Q1 2021 Pioneer Natural Resources Co Earnings Call
Welcome to pioneer natural resources first quarter conference call joining us today will be Scott, Sheffield Chief Executive Officer, Rich Daly, President and Chief Operating Officer, Joey Hall, Executive Vice President of operations, and Neal Shah Senior Vice President and Chief Financial Officer.
Pioneer has prepared powerpoint slides to supplement or complement our comments today.
Slides can be accessed over the internet at Www Dot PX day Dot com again, the internet site to access the slides related to today's call is www dot <unk> dot com.
The website select investors then select earnings webcast.
This call is being recorded a replay of the call will be archived on the Internet site through June 1st and 2021 day.
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.
Statements and the business prospects of pioneer are subject to a number of risks and uncertainties that may cause actual results and future periods to differ material materially from the forward looking statements. These.
These risks and uncertainties are described and 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.
At this time for opening remarks, I would like to turn the call over to Pioneer's Senior Vice President and Chief Financial Officer Neal Shah. Please go ahead Sir.
Thank you Nick good morning, everyone and thank you for joining us.
Today, we will be discussing our strong first quarter results and the highly accretive acquisition of double point energy that leads to a stronger outlook with significant free cash flow generation.
And will also detail the high level of execution, our teams continue to deliver and the top tier ESG standards to which we and here and.
After that we will open up the call for your questions with that I'll turn it over to Scott.
Thank you Neal good morning.
Slide number three.
Pioneer delivered a very strong first quarter generating free cash flow and approximately $370 million when adjusted for partially acquisition cost.
You can see that we increased our 21 estimated free cash flow up to about $2 7 billion. That's at strip pricing, which includes a contribution and a very accretive acquisition, a double point and obviously higher commodity prices and the strip continues to move up.
You can see the magnitude of the synergies $525 million.
Which will improve our free cash flow generation.
Which will be highlighted on a subsequent slide and again, we will remain focused on environmental stewardship and minimize flaring through our operations and lastly, you can see now with double point, we're the largest producer and the Permian that brings lower cost of capital of economies of scale shared facilities and infrastructure and going into 2000 and.
The company will be over 700000 barrels of oil equivalents per day are.
Just in the Permian Basin and 2022.
Going to slide number four.
I think the key point here solid execution.
From all levels of operation and our field drive strong first quarter results.
And again the outperformance there.
We exceeded the top end of guidance oil production was due to.
Our field staff, bringing our production back online sooner.
And the wake of the winter storm and also the outperformance of new wells.
Going to slide number five.
And as Neal mentioned, we closed yesterday on our.
Double point acquisition.
Approximately 100000 acres right and the heart core the core of the Midland Basin.
And this will take our Midland based on up to over 900000 net acres.
Transaction generates double digit free cash flow and accretion per share, enabling increased variable dividends over the next several years.
Now with the contingent contiguous acreage and the operational synergies.
Just to give your ideal how dominant we are in the Midland base, and we'll have 25 per cent of the base and rig count and 25% and the basin Frac fleet rig count again allows for continued synergies drilling longer laterals.
And which Richard will talk about later.
Our production exceeded as discussed in our press release production, but double point exceeded 92000 barrels of oil equivalent per day. This week, which is way ahead of schedule.
As we're moving forward to averaging over about 100000 barrels of oil equivalent per day, the last six months of 2021.
Going to slide number six.
Long term investment thesis.
And you look at the strip last year, I mean of the strip over the next several years as it continues to move up and look at our model of growing oil production and five per cent per year over the next several years.
And by reimbursement rate will actually be below we say 50 to 60 here and will actually be below 50%.
Generate strong corporate returns double digit returns will continue to reduce our leverage at day, one today with them.
And you to reduce it below set 0.7, and five next year and continue to drive it down to a very very low level.
We remain committed to our really our key thesis and returning most of our capital back to the shareholders. So we're targeting a 10% total return we'll talk more about that later.
Going to slide number seven and compelling free cash flow generation.
We're showing now with double point energy on top and AR and.
And our brighter darker blue color, adding about $5 billion of free cash flow over the next.
Several years 2026, and increasing our total.
Free cash flow at the company with the strip and this is a strip of few days ago. So the number continues to move up with the strip moving up.
Generating 23 billion of free cash flow.
As we have already stated approximately.
This actually represents 50% of our current enterprise value that 'twenty total enterprise value, including market GAAP plus debt.
The addition of double point and there's a 25 per cent increase on top of our free cash flow is taking the five over the $23 billion 5 billion or 23 billion.
I think what's key is debt.
When you look at the current stock price.
Our dividend yield will move up from one five per cent to over 4% and 2022 and over 8% and the following years to 2026, that's at the current stock price.
I do have to have a call out for Devin and and Rick's great slide comparing their dividend appears.
We're in there around one five per cent toward the bottom quartile theyre showing them, leading this year at 7%.
Pioneer well moved to second place next year moving over four and then moving up to the top spot above Devin and their primary driver is really just our our low Mark R.
Our margins and the high Twenty's, our low cost basis.
And in addition to the fact that we're paying out 75 per cent of our cash flow versus Devin and 50%.
Yeah.
Moving to slide number eight again, just emphasizing the variable dividend.
Long term shareholder return model.
Last quarter, we initiated the mechanics of it and mechanics will be paying out.
Long term roughly 75 per cent of the remaining annual free cash flow. After the base dividend is paid when you look at and including the base dividend and approximately 80%.
The company's free cash flow is expected to be returned to shareholders.
Between the base and the variable dividend shareholders next year will.
Should expect a separate dividend checks per year. Obviously this is all subject to our board approval like we do on the base dividend and the variable dividend.
Let me now turn it over to rich.
