Q2 2021 Pioneer Natural Resources Co Earnings Call
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[music].
Welcome to pioneer natural resources second 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 me.
Schott Senior Vice President and Chief Financial Officer.
Pioneer has prepared Powerpoint slides to supplement their comments today. These slides can be accessed over the interest Haas Ww Gosh P X D Dot com.
And then the Internet site to access the slides right as of today's call is helping the W. E T X T gosh Scott.
At the website select investors, then select earnings and webcast.
This call and it's being recorded a replay of the call will be archived on the Internet site through August Turkish 'twenty 'twenty 1.
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 and future periods to differ materially from the forward looking statements.
These risks and uncertainties are described and Pioneer's news release on page 2 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 of senior Vice President and Chief Financial Officer Neal Shah. Please go ahead Sir.
Thank you Ken Good morning, everyone and thank you for joining us for pioneer of second quarter earnings call. Today, we will be discussing pioneer strong second quarter results and our enhanced return of capital strategy. We will also present, our continued strong execution underpinning our low reinvestment rate and best in class breakeven oil price.
This was all accomplished while maintaining our focus on safe operations and environmental stewardship and the field.
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, obviously, we're very excited after talking about it for 18 months to announce that we're both accelerating our first variable dividend payment into the third quarter of this year as well as increase and the payment to reflect 75 per cent of second quarter free cash flow after payment of the base dividend as our balance sheet continue.
And to strengthen and due to higher strip pricing as a result of improved all demand and successful.
In addition, we had 2 highly accretive transactions that also led us to making this decision and accelerating.
Combined with the base dividend total dividend payments and third quarter will be greater than $2 per share or a total of approximately 490 million and returned to shareholders. During the third quarter alone the initiation of a variable dividend payments and marks a significant milestone and our investment framework of shareholders will begin receiving material cash return through a dip.
And checks per year per.
Many of our strong execution and continued during the second quarter with production near the top end of guidance.
Levering over 600 million of free cash flow driving estimated 2021 free cash flow up to about $3.2 billion.
Lastly, pioneer is the largest producer and the Permian, we're the largest inventories of tier 1 locations over 15000, and the lowest breakeven price and.
And.
The lower 48.
Both recent acquisitions were highly accretive and added significant tier 1 inventory.
We are not looking at any more of Midland basin large acquisitions, we bought the best 2 available.
Apollo who is the largest shareholder from double point, our largest shareholder from double point of sold down from 13 million shares to about 2 million shares and now less than 1 per cent of the.
The outstanding of the.
Company.
Go on to slide number 4.
Pioneer was execution.
Main strong as total production and oil production, we're on the upper half of our guidance ranges as we successfully integrated double points operations into our program.
Or is on a lease operating expense dropped by nearly 25 cents per Boe and when compared to the first quarter and total pioneer generated approximately 1 billion of free cash flow and the first half of 'twenty 1.
Well go on to slide number 5.
Our strong balance sheet underpinned by improved oil price outlook.
<unk> supports both of the acceleration and increase of our inaugural variable dividend. The first variable dividend paid during the third quarter accelerated from 22.
Well he based on second quarter free cash flow.
Additionally, we are increasing and the third quarter variable dividend payment of 75% post base dividend and free cash flow from the previous 50 per cent.
The increase up to 75 per cent and our variable dividend program is approximately 18 months center and than previously planned.
These changes result in over $1 billion of incremental cash and there'll be a return to shareholders and 2021 with total dividends to exceed $6 per share.
On slide number 6.
We remain committed to our core investment thesis.
Predicated on low leverage.
Strong corporate returns.
The average over the next 5 years and the mid teens.
The low investment rate.
Round, 50% over the next 5 years and generating significant free cash flow.
This durable combination creates significant value for our shareholders day living a mid teens total return through our stable and growing base dividend.
Telling variable dividend program and high return oil growth up to 5% of.
And obviously when you look at 2020 due the turn on return is much higher because of the Austria over the next 5 years is about $10 and backwardation.
When including the base dividend of approximately 80% of and the company's free cash flow is expected to be returned to shareholders through 8 separate dividend checks per year inclusive of both the base and the variable dividend. We will continue to maintain a pristine balance sheet as we allocate the remaining portion of our free cash flow to the balance sheet.
Go on to slide number 7.
As you can see on slide 7 and the product of pioneer as high quality assets and top tier capital efficiency drive significant free cash flow generation amounting to greater than $23 billion through 2000, and twenty-six again and I want to remind you that the strip is in backwardation and drops about $10 and.
Back production over the next 5 years.
As Kim and the free cash flow, which is based on current strip pricing represents greater than 50% of our enterprise value and more than 65 per cent of our market cap.
Considering the greater than 23 billion of cumulative free cash flow. This program generates over 18 billion of total dividends through 2026 with the remaining free cash flow of allocated towards strengthening our balance sheet driving net debt to EBITDA day less than 0.5.
Go on to slide number 8 positioning.
