Q2 2023 Pioneer Natural Resources Co Earnings Call

Welcome to pioneer natural resources second quarter earnings conference call joining us today will be Scott, Sheffield Chief Executive Officer Rich Daly.

The Chief operating Officer, and Neal Shah Executive Vice President and Chief Financial Officer.

Pioneer has presented a prepared presentation slides to supplement comments made today.

Available on the Internet at Www Dot P. XD dot com again, the Internet website to access slides presented in today's call is www Dot P X D dotcom never.

They have to get to the investors tab sound at the top of the web page and quarterly results.

Today's call is being recorded.

Replay of the call will be archived on www Dot Phd dot com through September one 2023.

My comments today will include forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Statements and the business prospects of pioneer are subject to a number of risks and uncertainties that may cause actual results 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 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 Chief Executive Officer, Scott Sheffield. Please go ahead Sir.

Thank you Jay Al Good morning, everyone, it's great to be with you today.

Before we highlight pioneers strong second quarter results I wanted to briefly speak to the current macro outlook and its impact on oil prices.

As you all know crude has been range bound between 65 and $80 over the previous several months has been suppressed by SPR releases recessionary fears.

Weak economic data from China.

Upward move in oil prices reflects the expectation for a tightening supply demand fundamentals in the second half of this year.

Contribute contributors to this include deferred success in managing inflationary pressures in preventing a recession likely resulting in a soft landing for the U S economy.

China actually you've taken measures to bolster its economy through stimulus programs.

<unk> U S oil shale supply.

And a substantial U S. SBR releases, which has resulted in a 40 year low inventories.

This outlook is further supported by Saudi Arabias production cuts.

And ABS is preference to stabilize Brent oil prices at 90 or higher I do expect Saudi to extend their 1 million barrel a day cut they initiated.

My first.

Toward.

At the end of 'twenty three.

See these factors leading to demand outpacing supply, resulting in global inventory draws during the second half of 'twenty three.

The expected demand increase combined with the underinvestment by industry over the last several years.

Both supportive for oil pricing in the 80 to 100 dollar range for the Minder twenty-three and through 'twenty four.

Now turning to Pioneer's performance, we delivered excellent second quarter results, thanks to the safe and highly efficient operations of the pioneer team.

Flawed the great work and efforts of all of our employees.

No there rich and the team's focus on top tier execution will continue to deliver strong results throughout the year was highlighted in the presentation that Richard Neil will speak in more detail.

Again, it's great to be with you all today I will now hand over the call to rich.

Thank you Scott and good morning, I'll begin on slide three as you can see pioneer delivered an excellent second quarter with oil production near the top end of our guidance range. As we expected we are seeing improved well performance relative to 2022 and the teams continue to operate at a very high level.

As a result of our strong well productivity and highly efficient operations. We are increasing full year 2003 production guidance, while simultaneously lowering our full year 2023 capital guidance to reflect our intentional activity reductions and some deflation.

This combination of higher production and lower capital drives an improved 2023 plan and further enhances pioneer's capital efficiency.

Along with these solid results and strength and full year outlook. We continue just.

We returned significant capital to shareholders with 75% of our free cash flow being returned through.

Excuse me.

Baseball's variable dividend and opportunistic share repurchases. Additionally.

Additionally, we remain committed to sustainable and socially responsible operations as evidenced by our newly established methane intensity target of 0.2% or less in 2025 in accordance with oil and gas methane partnership to 0.0 initiative.

Additional details on our progress and continuing efforts can be found in our recently published 2023 sustainability report.

Turning to slide four.

The team's continued focus on execution resulted in strong second quarter production with oil production near the top end of second quarter guidance at 369000 barrels of oil per day, and total production exceeding the guidance range at 711000 barrels of oil equivalent per day.

Our significant free cash flow generation is bolstered by our strong production top tier price realizations and low horizontal lifting costs, which drive our best in class margins that Neil will talk about further later in the presentation.

Yeah.

Turning to slide five as I highlighted on the first line, we are raising our full year 2023 production guidance, while concurrently decreasing our drilling completions and facilities capital guidance the midpoint of our oil guidance increases to 369000 barrels of oil per day, and the midpoint of our drilling completions and facilities capital budget.

It is now lower by $125 million from our original 2023 outlook. This improved 2023 plan is driven by strong well productivity and highly efficient execution by our operations teams, resulting in a more capital efficient program.

Turning to slide six as seen through the company's increased full year 2023 production guidance pioneer expects to deliver oil production ranging from 364000 to 374000 barrels of oil per day, and total production ranging from 697 to 717000 barrels of oil equivalent per.

Day, consistent with our investment framework that delivers moderate annual production growth of up to 5%.

Our reduced drilling completions and facilities capital budget is expected to range between 4.375, and 4.575 billion as a result of our reduced activity and operational efficiencies, which are being driven by longer laterals simulcast operations and utilization of localized sand mines to name a few.