Thanks, Scott and good morning, I'm going to start on slide nine and with the closing of the Devil point transaction yesterday, and we want to provide and update our updated outlook for 2021 production and capital as Scott mentioned double point is currently producing at 92000 and Boe's per day, and we expect to ramp them up to about 100000 Boe's per day by the end of the quarter and with an.
And all 20 to 25 Pops planned.
Total through between now and quarter end.
And we plan to maintain that production and 100000 and Boe's a day for the second half of the year and so that's embedded in our updated guidance and we also have adjusted our guidance to reflect the actual results for Q1, where we were able to recover production from the winter storm, you know quicker than anticipated and along with the Q1 strength of our well performance and execution by our operating team.
So overall, we are forecasting 2021 production at 351000 barrels of oil per day to 366000 barrels of oil per day and on a BOE basis 605000 to 630000.
And looking at capital.
We are adding $530 million to $570 million.
A incremental capital related to the double point transaction over the course of the remainder of the year and this is up and the bottom of our previous announcements since we're able to close the transaction earlier than originally anticipated.
Total Capex is now projected at $2 95 billion to $3. Two 5 billion on cash flow of about $5 9 billion based on strip prices, which is leading to what Scott talked about $2 7 billion of free cash flow.
And for the year.
Turning to slide 10 and.
And you can see are for full year that we plan to average 22 to 24 rigs and deliver 470 to 510, our Pops and if you take that up just for the remainder of the year and plan to run with the addition of Devil point 24 to 26 rigs and seven and nine Frac fleet currently we're at 26 rigs and nine for.
Fleets.
And this does reflect the fact that we do plan on reducing debt with point rig count from seven to five by year end and longer term as we think about reducing their growth rate from 30% down to five per site and you can drive that down to three to four rigs and you know as we are consistent with our 5% growth pattern and over the long term.
You can see and the math there over a million acres and predominantly in the Midland Basin, and 920000, and 100000 acres and the Delaware in terms of Delaware plans, we will start drilling our first oil wells or later this year and the team is looking forward to bringing that same efficiency gains that we've achieved Midland basin to the Delaware and see how we can further improve our wealth returned.
You know, especially given the higher oil cut that we see and Delaware and the lower royalty burden.
And just for a point of reference you know first quarter production was 74% oil and the Delaware.
Turning to slide 11, and wanted to find and update on our planned synergies related to the partially and don't know transactions are on G&A. We've accomplished the $100 million partially savings. So that's a you know we checked that box as it relates to double point, they were running about $25 million annually and G&A, we expect to and bring that up.
Under $10 million on an annual basis and will be we.
I think we'll be there beginning in the third quarter of 2021.
On interest rate refinance parse these bonds in January if you recall those were over 5%.
Upon and we refinance those.
On a weighted average basis, well under 2% and we plan on refinancing the Devil point bonds. Later this month, so along with paying off double points credit facility that happened yesterday, and we're going to accomplish our interest savings sooner than we originally anticipated and will have that fully done by end of this month.
And the operational synergies, we are making great progress on those we've been able to leverage our supplier relationships and are seeing significant savings on things like pressure pumping wireline cement casing and tubular <unk> to name a few examples we've also and Joey will talk more about this successfully tested time all frac on.
And our acreage during the first quarter and and we're seeing significant savings and you're like the industry other industry participants and that two to $300000 per well. So this is something that we'll be able to not only.
Execute across pioneer's acreage, but we'll also be able to execute that I guess across parcels and double parts acreage.
And the team is also continuing to optimize our development plans to take advantage of existing facilities. So looking at tank batteries water disposal, salt, where a disposal gathering system reuse facilities and really optimizing those as we move into the 2021 2022 program sorry.
And to really take advantage of those savings.
And then as Scott mentioned, one of the other significant benefits of combining partially and Devil point is really adding to our contiguous acreage position and what.
This allows us to do is we've successfully drilled longer laterals up to 15000 feet and really up from the nine to 10000 feet that we've been drilling at <unk> to allow for a lot of locations that we can drill longer laterals on which is much more capital efficient and really adding essentially the same production by drilling fewer wells. So.
And it's still early but it should add significant long term value across our portfolio.
And just you know demonstrates.
It demonstrates the benefit of having contiguous blocky acreage to be able to drill that type of laterals.
Turning to slide 12.
So this just reflects our trend of what we've accomplished on G&A over the past three years, including the synergies from the acquisitions and we are forecasting G&A per Boe to be around $1 15 to $1 20 by year end and so I think this is just an example of really and highlights the focus of the companies had on improving returns and improving.
And improving our return of capital to shareholders, such really lowering our overall cost structure. So you've seen as you know.
Drive down well costs lower L O a lower G&A per Boe, a lower lower interest really all with the idea of improving our free cash flow profile.
So with that I'll turn to Neal to talk about breakeven. Thanks Rich on slide 13, you can see how pioneers high quality asset base positions and positions us as the only E&P to realize that corporate breakeven below $30 a barrel W tier within our peer group and <unk>.
Scott stated earlier and as this attractive peer leading breakeven oil price and enables pioneers low investment rate and drive significant free cash flow generation and return of capital to our shareholders. This low breakeven price reflects the quality and the resilience of pioneer's portfolio underpinning, our operational and financial strength and <unk>.
Flexibility.
With that I'll turn it over to Joey.
Thanks, Neal and good morning, everybody I'm going to be starting on slide 14, our.
Our drilling and completions teams continued their streak of resetting the bar with another great quarter of efficiency gains.
Our thermal Frac operations contributed to these gains with the successful execution of four pads and Q1, where we were able to achieve approximately 3000 feet of completed lateral per day.
This is greater than a 50% improvement when compared to our program average it's still early days, but we estimate savings to be in the range of two to $300000 per well.