Leading dividend yield across all sectors. The combination of pioneer as expected free cash flow and return of capital framework creates a compelling investment opportunity with a total dividend yield that we will exceed all of the S&P 500 sectors as well as companies and the average yield of the major oil companies and all other energy.
Companies and the S&P 500.
Annualized expected dividends paid and the second half of 2021 leads to a dividend yield of approximately 8%.
Which increases 22, and 226 time period, 2 and average greater than 9% due to significant free cash flow again, when you look and just focus on 22, the dividend yields of about 12% again a reminder, the strip with these numbers is about $10 and backwardation.
It's highly competitive yield is underpinned by the greater than 18 billion of cumulative cash returned to shareholders and aligned on the previous slide and speak to the power and underlying quality of Pioneer's assets, Let me turn it over to rich for the outlook.
Great. Thanks, Scott and good morning, and before I start on the slide I just wanted to give a special thanks to our entire pioneer team, including all of the great people that came over from the partially and double point transactions for the excellent job they've done and.
Integrating both transactions this year well, we have a few small items left on Dell of point. The teams of you worked extremely hard and have done a tremendous job seamlessly integrating these operations and a very short period of time. So thank you to all of those that are listening.
Turning to and looking at slide 9 you can see on this slide here, there's no change to our full year full year oil production guidance range of 351000.366000 barrels of oil per day and total production of 605000 to 631000 Boe's per day and similarly on capital is unchanged at 2 point and.
<unk> 5 billion to $3 to $5 billion, but we are seeing some inflationary pressure, although most of it is being offset by our efficiency improvements by the great work by our drilling and completions and facilities teams.
I'm looking at the cash flow you can see what the increase in commodity prices. Our forecasted operating cash flow has increased to $6.4 of 5 billion and free cash flow has increased to $3.2 billion that Scott talked about both of those are up $500 million from what we forecasted in our may call related to Q1 earnings.
Turning to slide 10.
Our plan remains unchanged and is set to average between 22 and 24 drilling rigs for the full year. We are currently running 24 rigs and Frac fleets and the Midland Basin.
In terms of our Delaware plans and we are moving multiple rigs into the Delaware basin. This quarter and the team is looking forward to bringing the same efficiency gains that we've achieved and the Midland basin to the Delaware with the goal of further improving well returns and you know, especially given the higher oil cut and lower royalty burden and our Delaware acreage just for reference the Dell.
Production was 70% oil and during Q2.
And as you can see here you know with over a million acres and the Permian basin and we have a significant inventory. So we will continue to evaluate opportunities to monetize portions of our longer dated inventory as we've done in the past. These you know of monetization opportunities will include small noncore acreage packages as well as evaluating other drill co opportunity.
Yes.
Turning to slide 11, and and talk about synergies you can see here from this slide that we have realized $275 million synergy target related to G&A and interest and on both the parts of the and double point and transactions on the operational synergies. We've made great progress with over 50 per cent of the target synergies being identified and being incorporated in.
And our future plans for instance, we have leveraged our supplier relationships are saying savings on pressure pumping wireline cement casing you know among other items.
Joey will talk more about it and we've successfully tested our simulcast <unk> and have incorporated a second simulcast of fleet into our program with Ben and which benefits mainly pioneer partially and double point acreage you know given our leveraging of our significant water system that we have across the Midland basin.
The teams are also continuing to optimize future development plans to take advantage of existing facilities and infrastructure, including tank batteries water disposal of reuse of facilities just to name a few obviously this reduces the need for future new builds.
And lastly, I'd just as examples and which is significant the team has identified over 1000 locations that we can drill additional 15000 foot laterals across our contiguous acreage position and that are being incorporated into our future development plans, providing significant improvement and capital efficiency going forward.
And why do I stop there and I'll turn it to Neal.
And you rich on.
On slide 12, you'll see pioneer is high quality asset base, which yields of peer leading oil per cent that drives our higher our high margin barrels per.
<unk> pioneer is the only E&P amongst our peers to realize a corporate breakeven below $30 a barrel W. Ti.
Did this purely on the oil mix combined with our unparalleled breakeven oil price and of high Twenty's not only underpins, our operational and financial strength and enables pioneers of low reinvestment rate and drive significant and durable free cash flow and return of capital to shareholders well into the future.
With that I'll turn it over to Joey and discuss our strong operations.
Neal and good morning to everybody and I'm going to be starting on slide 13, where our drilling and completions teams have continued their continuous improvement journey.
As you can see since 2017 and these 2 teams of seeing more than 75% improvement and theyre completed feet per day, and more than 65% improvement and they're drilled feet per day.
This journey is even more impressive when considering our increased activity levels, including the integration of partially and double point.
As Richard mentioned and we've also seen the continued success of our Sino Frac operations, Consequently were and the process of starting up our second some of Frac fleet.
Our capital projects and production operations teams are working diligently to upgrade partially and double point facilities to our operational environmental standards.
And our teams are progressing our ESG initiatives by trial, and new low carbon technologies to power operations as of.
And the past, we're only noted and the improvements in drilling and completions, but I want to emphasize that we continue to see tremendous performance and our production operations construction and water management teams.
