Pioneer Natural Resources Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• Neal H. Shah, Senior Vice President and Chief Financial Officer
• Scott D. Sheffield, Chief Executive Officer
• Richard P. Dealy, President and Chief Operating Officer

Analysts

• Neil Mehta, The Goldman Sachs Group, Inc.
• Nitin Kumar, Wells Fargo Securities
• John Freeman, Raymond James
• Charles Meade, Johnson Rice
• Derrick Whitfield, Stifel Nicolaus
• Jeanine Wai, Barclays PLC
• Doug Leggate, Bank of America Co.
• Neal Dingmann, Truist Securities
• Paul Cheng, Scotiabank

Presentation

[Operator]

Please standby. Welcome to Pioneer Natural Resources Fourth Quarter Conference Call. Joining us today will be Scott Sheffield, Chief Executive Officer; Rich Dealy, President and Chief Operating Officer; and Neal Shah, Senior Vice President and Chief Financial Officer. Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at www.pxd.com. Again, the Internet site to access the slides related to today's call is www.pxd.com. At the website, select Investors, then select earnings and webcast.

This call is being recorded. A replay of the call will be archived on the Internet site, through March 18, 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 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 Pioneer's Senior Vice President and Chief Financial Officer, Neal Shah. Please go ahead, sir.

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

Thank you, Lauren. Good morning, everyone. And thank you for joining us for Pioneer's Fourth Quarter Earnings Call. Today, we will be discussing our strong fourth quarter results and our best-in-class return of capital program. In addition, we will discuss our 2022 outlook, which encompasses a low reinvestment rate, significant free cash flow generation and shareholder return, all through our high margin Midland Basin assets. We will then open up the call for your questions.

With that, I will turn it over to Scott.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Good morning. Thank you, Neil. Good morning, everyone. Starting on slide number 3, pioneer delivered a great fourth quarter, closing out a strong year, in which we generated a record 3.2 billion of free cash flow, and returned 1.9 billion back to the shareholders through dividends and share repurchases. With a material base dividend increase of greater than 25%, this quarter's base plus variable dividend a $3.78 will be paid in March. This dividend payment represents approximately a 7% yield on annualized basis and an 8% yield, would you include the additional $0.62 base dividend paid in the first week of January. We have now merged our quarterly base in variable dividend components into the one dividend payment or one check to ensure that third-party data providers properly represent our dividend yield and reflect our return of capital, I want to thank FactSet and Bloomberg in working with us. FactSet will look in the past, the past four quarters, and Bloomberg will take the current dividend yield, which will show about 7% going forward. And that's how we'll do it.

So we're getting recognized now with our variable dividend. Additionally, due to our unhedged position and strong commodity prices, our second quarter variable dividend is poised to increase by greater than 60% from the first quarter, payable in the second quarter and will equate to about 11% yield. When taken into account, fourth quarter share repurchases of $250 million in dividend payments of approximately $875 million [Phonetic], we returned greater than a 100% of our fourth quarter free cash flow to shareholders. In addition to our fourth quarter repurchases, our Board has authorized a new $4 billion share repurchase program, replacing our previous authorization, which provides increased capacity through purchase of significant amount of stock. These record results were driven by high-quality asset base, which generated 17% return on capital employed in '21, we expect this to increase this year to the mid '20s at current strip prices at mid '20s, around 25% return on capital employed.

Going to slide number 4. Again, solid execution drives strong fourth quarter results continued during the fourth quarter as both oil production and total production in the upper half of our guidance, when adjusting for the volume sold with the Delaware divestiture. And you can see it in the boxes that we showed two numbers, one with Delaware until the end of the year, one without the last 11 days. As I've mentioned on the prior slide, this production supported another quarter of strong cash flow, resulting in record free cash flow of $3.2 billion in 2021. Our Midland horizontal LOE remained low at $2.68, and peer leading, during the quarter, and $2.46 for the year. Looking forward, we expect to make a very low leverage profile approximately 0.2 net debt to EBITDA at year-end 2022. Essentially, we had the best balance sheet in the company's 25-year history.

Going to slide number 5. Committed a significant return of capital, we remain committed to our core investment thesis underpinned by low leverage, strong corporate returns at a low reinvestment rate which generate significant free cash flow. Majority of this free cash flow was returned to shareholders in the form of base plus variable dividends with total shareholder return through dividends, representing almost 80% of our free cash flow. At current strip prices, total dividends are expected to exceed $20 per share in '22, representing approximately 3 times increase from 2021. We will continue to maintain a pristine balance sheet and supplement our compelling base plus variable dividend framework with opportunistic share repurchases, under our new $4 billion share repurchase authorization. Our free cash flow over the next five years, at the five-year strip is over 28 billion. In addition, we've run our model out through life of inventory. Our free cash flow over the life of our assets, until the last well is drilled, and the last well is produced, it's well over $200 billion at long-term strip pricing.

