Pioneer Natural Resources Company (NYSE:PXD) (“Pioneer” or “the Company”) today reported financial and operating results for the quarter and year ended December 31, 2018. Pioneer reported fourth quarter net income attributable to common stockholders of $324 million, or $1.89 per diluted share. These results include the effect of noncash mark-to-market (MTM) derivative gains and certain other unusual items typically excluded by the investment community in published estimates. Excluding these items, non-GAAP adjusted income for the fourth quarter was $202 million, or $1.18 per diluted share. For the full-year 2018, the Company reported net income attributable to common stockholders of $978 million, or $5.70 per diluted share. Non-GAAP adjusted income excluding noncash MTM derivative gains and unusual items for the full-year 2018 was $1.1 billion, or $6.31 per diluted share.
Fourth-Quarter and Full-Year 2018 Highlights
President and CEO Timothy L. Dove stated, “The Company delivered an excellent fourth quarter, serving to cap a strong year where we sharpened our focus on our peer-leading Permian asset. Pioneer delivered oil production at the top end of guidance, maintained our trajectory of lowering operating costs and continued our momentum of strong operational execution.
“In 2018, we again demonstrated a year-over-year increase in well productivity, while delivering best-in-class Permian cumulative oil production and oil composition. Our unique, low-cost basis Permian acreage, unencumbered by high cost acquisitions, generated a highly competitive return on capital employed of 9%.
“We embarked on many initiatives during 2018 to permanently streamline the portfolio and increase corporate level returns. Throughout the year, the Company diligently worked to divest non-core acreage and focused our efforts on drilling high-return horizontal Permian wells. For 2019, the substantial cost savings related to the strategic divestiture of our pressure pumping assets and transition to West Texas sand will significantly decrease our cost structure and improve capital efficiencies. These actions drive an 11% decrease in drilling, completions and facilities capital, while delivering a robust 12% to 17% increase in production when compared to 2018.”
Pioneer continues to maintain a strong balance sheet with 2018 year-end cash on hand of $1.4 billion (including liquid investments) and net debt of $0.9 billion. The Company’s liquidity position remains strong at year-end 2018 with $2.9 billion of liquidity, including $1.4 billion of cash and liquid investments and a $1.5 billion unsecured credit facility (undrawn as of December 31, 2018). The Company continues to reduce its cost structure and streamline its portfolio through the divestiture of non-core assets, with proceeds from the 2018 asset divestitures totaling approximately $865 million2.
Consistent with the Company’s focus on enhancing shareholder value, Pioneer is committed to the return of capital to shareholders. The Company increased its semiannual cash dividend in February 2018 by 300% from $0.04 per share to $0.16 per share. With the announcement today, the Company is doubling its semiannual cash dividend from the existing $0.16 per share to $0.32 per share ($0.64 per share on an annualized basis), representing a 700% increase since the beginning of 2018.
In February 2018, the Board of Directors authorized a $100 million common stock repurchase program to offset the impact of dilution associated with employee stock compensation awards. This program was replaced in December 2018 with a $2 billion authorization. To date, the Company has repurchased a total of 2.4 million shares for $328 million at an average price of approximately $136 per share under the December 2018 authorization.
Fourth Quarter Financial Results
For the fourth quarter, the average realized price for oil was $49.80 per barrel. The average realized price for NGLs was $26.88 per barrel, and the average realized price for gas was $1.75 per thousand cubic feet (MCF). Adjusting for the cash flow uplift attributable to the Company’s FT contracts, the average realized oil price would have increased by $9.36 per barrel to $59.16. These prices exclude the effects of derivatives.
Production costs, including taxes, averaged $8.70 per barrel of oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $13.75 per BOE. Exploration and abandonment costs were $32 million. General and administrative expense totaled $99 million. Interest expense was $29 million. Other expense was $533 million, or $49 million excluding unusual items3.
Pioneer placed 270 horizontal wells on production during 2018, of which 71 were placed on production during the fourth quarter. Well productivity continues to increase annually, with average cumulative production greater in 2018 as compared to the 2017 program. Many factors, such as incorporating data from machine learning into optimized completion designs and a focused approach to appraisal testing have contributed to the Company’s improving well productivity.
