Q3 2021 Pioneer Natural Resources Co Earnings Call

November 4, 2021

[music].

Yes.

Welcome to pioneer natural resources third 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 their comments today.

These slides can be accessed over the internet at Www Dot PX D dotcom.

Again, the Internet site to access the slides related to today's call is W. W. W. Dot <unk> dot com.

At the website select investors, then select earnings and Webcasts.

This call is being recorded a replay of the call will be archived on the Internet site through November 30th 2021.

The company's comments today will include forward looking statements made pursuant to the safe harbors provisions of the private Securities Litigation Reform Act of 1995.

These statements and the business prospects of pioneer are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from the forward looking statements.

These risks and uncertainties are described in pioneers news release on page two of the slide presentation and in Pioneer's public filings made with the Securities and Exchange Commission.

At this time for opening remarks, I would like to turn the call over to pioneers senior Vice President and Chief Financial Officer Neal Shah. Please go ahead Sir.

Thank you David Good morning, everyone and thank you for joining us for pioneers third quarter earnings Conference call.

Today, we will be discussing our excellent third quarter results and the strategic divestiture of our Delaware Basin assets. We will also discuss our peer leading return of capital strategies and a strong ESG focus as outlined in our recently published 2021 sustainability report and climate risk report.

Then we will open up the call for your questions with that I will turn the call over to Scott.

Thank you Neil and good morning.

I think obviously you can see from the headlines on slide three that's probably one of the best quarters in pioneers.

Your history, which is coming up next year or 'twenty, five 'twenty fifth year anniversary in.

And it's hard to imagine.

A company like pioneer thrown out just in one quarter 1.1 billion and free cash flow, obviously during the quarter and returning 880 million of that in regard to the dividend, including base plus variable.

Our dividend payments from the third quarter is $3 58, a share made up of three O. Two variable in 56 cents on the base.

Probably the big headline from the quarter.

Tremendous transaction for pioneer divesting of our Delaware assets for 3.25 billion expected to close by year end and when you add the 250 million recent two.

$250 million of recent divestiture from Glasscock County.

That makes a total for the quarter of about $3 $5 billion.

We're increasing our base.

After talking to a lot of our shareholders over the last several weeks I think it's very important to continue to increase our base. So we're increasing it over 10%.

That will commence in January with that base dividend payment and we'll continue to look at the significant increases over the next few years as our balance sheet continues to improve and if commodity prices continue to perform like they have been.

And then lastly, again Neil talked about it it'll be released our two reports we will talk about it later, but again increasing.

Our goals to 50% and greenhouse gas intensity reduction and 75% in regard to methane intensity.

Turning to the next slide on slide number four again production in the upper half of the third quarter guidance.

Rich will give you more detail in a few minutes in regard to the effect of what I'm, the Delaware sale does to us.

I think the most important point here with our with the bulk divestitures of.

Glasscock County in the Delaware.

Obviously, we're now focused on the high margin high return Midland Basin.

And will it end up having the strongest balance sheet in the company's history at debt to EBITDA 0.4 by the end of the year.

Going to our long term thesis on slide number five.

Again, our power focused deliver mid teens total return when you look at one of the later slides with a dividend yield of about 11% go into 2022 growing at 5% a year.

That gets us to that mid teens total return.

When you look at just a return on capital employed and Croce going into 'twenty, two and beyond we're in that low to mid twenties on both of those numbers, that's really unheard of in regard to the change in the strategy to keep production fairly flat minimal growth and returned most of the cash flow back to the investor.

Reinvestment rate of 50 to 60, when you look at next year, it's really down in the 30% to 40% range.

When you look at free cash flow generation.

Our free cash flow generation next year will be up 88% from 2021.

When you look at a five year strip.

Well generate over 25 billion of free cash flow.

If you just take current oil price today in the low eighties.

In the mid eighties and keep it flat for the next five years, we're over 35 billion of free cash flow.

When you just look at the strip pricing by the end of next year, we will essentially for the first time we.

We essentially debt free by the end of 2022.

So pioneer will end up continue to have one of the best balance sheets in the industry.

As I've mentioned in regard to our strong and growing annual base dividend, we went up over 10% and we say as long as our balance each day is in great shape, which we expect commodity prices continue to stay strong we will continue to look at increases over and above our growth rate of 5%.

Again, the variable dividend up to 75%.

Previous quarters free cash flow of deducting the base dividend.

Be distributing about 80% of free cash flow back to the shareholders.

Again, we stated we had a share repurchase program.

Where we had spent about $900 million in 2019 and 2020.

We actually are one of the few companies that bought during the pandemic our stock back.

In the energy sector.

It's been about $900 million and bought the stock back around 130 <unk>.

I'll go back in history. The other time, we bought our stock was back in 2005 2006.

After we sold our deepwater assets, we spent $1 1 billion at 45, we do think it's important over the next five.

Years, if we do generate $25 billion to $35 billion of free cash flow.

We significantly reduced the share count over time.

But it's going to be opportunistic and during market dislocations.

I think the last key point here is that the fact, our EBITDA will be up about 45% to 50% next year.

Primarily due to the full year of both acquisitions and.

And secondly, with very minimal hedging.

In 2022.

Going to slide number six.

Again significant increases.

And our variable dividend and also our base dividend.

But basically a nymex growth from 'twenty two annual dividend over the 2020.

Returning $1 6 billion in dividends in 2021, a three X increase from 2020.

So we're estimating something near about $20 per share total payout.

In 2022.

When you go to slide number seven.

The show pioneers.

Dividend yield.

It will exceed our peers majors in the S&P 500.

We're already at 8% just based on the one we declared.

For the fourth quarter of 2021, when you look at next year will be 11%.

The other two strong companies below is obviously, our dividend <unk> Tara with strong variable dividends, but then you see a significant drop to the U S majors European majors, our dividend yield is over two X versus the U S and European majors and when you look over the rest of the peers, excluding Devin good Tara.

We're basically a 10 X dividend times, where 10 higher over the rest of the peers.

When you look at the S&P 500, which is around one 6% were over 6% to seven X times the S&P 500.

I'll now turn it over to Neil at our base.

Thank you Scott slide eight demonstrates maintaining a strong and growing base dividend is a commitment to our shareholders and a key pillar of our investment thesis.

As Scott stated earlier, we are further strengthening our base dividend with an increase of greater than 10%.

Which is an acceleration of our 2020 to base a dividend increase.

Inclusive of this increase as you can see in the graph, our five year base dividend compound annual growth rate of greater than 95% exceeds all peers in U S majors.

Additionally over the same period, while many peers have cut our suspended their base dividends pioneer has consistently maintained and grown its base dividend.

Demonstrating our steadfast commitment to our shareholders and creating value through dependable through cycle return of capital.

Turning to the next page slide nine.

Even with inflationary pressures servicing in 2021, we continue to reduce our controllable cash costs, which are comprised of cash interest cash G&A and Midland horizontal <unk>.

As a result of our high operational efficiencies and acquisition synergy capture we expect 2021 cash cost to be approximately 30% lower than 2019 levels.

<unk> unique combination of high oil cut low controllable cash costs and top tier NRI drive compelling cash margins that underpin our strong free cash flow generation and return of capital strategies now I will hand, it over to rich to cover our outlook update.

Thanks, Neil Good morning, everybody I'm going to start on slide 10, where we show our updated production guidance for 2021, you will see here that we've narrowed our full year production.

Oil production range to 356000 to 359000 barrels of oil per day, and total production to 613000 to 619000 Boe's per day. This narrowed guidance reflects the combination of our reported.

Production through September 30, and our Q4 guidance, which includes the impact of the Glasscock divestitures that happened in October.

Due to the Delaware Divesture not closing until near year end production guidance includes the Delaware for full year and our capital guidance is unchanged, but also includes Delaware for a full year as well.

I did see in the notes over the night that there was a couple of comments on our third quarter capital just wanted to hit that upfront that our capital. In Q3 did include a fair amount of integration work that we did related to the parsley and double point assets, where we are upgrading their tank batteries.

And facilities to our standard so that's what's driving a little higher capital. If you move to the fourth quarter. Our capital is expected to come down as we do have less integration activity and we will be on average running one less rig and one less frac fleet during the quarter.

Turning to slide 11.

Yes.

As Scott mentioned and Neil talked about we did announced the Delaware divestiture as you can see from the slide here about $3 5 billion of cash consideration about 92000 net acres.

Being sold and production currently is running about 50000 Boe's per day, we did have some a drilling program there and so if you once those wells are completed first quarter that'll be about 55000, Boe's a day of production.

Once those are completed in the first quarter placed on production.

As we've mentioned the transaction is expected to close at year end.

Post this transaction it does return pioneer to being 100% focus on our core acreage position in the high margin high return Midland Basin.

Also we did announced or closed on October the 20000 net acres sale of our Glasscock County acreage, Colorado for about $230 million monetizing our long dated inventory that we weren't going to get to for a while.

At the time of the sale of this acreage head was producing about 4400 BOE a day or 2600 barrels of oil per day. So on a combined basis were divesting about $3 $5 billion of assets in the fourth quarter of this year, which will further strengthen our balance sheet.

