Pioneer Natural Resources Reports Fourth Quarter and Full Year 2021 Financial and Operating Results; Provides 2022 Outlook

Pioneer Natural Resources Company (NYSE:PXD) ("Pioneer" or "the Company") today reported financial and operating results for the quarter and year ended December 31, 2021. Pioneer reported fourth quarter net income attributable to common stockholders of $763 million, or $2.97 per diluted share. These results include the effects of noncash mark-to-market adjustments and certain other unusual items. Excluding these items, non-GAAP adjusted income for the fourth quarter was $1.2 billion, or $4.58 per diluted share. Cash flow from operating activities for the fourth quarter was $2.2 billion. For the full year 2021, the Company reported net income attributable to common stockholders of $2.1 billion, or $8.61 per diluted share. Cash flow from operating activities for the full year 2021 was $6.1 billion.

Highlights

• Delivered strong fourth quarter and full year 2021 free cash flow¹ of $1.1 billion and $3.2 billion, respectively

• Repurchased $250 million of stock (1.4 million shares) during the fourth quarter of 2021; increased share repurchase program with a new $4 billion authorization, replacing the prior authorization

• Returned 101% of free cash flow¹ to shareholders during the fourth quarter

• Declared quarterly base-plus-variable dividend of $3.78 per share (to be paid in March 2022), reflecting a greater than 25% increase to the base component

• Achieved a corporate return on capital employed² of 17% during 2021

CEO Scott D. Sheffield stated, “Pioneer delivered a strong quarter with production in the upper half of guidance, contributing to our record annual free cash flow¹ generation of $3.2 billion in 2021. This significant free cash flow supported the return of $1.9 billion in 2021 to shareholders through our base-plus-variable dividend program and opportunistic share repurchases.

Our deep Midland Basin inventory of high-return well locations, coupled with best-in-class margins and operating efficiencies, provides attractive corporate returns that generate durable cash distributions through commodity price cycles. The Company’s high-return asset base and low-cost structure, combined with our leading environmental, social and governance practices, continue to drive significant value for Pioneer shareholders.”

Financial Highlights

Pioneer maintains a strong balance sheet, with unrestricted cash on hand at the end of the fourth quarter of $3.8 billion and net debt of $3.1 billion. The Company had $5.8 billion of liquidity as of December 31, 2021, comprised of $3.8 billion of unrestricted cash and a $2.0 billion unsecured credit facility (undrawn as of December 31, 2021).

During the fourth quarter, the Company’s drilling, completion and facilities capital expenditures totaled $914 million, with total capital expenditures³, including water infrastructure, totaling $941 million. For the full year 2021, the Company's drilling, completion, and facilities capital expenditures totaled $3.3 billion, with total capital expenditures³, including water infrastructure, totaling $3.4 billion.

Cash flow from operating activities during the fourth quarter and full year 2021 was $2.2 billion and $6.1 billion, respectively, leading to free cash flow¹ of $1.1 billion for the fourth quarter and $3.2 billion for the full year.

For the first quarter of 2022, the Board of Directors has declared a quarterly base-plus-variable dividend of $3.78 per share, comprised of a $0.78 base dividend and $3.00 variable dividend. This represents a greater than 25% increase to the base dividend and a total base-plus-variable dividend⁴ annualized yield of approximately 7% (based on the Company's closing stock price as of February 8, 2022).

In addition to a strong dividend payout, the Company continues to evaluate opportunistic share repurchases. During the fourth quarter of 2021, the Company repurchased $250 million of common stock at an average share price of $181. The Company's Board of Directors also authorized a new $4 billion common stock repurchase program. This new authorization replaces the existing $2 billion common stock repurchase program that had $841 million remaining under the program at the time of the new authorization. Pioneer believes this peer-leading return of capital strategy, which combines a strong base dividend, a substantial variable dividend and opportunistic share repurchases, creates significant value for shareholders.

Financial Results

For the fourth quarter of 2021, the average realized price for oil was $76.38 per barrel. The average realized price for natural gas liquids (NGLs) was $38.45 per barrel, and the average realized price for gas was $5.20 per thousand cubic feet. These prices exclude the effects of derivatives.

Production costs, including taxes, averaged $9.23 per barrel of oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $10.64 per BOE. Exploration and abandonment costs were $12 million. General and administrative (G&A) expense was $76 million. Interest expense was $40 million. The net cash flow impact related to purchases and sales of oil and gas, including firm transportation, was a loss of $55 million. Other expense was $26 million, or $21 million excluding unusual items⁵.

