Pioneer Natural Resources

Pioneer Natural Resources boasted of the billions it was shoveling to their investors

Pioneer Natural Resources’s CEO told analysts the company had funneled roughly $7.5 billion back to shareholders in 2022 alone. “SCOTT DOUGLAS SHEFFIELD, CEO & DIRECTOR, PIONEER NATURAL RESOURCES COMPANY: Pioneer delivered strong results, generating over $1.7 billion in free cash flow during the third quarter, contributing to the return of $1.9 billion back to the shareholders. The majority of this capital is being returned through our base plus variable dividend of $5.71 per share, which will be paid in mid-December. Additionally, we continue to execute on opportunistic share repurchases, with $500 million of shares retired in the third quarter at an average price of $218, representing approximately 2.3 million shares. This strong return of capital through both dividends and share repurchases represents approximately 108% of our third quarter free cash flow. When including all repurchased to date and dividends to be paid in 2022, we will return approximately $7.5 billion to shareholders this year. This robust return clearly demonstrates our commitment to our investment framework that is supported by our significant free cash flow generation.” (Q3 2022 Pioneer Natural Resources Co Earnings Call, 10/28/2022)

Pioneer repucharsed $1.5 billion of their stock in the third quarter and had $3 billion remaining in authorized stock buybacks. “SCOTT DOUGLAS SHEFFIELD, CEO & DIRECTOR, PIONEER NATURAL RESOURCES COMPANY: Going to Slide 5. Supplementing our best-in-class dividend payout, we continue to repurchase our shares opportunistically and have executed $1.5 billion since the fourth quarter of 2021 at an average share price of $219. This represents a reduction of total shares outstanding by approximately 3% at a strong discount to our current share price. Of the 500 million repurchased during the third quarter at an average price of $218 per share, 250 million of stock was repurchased in the month of July at an average share price of $213 through our 10b5 program. To date, we’ve utilized $1.25 billion of our current $4 billion authorization, leaving nearly $3 billion remaining under the program.” (Q3 2022 Pioneer Natural Resources Co Earnings Call, 10/28/2022)

Pioneer stressed to analyst that their business model prioritized shareholder returns over production growth

Pioneer described their “core investment thesis as one that “delivers moderate oil production growth, but generates significant free cash flow.” “SCOTT DOUGLAS SHEFFIELD, CEO & DIRECTOR, PIONEER NATURAL RESOURCES COMPANY: Going to Slide #6. Our core investment thesis remains unchanged, underpinned by low leverage, strong corporate returns and a low reinvestment rate. This delivers moderate oil production growth, but generates significant free cash flow. Majority of this free cash flow was returned to shareholders through our strong and growing base dividend and our peer-leading variable dividend, which represents up to 75% of post-base dividend free cash flow.” (Q3 2022 Pioneer Natural Resources Co Earnings Call, 10/28/2022)

Pioneer’s CEO boasted of their “low breakeven and moderate oil growth” which would generate substantial cash for investors even at lower prices. “SCOTT DOUGLAS SHEFFIELD, CEO & DIRECTOR, PIONEER NATURAL RESOURCES COMPANY: Going to Slide #7, Pioneer’s high-quality assets, low breakeven and moderate oil growth provides the ability to pay significant dividends from our peer-leading free cash flow through cycle. As seen on the graph, we’re able to deliver a compelling base plus variable dividend with the yield far exceeding the S&P average at oil prices of $60. Conversely, shareholders have significant upside to sustain higher oil prices as well, with a greater than 10% dividend yield at oil prices higher than $100 WTI.” (Q3 2022 Pioneer Natural Resources Co Earnings Call, 10/28/2022)

Pioneer’s COO: “This combination of robust free cash flow generation and decades of high-return inventory supports Pioneer’s ability to return significant capital to shareholders over a long period of time.” “RICHARD P. DEALY, PRESIDENT & COO, PIONEER NATURAL RESOURCES COMPANY: Turning to Slide 14. This slide highlights the powerful combination of Pioneer’s highest free cash flow per BOE amongst our peers, combined with having the longest duration of high-quality inventory in the U.S. unconventional space. This combination of robust free cash flow generation and decades of high-return inventory supports Pioneer’s ability to return significant capital to shareholders over a long period of time and differentiates Pioneer from its peers.” (Q3 2022 Pioneer Natural Resources Co Earnings Call, 10/28/2022)

Pioneer Natural Resources told analysts the company prioritized sending money to shareholders over reinvesting in the business

Pioneer Natural Resources’ CEO said high oil prices wouldn’t increase production: “$100 oil, $150 oil, we’re not going to change our growth rate.”“Pioneer posted $2.1 billion in annual profit last year, the highest in at least two decades, according to FactSet, and it sent about $1.9 billion in cash to shareholders through dividends and share repurchases. It plans to spend $3.3 billion to $3.6 billion in capital this year less than 35% of the cash it projects it will generate from operations. Pioneer CEO Scott Sheffield said his company won’t divert from its strategy of raising oil production 0% to 5% a year despite high oil prices. ‘There’s no change for us,’ Mr. Sheffield told investors Thursday. ‘$100 oil, $150 oil, we’re not going to change our growth rate.’” (Wall Street Journal, 2/18/2022)