Similar to these transactions, we will continue to pursue strategic acreage trades and we'll continue to evaluate drill COSE and small small scale invest divestments.

On long dated inventory.

To accelerate value to shareholders.

So looking forward to 2022 after adjusting for both Delaware and Glasscock divestitures, we do expect to keep our Midland basin production relatively flat with Q4 levels. So we're seeing 2022 production adjusted for the divestitures at 355000 to 360000 barrels of oil per day or six.

<unk> hundred $30 to 640000 Boe's per day. This is expected to result in a 2022.

Annual oil growth rate consistent with our long term investment framework of growing production between zero and 5%.

I might also note that as we look at 2000 2020 capital we are still in the midst of evaluating that we were expected to spend about $250 million to $300 million in the Delaware basin to grow production there starting in 2022.

So I'll stop there and turn it over to Joe for more details on operations.

Thanks, Rich and good morning to everybody I'm going to be picking up on slide 12, Our 2021 plan remains unchanged and is set to average between 22 and 24 rigs for the full year.

<unk> mobilized several rigs to the Delaware in Q3, which I would equate to approximately one rig for the full year.

Drilling and completions continue their strong track record of efficiency gains with greater than 70% and 80% increases on their respective foot per day metrics when compared to 2017.

We are still operating to some more frac fleets, which further increases efficiencies and is reducing cost our drilling and completions teams are also successfully executing on 15000 foot laterals.

At the same time, our land and development planning teams continue adding future 15, K laterals across our acreage position.

Once again, congrats to the team for great execution in Q3.

I'm going to move on to slide 13.

<unk> has been committed to sustainable operations for a long time and this has resulted in pinar, having one of the lowest current emissions intensities amongst our peers.

As you can see <unk> 2019, starting point is lower than the majority of our peers projected intensities for 2025 and 2030.

<unk> 2030 emissions intensity goals represent one of the most aggressive reduction targets in the industry demonstrating continued progress on our trajectory to net zero.

This was only made possible through years of thoughtful planning and investments to minimize emissions at our facilities, coupled with our comprehensive leak detection and repair program, including routine aerial surveys.

Now moving to slide 14, and continuing the same story one from the previous slide pioneer also produces extremely low emission intensity oil on a global scale, which will improve as we progress toward our 2030 reduction targets.

This combined with our low breakeven results in exceptional and resilient production that we expect will compete in the global marketplace for a very long time.

And with that I'll turn it back over to Scott to wrap things up yes.

Thank you Joey.

On slide number.

<unk>, we've talked about our new targets, we've had significant reduction.

From our baseline of 19% to 20 as indicated.

But there are progress, 27% 50, and 50 I think we're one of the only companies that as targets for fresh water, reducing freshwater incompletions.

In the U S.

Our new targets are 50% by 2030 for greenhouse gas emissions are both.

Scope, one and two and 75% for.

Methane it previously it was 40%.

Also 2020, flaring intensity was <unk>, 2% significantly less than our goal of 1%.

Again, we expect to end routine flaring as defined by the World Bank by 2030 with aspiration to accomplish about 2025 and as Neil said, we just recently published our first climate risk report.

Going to slide number 16 and focused on ESG leadership.

I think you can see the significant changes we made over the last two years and our annual incentive compensation components for all of the executives.

I am still the only CEO in the industry, that's 100% tied to performance shares.

Most of our other executives it's around 60%.

You can see that we've increased our targets on ESG and HSE up to 20% from last year.

Goals are 100% aligned with shareholders' interest.

We expanded the responsibilities of the board of directors sustainability and climate oversight Committee.

Which is led by our Nonexecutive Chairman, Ken Thompson, and we recently added a second director this year.

Maria <unk>.

<unk> Dreyfus.

<unk> has two key focuses one on ESG.

And secondly.

He was a managing director for Goldman Sachs investment partners.

And an expert in asset management over the last several years again, we have a picture of our two reports we encourage everyone to read these reports.

Going to the last slide enhancing shareholder value slide number 17 again focused on returns and just to remind you I mentioned that will be in the low to mid twenties on both <unk> and also <unk>.

Capital discipline, I mentioned that we will be returning roughly.

Our spending about 30% to 40% over the next several years as our reinvestment rate.

Return of capital to our shareholders I mentioned that we have about 25% to $35 billion in a couple of different price cases strip and play a price will be returning about 80% of that back to shareholders plus any buybacks that we did during that time period.

Preserving a strong balance sheet as I mentioned earlier, we will have the best balance sheet in the company's history by the end of this quarter and secondly, moving to zero debt.

By the end of 2022.

Significant inventory, we probably got the largest and longest inventory of any company in the U S today and.

And we continue on ESG leadership to be performing at the highest level I'm going to stop there we will 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 are 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.

We'll pause for just amendment to allow everyone an opportunity to signal for questions.

We will take our first question from Doug Leggate with Bank of America.

Okay.

Doug Your line is live.

Okay.

Yes, we can hear you.

Okay.

Let's go to the next question.

Thank you. Our next question comes from Neil Mehta of Goldman Sachs.

Good morning team. Thanks for the content this morning.

The first question I had was on 2022 capital spending.

Tying it into slide number six where you give us an early look of what the dividend payout could look like can you share with us where.

The reinvestment rate you think youll be base case, as you think about 2022 and that 30% to 40% range and then.

How do you how do you think about the <unk>.

Managing different elements of cost inflation.

That might pop up here as you make the turn into next year.

Yes, Neil I appreciate the question I think as Scott mentioned.

Investment rate isn't that 30% to 40% of cash flow projections for 2022, and when you think about inflation.

Similar to what I've talked about before we have seen some upward pressure mainly on materials. When you think about tubular diesel cement sand chemicals, and we're starting to see some in labor as it has gotten a little tighter on the labor side.

When you're able to offset that with some efficiency improvements in our long term contracts helped dampen net impact, but overall for the year, we're expecting to see.

Mid single digit inflation for the year with probably as we move towards the end of the year closer to 10%.

Inflation, which will push us up in our capital guidance range towards the probably the higher end of that capital range.

As you look at 2022, we're looking at.

Probably something in the mid single digits from an inflationary standpoint.

And hopefully, we'll still be able to offset and we still plan to offset some of that with efficiency gains, but having said all that I think with the higher commodity prices, we will still be able to offset the inflation really I will still allow for stronger overall margins, which is driving up our allowing us a reinvestment rate to come down from the 50% to 60% to 30 to 40 for 2022.

Midland and how do you think about use of proceeds it doesn't sound like a buyback as eminent as you wanted to be pro cyclical with it is this just really to bolster the dividend payout.

Yes Neil.

First of all we knew that when we acquired the Delaware and ranked it versus the Midland basin that it doesn't compete under various price scenarios long term and so.

We wanted to take roughly.

A period of several quarters and evaluated.

And as I had mentioned last call that we had we had been.

By company.

So we started the process completed that process and decided to go in divest.

It's going to the balance sheet I think going forward, we stated our new debt targets they used to run <unk>.

Debt to EBITDA seven five we lowered it to 0.5 and I would prefer to have zero debt long term.

It gives us a lot of options I stated already on the buybacks we liked.

Reduced share significantly.

But I'd like to do it at a good price, we think definitely we will be buying back creep.

And we've had several dislocations during 2021.

One surprise me if we add some dislocations during 2022, so youll see us be buying shares in the marketplace during 2022.

Thanks Scott.

Okay.

We will take our next question from Doug Leggate.

With bank of America.

Hi, guys can you hear me now.

Yeah, Doug perfect Awesome. Thank you don't know what happened I do apologize and I appreciate you calling on me but.

So Scott you've got probably the best inventory of any E&P in the industry in terms of longevity visibility and so on you've also got the lowest sustainable breakeven.

My issue or my question is that.

I don't know that variable dividends get the recognition.

An ordinary dividend does think about the dividend discount model of a major oil company.

You've got the longevity to get recognition.

Hi norm.

Raise the base dividend.

We've already made this is only our second variable dividend payment Doug.

Devon is made it will be their third when they make it.

So the variable dividend just now getting started.

I'm a firm believer when you win a lot of companies get Houston seen 11% yield coming out of them in 2022.

We'll get more credit so being patient.

In that regard plus I don't want to get into a habit.

Can increase the base, where you are going to increase the base, we increased over 10% we will continue to increase the base.

But I don't want to get in a habit with Neil talked about I mean over half our peers had to cut their base over half the majors cut their base last year. So you don't want to get into a situation, where you increase your base to a point to where you have to cut it impacts of the stock price long term significantly. So we have to be very careful I think having a great balance sheet and zero debt.

Have lots of choices between buybacks variable dividends and pay dividends.

So our goal is to return most of that to the shareholders and those three forms.

I understand the answer and I guess, we'll keep plugging away on that but thanks for the answer Scott My follow up is.

A little bit of a technical issue. So maybe this one's for Neal I wanted to talk about cash taxes.

