Q3 2022 Pioneer Natural Resources Co Earnings Call
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Please standby.
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.
Neal Shah Senior Vice President and Chief Financial Officer.
Ryanair has prepared presentation slides to supplement comments made today. These slides are available on the internet at Www Dot P X D dotcom.
The Internet website to access the slides presented in today's call is www Dot P X P dot com navigate to the investors tab found at the top of the web page and then select investor presentation.
Today's call is being recorded a replay of the call will be archived on www dot <unk> dot com due November 22nd 2022.
The company's comments today will include forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. These statements and the business prospects of pioneer are subject to a number of risks and uncertainties that may cause actual results in future periods.
Or materially from forward looking statements. These risks and uncertainties are described in Pioneer's news release on page two of the slide presentation and in Pioneer's public filings made with the Securities and Exchange Commission.
At this time for opening remarks, I would like to turn the call over to Pioneer's Senior Vice President and Chief Financial Officer Neal Shah. Please go ahead Sir.
Thank you Melinda.
Everyone and thank you for joining us for Pioneer's third quarter earnings call. Today, we will highlight pioneers excellent third quarter financial and operating results and pure leading return of capital strategy Importantly.
Importantly, we will discuss the increased return thresholds, we are instituting beginning with our 2023 program as well as the strong benefit we are seeing through our long lateral development.
We're also excited to highlight our participation into renewable energy projects that will help reduce our emissions profile and further strengthen our leading ESG strategy.
We will then open up the call for questions with that I will turn it over to Scott.
Thank you Neil and good morning, starting on slide three.
Pioneer delivered strong results generating over $1 7 billion in free cash flow during the third quarter contributing to the return of $1 9 billion back to the shareholders.
The majority of this capital is being returned to our base plus variable dividend of $5 71 per share which will be paid in mid December .
Additionally, we continue to execute on opportunistic share repurchases with 500 million of shares retired in the third quarter and average price of $218, representing approximately two 3 million shares the strong return of capital through both dividends and share repurchases. This represents approximately 108% of our third quarter free cash flow.
When including all repurchased to date and dividends to be paid in 2022.
Returned approximately seven 5 billion to shareholders this year.
This robust returns clearly demonstrates our commitment to our investment framework that is supported by our significant free cash flow generation.
We are also pleased to announce that we're participating in 140 megawatt wind generation project with Nextera. This project utilizes pioneers on surface acreage to generate renewable energy that we will utilize in our operation.
Going to slide four.
Yeah.
On our third quarter results pioneers strong execution continued during the third quarter with both oil and total production in the upper half of our guidance range driving substantial free cash flow generation of greater than $1 7 billion.
Our leverage profile remains top tier, which we forecast to be less than <unk>, three net debt to EBITDA at year end.
Going to slide five.
So for me are best in class dividend payout, we continue repurchase our shares opportunistically.
To execute at 1.5 billion since the fourth quarter of 2021.
On an average share price of $219.
This represents a reduction of our total shares outstanding by approximately 3% and a.
Strong discount to our current share price.
The 500 million repurchased during the third quarter at an average price of $2 18.
Per share $250 million of stock was repurchased in the month of July at an average share price of 213 through our <unk> program.
To date, we've utilized $1 5 billion of our current 4 billion authorization, leaving nearly $3 billion remaining under the program.
Going to slide number six.
Our core investment thesis remains unchanged underpinned by low leverage strong corporate returns in a low reinvestment rate. This delivers moderate oil production growth will generate significant free cash flow majority of this free cash flow was returned to shareholders through our strong and growing base dividend and our peer leading variable dividend, which represents up to seven.
5% post dividend.
Dividend free cash flow.
We strengthened this quarter as total return by leveraging our strong balance sheet to aggressively repurchase shares.
In total this resulted in returning $1 9 billion to shareholders.
Which equates to an annualized yield of greater than 12%.
Going to slide number seven pioneer.
Pioneers high quality assets low breakeven in.
And moderate our growth provides the ability to pay significant dividends from our peer leading free cash flow.
Through cycle as seen on the graph, we're able to deliver a compelling base.
Most variable dividend with a yield far exceeding the S&P average at oil prices of $60. Conversely shareholders have significant upside to sustained higher oil prices as well with a greater than a 10% dividend yield at oil prices higher than 100 dollar WTS.
Going to slide number eight total dividends to be paid in 2022, resulting in a yield in excess of 10% at today's share price.
