Q4 2021 Pioneer Natural Resources Co Earnings Call
Please standby.
Welcome to pioneer natural resources fourth quarter conference call joining us today will be Scott, Sheffield Chief Executive Officer, Rich Daly, President and Chief operating Officer, and Neal Shah Senior Vice President and Chief Financial Officer.
Ryanair has prepared Powerpoint slides to supplement their comments today. These.
These slides can be accessed over the internet at Www Dot P X D Dot com.
Again, the Internet site to access the slides related to today's call is www Dot P X D Dot com.
At the website select investors, then select earnings and webcast.
This call is being recorded.
Replay of the call will be archived on the Internet site through March 18th 2022.
The company's comments today will include forward looking statements made pursuant to the safe Harbor provisions of the.
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 Pioneer's news release on page two of the slide presentation and then.
<unk> public filings made with the Securities and Exchange Commission.
At this time for opening remarks, I would like to turn the call over to Pioneer's Senior Vice President and Chief Financial Officer Neal Shah. Please go ahead Sir.
Thank you Lauren good morning, everyone and thank you for joining us for Pioneer's fourth quarter earnings call.
Today, we will be discussing our strong fourth quarter results and our best in class return of capital program in.
In addition, we will discuss our 2022 outlook, which encompasses a low reinvestment rate significant free cash flow generation and shareholder return all through our high margin Midland Basin assets.
We will then open up the call for your questions with that I will turn it over to Scott.
Good morning, Thank you Neil.
Morning, everyone.
Starting on slide.
Slide number three.
Pioneer delivered a great fourth quarter closing out a strong year, which we generated a record $3 $2 billion of free cash flow and returned $1 9 billion back to the shareholders through.
Through dividends and share repurchases.
With a material base dividend increase of greater than 25%.
This quarter's base plus variable dividend of $3 78 will be paid in March.
This dividend payment represents approximately a 7% yield on annualized basis.
On an 8% yield would you include the additional 62 cents.
Dividends paid in the first week of January .
We have now merged our quarterly base and variable dividend components into one dividend payment or one check.
To ensure that third party data providers.
Property represent our dividend yield and reflect our return of capital I want to thank bats, factset and Bloomberg and working with us.
Factset will look in the past the past four quarters, and Bloomberg will take the current dividend yield which.
Which will show about 7% going forward.
And that's how they'll do it so we're getting recognized now with our variable dividend.
Additionally, due to our unhedged oil position and strong commodity prices, our second quarter variable dividend is poised to increase by greater than 60% from the first quarter.
Payable in the second quarter and will equate to about 11% yield.
When taking into account fourth quarter share repurchases of $250 million of dividend payments of approximately 875, we returned greater than a 100% of our fourth quarter free cash flow to shareholders. In addition to our fourth quarter repurchases. Our board has authorized a new $4 billion share repurchase program.
<unk>, our previous authorization, which provides increased capacity to repurchase a significant amount of stock.
These record results were driven by high quality asset base, which generated a 17% return on capital employed in 'twenty. One we expect this to increase this year to the mid twenties.
Strip prices at mid twenties around 25% return on capital employed.
Going to slide number four again solid execution drives.
Strong fourth quarter results.
Continued during the fourth quarter as both oil production and total production of in the upper half of our guidance when adjusting for the volumes sold with the Delaware Divesture and you can see it in the boxes that we showed two numbers.
One with Delaware.
Until the end of the year, one without the last 11 days.
As I've mentioned on the prior slide this production supported another quarter of strong cash flow, resulting in record free cash flow of $3 2 billion in 2021.
Our Midland horizontal lowy remained low at $2 68, and peer leading during the quarter and $2 46 for the year.
Looking forward, we expect to mine a very low leverage profile at approximately point to net debt to EBITDA at year end 2022.
Essentially we had the best balance sheet in the company's 25 year history.
Yeah.
Going to slide number five.
Committed a significant return of capital we remain committed to our core investment thesis underpinned by low leverage strong corporate returns at a low reinvestment rate, which generates significant free cash flow.
Majority of this free cash flow was returned to shareholders in the form of base plus variable dividends with total shareholder return through dividends, representing almost 80% of our free cash flow at.
At current strip prices total dividends are expected to exceed $20 per share and 22, representing approximately three times increase from 2021.
We will continue to maintain a pristine balance sheet and supplement our compelling base plus variable dividend framework with opportunistic share repurchases under our new $4 billion share repurchase authorization.
Our free cash flow over the next five years at the five year strip is over 28 billion.
In addition, we've run our model out through life of inventory.
