-leading inventory depth that Rich noted on the previous slide and highlights the compelling combination of this unmatched inventory depth with our ability to generate the highest free cash flow per BOE. Our attractive free cash flow generation sustained through our deep inventory provides a durable investment through cycle. Turning to slide 16. Pioneer's peer-leading free cash flow per BOE from the previous slide is supported by our best-in-class margins. These robust margins are generated through our top-tier price realizations, oil hedges, and low operating costs, inclusive of G&A and interest expense. Additionally, our comprehensive infrastructure, highly diversified marketing strategy, and efficient operations underpin and contribute to these strong results. On slide 17, It illustrates the compelling free cash flow generation and durability of our program through cycle, which is the product of our world-class assets, oil growth, and our highly efficient operations. This free cash flow provides ample opportunity to return significant capital to our shareholders through dividends and share repurchases at various oil prices, and is sustained by our low corporate break-even that Rich discussed earlier. Now, turning to slide 18. At current strip prices, we expect to deliver an attractive ROCE exceeding all sectors within the S&P 500 of the majors and the overall energy sector. Additionally, Pioneer continues to offer a discounted valuation despite generating this high ROCE when compared to the S&P 500. In summary, we believe our leading corporate return profile paired with our inexpensive valuation results in a compelling investment opportunity. And with that, I'll hand it back to Rich. Thanks, Neil.
spk15: As you can see on slide 19, we've continued to our commitment to sustainable operations in 2022. You can see we joined OGMP 2.0, as Scott talked about earlier, partnered with NextEra Energy to develop 140 megawatt wind generation project that should be online in 2024. And additionally, during the fourth quarter, we published our 2022 Climate Risk Report, which accompanies our previously published 2022 Sustainability Report. Both reports highlight Pioneer's focus and significant progress on ESG initiatives and their impacts on our business. We believe these actions demonstrate our commitment and focus on ESG and further strengthens Pioneer's position as a leader in the industry. You can find both our Sustainability Report and our Climate Risk Report on our website. Turning to slide 20, Pioneer continues to provide low-emissions barrels to the market, producing some of the most sustainable barrels in the world, behind only Norway on a CO2 intensity basis, as you can see from the chart. When combined with our low break-even oil price, Pioneer provides exceptionally resilient production that we expect will have a place in the global market for decades to come. Lastly, concluding on slide 21, You can see the Pioneer's key characteristics on the slide there that support our commitment to creating significant value for our shareholders. And so with that, I'll open up the call for questions.
spk11: Thank you. If you would like to ask a question, simply press the star key followed by the digit 1 on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star 1 at this time. We'll pause for a moment. And we'll first hear from Doug Leggett of Bank of America.
spk08: And Doug, your line is open. Hello, can you hear me?
spk07: Yes.
spk03: Hello, can you hear me?
spk12: Yeah, Doug, go ahead.
spk03: I've got two questions here. So the very first one is just on the spending budget for the year. So you guys have a very deep set of inventory and locations that's in the industry, but you are spending $200 million on exploration. Can you dive into some of the details of what you're planning to spend on this year and why you feel the need to spend on exploration this year?
spk15: Sure. Yeah, I think if we look at, as I talked about, we've got several thousand locations under our existing footprint in the Midland Basin. And we think it's important with four wells to really understand what that productivity is going to look like, what the economics are going to look like, and how it would compete for capital with the rest of our portfolio. So we think it's money well spent just to understand that this year as part of our ongoing operations. And so we've seen, as I mentioned on the comments, some good results from peers. So we're excited to see what those results look like. They're going to be in the second half of the year, but that's why we're focused on spending on it. And then the other one I'd just add is our enhanced oil recovery project. We've talked about that in prior quarters. We had a positive test in 2022, and we wanted to do some more cycles on that and see what uplift we can get in 2023 from those projects as well. So hopefully that helps.
spk03: The second question is just on deferred tax. Obviously, there was a benefit here in the fourth quarter, and it looks like that benefit continues to show up here in the first quarter, given guidance. Can you talk about the trajectory of cash tax as you see it playing out there, the balance at 23?