This yield exceeds all peers majors and the average yield of the S&P 500.
Okay.
Going to slide number nine when looking beyond our peer group to the broader market pioneers dividend yield exceeds every SMB buyback sector, our double double digit dividend yield demonstrates the cash flow.
Generative power and underlying quality of pioneer's assets and the strength of our peer leading return of capital strategy.
I'll now turn it over to rich.
Thanks, Scott and good morning, everybody I'm going to start on slide 10, where you can see that our full year 2022 production and capital guidance remains unchanged from our previous update in August updating for actual results for the third quarter and forecasted strip prices for the fourth quarter.
Now estimate that we'll generate over $12 billion in operating cash flow for the year.
Excuse me and deliver more than $8 billion of free cash flow for the year.
You can see in the upper right. Our average activity level remains unchanged and we plan to run between 22, and 24 rigs and approximately six frac fleets with two of those being signed more frac fleets for the remainder of the year.
Turning to slide 11.
As you would expect we continually strive to be more efficient improve return and implement the learnings into our development program.
System with our this DNA inside the company, we have been not satisfied with the 2022, well performance and have made a significant step change to our well return thresholds going forward. This material threshold increase will substantially improve well productivity for 2023 and subsequent years.
Many of these more stringent thresholds will result in the productivity of our future development program, surpassing the 2021 program levels, which are significantly higher than the 2022 levels and result in better capital efficiency and higher free cash flow per Boe.
Over the course of 2022, our development strategy is fully transitioned to a full stack approach, which includes drilling up to six highly productive zones. We have also significantly reduced or delayed developments and are taking advantage of our contiguous acreage position to real extended 15000 foot laterals that generate 20% higher re.
<unk> got a 10000 foot well.
Given the quality and depth of our inventory this higher threshold program is consistent and highly repeatable for many years past the 2023 to 2027 create highlighted on the graph in the right.
Turning to slide 12, and as I mentioned on the previous slide we are realizing improved returns and strong productivity from drilling 15000 foot lateral with developing these long laterals provides significant efficiency gains that reduced capital costs, resulting in an average drilling and completion savings of approximately 15%.
For lateral foot.
The combination of these savings and the strong productivity drive increased returns with irr's, increasing by more than 20 percentage points when compared to 10000 foot laterals.
<unk> extensive contiguous acreage position in the Midland Basin, which approaches nearly 1 million gross acres supports our development of high returned 15000 foot lateral wells to date, we have identified more than a thousand locations for long lateral development and expect to place more than 100 of those wells online in 2023 up from the 50 or so.
We plan to put online in 2022.
Turning to slide 13, as you can see in the left pioneer has the longest duration of high quality inventory when compared to peers. This third party data data highlights pioneer as a premier independent oil and gas company with decades of high quality inventory in the core of the Midland Basin.
Yeah.
Turning to slide 14.
Besides highlights the powerful combination of pioneer's highest free cash flow per Boe amongst our peers combined with having the longest duration of high quality of inventory in the U S. Unconventional space. This combination of robust free cash flow generation and decades of high return inventory supports pioneer's ability to return significant capital to <unk>.
Our holders over a long period of time and differentiates pioneer from its peers.
I'll stop there and turn it over to Neil.
Thank you rich turning to slide 15 for multiple consecutive quarters pioneer has delivered the highest cash margin of our entire peer group, our unhedged oil weighted production underpinned strong price realizations, which when netted against our low cash cost drive these unmatched results.
As we've discussed previously our low cash costs are a function of a robust infrastructure low coupon debt and top tier G&A. This best in class margins paired with our highly efficient operations support the highest free cash flow per Boe produced.
Yes.
Turning to the next slide.
Pioneer continues to offer an attractive investment case for shareholders through the combination of leading corporate returns and an inexpensive valuation.
Pioneers projected our oce continues to exceed all other sectors within the S&P 500, as well as the majors and the broader energy sector.
Our strong return profile with our discounted valuation, we believe results in an extremely compelling and durable investment opportunity for shareholders with that I'll turn it back to Scott.
Thank you go on slide 17, we.
We published our 2022 sustainability report earlier, this year, which highlights pioneers.
<unk> and significant progress on our ESG initiatives, we believe that these actions demonstrate our commitment and focus on ESG and further strengthens <unk> position as a leader in the industry.
Our updated sustainability report can be found on our website.
And we expect to publish an updated climate risk report later this quarter.