Free cash flow over the life of our assets until the last well is drilled in the last well has produced its well over $200 billion at.
That long term strip pricing.
Going to slide number six best in class best in class cash returns to shareholders.
Obviously with a high base plus variable where at the highest percent of returning cash back to the shareholders. Our investment framework returns the highest percentage of free cash flow to investors through dividends when compared to any one of our peers our majors.
This cash is directly returned to the investor we have seen a tremendous benefit attracting dividend value funds over the last several quarters and also seeing a significant change among the culture of our employees, who all on the stock and always are looking forward to that dividend check.
Slide number seven compelling dividend yield amongst our peers.
As a function of our strong free cash flow generation and a high percentage of return to shareholders. Our dividend yield exceeds all appears majors and the average yield of the S&P 500 based on current share price.
This top tier yield demonstrates the cash flow power and underlying quality of pioneer's assets and strength of our peer leading return of capital strategy.
Again, we had 7% first quarter when you exclude the return the extra base dividend, which would bring it up to eight for the first quarter and thats increasing to approximately 11% next quarter.
Slide number eight in comparison to that same yield versus all industries in the S&P 500.
When looking beyond their peer group planners expected yield all far surpasses every S&P 500 sector.
In fact based on strip pricing pioneers yield 2022 yield is more than six times. The average of the SB 500, almost two five times the average of the oil majors with a strong dividend yield share repurchases and modest growth from the Amex investor.
Perspective, the case for owning pioneer stock is compelling.
Going to slide number nine return of capital framework, we believe a strong and growing.
Nice dividend is a commitment to our shareholders and a key pillar of our investment thesis.
<unk> mentioned earlier, we have further strengthened our base dividend with an increase of greater than 25% from last quarter's increase this increase is predicated on our balance sheet strength and durability of our cash flow across commodity price cycles.
This is the second straight quarterly base dividend increase and represents 40% base dividend growth since the third quarter of 2021.
And going forward, we will continue to increase the base significantly.
Inclusive of the inclusive of the increase since year base dividend compound annual growth rate of greater than 80% exceeds all peers in the U S majors.
Further augmenting our strong shareholder returns our board of directors has approved a new $4 billion share repurchase authorization. This new authorization excludes the impact of the.
$250 million already purchased in the fourth quarter under the prior authorization, we will continue to buy shares on a quarterly basis. Our long term objective is to reduce share count we have one of the best balance sheets in the industry to repurchase a significant amount of stock opportunistically.
Going to slide number 10 dividends through the cycle.
Pioneers. This is a chart a lot of people have asked us in regard to the dividend funds and also the retail sector as we continue to get on calls promoting more to the retail sector.
Pioneer has high quality assets low breakeven of around $30 capital discipline provides the ability to return significant free cash flow through commodity price cycles as I mentioned, it's well over 200 billion at strip prices long term.
As seen on the graph pioneer shareholders have significant upside to higher oil prices as we have zero 2022, all hedges in going forward with.
With dividends greater than $24 per share at oil prices above 90.
Additionally, dividends will remain resilient at lower oil prices, providing materials sustainable return of capital at lower commodity prices.
Also generates a significant amount of free cash flow, but at current strip prices.
<unk> a mid twenties return on capital employed in 2022.
I'll now turn it over to rich.
Thanks, Scott and good morning, everybody I'm going to start on slide 11, where we outlined our 2022 plan.
And consistent with the preliminary 2022 guidance that we just discussed in our third quarter call. After the sale of Delaware in Glasscock County assets.
We expect annual 2022 oil production to average between 350 and 365000 barrels of oil per day with total production on a BOE basis is expected to average between 623000 648000 Boe's per day cab.
Capital for 2022 is forecasted to be $3 3 billion to $3 6 billion or 345 billion at the midpoint.
Of the total capital budget, roughly 50% is locked in and not subject to any further incremental inflation.
Based on the mid points of both capital and production ranges along with strip pricing, we expect to generate over 10 over $10 5 billion of operating cash flow, which is will be a record for the company.
After backing out capital this results in over $7 billion of forecasted free cash flow for 2022. So you can say taking into account the capital as a percentage of our operating cash flow our reinvestment rate is less than 35% the lowest in the company's history.
Turning to slide 12.
Looking at our program you can see this slide really reiterate graphically our capital program, representing a reinvestment rate of 35%.
With a large majority of the remaining 65% of cash flow being returned to investors through our base and variable dividend program and share repurchases that Scott discussed.
Importantly, it also points out the quality of our high margin asset base and the efficiency of our capital program, which on a combined basis drives breakeven WT oil prices at approximately $30 to fund that program.