We will continue to refine our summer frac operations and conduct more trials throughout the second quarter.
You will note that our wells per pad projection for 2020, one is down slightly from last quarter and this is due to the integration of double point pads and charged schedule.
Still our wells per pad continues to increase which further contributes to our efficiency gains.
And all this slide only illustrates improvements and drilling and completions. So I want to emphasize that we're also seeing tremendous performance and our production operations and facilities construction and water management teams and none of this would be possible without those that support and development planning a robust supply chain and our expanding use of technology.
And I also want to thank all the teams for their efficient integration of parsley and a great start on double point.
We remain focused on delivering peer leading performance, keeping our people safe and reducing our environmental footprint and so congratulations to all the teams for their contributions to our safe and efficient execution and Q1 and.
And now Gonna go to slide 15.
And I know that Scott covered this in some detail last quarter. So I'll be brief but this chart represents more than 64 million barrels of hydrocarbon liquids per day, including the largest national oil companies majors and independents.
And here's operations produced barrels with one of the lowest associated C. O. Two emissions intensities globally, our low costs low emissions barrels will continue to be desired around the world and with that I'm going to turn it back over to Scott.
Thank you Joey on slide number 16, and strong focus on ESG Pioneer continued total all pillars of ESG of great importance.
We've talked about our new sustainability report released late last year, which reflects our significant strides and reducing both scope, one and scope two greenhouse gas and methane emissions and incorporates emissions intensity reduction goals on both.
Pioneer inclusive of partially as a very low flaring intensity upon four per cent compared to peers of 1.3%. We will also work to bring double points assets in line with pioneers high standards and environmental stewardship.
We also continue to promote a diverse workforce all the way up to the board level, which reflects the community and which we live and work.
And again on slide 17, we're really committed to driving value for our shareholders and returning cash flow back to the shareholders over the next several years, we'll stop there and open it up for Q&A.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal.
And our first question comes from Neal Mehta with Goldman Sachs. Please go ahead.
Good morning team and I guess, the first question is and a short period of time debt to acquisitions here and boats and parsley and double point and and just wanted to get your perspective, Scott on whether you view pioneer is a roll up story and a natural consolidator in the Permian basin or are these just.
Two opportunistic transactions that made sense in the moment.
Now, where we are focused primarily on the a and the Midland basin two opportunities came to us they came to us earlier than we had thought there are great opportunities there both highly accretive and we're focused on bringing those two we pretty much have already accomplished the a lot of the synergy.
Zone, partially because we had started so much earlier before we closed and last October a double point I'm confident our team will be able to bring that on.
But those are primary the two key components of Midland Basin and makes it stronger as we talked about and the Midland Basin. The other opportunity I mentioned in the past to our shareholder base and do other analyst is not available the other large opportunity in the Midland Basin.
So fair to assume that you could take some time to digest these transactions before moving moving ahead with debt with another one.
Exactly.
Okay, and and the follow up is on slide seven and this is this is a really good one and I just wanted to kind of walk through the math with you guys and let me know if any of that sounds off but it.
You've got $23 billion of cumulative free cash flow and $3 billion in 2021. So the period from 2022 to 2026 that five year period, you've got $20 billion of free cash flow over five years, that's like $4 billion of free cash flow per year on a.
On a $40 billion market cap or so it's 10% free cash flow yield and I think and the next slide you said you plan on paying out 80 per cent of that and the form of a dividend either fixed or variable. So is it fair to assume based on this framework, we should be thinking about and an 8% through the cycle dividend yield on the current market cap anything.
And that I'm missing there and.
And anything you can tell you Neal you got the numbers perfectly and that's why we are.
We stated and what we what we had stated and it's all got to realize the strip is in.
A $10 backwardation. So if you take the current stripped a day and go out to 'twenty six it's 10 years. So you can imagine what the free cash flow is maybe just March the current price force through 'twenty six.
And the numbers significantly increases so it is and extreme backwardation and even with the 23 billion, but your calculation of 8% plus is very good.
Okay. Thank you Scott.
Thank you and our next question comes from John Freeman with Raymond James. Please go ahead and anything else Neal.
Hey, good morning, guys.
Okay.
Hey, guys here and any operator yep.
Please go ahead Mr Freeman.
Yes can you hear me.
Yes, we can hear you.
Okay great.
Sorry about that so Richard I, just want to make sure that I.
Great and in Louisiana.
So there.
Can they not hear me just you operator.
And I can hear you hold on just a moment actually Scott.
Okay.
Yeah.
Please stay on the line for just some overall mobile while we reconnect okay centers.
Okay.
Okay.
Yeah.
Okay.
Okay.
Yeah.
Net.
Yeah.
Yeah.
Yeah.
Okay.
Thank you all for your patients that'll be just another moment.
Okay.
Perfect.
And you hear still.
Our speakers you are back on the line questioner. Please go ahead.
Okay first of all we will hear about that and quick sorry go ahead, Scott Hey, John It's Neal Shah apologies to everyone on the line for some reason we dropped a natural arrived but we dialed in and we'll be sure to extend it to ensure we get all the questions and S. As required but apologies are and were back on a happy to answer and take all your questions.
Great and this is John and I hope it wasn't anything I said that economy issues.
Yeah, sorry, John we never heard your first flush out.
Net no worries and so I was.
Just calling up rich on I, just want to make sure that I heard right on the double point latency double point and he said after you drop down to the five rigs to kind of hold that 100000 barrels being flat and the second half of 'twenty two and <unk>.
Would you say that it and turn it drops to basically three to four rigs. If you wanted it to kind of have the 5% sort of growth rate and <unk>.
Number two legacy pioneer.