And as always and out of this would be possible without the great effort from our development planning team a robust supply chain and all of the groups that support our operations.
We continue to remain focused on keeping our employees and contractor partners save delivering peer leading performance and reducing our environmental footprint.
<unk> of the entire pioneer team for our safe and efficient execution and Q2 of them.
And now going to move to slide 14.
Here you can see the results of pioneer has long standing commitment to meeting high environmental standards by our top tier of flaring intensity and best in class C. O 2 intensity compared to U S peers and majors.
This was only made possible through years of thoughtful planning and investments to minimize their emissions at our facilities, coupled with our comprehensive leak detection and repair program, which includes routine aerial surveys.
Despite our leadership position pioneer is goal of reducing greenhouse gas emissions intensity by 25% and methane emissions intensity by 40% through 2030 demonstrates our commitment to further increasing our environmental standards.
And now moving to slide 15, and continuing the storyline from the previous slide on your also produces extremely low emission intensity oil on a global scale.
This combined with our low breakeven results and exceptionally resilient production that we expect will have a place and the global marketplace for a very long time.
And with that I'll turn it back over to Scott to wrap things up.
Thank you Joey on.
On slide number 16.
Pioneer continues to hold all pillars of ESG are of great importance.
And then 1 of the most important points.
And Rice Dead report.
The Permian Basin has declined over the last 18 months since we've been talking about it.
From a bite of B, a day do less and 200 million a day and regard to flaring. So people are focused on reducing flaring less.
Less than 1% on.
Most of all companies.
We continue the the biggest players continue to be the private companies and the Permian and we need to continue to ask you in regard to any of your finance or of private equity and we got to put pressure on the private companies in the Permian Basin.
We continue to promote of diverse workforce, which reflects of humanity, and which we live and work.
As you can see when you look at our top 15, individuals' that and run the company and we're at 47%.
Lastly, we would like to welcome Laurie Billings late to our board of directors.
Laurie as an officer of DNI.
And with Coca Cola, we're very excited to have her experience and of our leadership and play a pivotal role and navigating the changing global energy landscape.
Our 2021 sustainability report is scheduled for release in the third quarter, which will include pioneer is progress on the environmental targets outlined on our left portion of the slide.
And finally on slide 17.
Pioneer is committed to driving all of these values for our shareholders now and we'll open it up for Q&A.
Okay.
Thank you if you would like to ask a question. Please take note of it by pressing star 1 on your telephone keypad. If you are using a speaker phone. Please make sure you're on mute function is turned off to allow your signal to reach our equipment. Once again press star 1 to ask a question, we'll pause for just a moment.
On an opportunity to take note of our questions.
And I would take the first question from me and Matta from Goldman Sachs.
Yes. Thank you very much appreciate the timing of congratulations to you guys and and introducing this variable of accelerating the introduction of the variable contract that you've been talking about and I guess. The first question is just can you give us a sense of and how youre going to plan on updating the market around the variable.
Dividend.
There's something that we should expect on a quarterly basis on a go forward and then also just talk about it as you look forward the right payout ratio do you see the potential for this variable dividend payout and we continue to move higher over time.
Yeah.
Yes, Neal thanks for the opening comments.
The.
As you know where the bottom of our slides every day, including the base, it's subject to board approval.
Our long term intention is to pay up to 75% of free cash flow every quarter for the next several years.
And that's how we're running our business with the number of locations that we have we have over 15000 locations.
Drilling roughly about popping up around 500 of year or so we have probably the largest inventory of anybody out there.
So we can go on and and and produce 5% growth and deliver strong yields for the next several years. So it should be the go to energy stop me, if youre focused on dividends and we're focused on dividends primarily it was because of the feedback when we talk to all of our shareholders back over there.
Last 18 months that was the.
Focus feedback that we got they really don't want buybacks, if they want to take the dividends and buyback our stock. They can do that they want the ability to invest the dividends and any stock. They wanted was the feedback that we got so that's why we're focused and we had the greatest payout up to 75%.
So the variability obviously will be commodity price.
And 1 of the feedbacks, we will ask for and we do not plan to do any hedging and regard to the variable dividend. If we do any hedging and it'll be up to very very low and it'll be to protect the capital budget and balance sheet.
And if shareholders want us to protect the variable dividend and they'll have to give us that feedback in regard to hedging and I'll stop there.
And it sounds like we'll get a get an update on the quarterly on the variable dividend on a quarterly basis.
Going forward, Okay, and then the follow up is just around M&A. So 2 questions around this 1 is can you provide a little bit more color and addition to what you provided on the slides here about.
And capturing the synergies associated with the double point transaction and just in general do you view this as a buyer or buyers or sellers market as it relates to A&D at this point and <unk>.
Other words are you at the point it is pioneer given the inventory that you're really going to work on your existing asset base as opposed to pursuing incremental transactions per year.
Yes.
Yeah and illustrate our focus is really on you know.
Executing our program related to the parcel and double point and transactions along with the base pioneer you know on the synergies I think of as I mentioned, and we've captured the G&A and interest or focus and you know on the operational side and of identified and over 50% of those that were focused on incorporating into our plan, including you know assignment Frank that Joey talked about the longer laterals you know integral.