spk16: Hey, good morning. It's Neil Shaw. Again, our taxable income, you know, it's dependent on oil prices. But at current prices, as Rich said earlier, our effective cash tax rate relative to book income is going to be in that mid to high teens range. throughout the year. So first quarter cash taxes are a little bit lower than that range as a result of us using the safe harbor provision for a cash tax payment in the first quarter. But you'll see going forward Q2, Q3, and Q4 that it's going to moderate back to that mid to high teens on a go-forward basis.
spk03: That's great. I appreciate the answers.
spk07: Thank you.
spk11: Next we hear from Neil Mehta of Goldman Sachs.
spk04: Yeah, good morning, team. Thanks for taking our question. The first is there's been a lot of focus on well productivity, and you talked a lot about this last meeting providing an outlook for 2023 to 2027 and the improvements that you anticipate. So I'd just love to hear where we are in that journey, talk about on the ground what changes have been made to execute against that plan, and when do you see it really manifesting itself in 2023 numbers?
spk15: Sure, Neil. I appreciate that. And good morning. So I would say, you know, our 2023 program is off to really a great start. And we expect to deliver a much more productive program this year and really in future years, given the depth of our inventory going forward. So, you know, we look forward to reporting on the progress of that. But, you know, I'd say that we made those changes in the fall. You know, you're going to see a little limited activity, you know, in the second quarter. But then, you know, second half of the year, you'll see the benefits of those, you know, well-called changes, but it was really just emphasizing full-stack development across the basin.
spk04: It's all going according to plan. That's helpful, and we'll keep our eyes open for it. The follow-up was just around capital this quarter. We saw a bigger payout than what most of us model. Just talk about how you're thinking about a normalized dividend payout, and then as it relates to buybacks, will you continue to take a more counter-cyclical approach when shares have sold off? Thank you.
spk13: Yeah, thanks, Neal. Scott, we'll continue, as I've said on past calls, to visit with our shareholder base annually to solicit their thoughts and feedback. We're committed to returning significant capital to shareholders and see the benefits of both dividends and buybacks going forward. So we'll continue more of the same as you've seen us.
spk08: And was there anything further? Next, we'll hear from John Freeman of Raymond James. Good morning, guys.
spk07: John.
spk14: The first question, it's good to see that in the second half of the year, the completion fleets will all be electric or dual-fuel powered. Is the plan still to be 100% electric by 2024? I think you all need to install three electric substations, just sort of an update maybe on that timeline.
spk15: Yeah, I wouldn't say it's by 2024. I mean, I think we're moving that way, but it's probably more 2025 when you get to – most of our activity will be electrified it's just you know depends on the the build out of that but it's all progressing it as you know just takes time working with the transmission facilities and providers to to get that done but you know that's part of that 150 to 200 million is also you know to help allow us to be in a position to have the field electrified when that power is available to us so it's all moving forward as we would have expected and you know really probably a bigger focus in 25 than but there'll be some in 24.
spk14: Great. And then just my follow-up question, you know, in the budget, y'all said you're kind of assuming a 10% cost inflation. At the time of y'all's last earnings call, I believe y'all said that about somewhere around 35%, 40% of your services this year were under fixed price contracts versus kind of floating rate or spot. Can you sort of give an update as we stand today, like just how much of your contracts are fixed versus floating or spot?
spk15: Yeah, I'd say that 100% of our activity is contracted at this point, and then 55% to 60% is what I'd say is pretty well fixed at this point, and the rest is really just subject to what I'd call WTI prices that are linked to that or steel prices that are linked to those things. And so most of it is tied to commodities, which is what's going to drive the most of the rest of it. It would fluctuate some labor, but those are the main things that are still out there that will fluctuate.
spk08: Great. Thanks, Rich. Appreciate it. Sure. As a reminder, Star 1, if you would like to ask a question or make a comment.
spk11: Next, we'll hear from Scott Gruber of Citigroup.
spk08: Yes. Good morning. Good morning, Scott. Yes, Scott.
spk05: Kind of a clarification question here on the budget for this year and in comparison to the maintenance capital you guys cite on slide 13 of $3.9 billion. I think that's just the DNC portion, but it is about $700 million or so below the midpoint of the DNC budget for this year. And you guys talked about running two more rigs this year. Just looks like that $700 million gap is bigger than two rigs, maybe closer to four rigs, but I'm sure I'm missing some pieces. Can you guys just help kind of bridge the gap between the maintenance capital 3.9 and the DNC budget for this year?