Our exploration environmental and other capital X patient expectations remain unchanged as we've previously discussed this capital is allocated to four exploration wells targeting the Barnett Woodford formations in the Midland basin, adding infrastructure to further electrify the field, allowing us to move more of our activity to the grid as well as our continued appraisal of our enhanced oil recovery.

We project.

Our 2023 rig count is now expected to average 23 to 25 rigs due to our intentional activity reductions as a result, the projected number of wells placed on production. During 2023 now ranges from 490 to $5 20.

Turning to slide seven looking at the chart on the left as expected. Our 2023 average an average well productivity is trending significantly above 2022 and is expected to surpass 2021 levels over the first 24 months of production our strong 2023 production paired with robust X.

<unk> underpins our increased full year production expectations were.

We are focused on full stack development, which improves long term recoveries and Optimizes returns.

As seen on the right pioneer has one of the deepest inventories of low breakeven high margin locations amongst our peers.

Overall as we've discussed in the past we have roughly 15000 high rate of return locations with low breakeven. This deep inventory is highly productive of highly productive wells enables our best in class development for decades to come.

Turning to slide eight.

As part of our low breakeven inventory pioneer has an extensive inventory of extended lateral length wells. This slide highlights the benefits of long lateral length development.

Cost per lateral foot and increased production levels.

15000 foot lateral length, well development generate significant efficiencies in both drilling and completions. These developments require fewer well bores, along with less drilling rig and Frac fleet mobilizations. The combination of these benefits results and our capital savings of approximately 15% per lateral foot.

These capital savings paired with optimized artificial lift have further increased our returns with <unk>, increasing by more than 35% when compared to 10000 foot laterals are strong well results and artificial lift refinements have improved the average our uplift to 35% well above our previous estimate of 20.

Percent.

Our highly contiguous acreage position contains more than a thousand future locations with 15000 foot or longer laterals.

And as we move when pardon me is weak and we expect more than 100 of these wells we placed on production in 2023, including some wells that have lateral lengths in excess of 18000 feet further improving returns our land team continues to do a great job to optimize our land position by actively working trades to strategically increase our significant.

Long lateral inventory again, demonstrating the benefits of pioneer's unique contiguous acreage position.

Turning to slide nine pioneers completions efficiencies are industry, leading with pioneers average completed feet per day, being approximately 80% better than peers and U S majors.

These peer leading efficiencies are a testament to the hard work and focus of our teams in.

In addition to our focus on operational efficiencies, we are driving additional capital savings through the utilization of localized sand mines and Simon Frac technology.

We are now operating three full time, Simon Frac fleets, which continue to be a major contributor to our high efficiencies delivering average cost savings of $200000 per well.

Pioneer began Elizabeth in a.

Second localized sand mine during the second quarter. These localized sand mine to reduce road traffic lower C. O two emissions and provide average capital savings of $200000 per well.

Consistent with our commitment to sustainable operations, we expect 100% of our completion phase to be either electric are dual fuel powered in the third quarter of 2023, allowing us to both reduce emissions and capture fuel cost savings I will now turn it over to Neil.

Thank you rich and good morning.

Turning to slide 10 pioneer continues to return significant capital to shareholders through dividends and all participated stake share repurchases as outlined in our investment framework on the left chart.

Consistent with this framework as illustrated on the right pioneer returned $557 million of second quarter free cash flow through a combination of our strong base dividend variable dividend and opportunistic share repurchases.

Strong third quarter annualized dividend yield of three 3% continues to substantially outpace the average S&P 500 yield of one 5% we.

We believe this return of capital framework paired with annual oil growth of up to 5% provides significant value for shareholders.

Turning to slide 11.

Pioneer continues to generate peer leading margins through the combination of our top tier price realizations and low cash costs.

Pioneers margin benefit from our diversified marketing strategy in.

In fact, I will highlight the strength of our gas marketing strategy in greater detail in the following slide.

Our compelling cash costs are underpinned by our low G&A interest expense and bolstered by the teams focused on driving low peer leading operating costs per Boe during.

During the second quarter, we achieved operating costs that were approximately 20% lower than the same period in 2022. These best in class margin support our strong free cash flow generation.

Turning to slide 12.

As I introduced on the previous slide pioneers strong price realizations benefit from our diversified gas marketing strategy. This.

This strategy provides access to the premium west coast and Gulf Coast markets and reduces our exposure to the localized wahaha market, which regularly trades at a discount to the major gas indices.

As seen on the graph to the right during the first quarter pioneers realized gas price was nearly 20% higher than that of peers.

Thus far based on industry reported second quarter results, we have maintained our strong price realizations relative to peers.

We employ a multiyear planning and strategic approach to our marketing strategy that has provided us access to these premium gas market.