And of our facilities capital that and using that integration capital that we spent to buy our spending to upgrade the facilities related to partially and double point of our high operational standards and you'll see that when you know when you see our sustainability report came out that you know that some of these dollars you know we've got high standards that we want to adhere to and you're going to see that and our sustainability report.
And so those dollars are being spent to accomplish those activities.
And on your second question Neal.
As I said, we had 2 became available on partially and double point.
They were the best opportunities.
They had great tier 1 inventory.
We bought them and there is nothing available as.
As of current time.
And I don't anticipate anything, but gum and available. So there is no need for us to look at other opportunities at this point and time.
Terrific. Thanks, guys.
We used and Mary Kay <unk>.
Next question from John Freeman from Raymond James.
Good morning, guys.
Hey, John and Jeff.
And it's great to see if he has a variable dividend paying debt well ahead of schedule on and obviously the mechanics of that that variable dividend per.
Yeah, I'll sort of laid out really well and I'm trying to get.
And I sense, though on when I look at the base dividend sort of how the mechanics of many of the thought process works on the base Devin and side of things I know Scott and the past you've talked about that long term plan as soon as kind of roughly like a 2 to 3 per cent per year and kind.
And the average increase and the base dividend. So that's the variable dividend adjusted in the past.
Sort of toggle, there and the commodity price as the base dividend is it mainly just sort of linked to the balance sheet and leverage goes lower and that gives you and your ability to raise that just any additional color on on the base dividend.
Yes on the base, we're still building and just as you said that 2% to 3%.
The.
Increasing the base, that's still subject to board approval, but that's our intention is on an annual basis over the next 5 years to increase the base. So as we increase the base.
And keep in the strip the same.
And it reduces the variable of little bit.
<unk>.
Got it and then just my other question and.
Is there any update yet on the other on the Delaware. We've got you know the 1 rig there and you're starting to children and those initial wells as you know that area and it looks to try to compete for some capital and just any updates on on what Youre seeing on the Delaware on on the early results.
Yeah, John we're just getting started we're just this quarter, we're putting our first rigs over there and so we'll have more day to you know into this year into next year on performance, but yeah, we fully expect to bring the operational benefits that we've seen in the Midland basin to the Delaware Basin and we're excited to get started over there, but it's just too early at this point, so I don't really have any risk.
All of it yet to share until you know probably early 2022.
Got it thanks guys congratulations.
Thanks.
We can now take the next question from Derrick Whitfield from Stifel.
And good morning, John and congrats on your quarter and variable dividend update.
With.
My first question I wanted to focus on ops, perhaps for Joey.
Are there any practical limitations that can limit your deployment of Samuel Frank Ops program wide.
Yeah, 1 other question that I get quite often because of the great success. We've seen on some of Frac is why not convert all of our fleets to sign on Frac and Theres, a couple of things of that and limit that 1 is logistics, particularly around water.
Because we basically doubled and water requirements on 1 area.
And all of our Frac fleets were working under Simon Frac operations, we'd have to spend a significant amount of capital to upgrade our water systems and of course logistics around the sand as well, but the other maybe more trivial of matter is also the number of wells on the pad. If you have an odd number of wells on the paddock and.
And have a slight impact on the efficiency, but.
But primarily we want to make sure that we're efficiently deploying capital and then we're getting the bang for the Buck So water logistics is probably the single most impactful thing that we look at 2 deploying soundtrack.
Understood and staying on ops with my follow up question referencing slide 10, and your prepared comments on lateral links and wanted to ask of 2022 activity question. As you guys internally prepare for 2022 years from a permitting and an infrastructure perspective are there any broad.
And activity outlines you could share with us on average pad size and lateral links that are possible for 2022.
Yeah, I think as we've talked about in the past as we've talked about that pad size of basically 4 wells per pad on average of over 4 this year I think that's going to be fairly consistent for 2022, and then when we talk about longer laterals, we're still in the midst of.
Developing the exact locations for 2022 and.
And how many of the longer laterals, we'll drill but it'll be definitely a bigger part of our portfolio and 22 then it.
What has been in the past and in 'twenty, 1 as we've looked at that and obviously the capital efficiency of drilling longer laterals continues to improve so.
And there's probably a overall on 15000 foot laterals on our drilling and completions per foot basis and a fifth.
15, plus percent cost savings on an average per foot basis.
Great update and thanks again for your time.
Sure.
We can now take the next question from Doug.
Cash from Bank of America.
Thanks, Good morning, everybody. Thanks for taking my question Scott I'll go to I think that probably both for you.
And I guess, the first of all on those on the.
And both related to M&A.
There's obviously been some a little bit of criticism over the price of the DP acquisition obviously.
Obviously, all stork means your share price.
Given where it is today.
You have an opportunity to reset the acquisition costs bye.
Like buying and some of your shares and understand and durable dividend policy, but I'm just curious.
And if that ever occurred to management or the opportunity that's been given by this overhang that you clarified.