On the IDC coverage of sustaining capital is your Nols roll off because it seems to me that as we transition into this business model with you guys.

Embraced and are leading the market on.

The concern now is that breakeven is it going to start to move backup is cash taxes become real so.

As Nols run off maybe for Neil.

We're still spending at sustaining levels, how should we think about the current tax on a cash basis going forward.

Hey, good morning.

If you think about that breakeven when we're really talking about where that operating cash flow equals your capital on a go forward basis.

In that environment, you could think about net income being being relatively zero really youre not seeing much you won't see an impact on your breakeven now the breakeven will will migrate ever slow slightly higher but in that environment, Doug I'd say the way, we view breakeven and we quantify it where again it's operating.

Cash flow equaling that capital program I'd say on the margin.

It wont be impactful.

That's helpful. Thanks, a lot Neil.

Okay.

We'll take our next question from Jeanine Wai of Barclays.

Hi, good morning, everyone. Thanks for taking our questions.

First question is for you Scott I think I heard in your prepared remarks that you mentioned that you may consider growing oil above 5% I'm not sure if I caught that correctly, but if I did is this primarily based on your updated macro view on oil supply demand or is it more related to company specific factors such as.

Efficiencies and your great balance sheet.

No I did mentioned.

Did not mention anything about growing above 5% so.

I've stated publicly that we are not going to grow above 5%.

In regard to the macro I do think that.

We're getting in a very very tighter market over the next several years unused capacity in OPEC plus is going to be used up in the next two years there is no extra supply.

I'm a firm believer that we're going to be in the 80 to $100 scenario over the next several years.

If not higher.

My apologies that it sounded weird so we wanted to check in on that thank you. Okay. Thank you.

Then on the buyback on our numbers, you'll be well below your half a turn that target. After closing the dollars. They also can you talk about how you think buybacks create the most value from pioneer Shanghai shareholders' meeting you say that you will execute opportunistic buybacks during market dislocation does that really referred to does.

Crude price dislocations or would you consider doing buybacks that are more correlated to keeping leverage day at that thank you.

Yes, no I think one of the things our industry has done a poor job of.

They always buyback at the top if you look at all the companies and all of the Ceos and look at their purchases they always buyback at the top.

The cycle they never buy back at the bottom I don't know of one company major independent that bought last year during the pandemic, except pioneer we bought some in the <unk>.

Second quarter of last year.

So that's 0.1.

I would rather buy a lot more shares when.

When they are dislocated and if you look at our price we had several dislocations during 2021.

And so youll see us go into the market when you see those dislocations, so I expect to be several dislocations in.

At the end of the day over a five year time period, we hope to reduce the share count by at least 10% we should be able to if we see the type of prices that are out there in the strip or in the just a flat price case.

So that's what I hope happens.

That's what should happen so.

Great. Thank you.

Our next question comes from Scott Hanold of RBC capital markets.

Thanks.

Congratulations on the quarter and my question is going to be a little bit on the buyback again as well, but can you just discuss the interplay between.

Buybacks in fixed and variable dividends, but when you look at the Max cap of 75% Youre looking at the variable would buybacks be in addition to that or would you kind of keep that level fairly firm with the all inclusive between buybacks and variables.

No we've stated.

We would seriously look at buybacks when our debt to EBITDA gets below 5%. So just below <unk> five in end of this year it gets to almost zero in the next year.

So as we generate free cash it goes on the balance sheet. So it will have significant firepower for buybacks.

Our current buyback that we bought in 19 and 20 is still outstanding is still in play and so obviously, we'll use that after that would use them on the board will look at whether or not to go ahead and announce another buyback.

So there's nothing magic about it just that I think it's long term it's important.

To reduce shares over time.

Right right. So yes, so I guess the crux of my question is in theory, you guys could.

Obviously, when you look at a total cash returned to shareholders fixed variable and buyback if I were to look at it that way I mean, certainly it could be.

So that 75 kind of capital that you utilized for the variable dividend structure right, yes, yes, it's in excess of the 80%. We're returning already so we're generating so much free cash flow that there is no use once you go to zero debt you've got huge firepower. In addition to distributing 80% in regard.

Dividends.

Got firepower to reduce shares also.

Got it okay. It makes sense great to hear and my next question is on hedging and how you look at hedging going forward considering all of all of the above with where leverages in the macro and last quarter. I think you commented that over the coming weeks back then you were going to be talking to investors about evaluate.

<unk>.

You know what the right long term hedge strategy is do you have any kind of feedback from that at this point.

Yes, Scott right.

<unk> a couple of things really no plans to do any incremental hedging at this point in time as Scott talked about we're bullish on oil prices and think there is.

More room to move up and down and just given our size and scale after doubling the size of the company with the acquisitions strong balance sheet low investment rate and then you combine that with the current tight supply demand situation and then just the backwardation of the strip. If you look at the strip the front month, <unk> 83, and you go out five years and it's 59.

And so you're almost a $25 drop in WTS, So really no plans today and from talking to shareholders.

I agree with that.

No reason to the hedge in this environment and you really just can't hedge out anything long term.

So.

The best hedge we have is a strong balance sheet.

Scott talked about be it points towards the end of this year and virtually zero at the end of next year. So that's really from a hedging standpoint, no incremental hedges plants.

I appreciate it thank you.

Our next question comes from John Freeman of Raymond James.

Good morning, guys.

Hey, John.

The first question I had.

Last quarter Rich you talked about just the integration really.

Well those continued.

Completion, and drilling efficiency gains and again that was touched on again on slide 12 in your presentation, you talked about how last quarter that led to the higher pop cadence.

You'll have updated.

Full year pop guidance from the previous $4 70 to $5 10 range too.

Call it 9% hiring out of 535 Pops and.

Yes.

I'm just curious if that has sort of any implications for how you sort of think about a longer term plan ill talk about in the past of needing to add one to two rigs in sort of support that longer term growth profile.

These efficiency gains are let me sort of more with less and households.

Hey, John Great question, and I would say that we still view it in that 1% to two rigs that was with.

A bigger company when we had Delaware, so that probably tweaked a little bit, but generally I think it's still in that same range. I don't think it's moved I mean, obviously, we'd love to see that move down as we continue to capture some of these efficiency gains and get better at what we're doing.

So overall I think it's going to be.

Very similar to what we've talked about in the past on the pop side of things for 2021, what I would say as you know, there's obviously a lot of noise. This year with the two acquisitions and a lot of it is just timing of whether those wells were pumped under.

Prior to us closing the transaction or after and so we expected a number of the wells that we ended up hopping that double point would've popped before we got to closing and so I wouldn't read too much into it other than it is timing of whose watch where those wells under is why we got to hire pop count.

So hopefully that got it.

That does thanks, and then you all talked about.

Potentially the expansion of doing more of a 15000 foot.

And obviously all one of the few companies given the contiguous.

Sure if you all's acreage to be able to do that over a large part of your position.

Is there any sort of I guess context or additional color you could give on how the 15000 foot lateral this year of kind of performed relative to.

Let's call the more traditional kind of 10000 foot laterals, just any additional color would be helpful.

Yes, John from execution perspective, we had.

No issues executing on the drilling and completion side.

We did about a dozen of this year and we will be looking to probably double that next year, if not a little bit more.

From a well productivity perspective, we have no we expect that.

So the wells will perform similar to like our 20 fives and <unk>, which is a very positive impact from an economics perspective.

So we see continuing to add these into our program as time goes on we see these as being a huge value adder to our program.

Thanks, guys appreciate it.

Once again, if he would like to ask a question. Please press star one now.

We will take our next question from Erin <unk> of J P. Morgan.

Yeah, Good morning, Arun <unk> with Jpmorgan.

Neil perhaps for you I wanted to get a sense of for the Delaware basin as well as the Laredo transaction in Glasscock that would be $3 5 billion.

And cash proceeds.

Could you talk about any tax implications.

From those two transactions.

And perhaps a follow up there would be.

Any any thoughts on how much debt would you plan to retire in 2022, if the strip holds based on how youre thinking about the world today.

Hey, Ron I am going to focus on the Delaware and then follow up with your question on the on the debt here.

Think about from the Delaware perspective, you look at the book value that we booked it was $4 1 million due to purchase accounting.

Carryover tax base of $1 $9 billion on those assets. So if you think about the proceeds of let's call. It three to five.

Adjustments that we make due to the effective date, we would expect a book loss of approximately $1 billion of taxable gain of approximately $1 2 billion. So a little bit differences here between the book and the tax.

Referencing scotts.

Scott's discussion on debt and debt retirement and use of proceeds.

20, <unk> you look at the debt towers in the appendix in 2022, we have about $244 million, that's roughly call. It 4%, 4% debt in 2023 $750 million, that's 55 basis points in $2024 $750 million at 75 basis points now that 2024.

Is callable in 2022, so if you think about the free cash flow profile.

Scott's articulate in the return of capital that we have discussed we actually habits staggered into the modeled repaying that debt so really already as factor into how we talk about return of capital.

Any acceleration of free cash flow or increase in free cash flow due to greater commodity prices.