Yeah, I would say to you. The first is that we dropped the we keep it 100000 and flat for the second half of 2021, not 22, and just sorry to realign and 'twenty, one and so and as we move into 'twenty. Two you know will be and net five rebooted assay and longer term is there decline rates, it's a net 40% higher 40.
Percent range moderates back to our 30 mid 30 to low 30% rate and it'll move down to three to four rigs to keep production at that 5% growth consistent with our growth plan. So it's really that's what we think it will take long term to grow their assets and 5% consistent with growing our assets and 5%.
Got it thanks, and then on slide 11, a real sort of show the progress that you've made on and on the synergies up to this point and and what.
Wants to come and then Scott you said I believe that you'd already sort of realized most of the synergies associated with a with a partly transaction and so does that mean that the the 100 million that was sort of and the budget for that the partly integration expenses debt that will largely show up in.
And the financials by you know two Q is is that the way to think about that.
No John I would think about it and it really is the G&A and the interest and we've accomplished those the operational ones, we're progressing but it's still going to be year and before we get you know some of that capital and the.
Italian.
Deep deep disposal wells to tie and no different tank batteries to tie and water system. So there's just and bring their standards up to ours in terms of environmental so there's still that capital is still going to be a progressing throughout the year. So we've made good progress on G&A and interest those are done for parsley operationally, we're well on our way on the supply chain side of things and other things that we've been able to.
Accomplish but it won't be complete until we get to the neo closer to year end.
Great I appreciate guys well done.
Thank you.
Thank you. Our next question comes from Jeanine Wai with Barclays. Please go ahead.
Hi, good morning, everyone and thanks for taking our questions.
And my question are you on and.
Good morning. My first question is on maybe inventory now that parsley and double point there both in the portfolio can you update us on the number of tier one inventory that you have at the current 5% growth rate and and what do you think the right amount of inventory is from a value perspective.
Yeah, Jay and what I'd tell you as you know with the adding these things up.
Our prior tier one inventories you know close to 15000 locations at this point with the combination of the three transactions and so and these are all premium locations that will get developed evening and low commodity prices. So you know that's really what we're focused on executing and that's year along inventory out there to get developed.
Okay, Great sounds good and then maybe if I could sneak one in on 2020 two since you have a little bit of longer term commentary out there and and.
Can you. Please talk about how you see activity levels and the back half of 'twenty. One once you've got double point fully up and running and I guess I'm, just thinking back to last quarter and pre double point and pioneer with forecasting a strong 8% to 10% exit rate this year for <unk> and that set up for a favorable 2020 two.
Two.
But now you've got double point it looks like the exit rate will be moderating a bit could be strong still see very strong capital efficiency in 2020, two but maybe just looking for a little bit of commentary on how you see the back half of the year and the exit thank you.
Yeah, Jeanine and Great question, Yeah, as I mentioned in my prepared remarks here will be running Neal at 24 to 26 rigs and seven to nine frac fleets, but when we think about 2020 to think about it and basically on an oil basis being you know 5% growth on a normalized 2021, and when I say normalized 2021, I mean, assuming.
100000, Boe's a day for Devil point as for that number and then assuming that we had the 11 days from parsley and adjusting for the weather and so when you adjust for those things and look at it in 2022 is it basically going to be a net 5% oil growth and as Scott talked about and that'll be and slightly on a Boe basis slightly over 700000 Boe's a day.
Okay, great. Thank you.
Sure.
Thank you. Our next question comes from Derrick Whitfield with Stifel. Please go ahead.
Thanks, and good morning Hall.
Perhaps one more Richard Joey the revised 2021 operated operational plan is now targeting longer lateral links.
To what degree did double eagle directly or indirectly impact that estimate based on their legacy plans or your revised legacy plans inclusive of their position.
Yeah, Derik I'd say, we're still in terms of longer laterals that teams are working on that but you know, we and most of our development plan for 'twenty, one and double point and parts as we talked about earlier, you know because of permitting and everything that those are already well established so there may be a few tweaks here and there, but you know I would think about longer laterals barely coming into our portfolios more.
And the late this year, but more likely in 2022, as we can plan for them and and get them on the schedule of propane or would this be part of our capital allocation process and are now that we have confidence and doing it and have experienced and I will start looking at just how that looks and our capital allocation and and where those rise in terms of rate of return and focusing on those high rate of return projects.
First.
And as my follow up and perhaps just to dig a little further on on lateral links.
Wanted to get your view on optimal lateral lengths as we've noticed a few 15000 foot lateral show up and state data and.
And specifically could you comment on your appraisal activity to date, the technical challenges you experienced in and where you think the refresh and efficient frontier is for pioneer.
Certainly with your highly contiguous and blocky position and inventory that we.
We believe you guys stand to gain the most from long lateral development.
Yeah Derek.
We've kind of taken the rather than jump into the water taken a slower approach and to moving into the longer laterals I don't know the exact count, but we've drilled quite a few 15000 foot laterals.
And already and again, we will continue to further those into our program as the Lan opportunity presents itself and the early days, we were trying to mitigate the risks primarily associated with completions.
But we've done a tremendous job, particularly on the drill outside of being able to mitigate those risks and we've seen minimal to no challenges. So.
Long story short there will continue to put those into our portfolio as.
And the opportunity allows and I assume that you're on the appraisal question you were talking about.
Raising the 15000 foot lateral are you talking about.
The entire portfolio.
More around appraisal of the 15000 foot lateral, but certainly there's going to be and applicability factor within your portfolio.
Yep.
And now Youll continue to see us drill more and more 15000 foot laterals one of the bigger challenges like I said is on the drill outside and so where we were hesitant was on the shallower zones, because you have a lower pressures and it makes it more difficult and we've had great success and are are partially predecessors had some great.