And as I mentioned on the previous slide 50% of our capital program is locked in and protect it from inflation. The remaining 50% of our capital budget includes approximately 10% of forecasted incremental inflation, which is embedded in the midpoint of our guidance range.
Turning to slide 13.
You can see that pioneer as the largest and most contiguous acreage position in the Midland Midland Basin from the graph on the right, where we are focusing on high margin high return development of our <unk> are over 15000, well locations that we have in our portfolio.
During 2022, just on specifically we plan to run 22 to 24 rigs.
We plan to run approximately six frac fleets of which two are simulcast fleets and placed on production roughly $475 to 505 new wells.
As you can see our lateral link continues to creep up as we add more 15000 foot laterals into the drilling program and we're expected to average 10500 feet in 2022 up from approximately 10000 feet in the last couple of years.
Inclusive in this program is.
Putting on 50 longer lateral wells that are in that 15000 foot range and these save basically 15% on a per foot basis.
For drilling and completions compared to 10000 foot well.
As I mentioned earlier, we are continuing to utilize simulcast operations, which reduces well costs and shortens our cycle time from spud to pop.
Another benefit to the company and as we said in the press release, we are evaluating a third simulcast simulcast fleet later this year or in early 2023.
Yes.
Turning to slide 14 really are best in class margins that Neil mentioned early on you can see on the left side here that our realized prices.
Our peers is the highest of anyone really reflects.
Our high.
Quality wells in our oil percentage as a percentage of our production.
At the right side of the chart you can see that we also have best in class cash costs, reflecting our highly efficient field operations, our low corporate overhead structure combined with our low borrowing costs. So when you put those two together it really is a top tier combination that translates into peer leading margins.
Turning to slide 15, this slide dovetails nicely with the previous slide it shows that our peer leading margins combined with our efficient capital program generates best in class free cash flow per Boe.
That is highly sustainable for many years given the companies.
Great inventory duration of high returning wells with low breakeven oil prices and so I was just kind of shows where were apparently upper right the benefits of high margins and great inventory base.
Turning to slide 16.
Yeah.
Our high cash flow per BOE combined with having one of the best balance sheets in the industry really underpins what Scott talked about our return on capital framework, allowing us to return significant capital to shareholders. While at the same time continuing to improve cash margins by retiring higher coupon debt that we recently announced as Scott mentioned, our great balance sheet and strong free.
Cash flow generation allows us to return roughly 80% of our free cash flow to shareholders via our base plus variable dividend program with the remainder available for share repurchases.
So I'll stop here and I'll turn it back over to Scott to discuss our continued progress on reducing emissions.
Thank you rich I'm, starting on slide 17.
Leading sustainability plan during the third quarter we.
Published our 2021 sustainability report, which outlines a robust emission intensity reduction goals, including our ambition to achieve net zero emissions by 2050 for both scope one and scope two.
Throughout the report we highlight our strong environmental practices key initiatives that are underway and support our enhanced emission reduction targets seen on the right side, reducing greenhouse gas emissions by 50% and reducing methane emissions by 75% by 2030.
In addition to emissions related goes we've adopted a target to reduce freshwater used in our completion activities to 25% by 2026.
Our focus on environmental social and governance has established pioneer is a leader in the industry, which continues to be reflected by many third party rating agencies on slide 18.
In comparison with our peers pioneer has one of the lowest current emissions intensities among peers and continues to place.
Hi.
On environmental stewardship as seen on the left pioneer as 2019, and 20 reported emission intensities.
Already lower than the majority of our peers reduction goals.
2030 emission intensity goes represents one of the strongest reduction targets in the industry demonstrating continued progress on our pathway to net zero.
On slide number 19.
Again, a chart that we've used in the past pioneer continues to bring low emissions barrels to the market producing some of the lowest emission barrels in the world.
As compared with other countries when compared with our low maintenance breakeven oil price of $30. A barrel pioneer provides exceptionally resilient production that we expect will have a place in the global marketplace for a very long period of time.
On slide number 20, we brought back.
Flaring slide that we've used in the past.
The primary reason for this is to show that the Permian Basin has made great strides in reducing venting and flaring the past years going from a peak of 750 million a day day less than 200 million a day just recently.
Pioneer and many others, primarily other publics have driven flaring under 1% and continue to make improvements long term. We hope companies will go less than <unk>, five and eventually down to 2%.
The remaining companies as you can see on the right hand side, primarily private operators continued event and slayer, much greater than 1%, we still somehow need to take action on those type companies.
They need to operate more responsible and take the necessary actions to reduce their flaring intensity.