spk15: Yeah, I really think about, as we talked about, the two rigs being roughly $200 million apiece, so that's $400 million of the delta you're looking there, and that's really just a matter of you know, timing of how activity comes, ebbs and flows in there. And then the fact that, you know, some of our capital program, you know, even for this year, that was towards the end of this year, would have generated growth into 2023. And so really, Scott, that's really the delta difference is just that timing of things that happen between years to drive that difference. So there's nothing magical about it. It's just, you know, just how the math works out and timing. Okay.
spk08: Okay, I appreciate that. That was all. Thank you. Sure. And next we'll hear from Neil Dingman of Truist.
spk06: Good morning, everyone.
spk02: My first question is with respect to the NextEra Energy and the 140 megawatts Texas wind project. Can you elaborate a bit more on what are the steps, I guess, in terms of identifying the general contractor And again, get to the construction start the second part two is just learn a bit more about the potential expansion on this one on this wind project.
spk15: Yeah, Neil. So maybe a couple things, you know, one, the construction starting this year and what the idea of being in service in 2024 NextEra is one that are constructing it. They're the owner of the project, and we will be taking the electricity that's generated from the project and using it in our operations, in our gas plant operations with Targa. And then in terms of future, we still have three other large ranches out there that we'll look for other renewable projects in the future on. And so we still have a lot of potential to add incremental renewable projects that we could use that electricity in our operations over the course of time. So we're not stopping here. Continue to progress it. It's just going to take some time.
spk02: Good stuff there. As a follow-up question, I was curious in stacking up all these projects, whether it's the wind, I was also curious around carbon capture and sequestration, how is how is carbon capture stacking up relative to the other projects that you have? Thanks.
spk15: You know, I'd say our bigger focus today is on, as I talked earlier, about electrifying the field and really moving more of our operations to the grid. So I think that's the biggest, you know, emissions thing we can do first. I mean, I think we're assessing carbon capture in it over time, but, you know, and sequestration. But for the most part today, our focus is on really getting more of our operations electrified.
spk02: Sounds great there. Thanks very much.
spk11: Sure. And it appears there are no further questions at this time. I will turn the call back over to Scott Sheffield for any additional or closing comments.
spk13: Again, thank you very much for listening on this call. Look forward to visiting with everybody on the May call. Thank you.
spk11: That does conclude today's call. Thank you all for your participation. You may now disconnect. Thank you. you Thank you. Bye. Thank you. music music Good day, everyone, and welcome to Pioneer Natural Resources Fourth Quarter Earnings 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 presentation slides to supplement comments made today. These slides are available on the internet at www.pxd.com. Again, the internet website to access the slides presented in today's call is www.pxd.com. Navigate to the Investor tab found at the top of the webpage and then select Quarterly Results. Today's call is being recorded. A replay of the call will be archived on www.pxd.com through March 23rd. 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 those 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.
spk16: Thank you, April. Good morning, everyone, and thank you for joining us for Pioneer's fourth quarter earnings call. Today, we will discuss the strong fourth quarter and full year 2022 results that Pioneer delivered, which resulted in the record 30% return on capital employed and the generation of over $8 billion in free cash flow. These results were underpinned by our world-class assets, our dedicated employees, and efficient operations. We're also excited to highlight our 2023 and the strong efficiencies the teams continue to deliver. We will then open up the call for your questions. With that, I will turn it over to Scott.
spk13: Thank you, Neil. Good morning. On today's call, we'll be discussing our fourth quarter and full year 22 results, as well as the outlook for 2023. Pioneer delivered strong results in 22, as seen through the many accomplishments on slide number three. During 22, Pioneer was the most active driller and largest oil producer in the state of Texas, achieved our fifth straight year of drilling and completion efficiency gains. Also, Pioneer delivered a record year on total production, also achieving a return on capital employed of 30%, a record, strengthening our fortress-like balance sheet, and remained disciplined with a reinvestment rate at approximately 30% of our cash flow. The strong results... supportive, highly attractive free cash flow generation in which we return greater than 95% of free cash flow to shareholders through our 26-year share in dividends and $1.65 billion in share repurchases. We plan to build on these strong 22 results and expect to deliver a compelling 23, with nearly two months of strong execution already completed. We remain highly constructive on all prices. I'm still very optimistic that we'll moved back into that $90 to $100 range sometime earlier this summer as we move and get away from this $78 to $88 swing in brand prices. Turning to slide four, during the fourth quarter, Pioneer generated $1.7 billion in free cash flow, bringing yearly free cash flow to $8.4 billion, of which we return approximately $8 billion through dividends and share repurchases throughout the year. For the fourth quarter, we are returning just over 100% of our free cash flow, comprised of our first quarter revenues.