As noted in the graphic in the lower left hand corner pioneer expects to further increase the percentage of gas that is sold out of the basin from approximately 70% today to approximately 80% in the second half of 2024, when Matterhorn comes online.

Turning to slide 13.

The graphic on the right illustrates the free cash flow generative power of our long term investment frameworks, which delivers annual growth of up to 5%.

Pioneers high quality assets high margin production and moderate oil growth are forecasted to generate five year cumulative free cash flow of $27 billion, assuming an $80 Wi Fi oil price or approximately 50% of our enterprise value.

Even at $6 W. T. I R program is expected to generate approximately $13 billion in cumulative free cash flow over the next five years, which demonstrates the resiliency of our program even at lower oil prices.

This slide essentially represents the culmination of what we've discussed with you here today.

Pioneer's strong price realizations are peer leading margins, our deep inventory of highly productive wells and improved capital efficiency all elements contributing to the result, durable and compelling free cash flow generation at various commodity prices and with that I'll hand things back to rich.

Thanks, Neil I'll resume on slide 14, which includes highlights from pioneer has recently published 2023 sustainability report. The company has continued to make progress towards our emissions reduction targets.

As I mentioned before we are proud to announce that in accordance with <unk>. Two point of initiative, we established and methane intensity target of 2% or less in 2025, which places pioneer on path of achieving the old JMP.

Gold standard designation in support of this target we have recently completed the installation of fixed methane sensors monitoring 80% of our gas production. We also continue to retrofit pneumatic controllers and conduct area of methane surveys across our assets.

These methane reduction efforts resulted in a 64% reduction in methane intensity during 2022 compared to our 2019 baseline.

In addition to our methane reduction efforts are hot wind renewable project is on track to begin operation in early 2024, we expect this project to not only reduce our emissions, but also provide electricity at a very competitive cost to our operations.

We're also making significant progress on field infrastructure will allow us to move more of our drilling completions and production operations to electric power further reducing our emissions footprint.

Our progress and commitment to sustainable and socially responsible operations is outlined in detail within our sustainability report, which can be found on our website.

I'll conclude on slide 15, where you can see our foundational element of pioneer strategy, which supports our commitment to creating value to shareholders. So with that J L. We're going to open up the call are happy to open up the call for questions.

Thank you we will now begin the question and answer session. If you do have a question you May press star one on your telephone keypad to queue up and if you wish to withdraw yourself from the queue simply press Star One again, one moment for your first question.

Your first comes from the line of John Freeman of Raymond James. Please go ahead.

Good morning, guys.

Good morning, John .

It is.

Really nice seeing the well productivity trends continue in <unk>.

Thank you and then on the past we have talked about the <unk>.

Long term zero to 5% growth range, and I'll talk about kind of adding one or two rigs a year just based on what youre seeing from a.

Productivity and capital efficiency kind of improvement.

Sort of changed how you all view.

Kind of a necessary rig added to accomplish that or I guess that definitely is that.

That second half 'twenty three activity run rate is that something close to what we should assume as a base case for 2004.

Yes, Jonathan Yeah, it's probably a little or they talk about 24, just from a total standpoint, but I would say as we look at it going forward, where you'll see production in that upper half of our zero to 5% range is where we're targeted production for 2024 based on a day in general as we've talked about as you outlined it takes one to two rig.

Rigs to.

Grow at that level, but as you point out we've had significant.

Growth and productivity in 2023, and so that should make 2020 for very capital efficient and so to me. It probably means that we're at the lower end of that one to two rigs or maybe even potentially flat. So.

More detail, but any of the teams are doing a great job on execution and driving efficiencies, which really allows us to do more with less activity with less rigs and less frac fleets, but great job by the team.

Thanks, Rich and then my second question on the 125 million Capex reduction at the midpoint is it possible to break that down between how much is just due to the reduction of activity.

Versus maybe other cost savings that you werent originally expecting.

Yes, most of it is really driven by activity as you saw by the reduced.

Our average one rig down and then Tinder plus pops. So that's the biggest contribution you know clearly we are seeing some deflation.

Mainly on steel projects, so our casing and tubular goods some on fuel and chemicals that are helping we've heard commentary about rig rates.

Frankly rates coming down from what we've seen those are mainly on spot rates and they're on what I'd call less efficient rigs and tier two equipment on the frac side and when we look at our contracts is given our size and scale. Our contracts today are still below where those spot prices are being quoted and so I just think it's just a.

And our teams I don't really see a lot of change in the back half of this year, maybe its impact 2024, but today, we're still in a favorite price on pricing other than steel and getting the benefits of steel and fuel.

Thank you. Your next question comes from the line of Neil Mehta of Goldman Sachs. Please go ahead.

Okay.

Echo Johns comments get to see the productivity improvements coming through here. So rich it's been a couple of months.