Slide 21.
Again.
Pioneer we are actually celebrating our 25th anniversary.
This year.
Obviously, you had one of the best track Records on shareholder return during the shale industry.
Over the last 10 years.
Continue to focus on returns capital discipline and allocation of capital.
Turn of capital to shareholders the greatest among any pier one of the best balance sheets in the industry and again.
15, 20 year inventory, probably one of the longest are the longest in the.
U S shale industry and again continue to lead on ESG, We will now 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 July your signal to reach our equipment again that is star one to ask a question. Our first question comes from Neil Mehta with Goldman Sachs.
Yeah. Thanks, Thanks, Tim and I appreciate that the dividend yield sensitivity at different oil prices thats helpful.
My question was around share repurchases and how do you guys see that as a tool in the toolbox as we think about 2022.
Tend to execute that radically be opportunistic in your framework around share repurchases would be great Scott.
Yeah, Neil I mean, yes Neal.
We got two deals here realized.
Yes.
It's what I said, we're still going to buy quarterly.
We got a great balance sheet.
So we did exercise it.
The fourth quarter, and we'll continue to look at that.
Like I said before we will continue to reduce share substantially but the the primary provider of return to the shareholders is going to remain the dividends. We just happen to have a great balance sheet to continue to buy.
I'm coming obviously.
It's a lot easier when you are.
You had the best balance sheet in your history, and secondly, I'm getting more and more confident about the long term all strip being much higher than we had expected. Some last year. So all scripts continue to move up we had the closing of our Delaware sale. So youll see us continue to be in the market by them fairly aggressively.
Uh huh.
Thanks, Scott the follow up was on the macro but just to tie it into your production as you think about your production 22 versus <unk> 21 on a same store basis. There are a lot of moving pieces, but I'd be curious you have said up to 5% in the past how does that how does this number compare to that and how should we think about an exit to exit and then to.
Put that in the context of the broader oil macro.
How are you thinking about.
The call on U S shale playing out as we go through 'twenty. Two there are a lot of moving pieces, most notably now around Iran.
But do you see a clear call on on the industry.
No. There's no change there is no change for US long term, we're still net zero to 5% is going to vary we're not going to change is set at $100 oil $150 oil, we're not going to change our growth rate.
It is important to return cash back to the shareholders.
In regard to the industry, it's been interesting.
Watching some of the announcements so far the public independents are staying in line.
Evidence they will continue to stay in line.
The private independents.
As we all know are growing they've announced growth rates in the 15% to 25% per year range.
As I've stated eventually they're going to run out of inventory.
As written by the Wall Street Journal article that came out in the last two weeks people that are growing at 15%, 20% are going to run out of inventory fairly quickly.
Also they are experiencing there's been articles written by somebody on the call there is.
We're not experiencing a lot of companies a lot of the privates are experiencing labor issues.
Cost issues can't get equipment, so thats going to prevent the rig ramp up so I hope it at the end of the day.
And the two majors.
I know that they are balancing.
There are other entire portfolio of them announced higher growth rates and 5% in the Permian basin.
One has a significant amount of ducks those ducks will go down over time.
I don't think those companies can continue to grow at those type of rates are they will significantly reduce their inventory fairly quickly.
Got it.
Our next question comes from Nitin Kumar with Wells Fargo.
Thanks.
Hi, good morning, and thanks for taking my question.
But I wanted to start with.
Maybe on the financial side, you discussed the slide 10, where you show the sensitivity of your dividend too.
Different oil prices you also got rid of your hedges. So I'm curious why not preserve some downside protection, it's a financial.
Case investment case that you're.
Highlighting social why it get rid of hedges.
Yes, you have to realize that.
It's totally different.
Well I think you've seen enough articles oil could easily go to 150.
Demand is stronger than ever has been in the world.
And OPEC and OPEC plus is going to run out of capacity by the end of 2002 <unk>.
Thats, even been stated by several OPEC and OPEC plus countries.
That's ignoring the Iran, and the Ukraine situation.
Both of them obviously.
There is no reason, putting on a hedge when it's obvious that things could easily move up north secondly, the hedges or the Austria is totally in backwardation.
So right now we're in the low nineties it drops about $20 a barrel when you go out five years.
So if you could buy a 100 dollar put for five years. That's a different question you can't.
And so you can only buy a 70 or $60 per foot.
That's probably the bottom end of where oil prices are going to bottom out over the next several years. So it doesn't make sense to put on a put at $60. So thats hope that answers your question.
Yes, that's great.
I guess my second question.