I wanted to slide 18, we are excited to announce our participation in a wind development project on pioneer's owned surface acreage as well as the Concho valleys solar project.
Both renewable energy projects will supply power to both pioneers field operations and target.
And pioneer is jointly own Midland basin gas processing system.
This renewable energy in the renewable energy credits generated will reduce our scope two emissions and contribute to our emission reduction goals.
Coal Valley Solar project is currently operational and the hot wind development being built by Nextera.
To be operational in 2024, we are pleased to have next era as a partner and they have unmatched experience and developing wind and solar resources.
We continue to evaluate further wind and solar development on pioneer zone surface acreage. In addition to these two initial projects.
And the final slide on Slide 19. This is a summary of our key attributes that we have discussed today, which highlight our commitment to creating value for our shareholders. We will now open the call up for questions.
Thank you Sir if you would like to ask a question you may do so by pressing star one on your telephone keypad.
Please remove your mute function to allow your signal to reach our equipment. Once again that is star one if you would like to ask a question.
And we'll go to our first caller.
Neil Mehta with Goldman Sachs.
Good morning team and thank you for all the great color here. So I just wanted to turn to slide 11, and rich maybe you can expand on it a little bit.
More here so as you think about the path for when you expect well productivity.
Inflect are you, saying 22 represents sort of the trough year in 'twenty three gets sequentially better or do we have to look out further than that 2023 to 2027 stack.
To see that inflection.
Yeah No great question, Yeah, it's really 'twenty two will be the trough I mean, we've started the and made the change it immediately but as you know there's a planning process and permitting process. So youll start to see those wells spud in the first quarter and you'll see the results of the higher thresholds as we move through the course of 2023.
So that's really the game plan going forward I mean, basically it means every well in the program, we've got a higher bar and it's going to increase our program productivity, it's going to increase our annual capital efficiency and result in higher free cash flow generation from that program into 'twenty three.
Thanks, Rich and just to build on this because this has gotten so much investor focus here over the last couple of months.
Is what is the confidence interval about the improvement that you expect in productivity what is the biggest risk to achieving to achieving this.
Shift.
Yeah.
Yeah, you know Neal just given that you are having over 3000 horizontal wells out there and having a big database of data I think it's a very low risk. We're really just reshuffling the portfolio and bringing forward higher return wells and deferring some of the wells that were you know.
Great Wells, but you know what we can do we've got higher thresholds that we can hit and so we've just deferred those and reallocate the capital, but the reality is as you know we have high confidence that we're going to achieve the results that we've laid out here.
Thanks, Chris.
Okay.
And moving on to John Freeman of Raymond James.
Good morning, guys.
Good morning, when we look at the.
2023 plan I know that you've got the vast majority of what youll need sort of already secured but when you just sort of think about the supply chain just any anything that youre seeing that sort of loosening versus what areas are still remaining pretty tight and we sort of try to nail down your plan for next year.
Yeah, John I think you know, we've pretty well got most of it tied up in terms of what we need from an activity level. I mean, just to give you a flavor of what 'twenty three kind of is it going to look like you know think about it is you know 24 to 26 rigs probably six to seven frac.
Cruise and AV, which when you have three of those will probably be E fleets over the course of the year as those come in is really what we're looking at as we look at 'twenty, three and that's going to put our.
Still early and we're still working on but you know growth in that mid zero to 5% range is where I'd kind of.
Say, given where we're at today.
So, but I don't really see anything from.
Hopefully we will see what is the biggest inflation on we've had this year has been steel.
<unk> casing prices, having talked to a number of suppliers you know it sounds like thats flattening a bit but.
But we'll see if that comes to fruition or not but otherwise everything else. I think you know it seems like we were not at the same level of inflation I think we've talked about before and that we're still seeing 23 relative to our program in 'twenty to kind of that 10% type inflation level it could be slightly higher but that's generally where we're seeing it.
Hopefully that helps thanks rich yeah, absolutely I mean, you mentioned the three Frac fleets you got they're going to be delivered next year.
I know that you all have plans over the next couple of years to kind of move to.
Nearly all electric in the field and you've got some some electric substations theyre going to be installed over the next few years.
Just kind of talk to me the timeline of how all that stuff sort of plays out.
Windows like Substations can install and when realistically you could be you know nearly all electric in the field, just how that sort of timeline looks.
Sure I think.
23 wide call would be a transition year. So I think it will and maybe I've mentioned on previous calls that this year. We're virtually running you know everything on diesel next year, you'll see as we get the fleets and some do.