Going to slide number 6. Best-in-class cash returns to shareholders. Obviously, with the high base plus variable, we are at the highest percent of returning cash back to the shareholders. Our investment framework returns the highest percentage of free cash flow to investors through dividends when compared to any one of our peers or majors. This cash is directly returned to the investor. We have seen a tremendous benefit attracting dividend value funds over the last several quarters and have also seen a significant change among the culture of our employees, who all own the stock and always are looking forward to that dividend check.

Slide number 7, compelling dividend yield amongst the peers. As a function of our strong free cash flow generation, the high percentage return to shareholders, our dividend yield exceeds all peers, majors and the average yield of the S&P 500 based on current share price. This top tier yield demonstrates the cash flow power and the underlying quality of Pioneer's assets and strength of our peer-leading return of capital strategy. Again, we had 7% first quarter, when you exclude the return, the extra-base dividend, which would bring it up to 8 for the first quarter, and that's increasing to approximately 11% next quarter.

Slide number 8, in comparison to that same yield versus all industries and the S&P 500. When looking beyond our peer group, Pioneer's expected yield off far surpasses every S&P 500 sector. In fact, based on strip pricing, Pioneer's yield, 2022 yield is more than 6 times, the average of the S&P 500 almost 2.5 times, the average of the oil majors. With a strong dividend yield, share repurchases and modest growth, from the investor's perspective, the case for owning Pioneer stock is compelling.

Going to slide number 9, return of capital framework. We believe a strong and growing base dividend is a commitment to our shareholders and a key pillar of our investment thesis. As I mentioned earlier, we have further strengthened our base dividend with an increase of greater than 25% from last quarter's increase. This increase is predicated on our balance sheet strength and durability of our cash flow across commodity price cycles. This is the second-straight quarterly base dividend increase and represents 40% base dividend growth since the third quarter of 2021. And going forward, we will continue to increase the base significantly. Inclusive of the increase, our six-year base dividend compound annual growth rate of greater than 80% exceeds all peers in the US majors.

Further augmenting our strong shareholder returns, our Board of Directors has approved a new $4 billion share repurchase authorization. This new authorization excludes the impact of the 250 million already purchased in the fourth quarter under the prior authorization. We will continue to buy shares on a quarterly basis. Our long-term objective is to reduce share count. We have one of the best balance sheets in the industry to repurchase a significant amount of stock opportunistically.

Going to slide number 10, dividends through the cycle. Pioneer's, this is a chart, a lot of people have asked us in regard to the dividend funds and also the retail sector as we continue to get on calls promoting more to the retail sector. Pioneer's high-quality assets, low breakeven of around $30, capital discipline provides the ability of return, significant free cash flow through commodity price cycles. As I've mentioned, it's well over 200 billion at strip prices long-term. As seen on the graph, Pioneer shareholders have significant upside to higher oil prices, as we have zero, 2022 all hedges and going forward. With dividends greater than $24 per share, and oil prices above 90. Additionally, dividends will remain resilient at lower oil prices providing material sustainable return of capital and lower commodity prices. Also, generates a significant amount of free cash flow, but at current strip prices generates a mid '20s, return on capital employed in 2022.

I'll now turn it over to Rich.

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

Thanks, Scott. And good morning, everybody. I'm going to start on slide 11 where we outline our 2022 plan and consistent with the preliminary 2022 guidance that we just discussed in our third quarter call. After the sale of Delaware and Glasscock County assets, we expect annual 2022 oil production to average between 350,000 barrels and 365,000 barrels of oil per day, with total production on a BOE basis expected to average between 623,000 and 648,000 BOEs per day. Capital for 2022 is forecasted to be $3.3 billion to $3.6 billion or $3.45 billion at the midpoint. Of the total capital budget, roughly 50% is locked in and not subject to any further incremental inflation. Based on the midpoints of both capital and production ranges, along with strip pricing, we expect to generate over $10.5 billion of operating cash flow, which is, will be a record for the company. After backing out capital, this results in over $7 billion of forecasted free cash flow for 2022. So you can see you're taking into account the capital as a percentage of our operating cash flow. Our reinvestment rate is less than 35%, the lowest in the company's history.

Turning to slide 12. Looking at our program, you can see this slide really reiterates graphically our capital program representing a reinvestment rate of 35%, with the large majority of the remaining 65% of cash flow being returned to investors through our Basin variable dividend program, and share repurchases that Scott discussed. Importantly, it also points out the quality of our high-margin asset base and the efficiency of our capital program, which on a combined basis drives breakeven WTI oil prices at approximately $30 to fund that program. And as I mentioned on the previous slide, 50% of our capital program is locked in and protected from inflation. The remaining 50% of our capital budget includes approximately 10% of forecasted incremental inflation which is embedded in the midpoint of our guidance range.