Success and drilling some of those shallower zones.
And being able to get them completed and drilled out. So I think that is just another opportunity that we've recognized and youll continue to see us expand our use of 15000 foot laterals going forward.
And once again, Derek just highlights the benefit of having contiguous and blocky acreage and lease configuration to allow us to get to those links and will just be much more capital efficient going forwards.
Very helpful well done guys.
Thank you.
And our next question comes from Charles Meade with Johnson Rice. Please go ahead.
Good morning, Scott into the rest of your guys on your team there.
And I wanted to ask a question and maybe this is for Joey I'm not sure, but I wanted to ask a question to drill down a little bit more on the.
The 1200 double point locations can you give us a sense of you know.
This is picking up a bit on the long lateral question can you give us a sense of what the average lateral length of those 1200 locations is and how.
They break down across say Wolfcamp B Wolfcamp a.
And at a lower sprayberry that sort of a look.
Yeah, I don't have the exact numbers here in front of me, but.
And generally the 1200 or and you saw on the map and of the blocky acreage in Midland County, and down in Upton County, and so you know generally they've been drilling eight to 9000 feet lateral city labor and nine to 10, and so call it and that they're all going to be a net eight to 10000 and.
But we have and assessed their acreage yet for the longer laterals in terms of what that would look like with you know we surround all that acreage and so there's clearly going to be a big chunk of acreage that we can put 15000 on we just haven't done that work and that's something we have to continue to do over the course of the next few months and so.
More to come later on I, just don't I don't remember the exact counts by zone, so apologies for that.
Got it yeah, that's going to predominantly it's all of it and the core of the core so it's all the same.
<unk> zones that we're drilling in terms of your EM Jo mill Middle Sprayberry, lower Sprayberry, a b and D. You know for sure.
Got it and it does make sense at some maybe 5000 or 10000 could turn into a 10 or 15000 foot location.
And Scott I think this is a I like to ask a question of you on that slide seven and I really appreciate that you guys have given us.
Glimpse that we go off and get off and in this case, a six year plan and a relief.
To me it really highlights the Oh, we need and kind of underscores the value in this group right now, but I wanted to ask you is in your career at pioneer or even some of the predecessors have you ever.
Do you recall another time when.
Six years of free cash flow.
At the strip represented.
You know 50 per cent or more than 50 per cent of our AV EV of a company you were working for.
No in fact, and Ameren has put out a recent publication and they use pioneer or as an example, and we never did confirm the numbers, but what's interesting to me and they said we spent a 133 per cent of our cash flow over the last 10 years.
And we grew over 25 per cent per year.
The last 10 years, and I think this new model spending less and 50% of our cash flow and returning over 80% back to the shareholders.
And there's going to be a much better stock performance for us for all shareholders, a pioneer and so I just think it's a it's a unique model and I hope all.
Public companies stay disciplined because I'm very optimistic about the pricing environment over the next several years.
So this is not going to be that so the price is going to keep going up I've been stating, we're going to bounce around between 50 and 70, but obviously world and we're gonna be over 70 before we know it.
And.
And the only thing that's going to bring it down it's not going to be supply. This time, because U S. Production has moderated there's going to be what how how long will demand and continue to pay a higher price and you have to go back to 2013 and 14 when oil was closer to $100, a barrel and somewhere between 80 and $100 per barrels word and demand.
It's going to reduce Scott is going to take demand, reducing the price. So I liked the cycles, obviously much better of too much supply coming on and tank and the market unless led supply demand take care of it so I'm very optimistic about pricing over the next several years.
Got it thank you for sharing your perspective there.
Thank you and our next question comes from Paul Cheng with Scotiabank. Please go ahead.
Thank you Scott.
Talking about <unk>.
And you are more optimistic about the pricing outlook and the company is also a very different company from that standpoint, how should we look at hedging program for the company going forward should that be dramatically scaled back or refunded and many.
And that's the first question.
Second question, yes, or maybe rich.
I think why now and a couple of porn.
One thing and say seven rate and Youre scaling down two five so youre, averaging about six right and you're saying that you're going to stay about flat.
100000 barrel per day.
But then debt for next year do you think that at Fireeye called more you probably would be able at the wildfire you would be able to grow at about 5%.
So are you building a lot of for the remainder of this year, Sean to reconcile why debt.
The higher grade program for this for the second Hall.
We only be able to could be a threat.
And while by next year debt I lower rig program would be able to grow. Thank you.
Okay.
Scott.
And obviously a.
The little hedging.
And 20 day.
And our port and the firsthand.
And it all now.
And that's why we have so much stronger free cash flow Michael.
And at that point and lineup.
And your students.
Yes.
And we will do more hedging and it runs out.
And did that.
Alright.
All right no problem.
Our hedges, but we're not there yet obviously.
And then Paul on the <unk>.
Spring.
Duck count really on debt.
A point and we're moving from the seven rate is down to five by the end of the year and then growing their production from 900000 to the Hunter and pipe and you're exactly right on those numbers. The really the plan in 2022 would be roughly around that five rig program and as I talked about and and John's question that and that longer term moving net of three to four rigs but.
It's really just being driven because there you'll have a steeper.
Base decline rate, just given they've grown faster and so this will moderate debt growth as we you know cut their production grows from 30% back to five but it just takes a little while day to get on that and we saw that back when we were looked at partially when they came in at 2019 2020 they were grown.
Great and 2019.
Slowed their activity in 2020, and it moderated their production back into that low to mid thirties like ours. So we anticipate the same thing happening with double point and that rig count will move down to five and and ultimately lower.
And do you think that it will be so quickly that you can bring down the underlying PK curve debt next year.
And at five rate, you actually would be able to grow at 5% already.