spk15: just highlighted underpin our ability to return substantial capital to shareholders. As you can see from the chart, in 2022, Pioneer returned the highest percentage of free cash flow to investors compared to peers. This includes returning more than 95% of our free cash flow to shareholders through dividends and share repurchases. Our strong balance sheet, disciplined reinvestment rate, and compelling corporate returns enables our ability to return significant capital to shareholders. Turning to slide seven, Pioneer continues to offer a compelling dividend with one of the highest dividend yields in the S&P 500. Our first quarter dividend.
spk08: All participants are now unmuted. Please proceed.
spk15: Eleven percent, which as you can see from this slide, exceeds our energy peers, the majors in every S&P 500 sector. Turning to slide eight, in addition to the strong dividend payout, we continue to see attractive value in repurchasing our shares. We believe trade is a significant discount to our intrinsic value. Demonstrating this commitment, during the fourth quarter, Pioneer repurchased $400 million of stock, further reducing shares outstanding, which benefits long-term share returns and importantly, improves per share metrics. In addition to the fourth quarter share repurchases, we completed an additional $250 million of share repurchases during the first quarter of 23, under a 10 plan, exhibiting our willingness to actively repurchase shares. In total, Pioneer has repurchased $1.9 billion in equity since the beginning of 2022, reducing shares outstanding by approximately 3.5%. With $2.1 billion remaining under our $4 billion authorization, we have additional opportunities to reduce our share count further in 2023. Turning to slide 9, we outline our 2023 capital program, which builds on our 2022 successes. The company plans to deliver 2023 full-year production ranging from 357,000 to 370,000 barrels of oil per day, and total production ranging from 670,000 to 700,000 BOEs per day. Consistent with my commentary last quarter, our drilling, completions, and facilities capital budget of $4.45 billion to $4.75 billion reflects approximately 10% inflation and two incremental rigs which help support our annual production growth targets. Our exploration, environmental, and other capital for the year is expected to range from $150 million to $200 million. As we discussed previously, key projects within this category includes exploration drilling of four wells targeting the Barnett and Woodford formations in the Midland Basin, as well as continued appraisal of our enhanced oil recovery project. We're looking forward to the Barnett-Woodford test as early results by some peers have shown some strong early oil rates, and we have a significant acreage position in several thousand locations related to Barnett and Woodford potential in the future. As the economic potential of these projects, both the exploration drilling and the EOR projects become more certain, those will be included in our future capital, so this is not expected to be recurring capital. Based on the midpoints of our capital and production ranges at strip pricing, we expect to generate greater than $4 billion of free cash flow in 2023 from approximately $9 billion of projected operating cash flow. Slide 10 provides some additional detail on our 2023 capital program. Throughout 2023, we expect to operate between 24 and 26 drilling rigs and place between 5 and 530 wells on production. This program is expected to deliver quarterly production growth throughout the year. Our 2023 drilling and completions activity is distributed across our large contiguous Midland Basin acreage with approximately three drilling rigs operating in our joint venture area. As I've discussed in the past, the contiguous nature of our acreage position provides multiple operational benefits including drilling and completing 15,000-plus foot laterals, with greater than 100 of these expected to be placed on production in 2023. These longer lateral developments provide improved returns and higher productivity that I'll discuss further in a minute. We also benefit from the continued utilization of simulfrac operations, which reduces costs by about $200,000 per well and provides incremental operational efficiencies. Additionally, our significant water infrastructure provides diversified disposal and reuse network that spans across most of our acreage positions. Turning to slide 11, as I just mentioned, our 15,000 plus foot lateral link developments deliver strong productivity and increased returns when compared to a 10,000 foot lateral well. Drilling and completing these long laterals drive significant efficiency gains that reduce capital costs. The DNC savings of approximately 15% on a cost per lateral foot bases. The combination of these savings and strong productivity drive increased returns with IRRs increasing by more than 20 percentage points when compared to a 10,000 foot lateral. To date, we've identified more than 1,000 locations for long lateral development and expect more than 100 of these wells to be placed on production in 2023. Turning to slide 12. And looking at the chart on the left, you can see that Pioneer's multi-year track record of peer-leading completion efficiencies continued during 