Pioneer Natural Resources Q2 2023 Earnings Report

Pioneer Natural Resources EPS Results

• Actual EPS: $4.49
• Consensus EPS: $4.12
• Beat/Miss: Beat by +$0.37
• One Year Ago EPS: N/A

Pioneer Natural Resources Revenue Results

• Actual Revenue: $4.60 billion
• Expected Revenue: $4.68 billion
• Beat/Miss: Missed by -$76.57 million
• YoY Revenue Growth: N/A

Pioneer Natural Resources Announcement Details

• Quarter: Q2 2023
• Date: 8/1/2023
• Time: N/A
• Conference Call Date: Wednesday, August 2, 2023
• Conference Call Time: 10:00AM ET

Pioneer Natural Resources Q2 2023 Earnings Call Transcript

Key Takeaways

• Pioneer raised its full year 2023 production guidance while lowering drilling, completions and facilities CapEx by $125 million, enhancing capital efficiency.
• Q2 oil production reached 369,000 bbl/d and total output was 711,000 BOE/d, near the top of guidance, driving best-in-class margins and strong free cash flow.
• Pioneer returned 75% of its free cash flow in Q2—$557 million—through a base plus variable dividend and opportunistic share repurchases.
• The company is deploying over 100 15,000+ ft laterals in 2023, achieving ~15% capex savings per lateral foot and >35% IRR uplift versus 10,000 ft wells.
• Pioneer set a methane intensity target of ≤0.2% by 2025 under OGMP 2.0, cut methane intensity by 64% since 2019, and is electrifying operations to reduce emissions.

Presentation

[Operator]

Welcome to Pioneer Natural Resources Second Quarter Earnings Conference Call. Joining us today will be Scott Sheffield, Chief Executive Officer Rich Daly, President and Chief Operating Officer and Neel Shah, Executive Vice President and Chief Financial Officer. Pioneer has prepared a presentation of slides to supplement comments made today. These slides are available on the Internet at www. Pxd.com.

[Operator]

Again, the Internet website to access slides presented in today's call is www.pxd.com. Navigate to the Investors tab found at the top of the web page and then select Quarterly Results. Today's call is being recorded. A replay of the call will be archived on www.pxd.com through September 1, 2023. 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.

[Operator]

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 2 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 Scott Sheffield. Please go ahead, sir.

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

Thank you, JL. Good morning, everyone. It's great to be with you today. Before we highlight Pioneer's 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 $80 over the previous several months, Has been suppressed by SPR releases, recessionary fears and weak economic data from China.

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

The recent upward move in oil prices reflects the expectation for tightening supply demand fundamentals in the second half of this year. The major contributors to this include the Fed's success in managing inflationary pressures and preventing a recession, likely resulting in a soft landing for the U. S. Economy. China actively taking measures to bolster its economy through stimulus programs limited U.

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

S. Oil shale supply the end of substantial U. S. SPR releases, which has resulted in a 40 year load inventories. This outlook is further supported by Saudi Arabia's production cuts and ABS's preference to stabilize Brent oil prices at 90 or higher.

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

I do expect Saudi to extend their 1,000,000 barrel day cut they initiated July 1 toward the end of 'twenty 3. I 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 are both supportive for oil pricing in the $80 to $100 range for the remainder of '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.

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

I applaud the great work and efforts of all of our employees. I know that Rich and the team's focus on top tier execution We'll continue to deliver strong results throughout the year as highlighted in the presentation that Rich O'Neill will speak into more detail. Again, it's great to be with you all today. I will now hand over the call to Rich.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Thank you, Scott, and good morning. I will begin on Slide 3. 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're increasing full year 2023 production guidance, while simultaneously lowering our full year 2023 capital guidance to reflect our intentional activity reductions and some deflation.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

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 strengthened full year outlook, we continue to return significant capital to shareholders with 75% of our free cash flow being returned through our base plus variable dividend and opportunistic share repurchases. 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 2.0 initiative. Additional details on our progress and continued efforts can be found on our recently published 2023 Sustainability Report. Turning to Slide 4.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