A Pioneer Natural Resources executive said the company was focused on a “low reinvestment rate” so it could focus on returning money to investors. “NEAL H. SHAH, SENIOR VP & CFO, PIONEER NATURAL RESOURCES COMPANY: Going to Slide #5. Committed to significant return of capital. We remain committed to our core investment thesis, underpinned by low leverage, strong corporate returns and a low reinvestment rate, which generates significant free cash flow. Majority of this free cash flow was returned to shareholders in the form of base plus variable dividends with total shareholder return through dividends representing almost 80% of our free cash flow. At current strip prices, total dividends are expected to exceed $20 per share in ’22, representing approximately 3x increase from 2021. We will continue to maintain a pristine balance sheet and supplement our compelling base plus variable dividend framework with opportunistic share repurchases under our new $4 billion share repurchase authorization. (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

Pioneer’s COO said the company only reinvested 35% of their cash flow, “with the large majority of the remaining 65% of cash flow being returned to investors.” “RICHARD P. DEALY, PRESIDENT & COO, PIONEER NATURAL RESOURCES COMPANY: Turning to Slide 12, looking at our program. You can see this slide really reiterates graphically our capital program, representing a reinvestment rate of 35%, with the large majority of the remaining 65% of cash flow being returned to investors through our base and variable dividend program and share repurchases that Scott discussed. Importantly, it also points out the quality of our high-margin asset base and the efficiency of our capital program, which, on a combined basis, drives breakeven, WT oil prices at approximately $30 to fund that program. And as I mentioned on the previous slide, 50% of our capital program is locked in protected from inflation. The remaining 50% of our capital budget includes approximately 10% of forecasted incremental inflation, which is embedded in the midpoint of our guidance range.” (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

A Pioneer executive said the company was willing to go as high as delivering 100% of cash flow to investors rather than investing it in expanding the business.“NEAL H. SHAH: Paul, it’s Neal. You’re right. I mean that’s the purpose. And Scott and Rich and I have voiced many times one of the benefits of having a low net debt balance sheet and it’s, again, similar to Neal Dingmann’s question early on reducing gross debt is really to provide us that operational and financial flexibility. And as we articulate and I think we exemplified in 4Q, we’re willing to go to that 100% of free cash flow. I think you saw that in 4Q. If you add in the base, the variable and the $250 million that we repurchased in the quarter, that was 101% of free cash flow. So I think given an opportunity, there’s an opportunistic buyback or an opportunity there related to a pullback in the market. We’ll step in. We won’t be shy. And again, I think we’ve demonstrated that during 4Q. But the buyback, as we — as Scott said, there will be a regular quarterly cadence associated with that. But over and above that, we will be opportunistic. So we were at 101% of free cash flow in 4Q, and we won’t be shy to step in if provided with that opportunity again.” (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

Pioneer said it would use high oil prices to pay shareholders, not try to increase supply

Pioneer CEO: “ We’re not going to change, as I said. At $100 oil, $150 oil, we’re not going to change our growth rate. We think it’s important to return cash back to the shareholders.” “SCOTT DOUGLAS SHEFFIELD: No, there’s no change for us. Long term, we’re still in that 0% to 5%. It’s going to vary. We’re not going to change, as I said. At $100 oil, $150 oil, we’re not going to change our growth rate. We think it’s important to return cash back to the shareholders. In regard to the industry, it’s been interesting watching some of the announcements. So far, the public independents are staying in line. I’m confident they will continue to stay in line. The private independents, a few of them, as we all know, are growing — they’ve announced growth rates in the 15% to 25% per year range. As I’ve stated, eventually, they’re going to run out of inventory as written by the Wall Street Journal article that came out in the last 2 weeks. People that are growing at 15% to 20% are going to run out of inventory fairly quickly. (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

Despite earlier warnings about low prices, Pioneer’s CEO predicted “oil can easily go to $150” and called $60 a barrel “probably the bottom end of where oil prices are going to bottom out over the next several years.” “SCOTT DOUGLAS SHEFFIELD: Yes, you have to realize it’s totally different. Oil — I think you’ve seen enough articles, oil could easily go to $150. Demand is stronger than it ever has been in the world. And OPEC and OPEC+ is going to run out of capacity by the end of ’22. That’s even been stated by several OPEC and OPEC+ countries. So that’s ignoring the Iran and the Ukraine situation. Both of them, obviously, there’s no reason putting on a hedge when it’s obvious that things could easily move up north. Secondly, the hedges are — the oil strip is totally in backwardation. So right now, we’re in the low $90s. It drops about $20 a barrel when you go out 5 years. So if you could buy a $100 put for 5 years, that’s a different question, you can’t. And so you can only buy a $70 or $60 put. That’s probably the bottom end of where oil prices are going to bottom out over the next several years. So it doesn’t make sense to put on a put at $60. So that’s — hope that answers your question, Nitin. (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