We'll provide that opportunity to get that net debt lower and pay down our gross debt as.

As well, which really then but as Scott said free up more of the balance sheet to be opportunistic with buybacks and Scott articulated <unk> is kind of that.

That target I would say that we kind of look at the long term target well by the end of the year due to the divestiture will be at <unk> four so it kind of sets us up in a good position to be opportunistic as we look forward to 2022 and <unk> all know and everyone. This call the market is highly volatile.

There is always opportunities within the market to buy back stock and if you look at energy as potentially being higher beta I'd say that provides even more entry points. So it's our shareholders' money that's how we think about it.

We tried to be really smart and thoughtful in terms of how we allocate capital and we returned capital to shareholders. So I think youll see that from us as we move forward into 2022.

Hey, everyone. Just one follow up on the tax question is I'm also just.

No you know, but we will be able to shelter, 100% of that tax gain with our $8 billion of NOL. So really just we're still forecasting in 2023, the earliest that we'd be paying in cash taxes.

In 2023, that's that's helpful.

Rich.

And then maybe my follow up is for Joey.

We've seen a couple of your peers really.

Highlight some of the efficiency gains in the Midland Basin from silo practice, it sounds like Youre at two crews.

Today, and how do you think about.

The adoption of that on a go forward basis.

And what type of efficiency gains are you seeing relative to a standard zipper Frac crew.

Yes, Brian we continue.

Uh huh.

So great success like others was final frac.

As I said in my prepared comments.

We do have Tucson will frac fleets.

We're looking at the possibility of adding a third Frac fleet.

At some point in time in the near future.

Seeing.

Significant efficiency gains.

Well cost reductions in the neighborhood of two to $300000 I know I get asked.

All the time why don't you just immediately convert all of your fleets.

<unk> fleets to Simon <unk>.

But you know it just it's a significant well number one some of the pads arent conducive if you have an odd.

Number of wells on a pad that can.

Play a little bit of a difficult part and some will frac, but also just the water and sand logistics in essence, the demand at one point in time was 50% greater so we don't want to Overcapitalize on our water infrastructure, we do have one of the.

Most vast water infrastructure and Thats why we are able to support two continuous simul frac fleets.

These are going nonstop, not just coming and going so.

But we will continue to add some more frac fleets.

Our water infrastructure grows well.

Well adopted as it makes sense from a capital perspective.

Great. Thanks, a lot.

Our next question comes from Derrick Whitfield with Stifel.

Thanks, and good morning, all and congrats on your quarter and the Delaware divestiture.

Building on Europe.

Building on your divestiture success and your prepared comments could you comment on your desire to move more of the longer dated Midland inventory similar to the Laredo transaction and speak to the potential size of that opportunity set based.

Based on the improvement we've experienced both really the oil and capital markets.

Okay.

Yes, Derrick I think as we've talked about on previous calls and like you've seen demonstrate with the Laredo transaction, we're going to continue to evaluate that every year and similar over the last three or four years. We've had packages that we've done whether it's outright sales or drill code and so I think the market is there people are interested in those and so I think we'll continue to.

Look at those and be strategic about those on an annual basis, So real no.

No change I mean, we're still going to obviously look to add in terms of acreage trades as well and so that will be part of our portfolio and balancing between acreage trades, but then divesting the longer dated stuff that we're not going to get to for a while.

Okay.

Great and with my follow up I wanted to focus on ops, perhaps for Joey.

Could you elaborate on on how youre, using predictive analytics and machine learning to improve D&C efficiencies.

<unk> comment on the maturity of this technology and progressing your efficiencies today.

Yes, I'd love to I really appreciate that question I'll give one specific example.

When you look at the.

Paul charts of where we're getting our cost reductions.

No it's not.

Big things, it's a bunch of little things.

One example of where we use predictive analytics was on our chemicals for our.

Whenever we're delivering our stimulations on our wells.

We've gone back and use machine learning to determine based on what the outcome is during the delivery of the Frac, how we can throttle back our chemicals.

On the well and thus you use less chemical I Wonder if you look at that on an individual well basis. It may not be big box, but when you multiply that times 500, it turns into a huge dollars.

Another on the drilling side.

We have a stuck pipe predictive tool, where we've gone back and looked at.

The events, where we've had stuck pipe and drilling activity and by doing that we could use machine learning and predictive analytics to to know how we can see that coming and thus prevent it and it's been hugely successful for us and I could go on and numerous examples so I would say from my perspective.

It's a very mature methodologies that we have adopted and use continuously but the opportunities for us are limitless and we continue to expand it. So I. Appreciate the question, but now it's been a huge success for us and we look forward to its benefits going forward.

That's great and thanks for your time.

We'll take our next question from Paul Cheng of Scotiabank.

Hi, Thank you good morning.

Two questions. Please the first one.

On the cash tax did I hear you right that in 2023, you're still not going to be a cash tax payer in any meaningful way.

It's been an NOL light you will fully use up next year.

No Paul Youre right.

Thank you Ms Misheard, it's we actually do become a cash taxpayer in 2020 I'd.

And at that point that what kind of opex weight that cash tax rate that we should assume.

Well I mean, we will have the you know you'll have the 21% than 1% state and then we do have a deferred tax liability that that starts to starts to filter in.

Probably 2024 and beyond so.

Those impacts that weigh into that into the model as well, but it will become a full cash taxpayer in 2023.

So 100% of yield we put the tax would be cash tax by 23.

Yeah, I'd say slightly a smaller portion of that but then it does step up.

I see okay.

The deferred tax liability that will be rolling off.

Hi, Jay.

Second question is on <unk>.

Do you have a EBITDA contribution from those assets in the third quarter, you can share or at a minimum can you tell us that on a per Boe basis.

At a lower EBITDA margin I assume.

Paying to your overall portfolio and also just curious that if you.

Already planned to sell those answer why increased quoting activity and Rick I took a team, but third quarter, we need to dose all set.

But what that is.

That deal just come unexpected New York much doing that than you had thought.

Yes, Paul it's rich.

A couple of things one the wells were just planned as our normal routine and and so we had whether or not we're going to be.

Divest of it was still unknown as Scott talked about I mean, we had the unsolicited interest in which led us to the process. So I would just say that was normal course in drilling those wells was on the schedule and planned and we're going to proceed ahead and.

And then in terms of the asset.

It's kind of a catch 22 in the sense of that that higher oil cut and so obviously you get a higher oil price on a bigger parts of those barrels, but it did have higher operating cost and so margin wise and a higher price environment. It was very competitive with what was in the Midland Basin.

But at a lower price environment clearly the margins were better in Midland.

Midland So that's really from a <unk>.

Standpoint of free cash flow generation and cash flow generation of how that assets stacks up in terms of the cash flow basis I don't have the exact third quarter numbers. So we'd have to get back to you on that.

Alright, thank you.

Our next question comes from David <unk> of Cowen <unk> Company.

Thanks, everyone for taking the questions. This morning.

I just wanted to follow up on just wanted to longer term points, maybe that you were making earlier Scott.

As you accrue more and more cash than you get below that leverage target.

Theoretically if we're entering this world.

Limited spare capacity 80, plus dollar $100 crude.

The 75% excess free cash payout beyond the base dividend.

Still like a very good long term vision, we would just think about future cash accrued being either used opportunistically and ordered for buybacks over time.

Just used to support sort of a base dividend increase at that point, particularly as you get to a point, where you are debt free.

No I think I think youll see a combination of us over time and that strong commodity price market shifts.

Variable to base.

Number one secondly, youll see us.

In the in the $80 plus market.

Just to give you an idea we had easily have over $10 billion of firepower.

To buy back stock at various prices.

And so just showed you.

<unk> of firepower that we have open above distributing 80% of our free cash flow for both base and variable over time.

So we're starting to see additional.

Dividend funds invest.

Starting to see our ownership change more and more dividend funds are buying PX feedstock for the dividends.

Secondly, we're starting to see more retail come in were.

We're making an all out effort to go into all the firms.

Trying to get more retail the shift.

Two ph D because the dividend yield.

We still think it's important to reduce the share count over time too.

Another way besides growing 5% a year to increase EBITDA to reduce the share count to increase EBITDA.

Certainly I appreciate that Scott.

And then maybe just a follow up maybe just a little bit in the weeds, but maybe this is for you Julie but interested just as we've seen more private activity in the Permian in general pick up significantly outpacing public activity.

Has any private activity, that's increasing in and around your acreage position the Midlands.

Created sort of increased downtime that you hadn't necessarily plans for in 'twenty one.

No.

Stay in pretty close contact with the private operators as well, but no it hasn't impacted us at all.

Thank you I appreciate it guys.

Okay.

And our next question comes from Bertrand <unk> of <unk> Securities.

Hi, Good morning, guys. Thanks for sneaking me in at the end I'll just ask one that you can wrap it up.

Could you maybe just talk about yourself yourself positioning for the retail Investor I think you maybe address it a little bit but is that mostly just covered by maybe ESG initiatives. You have strong shareholder returns and then you are broadcasting kind of disciplined commentary, which is very well appreciated but is there anything else going on behind.