Turning to slide 13, you can see that Pioneer has the largest and most contiguous acreage position in the Midland Basin, from the graph there on the right, where we are focusing on high-margin, high return, development of our over 15,000 well locations that we have in our portfolio. During 2022, just on specifically, we plan to run 22 to 24 rigs. We plan to run approximately six frac [Phonetic] fleets, of which two are simul frac fleets and place on production roughly 475 to 505 new wells. As you can see, our lateral link continues to creep up as we add more 15,000 foot laterals into the drilling program and we expect it to average 10,500ft in 2022, up from approximately 10,000ft in the last couple of years.

Inclusive in this program is putting on 50 longer lateral wells that are in that 15,000ft range. And these, say, basically 15% on a per foot basis for drilling and completions, compared to a 10,000 foot well. As I mentioned earlier, we are continuing to utilize simul frac operations which reduces well costs and shortens our cycle time from spud to POP another benefit to the company. And as we said in the press release, we are evaluating a third simul frac fleet later this year or in early 2023.

Turning to slide 14. Really, our best-in-class margins that Neil mentioned early on. You can see on the left side here that our realized prices amongst our peers is the highest of anyone, really reflects our high quality wells and our oil percentage as a percentage of our production. If you look at the right side of the chart, you can see that we also have best-in-class cash costs, reflecting our highly efficient field operations, our low corporate overhead structure, combined with our low borrowing costs. So when you put those two together, it really is a top tier combination that translates into peer leading margins.

Turning to Slide 15. This slide dovetails nicely with the previous slide. It shows that our peer leading margins combined with our efficient capital program generates best in class free cash flow per BOE, that is highly sustainable for many years, given the Company's great inventory duration of high returning wells with low break even oil prices. And so, it just kind of shows where we are, in the upper right, the benefits of high margins and a great inventory base.

Turning to slide 16. Our high cash flow per BOE, combined with having one of the best balance sheets in the industry really underpins what Scott talked about of our return of capital framework, allowing us to return significant capital to shareholders, while at the same time continuing to improve cash margins by retiring higher coupon debt that we recently announced. As Scott mentioned, our great balance sheet and strong free cash flow generation allows us to return roughly 80% of our free cash flow to shareholders via our base plus variable dividend program with the remainder available for share repurchases. So I'll stop here and I'll turn it back over to Scott to discuss our continued progress on reducing emissions.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Thank you, Rich. Starting on slide 17, leading sustainability plan. During the third quarter, we published our 2021 Sustainability Report, which outlines our robust emission intensity reduction goals, including our ambition to achieve net zero emissions by 2015 for both Scope one and Scope two. Throughout the report, we highlight our strong environmental practice, key initiatives that are underway and support our enhanced emission reduction targets seen on the right side, reducing greenhouse gas emissions by 50% and reducing methane emissions by 75% by 2030. In addition to emissions related goals, we've adopted a target to reduce fresh water use in our completion activities to 25% by 2026. Our focus on environmental social and governance has established Pioneer as a leader in the industry, which continue to be reflected by many third-party rating agencies.

On slide 18, again, in comparison with our peers, Pioneer has one of the lowest current emission intensities among peers and continues to place a high priority on environmental stewardship. As seen on the left, Pioneer's 2019 and '20 reported emission intensities are already lower than the majority of our peers reduction goals. Pioneer's 2013 emission intensity goals represents one of the strongest reduction targets in the industry, demonstrating continued progress on our pathway to net zero.

On slide number 19, again, a chart that we have used in the past, Pioneer continues to bring low emissions barrels to the market, producing some the lowest emission barrels in the world as compared with other countries. When compared with our low maintenance breakeven oil price of $30 a barrel, Pioneer provides exceptionally resilient production that we expect will have a place in the global marketplace for a very long period of time.

On slide number 20, we brought back a flaring slide that we have used in the past. The primary reason for this is to show that the Permian Basin has made great strides in reducing minting and flaring the past years, going from a peak of 750 million a day to less than 200 million a day just recently. Pioneer and many others, primarily other public [Phonetic] have driven flaring under 1% and continue to make improvements. Long-term, we hope companies will go less than 0.5% and eventually down to 0.2%. The remaining companies, as you can see on the right hand side, primarily private operators continue to vent and flare much greater than 1%, and we still somehow need to take action on those type of companies. They need to operate more responsible and take the necessary actions to reduce their flaring intensity.

Slide 21, again, Pioneer, we're actually celebrating our 25th anniversary. This year obviously has had one of the best track records on shareholder return during the shale industry over the last 10 years, continue to focus on returns, capital discipline, allocation of capital, return of capital to shareholders; the greatest among any peer. One of the best balance sheets in the industry. And again, 15 to 20 year inventory, probably one of the longest or the longest in the US shale industry. And again, we continue to lead on ESG.

We will now open it up for Q&A.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs.