Yeah, I think you'll see that by and a 2022 that that base decline on double point is back and normalize back to ours and we felt like I said, we saw the same thing with partially so I would anticipate being in that range.
Alright, thank you.
Sure.
Thank you and our next question comes from Neal Dingmann with through a securities. Please go ahead.
Good morning, all and thanks for the time My first question is on your well spacing and specifically guys. I was wondering would you. All are you going and continued largely co develop and then second just what type of space and are you still assuming on sort of the primary and secondary zones.
Yeah, our spacing hasn't changed and that eight to 900 foot ranges that we plan on doing that and we're still looking at that full co development and force as we call it full stack.
We're the <unk>.
Geology supports it and we're going to do you know either the full stack development for all of the zone. So that's no really no change and that development program.
Okay, and then just secondly, a follow up on on a long term free cash flow guide I'm, just wondering specifically behind that Scott that you laid out I'm. Just wondering could you talk about is the price assumption just on strip behind that and I'm. Just wondering baked on that are you included and sort of.
Quarter in quarter out working capital and quarterly dividends and I'm, just wondering sort of debt, maybe some of the expectations assumptions behind that.
Yeah, and it includes and is the strength and as I said, it's and better at $10 backwardation.
And so at strip as of few days ago. The strip today is obviously higher.
It does include I'm, increasing the base dividend roughly to 2% to 3% per year.
Per year on the base dividend.
Men and includes our 50% payout and I am next year and 75% after that.
Right, Okay, and then growing oil and growing oil five per cent per year and and.
And you do you didn't grow and the working capital and as well the change in working capital and each quarter, yes.
Okay. Thank you.
Thank you and moving to our next question. This comes from Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
So as we look at the backdrop here inflationary trends and appear to be intensifying, obviously, we've seen steel prices moving and chemical prices move and now the service companies are starting to talk about testing pricing can you just speak to your ability to offset this inflationary forces near term, obviously have efficiency gains and your legacy assets and <unk>.
Other gains on the acquired assets Simon.
And the lateral expenses next year, just some color on your ability to fully offset these inflationary forces here near term.
Okay.
And for the sake per se.
And Felicia.
Moving driven by raw materials, as you talked about dealers and steel.
And Michael Yes, Matt.
And as Rob products, and we're seeing that inflation, we have not seen any pressure on for Scott.
At this point.
Okay.
And we're offsetting that board and 6%.
And the efficient and.
And the food Hall.
And the efficiencies.
Drilling and completion operations.
And so really offsetting that.
Personnel expenses.
The cadence for the remainder of this year is obviously as well.
We don't see any pressure about debt.
Yes.
And with efficiency so.
At this point.
Congrats and additional functions.
Yes.
Got it and just as we start to think about 'twenty, two and should the analyst community you start thinking about some modest D and C inflation.
What do you think you'll be able to continue to offset that.
Yeah.
A reasonable rate of inflation and into 'twenty two as well.
I mean, well have to continue to wanted to see but our assumption going into it as debt will continue to see efficiency gains and we'll be able to offset it with efficiency gains.
Scott I appreciate the color. Thank you.
Sure.
Thank you and our next question comes from Doug Leggate with Bank of America. Please go ahead.
Thanks, Scott Good morning, guys and just a sudden shake first of all and Youll hear me okay.
Great. Thanks, how debt low vibration you guys are you guys are a little choppy on year and so wanted to let you know.
Okay. So I've got one philosophical question relating to double point and then one Neal.
And probably for you followed us and question and.
And I for one appreciate guys and the pre cash flow visibility and I think the sales side is finally figuring out how to value your business, which is a great and below market.
My question on the bubble point.
And as Youre not presided over very significant growth and the basin and other words I think the global supply, which kind of goes against your philosophy, Scott about capital discipline.
Why would you still look to grow when you're already acquiring.
Aggressive growth story at a double point and 2022, because it kind of it kind of contradict a little bit what youre, saying about industry capital discipline.
Well no I think I mean, our acquisition actually helps the situation, obviously, but if we can take out other if other companies would take out other private they would help too but our deal was driven primarily the fact this is core to core acreage and and we've been focused on.
Making sure that we had double digit accretion and that we can and we can add value to all of our shareholders and we had a significant.
Double digit accretion and on.
Variable dividend cash flow per share and that was the key driver of the same time, we've got to meet our corporate returns and beat all corporate returns Rosie Croce and net asset value. So the transaction did that day.
And so I don't know if that's answering your question, but that was a key driver and I hope other privates are taken out that are growing too much yet and they still have a large part of the rig count and I've answered. The question that I, just don't think private youre going to upset the OPEC situation at this point and time and lot of the privates are and the Haynesville obviously.
And growing the Haynesville significantly.
So does that answer your question dagger, where you.
And I guess I guess to be clear the feedback you have.
This is a fight that pioneer is prepared to do this great great bolt on no question about it in terms of the acreage.
We're going to encourage other privates to go crazy culling, so they can sell themselves.
Kenneth worry won't behavior with Cisco and then correct. So that that's really what was behind my question.
I don't know meeting guidance.
I don't think Theres other domain.
It'll be interesting to watch our me say either I think the only deal that I know of right now well Chevron has a package.
And Central Basin platform Oxy has a package and the Delaware. So theres a few other deals that are out there and you can see what they go but.
But I don't know of any other privates at this point and time that are that are.
And are going to be able to sell and this and in this marketplace.
Okay. Thank you my follow up and some Neal is probably a few housekeeping.
Points, if you may and as such Hart <unk> referenced in slide 13.
So.
How do you see your breakeven oil price and sustaining capital withholding.
And Kevin This is about a 13 year and in theory.
I Wonder if you could just elaborate on the accretion math because and.