Since our since he announced CEO announcement was made would just love your perspective on two or three of the most important strategic priorities that you're you're you're talking about within the business and how can we benchmark your success on executing against us.

Yeah. Thanks, Neal I think youre seeing it demonstrated in the quarter and our focus is on execution and delivering what we set out to deliver at the beginning of the year and I think you're seeing you know the great work of our 2000 employees delivering the results with the improved well productivity driving down capital costs, increasing efficiencies and so that's really you know how.

We're measuring ourselves internally is delivering what we set out to at the beginning of the year.

This quarter is a good and represent examples of what we hope to do and it's really just a testament to our inventory of deep.

High quality wells that we can do this for a long time into the future for decades, just given the depth of inventory we have in the Midland Basin.

Okay.

Thanks, Rich and then the follow up visits return of capital Youre at 75% of free cash flow went back to shareholders.

And it was balanced between the base dividend share repurchases, maybe you can talk about how youre thinking about share repurchases or the variable dividend at the flywheel.

<unk>.

The return of capital and 75%.

The right number here or should we focus on the at least 75%.

Hey, Neil it's Neil So I'll look.

Precisely right. The return of capital framework really provides us flexibility to allocate capital between variable dividends and opportunistic share repurchases.

Based on where we see the best value for shareholders and also considering the diverse shareholder base that we have which includes income oriented investors as well, we really kind of employ a balanced approach to assessing the variable dividend versus opportunistic share repurchases. So I think going forward, we anticipate a a component of each on a quarterly basis, but it will shift quarter to quarter.

Based on where we see value really stepping in the market and being an opportunistic as you were this past quarter.

75% in terms of return of capital to shareholders Thats kind of as we talk about it based on the framework kind of a firm number but we have said that we will utilize the balance sheet. If we if we see opportunity in the <unk>.

The chance to really separate in the market if the stock drops precipitously. So I think thats always a definite possibility.

Thank you. Your next question comes from the line of Iran. J.

<unk> of Jpmorgan. Please go ahead.

Yes, good morning.

Scott and rich.

My first question is you guys announced your plans.

To raise your IRR thresholds on the third quarter.

Last year.

I was wondering.

How much of the well productivity gains are reflected in your results for the first half of the year and how much do you see is still on the come and maybe you could give us a sense of.

Your secret sauce for what Youre doing to kind of bolster your well productivity at this point.

Sure Arun Great question I'd say, it's what we've talked about in the past is we.

We're really focused on developing our full stack development across our inventory thing and so that you have seen that that move and then you've also seen as you move to the 15000 foot laterals, which is something unique to our acreage position that.

Have a deep inventory of those and so I think it's the combination of those things that are really driving the productivity results as we expected coming into the year.

Probably happened a little earlier in the year than we anticipated, but it is still something that the well results are fantastic. The team's done a great job on execution and something that I think by the updated guidance you can see we will continue into the second half of the year. So that's really the the plan is not anything fancy. It's just developing are a great acreage position with full.

Stack development maximizes recoveries.

<unk> improves and as the optimal way to get into a highest rate of return.

Great and my follow up Richard you're taking down your 2023 Capex.

By about 3%.

Below expectations about the 125 I was wondering if you could give us a sense of if you have any thoughts on 2020 for capex or how to think about.

In 2020 for Capex, given some of the efficiency gains deflation and the fact that you could add one to two rigs to kind of deliver that zero to 5% growth.

Yeah, I think 2024 as I mentioned on Johns question is going to be really highly capital efficient I, just think when you or the growth that we're showing in 2023. When you think about growing in the upper half of our zero to 5% next year and you basically got a good jumpstart and it just with what's happened in 2023. So we see 24 is very <unk>.

Efficient hopefully, it's even better with some deflationary pressure on on the cost side of things. It's too early for me to kind of predict what thats going to look like just given where oil prices are and what you were oil prices may be headed the back half of this year. So we'll have to wait and see but its something our supply chain teams working on day in day out to see how we can make.

Sure, we have favorable pricing going into 2024, but.

All said I think you are right that it is going to be a a.

Very capital efficient program in 'twenty four.

Based on what we know today.

Thank you. Your next question comes from the line of Scott Gruber of Citigroup. Please go ahead.

Yeah.

Yes, good morning.

You guys have been adding sample frac crews new frac crews this year and near completion efficiency is really impressive.

Is it still getting better.

The gain sufficient such.

Such that.

We can possibly a Gaba a frac crew on a normalized basis.

Scott, it's something that the teams are working on an everyday to drive that efficiency I think it'll be harder for us to add another sign will frac just because of the.

Movement of logistics, mainly is the biggest thing, but it's not to say the teams are looking at it but we have gotten more efficient the teams are really.

Having less nonproductive time being more efficient on location and so that's the ideal goal is to do that.