[Neil Mehta, Analyst at The Goldman Sachs Group]

Thanks, team. And I appreciate the dividend yield sensitivity at different oil prices. That's helpful. My question is around share repurchases and how do you guys see that as a tool in the toolbox as we think about 2022? Do you intend to execute that ratably, be opportunistic in your framework around share repurchases? Would be great, Scott and Neil.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

I mean, yes, Neil. We got two Neils here. It's what I said, we're still going to buy quarterly. We got a great balance sheet. So we did exercise it in the fourth quarter and we'll continue to look at that. So like I said before, we'll continue to reduce shares substantially. But the primary provider of return to the shareholders is going to remain the dividends. We just happen to have a great balance sheet to continue to buy. I'm coming, obviously, it's a lot easier when you have the best balance sheet in your history. And secondly, I'm getting more and more confident about the long-term oil strip being much higher than we had expected last year. So all strips continue to move up. We had the closing of our Delaware sale. So you'll see us continue to be in the market by and fairly aggressively.

[Neil Mehta, Analyst at The Goldman Sachs Group]

Yes. Thanks, Scott. The follow-up was on the macro, but just to tie it into your production, as you think about your production '22 versus '21 on the same store base, there are a lot of moving pieces, but I'd be curious, you've said up to 5% in the past, how does this number compare to that and how should we think about it exit-to-exit? And then to put that in the context of the broader oil macro, how are you thinking about the call on US shale playing out as we go through '22? There are a lot of moving pieces, most notably now around a run, but do you see a clear call on the industry?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

No, there is no change. There is no change for us long term. We're still net 0% to 5%. It's going to vary. We're not going to change, as I said, at $100 oil, $150 oil, we're not going to change our growth rate. We think it's important to return cash back to the shareholders. In regard to the industry, it's been interesting watching some of the announcements. So far the public independents are staying in line. I'm confident they will continue to stay in line. The private independents, a few, as we all know are growing. They've announced growth rates in the 15% to 25%, per year range. As I have stated, eventually they're going to run out of inventory, as written by the Wall Street Journal article that came out in the last few weeks. People that are growing at 15% to 20% are going to run out of inventory fairly quickly. Also, they are experiencing, there has been articles written by some of you all on the call.There is -- we're not experiencing, but a lot of companies, a lot of the privates are experiencing labor issues, cost issues, can't get equipment, so that's going to prevent the rig ramp up. So I hope at the end of the day, in the two majors, I know that they are balancing their other entire portfolio. They've announced, higher growth rates in 5% in the Permian Basin. One has a significant amount of ducks. Those ducks will go down over time. I don't think those companies can continue to grow at those type of rates or they will significantly reduce their inventory fairly quickly.

[Neil Mehta, Analyst at The Goldman Sachs Group]

Okay.

[Operator]

Our next question comes from Nitin Kumar with Wells Fargo.

[Nitin Kumar, Analyst at Wells Fargo Securities]

Hi, good morning. And thanks for taking my question. Scott, I want to start with maybe on the financial side, you discussed the slide 10, where you show the sensitivity of your dividend to different oil prices, you also got rid of your hedges, so I'm curious why not preserve some downside protection? It's a financial case, investment case that you're highlighting, so why get rid of hedges?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Yes. You have to realize it's totally different. Oil, I think you've seen enough articles, oil could easily go to 150. Demand is stronger than it ever has been in the world. And OPEC and OPEC plus is going to run out of capacity by the end of '22, and that's even been stated by several OPEC and OPEC plus countries. So that's ignoring the Iran and the Ukraine situation, both of them, obviously. There is no reason putting on a hedge when it's obvious that things could easily move up north. Secondly, the hedges or the oil strip is totally in backwardation. So right now we're in the low '90s. It drops about $20 a barrel when you go out five-years. So if you could buy $100 a put [Phonetic] for five years, that's a different question. You can't. And so you can only buy a $70 or $60 put. That's probably the bottom in where oil prices are going to bottom out over the next several years. So it doesn't make sense to put on a put at $60. So that's -- hope that answers your question, Nitin.

[Nitin Kumar, Analyst at Wells Fargo Securities]

No, that's great. And I guess my second question, Permian gas takeaway is becoming an issue. You talked a little bit about the private's growing and the majors, could you talk about how you are positioned in terms of exposure to Waha pricing and what your thoughts are on gas take away for the Basin?

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

It's Rich. I think broader terms when you think about the macro for the Permian Basin, and we're going to need another 2 Bcf a day pipeline every couple of years in the Permian Basin. And so I think that is the Basin even at the modest growth rates that we talked about, you're still going to need that level of capacity takeaway. Specifically, as it relates to Pioneer, there's a couple of pipeline that are in the works right now that are looking for commitments, and we're evaluating those, and most likely, we will take volumes on one of those [Technical Issue] under the Gulf Coast. And that will be here in the next three to four months. I think those things will get announced of whichever, one of those pipelines gets done.