It's easy to accrete on the cash flow when you're using stock but.
But if you look at the $6 5 billion dollar volume versus a DCF of 13 years of free cash flow and value accretion is not obvious unless you take make a KOL and the oil price. So can you just walk us through how this changing pioneers and sustaining capital and how.
Exactly youre defining and accretion.
Okay.
Yeah, well I'll start Doug on the.
Sustaining capital and sustaining capital you kind of depends on whether you measure it from as you know Enzo and generally we look at you know what I'll call maintenance capital and towards the end of the year you clearly we've got you know from Q4 of 2020 into Q4 2021.
We've got the Devil point and fallen partially and so when we think about maintenance capital will come out later this year really based on fourth quarter of what that maintenance program looks like.
But we kind of got a roll that forward until then before we and kind of get all the pieces together. So it's still just too early for us to really say what that sustaining capital is to keep production flat long term, just because we still need to incorporate and embed. All these assets that we've brought together and the real growth profile that we have this year. So stay tuned on that and that will come out later this year.
And Doug Hey, this is Neal and on the modeling and the accretion and I can tell you the way we approach. This we really did.
Did a well level set by stick rolling the rigs and Frac fleets and on an annual basis understanding the synergies that we can bring to bear and both on the parsley and double point transactions cash.
Calculating and our operating cash flow the capital necessarily embedded within those annual years and then the free cash flow that we generated and then applied that in terms of how was it accretive what does it do to our oce what did it do to Croce and as Scott said earlier, you know the benefit to our Oc and Croce were positive the benefit to free cash flow was at.
Double digit accretive and.
And really what we're looking here and as Scott alluded to and that pioneer model I mean, it really comes back to the model and the assets the assets and what they provide us and allow us to do a really drive that free cash flow generation with a high margin wells with that with the low cost of capital we can bring to bear.
It's our goal and our ability and I might think about valuation as you and I have talked about in the past and we look at free cash flow E&ps tended tend to trade and a pretty tight band historically on EV to EBITDA and it's our goal that pioneer will be able to disaggregate itself from that tight band and with E&ps trade.
And <unk> to trade consistent with other companies and other names and other sectors that generate a high level of free cash Hall, and return that capital to shareholders and that is our long term vision and our long term goal really to drive that appreciation and accretion and habit manifest itself within the stock price by returning that capital.
To shareholders over the course of time on an annual basis.
Thanks to the full answer guys and as you well know Neal the multiple is not free.
Free cash flow. So I appreciate the question and thanks again.
You got it Doug Thank you.
Thank you. Our next question comes from knit and Kumar with Wells Fargo. Please go ahead.
Hi, Good morning, gentlemen, and thanks for taking my questions and I'll revisit slide seven and really appreciate it and look on the free cash flow opportunity.
Could you talk to do you see any tax leakage associated with that I know you talked about strip and 5% growth, but what is the tax impact great 3 billion and there's a lot of money.
And then.
So.
Yes.
And as a model as well.
Tom.
For the quarter.
We have it.
And on oil.
Yes.
Okay.
Free cash flow and back.
Our last quarterly call Scott talked about $15 billion of free cash flow.
And using bringing debt levels.
And the same.
And then the price deck, that's moved up to you know something higher and the 23 range now but that.
As prices have moved up that's also accelerated our tax liability and so you know when we were looking at it before we are in that 'twenty five 'twenty six time period of paying cash taxes with the improvement in commodity prices and the free cash flow from and the synergies and the things that we're doing internally that's accelerated that into that 'twenty three 'twenty four time period now.
So that was built into the model is is that trajectory of paying cash taxes.
And hopefully that answers your question.
Yes, it does and making more money means you pay more taxes.
Life.
Scott My other question was for you.
I appreciate the comments about the scale of pioneer in the Midland Basin, and and especially the leadership you've had as a company in terms of greenhouse gas emissions.
As you look forward are there opportunities in terms of technology, given your scale, where you can participate selectively and green revenues.
And I'm thinking of carbon capture and other technologies and we looked at that.
Yes.
Some of the things we're doing.
We have we do have 40 30000 acre ranch is services that we're looking at.
Both wind and solar.
Farms on those where.
And we're waiting for the extension of the tax credits on both of those and the infrastructure Bill.
And to go out to the marketplace, Secondly, and we're starting to.
Electrify a lot of our practices and I see over time, moving from diesel to natural gas or moving from natural gas.
To the grid will be doing that we're.
And were not.
Getting as fast as the majors are oxy and the carbon and accurate.
And we're studying it.
Good day.
When you talk about enhanced oil recovery project.
Our third quarter.
And when cash.
But we didn't know.
It does work.
Okay.
And so if it does.
Felipe and see.
You too.
Yeah.
Bob.
And gas.
And we're working on and off.
Okay great.
Yeah.
And the majors and undercut meters and research on both fronts.
Gotcha.
David.
Excellent. Thank you for the answers guys.
Thank you. Our next question comes from Arun <unk> with J P. Morgan. Please go ahead.
Yeah good morning.
My first question is just thinking about 2022.
Scott you mentioned how production.
And could exceed caught 700 Boe per day, and just trying to think about what kind of oil mix would you anticipate and and some of the pushes and pulls on capex as we think about synergy capture.
From both deals.
Similar etsy.
Et cetera, and just trying to think about the 2022 outlook.
Okay.
Yeah, Arun I would say you know and oil percentage and we're still believe we're gonna be a net 58% range is where we'd been running and so I don't anticipate you know maybe plus or minus 1%.
And there, but that's really the mix on that 700000, plus Boe's a day and in terms of capital and I think you know it's still early we're trying to get everything incorporated with the synergies captured look at the where we can get more capital efficient for 2020, two just on facilities and tank batteries and longer laterals. So there's a lot of moving parts. So it's hard for me to.