A Pioneer executive boasted that “every $5 change in oil now is an incremental $750 million of cash flow for us. So that really would offset any real move in inflation.” “NEAL H. SHAH: And Charles, I’m going to chime on to Rich’s comment and also point out one other thing. If you look at our hedge position now at 0% hedged on oil. If you’re talking about a $90 price environment, every $5 change in oil now is an incremental $750 million of cash flow for us. So that really would offset any real move in inflation. And that’s one of the reasons where Scott kind of opened up in the discussion early on in talking about our 0 hedges on oil that would really benefit us vis-Ã -vis the peers. So while they think inflation may impact them more so relative to their cash flow, our cash flow in a $90 oil environment is higher as well. (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

Pioneer’s CEO predicted that companies growing their production “will significantly reduce their inventory fairly quickly.” “SCOTT DOUGLAS SHEFFIELD: Also, they’re experiencing — there’s been articles written by some of you all on the call. There is — we’re not experiencing but a lot of companies, a lot of the privates, are experiencing labor issues, cost issues, can’t get equipment so that’s going to prevent the rig ramp up. So I’m hoping at the end of the day — and the 2 majors, I know that they are balancing their other entire portfolio. They’ve announced higher growth rates than 5% in the Permian Basin. One has a significant amount of DUCs. Those DUCs will go down over time. I don’t think those companies can continue to grow at those type of rates or they will significantly reduce their inventory fairly quickly.” (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

A Wall Street Analyst praised Pioneer for holding the line on refusing to expand production 

One Wall Street analyst said it’s “been one of the delights of this earnings season that the large public independents are staying in line” on limiting production and asked if there was “tension” with private producers. “CHARLES ARTHUR MEADE, ANALYST, JOHNSON RICE & COMPANY, L.L.C., RESEARCH DIVISION: Scott, I want to go back to comments you got into a bit in response to Neil’s question. So we see the same thing you’re seeing. It’s been one of the delights of this earnings season that the large public independents are staying in line. But there is that — there seems like there’s this tension between what the PXD and its peers are doing and the acceleration of both the majors and the independents. So that seems like a tension that it’s going to have to break one way or another. And I think you answered this, but I want to make sure I understand your thinking. The concern on the part of investors is that it’s — with $90 oil, it’s going to break in the form of the large independents returning to spending more and growing more. But that’s not — if — well, could you offer your opinion on how you see that tension resolving if you agree that there is some tension between those 2? “(Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

Pioneer’s CEO said the “only tension is that the world doesn’t need the extra oil…. we may need the extra barrels today. The question is, will we need them in ’23 and ’24?” “SCOTT DOUGLAS SHEFFIELD: Yes, it’s only tension is that the world doesn’t need the extra oil. And so the question is how long will that go on and you get into their inventory issues, like I said earlier, and it’s all back to demand. So as I said, we’re seeing record demand in this country. We’re seeing record demand in several other countries around the world. And everybody has demand increasing 3.5 million to 4 million barrels a day in 2022. When you look at all the various reports around, it ranges between 3.5 million and 4 million. Once that happens, OPEC is at — they have no extra capacity — in OPEC+. And so we have never been there before. It’s going to test at the end of this year. And so we may need the extra barrels today. The question is, will we need them in ’23 and ’24? And what do those companies do?” (Pioneer Natural Resources Q4 Earnings Call, 2/17/2022)

Pioneer’s CEO called for private oil drillers to be regulated for methane emissions

Pioneer’s CEO criticized private fracking companies for flaring: “we need to rein in the privates through regulation, whether it’s EPA, state, investors, bond investors…”“SCOTT DOUGLAS SHEFFIELD: And then I made the point about the privates. The privates need to be reined in because they are the biggest flares in the Permian Basin. And somehow, we need to rein in the privates through regulation, whether it’s EPA, state, investors, bond investors, but the privates are — need to be reined in, in the Permian Basin (Pioneer Natural Resources Q4 2021 Earnings Call, 2/17/2022)

October 2021: Pioneer Natural Resources CEO told the FT that “All the shareholders that I’ve talked to said that if anybody goes back to growth, they will punish those companies.” “But Scott Sheffield, chief executive of Texas-based Pioneer Natural Resources, said America’s once-prolific shale producers would keep using their burgeoning cash piles to pay shareholders, not fund new drilling. ‘Everybody’s going to be disciplined, regardless whether it’s $75 Brent, $80 Brent, or $100 Brent,’ Sheffield said. ‘All the shareholders that I’ve talked to said that if anybody goes back to growth, they will punish those companies.’’I don’t think the world can rely much on US shale,’ he said. ‘It’s really under Opec control.’” (Financial Times, 10/3/2021)