- Delivered strong fourth quarter and full year free cash flow1 of $1.7 billion and $8.4 billion, respectively
- Declared a quarterly base-plus-variable dividend of $5.58 per share to be paid in March 2023 (based on fourth quarter results)
- Repurchased $400 million of shares during the fourth quarter and $1.65 billion during the full year
- Generated a return on capital employed2 of 30% during 2022
According to the company’s website news release on February 22, 2023, Pioneer Natural Resources Company (NYSE:PXD) ("Pioneer" or "the Company") reported financial and operating results for the quarter and year ended December 31, 2022. Pioneer reported fourth quarter net income attributable to common stockholders of $1.5 billion, or $5.98 per diluted share. These results include the effects of noncash mark-to-market adjustments and certain other unusual items. Excluding these items, non-GAAP adjusted income for the fourth quarter was $1.5 billion, or $5.91 per diluted share. Cash flow from operating activities for the fourth quarter was $2.6 billion. For the year ended December 31, 2022, the Company reported net income attributable to common stockholders of $7.8 billion, or $31.13 per diluted share. Cash flow from operating activities for the year was $11.3 billion.
Chief Executive Officer Scott D. Sheffield stated, "Pioneer delivered a strong 2022, executing on our investment framework and providing compelling shareholder returns. Our peer-leading free cash flow per barrel produced, paired with our low reinvestment rate, generated free cash flow of $8.4 billion during the year. This significant free cash flow resulted in nearly $8.0 billion being returned to shareholders through dividends of over $26 per share and $1.65 billion of share repurchases.
"We believe Pioneer is differentiated from our peers based on our decades of low-breakeven, high-return inventory that underpins our ability to deliver attractive corporate returns and durable free cash flow through commodity price cycles. Our best-in-class assets, great people, highly efficient and responsible operations, and commitment to substantial shareholder returns creates significant value for our shareholders. We expect to deliver more strong results during 2023 as we execute on our plan."
Financial Highlights
Pioneer maintains a strong balance sheet, with unrestricted cash on hand as of December 31, 2022 of $1.0 billion and net debt of $3.9 billion. The Company had $3.0 billion of liquidity as of December 31, 2022, comprised of $1.0 billion of cash and a $2.0 billion unsecured credit facility (undrawn as of December 31, 2022).
Cash flow from operating activities during the fourth quarter and full year 2022 was $2.6 billion and $11.3 billion, respectively, leading to free cash flow1 of $1.7 billion for the fourth quarter and $8.4 billion for the full year 2022.
During the fourth quarter, the Company’s total capital expenditures3, including drilling, completion, facilities and water infrastructure, totaled $1.1 billion. For the full year 2022, the Company's total capital expenditures3 totaled $3.8 billion.
For the first quarter of 2023, the Company's Board of Directors (Board) has declared a quarterly base-plus-variable dividend of $5.58 per share, comprised of a $1.10 base dividend and $4.48 variable dividend. This represents a total annualized dividend yield of approximately 11%4. In addition to a strong dividend program, the Company continues to execute opportunistic share repurchases. During the fourth quarter, the Company repurchased $400 million of common stock, bringing total 2022 share repurchases to $1.65 billion. Additionally, Pioneer repurchased $250 million of common stock during January and February, bringing total repurchases under the current authorization to $1.9 billion.
Pioneer believes this peer-leading return of capital strategy, comprised of dividends and share repurchases, creates significant value for shareholders5.
Fourth Quarter Financial Results
For the fourth quarter of 2022, the average realized price for oil was $83.53 per barrel. The average realized price for natural gas liquids (NGLs) was $27.67 per barrel, and the average realized price for gas was $4.98 per thousand cubic feet. These prices exclude the effects of derivatives.
Production costs, including taxes, averaged $11.08 per barrel of oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $10.77 per BOE. Exploration and abandonments expense was $9 million. General and administrative (G&A) expense was $83 million. Interest expense was $28 million. The net cash flow impact related to sales of purchased oil and gas, including firm transportation, was a loss of $76 million. Other expense was $55 million, or $39 million excluding unusual items. The Company recognized a current tax benefit of $172 million during the quarter (principally related to the overpayment of estimated cash taxes during the year). The Company's effective tax rate was 21% for the quarter.
Operations Update
Pioneer continued to deliver strong operational performance in the Midland Basin, which led to the Company placing 483 horizontal wells on production during 2022, including 84 horizontal wells placed on production during the fourth quarter.
Pioneer's large and contiguous acreage position provides the opportunity to drive further operational enhancements. The development of wells with lateral lengths in excess of 15,000 feet provides significant capital savings on a per foot basis and generates returns that are on average 20% higher than a 10,000-foot lateral well. The Company is expanding the development of 15,000 foot laterals and expects to place more than 100 of these wells on production in 2023.
Additionally, Pioneer has delivered significant cost and efficiency improvements from the utilization of simulfrac completions. The Company added a third simulfrac fleet in the first quarter of 2023. Consistent with the Company’s commitment to sustainable operations, Pioneer expects 100% of its completions fleets to be either electric or dual-fuel powered by the second half of 2023.
