Quarterly / Earnings Reports | Second Quarter (2Q) Update

Pioneer Reports Q2 2019 Results

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Pioneer Natural Resources Co. reported financial and operating results for the quarter ended June 30, 2019. Pioneer reported a second quarter net loss attributable to common stockholders of $169 million, or $1.01 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 second quarter was $340 million, or $2.01 per diluted share.

Highlights

• Second quarter Permian oil production averaged 206 thousand barrels of oil per day (MBOPD), near the top end of guidance

• Second quarter Permian production averaged 330 thousand barrels of oil equivalent per day (MBOEPD), above the top end of guidance

• Reduced top end of 2019 capital program by $150 million, or approximately 4.5%

• Completed corporate restructuring efforts, with annualized general and administrative (G&A) savings of approximately $100 million achieved ahead of schedule

• Increased cash dividend to a quarterly amount of $0.44 per common share (equivalent to $1.76 per share on an annualized basis as compared to $0.64 per share previously)

• Repurchased $200 million of common stock during the second quarter under the Company's $2 billion repurchase authorization; $528 million executed to date

President and CEO Scott D. Sheffield stated, "Pioneer reported an excellent second quarter, with significantly reduced capital spending, strong production growth and superior margins. We continue to be highly focused on increasing free cash flow and corporate returns, while executing at a high level.

"Consistent with our plan to return more capital to shareholders, we increased our dividend to an annualized rate of $1.76 per share, and continued to execute on our $2 billion share repurchase program, bringing total share repurchases at the end of the second quarter to $528 million, or 3.7 million shares. We have also reached our annualized G&A savings target of approximately $100 million ahead of schedule, which has not only led to a reduced cost structure, but also resulted in a flatter organization with improved execution."

Ongoing Strategic Initiatives

Pioneer is enhancing its free cash flow generation profile by executing on a long-term, mid-teens oil production growth plan that generates top-tier corporate returns. The Company is also evaluating options to monetize non-core acreage not slated for near-term development, with such options including cash market divestitures and the use of DrillCo arrangements. Consistent with this strategy, the Company recently divested approximately 3,300 net non-core acres in northern Martin County for approximately $20,000 per acre.

During the second quarter, the Company completed its corporate restructuring and achieved its targeted annualized G&A savings of approximately $100 million ahead of schedule. In addition to realized cost benefits, the streamlining of roles and responsibilities and implementation of a flatter reporting structure has led to tangible improvements in the oversight of capital spending and production operations.

Pioneer continues its activities related to the planned divestiture of its 27% interest in the Targa-operated Midland Basin gas processing infrastructure, which is expected to reduce the Company's capital spending requirements and increase corporate returns. Additionally, the Company continues to evaluate the long-term strategy for its water infrastructure. Pioneer's upgrade of the City of Midland wastewater treatment facility is on track for a late 2020 completion date.

Financial Highlights

Pioneer continues to maintain a strong balance sheet, with unrestricted cash on hand at the end of the second quarter of $643 million and net debt of $1.6 billion. The Company's $2.1 billion liquidity position includes $643 million of unrestricted cash and a $1.5 billion unsecured credit facility (undrawn as of June 30, 2019).

During the second quarter, the Company's Permian drilling, completion and facilities capital expenditures totaled $668 million. The Company's total Permian capital expenditures¹ totaled $730 million, including gas processing and water infrastructure capital. Approximately $25 million of field facilities capital projects that were budgeted during the second quarter were deferred to the second half of 2019.

The Company is increasing its dividend to an annualized rate of $1.76 per share, payable quarterly, representing a current yield of approximately 1.4% (based on the Company's closing stock price as of August 5, 2019). The decision to grow the Company's cash dividend, from $0.08 per share on an annualized basis in February 2018 to an annualized rate of $1.76 per share is consistent with the Company's objective of increasing the return of capital to shareholders and moving towards an annual dividend that is competitive with that of the S&P 500.

In December 2018, the Board of Directors authorized a $2 billion common stock repurchase program. During the second quarter, the Company repurchased $200 million of common stock under this program. To date, the Company has repurchased a total of 3.7 million shares for $528 million at an average price of $141 per share under this authorization.