The implied acquisition prices of oil cheaper today, if you like.
And you have a chance to who was on cost by volume and you are still quite small.
Yeah, Doug first of all of I think the market totally misunderstood the double play transaction. When you look at unproved property and EG all can do that on our balance sheet.
We paid the same exact same price as we paid for parsley.
And the low 20000 per acre. So anybody is criticising as we're paying 40000 per acre had no idea of what they're talking about.
And secondly, it was of great transaction and regard to buybacks I'm listening to the shareholder base as we drive.
Our debt to EBITDA below 1 I have stated already on prior conference calls.
The we will definitely be subject to board approval, we will be buying back stock when we see dislocations.
So I'm a firm believer limor.
Bottoms of the markets like we saw last year I went ahead and have the best balance sheets of locking buys a lot of stock at $50.
And so.
Are they buying it at today's price and they got rather distribute all of our cash flow, 75% or 80% of it back to the investor. So I sort of agree with you, but at the same time I'd, rather save my firepower.
If we see I hope, we don't see dislocations like we saw last year and the marketplace.
I've got more confidence and what OPEC is doing and creating stability less volatility than we see and the last 5 years over the next 5 years based on what's happening what's happening with U S shale and other places around the world. So.
That's net.
And that's how we're thinking today.
And I appreciate the uncertainty and we can take the acreage loss.
Offline and I think of it.
And completely agree with you.
My follow up Scott is a little bit would've been of truth question.
And the Cimarex Cabot as 4 came on.
On a period of at least if we joined the adults to suggest that pioneer have taken a hard look at cabinets, so and light and everything that you said about 2 best opportunities being partially of double point.
I Wonder if you could help us understand with thinking that might have gone into that and whether you would rule and yourself out.
Both the possible shell part of units for sale and the Delta.
Sure.
During the extreme downturn, we had a lot of discussions with a lot of different Ceos, obviously, just like Exxon and Chevron data at the top and.
So we don't comment on specific opportunities, but we were looking at partially early on and continue to look at partially all during last summer. So we're 100% focused on the Permian basin, and probably 99, 9% focused obviously on the Midland Basin, and so that's where our focus lies.
Alright, Thanks, and I'll try and builds on some questions I appreciate it.
We can now take the next question from Charles Meade from Johnson Rice.
Yes.
We can now take the next question from Scott Hanold from RBC capital markets.
Yeah. Thanks, congrats on the quarter.
And to ask a question, maybe a little bit more again back to you know of hedging and your strategy. There and you know certainly of the commend you for your effort to listen to investors and then appropriately just your business model, but what feedback have you been getting from investors to this point on on hedging and has that.
Determined the path you're moving forward at this point and time.
Yes.
And have that due to what's happened with COVID-19, and the ability to travel we're just now going to start getting out.
Over the next few weeks and talk with several shareholders.
Obviously the conferences.
Sort of of hard to get feedback there and those virtual conferences, we'd like to do it and 1 on 1 meeting so you're going to see the pioneer team over the next 8 to 10 weeks and traveled throughout the U S and talking to shareholders. So at this point and time.
After reserve the feedback on what they give us in regard to hedging in regard to the variable dividend. So.
So it's a good question Boris and November to ask.
So this is still of developing sort of thought process going forward because I guess the point I would make of that you know certainly with you know your 23 billion of free cash flow outlook and you know obviously and you know I think you've stated of pretty strong return to the shareholder plan with that.
2 of certain extent, obviously, that's underpinned by you know operations, but also you know.
The current commodity price and so obviously you know.
We know oil volatile and it looks good now, but like you know the thought process of like what why put that at 23 billion of free cash flow at risk. When you can lock some of that and but it sounds like that's something that you all need to evaluate a little bit further with shareholders and that is that sort of right.
Yeah, that's right and that's because it's totally changed we used to spend.
I spend every dollar to drill a well it will protect the capital budget primarily.
And now we are.
The free cash flow essentially all most of it all goes back to the shareholder base. So.
We're going to visit with our shareholders to get feedback so there probably won't be consensus among them, but and it's something that we've done historically is get shareholder feedback and.
The develop of our long term.
Policies.
Absolutely.
And look forward to it thank you.
We can now take the next question from Charles Meade from Johnson Rice.
Good morning, Scott and team get in and my and my life. This time.
Yes, it's working.
Sorry about last quarter.
[laughter], they don't share what happened but anyway.
Scott I I I apologize ahead of time for Belaboring. This this a day question, but in your prepared comments you I believe I heard you say, we're not looking at any of other big Midland Basin of acquisitions and I think so.
I guess literally you might think Oh, well are you guys looking to tack on.
And the Delaware basin, but maybe the right way to think about is it really you.
We're at your core our Midland Basin Company, and so you really.
And you can interpret that and said you really just focused on the base and as the future of of pioneer So so how.
How should we.
Interpret that.
Well, it's 95% of our company and our locations as the Midland Basin. So that's why I say that the Delaware as Rich said, we're focused on drilling wells and we're moving and in several of regs were averaging 1 rig, but we're moving and more than 1 rig for a short time frame and we need to develop our own economic.