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 369,000 barrels of oil per day and total production exceeding the guidance range 711,000 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. Turning to Slide 5. As I highlighted on the first slide, 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 369,000 barrels of oil per day The midpoint of our drilling, completions and facilities capital budget is now lower by $125,000,000 from our original 2023 outlook.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

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 6. As seen through the company's increased full year 20 and our Q3 production guidance. Pioneer expects to deliver oil production ranging from 364,000 to 374,000 barrels of oil per day and total production ranging from 697,000 to 717,000 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 $4,375,000,000 and $4,575,000,000 as a result of our reduced activity and operational efficiencies, which are being driven by longer laterals, Simofrac Operations and the utilization of localized sand mines to name a few.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Our exploration, environmental and other capital As we previously discussed, this capital is allocated to 4 exploration wells targeting the Barnett Wood 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 project. Our 20 23 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 520. Turning to Slide 7, looking at the chart on the left. As expected, our 2023 average and Average well productivity is trending significantly above 2022 and is expected to surpass 2021 levels over the 1st 24 months of production.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Our strong 2023 production paired with robust execution underpins our increased full year production expectations. 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 15,000 high rate of return with low breakevens. This deep inventory is highly productive of highly productive wells enables our best in class development for decades to come.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Turning to Slide 8. 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, both lower cost per lateral foot and increased production levels. 15,000 foot lateral length well development generates significant efficiencies in both drilling and completions. These developments require fewer well bores along with Les Drilling Rig and Frac Fleet mobilizations.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

The combination of these benefits results in capital savings of approximately 15% per lateral foot. These capital savings paired with optimized artificial lift have further increased returns with IRRs increasing by more than 35% when compared to 10,000 foot laterals. Our strong well results and artificial lift refinements Have improved the average our uplift to 35%, well above our previous estimate of 20%. Our highly contiguous acreage position contains more than 1,000 future locations with 15,000 foot or longer laterals. And as we move pardon me, as we expect more than 100 of these wells to be placed on production in 2023, including some wells that have lateral lengths in excess of 18,000 feet further improving returns.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

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 9, Pioneer's completions efficiencies are industry leading with Pioneer's average completed feet per day being and 80% better than peers and U. S. Majors. These peer leading efficiencies are a testament to the hard work and focus of our teams.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

In addition to our focus on operational efficiencies, we are driving additional capital savings through the utilization of localized sand mines and Simulfrac technology. We are now operating 3 full time simulfrac fleets, which continue to be a major contributor to our high efficiencies, delivering average cost savings of $200,000 per well. Pioneer began utilization of a second localized sand mine during the Q2. These localized sand mines reduce road traffic, lower CO2 emissions and provide average capital savings of $200,000 per well. Consistent with our commitment to sustainable operations, We expect 100% of our completion fleets to be either electric or dual fuel powered in the Q3 of 2023, allowing us to both reduce emissions and capture fuel cost savings. I will now turn it over to Neil.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Thank you, Rich, and good morning. Turning to Slide 10. Pioneer continues to return significant capital to shareholders through dividends and opportunistic share repurchases as outlined in our investment framework on the left chart. Consistent with this framework, as illustrated on the right, Pioneer returned $557,000,000 2nd quarter free cash flow through a combination of our strong base dividend, variable dividend and opportunistic share repurchases. Our strong Q3 annualized dividend yield of 3.3% continues to substantially outpace the average S and P 500 yield of 1.5%.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

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. Pioneer's margin benefit from our diversified marketing strategy. In fact, I will highlight the strength of our gas marketing strategy in greater detail on the following slide.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Our compelling cash costs are underpinned by our low G and A, interest expense and bolstered by the teams focused on driving low peer leading operating costs per BOE. During the Q2, we achieved operating costs that were approximately 20% lower than the same period in 2022. These best in class margins support our strong free cash flow generation. Turning to slide 12. As I introduced on the previous slide, Pioneer's strong price realizations benefit from our diversified gas marketing strategy.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