Financial Results

For the second quarter, the average realized price for oil was $55.50 per barrel. The average realized price for NGLs was $19.63 per barrel, and the average realized price for gas was $0.89 per thousand cubic feet. Adjusting for the cash flow uplift attributable to the Company's firm transportation (FT) contracts, the average realized oil price would have increased by $4.28 per barrel to $59.78. These prices exclude the effects of derivatives.

Production costs, including taxes, averaged $9.47 per barrel of oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $13.56 per BOE. Exploration and abandonment costs were $15 million. G&A expense was $80 million. Interest expense was $29 million. Other expense was $211 million, or $34 million excluding unusual items².

Operations Update

Pioneer placed 83 horizontal wells on production during the second quarter. Well productivity continues to increase annually, with average cumulative production greater in 2018 as compared to the 2017 program. Many factors, such as incorporating data from machine learning into optimized completion designs and a focused approach to appraisal testing, have contributed to the Company's improving well productivity.

The Company's limited Wolfcamp D appraisal program continues to yield strong results. A two-well Wolfcamp D pad that was placed on production early in the first quarter of 2019 averaged a 24-hour initial production rate per well of approximately 4,100 BOE. This two-well pad has recorded a 180-day cumulative pad production of 511 thousand barrels oil equivalent, with a 66% oil mix, outperforming similar wells in the area by 82%.

During the second quarter of 2019, the Company's marketing of Permian oil yielded premium Brent-related oil pricing, leading to an incremental $81 million of cash flow. The Company continues to enhance margins through its FT contracts by transporting oil and gas from the Permian Basin to price-advantaged markets and expects these activities to provide a cash flow uplift of $25 million to $75 million during the third quarter of 2019. Further, the Company expects to substantially decrease its exposure to the depressed Waha gas market beginning early in the fourth quarter of 2019 with the commencement of the Gulf Coast Express pipeline.

Full-Year 2019 Update

Pioneer is lowering the top end of its 2019 capital program by $150 million, or approximately 4.5%. This includes reducing the top end of its 2019 Permian drilling, completions and facilities capital budget range by $100 million to $2.8 billion to $3.0 billion and lowering its midstream facilities and water infrastructure spending by $50 million to $250 million. With these reductions, the Company is revising its 2019 capital program¹ to a range of $3.05 billion to $3.25 billion and expects it to be fully funded with 2019 forecasted cash flow³ of approximately $3.5 billion.

The Company maintains its plan to operate an average of 21 to 23 horizontal rigs in the Permian Basin during 2019, including approximately five rigs in the southern joint venture area. This program is expected to place 265 to 290 wells on production, compared to 270 wells placed on production during 2018. The average lateral length planned for 2019 is approximately 9,800 feet, with an average estimated ultimate recovery (EUR) of approximately 1.6 million barrels of oil equivalent per well.

This activity level is projected to deliver 2019 Permian production of 320 to 335 MBOEPD and 203 to 213 MBOPD, representing approximately 12% to 17% growth over 2018 production levels.

Pioneer has increased its oil derivative positions to 72 MBOPD for the remainder of 2019 at approximately $67 Brent pricing and 67 MBOPD for 2020 at approximately $64 Brent pricing. The Company's financial and derivative mark-to-market results and open derivatives positions are outlined on the attached schedules.

Third Quarter 2019 Guidance

Third quarter 2019 production is forecasted to average between 333 to 348 MBOEPD and 206 to 216 MBOPD. Production costs are expected to average $8.50 per BOE to $10.50 per BOE. DD&A expense is expected to average $13.00 per BOE to $15.00 per BOE. Total exploration and abandonment expense is forecasted to be $15 million to $25 million. G&A expense is expected to be $65 million to $75 million, reflecting the savings attributable the Company's corporate restructuring activities. Interest expense is expected to be $28 million to $33 million. Other expense is forecasted to be $20 million to $30 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $5 million. The Company's effective income tax rate is expected to range from 21% to 25%. Current income taxes are expected to be less than $5 million.