In terms of what our exposure is, we move probably 35% of our gas out of the California market, call it 45% to 50% down to the Gulf Coast market, and at least 15% to 20% in the Waha market today. Longer term, I think we'll reduce that Waha exposure as we move more gas out of the basin. But that's really where we sit currently. I hope that helps.

[Nitin Kumar, Analyst at Wells Fargo Securities]

Yes, awesome. Thank you so much for your answers.

[Operator]

Our next question comes from John Freeman with Raymond James.

[John Freeman, Analyst at Raymond James]

Good morning, guys.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Hey, John.

[John Freeman, Analyst at Raymond James]

My first question, Scott, on just trying to understand the kinds of long-term kind of framework on the base dividend, which is nice to see, that continuing to grow. It looks like at least on the current strip that base dividend is ballpark, somewhere around 10% of the of the free cash flow. Can you just remind us sort of the methodology that goes into determining the appropriate base dividend like in terms of percentage of cash flow or some long-term kind of oil price assumption?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Yes. I've been pretty open that we're going to move it up fairly significantly to get up to where we have roughly about a $50 WTI long-term price. And that's where we're going to move it up to. So you can -- it'd be easy for everybody to calculate that, but we'll continue to move it up very aggressively over the next couple of years to that long term $50 WTI, that we can easily pay that base dividend at a $50 WTI.

[John Freeman, Analyst at Raymond James]

And then, Scott, do you want the base to represent a certain percent of free cash flow at that $50 level?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

No, it doesn't. We don't look at it that way. So we look at it as, as you know the history of our industry, a lot of companies have either stopped dividends, or lower dividends during the price cycles. So, we are making a projection on the downcycle, if it drops below $50, it's going to come back to $50 fairly quickly in our opinion. That's why we're using $50 as a long-term test.

[John Freeman, Analyst at Raymond James]

Okay. Got it. And then just my other question on the simul fracs, which obviously we're seeing a good bit of savings last year on and it looks like you're likely going to add a third. I believe like in the past, Joey [Phonetic] had mentioned like one of the big impediments to more aggressively expanding the simul frac fleet was just the water infrastructure side of things, just sort of the water and sand logistics. And maybe just sort of how to think about the amount of the capital that got to go towards water if we're going to continue to expand the simul frac fleet? Relative to last year, I think you spent about a $100 million on water infrastructure.

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

Yes, John, that's exactly right in the sense of water being the key item that we've got, that we're working on the logistics on. I think we've got in our capital budget, roughly $70 million or so for water this year, for 2022, but the real thing that we're working on is spreading out. Because we've got the significant water infrastructure that goes North and South and we recently bordered to Interstate 20 and are moving our water North, is really allowing us to take a full advantage of our water system, is to have a simul frac fleet in the North, one in the Midland and one in the South. And that way, it gives us the ability with our pipeline to move the most amount of water to meet those logistics. And so that's really what we're working on now is just putting all that together, such that we can run three and really use the benefits of investing in that water infrastructure to their fullest potential. And so that's what we're really working on today. And hopefully, by end of this year, early 2023, we'll be at that point.

[John Freeman, Analyst at Raymond James]

Great. Thanks, guys.

[Operator]

Our next question comes from Charles Meade with Johnson Rice.

[Charles Meade, Analyst at Johnson Rice]

Good morning, Scott, to you and your team there.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Yes. Thanks, Charles.

[Charles Meade, Analyst at Johnson Rice]

Scott, I want to go back to comments, you got into a bit in response to Neil's question. So we see the same thing you're seeing. It's been one of the delights of this earning season that the large public independents are staying in line, but there is that, there seems like there is this tension between what the -- what PXD's peers are doing and the acceleration of both the majors and the independents, so that seems like a tension that's going to have to break, one way or another. And I think you answered this, but I want to make sure I understand, the concern on the part of investors is that it's with $90 oil, it's going to break in the form of the large independents returning to spending more and growing more, but that's not if -- could you offer your opinion on how you see that tension resolving if you agree that there is some tension between those two?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Yes, it's only tension is that the world doesn't need the extra oil. And so the question is how long will it go on when you get into their inventory issues like I said earlier. I mean it's all back to demand. So as I said, we're seeing record demand in this country. We're seeing record demand in several other countries around the world. And everybody has demand increasing 3.5 million to 4 million barrels a day in 2022. When you look at all the various reports around it ranges between 3.5 million and 4 million. Once that happens, OPEC is at, they have no extra capacity in OPEC plus. And so we have never been there before. It's going to get tested at the end of this year. And so we may need the extra barrels today, the question is will we need them in '23 and '24 and what do those companies do? And then, I made the point about the privates, the privates need to be reined in because they are the biggest flares in the Permian Basin and somehow we need to rein in the privates through regulation, whether it's EPA, states, investors, bond investors, but the privates need to be reined in the Permian Basin. So hopefully, that happens. So --

[Charles Meade, Analyst at Johnson Rice]

And then the follow-up which is related to this, and I appreciate the clarity you guys offered on the 50% of your capital costs in '22 are locked in and you've got 10% inflation baked in. I wonder if you'd play that moving forward into '23. At $90 oil, there is, you made the point that service availability is even starting to be a question, but at $90 oil, there's plenty of room for privates to bid up, to bid up pricing, to bid that service into the Permian. So how do you -- '22's in hand but could this become an issue for PXD in the industry as a whole in '23 and beyond?

