Pioneer Natural Resources Co. expects to see “very minimal” exposure to Waha hub natural gas prices as it moves more volumes from the Permian Basin south via Gulf Coast Express, which are priced at Houston Ship Channel or New York Mercantile Exchange indexes.
During a third quarter conference call to discuss quarterly results, CEO Scott Sheffield held court with his management team, noting that the Dallas independent is clicking on all cylinders.
Production, mostly from the Midland sub-basin, averaged 351,000 boe/d in the period, with oil output of 215,000 b/d. Efficiencies have reduced the top end of the forecast 2019 capital expenditures (capex) by $150 million, or 5%, and the midpoint of production guidance has been increased by 3%.
“Pioneer’s unmatched inventory of highly economic Midland Basin horizontal wells underpins a resilient program that maximizes shareholder value, generates top-tier margins and is being executed in a manner that demonstrates our commitment to sustainable practices,” Sheffield said.
Pioneer has lowered the top end of its 2019 Permian drilling, completions and facilities capital budget range by an additional $150 million, or 5%, to a new range of $2.80 billion to $2.85 billion. The reduction is primarily attributable to improvements in drilling and completions efficiencies, combined with reducing facilities spending ahead of schedule.
The budget for capital spending associated with midstream facilities and water infrastructure spending remains at $250 million. In total, Pioneer has reduced its 2019 capital program to a range of $3.05 billion to $3.10 billion and expects it to be fully funded with 2019 forecasted cash flow of $3.4 billion.
The company is moving about 300 MMcf/d out of the basin via Gulf Coast Express to Texas coast markets, according to CFO Richard Dealy. In the final three months, around 60% of gas should be moving south, priced off Houston Ship Channel or New York Mercantile Exchange indexes.
“And then about 40% will still move out to Arizona and California markets priced out of the SoCal index,” Dealy said. “So we have very minimal Waha exposure moving forward.”
Pioneer also has covered more incremental barrels under Brent oil prices. It now has 110,000 b/d hedged at roughly $65 Brent, and for 2020, it has 80,000 b/d at roughly $63 Brent “with upside from there,” Dealy said.
Marketing Permian oil yielded an incremental $46 million of cash flow in the third quarter. Pioneer also continues to enhance margins through its firm transportation contracts and expects a “nominal uplift” in the fourth quarter with “minimal exposure to the depressed Waha gas market going forward.”
For the third quarter, the average realized price for oil was $53.93/bbl, and natural gas liquids (NGL) averaged $16.81/bbl. Natural gas fetched $1.54/Mcf.
Pioneer completed a corporate restructuring during the second quarter and achieved its targeted annualized general/administrative savings of about $100 million ahead of schedule, Sheffield noted. Additionally, the longer-term goal of reducing facilities spending by $100 million annually was accomplished during 3Q2019, ahead of schedule.
Some of the Democratic presidential candidates have voiced support to ban onshore drilling on public lands if elected. Sheffield said the company has gotten a lot of questions about how it could be impacted and how much drilling is done on public lands.
“The answer is zero,” he said. “So regardless of who gets elected in this next election, Pioneer essentially has no risk. We have no infrastructure risk as all of our lines will move from the Midland Basin to the Gulf Coast within Texas.”
Pioneer placed 75 horizontal wells on production during the third quarter, and well productivity continues to improve.
The company plans to operate an average of 21 horizontal rigs in the Permian during 2019, including five rigs in the southern joint venture area. The program should lead to turning to sales around 290 wells on production, compared with 270 wells during 2018. The average lateral length planned for 2019 is 9,800 feet, with an average estimated ultimate recovery of 1.6 million boe per well.
The activity level this year is projected to deliver 2019 Permian production of 336,000-340,000 boe/d, up 3%, attributable to higher gas processing plant NGL yields and wells being placed on production slightly ahead of the forecast due to improvements in drilling and completion efficiencies.
Net income was $231 million ($1.38/share) in 3Q2019 versus year-ago profits of $411 million ($2.40). Revenue fell to $2.33 billion from $2.48 billion.
Last December, the board authorized a $2 billion stock repurchase program, and during 3Q2019, Pioneer repurchased $200 million. To date, the company has repurchased a total of 5.3 million shares for $728 million at an average price of $136/share.
Pioneer also touched on its sustainability initiatives and is focused on reducing emissions and emission intensities. Between 2016 and 2018, greenhouse gas (GHG) emissions have been reduced by 24%, total GHG emission intensity has decreased by 38% and methane intensity has declined by 41%.
“Additionally, between January 2018 and July 2019, the company was able to limit Permian flaring to less than 2% of its produced gas, one of the lowest flaring percentages in the Permian Basin,” management said. The company also monitors 100% of its Permian facilities aerially for leak detection and repair and only producing a well once it is fully connected to a gasline.