Pioneer Natural Resources Co. is seeking to curb its exposure to natural gas basis discounts at the Waha Hub in West Texas, according to the firm’s COO Richard Dealy.

Spot and futures prices at the Permian Basin hub increasingly have been trading at a discount to U.S. benchmark Henry Hub amid saturated takeaway capacity out of the basin. Waha prices even flipped negative for a brief period in late October.

Dealy addressed the issue during a conference call to discuss the producer’s third quarter 2022 earnings.

With regard to Waha forward prices, Dealy said, “obviously they’re trading at a discount” to New York Mercantile Exchange Henry Hub, SoCal Citygate “and other places…”

Pioneer, for its part, has sought to cap its exposure to Waha pricing to about 25% of the company’s gas production. Lately, “it’s been a little bit higher” because of maintenance on the El Paso Natural Gas Pipeline, Dealy said, meaning “we haven’t been able to move as many volumes out west as we would have liked. But we’ve got incremental capacity on firm transportation coming in ‘23, and then more in ‘24 when” the 2.5 Bcf/d Matterhorn Express Pipeline comes online.

Pioneer also is planning to move gas volumes from the Permian acreage acquired in its merger with Parsley Energy Inc. during 2023 and 2024 as well.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

“And so from Pioneer’s standpoint, we’ll have very little exposure” to Waha basis discounts starting from the 2023-2024 timeframe, Dealy said.

As for smaller operators that lack firm transport capacity out of the Permian, “until those new pipes come, they’re probably going to be getting discounted prices,” Dealy said.  

‘Highly Repeatable’ Midland Program

Pioneer CEO Scott Sheffield has increasingly focused Pioneer’s operations on the Permian’s Midland sub-basin, citing what he said is superior inventory to that of the Delaware sub-basin.

Pioneer is targeting full-year 2022 capital expenditures (capex) of $3.6-3.8 billion, to be fully funded by cash flow.

Pioneer plans to operate an average of 22-24 horizontal drilling rigs and about six hydraulic fracturing fleets in the Midland for the year, and to place 475-505 wells on production.

The company is forecasting 2022 production of 623,000-648,000 boe/d, including oil output of 350,000-365,000 b/d.

“To further enhance our top-tier free cash flow generation and return of capital, we have increased the return thresholds for wells to be included in our future development programs, which is expected to improve our program well productivity in 2023 and subsequent years, surpassing 2021 productivity levels,” said Sheffield. “Additionally, our current 15,000-foot lateral program, which we plan to expand in 2023, is delivering improved returns through lower capital costs per lateral foot.

“With an inventory of more than 20 years of high-return wells, our improved 2023 development program is highly repeatable and will deliver affordable energy to the world, with some of the lowest emissions as a result of the company’s high environmental standards.”

Wind, Solar Projects

In conjunction with presenting its 3Q2022 earnings, Pioneer announced its participation in two renewable energy projects to power its Midland operations. 

Pioneer is jointly developing a 140 MW wind farm with a subsidiary of NextEra Energy Resources LLC on Pioneer-owned surface acreage in Midland County. The project is slated to enter service in 2024. Pioneer and Targa Resources Corp. are set to purchase electricity from the wind farm via a power purchase agreement (PPA).

Pioneer and Targa also are PPA offtakers for the 160 MW Concho Valley Solar project, which began delivering electricity in 2022.

“We continue to evaluate further wind and solar development on Pioneer’s own service acreage, in addition to these two initial projects,” Sheffield said.  

Pioneer management said the firm has achieved a 22% reduction in greenhouse gas emission intensity and a 50% reduction in methane emission intensity versus a 2019 baseline, as well as a natural gas flaring intensity of 0.41% in 2021.

Profits Reach $2 billion

Pioneer generated free cash flow of $1.7 billion in 3Q2022, and declared a quarterly base-plus-variable dividend of $5.71/share to be paid in December 2022. The company also repurchased $500 million of shares during the quarter. 

Pioneer fetched average realized prices, excluding hedging effects, of $7.58/Mcf for natural gas, $94.23/bbl for oil and $38.09/bbl for natural gas liquids (NGL). These figures compare to $4.05, $69.24 and $35.66, respectively, in the year-ago period. 

Production averaged 656,582 boe/d, comprising 841 MMcf/d natural gas, 354,043 b/d oil and 162,372 b/d NGLs. These figures compare to 675,793 boe/d, 781 MMcf/d and 156,873 b/d, respectively, in 3Q2021.

Capex including drilling, completion, facilities and water infrastructure totaled $1 billion for the period. Pioneer has placed 399 horizontal wells on production to date.

Pioneer reported net income of $1.98 billion ($8.29/share) for the quarter, up from $1.05 billion ($4.27) in the year-ago period. Revenue totaled $6.09 billion, up from $4.46 billion.