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

Yes, Charles, I mean I think it's always something, we have to be cognizant of it and continue to work. I mean -- so we're working on '23, step two. I think as it relates, particularly to Pioneer, given that we're the largest producer, largest activity level in the Permian Basin, and our relationship with our vendors, we have the ability to work on those early and make sure that we can get the best price out there. But a lot of it will depend on where raw materials are at and what their costs are. And so we'll continue to do that, but I'm confident that we will navigate that as well as anybody in terms of what that cost pressure may look like or, and how we can mitigate it by continuing to improve our efficiencies over time.

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

And Charles, I'm going to chime in on Richard's comment and also point out one other thing. If you look at our hedge position now at 0% hedged on oil, if you're talking about a $90 price environment, every $5 change in oil now has an incremental 750 million of cash flow for us. So that really would offset any real move in inflation. And that's one of the reasons where Scott kind of opened up in the discussion early on in talking about our 0% hedges on oil. That would really benefit us vis-a-vis the peers. So while I think inflation may impact them more so, relative to their cash flow, our cash flow in a $90 oil environment is higher as well.

[Charles Meade, Analyst at Johnson Rice]

Got it. I see the way the pieces fit together. Thanks, Neil, Rich and Scott.

[Operator]

Our next question comes from Derrick Whitfield with Stifel.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

Thanks and good morning all.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Hey, Derrick.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

With my first question, I wanted to focus on the success you're having with long lateral development, specifically based on the stated increase of 15,000 foot barrels in your 2022 capital program. Could you speak to the degree at which you could further accelerate this in 2023? And perhaps, more broadly, if we were to think about the 15,000 locations noted on page 13, how many of those locations are presently or could be suitable for 15,000 foot development?

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

Yes, Derrick. We've talked about in the past that we've identified about a 1,000 locations at that 15,000 that are -- 15,000 foot type laterals that would be great wells to drill. As we think about the program, it's something that we started in 2021. We've grown that in 2022. So, it wouldn't surprise me when we do more of those and push it even higher than the 50 wells we're going to complete in 2022 into 2023. So that will continue to be something because these are very capital efficient wells. I mean obviously the wells come on at basically the same rate as the 10,000 foot but have a flatter decline. And so there is -- it's just one of those things that is a huge benefit and allows us to develop and get the acreage that we otherwise weren't going to get to potentially as well. So there's lots of benefits of the 15,000 foot laterals and we'll continue to push that limits to put more [Technical Issue] portfolio over time. [Technical Issue]

Derrick, did we lose you?

[Derrick Whitfield, Analyst at Stifel Nicolaus]

No, I'm here. Sorry, guys. So, thanks for that. And as my follow-up. I wanted to focus on the Texas Railroad Commission [Technical Issue] ethnicity [Phonetic] letter from last December with the understanding that you guys have an extensive water infrastructure network and extra salt water disposal capacity. Can you speak to your projected near and longer term business impact, if any?

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

Yes, Derrick, on the near term, we had wells in that, what they call the SRA that seismic regional area that they talked about, response area, but we only had one deep disposal that was impacted, that we did shut in for the time being at this point, but we had plenty of water capacity in our other wells in the area to move that water around. So no impact to that. And we also have, given our infrastructure.I talked about on John's question water, we have, and we have Mobile reuse facilities that we can move around in the field, where we have new wells coming on that have higher water production. And so we'll continue to do that and move that water down the system and just really keep it away from having, being disposed, and reuse it in our frac job. So longer term, we'll continue to look at opportunities to move water to different places, but for the foreseeable future, we're in a good place that we can manage that situation, just given our extensive water infrastructure.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

Great update and thanks for your time.

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

Sure.

[Operator]

Our next question comes from Jeanine Wai with Barclays.

[Jeanine Wai, Analyst at Barclays]

Hi, good morning, everyone. Thanks for taking our questions. Yes, Jeanine, how are you doing? I'm doing well, thank you. Our first question maybe just doing a little bit of a look back and then maybe a look forward, if that makes any sense. Can you talk about how the DoublePoint and Parsley deals impacted 2021 results and was there anything somewhat unexpected that either has been addressed, or that you understand better that will flow through to 2022 capital efficiency?