Permian gas takeaway is becoming an issue you talked a little bit about the privates drilling and andi and the majors, but you could talk about how you're positioned in terms of exposure to our pricing.
And what your thoughts are on gas takeaway from the basin.
Yes, Dan it's rich.
I think broader terms when you think about the macro for the Permian Basin I mean, we're going to need another two Bcf a day pipeline every couple of years in the Permian Basin, and so I think thats as the basin, even at modest growth rates that we talked about you are still going to need that level of capacity takeaway specifically as it relates to pioneer Theres a couple of pipelines that are.
In the works right now that are looking for commitments, we're evaluating those and most likely we will take volumes on one of those.
We will go into the Gulf Coast.
That'll be out here in the next three to four months I think those things will get.
Announced of whichever one of those pipelines gets done.
In terms of what our exposure is we move probably 35% of our gas out to California market.
At 45% to 50 down to the Gulf coast market and at least 15% to 20% and the Wahaha market today longer term I think we will reduce that warhol exposure as we move more gas out of the basin, but that's really where we sit currently.
Hope that helps.
Awesome. Thank you so much for your answers.
Sure.
Our next question comes from John Freeman with Raymond James.
Good morning, guys.
Hey, John .
My first question Scott.
Just trying to understand the kind of the long term kind of framework on the base dividend.
It was nice to see that continuing to grow.
It looks like at least on the current strip that base dividend.
Ballpark somewhere around 10% of the of the free cash flow.
Can you just remind us sort of kind of the methodology that goes into determining the appropriate base dividend like in terms of percentage of cash flow or some long term kind of oil price assumption.
Yes.
I've been pretty open that we're going to move it up fairly significantly to get up to where we have roughly about a $50 <unk> long term price.
And.
That's where we're going to move it up too. So you can it be easy for everybody to calculate that but we'll continue to move it up very aggressively over the next couple of years to that to that long term $50 <unk> that we can.
Easy pay that base dividend at a $50 WTO.
And then Scott do you want the base represent a certain percent of free cash flow at that $50 level.
No it does it.
We don't look at it that way so when you look at it is.
We know the history of our industry a lot of companies have either stop dividends are lower dividends during the price cycles.
So we are making a projection on the down cycle.
Drops below 50, it's going to come back to <unk> fairly quickly in our opinion, that's why we're using $50 is a long term.
Test okay.
Got it and then just my other question on the on the final Fracs, which obviously are seeing a good bit of savings last year on and it looks like youre likely going to kind of add a third.
I believe in the past Joe you had mentioned like one of the big.
Panamax more aggressively expanding the final fact points was just.
The water infrastructure side of things, just sort of a water and handle logistics and.
Maybe just sort of how to think about the amount of the capital that's gotta go toward water.
We're going to continue to expand the subtle effect.
Relative to last year, I think you'll spend about $100 on water infrastructure.
Yes, John .
It's exactly right in the sense of.
Water being the key.
Item that we've got that we're working on logistics on I think we've got in our capital budget, roughly $70 million or so for water.
This year for 2022, but the real.
The thing that we're working on is spreading out because we've got the.
Significant water infrastructure that goes northern South and we recently board under Interstate 20, and are moving our water north is really allowing us to take full advantage of our water system is that have a similar frac fleet in the north one in the middle and one in the south and that way. It gives us the ability with our pipeline to move the most amount of water to meet those logistics and so that's really what we are.
Working on now is just putting all that together such that we can run three and really use the benefits of investing in that water infrastructure to their fullest potential and so that's what we're really working on today and hopefully by end of this year early 2023 will be at that point.
Great. Thanks, guys.
Sure.
Our next question comes from Charles Meade with Johnson Rice.
Good morning, Scott to you and your team there.
Yes, Thanks Charles.
Just kind of want to go back to comments.
You got into bid.
Response to Neal's question so.
We see the same thing youre seeing its been one of the delight.
Susan that the large public independents are are staying in line, but there's that.
There seems like there's this tension between what the what <unk>.
<unk> peers are doing and the acceleration of both the majors and the independents.
That seems like a tension that is going to have to break one way or another and I think you answered this but I want I want to make sure I understand your thinking.
The concern on the part of investors is that it's with $90 oil it's got a break in the form of.
Yes.
The large independents, returning to spending more and growing more but but that's not if you.
Well could you offer your opinion on how you see that tension resolving if you agree that there is some tension between those two.
Yes, it's only.
It's only tension is that the world doesn't need the extra oil.
And so the question is how long will it go on.
When you get into their inventory issues like I said earlier.
It's all back to demand so as I said, we're seeing record demand in this country, we're seeing record demand in several other countries around the world.