And I'd tell you today I would tell you that long term, we still believe that we have to add to grow at 5% one to two rigs and so that's you know for modeling purpose I would still assume that yeah.
And in your capital outlook.
Got it and hopefully that held with Yep and will the water system being a potential source of synergies as well rich and thinking about 2022.
Yeah, I think when we look at the Midland system is coming on mid this year. So you know it just adds you know from an ESG standpoint, and it improves our ESG of getting off of a freshwater but it also adds you know and some of our cheaper sources of water.
The affluent water from the cities and our reuse facilities. So all of those are getting and the mix and we've got a very complex algorithm of how we use water. So it takes into account the source cost of the water, but also the how much we have to transport it to get by location. So it's a complex thing and they optimize it to make sure to recruit and Youre getting.
The biggest benefit we can so all of those things will play into the 2000 and trying to capital budget for sure.
Okay and my follow up is just post the diamondback print one of the questions we've gotten.
And I was given the close of double point is what is the timing on the registration of the shares that youre going to issue to private equity as part of the transaction.
Okay.
Under the agreement we had a short period of time afterwards, and so that's that work is basically I can't remember, it's actually been done yet or is coming and the near future, but it was it was just part of the transaction to get those registered after closing I cant remember those ads done already and will be early next week.
Fair enough. Thanks, a lot.
Sure.
Thank you. Our next question comes from Scott Hanold with RBC capital markets. Please go ahead.
Yeah. Thanks I appreciate it.
Big picture question on and you know obviously the narrative about generating the $23 billion of free cash flow going forward.
And you know and and I apologize some of your answers Scott hit had been a little bit choppy with with with the line. So it may and run over on the question on your view on hedging, but maybe big picture Holistically on the macro or at this point, you've obviously talked about jet fuel being something that may take a little bit of time to obviously come back.
We do see very robust oil prices right now you've got pretty good visibility on the curb on free cash flow. So you know what is your view on the macro or is it going to continue to strengthen and your views or it doesn't make sense to hedge or should you really start locking in some some of these prices to you know obviously recognize.
Some of the free cash flow because as we know oil can be quite volatile.
Yeah.
And I talked earlier about.
The positive macro lab, we're probably going to pick up about 5 million barrels a day and demand.
The rest toward the end of the year, we'll pick up another two and 22 and pick up another one to two and 23 a lot of that as you said as Jeff feel and international travel and so we're going to pick up eight to 9 million barrels a day and be back up to a 100 to 101.
And and the key is Theres no co extra supply and so I think that the market's going to continue to be tight over the next two or three years. So for that reason I think the price will continue to move up and it'll test where demand.
It starts falling off and that and you go back to the 12 13, and 14 time period, even though we had a supply issue. There we're not going to have a supply issue there and the oil price has gone up to 80 to 100 dollar. So I think the easy test those prices over the next.
A few years.
So we will probably do less hedging if it gets up into that 75 to 100 range, you'll probably see as Glenn and continue to do some three ways at that point and time to protect obviously.
The base and the variable dividend.
Okay.
75 net.
Not as high as we've done in the past.
And the renewed uses and 75 to 100 Youre talking Brent is that right.
Yes, yes.
Okay, and and growing really quickly to page 15, and enjoy it and you know obviously you pointed out this chart, which positions you as is obviously a very on a relative basis clean producer of oil and have you guys gone down the path of looking at you know responsibly sourced oil you know obviously there is some <unk> G efforts that are going on.
Is there any opportunity down the road for you guys to get a premium per your barrel because you do have a relative low emissions have you explored that or is that something that could actually occur.
We're just and the initial phases of looking at that and so more to come on it.
And we don't have I don't have a good answer for you right now other than that it's something that we're looking at and and getting educated on and.
More to come and the future.
Fair enough. Thank you.
Thank you and once again, if you'd like to ask a question. Please press star one.
And our next question comes from David Heikkinen with Heikkinen Energy Advisors. Please go ahead.
Good morning, guys and thanks for taking the question.
As you think about your current well cost after the two or $300000 savings, where do you where do you stand now.
And currently we're in that $6 three to $6 4 million.
A range if you look at our capital budget and completions and Thats, where it would average out to be.
And then we're trying to think through the double point acquisition and the 200 locations you added.
As you allocate some of that purchase price to those undeveloped locations with several.
Several million dollars per well, how do you think about the burden of the acquisition price on that inventory.
It's not unlike what we did partially I mean, it's going to get booked in and our undeveloped property and yeah, but as Neal talked about earlier I mean, our evaluation on this was looking at it from a bottoms up well by well standpoint, and what the valuation one of these wells and so it will just get them moved over as we develop those.
But we'll prioritize those and the hierarchy and just like everything else and look at the synergies and the longer laterals and it'll just al.
And just we're going to do whatever is most capital efficient and.
Generate the highest rate of return and free cash flow. So that's what how we have always done capital allocation and we're going to continue to do it that way.
So that doesn't Ding the asset economics for those locations versus your other you think about that as a sunk cost and your undeveloped inventory from here forward.
Yeah, I wanted to and mandatory that's right, yes, okay, that's what I thought thanks.
Sure.
And we have no additional questions at this time I'll now turn the conference back to our presenters for any closing remarks.
Ken.
We apologize for five minutes and eruption of again, thank you for listening to the call look forward to seeing everybody hopefully on the road at some point in time, and hopefully things open up and the fall, we're bringing all of our employees back to work here over the next four weeks. So we're excited about that and I look forward to seniors and take care.
And this concludes today's call. Thank you all for your participation you may now disconnect.
Okay.
Yeah.
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