This strategy provides access to the premium West Coast and Gulf Coast markets and reduces our exposure to the localized Waha market, which regularly trades at a discount to the major gas indices. As seen on the graph to the right, during the Q1 Pioneer's 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 markets. 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 twenty twenty four when Matterhorn comes online.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Turning to slide 13. The graphic on the right illustrates the free cash flow generative power of our long term investment framework, which delivers annual growth of up to 5%. Pioneer's high quality assets, high margin production and moderate oil growth are forecasted to generate 5 year cumulative free cash flow of $27,000,000,000 assuming an $80 WTI flat oil price for approximately 50% of our enterprise value. Even at $6 WTI, our program is expected to generate Approximately $13,000,000,000 in cumulative free cash flow over the next 5 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.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Pioneer's strong price realizations, our 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 will hand things back to Reg.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Thanks, Neil. I'll resume on Slide 14, which includes highlights from Pioneer's 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 OGMP 2.0 initiative. We established a methane intensity target of 0.2% or less in 2025, which places Pioneer on path of achieving the OGMP Gold Standard designation.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

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 aerial 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, our Hutt Wind Renewal 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.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

We are 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 elements of Pioneer's strategy, which supports our commitment to creating value to shareholders. So with that, JL, we're going to open up the call or happy to open up the call for questions.

[Operator]

Thank you. We'll now begin the question and answer Your first question comes from the line of John Freeman of Raymond James. Please go ahead.

[John Freeman, Managing Director at Raymond James Financial]

Good morning, guys.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Good morning, John.

[John Freeman, Managing Director at Raymond James Financial]

It's really nice seeing the well productivity trends And I guess I'm just thinking in the past when you all talked about the kind of that long term 0% to 5% Growth range and you all talked about kind of adding 1 to 2 rigs a year. Just based on what you're seeing from a productivity, capital efficiency kind of improvement, If that sort of changed how you all view kind of the necessary rig add to accomplish that or I guess said differently is that That second half 'twenty three activity run rate, is that something close to what we should assume as a base case for 'twenty four?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, John. It's probably a little hard to talk about 24% just from a total standpoint. But I would say as we look at it going forward, we You'll see production in that upper half of our 0% to 5% range is where we'll target production for 2024 based on the day. In general, as we've talked about, as you outlined, it takes 1 to 2 rigs to grow at that level. But as you point out, we've had significant growth and productivity in 2023.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

And so that should make Growth and productivity in 2023. And so that should make 2024 very capital efficient. And so to me, it probably means that we're at the lower end of that 1 to 2 rigs or maybe even potentially flat. So more to tell, but the teams are doing a great job on execution and driving efficiencies, which really allow us to do more with less Less rigs and less frac fleets. Great job by the team.

[John Freeman, Managing Director at Raymond James Financial]

Thanks, Rich. And then my second question on the 100 and $5,000,000 CapEx reduction at the midpoint. Is it possible to break that down between how much is just due to the reduction activity Versus maybe other cost savings that you weren't originally expecting?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes. Most of it is really driven by activity as you saw by the reduced Average 1 rig down and then 10 less pop, so that's the biggest contribution. 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 and 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 2 equipment on the frac side.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

And when we look at our contracts, just 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 test on our teams. I don't really see a lot of change In the back half of this year, maybe it impacts 2024, but today we're still in a favorite price on pricing other than steel and getting the benefits of steel and fuel.

[Operator]

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

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

That's to echo John's comments. Good to see the productivity improvements coming through here. So Rich, it's been a couple of months Since the CEO announcement was made, we'd just love your perspective on 2 or 3 of the most important strategic priorities that You're talking about within the business and how can we benchmark your success on executing against this?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes. Thanks, Neil. I think you're seeing it demonstrated in the quarter. I mean, our focus is on execution and delivering what we set out to deliver at the beginning of the year. And I think you're saying the great work of our 2,000 employees delivering the results with the improved well productivity, driving down capital costs, increasing efficiencies.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

And so that's really how we're measuring ourselves internally is delivering what we set out to at the beginning of the year. And I think this Quarter is a good example 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.

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

Thanks, Rich. And then the follow-up is just return of capital. You were 75% of free cash Well, went back to shareholders and was balanced between the base dividend and share repurchases. Maybe you could talk about How you're thinking about the share repurchases or the variable dividend of the flywheel of the return of capital? And 75% the right number here or should we focus on the at least 75%?