2022. In addition to our execution team's great efforts, the implementation of SimulFrac completions is a major contributor to our efficiency improvements and cost savings over the last couple of years. We continue to build on that success with the deployment of a third full-time SimulFrac fleet earlier this quarter. Additionally, During the first half of 2023, Pioneer will utilize two localized sand mines to provide sand to our wells. The use of local sand is expected to deliver average cost savings of approximately $200,000 per well, principally due to reduced trucking costs as a result of the mine's close proximity to our wells. Consistent with our commitment to sustainable operation, Pioneer expects 100% of our completion fleets to be either electric or dual-fuel powered by the second half of 2023. Turning to slide 13, our 2023 development plan remains highly competitive and is underpinned by our best in class assets and highly efficient operations. This combination results in 2023 corporate maintenance break even WTI oil price of $39 a barrel, which includes the impacts of the 10% inflation that I talked about earlier and estimated cash taxes that are forecasted to be in that mid to high teens of book income for the year. Including our base dividend, our maintenance program is fully funded at $47 WTI, which demonstrates the resilience and durability of our program through cycles. At strip pricing, after funding our 2023 program, we expect to generate substantial free cash flow, the majority of which we plan to return to shareholders through dividends and share repurchases. On slide 14, you can see on the left that Pioneer has the deepest inventory of high-quality Permian drilling locations when compared to peers. This third-party analysis substantiates Pioneer independent oil and gas operator with decades of high-quality inventory in the core of the Midland Basin. As seen on the right, Pioneer's Midland Basin acreage is highly contiguous, which is a key driver to the efficiencies that I highlighted earlier. So with that, I'll turn it over to Neil.
spk16: Thank you, Rich. Turning your attention to slide 15, the graph on the left builds on our peer-leading inventory depth that Rich noted on the previous slide and highlights the compelling combination of this unmatched inventory depth with our ability to generate the highest free cash flow per BOE. Our attractive free cash flow generation sustained through our deep inventory provides a durable investment through cycle. Turning to slide 16. Pioneer's peer-leading free cash flow per BOE from the previous slide is supported by our best-in-class margins. These robust margins are generated through our top-tier price realizations, oil hedges, and low operating costs, inclusive of G&A and interest expense. Additionally, our comprehensive infrastructure, highly diversified marketing strategy, and efficient operations underpin and contribute to these strong results. On slide 17, It illustrates the compelling free cash flow generation and durability of our program through cycle, which is the product of our world-class assets, oil growth, and our highly efficient operations. This free cash flow provides ample opportunity to return significant capital to our shareholders through dividends and share repurchases at various oil prices, and is sustained by our low corporate break-even that Rich discussed earlier. Now, turning to slide 18. At current strip prices, we expect to deliver an attractive ROCE exceeding all sectors within the S&P 500 of the majors and the overall energy sector. Additionally, Pioneer continues to offer a discounted valuation despite generating this high ROCE when compared to the S&P 500. In summary, we believe our leading corporate return profile paired with our inexpensive valuation
spk15: results in a compelling investment opportunity and with that i'll hand it back to rich thanks neil as you can see on slide 19 we've continued to our commitment to sustainable operations in 2022 you can see we joined ogmp 2.0 as scott talked about earlier partnered with nextera energy to develop 140 megawatt wind generation project that should be online in 2024 And additionally, during the fourth quarter, we published our 2022 Climate Risk Report, which accompanies our previously published 2022 Sustainability Report. Both reports highlight Pioneer's focus and significant progress on ESG initiatives and their impacts on our business. We believe these actions demonstrate our commitment and focus on ESG and further strengthens Pioneer's position as a leader in the industry. You can find both our Sustainability Report and our Climate Risk Report on our website. Turning to slide 20, Pioneer continues to provide low-emissions barrels to the market, producing some of the most sustainable barrels in the world, behind only Norway on a CO2 intensity basis, as you can see from the chart. When combined with our low break-even oil price, Pioneer provides exceptionally resilient production that we expect will have a place in the global market for decades to come. Lastly, concluding on slide 21, You can see the Pioneer's key characteristics on the slide there that support our commitment to creating significant value for our shareholders. And so with that, I'll open up the call for questions.