Dual fuel.
Engine and fleets going forward that will probably be kind of that transition of part D. So part C. N. G is where we're headed and then as the Substations get built will be able to start doing more of our operations there won't be 100%, but more of our operations on high line power when we get to 2024, and then continue to move closer to a hub.
3rd% 'twenty.
'twenty four 'twenty five 'twenty six time period, but I think that's the general evolution you know obviously the easily.
Activity that you no longer life engines.
Lower cost and so it's better for emissions and better from a cost structure standpoint, So directionally, that's where we want to go it's just going to take time to get there.
Really waiting on the build out of transmission and then whats that the.
If everybody doesn't the power demand is going to be higher so we need power generation to come online as well.
Great. Thank you I appreciate it.
Sure.
Next we'll hear from Doug Leggate of Bank of America.
Oh, Thank you good morning, everybody.
Rich I wonder if I could.
Just pick your brain a little bit on the I guess, it's on the philosophy behind the the way you're going to develop the asset going forward.
Was this a surprise to you that the federal I guess going back to that.
Our targets.
Resulted in lower productivity or is that something that you anticipated that I guess, what I'm really trying to get to is when you think about your capital program going back to the <unk> for one of a bird's question Cube development are there any impacts on your topical expectation relative to the third target to lead target philosophy at previously.
Okay.
Yeah, I'd say the delayed targets.
Have underperformed, where we would have anticipated they still have great returns. It's just we have better.
Locations in our portfolio and so as we've gotten those results over the course of this year.
Decided that's not satisfactory to us and where we want to move forward to the higher thresholds and so we've just reshuffled the deck as I said earlier and are moving to a full stack basically across the field, but not involved the defer those delayed targets until later day down the road. So really that's the been the game plan and the learnings that we've had this year.
We get smarter and better as we move forward.
But to be clear, presumably you have to <unk> existing parts, so as to the capital implications for the change in the way you'll be developing going forward.
Okay.
It's probably small Doug, but it's not a significant pad cost is relatively small in the grand scheme of things so and in some cases, we were still having to expand tank batteries. So there it was.
Yes to a small extent, but overall I think you'll see that the.
News programs going forward.
We're going to be more capital efficient than we were in 'twenty, two and which is the objective and higher productivity and better free cash flow generation.
As far as off this thank you.
Sure Neil kind of weird for my follow up this is my Mike.
Cash tax question, Neil and I Wonder if you could just give us a quick update as to the.
The NOL position it looks like deferred tax has started to trend a little bit lower over time based on that.
Third quarter, so any update there would be appreciated along on your expected timing yeah, Doug I mean, we've essentially utilized our first of all good morning, but.
Yes, that's right, we've essentially utilized our full NOL balance.
We've got a little bit that will utilize here over the next several years, but for the most part.
I'd model it is being utilized and if you look at our federal cash taxes paid to date based upon estimated taxes. It was based on a higher commodity price earlier in the year. So you saw that that change for Q4 guidance. So based on our current commodity price outlook, which is which is lower based on where we were earlier in the year.
We believe we have minimal remaining 2022 federal cash tax obligations.
And then if you've seen the last four years to 2023 based on the strip also are being that goes as said before mid to high teens.
Understood. Thanks for the quality there I appreciate it.
Doug.
Moving on to Scott Hanold of RBC capital markets.
Okay.
Thanks, Good morning, maybe.
Maybe just sticking with the budget, our 2020 through a little bit and just at a high level budget, you've got some pretty good color, but when I think about sort of a 10 plus percent service cost inflation.
And then potentially at a couple of rigs.
Kind of feels like a four 4% to four five kind of overall capital range does does that generally makes sense and can you talk about some.
Pushes and pulls that.
They occur around that.
Yes, Scott I mean, I think that's directionally right I mean, we've talked about as we add those one to two rigs now are those with where they sit today or you know kind of a 175 $200 million capital spend and then you have the 10%.
Where we see that from where we sit today at the three six to three eight and add those increases to it it gets you to that.
Four five generally range and we're still working on it obviously.
Increasing the return thresholds has implications doing in capital efficiency improvements and so we're still working through all that.
But I think directionally, you're you've got it right.
Okay I appreciate that.
If I can go back to sort of the change in the drilling strategy and targeting higher return wells and just at a high level can you give us some sense of coming into 2022.