Extended laterals, utilization of simulfrac fleets and the transition of completions fleets from diesel-only fuel are a few examples of the many continuous improvement efforts that the Company's operational teams continue to generate. During 2022, Pioneer’s operational teams delivered a fifth consecutive year of improved drilling and completions efficiencies.
2023 Outlook
The Company expects its 2023 drilling, completions, facilities and water infrastructure capital budget3 to range between $4.45 billion to $4.75 billion. Additionally, the Company expects its capital budget for exploration, environmental and other capital to range between $150 million to $200 million, principally related to drilling four Barnett/Woodford formation wells in the Midland Basin, additional testing of the Company’s enhanced oil recovery (EOR) project and adding electric power infrastructure for future drilling, completions and production operations. Pioneer expects its capital program to be funded from 2023 cash flow6, which is projected to be approximately $9 billion.
During 2023, the Company plans to operate an average of 24 to 26 horizontal drilling rigs in the Midland Basin, including a three-rig average program in the southern Midland Basin joint venture area. The 2023 capital program is expected to place 500 to 530 wells on production. Pioneer expects 2023 oil production of 357 to 372 thousand barrels of oil per day (MBOPD) and total production of 670 to 700 thousand barrels of oil equivalent per day (MBOEPD).
First Quarter 2023 Guidance
First quarter 2023 oil production is forecasted to average between 349 to 364 MBOPD and total production is expected to average between 659 to 687 MBOEPD. Production costs are expected to average $11.75 per BOE to $13.25 per BOE. DD&A expense is expected to average $10.50 per BOE to $12.00 per BOE. Total exploration and abandonments expense is forecasted to be $10 million to $20 million. G&A expense is expected to be $78 million to $88 million. Interest expense is expected to be $27 million to $32 million. Other expense is forecasted to be $20 million to $40 million. The cash flow impact related to purchases and sales of oil and gas, including firm transportation, is expected to be a loss of $50 million to a loss of $90 million, based on forward oil price estimates for the quarter. The Company’s effective income tax rate is expected to be 22% to 27%, with cash taxes expected to be $70 million to $100 million, representing estimated federal and state tax payments that will be paid based on forecasted 2023 taxable income.
Proved Reserves
The Company added proved reserves totaling 365 million barrels of oil equivalent (MMBOE) during 2022, excluding acquisitions and price revisions. These proved reserve additions equate to a drillbit reserve replacement ratio of 152% when compared to Pioneer's full-year 2022 production of 240 MMBOE, including field fuel. The drillbit finding and development (F&D) cost was $10.82 per BOE in 2022, with a drillbit proved developed F&D cost of $9.83 per BOE.
As of December 31, 2022, the Company's total proved reserves were estimated at 2,377 MMBOE, of which 89% are proved developed.
Environmental, Social & Governance (ESG)
Pioneer views sustainability as a multidisciplinary effort that balances economic growth, environmental stewardship and social responsibility. The Company emphasizes developing natural resources in a manner that protects surrounding communities and preserves the environment.
During 2022, Pioneer continued to advance the Company's leading ESG strategy. Highlights from 2022 include partnering with NextEra Energy Resources to develop a 140-megawatt wind generation facility on Pioneer owned surface acreage and joining the Oil and Gas Methane Partnership (OGMP) 2.0 initiative, which is considered the gold standard on methane emission measurement and reporting for the upstream energy industry. Additionally, Pioneer's continued progress on its ESG initiatives led to an increase to an ESG “A” rating from MSCI.
For more details, see Pioneer’s 2022 Sustainability Report and 2022 Climate Risk Report at www.pxd.com/sustainability.
Earnings Conference Call
On Thursday, February 23, 2023, at 9:00 a.m. Central Time, Pioneer will discuss its financial and operating results for the quarter and year ended December 31, 2022, with an accompanying presentation. Instructions for listening to the call and viewing the accompanying presentation are shown below.
Internet: www.pxd.com
Select "Investors," then "Earnings & Webcasts" to listen to the discussion, view the presentation and see other related material.
Telephone: Dial (866) 580-3963 and enter confirmation code 1963876 five minutes before the call.
A replay of the webcast will be archived on Pioneer’s website. Alternatively, an audio replay will be available through March 23, 2023. To access the audio replay, dial (866) 583-1035 and enter confirmation code 1963876.
About Pioneer
Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States. For more information, visit www.pxd.com.