<unk> and returns at today's price.
Tremendous and the Delaware also.
And so higher oil prices go to Delaware.
And as close to me and equal with the Midland Basin. So it did inventory moves up significantly in the $60.70 range versus the 40 to $50 range. So.
We're just focused on our current asset base.
And try to get every dollar of back to the shareholders, where we're focused on both the Delaware and the Midland Basin, we are continuing to do trades.
I think rich may have mentioned, we're doing drill co number 2 on our tier 2 properties.
We will continue to look at small divestitures.
So there could be some.
Small opportunities on the small side, but it's it's insignificant and doesn't affect free cash flow and that's where the focus is.
Got it. Thank you and then and then Scott I Wonder if you could offer you're more of kind of maybe.
And maybe macro thoughts, but maybe not so much on on price but.
What do you think what do you think the world is expecting to see in terms of.
Volume growth from from U S onshore and in 'twenty, 2 and and what do you think theyre likely to get you know versus those expectations.
Most of the numbers and I look at it yes. He has the highest numbers there at 11.8 5 I think they are way too high.
Most of the other.
Thanks, and I look at the around 11, 5% Thats probably more realistic.
But I still looking at about a 5% growth.
And the Permian and most other basins will be flat to declining and when you put all of that together, we'll be lucky to grow 5% of year over the next several years in the U S. Lower 48, as my general opinion and.
And then as more companies deliver their free cash flow model. They can't change. It. So just like Diamondbacks commit into 50, the Cabot Cimarex mergers committed to 50, Devin is committed to 50, so more and more companies, whether they commit to 50 or 75.
And of change and so.
And get more comfortable and the fact that just not going to grow that much.
Sure.
With that Scott.
And then.
We can now take the next question from Scott Gruber from Citigroup.
Yes. Good morning, just following up on the comments around there and <unk>.
Type of buyback stock during a market dislocation with which makes sense, but just to clarify Scott.
What's your approach.
Converting some of the variable dividend.
Buyback for a period or would you is there.
The remaining 25% of threat and a free cash flow to <unk>.
Buy back stock as a supplement for variable and based on how would you approach.
Harry on buybacks during of dislocation.
No.
Dislocation as what happened last year or in late 2014, that's what I'll call of dislocations when and we wanted to have the best balance sheet. So.
Our debt to EBITDA gets below 0.5, and 2023, so as it gets down to <unk>.
Below 5 and we will have the firepower when we see of dislocation and I'm talking about a major dislocation I'd, rather buy shares all day long of $50.
Instead of using firepower to buy shares at $1.40 of 150, I'd, rather not risk the balance sheet and distribute 80% of our free cash flow back to the investor So thats the best of playing.
Got it and then just turning back to US and you just given the efficiency gains that you guys are seeing and potential future gains and as you rollout some of rack and.
And K laterals.
What is the rig count and Frac crew cabs, and we should be thinking about.
And for pioneer to maintain of 5% growth rate in 'twenty, 2 and then thinking about Airbnb and place and that's percolating up through the industry today, how much of the underlying industry inflation do you think you'll be able to offset.
Efficiency gains around these initiatives next year based on where you're seeing today.
Yeah, Scott Rich and.
And just longer term growth plans like we've talked about before them and you know to accomplish the 5% growth is yet 1 to 2 rigs that we would add drilling rigs per year to accomplish that and so that's really how I would from a modeling perspective look at it going forward on inflation, we are seeing some price.
Pressure on you.
Fortunately, our efficiency improvements and our long term contracts have dampened net.
But overall you know, we're seeing it and tubular diesel demand.
Chemicals, but we're also starting to see a little bit and labor as well and so for this year you know, we're projecting what I'd call it and the mid single digits of inflation, most of which were offsetting it with.
And with efficiencies, but and the back half of this year you know, we do expect that to grow to about 10% and so that's something that we'll have to look at and 2022 of of where do we see inflation versus you know what efficiency gains we've been able to capture this year. So we're still going to be highly focused on getting efficiency gains, but what do you think inflation is going to play a part.
And are you know 22 capital budget.
Got it appreciate it thank you.
Youre welcome.
We can now take the next question from David Heikkinen from Pickering Energy partners.
Good morning, guys and thank you for taking the question is I thought through the acquisition and you all and really helping clean up the Permian and can you provide what parsley flaring intensity was relative to where you've been as the lowest and same thing for double point.
Just trying to put it into a percent.
Quantify how how big of an impact of the moves you're making and the second and third quarter oil will impact their flaring and then Theyre venting.
Yeah, David I don't have the exact numbers, but we can get them for you, but you know that they are definitely coming down and making progress they were higher than were pioneers, where but I don't have the I can't remember the exact numbers, but like I said, we can get them for you, but definitely the capital that we're from an integration standpoint and improving their facilities.
It's a big focus and a big focus on us continuing to lower our emissions footprint. So it's definitely something that we're spending capital on.
And then David is and I've got a day.