So ultimately that's the focus of the teams is to continue to improve that efficiency longer term theres other things.

Like on a localized sand mine would be another thing that we're working on we've got two of those were looking at a third one in 2024 that would.

Reduce those well costs that it can be applied to.

<unk> 24, so there's things like that the teams are continuing to work on that hopefully will allow us to.

Further improve well costs in 'twenty four.

Got it.

And then just I know youre, another initiatives to reduce well costs.

And the improved capital efficiency.

But.

Our program I think and consensus of around 100 wells this year and as you start to plan for next year.

Hello, how will that figure changes are going to go up meaningfully.

Yeah, I think the goal is for it to go up there. They are still planning on note that it looks like you know how meaningful it goes up it was really just balancing.

Where we're at in the field and in logistics that go with it and timing, but you know given the higher rates of return obviously more of those we can move into the front of the program the better and then really the less wells, we drill and less activity, we have as well to get the same production target. So definitely a great advantage to the company and something that we're working on his own modestly increase.

In 24 to I'd say today, but there is still work in progress.

Thank you. Your next question comes from the line of Matt Portillo of Tpa, which please go ahead.

Good morning, Al just to dig in a little bit obviously, the well improvement year to date has been fantastic I was curious as we look at this the state data the sprayberry in particular for you all seen a big improvement I am curious if thats due to the high grading dynamic for the 2023 program.

The spacing design changes you guys have implemented or any other factors that you can point to that is really driving that productivity gains for the sprayberry.

Yes.

I don't have the specifics on that zone, but I'd say just more.

Broader pictures, there really the full stack development, we're seeing across all zones I think when you look into the state data that the improvement by developing a full stack is just a.

A better way to maximize recoveries and returns and so that's really been our focus and in terms of the 15000 foot lateral we're doing those across all zones as well. So I just think it's.

<unk>.

I don't know the specifics on the lower.

Lower sprayberry in particular, but overall the well performance has been fantastic because you can see from the data.

Perfect and then just as a follow up maybe for Scott I know you spent a lot of time looking at the broader macro environment. We've seen over the last two years, the private operators driving a huge amount of shale growth given the sugar high on the development program just curious your views on how the industry might evolve.

Over the next couple of years as it relates to private operate inventory management and also supply growth moving forward as we've seen a pretty significant cut to the rig count.

Yes, I think youre starting to see it in the U S. Lower 48 production too with the recent EIA data.

So it's definitely slowing people are definitely going to run out of inventory over the next several years most people except for a few of us like pioneer another two or three others in the Permian basin.

Which will lead to it should lead to extreme consolidation.

So that will continue.

Yes.

And.

It's all it's all based on inventory so private equity is running out of opportunities to divest so.

Yes.

Thank you. Your next question comes from the line of David <unk> of Cowen. Please go ahead.

Thanks, Rich nailed the Scott I appreciate the time this morning.

A lot's been covered already but I was curious just going back to slide where we talk about as well productivity that you're you're estimating this year and the gains.

And you do see I guess, some greater outperformance as you get into a longer life of the well beyond two years.

I guess I'm curious one.

What have you seen to date I guess in the initial like three to six months of wells that you've put online this year relative to the program.

Last year and the year before in terms of just percentage of outperformance on a on a per foot basis.

Yeah, David Great question that graph really includes you know actuals to date and then the forecast over that 24 month period of what we would anticipate I'd say the real benefit is as we did these artificial lift refinements and really customize those artificial lift pipe by zone and by area, but that's really paid dividends.

And then just drawn down the wells quicker, allowing to bring that productivity Ford and and so we've just seen the benefits of that and you can see it in the state data.

The higher productivity from those wells by <unk>.

Really managing the artificial lifts in customizing it where appropriate.

I appreciate that and then maybe just a little bit more color on that side as you move more to a 15000 foot laterals you saw the capital guidance coming down this year, but how is that changing some of the spend either per pad or per area on facilities like water infrastructure and is that something that.

Should tick up with sort of completion intensity your lateral lengths intensity over time or.

Is that something thats going to be trending in a more positive direction in 'twenty four 'twenty five.

Yes, I think longer term, it's going to I mean, 'twenty four 'twenty five is probably not too different than what it was in 2023, but longer term as more of the basin gets developed we can use existing facilities and infrastructure and take advantages of that capital should moderate over time as we've talked about.

The 15000 foot laterals in terms of the facilities that go with those yeah, they've got a little more volume to handle but the economics are so strong as you can see that it's very worthwhile and.

In and around areas, where we're going to add additional wells in time too so.

Overall like we talked about it's all pointing to more capital efficient operations longer term.

Thank you. Your next question comes from the line of Scott Hanold of RBC capital markets. Please go ahead.

Yeah. Thanks, just another question on the productivity improvement and specifically with the 15000 foot wells. When you look at the initial performance and what Youre seeing in over a longer dated time.