When you laid out the program and obviously it wasn't is optimized.
At the end of the day, but.
<unk>.
Where were you when you think about where you were targeting was it generally you know kind of going back to existing areas, where you drill.
Drilled wells to two where the earn acreage or for whatever reason and drilling in some of the I guess other you know not as core stack part of part of the portfolio.
And in my kind of question kind of then thinks about like 2023, when you do the full stack development.
It was really less about.
Drawing some of those other than the best targets versus more of the deferred completion impact.
Yes, Scott.
Yeah.
<unk> got a million gross acres, we had our rigs spread out across the field to really handle all of the things that you laid out there, but as we move that threshold would be higher it just it.
Focuses more on areas that have those high rate of returns. So in general that's going to move probably little more activity as the north across the field.
But that's really the allocation of capital here is really the focus and generating higher rates of return and so that's going to drive it the longer laterals, obviously has a higher rate of return as we talked about on the call and so there's a focus on that we're going to have over 100 of those wells in the 2023 program and so that's really how we've gone about that selection and words.
We're still doing the full stack or just you know.
And prioritizing those wells that are those pads in locations that have higher rates of return.
Okay. Okay. So I guess my question was more specific on that.
Illustrates you have on chart 11 so.
In 2023, we can expect you you're targeting pretty much the all of these six zones in the development program right.
Oh absolutely.
Okay got.
Got it thank you.
Sure.
And once again as a reminder, if you would like to ask a question you may do so by pressing star one on your telephone keypad at this time.
Moving on to Charles Meade with Johnson Rice.
Good morning, Rich and Scott Neil until the rest of the team there.
My first question is it's kind of along the same lines of most of these questions you've got this morning.
I think I heard you say in your prepared remarks that that.
You were.
A little disappointed or your your 22 program came in a little bit under where you thought and so I wanted to understand is is the change that youre, making in 'twenty three essentially just reversing some of the some of the changes you made for.
<unk> 22 versus <unk> 21 or is there.
Another dimension to up to your evolution here.
Yeah, Charles I'd say, it's more about just the allocation of capital I am moving to a higher return.
Locations in areas and so the returns that we are generating from the program in 'twenty. Two are still fantastic I mean, so I don't want anybody to take away that theyre not great returns is just.
Productivity came in a little less than we anticipated and we wanted to rectify that and fix that and we weren't satisfied with it and so we've got a depth of portfolio that we can move things around and so we've made those changes and going into 'twenty three we're going to drill wells that have higher productivity and higher rates of return and that's really just.
You know what we're charged with from a capital allocation standpoint to make happen and so that's where our focus is and the teams are highly focused on it and we're going to execute that program going forward.
Thank you for that and in the second.
My follow up is probably for Scott.
Scott I wanted to first I'll congratulate you guys, they're buying back shares in the quarter that's up.
A great price that you guys were able to execute at it I just wanted to take your temperature get an update from you on how you're thinking about.
How about the mix of buybacks versus variable dividends now.
No.
As we laid out our program its still heavily weighted toward dividends, which was the.
All the feedback that we're that we've been getting from.
Our long term investors over the last three years. So we will continue with that.
But when we got the balance sheet.
We got the balance sheet to be very opportunistic obviously and we've shown that also and we will continue that also.
Thank you.
Yeah.
And next we'll hear from Derrick Whitfield of Stifel.
Thanks, Good morning all.
With my first question wanted to ask on <unk>.
Understanding that you have limited exposure to <unk> and the recent weakness is driven by maintenance with Gulf Coast Express and <unk> pipelines.
Can you speak to your macro views on in basin gas prices for 2023, and egress Titans could lead to shut ins for some of your peers.
Yeah, I mean, obviously we've.
We've got pipelines coming in incremental compression coming but.
As you can look at the forward curve on well how prices out there obviously they are trading at a discount to Nymex in Socal and other places for pioneer specifically I think we've talked about having about 25% in that range of exposure to Wahaha and you know, it's been a little bit higher because of the socal maintenance on El <unk>.
Paso being down we haven't been all those moves may volumes out west as we would have liked.
But we've got incremental capacity on firm transportation coming in.
'twenty three and then more than 24 when Matterhorn comes on we're also moving our partially endeavour point volumes that were on wall ha will be moving them out of basin in 'twenty three 'twenty four time period as well as we take those volumes and kind and so from pioneer standpoint, you know we will have very little exposure kind of in that 'twenty late 'twenty three 'twenty four.