spk11: Thank you. If you would like to ask a question, simply press the star key followed by the digit one on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one at this time. We'll pause for a moment. And we'll first hear from Doug Leggett of Bank of America.
spk08: And Doug, your line is open. Hello, can you hear me?
spk03: Yes. Hello, can you hear me? Yeah, Doug, go ahead. I've got two questions here. So the very first one is just on the spending budget for the year. So you guys have a very deep set of inventory and locations that's in the industry, but you are spending $200 million on expiration. Can you dive into some of the details of what you're planning to spend on this year and why you feel the need to spend on expiration this year?
spk15: Sure. Yeah, I think if we look at, as I talked about, we've got several thousand locations under our existing footprint in the Midland Basin. And we think it's important with four wells to really understand what that productivity is going to look like, what the economics are going to look like, and how it would compete for capital with the rest of our portfolio. So we think it's money well spent just to understand that this year as part of our ongoing operations. And so we've seen, as I mentioned on the comments, some good results from peers. so far. So we're excited to see what those results look like. They're going to be in the second half of the year, but that's why we're focused on spending on it. And then the other one I'd just add is our enhanced oil recovery project. We've talked about that in prior quarters. We had a positive test in 2022, and we wanted to do some more cycles on that and see what uplift we can get in 2023 from those projects as well. So hopefully that helps.
spk03: The second question is just on deferred tax. Obviously, there was a benefit here in the fourth quarter, and it looks like that benefit continues to show up here in the first quarter, given guidance. Can you talk about the trajectory of cash tax as you see it playing out there to balance at 23?
spk16: Hey, good morning. It's Neil Shaw. Again, our taxable income, you know, it's dependent on oil prices, but at current prices, as Rich said earlier, our effective cash tax rate relative to book income is going to be in that mid to high teens range. throughout the year. So first quarter cash taxes are a little bit lower than that range as a result of us using the safe harbor provision for a cash tax payment in the first quarter. But you'll see going forward Q2, Q3, and Q4 that it's going to moderate back to that mid to high teens on a go-forward basis.
spk03: That's great.
spk08: I appreciate the answers.
spk07: Thank you.
spk11: Next we'll hear from Neil Mehta of Goldman Sachs?
spk04: Yeah, good morning, team. Thanks for taking our question. The first is there's been a lot of focus on well productivity. And you talked a lot about this last meeting providing an outlook for 2023 to 2027 and the improvements that you anticipate. So I'd just love to hear where we are in that journey, talk about on the ground what changes have been made to execute against that plan, and when do you see it really manifesting itself in 2023 numbers?
spk15: Sure, Neil. I appreciate that. And good morning. So I would say, you know, our 2023 program is off to really a great start. And we expect to deliver a much more productive program this year and really in future years, given the depth of our inventory going forward. So, you know, we look forward to reporting on the progress of that. But, you know, I'd say that we made those changes in the fall. You're going to see a little limited activity, you know, in the second quarter. But then, you know, second half of the year, you'll see the benefits of those, you know, well called changes, but it was really just emphasizing full stack development across the basin.
spk04: It's all going according to plan. That's helpful, and we'll keep our eyes open for it. The follow-up was just around capital this quarter. We saw a bigger payout than what most of us model. Just talk about how you're thinking about a normalized dividend payout, and then as it relates to buybacks, will you continue to take a more counter-cyclical approach when shares have sold off? Thank you.
spk13: Yeah, thanks, Neal. Scott, we'll continue, as I've said on past calls, to visit with our shareholder base annually to solicit their thoughts and feedback. We're committed to returning significant capital to shareholders and see the benefits of both dividends and buybacks going forward. So we'll continue more of the same as you've seen us.
spk08: And was there anything further? Next, we'll hear from John Freeman of Raymond James. Good morning, guys. John.
spk14: The first question, it's good to see that in the second half of the year, the completion fleets will all be electric or dual-fuel powered. Is the plan still to be 100% electric by 2024? I think you all need to install three electric substations, just sort of an update maybe on that timeline.