And the themes that that maybe we're not privy to that.

That retail is asking.

Yes, that's a great question and I think you can tell by the slide deck and I will be positioning the discussion on the variable plus the base.

We view the return of capital in that yield to be to be competitive not across institutional investor.

As with the retail investor.

So we are we are taking steps and we are making those overtures. When we've had discussions with some of the private wealth managers across some of the large institutions and we will continue to do so and I think we've had a lot of traction there and we've had a lot of discussions there and a lot of positive momentum and a lot of positive feedback, which is really part of how you've seen us.

<unk> position as Scott pointed.

The increase in the base dividend as well as the continued focus on the variable dividend. So there has been traction there has been a number of inbound calls and we've made a number of outbound overtures as well in discussions so it's our hope and our anticipation.

That youll see increase retail presence.

Pioneer equity holder.

Sounds good it sounds like they appreciate the yield that's all from me guys. Thanks.

Thank you.

Yes.

That concludes today's question and answer session.

Scott Sheffield at this time I will turn the conference back to you for any additional or closing remarks.

Again, thank everyone for listening to probably one of the best quarters in pioneers history.

I know, we won't see again until.

Early next year, and so hope everybody have a happy holiday and travel safely again. Thank you.

Yes.

This concludes today's call. Thank you for your participation you may now disconnect.

[music].

Okay.

[music].

Welcome to pioneer natural resources third 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 their comments today.

These slides can be accessed over the internet at Www Dot PX D dotcom.

Again, the Internet site to access the slides related to today's call is W. W. W. Dot PX D Dot com.

The website select investors, then select earnings and Webcasts.

This call is being recorded a replay of the call will be archived on the Internet site through November 30th 2021.

The company's comments today will include forward looking statements made pursuant to the safe harbors provisions of the private Securities Litigation Reform Act of 1995.

These risks and uncertainties are described in pioneers news release on page two of the slide presentation and in Pioneer's public filings made with the Securities and Exchange Commission.

At this time for opening remarks, I would like to turn the call over to pioneers senior Vice President and Chief Financial Officer Neal Shah. Please go ahead Sir.

Thank you David Good morning, everyone and thank you for joining us for pioneers third quarter earnings Conference call.

Then we will open up the call for your questions with that I will turn the call over to Scott.

Thank you Neil good morning.

I think obviously you can see from the headlines on slide three that's probably one of the best quarters in pioneers.

Your history, which is coming up next year or 'twenty, five 'twenty fifth year anniversary in.

I mean, it's hard to imagine.

A company like pioneer thrown out just in one quarter, one 1 billion and free cash flow, obviously during the quarter and returning $880 million of that in regard to the dividend, including base plus variable.

Our dividend payments from the third quarter is $3 58, a share made up of 302 variable in 56 cents on the base.

Probably the big headline from the quarter.

Tremendous transaction for pioneer divesting of our Delaware assets for three to 5 million expected to close by year end and when you add the $250 million recent.

$250 million recent down divestiture from Glasscock County.

That makes a total for the quarter of about $3 $5 billion.

We're increasing our base.

After talking to a lot of our shareholders over the last several weeks I think it's very important to continue to increase our base.

So we're increasing it over 10%.

And then lastly, again Neil talked about it we released our two reports who will talk about it later.

Again, increasing.

Our goals to 50% and greenhouse gas intensity reduction and 75% in regard to methane intensity.

Turning to the next slide on slide number four again production in the upper half of the third quarter guidance.

Rich will give you more detail in a few minutes in regard to the effect of what the Delaware sale does to us.

I think the most important point here with our with the bulk divestitures of.

Glasscock County in the Delaware.

Obviously, we're now focused on the high margin high return Midland Basin.

Will it end up having the strongest balance sheet in the company's history at debt to EBITDA 0.4 by the end of the year.

Yes.

Going to our long term thesis on slide number five.

Again, our entire focus deliver mid teens total return when you look at one of the later slides with a dividend yield of about 11% go into 2022 growing at 5% a year.

That gets us to that mid teens total return.

When you look at just <unk>.

Return on capital employed and Croce going into 'twenty, two and beyond we are in that low to mid twenties on both of those numbers, that's really unheard of in regard to the change in the strategy to keep production fairly flat minimal growth and returned most of the cash flow back to the investor.

Reinvestment rate of 50 to 60, when you look at next year, it's really down in the 30% to 40% range.

When you look at free cash flow generation.

Our free cash flow generation next year will be up 88% from 2021.

When you look at a five year strip.

We will generate over $25 billion of free cash flow.

Could you just take current oil price today in the low eighties.

In the mid eighties and keep it flat for the next five years, we're over 35 billion of free cash flow.

When you just look at the strip pricing by the end of next year will essentially for the first time.

We essentially debt free by the end of 2022.

So pioneer will end up continue to have one of the best balance sheets in the industry.

Again, the variable dividend up to 75% of.

Previous quarters free cash flow of deducting the base dividend.

We'll be distributing about 80% of free cash flow back to the shareholders.

Again, we restated we had a share repurchase program.

Where we had spent about $900 million in 2019 and 2020.

We actually are one of the few companies that bought during the pandemic our stock back.

In the energy sector, but we spent about $900 million and bought the stock back around 130 <unk>.

We go back in history. The other time, we bought our stock was back in 2005 2006.

After we sold our deepwater assets, we spent $1 1 billion at 45, we do think it's important over the next five years, if we do generate 25% to $35 billion of free cash flow that we significantly reduced the share count over time.

But it's going to be opportunistic and during market dislocations.

Okay.

I think the last key point here is that the fact, our EBITDA will be up about 45% to 50% next year.

Primarily due to the full year of both acquisitions and.

And secondly, with very minimal hedging.

In 2022.

Going to slide number six.

Again significant increases.

And our variable dividend and also our base dividend.

But basically a non X growth from 'twenty two annual dividend over the 2020.

Returning $1 6 billion in dividends in 2021, a three X increase from 2020.

So we're estimating something near about $20 per share total payout.

And 2022.

When you go to slide number seven.

The show pioneers dividend yield.

It will exceed our peers majors in the S&P 500, where we're already at 8% just based on the one we declared.

For the fourth quarter of 2021, when you look at next year, we'll be at 11%.

The other two strong companies below us obviously, our dividend kotara with strong variable dividends, but then you see a significant drop to the U S majors European majors, our dividend yield is over two X versus the U S and European majors and when you look over the rest of the peers, excluding Devin good Tara.

We're basically a 10 X dividend times or 10 higher over the rest of the peers.

And you look at the S&P 500, which is around one 6% were over 6% to seven <unk> times, the S&P 500.

I'll now turn it over to Neil to talk about our base.

Thank you Scott slide eight demonstrates maintaining a strong and growing base dividend is a commitment to our shareholders and a key pillar of our investment thesis.

As Scott stated earlier, we are further strengthening our base dividend with an increase of greater than 10%.

Which is an acceleration of our 2020 to base a dividend increase.

Inclusive of this increase as you can see in the graph, our five year base dividend compound annual growth rate of greater than 95% exceeds all peers in U S majors.

Additionally over the same period, while many peers have cut or suspended their base dividends pioneer has consistently maintained and grown its base dividend demonstrating.

Demonstrating our steadfast commitment to our shareholders and creating value through dependable through cycle return of capital.

Turning to the next page slide nine.

Even with inflationary pressures servicing in 2021, we continue to reduce our controllable cash costs, which are comprised of cash interest cash G&A and Midland horizontal lower <unk>.

As a result of our high operational efficiencies and acquisition synergy capture we expect 2021 cash cost to be approximately 30% lower than 2019 levels pie.

Pioneers unique combination of high oil cut low controllable cash costs and top tier MRI drive compelling cash margins that underpin our strong free cash flow generation and return of capital strategies.

Now I will hand, it over to rich to cover our outlook update thanks.

Thanks, Neil Good morning, everybody I'm going to start on slide 10, where we show our updated production guidance 2021, you'll see here that we've narrowed our full year production our oil production range to 356000 to 359000 barrels of oil per day and total production to 613000 to 619000.

Bo per day. This narrowed guidance reflects the combination of our reported <unk>.

Production through September 30, and our Q4 guidance, which includes the impact of the Glasscock divestitures that happened in October.

Due to the Delaware Divesture not closing until near year end production guidance includes Delaware for a full year in our capital guidance is unchanged, but also includes Delaware for a full year as well.

If you move to the fourth quarter, our capital is expected to come down as we do have less integration activity and we will be on average running one less rig and one less frac fleet during the quarter.

Turning to slide 11.

As Scott mentioned.

<unk> and Neil talked about we did announced the Delaware divestiture as you can see from the slide here about $3 5 billion of cash consideration about 92000 net acres.

It is being sold and production currently is running about 50000 BOE per day, we did have some a drilling program there and so if you once those wells are completed first quarter that'll be about 55000 BOE a day of production.

Once those are completed in the first quarter placed on production.

As we've mentioned the transaction is expected to close at year end.

