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Pioneer Natural Resources First Quarter 2022 Results

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Pioneer Natural Resources Co. reported financial and operating results for the quarter ended March 31, 2022.

Pioneer reported first quarter net income attributable to common stockholders of $2.0 billion, or $7.85 per diluted share. These results include the effects of noncash mark-to-market adjustments and certain other unusual items. Excluding these items, non-GAAP adjusted income for the first quarter was $2.0 billion, or $7.74 per diluted share. Cash flow from operating activities for the first quarter was $2.6 billion.

Highlights:

• Generated strong first quarter free cash flow¹ of $2.3 billion

• Declared quarterly base-plus-variable dividend of $7.38 per share to be paid during the second quarter

• Repurchased $250 million of shares during the first quarter

• Returning 88% of first quarter free cash flow to shareholders

CEO Scott D. Sheffield stated, "Pioneer continued driving value for shareholders during the first quarter, generating over $2.3 billion in free cash flow, with nearly 90% of the free cash flow being returned to shareholders through our differentiated return of capital program. Our peer-leading return of capital strategy, which combines a strong base dividend, a substantial variable dividend and opportunistic share repurchases, creates significant long-term value for shareholders.

"During the first quarter, we reported over $2 billion of net income, supporting our forecast to deliver a return on capital employed for the year of greater than 30%². Consistent with our robust investment framework, underpinned by our low reinvestment rate and industry-leading return of free cash flow, the Board declared a second quarter base-plus-variable dividend of $7.38 per share, equating to an annualized yield of 13%, which is the highest yield in the S&P 500, combined with repurchasing $250 million of stock during the first quarter.

"Pioneer's returns-focused investment framework, which prioritizes free cash flow and allows for disciplined oil growth of up to 5%, is anchored by our deep inventory of high-return well locations and our ESG leadership, which provides the ability to deliver sustainable and durable long-term shareholder value for decades."

Financial Highlights

Pioneer maintains a strong balance sheet, with unrestricted cash on hand at the end of the first quarter of $2.4 billion and net debt of $3.3 billion. The Company had $4.4 billion of liquidity as of March 31, 2022, comprised of $2.4 billion of unrestricted cash and a $2.0 billion unsecured credit facility (undrawn as of March 31, 2022).

Cash flow from operating activities during the first quarter was $2.6 billion.

During the first quarter, the Company's drilling, completion and facilities capital expenditures totaled $830 million, with total capital expenditures³, including water infrastructure, totaling $852 million.

For the second quarter of 2022, the Board of Directors has declared a quarterly base-plus-variable dividend of $7.38 per share, comprising a $0.78 base dividend and $6.60 variable dividend. The second quarter total base-plus-variable dividend represents (i) an annualized yield of approximately 13%⁴ and (ii) a 95% increase from the first quarter total base-plus-variable dividend.

In addition to a significant dividend payout, the Company continues to evaluate opportunistic share repurchases. During the first quarter of 2022, the Company repurchased $250 million of common stock at an average share price of $237. Pioneer believes this peer-leading return of capital strategy, which combines a strong base dividend, a substantial variable dividend and opportunistic share repurchases, creates significant value for shareholders⁵. The combination of second quarter quarterly dividends and first quarter share repurchases, on an annualized basis, represents a total stockholder return yield of approximately 15%⁶.

Financial Results

For the first quarter of 2022, the average realized price for oil was $94.60 per barrel. The average realized price for natural gas liquids (NGLs) was $41.37 per barrel, and the average realized price for gas was $4.81 per thousand cubic feet. These prices exclude the effects of derivatives.

Production costs, including taxes, averaged $11.14 per barrel of oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $10.69 per BOE. Exploration and abandonment costs were $14 million. General and administrative (G&A) expense was $73 million. Interest expense was $37 million. The net cash flow impact related to purchases and sales of oil and gas, including firm transportation, was a gain of $65 million. Other expense was $77 million, or $30 million excluding unusual items⁷.

Operations Update

Pioneer continues to deliver strong operational performance in the Midland Basin. The Company has increased its forecasted drilled lateral length per well in 2022, with an expected average length of 10,500 feet, representing a 4% increase compared to 2021. This increase includes adding approximately fifty wells with 15,000-foot laterals to the 2022 program. Pioneer has also consistently increased its completed feet per day for both simulfrac and zipper fleets. In 2021, the Company's completed feet per day increased over 20%, when compared to 2020, with further increases expected in 2022.

Drilling longer laterals, reducing drilling days per well and completing more feet per day, among other operational efficiencies, continue to improve capital efficiency and is helping to mitigate cost inflation pressures being experienced by the industry.

These strong operational efficiencies enabled Pioneer to place 138 horizontal wells on production during the first quarter.

As previously disclosed, the Company's contracted sand supply was disrupted by a third-party sand mine outage during the first quarter, impacting forecasted second quarter production. The sand mine outage was fully restored in late March. The Company has temporarily added one additional frac fleet during the second quarter to mitigate the impact to the Company's full-year production forecast.

2022 Outlook

The Company expects its 2022 total capital budget³ to range between $3.3 billion to $3.6 billion. Pioneer expects its capital program to be fully funded from 2022 operating cash flow⁸, which is forecasted to be greater than $12.5 billion.

During 2022, the Company plans to operate an average of 22 to 24 horizontal drilling rigs in the Midland Basin, including a three-rig average program in the southern Midland Basin joint venture area. The 2022 capital program is expected to place 475 to 505 wells on production. Pioneer expects 2022 oil production of 350 to 365 thousand barrels of oil per day (MBOPD) and total production of 623 to 648 thousand barrels of oil equivalent per day (MBOEPD).

Second Quarter 2022 Guidance

Second quarter 2022 oil production is forecasted to average between 342 to 357 MBOPD and total production is expected to average between 623 to 648 MBOEPD. Production costs are expected to average $11.00 per BOE to $12.50 per BOE. DD&A expense is expected to average $10.50 per BOE to $12.00 per BOE. Total exploration and abandonment expense is forecasted to be $10 million to $20 million. G&A expense is expected to be $70 million to $80 million. Interest expense is expected to be $32 million to $37 million. Other expense is forecasted to be $20 million to $40 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $5 million. The cash flow impact related to purchases and sales of oil and gas, including firm transportation, is expected to be a loss of $25 million to a loss of $55 million, based on forward oil price estimates for the quarter. The Company's effective income tax rate is expected to be between 22% to 27%, with cash taxes expected to be $120 million to $140 million, representing estimated federal and state tax payments that will be paid based on forecasted 2022 taxable income.

Environmental, Social & Governance (ESG)

Pioneer views sustainability as a multidisciplinary focus that balances economic growth, environmental stewardship and social responsibility. The Company emphasizes developing natural resources in a manner that protects surrounding communities and preserves the environment.