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Hey, Neil. It's Neil Asuel. Look, you're precisely right. The return of capital framework really provides us That flexibility to allocate capital between variable dividends and opportunistic share repurchases really based on where we see the best value for shareholders. 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.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

So I think going forward, we anticipate a component of each on a quarterly basis, but it will shift Quarter to quarter really based on where we see value really stepping in market and being an opportunistic as we were this past quarter. 75% in terms of return of capital to shareholder that's kind of as we talk about it based on the framework kind of a firm number. But we have said That will utilize the balance sheet if we see opportunity and the chance to really step into the market if the stock drops precipitously. So think that's always a definite possibility.

[Operator]

Thank you. Your next question comes from the line of Arun Jayaram of JPMorgan. Please go ahead.

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

Yes. Good morning, Scott and Rich. My first question As you guys announced your plans to raise your IRR thresholds on the Q3 call 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 you're doing to kind of Bolster your well productivity at this point.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Sure Arun, a great question. I'd say it's what we've talked about In the past, as we are really focused on developing our full stack development across our inventory thing and so that you've seen That move and then you've also seen us move to the 15,000 foot laterals, which is something unique to our acreage position that we have a deep inventory of those. And so I think it's the combination of those things that are really driving the productivity results. It's as we expected coming into the year. It's probably happened a little earlier in the year than we anticipated, but it's still something that the well results are fantastic.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

The team's done a great job on execution And something that I think by the updated guidance, you can see will continue into the second half of the year. So that's really the plan. It's not anything fancy. It's just Developing our great acreage position with full stack development, which I think maximizes recoveries and improves and is the optimal way to get the highest rate of return.

[Arun Jayaram, Vice President at JP Morgan Chase & Co]

Great. And my follow-up, Rich, you're taking down your 2023 CapEx by about 3%, Below expectations about the $125,000,000 I was wondering if you could give us a sense of if you have any thoughts on 2024 CapEx or how to think About 2024 CapEx given some of the efficiency gains, deflation and the fact that You could add 1 to 2 rigs to kind of deliver that 0% to 5% growth?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes. I think 2024, as I mentioned on John's question, is going to be really highly capital efficient. I just think when you're the growth that we're showing in 2023, when you think about growing in the upper half of our 0% to 5% Next year, you basically got a good jump start in it just with what's happened in 2023. So we see 2024 as very capital efficient. Hopefully, it's even Better with some deflationary pressure on the cost side of things.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

It's too early for me to kind of predict what that's going to look like just given Where oil prices are and what where oil prices may be headed the back half of this year. So we'll have to wait and see, but it's something our supply chain team is working on day in and day out to see how we can make sure we have favorable pricing going in 2024. But all said, I think you're right that it's going to be Very capital efficient program in 2024 based on what we know today.

[Operator]

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

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Yes, good morning. You guys have been adding simul frac crews And Efrac crews this year and your completion efficiency is really impressive. But is it still getting better? And are the gains efficient such that you could possibly drop a frac crew on a normalized basis.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Scott, it's something that the teams are working on every day to drive that efficiency. I think it will be harder for us to add Another simulfrag just because of the movement of logistics mainly is the biggest thing, but it's not to say the teams aren't looking at it. But we have gotten more efficient. The teams are really having less non productive time, being more efficient on location. And so that's the ideal goal is to do that.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

So ultimately, that's the focus of the teams is to continue to improve that efficiency Longer term, there's other things as like on the localized sand mine would be another thing that we're working on. We've got 2 of those. We're looking at a third one in 2024 that would You know, reduce those well costs that it can be applied to in 2024. So there's things like that the teams are continuing to work on that Hopefully will allow us to further improve well costs in 2024.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Got it. And just on Another initiative to reduce well costs and improve capital efficiency, the 15,000 foot Program, I think it consisted of around 100 wells this year. As you start to plan for next year, How will that figure change? Is it going to go up meaningfully?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, I think the goal is for it to go up. They're still planning on what Looks like how meaningful it goes up is really just balancing where we're at in the field and logistics to go with it and timing. But given the higher rates of return, obviously, more of those we can move into the front end 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.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

So modestly increasing in 24, I'd say today, but And it's still work in progress.

