Permian Basin heavyweight Pioneer Natural Resources Co. is raising its 2020 oil production guidance by 2.5%, but it is keeping most of the oil volumes curtailed during the second quarter offline until commodity prices improve, management said Wednesday.
The Irving, TX-based independent curtailed about 7,000 b/d of net oil production during 2Q2020 and said it expects to keep about 6,000 b/d shut-in amid the current price environment, CEO Scott Sheffield told analysts during the quarterly earnings call.
The curtailed volumes are mainly from Pioneer’s higher cost vertical wells, Sheffield said. He expects “very little” of the 6,000 b/d to come back over time.
Pioneer expects to generate free cash flow (FCF) of about $600 million for the year, and to increase oil output by 2.5% to a range of 203,000-213,000 b/d while maintaining previous capital expenditure (capex) guidance, Sheffield said.
The FCF and production guidance assume a Brent oil price of around $46/bbl, Sheffield said. He noted that recent Brent strip pricing for the remainder of the year had improved to about $48-50.
Pioneer generated $165 million of FCF in 2Q2020, attributed to “significant cost reductions and operational efficiency improvements.” These improvements will allow Pioneer to increase output without increasing capex, Sheffield said.
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Drilling, completions and facilities capital spending this year is estimated at $1.3 billion-1.5 billion, with an additional $100 million allocated for Permian water infrastructure, bringing the total capital budget for the year to an estimated $1.4 billion-1.6 billion.
Pioneer expects to run five to eight horizontal rigs. and on average two to three fracture fleets, through the end of the year in the Permian Midland sub-basin.
Sheffield said the company’s footprint of “A-rated inventory,” meaning acreage that breaks even at a West Texas Intermediate oil price under $30/bbl and a Henry Hub natural gas price below $2/MMBtu, is nearly three times that of its closest peer.
Pioneer’s portfolio spans about 680,000 net acres and contains more than 10 billion boe of resources.
“We have an unmatched footprint,” Sheffield told analysts.
The company also is starting a long-term investment framework underpinned by reinvesting 70-80% of cash flow. “Based on current strip pricing, this framework targets a total return to shareholders of 10% or greater, consisting of a competitive and growing base dividend, a variable dividend and oil growth of 5%-plus,” management said.
Sheffield, who believes that some of its peers have destroyed shareholder value either by growing too quickly or buying back stock at too high of a price, said Pioneer does not expect to use any of its FCF for stock buybacks. Instead, it plans to stick to the 5%-plus production growth model.
“Some years it may be six, some years it may be seven,” he said of the growth model. The guidance will be followed even if oil prices were to recover to the $60-70 range, Sheffield noted.
Production averaged 375,000 boe/d for the second quarter, including 215,000 b/d of oil. Lease operating expenses/boe fell by 16% versus the first quarter.
On the environmental front, Pioneer said between 2016 and 2018, it reduced greenhouse gas (GHG) emissions by 24%, total GHG emission intensity by 38% and methane intensity by 41%.
Citing data compiled by Rystad Energy, Sheffield said Pioneer was “the best in the Permian Basin” in terms of flaring intensity, at less than 1%. Flaring intensity refers to the proportion of natural gas production that is burned off as waste.
Pioneer achieved well cost reductions of about $1.8 million/well during 2Q2020, which was about 20% below the original budget estimate. The company expects about 60% of the achieved well cost reductions to be sustainable through commodity price cycles.
Pioneer reported a net loss of $439 million (minus $2.66/share) for the quarter, versus a year-ago loss of $169 million (minus $1.01). The loss was attributed in part to one-time hedging adjustments.
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