Time period at Wawa is for US others that you know it is a for those that are smaller operators that don't have firm transportation.
They're gonna until those new pipes come they're going to probably be getting discounted prices.
And we will see I mean, I haven't seen any of our forecast is seeing any shut ins at this point, but that could be an ultimate result for some of them, but at this point I'm not aware of any that are expected.
That's great and perhaps for my follow up.
Wanted to go back to slide 11, and just wanted to focus on your new economic threshold commentary.
Could you help frame the degree of increase in returns you would expect to see in that 2023 to 2027 program and what percent of your 20 plus year inventory falls into that category.
Oh, yeah, well I mean, it's a meaningful increase from where we were in 'twenty two to what we're doing that 23, 27 time period, and just given the depth of our inventory and we've got 15000.
Tier one locations out there. So we've got a long runway to execute at that same economic thresholds that we've set to get these higher returns and higher productivity. So.
Yeah, we're just.
We're blessed to have the inventory, we have and we can execute this for a long period of time.
Thanks, Great updates on your Ppas in 2022, well productivity.
Oh, great. Thank you.
Thank you next we'll hear from Arun Giron with J P. Morgan.
Yes, good morning.
Rich or Scott I was wondering if you could just help us understand the you know what the new IRR and return on investment thresholds are that you've shifted too.
Yeah, Yeah, really I guess, just like I said in the last.
The question is really you know we've made a meaningful impact to the to increase them and that threshold is really what we're building our 2023 and subsequent year programs on and so it's a substantial shift yeah I'll tell you that and I think you'll see from that slide on 11 as demonstrated there that their productivity is getting higher.
Efficiency, therefore were better than our free cash flow generation will be better. So yeah. That's really been the focus of the team as we've as I've said before not been satisfied with our 22 results and we've made it.
Headache shifts to improve that.
Understood.
Just maybe a follow up rich.
You know just looking at some of the historical data in the Northern Midland Basin.
Between 2017 in 2019 pioneer.
Was completing about 85% of its wells in the Wolfcamp, a and b intervals.
That decline to call it the.
Mid to upper sixties between 'twenty, two and 'twenty one.
This year in 'twenty two.
You've done about 51% of your wells in the sprayberry and less than half in the Wolfcamp, a and B. So is the plan on a go forward basis to shift back to a higher mix of Wolfcamp, a and B wells you know consistent with previous years.
Or is it youre targeting new zones. So I was just trying to or new areas, just trying to understand what what shifts in early 2023.
Yeah, I think it's more of a you know gio.
Geographically, where we're drilling and I think you're still going to see is I mean as you know the across the field you know some some zones are more prolific than others and so you know in general for the 23 program I haven't looked at it specifically, but I think it's going to be probably in that.
Yeah, I think it's going to be probably evenly split between sprayberry and wolfcamp zones for the most part.
Okay, maybe its slightly weighted towards the wolfcamp zones.
As we look at that program, but it'll be area specific and we're going to maximize the returns by each zone given in the different areas across the basin.
Great. Thanks, a lot rich.
Sure.
Moving on to Matt Portillo with T P H.
Good morning, all.
Matt.
Just a quick question around spacing design, you've had extremely consistent spacing design.
On a horizontal perspective over the last couple of years, which has led to pretty consistent well results in the Wolfcamp in particular, I'm curious as you've gone to full field development are there any learnings on a vertical basis and how you guys think about <unk>.
Communication moving forward from a spacing design perspective.
Hi, Matt we continue to learn like like everybody you know as we go but in general I'd say, our spacing really hasn't changed that much I mean, it's still generally no rule of thumb eight to 900 feet.
Spacing on the wells here and there is no different as we learn new things, but you have to think broadly across our acreage position.
It really hasn't changed over the last two or three years at all so I don't nothing big that characterize it.
Okay.
Perfect and just a follow up on the differentiation between zones again, I know, there's a lot of noise in the state data.
The Wolfcamp results have generally been pretty consistent.
Looks like this for a very maybe a bit more volatility.
The dataset over the last few years as you guys look forward into 2023 and that improvement in the overall development program as part of this just some high grading occurring in the zones, you're focused on in the sprayberry moving forward and any color you can kind of give around.
Just a variance as we've seen in the sprayberry data over the last couple of years.
Yeah, I think on the sprayberry data.
It will depend on whether they were full stack development or <unk>.