Post this transaction it does return pioneer to being 100% focus on our core acreage position in the high margin high return Midland Basin.

Also we did announce area of close on October the 20000 net acre sale of our Glasscock County acreage, Colorado for about $230 million monetizing our long dated inventory that we werent going to get to for a while.

At the time of the sale of this acreage head was producing about 4400 BOE a day or 2600 barrels of oil per day. So on a combined basis were divesting about $3 5 billion of assets in the fourth quarter of this year, which will further strengthen our balance sheet.

Similar to these transactions, we will continue to pursue strategic acreage trades and we will continue to evaluate drill codes and small small scale investment divestment on long dated inventory to accelerate value to shareholders.

We're looking forward to 2022 after adjusting for both Delaware and Glasscock divestitures, we do expect to keep our Midland basin production relatively flat with Q4 levels. So we're seeing 2022 production.

Adjusted for the divestitures at 355000 to 360000 barrels of oil per day or 630 to 640000 BOE per day. This is expected to result in a 2022.

Annual oil growth rate consistent with our long term investment framework of growing production between zero and 5%.

So I'll stop there and turn it over to Joe for more details on operations.

Thanks, Rich and good morning to everybody I'm going to be picking up on slide 12, Our 2021 plan remains unchanged and is set to average between 22% and 24 rigs for the full year.

<unk> mobilized several rigs to the Delaware in Q3, which I would equate to approximately one rig for the full year.

Drilling and completions continue their strong track record of efficiency gains with greater than 70%, 80% increases on their respective foot per day metrics when compared to 2017.

We are still operating Tucson will frac fleets, which further increases efficiencies and is reducing cost our drilling and completions teams are also successfully executing on 15000 foot laterals.

And at the same time, our land and development planning teams continue adding future 15, K laterals across our acreage position.

Once again, congrats to the team for great execution in Q3.

And I'm going to move on to slide 13.

Pioneer has been committed to sustainable operations for a long time and this has resulted in pinar, having one of the lowest current emissions intensities amongst our peers.

As you can see pioneers 2019, starting point is lower than the majority of our peers projected intensities for 2025 and 2030.

<unk> 2030 emissions intensity goals represent one of the most aggressive reduction targets in the industry demonstrating continued progress on our trajectory to net zero.

Now moving to slide 14, and continuing the same storyline from the previous slide.

<unk> also produces extremely low emission intensity oil on a global scale, which will improve as we progress toward our 2030 reduction targets.

This combined with our low breakeven results in exceptional and resilient production that we expect will compete in the global marketplace for a very long time.

And with that I'll turn it back over to Scott to wrap things up yes.

Thanks Joey.

On slide number.

<unk>, we've talked about our new targets, we've had significant reduction.

From our baseline of 19% to 20 as indicated.

But there are progress, 27% 50, and 50 I think we're one of the only companies that as targets for fresh water, reducing freshwater in completions.

In the U S.

Our new targets are 50% by 2030 for greenhouse gas emissions, both scope, one and two and 75%.

For methane that previously it was 40%.

Also 2020, flaring intensity was <unk>, 2% significantly less than our goal of 1%.

Again, we expect to end routine flaring as defined by the World Bank by 2030 with aspiration to accomplish about 2025 and as Neil said, we just recently published our first climate risk report.

Going to slide number 16 and focused on ESG leadership.

I think you can see the significant changes we made over the last two years and our annual incentive compensation components for all of the executives.

I am still the only CEO in the industry that is 100% tied to performance shares.

Most of our other executives it's around 60%.

You can see that we've increased our targets on ESG and HSE up to 20%.

Last year.

Goals are 100% aligned with shareholders' interest.

We expanded the responsibilities of the board of directors sustainability and climate oversight Committee.

Which is led by our Nonexecutive Chairman Ken Thompson.

And we recently added a second director this year.

Maria.

<unk> Dreyfus.

<unk> has two key focuses one on ESG.

And secondly.

He was a managing director for Goldman Sachs investment partners.

An expert in asset management over the last several years again, we have a picture of our two reports we encourage everyone to read these reports.

Going to the last slide enhancing shareholder value slide number 17 again focus on returns and just to remind you I mentioned that will be in the low to mid twenties on both <unk> and also <unk>.

Capital discipline, I mentioned that will be returning roughly.

Our spending about 30% to 40% over the next several years is our reinvestment rate.

Return of capital to our shareholders I mentioned that we have about 25% to 35 billion and a couple of different price cases strip and play a price will be returning about 80% of that back to shareholders plus any buybacks that we did during that time period.

Preserving our strong balance sheet as I mentioned earlier, we will have the best balance sheet of company's history by the end of this quarter and secondly, moving to zero debt by the end of 2022.

Significant inventory, we probably got the largest and longest inventory of any company in the U S today and.

And we continue on ESG leadership to be performing at the highest level I'm going to stop there.

Put 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 are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again.

Star one to ask a question.

We'll pause for just amendment to allow everyone an opportunity to signal for questions.

We will take our first question from Doug Doug Leggate with Bank of America.

Okay.

Yeah.

Yes.

Okay.

Doug Your line is live.

Okay.

We can't hear you.

Okay.

Let's go to the next question.

Thank you. Our next question comes from Neil Mehta of Goldman Sachs.

Good morning team. Thanks for the content this morning.

First question I had was on 2022 capital spending.

I am tying it into slide number six where you give us an early look of what the dividend payout could look like.

Can you share with us where.

The reinvestment rate you think youll be as base case, as you think about 2022 and that 30% to 40% range and then.

How do you how do you think about the <unk>.

Managing different elements of cost inflation.

That might pop up here as you make the turn into next year.

Yes, Neil I appreciate the question I think as Scott mentioned.

Investment rate isn't that 30% to 40% of cash flow projections for 2022, when you think about inflation, it's similar to what I've talked about before we have seen some upward pressure mainly on materials. When you think about tubular diesel cement sand chemicals, and we're starting to see some in labor as its gotten a little tighter on the law.

<unk> side, we've been able to offset that with some efficiency improvements in our long term contracts helped dampen that impact, but overall for the year, we're expecting to see.

Mid single digit inflation for the year with probably as we move towards the end of the year closer to 10%.

Inflation, which will push us up in our capital guidance range towards the probably the higher end of that capital range.

As you look at 2022, we're looking at.

Probably something in the mid single digits from an inflationary standpoint.

Hopefully, we'll still be able to offset and we still plan to offset some of that with efficiency gains, but having said all that I think with the higher commodity prices will still be able to offset the inflation really will still allow for stronger overall margins, which is driving up our allowing us a reinvestment rate to come down from the 50% to 60% to 30 to 40 for 2022.

I appreciate the color and then just you spent some time talking about the asset sales why did you think monetizing the Delaware made sense. It sounds like it's a big part of it is just a core up herein to Midland and how do you think about use of proceeds it doesn't sound like a buyback as eminent as you wanted to be.

Pro cyclical with it is this just really to bolster the dividend payout.

Yes Neil.

First of all we knew that when we acquired <unk>.

The Delaware and ranked it versus the Midland basin that it doesn't compete under various price scenarios long term.

And so we wanted to take roughly.

A several quarters and evaluate it.

And as I had mentioned last call that we had we have been approved.

Buy a company and so we started the process completed that process and decided to go in divest.

It's going to the balance sheet I think going forward, we stated our new debt targets. They used to run that to EBITDA seven five loaded deploy five and I prefer to have zero debt long term.

Gives us a lot of options I stated already on the buybacks, we liked them reduce shares significantly.

But I'd like to do it at a good price, we think definitely we will be buying back creep.

And we've had several dislocations during 2021.

<unk> surprise me, if we add some dislocations during 2022, so you'll see us be buying shares in the marketplace during 2022.

Thanks Scott.

Okay.

We will take our next question from Doug Leggate.

With bank of America.

Hi, guys can you hear me now.

Yeah, Doug perfect Awesome. Thank you I don't know what happened I do apologize and I appreciate you calling on me but.

So Scott you've got probably the best inventory of any E&P in the industry in terms of longevity visibility and so on you've also got the lowest sustainable breakeven.

My issue or my question is that.

I don't know that variable dividends get the recognition.

An ordinary dividend does think about the dividend discount model of a major oil company.

You've got the longevity to get that recognition.

Hi norm.

Raise the base dividend.

We've already made this is only our second variable dividend payment Doug.

Devin.

Made it will be their third when they make it and so the variable dividend just now getting started.

I'm a firm believer when you win a lot of companies get Houston, seeing an 11% yield coming out of them in 2022.

We'll get more credit so being patient.

In that regard plus I don't want to get into a habit.

Can increase the base, where you are going to increase the base, we increased over 10% we will continue to increase the base.

I don't want to get into habit, what Neil talked about I mean over half of our peers had to cut their base over half the majors cut their base last year. So you don't want to get into a situation, where you increase your base to a point to where you have to cut it impacts the stock price long term significantly. So we have to be very careful I think having a great balance sheet and zero debt.

Lots of choices between buybacks variable dividends and pay dividends.

So our goal is to return most of that to the shareholders and those three forms.