And everybody has demand increasing.
Three five to 4 million barrels a day in 2020, when you look at all the various reports around it ranges between three and a half and for once that happens OPEC is at.
They have no extra capacity.
And OPEC plus and so we have never been there before is going to test at the end of this year and so we may need the extra barrels today.
Question is will we need them in 'twenty, three and 'twenty four and what do those companies do.
And then I made the point about the privates the privates needs to be reined in because they are the biggest players in the Permian basin.
And somehow we need to reign in the privates through regulation, whether its EPA state investors bond investors, but the privates.
<unk> need to be reined in in the Permian basin, So hopefully that happens so.
And then and then the follow up which is which is related to this.
<unk> the clarity you guys offered on the strip.
2% of your capital costs in 'twenty, two we're locked in and you got 10% inflation baked in.
I'm wondering if you play that movie forward into 'twenty three.
At $90 oil there is theirs.
You made the point that service availability is even starting to be a question, but a $90 world. There's plenty of plenty room for for privates to bid up.
The bid up.
Pricing.
To bid that service into our into the Permian So how do you.
'twenty two is in hand, but could this become a non issue for <unk> in the industry as a whole.
'twenty three and beyond.
Yeah, Charles I mean, I think it's always something we have to be cognizant of and continue to work. So we're working on 23 step two I think as it relates particularly to pioneer you'll give us given that we're the largest producer largest activity level in the Permian basin and our relationship with our vendors.
We have the ability to work on those early and make sure that we can.
Get the best price, it's out there, but a lot of it will depend on where raw materials are at and what their costs are and so we'll continue to do that but I'm confident that we'll navigate that as well as anybody in terms of what that cost pressure may look like or and how we can mitigate it by continuing to improve our efficiencies overtime and Charles I'm going to China under it.
<unk> comment and also point out one other thing if you look at our.
Our hedge position now at zero percent hedged on oil.
We're talking about a $90 price environment every every $5 change in oil now as an incremental $750 million of cash flow for us. So.
So that really would offset any real move in inflation and that's one of the reasons Scott kind of opened up in the discussion early on in talking about our zero hedges on oil that would really benefit us vis vis our peers. So while the I think inflation may impact them more so relative to their cash flow or cash flow in <unk>.
$90 oil environment is higher as well.
God I see the way the pieces fit together, thanks, Neil Rich and Scott.
Quarter.
Our next question comes from Derrick Whitfield with Stifel.
Thanks, and good morning all.
With my first question I wanted to focus on the success Youre, having with long lateral development specifically based on the stated increases 15000 foot laterals in your 2022 capital program could you speak to the degree which you could further accelerate this in 2023.
Perhaps more broadly if we were to think about the 15000 locations noted on page 13.
How many of those locations are presently or could be suitable for 15000 foot development.
Yes, Gary we've talked about in the past that we've identified about 1000 locations of that 15000 that are.
15000 foot type laterals that would be.
Great wells to drill as we think about the program.
Something that we started in 2021, we've grown that in 2022 so in.
<unk> surprise me that we do more of those and push it even higher than the 50 wells, we're going to complete in 2022 into 2023, so that'll continue to be something because they're very capital efficient wells I mean, obviously the wells come on at basically the same rate as the 10000 foot, but have a flatter decline. So there is just one of those things thats, a huge benefit and allows us to do.
And get to acreage that we otherwise weren't going to get to potentially as well. So there's lots of benefits of the 15000 foot laterals and we will continue to push that limits to put more into the portfolio over time.
Okay.
Yeah.
Eric did we lose you.
Yeah, I'm here sorry, guys.
Thanks for that.
Follow up I wanted to focus on the Texas Railroad Commission.
The city letter from last December with the understanding that you guys have an extensive water infrastructure network in excess saltwater disposal capacity could you speak to your projected near and longer term business impacts if any.
Yes.
Near term, we had wells in that.
Sorry.
Seismic regional area there they talked about response area.
But we only had one deep disposal that was impacted that we did.
Shut in for the time being at this point, but we had plenty of water capacity in our other wells in the area to move that water around so no impact to that and we're also have given our infrastructure I talked about on John's question water. We have been we have mobile reuse facilities that we can move around in the field, where we have new wells coming on that have higher water production and so we.
We'll continue to do that.
And move that water down the system and just really keep it away from having just being disposed and reuse it.
And our Frac jobs, so longer term, we will continue to look to opportunities to move water different places but for.
For the foreseeable future we're in a good place that we can manage that situation, yes, given our extensive water infrastructure.
Great update thanks for your time.