[Richard P. Dealy, President and Chief Operating Officer at Pioneer Natural Resources]

Yes, Jeanine, I'd say, as we look back on it, I would say there really wasn't anything -- given that these were all areas in and around our existing areas, it wasn't anything that was a surprise to us. I mean clearly there was things that we went and spent capital on to upgrade their facilities to match our standards. And we looked for ways as we talked about the 2022 capital budget to take advantage of existing tank batteries, how do we take those synergies and make it more efficient operations. And so, we've done that. But all in all, the teams did a really tremendous job of integrating those into the company seamlessly. It took a lot of hard work, but we're really happy how things have turned out and how they're working alongside ours, and we really see a lot of benefits in the future, like we talked about last year from just having that contiguous acreage position despite these 15,000 foot laterals, it's the ability to do simul frac, things that take advantage of our water infrastructure, and all those things are added benefit when you have contiguous acreage positions.

[Jeanine Wai, Analyst at Barclays]

Okay, great. Thank you for that. Our second question is still sticking to the portfolio, the A&D market seems to be pretty active these days. So just wondering if you're still in the process of divesting non-core acreage kind of beyond just general portfolio cleanup that you're always viewing? And on the other side of that, pioneer has one of the highest quality asset bases out there, and so you clearly don't need to do any transactions, but maybe just your updated thoughts on M&A, given what you see out there in the market? Thank you.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Yes. Thanks, Jeanine. Obviously, for these last two transactions, we have no need to do anything on a material large scale M&A and we're not looking and do not plan to look. And we think that strongest return, we can realize it at this point is to repurchase our stock. In regard to smaller transactions, we will continue to, when we get the right price, we'll continue to divest of smaller assets and we'll continue to buy, so it's really an upgrading process. So, we'll buy some, we'll divest of some, divest Tier 3 at good prices, and we'll continue to buy some. In addition, we'll continue with our DrillCo opportunities on Tier 3 assets.

[Jeanine Wai, Analyst at Barclays]

Very helpful. Thank you.

[Operator]

Our next question comes from Doug Leggate with Bank of America.

[Doug Leggate, Analyst at Bank of America]

Thanks. Good morning, everyone. Scott, I'm sure I'm not the only one to observe that your stock prices are here at its all-time high when you were growing a big rate, and at much higher oil prices. So the strategy is working and I want to congratulate you and the folks on free cash flow. My question, however, is on the breakeven. I'm just curious how you see that evolving? And what's behind my question is if you're not growing as quickly, presumably you don't have as much plush production, which I guess means a lower decline rate. So how do you see that sustaining capital/breakeven evolving, on the base business over time?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Yes. As I said, we'll bring our base dividend up equivalent to fairly quickly, up to equivalent to a $50 WTI breakeven price long term. And secondly, in regard to our decline rate, since we're only growing at 0% to 5% range, our decline rate will definitely come down. We hope it comes down over time to the low '30s So that's what we believe long term and that will help in regard to -- and capital efficiency gains will help drive that breakeven price down. And then you got to deal with inflation depending on what type of oil price market we're in. So

[Doug Leggate, Analyst at Bank of America]

Okay. Can I just --

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

It's stated 30 now, for a good couple of years now, Doug. So

[Doug Leggate, Analyst at Bank of America]

Right. Okay. So, can I just press you on what you think the sustaining capital level is, is it at that three, three, four level or is it lower than that?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

It's going to be lower than that long-term in a, call it a decent oil price market. So there's extra things that we're spending on that we're not going to spend long term, whether it's water or whether some ESG capital, whether it's EOR capital but there's some things longer term that drive down our breakeven, so it should be lower than the 3, 4, 5, the average of our guidance in 2022.

[Doug Leggate, Analyst at Bank of America]

Okay, thank you for that. My follow-up, I'm afraid it's a housekeeping question on cash taxes. Just given where the strip is right now, can you just give us an update as to the NOL position and when you expect to be in a full cash tax position?

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

Hey, Doug. It's Neil. Yes, no problem at all. So we've got about $6 billion in NOLs at year-end 2021. We would anticipate with the high free cash flow generation of the current strip that we would utilize the majority of those NOLs as we progress through 2022, it'll probably be roughly about $150 million to $200 million in cash taxes towards the end of the year, back half of the year. Then we probably got some of that balance that's related to the Parsley acquisition that will be subject to some limitation. So we'd probably start becoming a tax cash parent fullness [Phonetic] in 2023 of about, probably around $1 billion.

[Doug Leggate, Analyst at Bank of America]

That's really helpful. Thanks. Thanks, Neil. Appreciate it.

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

You're welcome, Doug.

[Operator]

[Operator instructions] Our next question comes from Neal Dingmann with Truist Securities.