spk15: Yeah, I wouldn't say it's by 2024. I mean, I think we're moving that way, but it's probably more 2025 when you get to – Most of our activity will be electrified. It's just, you know, it depends on the buildup of that. But it's all progressing. As you know, it just takes time working with the transmission facilities and providers to get that done. But, you know, that's part of that $150 to $200 million is also, you know, to help allow us to be in a position to have the field electrified when that power is available to us. So it's all moving forward as we would have expected and, you know, really probably a bigger focus in 2025, but there will be some in 2024.
spk14: Great. And then just my follow-up question, you know, in the budget, y'all said you're kind of assuming a 10% cost inflation. At the time of y'all's last earnings call, I believe y'all said that about somewhere around 35%, 40% of your services this year were under fixed price contracts versus kind of floating rate or spot. Can you sort of give an update as we stand today, like just how much of your contracts are fixed versus floating or spot?
spk15: Yeah, I'd say that 100% of our activity is contracted at this point, and then 55% to 60% is what I'd say is pretty well fixed at this point, and the rest is really just subject to what I'd call WTI prices that are linked to that or steel prices that are linked to those things. And so most of it is tied to commodities, which is what's going to drive most of the rest of it. It would fluctuate some labor, but those are the main things that are still out there that will fluctuate
spk14: Great.
spk08: Thanks, Rich. Appreciate it. Sure. As a reminder, Star 1, if you would like to ask a question or make a comment. Next, we'll hear from Scott Gruber of Citigroup. Yes. Good morning. Good morning, Scott. Yes, Scott.
spk05: Kind of a clarification question here on the budget for this year and in comparison to the maintenance capital you guys cite on slide 13 of $3.9 billion. I think that's just the DNC portion, but it is about $700 million or so below the midpoint of the DNC budget for this year. And you guys talked about running two more rigs this year. Just looks like that $700 million gap is bigger than two rigs, maybe closer to four rigs, but I'm sure I'm missing some pieces. Can you guys just help kind of bridge the gap between the maintenance capital, 3.9, and the DNC budget for this year?
spk15: Yeah, I really think about, as we talked about, the two rigs being roughly $200 million apiece, so that's $400 million of the delta you're looking at, and that's really just a matter of you know, timing of how activity comes, ebbs and flows in there. And then the fact that, you know, some of our capital program, you know, even for this year, that was towards the end of this year, would have generated growth into 2023. And so really, Scott, that's really the delta difference is just that timing of things that happen between years to drive that difference. So there's nothing magical about it. It's just, you know, just how the math works out and timing. Okay.
spk08: Okay, I appreciate that. That was all. Thank you. Sure. And next we'll hear from Neil Dingman of Truist.
spk06: Good morning, everyone.
spk02: My first question is with respect to the NextEra Energy and the 140 megawatts Texas wind project. Can you elaborate a bit more on what are the steps, I guess, in terms of identifying the general contractor And again, get to the construction start the second part two is just learn a bit more about the potential expansion on this one on this one project.
spk15: Yeah. So maybe a couple things, you know, one, the construction starting this year and with the idea of being in service in 2024 NextEra is one that are constructing it. They're the owner of the project, and we will be taking the electricity that's generated from the project and using it in our operations, in our gas plant operations with Targa. And then in terms of future, we still have three other large ranches out there that we'll look for other renewable projects in the future on. And so we still have a lot of potential to add incremental renewable projects that we could use that electricity in our operations over the course of time. So we're not stopping here. Continue to progress it. It's just going to take some time.
spk02: Good stuff there. As a follow-up question, I was curious in stacking up all these projects, whether it's the wind, I was also curious around carbon capture and sequestration, how is how is carbon capture stacking up relative to the other projects that you have? Thanks.
spk15: You know, I'd say our bigger focus today is on, as I talked earlier, about electrifying the field and really moving more of our operations to the grid. So I think that's the biggest, you know, emissions thing we can do first. I mean, I think we're assessing carbon capture in it over time, but, you know, and sequestration. But for the most part today, our focus is on really getting more of our operations electrified.
spk02: Sounds great there. Thanks very much.
spk11: Sure. And it appears there are no further questions at this time. I will turn the call back over to Scott Sheffield for any additional or closing comments.
spk13: Again, thank you very much for listening on this call. Look forward to visiting with everybody on the May call. Thank you.
spk11: That does conclude today's call. Thank you all for your participation. You may now disconnect.
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