I understand the answer and I guess, we'll keep plugging away on that but thanks for the answer Scott My follow up.

A little bit of a technical issue. So maybe this one's for Neal I want to talk about cash taxes.

On the IDT coverage of sustaining capital is your Nols roll off because it seems to me that as we transition into this business model with you guys clearly.

Clearly embraced and are leading the market on.

The concern now is that break evens are going to start to move backup is cash taxes become real so.

The Nols run off maybe for Neil, but youre still spending at sustaining levels. How should we think about the current tax on a cash basis going forward.

Hey, good morning.

If you think about that breakeven when we're really talking about where that operating cash flow equals your capital on a go forward basis, none in that environment, you could think about net income being being relatively zero really youre not seeing much you won't see an impact on your breakeven now the breakeven will will migrate.

Ever so slightly higher but in that environment, Doug I'd say the way, we view breakeven and we quantify it we're again operating cash flow equaling that capital program I'd say on the margin.

Be impactful.

That's helpful. Thanks, a lot.

Sure.

We will take our next question from Jeanine Wai of Barclays.

Hi, good morning, everyone. Thanks for taking our questions.

Okay.

Question is for you Scott I think I heard in your prepared remarks that you mentioned that you may consider growing oil above 5% Im not sure if I caught that correctly, but if I did is this primarily based on your updated macro view on oil supply demand or is it more related to company specific factors such as the right efficiencies in Europe.

Great balance sheet.

No I did mentioned.

I did not mention anything about growing above 5% so.

I've stated publicly that we are not going to grow above 5%.

In regard to the macro I do think that.

We're getting in a very very tighter market over the next several years unused capacity in OPEC plus is going to be used up in the next two years there is no extra supply.

I'm a firm believer that we're going to be in the 80 to $100 scenario over the next several years.

If not higher.

Apologies dot it sounded weird so we wanted to check in on that thank you.

Thanks, and then on the buyback on our numbers, you'll be well below your debt target after closing the dollar sale so can.

Can you talk about how you think buybacks create the most value from pioneer Shahar shareholders' meeting you say that you will execute opportunistic buybacks during market dislocation does that really referred to just crude price dislocations or would you consider doing buybacks that are more correlated to keeping leverage today at that Karen. Thank you.

Yes, no I think one of the things our industry has done a poor job of.

Buyback of the top if you look at all the companies and all the Ceos and look at their purchases they always buyback at the top of the cycle and they never buyback at the bottom I don't know of one company major independent that bought last year during the pandemic, except pioneer we bought some in the.

Second quarter of last year.

So that's 0.1.

I'd, rather buy a lot more shares.

When theyre dislocated and if you look at our price we had several dislocations during 2021.

And so youll see us go into the market when you see those dislocations, so I expect to be several dislocations in.

At the end of the day over a five year time period, we hope to reduce the share count by at least 10%, we should be able to see the type of prices that are out there in the strip or in the just a flat price case.

So that's what I hope happens.

That's what should happen so.

Alright, thank you.

Our next question comes from Scott Hanold of RBC capital markets.

Thanks.

Congratulations on the quarter and my question is going to be a little bit on the buyback again as well, but can you just discuss the interplay between <unk>.

Buybacks in fixed and variable dividends, but when you look at the Max cap of 75% Youre looking at the variable would buybacks be in addition to that or would you kind of keep that level.

Early firm with the all inclusive between buybacks and variables.

No we stated that.

We would seriously look at buybacks when our debt to EBITDA gets below 5%. So it gets below five and into this year. It gets to almost zero in the next year.

So as we generate free cash it goes on the balance sheet. So we will have significant firepower for buybacks.

So there's nothing magic about it just said I think it's long term it's important to.

To reduce shares over time.

Right right. So yes, so I guess the crux of my question is in theory, you guys could.

Obviously, when you look at a total cash returned to shareholders fixed variable and buyback if I were to look at it that way I mean, certainly it could be.

So that 75 kind of cap limit you utilized for the variable dividend structure.

Yes, yes, it's in excess of the 80%. We're returning already so we're generating so much free cash flow that there is no use once you go to zero debt you've got huge firepower. In addition to distributing 80% in regard to dividends.

Got firepower to reduce shares also.

Got it okay. It makes sense great to hear and my next question is on hedging and how you look at hedging going forward considering all of all of the above with with where leverages in the macro and last quarter. I think you commented that over the coming weeks back then you were going to be talking to investors about evaluate.

Adding what the right long term hedge strategy is do you have any kind of feedback from that at this point.

Yes, Scott.

<unk> a couple of things really no plans to do any incremental hedging at this point in time as Scott talked about we're bullish on oil prices and think there's more room to move up and down and just given our size and scale. After doubling the size of the company with the acquisitions strong balance sheet low investment rate and then you combine that with the current tight supply.

<unk> demand situation and then just the backwardation of the strip. If you look at the strip the front month <unk> 83, and you go out five years and it's 59, so you're almost a 25 dollar drop in WTS. So really no plans today and from talking to shareholders agree with that it really no reason to to hedge.

In this environment and you really just can't hedge out anything long term.

So the.

The best hedge we have is a strong balance sheet.

Scott talked about viewpoint for the end of this year and virtually zero at the end of next year. So that's really from a hedging standpoint, no incremental hedges plants.

I appreciate it thank you.

Our next question comes from John Freeman of Raymond James.

Good morning, guys.

Hey, John.

The first question I had last quarter Rich you talked about just as the integration went really well those continued.

Completion.

And drilling efficiency gains and again that was touched on again.

On slide 12 in your presentation, you talked about how last quarter that led to the higher pop cadence.

I'll have updated.

Our full year guidance from the previous $4 70 to $5 10 range too.

Call it 9% hiring out of 535 Pops and I guess im.

I'm just curious if that has sort of any implications for how you sort of think about a longer term sort of planning I'll talk about in the past of needing to add one to two rigs in sort of support that longer term growth profile.

These efficiency gains are letting you do sort of more with less and households.

Yes, John Great question, and I would say that we still view it in that 1% to two rigs.

That was with.

As a bigger company when we had Delaware, so that probably tweaked a little bit, but generally I think it's still in that same range. I don't think it's moved I mean, obviously, we'd love to see that move down as we continue to capture some of these efficiency gains and get better at what we're doing so overall I think it's going to be.

Very similar to what we've talked about in the past on the pop side of things you know for 2021, what I would say as you know, there's obviously a lot of noise. This year with the two acquisitions and a lot of it is just timing of whether those wells were pumped under.

Prior to us closing the transaction or after and so we expected a number of the wells that we ended up popping the Devil point would've pop before we got to clothing, and so I wouldn't read too much into it other than it's just timing of whose watch where those wells under is why we got to hire pop count.

So hopefully that got it no.

That does thanks, and then you all talked about.

Potentially yes.

Expansion of doing more than 15000 foot.

And obviously all in one of the few companies given the contiguous.

Nature of yellow acreage to be able to do that over a large part of your position.

Is there any sort of context or additional color you could give on how the 15000 foot laterals. This year of kind of performed relative to kind of let's call. The more traditional kind of 10000 foot laterals, just any additional color would be helpful.

Yes, John from execution perspective, we had.

No issues executing on the drilling and completion side.

We did about a dozen this year and we'll be looking to probably double that next year, if not a little bit more.

From a well productivity perspective, we havent no we expect that.

So the wells will perform similar to like our 20 fives and <unk>, which is a very positive impact from an economics perspective.

So we see continuing to add these into our program as time goes on we see these as being a huge value adder to our program.

Thanks, guys appreciate it.

Once again, if he would like to ask a question. Please press star one now.

We'll take our next question from Erin <unk> of J P. Morgan.

Yeah, Good morning, Arun <unk> with J P. Morgan.

So Neil perhaps for you I wanted to get a sense of for the Delaware basin as well as the Laredo transaction.

In Glasscock that.

$3 5 billion.

And cash proceeds could.

Could you talk about any tax implications.

From those two transactions.

Perhaps as a follow up there would be.

Any any thoughts on how much debt would you plan to retire in 2022, if the strip holds based on how youre thinking about the world today.

Hey, Ron I'm going to focus on the Delaware and then follow up with your question also on the debt here.

Think about from the Delaware perspective, if you look at the book value that we bought two was $4 1 million due to purchase accounting.

Carryover tax base of $1 $9 billion on those assets. So if you think about the proceeds of let's call. It three to five.

Adjustments that we make due to the effective date, we would expect a book loss of approximately $1 billion is a taxable gain of approximately $1 2 billion. So a little bit differences there between the book and the tax.

Thanks Scott.

Scott's discussion on debt and debt retirement and use of proceeds.

Two if you look at the debt towers in the appendix in 2022, we have about $244 million.

They call it 4%, 4% debt in 2023 $750 million, that's 55 basis points in 2024 $750 million at 75 basis points now that 2024 is callable in 2022. So if you think about the free cash flow profile.

Scott's articulate in the return of capital that we have discussed we actually habit staggered into the modeled repaying that debt. So really already as factor into how we talk about return of capital any acceleration of free cash flow or increase in free cash flow due to greater commodity prices really would provide that opportunity.