Single targets or delayed targets. So you just get different data based on the vintage of when those wells were.
Completed overall on our program.
The thresholds.
Applies on a kind of a per zone per well basis, that's how we set it up so in areas, where you know the zones are less prolific and then we will drop those from the full stack development and so its really just a case of we will continue to maximize value and how we select the wells across each of those pads and full stack. So it's yeah.
Full economic analysis, and you kind of give us the highest rate of return and highest productivity that we're looking for.
Perfect.
Thank you very much.
Sure.
Next we'll hear from Leo Merrill Liana <unk> with M key MKS.
Hey, guys just in terms of the 2022 program here.
Looking at kind of the data in terms of well pumps to date.
We're looking at kind of a pretty meaningful step down in the fourth quarter.
In terms of Pops and it looks like even if you do see that step down youre kind of still be at the high end of the range or you think just based on how the program's going it sounds like you're still running 20, something rigs that maybe we'll get a few more pops in the guidance here in 'twenty two.
No I think Youre right I mean, the plan all along had as having less pops in the fourth quarter. So we're gonna be roughly call. It 25 pops less in the fourth quarter than we were in the third quarter.
Just by the nature of the plan and just timing of how it's working out so no I wouldn't read anything other than that it's just it was.
Planned in timing and that's where the program shakes out for Q4.
And <unk> laid out in our guidance.
Okay.
Helpful. And then just wanted to ask a little bit on oil cut.
Just kind of looking at the guidance here for fourth quarter.
High level. It looks like you are expecting maybe the oil cut to come down slightly in terms of where it was in <unk> and <unk> just wanted to get a little sense in terms of why the cuts kind of been coming down during the course of 'twenty two and then in 'twenty three do you guys have kind of.
A rough estimate of what you think the oil cut might be do you see that may be improving a little bit with kind of the high grading of the web.
Any color would be appreciated.
Yeah sure Yeah, you're right I mean out of our general our forecast has been in that 50, 354% well range. So I don't anticipate it changing.
Much it's come down over the years is just the <unk> of these wells continues to.
To grow it hasn't changed our oil forecast at all but the gas continues.
Coming out of solutions. So that is part of what we've been getting but in general I would think as you think about 'twenty three program to be in that same $53, 54% range.
Okay. Thanks, guys.
Sure.
Okay.
And next we'll hear from Neal Dingmann with <unk> Securities.
Good morning nice quarter.
Just a quick one guys on just the continued development.
Got it.
I think last time, you mentioned on the call.
The attack with a couple of Gaslog next year, we're targeting a couple of gas wells in the Woodford Barnett could you just say your thoughts on that obviously gas continues to do very well and so I'm wondering is that still the plan and sort of the rationale behind that.
Yeah, it's real.
But yes, we still plan on testing.
A couple of wells in each of the Woodford and Barnett zones next year, that's part of what we're planning for when we expect those wells, obviously to be as they're deeper to be gas here and we're really when you will find resource there and so it really just what's the productivity of those wells and given where gas prices are.
Maybe lower well, how today, but where we expect it to be longer term on the forward curve.
Want to understand that what that resource isn't so we think it's worthwhile to spend some capital next year to test those out and then we'll see what the productivity looks like and go from there.
It makes sense and then why have you maybe just a follow up is just what do you think I know you talked about or the pop slowed down a little bit.
At the end of the year will it just be a normal level or what could you comment on how many you would have I don't know if you're thinking about having a little bit more than normal because of the timing and might help a little bit and started in 23.
Yeah, I don't think it'll be materially different than just our normal working capital of what I'd call Ducks that are pads that are ahead of the Frac fleet. So.
Nothing that is going to be a big change from where it's been through most of the year. So it'll be business as usual I'd put it.
Okay very good. Thank you all for the time.
Sure. Thank you.
And next we'll hear from Bob Brackett with Bernstein Research.
Yes, good morning, a question coming back to the the relative underperformance of the delayed target strategy could that just simply be the Frac heights and the initial wells exceeded their target zones and youre getting some contributions from those delayed targets what still it is the responsibility of that.
Yeah, Bob I think you know, there's definitely some level of communication and so we've seen that as the reservoirs. We've come back and then those delayed wells and so that's impacted the productivity.
From those wells that we didn't anticipate but you know at the end of the day like I said earlier the returns have been still very very strong returns on those delayed wells and there's still plenty of resource. There is just we can get better returns by moving to the full stack and other locations.