Sure.
Yeah.
Our next question comes from Jeanine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking our questions.
Yeah, Jeanine How're you doing.
Doing well thank you.
My first question, maybe just doing a little bit of a look back and then maybe look forward does that make any sense can you talk about how the double point and parse the deals impact in 2020 . One results and was there anything somewhat unexpected that either been addressed or that you understand better that will flow through 2022 capital efficiency.
Yeah, Jeanine I would say.
Look back on it I would say there really wasn't anything given that these were all in areas in and around our existing areas. There wasn't anything that was a surprise to us I mean, clearly there was things that we went in and spent capital on to upgrade their facilities to match our standards and we look for ways as we've talked about the 2022 capital budget to take.
Advantage of existing.
Existing tank batteries, how do we make it to take those synergies and make it more efficient operations and so we've done that but all in all the teams did a really tremendous job of.
Integrating those into the company seamlessly it took a lot of hard work, but we're real happy how things have turned out and how they're working alongside ours and we really see a lot of benefits in the future like we talked about last year from just having that contiguous acreage position is it's like these 15000 foot laterals is the ability to do simultaneous.
Things are there to take advantage of a water infrastructure all of those things are added benefits when you have contiguous acreage positions.
Okay, great. Thank you for that.
My second question is still sticking to the portfolio the A&D market seems to be pretty active. These days. So just wondering if youre still in the process to divest.
Noncore acreage kind of beyond just general portfolio cleanup that you are always doing and on the other side of that pioneer has one of the highest quality asset basis out there and so you clearly don't need to do any transaction, but maybe just your updated thoughts on M&A given what you see out there in the market. Thank you.
Yes, Thanks, Jeanine obviously after these last two.
Transactions, we have no need to do anything on a material large scale M&A, we're not looking.
And do not plan to look we think the strongest return we can really realize at this point is to repurchase our stock.
In regard to smaller transactions, we will continue to will we get the right price we will continue to divest of.
Smaller assets and we will continue to buy it.
Really in upgrading process. So we'll buy some we'll divest of some divest tier three.
At good prices and we will continue to buy some in addition, we will continue with our drill co opportunities.
On tier three assets.
Okay very helpful. Thank you.
Our next question comes from Doug Leggate with Bank of America.
Oh, Thanks, good morning, everyone.
Scott I'm sure I'm, not the only ones I'm.
I'm sure I'm, not the only ones, who observe that your stock prices.
Here off its all time high when you were growing a big rate.
A much higher oil prices. So the strategy is working and I want to congratulate you on focusing on our free cash flow.
My question, However is on the breakeven.
I'm just curious how you see that evolving.
What's behind my question is if you are not growing as quickly presumably you don't have as much flush production.
Which I guess means a lower decline rate. So how do you see that sustaining capital slash breakeven evolving.
On the base business overtime.
Yes.
Said, we'll bring our base dividend up equivalent to fairly quickly.
Up to equivalent to a $50 <unk> breakeven price long term.
And secondly in regard to our decline rate since we are only growing in that zero to 5% range our decline rate will definitely come down.
We hope it comes down over time to the low <unk>.
So that's what we believe long term and that will help in regard to capital efficiency gains.
Will help drive that breakeven price down and then you've got to deal with inflation, depending on what type of oil price market. We are in so.
Okay and then it stayed at 30.
It stayed at 30 now for a good couple of years now Doug So right.
Okay. So can I just press you on what you think the sustaining capital level is up about three.
<unk> three four level or is it lower than that.
It's going to be lower than that.
Long term in a call it a a decent oil price market. So.
Theres extra things that we're spending on that we're not going to spend long term.
Whether it's water or whether it's some ESG capital.
Whether it's EUR capital, but there are some things longer term that.
That drives down our breakeven so it should be lower than the 345, the average of our guidance and 2022.
Okay. Thank you for that my follow up I'm afraid is a housekeeping question on cash taxes.
Just given where the strip is right now can you just give us an update as to the NOL position than when you would expect to be in a full cash tax position.
Hey, Doug it's Neal.
Yes, no problem at all so we've got about $6 billion in Nols at year end 2021, we would anticipate with the high free cash flow generation at the current strip that we would utilize the majority of those Nols as we progress through 2022 will probably be roughly about $150 million to $200 million in cash.
Cash taxes towards the end of the year back half of the year.
And then we've probably got.
Some of that balance that's related to partially acquisition that will be subject to some limitation. So we would probably start becoming a tax cash payer in bonus in 2023 of about probably around $1 billion.
That's really helpful. Thanks, Thanks, Neal I appreciate it.