To get that net debt lower and pay down our gross debt.

As well, which really then but as Scott said free up more of the balance sheet to be opportunistic with buybacks and Scott articulated <unk> five acts as kind of that that target I would say that we kind of look at the long term target well by the end of the year due to the divestiture will be at 0.4, so it kind of sets us up in a good position to.

Be opportunistic as we look forward to 2022 and <unk>, all know and everyone. This call the market is highly volatile.

We try to be really smart and thoughtful in terms of how we allocate capital and we returned capital to shareholders. So I think youll see that from us as we move forward into 2022.

Hey, everyone. Just one follow up on the tax question is I'm also just.

I know you know, but we will be able to shelter, 100% of that tax gain with our $8 billion of NOL. So really just we're still forecasting in 2023, the earliest that we'd be paying in cash taxes.

In 2023 that's helpful.

Rich.

And then maybe my follow up is for Joey.

We've seen a couple of your peers really.

Highlight some of the efficiency gains in the Midland Basin from silo practice, it sounds like Youre at two crews.

Today, and how do you think about.

The adoption of that on a go forward basis.

And what type of efficiency gains or are you seeing relative to a standard zipper frac crew.

Yes, Brian we continue to see great success like others was final frac.

As I said in my prepared comments.

Would you have to sign more frac fleets.

We're looking at the possibility of adding a third Frac fleet.

At some point in time in the near future.

Seeing.

Significant efficiency gains.

Well cost reductions in the neighborhood of two to $300000.

I know I get asked all.

All the time why don't you just immediately convert all of your.

Fleets to Simon <unk>.

But you know it just it's a significant well number one some of the pads arent conducive if you have an odd.

A number of wells on a pad that can.

A little bit of a difficult part in thermal frac, but also just the water and sand logistics in essence, the demand at one point in time was 50% greater so we don't want to Overcapitalize on our water infrastructure, we do have one of the most.

Most vast water infrastructure and that's why we're able to support two continuous some'll frac fleets.

These are going nonstop, not just coming and going so.

But we will continue to add some frac fleets.

Water infrastructure grows well.

Well adopted as it makes sense from a capital perspective.

Great. Thanks, a lot.

Our next question comes from Derrick Whitfield with Stifel.

Thanks, and good morning, all and congrats on your quarter and the Delaware divestiture.

Building on Europe.

Building on your divestiture success and your prepared comments could you comment on your desire to move more of the longer dated Midland inventories similar to the Laredo transaction and speak to the potential size of that opportunity set based on the improvement we've experienced both really the oil and capital markets.

Okay.

To look at those and be strategic about those on an annual basis. So real no change I mean, we're still going to obviously look to add in terms of acreage trades as well and so that'll be part of our portfolio and balancing between acreage trades, but then divesting the longer dated stuff that we're not going to get to for a while.

Okay.

Great and with my follow up I wanted to focus on ops, perhaps for Joey.

Could you elaborate on on how youre, using predictive analytics and machine learning to improve D&C efficiencies.

Comment on the maturity of this technology and progressing your efficiencies today.

Yes, I'd love to I really appreciate that question I'll give one specific example.

When you look at the.

Paul charts of where we're getting our cost reductions.

No it's not.

Big things, it's a bunch of little things.

And one example of where we use predictive analytics was on our chemicals for our <unk>.

Whenever we're delivering our stimulations on our wells.

We've gone back and use machine learning to determine based on what the outcome of those during the delivery of the Frac, how we can throttle back our chemicals.

On the well and thus you use less chemical and whenever you look at that on an individual well basis. It may not be big box, but when you multiply that times 500, it turns into a huge dollars on it.

On the drilling side.

We have a stuck pipe.

Predictive tool, where we've gone back and looked at.

Events, where we've had stuck pipe and a drilling activity and by doing that we could use machine learning and predictive analytics to to know how we can see that coming and thus prevent it and it's been hugely successful for us and I could go on and numerous examples so I would say from my perspective.

It's a very mature methodologies that we have adopted and use continuously but the opportunities forward are limitless and we continue to expand it. So appreciate the question, but now it's been a huge success for us and we look forward to its benefits going forward.

That's great and thanks for your time.

We will take our next question from Paul Cheng of Scotiabank.

Alright, Thank you good morning.

Two questions. Please the first one.

On the cash tax did I hear you right that in 2023, you're still not going to be a cash taxpayer in any meaningful way.

It's been an NOL looked like you will.

Fully use up next year.

No Paul Youre right I think you missed misheard, it's we actually do become a cash taxpayer in 2023.

And at that point that what kind of pets weight that cash tax rate that we should assume.

Well I mean, we will have the you know you'll have the 21% than 1% state and then we do have a deferred tax liability that that starts to starts to filter in.

Probably 2024 and beyond so.

You'll have those impacts that went into the model as well, but we will become a full cash taxpayer in 2023.

So 100% of we put the tax would be cash tax by 2030.

Yes, I'd say its a slightly a smaller portion of that but then it does step up.

Alright, okay.

The deferred tax liability that will be rolling off.

Okay.

Second question is on the debt.

Do you have a EBITDA contribution from those in the third quarter, you can share or at a minimum can you tell us that on a per Boe basis.

Lower EBITDA margin I had students campaign to your overall portfolio and also just curious that you already planned to sell those answer why increased quoting activity and the Ric I took a team the third quarter, we need to with those assets.

But what that is.

That deal just come unexpectedly or much sooner than you had thought.

Yes, Paul it's rich.

A couple of things one the wells were just planned as our normal routine and so we had whether or not we're going to be.

Divested it was still unknown as Scott talked about we had the unsolicited interest in which led us to the process. So I would just say that was normal course in drilling those wells was was on the schedule and planned and we're going to proceed ahead.

Terms of the asset.

It's kind of a catch 22 in the sense of that higher oil cut and so obviously you get a higher oil price on a bigger parts of those barrels, but it did have higher operating cost and so margin wise and a higher price environment. It was very competitive with what was in the Midland Basin.

But at a lower price environment clearly the margins were better in.

Midland So that's really from a <unk>.

Standpoint of free cash flow generation and cash flow generation of how that assets stacks up in terms of the cash flow basis from I don't have the exact third quarter numbers. So we'd have to get back to you on that.

Alright, thank you.

Our next question comes from David <unk> of Cowen <unk> Company.

Thanks, everyone for taking the questions. This morning.

I just wanted to follow up on just wanted to longer term points, maybe that you were making earlier Scott.

As you accrue more and more cash than you get below that leverage target.

Theoretically if we're entering this world of <unk>.

Limited spare capacity 80, plus dollar $100 crude.

The 75% excess free cash payout beyond the base dividend.

Still like a very good long term vision, we would just think about future cash accrued being either used opportunistically and ordered for buybacks over time.

Just used to support sort of a base dividend increase at that point, particularly as you get to a point, where you are debt free.

Thank you.

Youll see a combination of us over time and that strong commodity price market shift.

From variable to base.

Number one secondly, youll see us.

In the $80 plus market just to give you an idea we had easily have over $10 billion of firepower.

To buy back stock at various prices.

And so it just shows you the potential of firepower that we have over and above distributing 80% of our free cash flow for both base and variable over time.

So we're starting to see additional.

Dividend funds invest.

Starting to see our ownership change more and more dividend funds are buying Phd stock for the dividends.

Secondly, we're starting to see more retail come in we're making an all out effort to go into all of the firms.

Trying to get more retail the shift.

Into ph D because the dividend yield.

But we still think it's important to reduce the share count over time too that's another.

Another way besides growing 5% a year to increase EBITDA to reduce the share count to increase EBITDA.

Certainly I appreciate that Scott.

Has any private activity, that's increasing in and around your acreage position in the Midlands.

<unk> sort of increased downtime that you hadn't necessarily plan for in 'twenty one.

No we stay in pretty close contact with the private operators as well, but no it hasn't impacted us at all.

Thank you I appreciate it guys.

Okay.

And our next question comes from Bertrand <unk> of <unk> Securities.

Hi, Good morning, guys. Thanks for sneaking me in at the end I'll just ask one so you can wrap it up.

Seems that maybe we're not privy to.

That retail is asking tobey.

Yes, it's a great question and I think you can tell by the slide deck and I will be positioned the discussion on the variable plus the base.

We view the return of capital in that yield to be to be competitive not across institutional investor.

As with the retail investor.

Positioned as Scott pointed.

That youll see increase retail presence.

And pioneer equity holder.

Sounds good it sounds like they appreciate the yield that's all for me guys. Thanks.

Thank you.

That concludes today's question and answer session.

Scott Sheffield at this time I will turn the conference back to you for any additional or closing remarks.

Again, thank everyone for listening to probably one of the best quarters in pioneers history.

I know, we won't see again until.

Early next year.

So hope everybody have a happy holiday and travel safely again, thank you.

Yes.

This concludes today's call. Thank you for your participation you may now disconnect.

Q3 2021 Pioneer Natural Resources Co Earnings Call

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