With two big transactions completed in a matter of months, Pioneer Natural Resources Co. has become the largest producer in the Permian Basin and should produce up to 700,000 boe/d-plus in 2022, CEO Scott Sheffield said Wednesday.
The Dallas-based independent this week completed a $6.4 billion purchase of privately held West Texas competitor DoublePoint Energy LLC. The estimated 1,200 drilling locations “are equally competitive with Pioneer’s legacy inventory” in the Permian Midland, Sheffield said during the first quarter conference call.
“Given the hand-in-glove fit of Double Points acreage with ours, we expect to achieve synergies of approximately $175 million annually, leading to double-digit free cash flow per share and variable dividend per share accretion.”
The acquisition added around 100,000 acres to the asset base, “right in the heart of the core” of the Midland, where Pioneer has long held court.
“This will take our Midland Basin on up to over 900,000 net acres,” the CEO said. To provide context on “how dominant” Pioneer has become in the Midland sub-basin alone, he said it would control 25% of the rig count and 25% of the fracture fleet rig count.
The DoublePoint takeover ties in with last fall’s blockbuster $7.6 billion takeover of fellow Permian pure-play Parsley Energy Inc., which increased Midland and Delaware sub-basin holdings.
Combined, Pioneer estimated it controls around one million acres across West Texas and southeastern New Mexico, with more than 900,000 acres in the Midland and around 100,000 in the Delaware sub-basin.
Second quarter production is expected to average 606,000-632,000 boe/d, with oil averaging 352,000-367,000 b/d. Production this year is forecast at 605,000-631,000 boe/d, with oil at 351,000-366,000 b/d, COO Richard Dealy told investors.
On average, 22-24 horizontal rigs are set to run, with up to nine fracture fleets in operation. About 470-510 wells should be turned to sales, including 90 acquired from DoublePoint.
“One of the…significant benefits of combining Parsley and DoublePoint is adding to our contiguous acreage position and what this allows us to do,” Dealy said. “We’ve successfully drilled longer laterals out to 15,000 feet, up from 9,000 to 10,000 feet…”
The longer laterals are “much more capital efficient and really adding essentially the same production by drilling fewer wells.”
Pioneer noted that it has incorporated greenhouse gas (GHG) and methane emission intensity reduction goals into its environmental, social and governance (ESG) strategy. By 2030, Pioneer is forecasting it can cut GHG emissions intensity by 25% and methane emissions intensity by 40%.
In addition, the independent has formally adopted an ESG goal to maintain natural gas flaring intensity to less than 1% of gas produced. It also plans to end routine flaring by 2030, as defined by the World Bank, with an “aspiration to reach this goal by 2025.”
Executive incentive compensation has been revamped too. Beginning this year, return on capital employed has been included as an incentive compensation metric, along with cash return on capital invested, which was added in 2020. The metrics have a combined weighting of 20%, while production and reserves goals previously included as incentive compensation metrics were removed.
Executive equity compensation has been amended as well, with the S&P 500 index added into the total stockholder return peer group for performance awards. For the second consecutive year, the long-term equity compensation for the CEO, now Sheffield, “will be 100% in performance awards,” all based on performance relative to the peer group.
Pioneer fetched a realized oil price in 1Q2021 of $56.71/bbl. Realized natural gas liquids prices averaged $25.90/bbl, with natural gas at $3.04/Mcf. Production costs, including taxes, averaged $8.54/boe. There were 106 horizontal wells tied to production in the quarter. Drilling averaged 1,250 feet/day, up 9% over 2020 averages. Completions averaged 2,000 completed feet/day, up 8%.
The capital budget this year is set at $3.1-3.4 billion, funded entirely by forecast cash flow of $5.9 billion, Dealy said.
Net losses totaled $70 million (minus 33 cents/share) in 1Q2021, reversing year-ago profits of $291 million ($1.75). Revenue improved to $2.44 billion from $2.26 billion. Cash flow from operating activities was $377 million, down from $825 million in 1Q2020.
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