The Company’s second multi-zone Spraberry appraisal pad (Stackberry), located in Midland County, consists of eight wells: two in the Middle Spraberry, two in the Jo Mill and four in the Lower Spraberry Shale. Similar to the first Stackberry test, cumulative production has outperformed previous horizontal Spraberry wells in the area by approximately 35%. As a result, an additional 40,000 acres in the surrounding area for the Middle Spraberry, Jo Mill, and Lower Spraberry Shale intervals have been de-risked, progressing the transition of the Spraberry intervals from appraisal to development mode. The third 2018 Stackberry test was placed on production late in the fourth quarter and is still flowing back. The Company plans to spud two additional Stackberry tests late in 2019.
During 2018, the Company had several successful Wolfcamp D wells placed on production. This success continued into 2019 as a two-well Wolfcamp D pad was placed on production early in the first quarter of 2019, with an average 24-hour initial production rate of approximately 4,100 BOEPD, of which 72% was oil. This two-well pad also recorded a 20-day cumulative production of approximately 120 MBOE, with a 70% oil mix. The Company plans additional Wolfcamp D appraisals in 2019.
The Company continues to increase efficiencies, which are driving greater corporate returns. For example, large-scale developments enable operational efficiencies to be captured by performing drilling and completion practices over multiple wells. Additionally, large-scale developments decrease mobilization and non-productive time. Approximately 40% of the Company’s 2019 wells are planned to include projects consisting of four or more wells, compared to only 10% in 2018. Many of these projects will utilize “Pioneer Pads” enabling 24 wells to be drilled and completed from the same pad. The Pioneer Pad can reduce surface utilization by greater than 80%, benefiting the environment and further improving returns.
Demonstrating the benefits of long-term planning, the Company’s comprehensive water strategy continues to play a critical role in the continuing successful execution of Pioneer’s Permian development plan. Pioneer’s vast water pipeline system is remotely operated from a control room and allows for hundreds of thousands of barrels of water per day to be efficiently directed across the Company’s large acreage position. This system successfully transports the Company’s low-cost water across the field and is built to support Pioneer’s long-term development plan. Furthermore, Pioneer plans on increasing the volume of recycled water it uses to approximately 30% in 2019. This effort to decrease the Company’s dependence on fresh water not only increases corporate returns but also demonstrates Pioneer’s commitment to the communities in which it operates and its employees live. The Company plans to further reduce its freshwater consumption by increasing the use of effluent water through its investment in the Midland water treatment plant.
During the fourth quarter of 2018, the Company’s marketing of Permian oil yielded premium Brent-related oil pricing, leading to an incremental $170 million of cash flow. The full-year 2018 impact of this strategy led to $458 million of additional cash flow. The Company continues to enhance margins through its FT contracts by transporting oil and gas from its areas of production to price-advantaged markets and expects these activities to provide a cash flow uplift of $40 million to $100 million during the first quarter of 2019.
The Company expects its 2019 Permian drilling, completions and facilities capital budget to range between $2.8 billion to $3.1 billion and be fully funded within expected operating cash flow, based on current commodity prices. Including capital of $300 million related to Pioneer’s unique Permian investments in gas processing facilities and water infrastructure, the total capital program4 is expected to range between $3.1 billion to $3.4 billion.
The Company plans to operate an average of 21 to 23 horizontal rigs in the Permian Basin during 2019, including approximately five rigs in the southern joint venture area. This program is expected to place 265 to 290 wells on production, compared to 270 wells placed on production during 2018. The average lateral length planned for 2019 is approximately 9,800 feet, with an average estimated ultimate recovery (EUR) of approximately 1.6 MMBOE per well.
This activity level is projected to deliver 2019 Permian production of 320 to 335 MBOEPD and 203 to 213 MBOPD, representing approximately 12% to 17% growth over 2018 production levels. The Company expects 2019 forecasted operational cash flow of $3.2 billion5, based on current commodity prices.
First Quarter 2019 Guidance
First quarter 2019 Permian production is forecasted to average between 302 to 317 MBOEPD and 194 to 204 MBOPD, while Eagle Ford/South Texas production is forecasted to average between 13.0 to 14.5 MBOEPD and 2.8 to 3.8 MBOPD. Permian production costs are expected to average $8.50 per BOE to $10.50 per BOE. Permian DD&A expense is expected to average $13.00 per BOE to $15.00 per BOE.
Total exploration and abandonment expense for the Company is forecasted to be $20 million to $30 million. General and administrative expense is expected to be $95 million to $100 million. Interest expense is expected to be $28 million to $33 million. Other expense is forecasted to be $45 million to $55 million and is expected to include $35 million to $45 million of charges associated with excess firm gathering and transportation commitments. Accretion of discount on asset retirement obligations is expected to be $3 million to $6 million. The Company’s effective income tax rate is expected to range from 21% to 25%. Current income taxes are expected to be less than $5 million.