[Neal Dingmann, Analyst at Truist Securities]

Good morning. My first question, going to ask on A&D, but just a little bit different, Scott, Truist had a nice Delaware sale, my question is, given the pristine balance sheet kind of on a go-forward, is there any thoughts to sell anything, or is that predicated on maybe the market not giving you the credit for your extended inventory that you have or maybe just talk about any thoughts about any potential non-core sales?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Yes. Obviously, we got a great price. And when you look at the margins and the returns, we're always going to get a much better return in the Midland Basin then our part of the Delaware. So we were in the southern part of the Delaware, it is primarily only one zone, where in the Midland Basin, we have six primary zones that we're drilling. And so, it was a great price, the asset was not competing with our Midland Basin returns. In regard to future divestitures, our acquisitions, I basically already commented on that, we'll continue to upgrade our acreage, our working interest owners. In regard to Tier 1, we're buying some, at the same time, we'll be divesting of some over time. And we'll continue that -- with that practice long-term.

[Neal Dingmann, Analyst at Truist Securities]

Sure. Certainly makes sense. And then I might just follow up on the balance sheet. You certainly have a pristine balance sheet, a lot of cash flow you're generating, so I just want to, given this, still, is there plans to how quickly maybe continuing to pay down any more of that, the $6 billion debt and fund the converts or what, I'm just wondering your plans on that side?

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

Hey, Neal. You probably saw from earlier in the year, we put up a press release where they related to 750 million debt and the 500 million that we're going to be retiring here shortly. Other than that, we've got an upcoming 244 million maturity towards the third quarter that we will retire as it comes due. But as it sits now, that's pretty much the lay of the land.

[Neal Dingmann, Analyst at Truist Securities]

Thanks, Neil.

[Operator]

Our next question comes from Paul Cheng with Scotiabank.

[Paul Cheng, Analyst at Scotiabank]

Hi, good morning. Thank you. Two questions please. First, Scott, when we're looking at that you will be pretty close to zero net debt and indeed one will argue that you're pretty much there. So is there any reason that we should not expect close to a 100% of your free cash flow will return to the shareholders? In the press -- earlier in the presentation, you said more than 80%, is there any reason why we should not assume pretty much that 100% of the free cash flow over the next several years will be returned?

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

Hey, Paul, it's Neal. You're right. I mean that's the purpose. And I think Scott and Rich and I voiced many times, one of the benefits of having a low net debt balance sheet. And again, some of the Neal Dingmann's question earlier on reducing gross debt is really to provide us an operational and financial flexibility. And as we articulated, and I think we exemplified in 4Q, we're willing to go to that 100% of free cash flow. I think you saw that in 4Q. If you add in the base, the variable and the 250 million that we repurchased in the quarter, that was 101% of free cash flow. So I think given an opportunity, there is an opportunistic buyback or an opportunity there related to a pull back in the market, we'll step in, we won't be shy. And again, I think we've demonstrated that during 4Q. But the buyback as we, as Scott said, there will be a regular quarterly cadence associated with it, but over and above that, we will be opportunistic. So we were at 101% of free cash flow in 4Q and we won't be shy to step in if provided that opportunity again.

[Paul Cheng, Analyst at Scotiabank]

Thank you. That leads to my second question, Neal. On the buyback in the 4th quarter you did 250 million. And I think Scott said that you guys are going to be in the market every quarter. So, to determine that, how much are you going to buyback? Can you give us some criteria that how you guys think about that? What determines that level?

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

We're not going to give out the exact amount. People just don't do that in target [Technical Issue] about, so just to state it will still be a significant amount each quarter. So

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

Yes. There will be a quarterly cadence associated with it, Paul. You'll see that quarterly cadence. But again, we're going to be also be opportunistic over and above that quarterly cadence.

[Paul Cheng, Analyst at Scotiabank]

Can you tell us that what's that quarterly cadence?

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

Paul, I think just to Scott's point, we've got the -- we saw the increase in the authorization to $4 billion. So there is going to be a quarterly cadence, I would say stay tuned to that and then look for that more substantial opportunistic repurchases as those opportunities present themselves. Again, similar to what we saw in 4Q. Again, we won't be shy. So I don't want you to sense any hesitancy on our part because I think we demonstrated that again in 4Q and we'll step in the market provided that opportunity, but you will see a quarterly cadence as well. So just stay in there, Paul.

[Paul Cheng, Analyst at Scotiabank]

Thank you.

[Neal H. Shah, Senior Vice President and Chief Financial Officer at Pioneer Natural Resources]

Of course. Appreciate your question.

[Operator]

And that could does conclude today's question and answer session. At this time, I'd like to turn the conference back to Scott Sheffield for additional or closing remarks.

[Scott D. Sheffield, Chief Executive Officer at Pioneer Natural Resources]

Again, we want to thank everyone. We're looking forward to getting on the road. Looks like everything is starting to open up in all the states. So, I'm hoping [Phonetic] to meet in person, a lot of these Energy conferences are in March, it looks like, starting out, and we'll be on the road fairly aggressively over the next several weeks and months. Again, thank you.

[Operator]

[Operator Closing Remarks]