[Operator]

Thank you. Your next question comes from the line of Matt Portillo of TPH. Please go ahead.

[Matthew Portillo, Partner & Head of Research at Tudor, Pickering, Holt & Co]

Good morning, all. Just to dig in a little bit, obviously, the well improvement year to date has been fantastic. I was curious as we look at The state data, the Spraberry in particular for you all have seen a big improvement. I'm curious if that's due to the High grading dynamic for the 2023 program, the spacing design changes you guys have implemented or any other factors that you could point to that is really driving Productivity game for the Spraberry.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, Matt, I don't have the specifics on that zone, but I'd say just more Broader picture is really the full stack development we're seeing across all zones. I think when you look in the state data that the Improvement by developing out of full stack is just a better way to maximize recoveries and returns. And so that's really been our focus. And in terms of the 15,000 foot ladder, we're doing those across all zones as well. So I just think it's I don't know the specifics on the Lower Spraberry in particular, but overall the well performance has been fantastic as you can see from the data.

[Matthew Portillo, Partner & Head of Research at Tudor, Pickering, Holt & Co]

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 2 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 operator inventory management and also Supply growth moving forward as we've seen a pretty significant cut to the rig count.

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

Yes, I think you're starting

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

I see it in the U. S. Lower forty eight 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.

[Scott Sheffield, CEO at Pioneer Natural Resources Company]

Most people, except for a few of us like Pioneer, 2 or 3 others in the Permian Basin, which will lead to it should lead to extreme consolidation. So that will continue. And it's all based on inventory. So and there's Private equity is running out of opportunities to divest.

[Operator]

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

[David Deckelbaum, Analyst at Cowen]

Thanks, Rich, Neil and Scott. Appreciate the time this morning. A lot's been covered already, but I was curious just going back To slide where you talk about this well productivity that you're estimating this year and the gains. And you do see, I guess, Some greater outperformance as you get into longer life of the well beyond 2 years. I guess I'm curious, 1, What have you seen to date, I guess, in the initial like 3 to 6 months of wells that you've put online this year relative to the program last year and the year before in terms of this percentage of outperformance on a per foot basis.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

David, great question. That graph really includes actuals to date and then the forecast over that 24 month period of what we anticipate. I'd say the real benefit is as we did these artificial lift refinements and really customize those artificial lifts by zone and by AREA. That's really paid dividends and just drawn down the wells quicker, allowing to bring that productivity forward. And so we've just Seeing the benefits of that and you can see it in the state data, the higher productivity from those wells by just really managing the artificial lifts and customizing it where appropriate.

[David Deckelbaum, Analyst at Cowen]

I appreciate that. And then maybe just a little bit more color on that side. As you move more to 15,000 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 or lateral length intensity over time? Or Is that something that's going to be trending in a more positive direction in 2024 and 2025? Yes.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

I think longer term, it's going to I mean 2024, 2025 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 advantage of that capital should moderate over time as we've talked about. The 15,000 foot laterals in terms of the facilities that go with those, 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 They're 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.

[Operator]

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

[Scott Hanold, Managing Director - Energy Research at RBC Capital Markets]

Yes, thanks. Just another question on the productivity improvement and specifically the 15,000 foot wells. When you look at the initial performance and what you're seeing in over a longer dated time, do you see those Producing as prolifically on a kind of productivity per foot basis or is it more of a shallower decline longer term? What is the, I guess differential between what you're seeing on the longer laterals versus say a standard 10,000 foot lateral?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, great question. And really what we're seeing with the artificial lift They're maybe not quite, but almost essentially, basically 50% better like you'd expect from a 10,000 foot ladder on our productivity per foot. So sometimes we're limited by the fluid we can move until there's a short period where they're flatter. Because of these bigger ESPs, high pressure gas lift, we're moving more fluid volumes and therefore drawing them down quicker and getting Basically on that, what I'd say, proportionate curve to be a 10,000 foot lateral.

[Scott Hanold, Managing Director - Energy Research at RBC Capital Markets]

Okay. Yes. No, that's helpful. And then going back to shareholder returns and maybe this one's for Neil. How do you think about the fixed dividend?