The Company’s financial and derivative mark-to-market results and open derivatives positions are outlined on the attached schedules.
The Company added Permian proved reserves totaling 304 million barrels of oil equivalent (MMBOE) during 2018. These proved reserve additions equate to a drillbit reserve replacement ratio of 290% when compared to Pioneer’s full-year 2018 Permian production of 105 MMBOE, including field fuel. The Permian drillbit finding and development (F&D) cost was $11.77 per BOE, with a drillbit proved developed F&D cost of $11.94 per BOE.
As of December 31, 2018, the Company’s total Permian proved reserves were estimated at 977 MMBOE, of which 94% are proved developed. Approximately 56% of these proved reserves are oil, 23% are NGLs and 21% are gas.
As of December 31, 2018, all of Pioneer’s proved reserves were in the United States, and 92% were proved developed reserves. Approximately 54% of the Company’s proved reserves are oil, 23% are NGLs and 23% are gas.
Environmental, Social & Governance
Pioneer views sustainability as a multidisciplinary focus that balances economic growth, environmental stewardship and social responsibility. The Company emphasizes developing natural resources in a way that protects surrounding communities and preserves the environment. For access to Pioneer’s sustainability report, please visit www.pxd.com/values/sustainability.
Earnings Conference Call
On Thursday, February 14, 2019, at 9:00 a.m. Central Time, Pioneer will discuss its financial and operating results for the quarter ended December 31, 2018 and its 2019 outlook, with an accompanying presentation. Instructions for listening to the call and viewing the accompanying presentation are shown below.
Select “Investors,” then “Earnings & Webcasts” to listen to the discussion, view the presentation and see other related material.
Telephone: Dial 888-204-4368 and enter confirmation code 1773129 five minutes before the call. View the presentation via Pioneer’s internet address above.
A replay of the webcast will be archived on Pioneer’s website. This replay will be available through March 11, 2019. Click Here to register for the call-in audio replay and you will receive the dial-in information.
Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States. For more information, visit www.pxd.com.
Except for historical information contained herein, the statements in this news release are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements and the business prospects of Pioneer are subject to a number of risks and uncertainties that may cause Pioneer’s actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, completion of planned divestitures, litigation, the costs and results of drilling and operations, availability of equipment, services, resources and personnel required to perform the Company’s drilling and operating activities, access to and availability of transportation, processing, fractionation, refining and export facilities, Pioneer’s ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer’s credit facility, investment instruments and derivative contracts and purchasers of Pioneer’s oil, natural gas liquids and gas production, uncertainties about estimates of reserves and resource potential, identification of drilling locations and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data, environmental and weather risks, including the possible impacts of climate change, cybersecurity risks, ability to implement planned stock repurchases, the risks associated with the ownership and operation of the Company’s industrial sand mining and oilfield services businesses and acts of war or terrorism. These and other risks are described in Pioneer’s Annual Report on Form 10-K for the year ended December 31, 2017, and other filings with the Securities and Exchange Commission. In addition, Pioneer may be subject to currently unforeseen risks that may have a materially adverse impact on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. Pioneer undertakes no duty to publicly update these statements except as required by law.
An audit of proved reserves follows the general principles set forth in the standards pertaining to the estimating and auditing of oil and gas reserve information promulgated by the Society of Petroleum Engineers (“SPE”). A reserve audit as defined by the SPE is not the same as a financial audit. Please see the Company's Annual Report on Form 10-K for a general description of the concepts included in the SPE's definition of a reserve audit.
“Drillbit finding and development cost per BOE,” or “drillbit F&D cost per BOE,” means the summation of exploration and development costs incurred divided by the summation of annual proved reserves, on a BOE basis, attributable to discoveries, extensions and revisions of previous estimates. Revisions of previous estimates exclude price revisions. Consistent with industry practice, future capital costs to develop proved undeveloped reserves are not included in costs incurred.
“Drillbit reserve replacement” is the summation of annual proved reserves, on a BOE basis, attributable to discoveries, extensions and revisions of previous estimates divided by annual production of oil, NGLs and gas, on a BOE basis. Revisions of previous estimates exclude price revisions.