Do you see those producing as prolifically on.

Kind of productivity per foot basis or is it more of a shallower decline longer term what is the I guess differential between what youre seeing on the longer laterals versus say a standard 10000 foot lateral.

Yes, great question and it really what we're seeing with the artificial lift modifications is that they're maybe not quite but almost essentially basically 50% better like you would expect from a 10000 foot lateral on a productivity per foot. So.

Sometimes we're limited by the fluid we can move until there's a short period, where their flatter, but because of these bigger ESP gas high pressure gas lift we're moving more fluid volumes and therefore, drawing them down quicker and getting basically on now what I'd tell you on a proportionate curve it to be a 10000 foot lateral.

Okay. So hopefully that's helpful. Yes, no that's helpful.

And then going back to shareholder returns and maybe this one for Neil.

How do you think about the fixed dividend. Obviously, you gave some pretty good color on on that you've got a balanced investor base. Some like income and obviously something like buybacks, but what is your goal on that fixed dividend moving forward like where do you want it to be how competitive and the growth kind of piece of it.

Yes, Thats a great question, Scott and good morning, we you've seen our commitment to a strong and growing base dividend. We've increased it consistently over the previous six years and recently just less last previous quarter, we increased it by an additional 14%.

Our current base dividend. If you if you think about the total yield package, we're at three 3%, which outpaced the S&P 500 at one 5%. So we believe the base dividend is extremely important in an avenue of return to our shareholders. So going forward I would expect that base dividend increase roughly commensurate with our production growth.

Sure.

But again, it's a very important return avenue for us in terms of getting that capital and cash back into shareholders pockets.

Thank you. Your next question comes from the line of Charles Meade of Johnson Rice. Please go ahead.

Good morning, Rich Scott and.

And Neil and into the rest of the <unk> team there.

Rich.

Rich I just have just one question for me.

It's about the it's about the reduction of the rig and the average rig count for the year. So you reduce the range by one.

Am I right to think that that since that's happening for back half.

For the back half of the year that you are actually reducing the rig count in the back half of the year by two.

Maybe you can tell me if that's the right way to think about it and give a little more color if that those rigs are already down or this is.

It's going to happen in the next couple of months or just.

We're color there if you could.

Yes, Charles good question and you're spot on.

The average rig count is for the year. So we have the rig count ebbs and flows just with our activity levels. So it's not always stagnant, we have some roll off and bring ones on but Directionally. You are right that we have dropped multiple rigs at this point.

Really reflecting that average rig count coming down by one so you're exactly right.

Got it thank you.

Youre welcome.

Yeah.

Your next question comes from the line of Neal Dingmann of true Securities. Please go ahead.

Good morning, all.

First question just on well cost I'm, just wondering given the well obviously well productivity.

Everybody has been talking about certainly noticeable for you all and potential deflation I'm just wondering how could we how would you all have is considered about well costs maybe through the end of the year in particular in 'twenty four.

Yeah, it's still early for 24, so I hate to get there, but you're obviously moving the capital down our well costs or you can take that $125 million and divide it out.

What we're seeing in terms of a decrease in well cost.

Going forward because of the just the improved program.

Like I said, you know the key kind of deflationary things that are out there really owe CTG steel and fuel and chemicals that were seeing were seeing things on a few other things, but that's where the majority of the savings is coming from and then just reduced activity like we talked about so.

Overall trending the right way and hope to see those continue and everybody is working on that.

Yes, it's sort of it seems like it rich and then secondly, maybe for Neil just on the balance sheet.

Shareholder return that.

Did a great job on the short term that's been talked about it looks like net debt went up a little bit. So I'm just wondering on a go forward. How do you balance all of those things or I guess, maybe Neil asked more specifically should we think about net debt starting to go down more materially through the end of the year and into next year.

Yes.

Good question I mean.

A higher commodity price environment, we're going to be putting more and more cash on the balance sheet. We've talked here as a management committee and the importance of having low debt gross debt as well as net debt. So I mean, it's our goal to really drive net debt lower over over the medium term and short term as well. So I would say it will continue to relatively put cash.

On the balance sheet and continue to pay off the debt, where we can but our goal is to keep net debt low and you know we kind of set that targeted at 0.5 times and I would say that's kind of our bogey.

Thank you. Your next question comes from the line of Derrick Whitfield of Stifel. Please go ahead.

Thanks, Good morning, Don Congrats on a strong print.

Thank you.

Taking a 15000 foot laterals, perhaps one step further there has been a notable uptick in industry commentary this quarter on E&ps are achieving positive results on wells with laterals in the 15 to 20000 foot range with your improved outlook on 15000 foot laterals.

Do you have a sense on how many locations you have in inventory that could support a 20000 foot laterals and b are there any technical limitations or concerns you have with drilling 20000 for laterals.