[Scott Hanold, Managing Director - Energy Research at RBC Capital Markets]

Obviously, you gave some pretty good color on that. You've got a balanced investor some like income and obviously some like buybacks, but what is your goal on that fixed dividend moving forward? Like Where do you want it to be? How competitive in the growth kind of pace of it?

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Yes, that's a great question, Scott, and good morning. You've seen our commitment to a strong and growing base dividend. We've increased it consistently over the previous 6 years. And recently just last Previous quarter, we increased it by an additional 14%. Our current base dividend, if you think about the total yield We're at 3.3 percent, which outpaces the S and P of 500 at 1.5%.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

So we believe the base dividend is extremely important and an Avenue of return to our shareholders. So going forward, I would expect that base dividend increase roughly commensurate with our production growth. But again, it's a very important return avenue for us in terms of getting that capital and cash back in the shareholders' pockets.

[Operator]

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

[Charles Meade, Research Analyst at Johnson Rice & Company L.L.C.]

Good morning, Rich, Scott and Neil and into the rest of the PXD team there. Rich, I just have just one question for me. It's about the production of the rig and the average rig count For the year, so you reduced the range by 1. Am I right to think that that since that's happening for back half For the back half of the year that you're actually reducing the rig count in the back half of the year by 2. And Maybe tell me if that's the right way to think about it and give a little more color if those rigs are already down or this is a it's going to happen in the next couple of months or just More color there if you could.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, Charles. Good question and you're spot on. I mean the average rig count is for the year. We have rig count ebbs and flows just with our activity levels, so it's not always stagnant. We have some that roll off and Bring one's on, but directionally, you're right that we have dropped multiple rigs at this point, really reflecting that average rig count count number 1. So you're exactly right.

[Charles Meade, Research Analyst at Johnson Rice & Company L.L.C.]

Got it. Thank you.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

You're welcome.

[Operator]

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

[Neal Dingmann, Managing Director - Energy Research at Truist Securities]

Good morning, all. My first question is just on well costs. 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 us consider about well costs maybe through the end of the year, in particular in 2024?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, it's Still early for 24, so I hate to get there, but obviously with moving the capital down, our well costs are you can take that $125,000,000 and divide it out and That's what we're seeing in terms of decrease in well costs going forward because of just the improved program. Like I said, the key kind of deflationary things that are out there are really OCTG, steel and fuel and chemicals that we're seeing. We're 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's working on that.

[Neal Dingmann, Managing Director - Energy Research at Truist Securities]

Yes, it certainly seems like it, Rich. And then secondly, maybe for Neil, just on the balance And shareholder return, you all did a great job on the shareholder return that's been talked about. Looks like net debt went up a little bit. So I'm just wondering on a go forward, How do you balance all those things? 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?

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Yes, that's a good question. I mean, in 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 So having low debt, gross debt as well as net debt. So I mean it's our goal to really drive net debt lower over the medium term and short term as well. So yes, I would say we'll continue to relatively put cash on the balance sheet and continue to pay off debt where we can.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

But our goal is to keep net debt low and we kind of set that target about 0.5 times. And I would say that's kind of our bogey.

[Operator]

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

[Derrick Whitfield, Managing Director at Stifel Financial]

Thanks. Good morning all and congrats on a strong print.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Thank you.

[Derrick Whitfield, Managing Director at Stifel Financial]

Taking 15,000 foot laterals perhaps one step further, there's been a notable uptick in industry commentary this Quarter on E&P's achieving positive results on wells with laterals in the 15000 to 20000 foot range. With your improved outlook on 15,000 foot laterals, A, do you have a sense on how many locations you have in inventory that could support 20,000 foot laterals? And B, are there any technical limitations or concerns you have with drilling 20,000 foot laterals?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes. I think it's a great question. And so I don't know the exact count on 20,000. Obviously, it's acreage specific in terms of what How many wells of our 1,000 plus could be 20,000? What I'd probably say is we've drilled the longest ones we've drilled This one is rebuild just slightly over 18,000 foot, I noted in our commentary.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

And I think as we get out there longer and larger, there Comes a little bit more risk with that. We're very comfortable with the 15000 to 18000 range. But I know other peers have done 20,000 foot Successfully, so it's not the technology just like when we started and got to 12.5 and thought that was the limit that the technology and equipment and tools 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.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

And if we can get the right drawdown, And it improves those IRRs and returns. So we're going to continue to test it, but so far what we've done is 18,000 feet with very successfully. So hopefully we can continue to extend that over time.