“Proved developed finding and development cost per BOE,” or “proved developed F&D cost per BOE,” means the summation of exploration and development costs incurred (excluding asset retirement obligations) divided by the summation of annual proved reserves, on a BOE basis, attributable to proved developed reserve additions, including (i) discoveries and extensions placed on production during 2018, (ii) transfers from proved undeveloped reserves at year-end 2017 and (iii) technical revisions of previous estimates for proved developed reserves during 2018. Revisions of previous estimates exclude price revisions.
Footnote 1: “Return on Capital Employed (ROCE)” is a non-GAAP financial measure. As used by Pioneer, ROCE is net income adjusted for tax-effected interest expense, net noncash MTM derivative gains and losses and other unusual items divided by the summation of average equity and average net debt.
Footnote 2: Includes 16.6 million shares of ProPetro Holding Corp. (NYSE: PUMP) (closing price as of 2/5/2019) and $110 million of cash payments to be received during the first quarter of 2019.
Footnote 3: Other expense includes unusual items totaling $450 million of sand mine decommissioning charges associated with the planned closure of the Company’s Brady, Texas sand mining facility and $34 million attributable divestiture related charges, including employee-related expenses.
Footnote 4: Excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and facilities.
Footnote 5: Assumes a WTI oil price of $53 (assuming a $7 differential to the Brent oil price) and Henry Hub gas of $3/MCF.
Cautionary Note to U.S. Investors -- The SEC prohibits oil and gas companies, in their filings with the SEC, from disclosing estimates of oil or gas resources other than “reserves,” as that term is defined by the SEC. In this news release, Pioneer includes estimates of quantities of oil and gas using certain terms, such as “resource potential,” “net recoverable resource potential,” “recoverable resource,” “estimated ultimate recovery,” “EUR,” “oil in place” or other descriptions of volumes of reserves, which terms include quantities of oil and gas that may not meet the SEC’s definitions of proved, probable and possible reserves, and which the SEC's guidelines strictly prohibit Pioneer from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and, accordingly, are subject to substantially greater risk of being recovered by Pioneer. U.S. investors are urged to consider closely the disclosures in the Company’s periodic filings with the SEC. Such filings are available from the Company at 5205 N. O'Connor Blvd., Suite 200, Irving, Texas 75039, Attention: Investor Relations, and the Company’s website at www.pxd.com. These filings also can be obtained from the SEC by calling 1-800-SEC-0330.
|PIONEER NATURAL RESOURCES COMPANY|
|UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS|
|December 31, 2018||December 31, 2017|
|Cash and cash equivalents||$||825||$||896|
|Accounts receivable, net||814||645|
|Income taxes receivable||6||7|
|Investment in affiliate||172||—|
|Total current assets||2,580||3,007|
|Property, plant and equipment, at cost:|
|Oil and gas properties, using the successful efforts method of accounting||21,766||20,962|
|Accumulated depletion, depreciation and amortization||(8,218||)||(9,196||)|
|Total property, plant and equipment||13,548||11,766|
|Other property and equipment, net||1,291||1,762|
|LIABILITIES AND EQUITY|
|Income taxes payable||2||—|
|Current portion of long-term debt||—||449|
|Total current liabilities||1,818||2,128|
|Deferred income taxes||1,152||899|
|PIONEER NATURAL RESOURCES COMPANY|
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|(in millions, except per share data)|
Three Months Ended
Twelve Months Ended
|Revenues and other income:|
|Oil and gas||$||1,122||$||1,085||$||4,991||$||3,518|
|Sales of purchased oil and gas||1,082||682||4,388||1,776|
|Interest and other||—||10||38||53|
|Derivative gains (losses), net||409||(254||)||(292||)||(100||)|
|Gain on disposition of assets, net||64||3||290||208|
|Costs and expenses:|
|Oil and gas production||201||151||855||591|
|Production and ad valorem taxes||55||63||284||215|
|Depletion, depreciation and amortization||404||367||1,534||1,400|
|Purchased oil and gas||909||668||3,930||1,807|
|Impairment of oil and gas properties||—||—||77||285|
|Exploration and abandonments||32||28||114||106|
|General and administrative||99||80||381||326|
|Accretion of discount on asset retirement obligations||3||5||14||19|
|Income before income taxes||412||62||1,251||309|
|Income tax benefit (provision)||(88||)||603||(276||)||524|
|Net loss attributable to noncontrolling interests||—||—||3<|
|Deutsche Bank X-markets: Alle Derivate|
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