Yes, I think its great question and so I don't know the exact count on 20000, obviously its acreage specific in terms of what how many wells of our thousand plus could be 20000, what I'd, probably say is that we've drilled the longest ones rebuild just slightly over 18000 foot noted in our.

Commentary.

I think as we get out there longer and longer.

Comes a little bit more risk with that we're very comfortable with the 15000 to 18000 range.

I know other peers have done 20000 foot lateral then successfully so it's not the technology just like when we started and got the 12 five and thought that was the limit that the technology and equipment and tools to get better and better so.

To the extent, we can do longer laterals, it's more capital efficient we think it's the right way to go and if we can get the right drawdown.

Improve those IRR and return so we're going to continue to test it but so far what we've done is 18000 feet with very successfully so hopefully we can continue to extend that over time.

Great and as my follow up with your gas marketing strategy that you've outlined on page 12, how are you thinking about pioneer's role and LNG over time and desire to be more connected with international gas prices.

Yes.

Something we've been thinking about.

A lot and we've obviously on a gross basis or probably one three bcf a day of gas and so just from a diversification standpoint, we are looking at the LNG markets and the new LNG facilities coming on in and looking at what the economics are of being able to diversify a portion of our gas to European or Asian market.

<unk> and link them to a T T F R J K M Prize.

So definitely something we're evaluating and looking at you know it wont be for a call it 10% to 20% of our gas that we may over time add to that obviously the facilities Gotta get built so it's still a.

A few years out, but definitely something that we're interested in and looking at longer term and think it makes sense from a diversification standpoint to pricing markets.

Thank you. Your next question comes from the line of Doug Leggate of Bank of America. Please go ahead.

Yes.

Thanks, Good morning, guys. Thanks for getting me on I want to go back to productivity again, if you don't mind, but ask the question a little differently maybe.

When you look at the chart of.

Oh, the cumulative productivity is improving and it looks like it's more of a.

I kind of a later stage recovery on I guess.

Figuring you haven't got a lot of those long laterals on yet. So my question is what is the proportion of activity currently that's long lateral and how would you expect that to evolve because obviously that's going to play into how this productivity improvements feeds through to production.

Yes, maybe a couple of comments, Doug one I think you may be reading too much into the graft because there's really.

The wells or is it just the forecast.

R R.

Technical team forecasting those wells and as they would.

10000 foot well, but in terms of our total program.

We've got 100, plus long laterals that were planning on putting on location.

Production this year and that's out of a total of roughly 500, well so call. It 20% of our activity is long laterals in 2023, so hopefully that.

Helps.

How do you expect that to evolve will it become a bigger proportion going forward or is that a good run rate.

No I think as per one of the earlier questions I think it will.

Move slightly higher well kind of see as we fit them in and make sure that from just all the logistics that go with it but obviously with a 35% increase in IRR is the more meaningful those forward the better it is in the less wells, we have to drill on annual basis to get that same production growth. So.

It's always a balance but the intent is to probably drill a few more than 102024 and beyond.

Thank you. Your next question comes from the line of Roger read of Wells Fargo. Please go ahead.

Yes. Thank you good morning.

Not going to hammer you anymore on.

Well productivity I think thats been hit, but I did want to come back to the states.

Dividend growth.

Outlook, you mentioned dividend grows with production, but I was curious if you are buying back shares as well should we think of it as production adjusted per share count as well or and then the other part of that question is how do you incorporate maintaining a.

Premium yield or does that actually matter to you.

Premium yield relative to the S&P 500.

Good questions Roger and good morning.

Well I would say the base the dividend as I was talking about in terms of growing commensurate production growth is on a is on an absolute basis, but you are right and that's a great way to look at it as you buy back shares on a per share basis. It actually.

Mobile will prove beneficial then better for those that are holding equity. So I think that's a good way to think about it as well.

As you think about the yield relative to the S&P 500.

It's for US, it's it's nice and it's our goal to be above that yield first for certain but as we've talked about before we really want to sensitize the ability to pay that dividend, we view the dividend as being sacrosanct as a commitment to our investor base. So it's one that we can one that we ensure that we can in fact, it at lower oil prices. So thats important.

To us as well now as we grow the production base that provides us a greater cash flow base to support that yield going forward and support the increase of the dividend in absolute terms going forward as well. So that's kind of how we how we view it here, but again, it's something that we are very focused on and it's very important to us and it's a very important.

Our shareholder base as well so we will continue to grow that base dividend as we have historically.

But more commensurate with production growth on a go forward basis.

Understood. Thank you.

Your next question comes from the line of Paul Cheng of Scotiabank. Please go ahead.

Thank you good morning.

Rich two question please.

One of your major competitor.

In testing now and it seems like you have some that have been successful in improving recovery rate.

You all standpoint, I'm wondering that yet.