[Derrick Whitfield, Managing Director at Stifel Financial]

Great. And as my follow-up with your gas marketing strategy You've outlined on Page 12. How are you thinking about Pioneer's role in LNG over time and desire to be more connected with international gas prices?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, something we've been thinking about a lot and we obviously on a gross basis are probably 1.3 Bcf of Gas. And so just from a diversification standpoint, we are looking at the LNG markets and the new LNG facilities coming on And looking at what the economics are of being able to diversify a portion of our gas to European or Asian markets And link him to the TTF or JKM price. And so definitely something we're evaluating and looking at. It won't be for a call it 10% to 20% of our gas that we may over time add to that. Obviously, the facility has got to get built, so it's still Few years out, but definitely something that we're interested in and looking at longer term and think makes sense from a diversification standpoint to pricing markets.

[Operator]

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

[Doug Leggate, Analyst at Bank of America]

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 how the cumulative productivity is improving, it looks like it's more of Kind of a later stage recovery.

[Doug Leggate, Analyst at Bank of America]

And I guess, I'm figuring you haven't got a lot of those long battles on yet. So my question is, what's the proportion of activity currently that's long lateral and how would you expect that to evolve? Because obviously that's And a play into how this productivity improvement feeds through to production.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes, maybe a couple of comments, Doug. 1, I think you, maybe reading too much into the graph because there's really the wells are it's just a forecast of our Technical team forecasting those wells and as they would a 10,000 foot well. But in terms of our total program, I mean, we've got 100 plus long laterals that we're planning on putting on location on production this year and that's out of a total of roughly 500 wells. So call it 20% of our activity is long laterals in 2023. So hopefully that helps.

[Doug Leggate, Analyst at Bank of America]

Yes. How do you expect that to evolve? Will it become a bigger proportion going forward? Or is that a good run rate?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

No, I think it's probably one of the earlier questions. I think it will Move slightly higher. We'll have to 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 IRRs, the more we can pull those forward, the better it is and 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 100 in 2024 and beyond.

[Operator]

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

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Yes. Thank you. Good morning. Not going to hammer you anymore on Well, productivity, I think that's been hit, but I did want to come back to the base dividend growth outlook. You mentioned Dividend grows with production, but I was curious if you're buying back shares as well, should we think of it as Production adjusted for 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 and P 500?

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

Good questions, Roger, and good morning. I would say, look, the base of dividend as I was talking about in terms of growing commensurate production Growth is on an absolute basis. But you're right and that's a great way to look at it as you buy back shares on a per share basis that actually We'll prove Beneficiary better for those that are holding the 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 and P 500, I mean, it's for us, it's nice and it's a goal to be above that yield for certain.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

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 affect at all at lower oil prices. So that's 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.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

So that's kind of 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 very important to our shareholder base as well. So We'll continue to grow that base dividend as we have historically, but more commensurate with production growth on a go forward basis.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Understood. Thank you.

[Operator]

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

[Paul Cheng, Analyst at Scotiabank]

Thank you. Good morning. Rich, two questions, please. One of your major competitor has been Testing out, it seems like you have success has been successful in improving the recovery rate. You all stand on wondering that your Pioneer has tried that or whether that you think based on today's technology and pricing, This kind of activity could be support economically.