Except for historical information contained herein, the statements in this news release are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements and the business prospects of the Company are subject to a number of risks and uncertainties that may cause the Company's actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of commodity prices; product supply and demand; the impact of armed conflict (including the war in Ukraine) and political instability on economic activity and oil and gas supply and demand; competition; the ability to obtain drilling, environmental and other permits and the timing thereof; the effect of future regulatory or legislative actions on Pioneer or the industry in which it operates, including potential changes to tax laws; the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms; potential liability resulting from pending or future litigation; the costs, including the potential impact of cost increases due to inflation and supply chain disruptions, and results of development and operating activities; the impact of a widespread outbreak of an illness, such as the COVID-19 pandemic, on global and U.S. economic activity, oil and gas demand, and global and U.S. supply chains; the risk of new restrictions with respect to development activities, including potential changes to regulations resulting in limitations on the Company's ability to dispose of produced water; availability of equipment, services, resources and personnel required to perform the Company's development and operating activities; access to and availability of transportation, processing, fractionation, refining, storage and export facilities; Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled; the Company's ability to achieve its emissions reductions, flaring and other ESG goals; access to and cost of capital; the financial strength of (i) counterparties to Pioneer's credit facility and derivative contracts, (ii) issuers of Pioneer's investment securities and (iii) purchasers of Pioneer's oil, NGL and gas production and downstream sales of purchased commodities; uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying forecasts, including forecasts of production, operating cash flow, well costs, capital expenditures, rates of return, expenses, and cash flow from downstream purchases and sales of oil and gas, net of firm transportation commitments; tax rates; quality of technical data; environmental and weather risks, including the possible impacts of climate change on the Company's operations and demand for its products; cybersecurity risks; the risks associated with the ownership and operation of the Company's water services business and acts of war or terrorism. These and other risks are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the United States Securities and Exchange Commission. In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. The Company undertakes no duty to publicly update these statements except as required by law.
"Drillbit finding and development cost per BOE," or "drillbit F&D cost per BOE," means the summation of exploration and development costs incurred divided by the summation of annual proved reserves, on a BOE basis, attributable to discoveries, extensions and revisions of previous estimates. Revisions of previous estimates exclude price revisions. Consistent with industry practice, future capital costs to develop proved undeveloped reserves are not included in costs incurred.
"Drillbit reserve replacement" is the summation of annual proved reserves, on a BOE basis, attributable to discoveries, extensions and revisions of previous estimates divided by annual production of oil, NGLs and gas, on a BOE basis. Revisions of previous estimates exclude price revisions.
"Drillbit proved developed finding and development cost per BOE," or "drillbit proved developed F&D cost per BOE," means the summation of exploration and development costs incurred (excluding asset retirement obligations) divided by the summation of annual proved reserves, on a BOE basis, attributable to proved developed reserve additions, including (i) discoveries and extensions placed on production during 2022, (ii) transfers from proved undeveloped reserves at year-end 2021 and (iii) technical revisions of previous estimates for proved developed reserves during 2022. Revisions of previous estimates exclude price revisions.
Footnote 1: Free cash flow is a non-GAAP financial measure. As used by the Company, free cash flow is defined as net cash provided by operating activities, adjusted for changes in operating assets and liabilities, less capital expenditures. See the supplemental schedules for a reconciliation of fourth quarter and full year 2022 free cash flow to the comparable GAAP number. Forecasted free cash flow numbers are non-GAAP financial measures. Due to their forward-looking nature, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as working capital changes. Accordingly, Pioneer is unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from this non-GAAP measure in future periods could be significant.
Footnote 2: Return on capital employed (ROCE) is a non-GAAP financial measure. As used by the Company, ROCE is net income adjusted for tax-effected noncash mark-to-market (MTM) adjustments, unusual items and interest expense divided by the summation of average total equity (adjusted for tax-effected noncash MTM adjustments, unusual items and interest expense) and average net debt. See reconciliation to comparable GAAP number in supplemental schedules.
Footnote 3: Excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A, information technology and corporate facilities.
Footnote 4: Calculated by dividing the Company’s annualized first quarter 2023 total dividend per share by the Company's closing stock price on February 17, 2023.
Footnote 5: Future dividends, whether base or variable, are authorized and determined by the Company's Board in its sole discretion. Decisions regarding the payment of dividends are subject to a number of considerations at the time, including without limitation the Company's liquidity and capital resources, the Company's results of operations and anticipated future results of operations, the level of cash reserves the Company maintains to fund future capital expenditures or other needs, and other factors that the Board deems relevant. The Company can provide no assurance that dividends will be authorized or declared in the future or the amount of any future dividends. Any future variable dividends, if declared and paid, will by their nature fluctuate based on the Company’s free cash flow, which will depend on a number of factors beyond the Company’s control, including commodity prices.
Footnote 6: Forecasted operating cash flow is a non-GAAP financial measure. The 2023 estimated operating cash flow number represents January through December 2023 forecasted cash flow (before working capital changes) based on strip pricing and internal forecasts of 2023 production. Due to their forward-looking nature, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as working capital changes. Accordingly, Pioneer is unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from this non-GAAP measure in future periods could be significant.
Note: Estimates of future results, including cash flow and free cash flow, are based on the Company’s internal financial model prepared by management and used to assist in the management of its business. Pioneer’s financial models are not prepared with a view to public disclosure or compliance with GAAP, any guidelines of the SEC or any other body. The financial models reflect numerous assumptions, in addition to those noted in this news release, with respect to general business, economic, market and financial conditions and other matters. These assumptions regarding future events are difficult, if not impossible to predict, and many are beyond Pioneer’s control. Accordingly, there can be no assurance that the assumptions made by management in preparing the financial models will prove accurate. It is expected that there will be differences between actual and estimated or modeled results, and actual results may be materially greater or less than those contained in the Company’s financial models.