Yes.

Or whether you're seeing based on today's technology and pricing.

Please call me, Tim fatigue could be poor economic Cody.

The first question.

Second question is that if we look at your all in cost.

In 2000 1961, 62% in the first half.

Our 50, 253%.

Just wanted to know what does that does it.

Naturally because of the natural gas decline yet.

A slower pace than the oil.

And naturally creep.

Or that just because you are moving into a more gassy portion of your portfolio and if that's the case.

When might you expect.

The next one or two years. Thank you.

Thanks, Paul.

Maybe I'll take the first one just on the technology standpoint, given our size and scale in the basin and how many wells we're completing per year.

We understand or see most of what's happening in the basin from a technology standpoint, our teams are working on technology to improve recoveries, you know day in and day out and do an excellent job at it. So we're not aware of any significant changes that are out there from any of our peers in terms of.

Completion designs or things are radically changing recoveries.

What I'd tell you the things that we're working on as I mentioned in our comments are things like our enhanced oil recovery to improve the recovery ability, we're only recovering call. It six to eight presented the resource in the ground today and some enhanced oil recovery hopefully will allow us to improve that and we still got more testing to be done, but it's technologies like that that we're working on to improve recut.

He's like I'm sure a number of our peers are.

In terms of the oil cut.

I think you saw where we're kind of 52% 53% recently.

As a normal function that.

It comes down over time, particularly as we slowed our growth that happens, but longer term I think when you look at it and we look at the modeling it really.

Trends towards 50% towards the later part of this decade, and so yes, it gradually move down.

Some of it a function of growth, but overall is not moving dramatically.

Going forward and we're not we're focused on oil development and so we're not getting gassy or any place other than just from the normal occurrence of how the wells perform so hopefully that helps.

Thank you. Your next question comes from the line of Leo Mariani of Ross and can please go ahead.

Hi, guys wanted to just follow up briefly on that oil cut.

Comment here, so obviously very strong beats.

On production this quarter, but a.

A little bit less so on oil oil sort of at the high end and he went from 53% oil cut first quarter that 52%. This quarter. So you don't want to make too much about one quarter, but maybe there is just additional gas recovery you talked about focusing on an oil development going forward and not necessarily gas here.

Right.

Is there anything to kind of the new program or perhaps.

As you look to sort of high grade a little bit.

Just the zones, you focused on a little bit more gassy, just trying to get at some of the local color on the recent change here.

Yes, no I appreciate the follow up and I would say.

As it relates to specifically the <unk>.

Second quarter, I mean, we had the benefit of.

Our processors, having really strong plant yields so that definitely helped during the quarter plus we continue to add.

<unk>.

Field compression out there and so lowering line pressure has helped and so all of those things that have benefited that the gas production in the quarter.

Obviously, we're going to try and maximize production and continue to do those things that are efficient going forward, but like I said I think it's.

Slow decline towards $50 in the back half of this decade and has really nothing to do with the.

Wells that we're drilling are the change in the wells. It's just the normal process of whats happens overtime, as we get a bigger and bigger base and the mix of oil and gas and layout to be clear following up on Richard's it's not related to the new wells that we're pumping those oil cuts are or what they have been historically, so there's no change at all related to that and term.

Of zones of where we're drilling or anything.

Similar tests as rich pointed out.

Okay now Thats helpful for sure and then just to follow up on well productivity.

Certainly seems like you folks have credited the allowed the strong production performance that <unk> seen already in 'twenty, three and you're expecting more than that in the second half to some of the changes made but it strikes me that while these changes were implemented until the second half of 2022. So presumably you know theyre just kind of starting to hit.

Now in the last handful of months. So it seems like as we work our way into the end of the year into next year, we should see an even larger.

Change in sort of productivity as the percentage of kind of new production.

It really gets a lot bigger over the next couple of years. So I mean, it seems like if the trend continues you guys will continue to be able to sort of improve your capital efficiency. Each year for the next couple of years and do more with less and it seems like we're just getting started on the program here am I thinking about that the right way.

Yeah Yeah.

Let's say that we started in probably earlier than they are in terms of moving in and we only made some what I would call minor changes to the program from close to <unk> and so we've built that into our production guidance ranges and are in our capital forecast.

Clearly that.

Everything you laid out is the goal and what the teams are working on but we think we've baked that into our guidance I just don't want to not think people that we haven't baked in because we have.

Okay.

Thank you. This concludes today's question and answer to your portion of today's call I will now turn the call over to rich Daly for closing remarks.

I really appreciate everybody joining the call today. Thank you all for your time I Hope you guys enjoy the rest of your summer and look forward to seeing you in upcoming conferences as we get into the early fall. So everybody have a great rest of your week. Thank you.

Thank you and this concludes today's call you may now disconnect.

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Yeah.

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Thank you.

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