Youre welcome Doug.
And as a reminder, that is star one to ask a question. Our next question comes from Neal Dingmann with Truth Securities.
Good morning, first question been asked on A&D, but just a little bit different Scott.
We actually had a nice Delaware sale and my question is given the pristine balance sheet kind of on a go forward is there any thoughts to sell anything then was that predicated on maybe the market not giving you credit for your extended inventory that you have or maybe just talk about any thoughts about any potential noncore sales.
Yes.
Obviously, we got a great price.
When you look at the margin and the returns we're always going to get a much better return in the Midland basin than are part of the Delaware. So we were in the southern part of the Delaware was primarily only one zone, where in the Midland Basin. We have six primary zones that we're drilling.
And so the.
It was a great price.
The asset was not competing with our Midland Basin returns in regard to future divestitures or acquisitions.
<unk> already commented on that will continue to upgrade.
Our acreage our working interest owners in regard to tier one we're buying some.
Our same time will be divesting of some over time and we'll continue that.
With that practice long term.
Sure certainly makes sense, then I just follow up on the balance sheet.
We have a pristine balance sheet a lot of cash.
Cash flow you're generating so I'm just wondering given this still plans to how quickly maybe continuing to pay down any more of that to $6 billion debt and fund the converts or.
I'm just wondering your plans on that side.
You probably saw from earlier in the year, we we put out a press release related to the $750 million debt in the 500 million that we're going to be retiring here shortly other than that we've got a an upcoming children 44 million maturity.
Towards the third quarter that will that will retire as it comes due.
But as it sits now that's pretty much the lay of the land.
Okay. Thanks Neil.
Of course.
Our next question comes from Paul Cheng with Scotiabank.
Hi, good morning, Thank you.
Two questions. Please first.
So when we're looking at that you would be pretty close to zero net debt and when do they argue that you're pretty much there.
So as Andy when he said that.
We should not expect close to 100% of your free cash flow, we returned to the show with us in the past we Nathan.
The independent agent and you saved more than 80%, but is there any reason why we should not assume pretty much that all 100%.
Free cash flow over the next several year, where people would be weaker.
Hey, Paul It's Neil Youre, right, I mean, thats the purpose and so I think Scott and rich and I have voiced many times one of the benefits of having a low net debt balance sheet and again similar to <unk> question early on reducing gross debt is really to provide us the operational and financial flexibility and as we articulated and I think.
We exemplified in <unk>, we're willing to go to that 100% of free cash flow I think you saw that in <unk>. If you add in the base the variable and the 250 million that we repurchased in the quarter that was 101% of free cash flow. So I think given an opportunity, there's an opportunistic buyback or an opportunity there related to a pullback in the <unk>.
We will step in we won't be shy and again I think we've demonstrated that during <unk>.
But the buyback.
As Scott said there'll be a regular quarterly cadence associated with that but over and above that we will be opportunistic so.
We're at 101% of free cash flow in <unk>, and we won't be shy to step in if try to that opportunity again.
Actually that leads to my second question on the five <unk> in the fourth quarter. You did 250 million I think Scotts, saying that you guys going to be in the market that'd be every quarter, so to determine how much you're going to buyback and you gave us some.
Quite <unk>.
Are you guys thinking about what that what the time.
That level.
Okay.
We're not going to give out.
The exact amount people just don't do that.
And target these at about.
It will still be a significant amount each quarter so there'll.
There'll be a quarterly cadence associated with that Paul Youll see that quarterly cadence, but again, we're going to be also be opportunistic over and over and above that quarterly cadence.
Can you tell us about what that quarterly cadence.
Paul I think just discussed point, that's we've got there you saw the increase in the authorization to $4 billion. So there is going to be a quarterly cadence I would say stay tuned to that and then look for that.
More substantial opportunistic repurchases as those opportunities present themselves again similar to what we saw in the <unk> and <unk> again, we won't be shy. So I want you to sense any hesitancy on our part because I think we demonstrated that again in <unk> and we will step into the market provides that opportunity, but you will see a quarterly cadence as well.
Thank you Paul.
I appreciate your patience.
Yeah.
And that does conclude today's question and answer session. At this time I would like to turn the conference back to Scott Sheffield for additional or closing remarks.
Again, we want to thank everyone. We're looking forward to getting on the road looks like everything is starting to open up in all the states.
So I hope we can all meet in person while these energy conferences in March looks like.
Starting out and will be on the road fairly aggressively over the next several weeks and months again. Thank you.
And that does conclude today's conference. We thank you for your participation you may now disconnect.
Yeah.
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