[Paul Cheng, Analyst at Scotiabank]

That's the first question. Second question is that if we look at your oil cuts in 2019, it's about 61%, 62% In the first half down to about 52%, 53%, just want to know whether that is just naturally because natural gas They kind of had a slower pace than oil. So as a result, naturally that creep like this Or that is because you are moving into a more gas fee portion of your portfolio. And if that's the case, what's the trend line you expect over the next say 1 or 2 years. Thank you.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

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, I mean we understand or see most of what's In the basin from a technology standpoint, our teams are working on technology to improve recoveries 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 are things that are radically changing recoveries. And what I'd tell you, the things that we're working on, as I mentioned in our comments, are things like enhanced oil recovery to improve the recovery ability. We're only recovering, call it, 6% to 8% of the resource in the ground today.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

And so 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 Improve Recoveries 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, just as a normal function that the oil 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 it's yes, it gradually moved down, slowly.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Some of it's a function of growth, But overall, it's not moving dramatically going forward and 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.

[Operator]

Thank you. Your next question comes from the line of Leo Mariani of Ross MKN. Please go ahead.

[Leo Mariani, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Hi, guys. Wanted to just follow-up briefly on that oil cut Sort of comment here. So obviously, very strong beats on production this quarter, but a little bit Kind of less so on oil, oil sort of at the high end. I mean, you went from 53% oil cut first quarter to 52% this quarter. So you don't want to make too much about 1 quarter, but maybe there was some just additional gas recover.

[Leo Mariani, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

You talked about focusing on oil development going forward and not necessarily gas here, but is there anything to kind of the new program or perhaps As you've looked to sort of high grade a little bit, just the zones you focused on are a little bit more gassy, just trying to get some of the local color on the recent change here.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes. No, and appreciate the follow-up. And I would say as it relates to specifically to the Q2, I mean, we had the benefit of Our processor is having really strong plant yields, so that definitely helped during the quarter. Plus, we've continued to add Field compression out there and so lowering line pressure has helped us. So all those things have benefited that the gas production in the quarter.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

And 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 A slow decline towards 50 to the back half of this decade and truly nothing to do with the wells that we're drilling or the change in the wells. It's just the normal Process of what happens over time as we get a bigger and bigger base and the mix of oil and gas.

[Neal Shah, SVP and CFO at Pioneer Natural Resources Company]

And Leo, to be clear, following up, Rich, It's not related to the new wells that were popping. Those oil cuts are what they have been historically. So there's no change at all related to that in terms of Zones are where we're drilling or anything similar as Rich pointed out.

[Leo Mariani, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay. That's helpful for sure. And then just to follow-up on well productivity, certainly seems like you folks have credited the a lot of the Strong production performance that you've seen already in 2023 and you're expecting more than that in the second half to some of the changes made. But it strikes me that A lot of these changes weren't implemented until the kind of second half of twenty twenty two. So presumably, they're 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 it even larger just Change and sort of productivity as the percentage of kind of new production really gets a lot bigger over the next couple of years. So 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. It seems like we're just getting started on the program here. Am I thinking about that the right way?

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

Yes. Leo, I'd Yes. I'd say that we started probably earlier than there in terms of moving and we only made some what I'd call minor changes to the program from full stack. And so we've built that into our production guidance ranges and 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.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

I just I don't want Not thank you. We haven't baked in because we have.

[Operator]

Thank you. This concludes the question and answer portion of today's call. I I'll now turn the call over to Rich Daley for closing remarks.

[Richard Dealy, President and COO at Pioneer Natural Resources Company]

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.

[Operator]

Thank you. And this concludes today's call. You may now

Participants

Executives

• Scott Sheffield, CEO
• Richard Dealy, President and COO
• Neal Shah, SVP and CFO

Analysts

• John Freeman, Managing Director at Raymond James Financial
• Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs
• Arun Jayaram, Vice President at JP Morgan Chase & Co
• Scott Gruber, Director - Oilfield Services & Equipment Research at Citi
• Matthew Portillo, Partner & Head of Research at Tudor, Pickering, Holt & Co
• David Deckelbaum, Analyst at Cowen
• Scott Hanold, Managing Director - Energy Research at RBC Capital Markets
• Charles Meade, Research Analyst at Johnson Rice & Company L.L.C.
• Neal Dingmann, Managing Director - Energy Research at Truist Securities
• Derrick Whitfield, Managing Director at Stifel Financial
• Doug Leggate, Analyst at Bank of America
• Roger Read, Senior Energy Analyst at Wells Fargo Securities
• Paul Cheng, Analyst at Scotiabank
• Leo Mariani, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC