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Pioneer Natural Resources Company Reports Fourth Quarter 2017 Financial and Operating Results and Announces 2018 Capital Program
Pioneer reported fourth quarter net income attributable to common
Fourth quarter, full-year 2017 and other recent production and financial highlights included:
Pioneer’s 2018 Plan and Capital Program is summarized below:
President and CEO
“We are in year two of our 10-year plan and remain committed to
achieving oil production greater than 700 MBOPD and total production
greater than 1 million barrels oil equivalent per day in 2026. By
steadily increasing the pace of drilling our low-cost, high-return
“In 2018, our capital program is expected to be funded by cash flow if
oil prices average approximately
Permian Basin Operations Update and Outlook
Pioneer is the largest acreage holder in the
The Company implemented a completion optimization program during 2015 in the Spraberry/Wolfcamp that combines longer laterals with optimized stage lengths, clusters per stage, fluid volumes and proppant concentrations. The objective of the program was to improve well productivity by allowing more rock to be contacted closer to the horizontal wellbore. In 2013 and 2014, the Company’s initial fracture stimulation design (Version 1.0) consisted of proppant concentrations of approximately 1,000 pounds per foot, fluid concentrations of 30 barrels per foot, cluster spacing of 60 feet and stage spacing of 240 feet. Beginning in mid-2015, the Company enhanced its fracture stimulation design (Version 2.0), which consisted of larger proppant concentrations of approximately 1,400 pounds per foot, larger fluid concentrations of 36 barrels per foot, tighter cluster spacing of 30 feet and shorter stage spacing of 150 feet. Beginning in the first quarter of 2016, Pioneer commenced testing further-enhanced completion designs (Version 3.0), which included larger proppant concentrations of approximately 2,000 pounds per foot, larger fluid concentrations up to 50 barrels per foot, tighter cluster spacing down to 15 feet and shorter stage spacing down to 100 feet.
The Company placed 56 Version 3.0 wells on production during the fourth quarter of 2017. On average, these wells and the more than 260 Version 3.0 wells that were placed on production prior to the fourth quarter are continuing to outperform Version 2.0 completions.
Pioneer placed 12 wells on production during the second quarter of 2017 that utilized higher intensity completions compared to Version 3.0 wells. These are referred to as Version 3.0+ completions. Eight additional wells using Version 3.0+ completions were placed on production in the fourth quarter. All of these wells utilized increased proppant, and three wells utilized increased proppant and water compared to Version 3.0 wells. Of the eight wells, five were placed on production toward the end of the fourth quarter and are still flowing back. Early production results from the remaining three wells that were placed on production earlier in the quarter are significantly outperforming production from nearby offset wells with less intense completions. Based on the initial success of the higher intensity completions to date, the Company plans to test approximately 45 additional Version 3.0+ completions during the first half of 2018.
Two of the Version 3.0 wells that were placed on production during the
fourth quarter were in the
Pioneer placed its first Wolfcamp D well with a Version 3.0 completion
on production in
Pioneer’s 2018 drilling program includes appraising: (i) its first
Clearfork horizontal well (located in
For the fourth quarter of 2017, Pioneer placed 64 horizontal wells on production. Forty-three wells were in the northern area and 21 wells were in the southern Wolfcamp joint venture area. For the full year, 224 wells were placed on production, of which 184 were in the northern area and 40 wells were in the southern Wolfcamp joint venture area.
The Company plans to operate 20 horizontal drilling rigs in the
The budgeted costs to drill and complete these wells in 2018 are:
Wolfcamp B –
Production costs (including production and ad valorem taxes) for
The drilling program in the
Permian Basin Infrastructure
Pioneer is focused on optimizing the development of the
Forecasted spending for the construction of tank batteries, saltwater
disposal facilities and below-grade cellars reflects a combination of
building new facilities and expanding existing facilities. The Company
expects to spend approximately
Pioneer owns a 27% interest in Targa Resources’
The Company is constructing a field-wide water distribution system to
reduce the cost of water for drilling and completion activities and to
ensure that adequate supplies of non-potable water are available for use
in the development of Pioneer’s acreage. The 2018 capital program
Pioneer has signed a contract for its initial offtake of sand sourced in
2018 Capital Program
The Company’s capital budget for 2018 is
The following provides a breakdown of the drilling and completions capital budget by asset:
Capital spending for 2018 is expected to be funded from forecasted
operating cash flow of
Fourth Quarter 2017 Financial Review
Sales volumes for the fourth quarter of 2017 averaged 305 MBOEPD. Oil sales averaged 180 thousand barrels per day (MBPD), NGL sales averaged 62 MBPD and gas sales averaged 377 MMCFPD.
The average realized price for oil was
Production costs, including taxes, averaged
First Quarter 2018 Financial Outlook
The Company’s first quarter 2018 outlook for certain operating and financial items is provided below.
Total production is forecasted to average between 304 MBOEPD to 314
Production costs are expected to average
General and administrative expense is expected to be
The Company’s effective income tax rate is expected to range from 21% to
25%, reflecting the enactment of the Tax Cuts and Jobs Act that lowered
the corporate federal income tax rate. Current income taxes are expected
to be less than
The Company’s financial and derivative MTM results and open derivatives positions are outlined on the attached schedules.
Earnings Conference Call
A replay of the webcast will be archived on Pioneer’s website. This
replay will be available through
Pioneer is a large independent oil and gas exploration and production
company, headquartered in
Footnote 1: Return on Capital Employed is a non-GAAP financial measure. See definitions below.
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, 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
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
“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 2017, (ii) transfers from proved undeveloped reserves at year-end 2016 and (iii) technical revisions of previous estimates for proved developed reserves during 2017. Revisions of previous estimates exclude price revisions.
“Free Cash Flow (FCF)” occurs when net cash provided by operations (before working capital changes) exceeds Capital Expenditures.
“Return on Capital Employed (ROCE)” is net income adjusted for tax-effected interest expense, net noncash MTM derivative gains and losses and other unusual itemsdivided by the summation of average equity plus average net debt.
“Cash Flow Breakeven Oil Price” is the NYMEX WTI price at which net cash flow provided by operations (before working capital changes) equals Capital Expenditures.
“Capital Expenditures” equals the Company’s planned capital budget for any year excluding acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and IT system upgrades.
Pioneer may repurchase shares from time to time at management’s discretion in accordance with applicable securities laws, including through open market transactions, privately negotiated transactions or any combination thereof.In addition, shares may also be purchased pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws.The amount and timing of repurchases are subject to a number of factors, including stock price, trading volume and general market conditions, and the program may be modified, suspended or terminated at any time by Pioneer’s Board of Directors.The Company intends to fund repurchases under the program from existing cash flow, proceeds from asset divestitures or cash and cash equivalents.
This news release also contains a forward-looking non-GAAP financial measure, return on capital employed.Due to its forward-looking nature, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measure, such as future noncash property impairments, gains or losses on future divestitures and future noncash MTM derivative gains and losses.Accordingly, Pioneer is unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measure to its most directly comparable forward-looking GAAP financial measure.Amounts excluded from this non-GAAP measure in future periods could be significant.
Cautionary Note to U.S. Investors --The
UNAUDITED SUPPLEMENTARY EARNINGS PER SHARE INFORMATION
The Company uses the two-class method of calculating basic and diluted earnings per share. Under the two-class method of calculating earnings per share, generally acceptable accounting principles ("GAAP") provide that share-based awards with guaranteed dividend or distribution participation rights qualify as "participating securities" during their vesting periods. During periods in which the Company realizes net income attributable to common stockholders, the Company's basic net income per share attributable to common stockholders is computed as (i) net income attributable to common stockholders, (ii) less participating share-based basic earnings (iii) divided by weighted average basic shares outstanding and the Company's diluted net income per share attributable to common stockholders is computed as (i) basic net income attributable to common stockholders, (ii) plus the reallocation of participating earnings, if any, (iii) divided by weighted average diluted shares outstanding. During periods in which the Company realizes a loss attributable to common stockholders, securities or other contracts to issue common stock would be dilutive to loss per share; therefore, conversion into common stock is assumed not to occur.
The following table is a reconciliation of the Company's net income
(loss) attributable to common stockholders to basic and diluted net
income (loss) attributable to common stockholders for the three and
twelve months ended
Basic and diluted weighted average common shares outstanding were 170
million for both the three and twelve months ended
UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
EBITDAX and discretionary cash flow ("DCF") (as defined below) are presented herein, and reconciled to the GAAP measures of net income (loss) and net cash provided by operating activities, because of their wide acceptance by the investment community as financial indicators of a company's ability to internally fund exploration and development activities and to service or incur debt. The Company also views the non-GAAP measures of EBITDAX and DCF as useful tools for comparisons of the Company's financial indicators with those of peer companies that follow the full cost method of accounting. EBITDAX and DCF should not be considered as alternatives to net income (loss) or net cash provided by operating activities, as defined by GAAP.
UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (continued)
Income adjusted for noncash mark-to-market ("MTM") derivative losses,
and income adjusted for noncash MTM derivative losses and an unusual
item, as presented in this press release, is presented and reconciled to
Pioneer's net income attributable to common stockholders (determined in
accordance with GAAP) because Pioneer believes that these non-GAAP
financial measures reflect an additional way of viewing aspects of
Pioneer's business that, when viewed together with its financial results
computed in accordance with GAAP, provide a more complete understanding
of factors and trends affecting its historical financial performance and
future operating results, greater transparency of underlying trends and
greater comparability of results across periods. In addition, management
believes that these non-GAAP measures may enhance investors' ability to
assess Pioneer's historical and future financial performance. These
non-GAAP financial measures are not intended to be a substitute for the
comparable GAAP measure and should be read only in conjunction with
Pioneer's consolidated financial statements prepared in accordance with
GAAP. Noncash MTM derivative gains and losses and unusual items will
recur in future periods; however, the amount and frequency can vary
significantly from period to period. The table below reconciles
Pioneer's net income attributable to common stockholders for the three
Marketing derivatives. Periodically, the Company enters into buy and sell marketing arrangements to fulfill firm pipeline transportation commitments. Associated with these marketing arrangements, the Company may enter into index swap contracts to mitigate price risk.
The following table presents Pioneer's open marketing derivative positions as of February 5, 2018:
Pioneer Natural Resources
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