David Please if you look at if you look at Rice day, we were down and 110th of 1% before the 2 acquisitions now we're about a half of 1% and.
And so we're like number 6 and the Permian Basin. Our goal is to get back to be and number 1. So that's when you look at the <unk> report and you can get a better feel.
If you look at them on a quarterly basis.
That'll be on your updated synergy.
Sustainability report too so that'll be helpful.
Did you quantify the barrels of like you have some curtailments as you do the pneumatics and you do the VR use maybe I missed the third quarter.
And what amount of curtailment and did you have.
I was just trying to dial in and exact number of kind of that this cleanup work that you all are doing.
Yeah, David I don't have the exact numbers on that and what I'd tell you is our Q3 guidance is right, where we expected it to be and so and it takes into account our focus on being capital efficient and making sure that our.
We're not over spending capital on facilities and choking back well. So we still as we've talked about in the past have relief of.
Choke back wells to be capital efficient and therefore, we have a lower IP rates and flatter declines, but also it takes into account this integration capital that we're spending to.
To upgrade the parts of the and double point facilities and the time that those are down so it factors all of that in and so really no change to what we've forecasted for the full year production guidance is exactly where we are in Q3 is what we would've expected.
Thanks, guys keep clean and ended up.
We can now take the next question from Irene <unk> from J P. Morgan.
Yes, good morning, I wanted to get.
Some of your thoughts on 2022 Scott.
What you've outlined and up to 5% oil growth.
And I.
I wanted to get your thoughts on how Capex could trend. There is obviously, some pushes and pulls with 150 million of synergy tailwind from from partially and double point, there Simon but obviously some inflation. So I know the street expectations next year on 405000 barrels for.
<unk> for oil and just under $3.6 billion and Capex and I just wanted to see if you could maybe frame.
How do you think the business playing out relative to where the street's at for next year.
Yeah.
Yeah, Rich Richard a little too early for us to comment on the details specifically for 2020 day of Capex and production.
But I would tell you that were committed to our investment framework that yields at maximum of 5% oil growth for 2022, and then broadly speaking I think that equates to what much of what we said last quarter excuse me.
About 400000 barrels of oil per day for the year and about slightly over 700000 Boe's per day.
For 2022.
Got it got it okay fair enough.
And just my follow up is in the and the quarter you guys turned.
Turned to sales I think of 157.
Welles I was wondering if you could maybe give us a bit of a mix between.
You know double point acreage versus maybe legacy pioneer partially and then how would you frame.
The well productivity on the acquired acreage and on double point.
Yeah.
Yeah, Yeah. Our teams did a really a great job as I mentioned early on about the integration and drilling and completion efficiencies. During Q2 were great and so that led to the higher pop cadence during the quarter, we do anticipate of that to step down in Q3, and about 10% to 15% in terms of what that pop cadence will look like but overall on our production.
And as it was for Q2 was very strong were very happy with the performance of all of our wells I mean at this point, we look at them all of his pioneer and so partially della point pioneer wells all performed at expectation and did well. So you know everything is progressing just as we would've liked.
Great. Thanks, a lot of Richard.
We can now take the next question from Paul Cheng from Scotia Bank.
Thank you I'm on it.
2 question first I think it's full of Neil Neal can you give us some idea that how is the cash tax.
Progression, it's going to be over the next several years given oil pie of $70 plus.
Hi, Wendy.
Second question is that and it's just I feel a lot of co. Scott if we look out for the next day 2 of 3 yes, yes, and the events.
And you see Oh, Pat Yes, curtailing production.
In support of oil prices on the back kind of macro environment.
Pioneer still trying to grow at 5% all of that <expletive> pioneer to grow.
So on net or on the desktop circumstances.
Hey, Paul I'll kick it off and I'll turn it over to Scott I mean, if you look at our current NOL balance of approximately $8 billion, but if you consider the increase in commodity prices and the forward strip and the expectation for substantial free cash flow profile of that Scott and Richard spoke to on.
And our cash tax timeframe did accelerate into 2023. So that's based on the current strip and and our and our free cash flow generation, so and a slight acceleration, but good based upon the free cash flow profile. If you look at our current portion of taxes those of our state related so that's kind of where we sit as it pertains to cash tax.
And payer and the profile on a go forward basis.
Yes Neal.
And can you tell me of tax I'm, sorry, Scott.
No go ahead and you pick up.
On.
Cash taxpayer.
2023, what pile of cash that represented of total tax on top of line.
So it starts to layer in hall on 2023, so we're not a maximum per at that point, but it does layer and 2023 of 2024 and start to step up.
And throughout that timeframe.
Okay alright, thank you.
Sorry, Scott Yeah on the.
Yeah on the OPEC question Paul the.
We say up to 5% so as long as <unk>.
Demand is strong.
And I am still on the assumption that the delta variance going to rollover.
People will continue to get vaccinated and demand is going to pick up significantly the back half of this year and next year going into 'twenty, 3 so and still anticipate strong demand.
And as long and that's happened.
We'll be growing 5% of year if for some reason there is any softness we can actually we can easily back off of 5% grow 2%, 3% growth zero. So.
But right now we're modeling 5% growth over the next 5 years.
Thank you I just want to make 1 observation will come and on the hedging.
Person they'll get that I actually there's a lot of people are you guys don't hedge gains.
Look at what that yes.
The company and with the industry.
And yes, 2030 year of what they thought you see hatching as always a new thing Monday type of session I don't think the industry IP and make money and with your very low breakeven requirement.
And your very strong balance sheet loss sure that why do you want to hedge your best of we need once you get the upside.
And you.
Thanks, hopefully year of shareholder and give me feedback path so [laughter].
We can now take the next question from Bob Brackett from Bernstein Research.
Thank you for that most of the good questions have already been asked so let me just chime in and which is uncharacteristic for me and say I truly appreciate the variable dividend strategy and the.
Oxygen, reducing cash returned to shareholders and and that modest growth. So I'll just leave it there. Thanks.
Okay.
Thank you.
We can now take the next question from Phillips Johnston from capital 1.
Hey, guys. Thanks, just 1 question and for me and it's really just a follow up on the mechanics of the variable.
I think the prior plan was to tie the variable components of the prior year's actual annual cash flow and just sort of pay that evenly.
Evenly throughout the year every quarter, whereas the variable that you announced last night is.
Actual second quarter of free cash flow, so just to clarify.
Variable now always be tied to the prior quarter's free cash flow and if so can you maybe talk about the tradeoffs between the new format, which sort of pays out of free cash flow and more of a real time fashion, which I think is a real plus and it also does.
Bringing a little bit more volatility.
And we payout.
Yeah. It may.
And it's driven more of the fact that you all strip since we announced our plan and last February the oil strip of 5 year. All of you of it moved up significantly we made 2 highly accretive transactions and <unk>.
And.
We saw the benefit of what Devin was doing already so we decided to go ahead and moving forward. So it will it will fluctuate, but at least I mean.
Like the third quarter is already pretty almost close from a commodity standpoint, and French trading and October already as of now though.
You pretty much know the third quarter. So it would be easy for I think analyst and investors to estimate the free cash flow with their models.
Obviously it will vary.
If we had gone on the old route.
And have to wait.
And then delayed 18 months that was the negative.
Yes, Okay makes sense Scott.
We can now take the next question from David and Patrick.
From Cowen.
Yeah.
Thanks for squeezing me in guys.
I had a couple of hopefully quick ones for you and congrats on the inaugural variable payments.
Just curious Scott after the double point deal and if you look back you know where the 12 months surplus I guess there between then and now that you've had a $10 move.
And it was the plan I guess still to drop those rigs and then bring that production down to a level of like of 100000 equivalents of day to maintain that.
Was there was there of weighing I guess against are just maintaining that higher flush production that you had acquired.
No that's still that's still the plan no change.
And I guess, just as a follow up to that as you talk about this potential for 5% growth every year.
I guess is this is this always occurring as of yearend process, where there is you know it's arbitrary in terms of calendar, but it is it is it making decisions for the following year.
And I always sort of and this fall timeframe, where the 5% growth would be determined and also at that point.
Are there and going to be points, along the way throughout the year, where perhaps there's a return based function that chooses you maybe to be positioning for bringing more activity forward that that current point.
We had yes, we had to make a decision to go to 5% and 22 and early this year you can't wait till the end of 'twenty, 1 to go 5% and you'll end up spending way too much capital.
So our capital program is setting us up this year to go 5% with adding very few rigs if any.
Dropping some this year.
And at most we will be adding back 1 or 2 next year. So we have to make the decisions a year ahead of time and that's why it's great. That's why it's best to have a great balance sheet.
So you can drill through the cycle, but we also learned from what happened last year, we can shut down we shut down.
And how many rigs Joey and on a short timeframe.
During the pandemic and in 2 weeks, we shut down.
18 rigs.
I mean, we've gone through so many down cycles over the last 11 years sad to say that and 2009.2014 and.
And then 2020 that.
And we've learned and.
We can make quick decisions at pioneer and get to of free cash flow and what's amazing is 2020 was our first free cash flow model, even in the worst oil price here.
So.
But that's how how fast we can react.
And change.
I appreciate the clarity.
If I could squeeze and a quick 1 just on the affluent water coming out of the Midland right now.
Where do you estimate the amount of the capacity that you'll be utilizing out of that system and.
And in 2022.
Yeah, it's still ramping up and but we didn't have the ability to take up to about 200 and.
2200, 40000 barrels a day from that system and and so it really just depend on logistics and mechanics, and hydraulics of the system and where the drilling is and you were going to optimize the lowest cost of water, which in Midland is going on 1 of our lowest cost of waters and so it's that's the game plan and it's still being modeled but it's.
That's basically where we would anticipate getting up to over time.
Thank you guys.
Sure.
This concludes today's question and answer session I would like to now pass the call back over to Scott Sheffield for any additional or closing remarks.
Okay.
Again, we appreciate all the questions look forward to see and everybody and hopefully we can see everybody on the road at some point in time stay safe and we'll see you in November thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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