That's clear, but the other question would be clearly you're operating the opportunistic share repurchases have been effectively retiring shares at a low price how do I respond to the buy side that argues will Bob you've got a $283 target price pioneer who knows more about pioneer that anyone is buying.
And the 200 Twenty's so no. Thanks.
We're always I mean, its we run in a vs on all of our on our assets.
And I think it's better we're always going to buy a little bit each quarter, but I'd, rather be stronger and try to buy the stock at a of that.
At a discount so that just the way we are so.
Okay I appreciate that.
As a follow up to that look in terms of the conversations we've had with our shareholders and their desired method of return of capital its been primarily the.
As we've discussed the base dividend combined with a variable dividend that takes you to 80% of free cash flow. So you know where are the majority of the free cash flow is spoken for and that being said even over above that we've been we've been very opportunistic and not shy to deploy that capital incrementally to buyback shares. So we do step into the market and repurchase equity it's just.
The return of capital as its been communicated.
Communicated to us by our shareholders Theres been a preference for the base plus the variable. So that's you know that's a big part of that rationale of course.
You got a very good the total stock and you've got to look at the total stock return you take our current we paid out $26. So people when you look at a total T. A S R.
A lot of charged don't show that $26 payout. So you just got to think about that I'll also Bob so.
Yes, very clear.
Okay.
And moving on to Phillips Johnston with capital one.
Hey, guys. Thanks, Rich just to follow up on.
Matt's questions.
It sounds like Theres, clearly a geographic mix shifts elements of the new approach.
If I heard correctly, you arent necessarily changing the mix of zones within any given areas. So theres no real.
Mix shift towards Wolfcamp and away from the stack Bury, but it sounds like you are just going to sort of be more selective within a given section is that correct.
Yeah, I think just given our expansive acreage position that will move things around to maximize the return thresholds by the geographic area that where we're in so yes as I mentioned I think there's definitely work.
Going to go to locations in areas that have the highest rates of return and that will move to a certain extent in a little bit north.
Okay.
Is that going to wind up I guess, yielding fewer wells per section.
No I don't think it's changing what we're I mean, we're not change like I said earlier the spacing on the wells anywhere, it's just going to those higher productivity areas that were and.
Therefore has higher rates of return that we're targeting and so but it's not really like I said, it's not changing our depth of inventory or the.
How long it's going to last it's just what we're drilling today versus what we're drilling tomorrow. So we've just deferred some.
Uh huh.
<unk> had in the portfolio that we're going to push that back in time and bring some things forward that have higher rates of return.
Yeah, Okay. Thanks rich.
Sure.
And we have time for one final question Jeanine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking our questions.
Our first question is on the renewables update that you provided.
Wondering if you could give a little bit of commentary about any capital requirements that come with those projects.
Around maybe the economics or the <unk>.
Cost of the electricity that youre going to be buying relative to what you would be paying if you didn't have these agreements.
Sure.
<unk> capital.
Next here is developing the project on our surface location and on the Concho Valley one.
It's being developed by them and so no capital from our side, that's going to be investing that we are signing like as you mentioned power purchase agreements to take that power and you know based on where the forward curve on the electricity market looks like these are at favorable prices.
To that so we're excited to get those projects on it and you'll get the benefit of that power purchase agreement.
Pricing. So there are good good pricing the way we look at it and then on top of it we get the renewable energy credits are there.
Come with that that can reduce our scope two emissions. So the overall, we think it's a two great projects and look forward to doing some more.
Okay, great. Thank you.
Then the second question I have.
So going back to the full stack development topic, and if I Miss this in another question.
But we love our fun with Matt and just wondering if you have a rough estimate of how much of pioneer's overall acreage as Virgin would qualify for more Virgin stack development versus something that would be more impaired.
Thank you.
Yeah.
Jeanine I don't I don't have you have a rough estimate I mean, just given the size and scale of <unk>.
Our footprint I would say, there's still a significant amount of Virgin, but I don't I don't have a percent that I could quote.
Just be guessing and I don't want do that so we can probably find it but I don't I don't know that off top my head.
Okay.
Thank you.
[laughter] Thanks Jeanine.
And that's all the time, we have for questions today, I'll turn the conference back over to Scott Sheffield for any additional or closing remarks.
Again, thank you very much for participating and everybody over the next couple of months have a happy holidays and travel safely. Thank you.
Okay.
And that does conclude today's conference. We thank you for your participation you may now disconnect.
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