Operations Update

Pioneer continued to deliver strong operational efficiency gains that enabled the Company to place 534 horizontal wells on production for the full year of 2021. Pioneer's large, contiguous acreage position in the high-margin, high-return Midland Basin provides many opportunities that drive a capitally efficient program. These include an increase in the development of 15,000 foot laterals, of which the Company expects to place approximately 50 of these wells on production in 2022. Additionally, Pioneer has invested in significant water infrastructure, constructing one of the largest water supply and distribution systems in the Midland Basin. This water infrastructure helps Pioneer to efficiently execute its large drilling program, while minimizing the use of freshwater by using non-potable reclaimed water from the cities of Midland and Odessa, and recycled produced water from Pioneer’s production operations.

Pioneer continues to utilize two simulfrac completion crews, driving completion efficiencies. The Company is evaluating the addition of a third simulfrac crew in the latter part of 2022.

Pioneer remains focused on minimizing emissions throughout the Company’s operations, further strengthening the Company’s sustainable practices and environmental stewardship.

2022 Outlook

The Company expects its 2022 total capital budget³ to range between $3.3 to $3.6 billion. Pioneer expects its capital program to be fully funded from forecasted 2022 cash flow⁶ of greater than $10.5 billion.

During 2022, the Company plans to operate an average of 22 to 24 horizontal drilling rigs in the Midland Basin, including a three-rig average program in the southern Midland Basin joint venture area. The 2022 capital program is expected to place 475 to 505 wells on production. Pioneer expects 2022 oil production of 350 to 365 thousand barrels of oil per day (MBOPD) and total production of 623 to 648 thousand barrels of oil equivalent per day (MBOEPD).

First Quarter 2022 Guidance

First quarter 2022 oil production is forecasted to average between 348 to 363 MBOPD and total production is expected to average between 620 to 645 MBOEPD. Production costs are expected to average $9.25 per BOE to $10.75 per BOE. DD&A expense is expected to average $10.50 per BOE to $12.00 per BOE. Total exploration and abandonment expense is forecasted to be $10 million to $20 million. G&A expense is expected to be $68 million to $78 million. Interest expense is expected to be $36 million to $41 million. Other expense is forecasted to be $15 million to $30 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $5 million. The cash flow impact related to purchases and sales of oil and gas, including firm transportation, is expected to be a loss of $25 million to $55 million, based on forward oil price estimates for the quarter. The Company’s effective income tax rate is expected to be between 22% to 27%, with cash taxes expected to be $10 million to $20 million, principally representing estimated state taxes.

Proved Reserves

The Company added proved reserves totaling 371 million barrels of oil equivalent (MMBOE) during 2021, excluding acquisitions and price revisions. These proved reserve additions equate to a drillbit reserve replacement ratio of 163% when compared to Pioneer's full-year 2021 production of 228 MMBOE, including field fuel. The drillbit finding and development (F&D) cost was $9.15 per BOE in 2021, with a drillbit proved developed F&D costs of $7.97 per BOE.

As of December 31, 2021, the Company's total proved reserves were estimated at 2,222 MMBOE, of which 88% are proved developed.

Environmental, Social & Governance (ESG)

Pioneer views sustainability as a multidisciplinary focus that balances economic growth, environmental stewardship and social responsibility. The Company emphasizes developing natural resources in a manner that protects surrounding communities and preserves the environment.

For more details, see Pioneer’s 2021 Sustainability Report and 2021 Climate Risk Report at pxd.com/sustainability.

Earnings Conference Call

On Thursday, February 17, 2022, at 9:00 a.m. Central Time, Pioneer will discuss its financial and operating results for the quarter and full year ended December 31, 2021, with an accompanying presentation. Instructions for listening to the call and viewing the accompanying presentation are shown below.

Internet: www.pxd.com

Select "Investors," then "Earnings & Webcasts" to listen to the discussion, view the presentation and see other related material.

Telephone: Dial (800) 289-0720 and enter confirmation code 2365669 five minutes before the call.

A replay of the webcast will be archived on Pioneer’s website. This replay will be available through March 18, 2022. 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; the impact of a widespread outbreak of an illness, such as the COVID-19 pandemic, on global and U.S. economic activity and oil and gas demand; competition; the ability to obtain drilling, environmental and other permits and the timing thereof; the effect of future regulatory or legislative actions on Pioneer or the industries in which it operates, including potential changes to tax laws; the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms; potential liability resulting from pending or future litigation; the costs and results of drilling and operating activities; the risk of new restrictions with respect to development activities, including potential changes to regulations resulting in limitations on the Company’s ability to dispose of produced water; 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, storage and export facilities; Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled; the Company's ability to achieve its emissions reductions, flaring and other ESG goals; 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, NGL and gas production and downstream sales of purchased oil and gas; uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying forecasts, including forecasts of production, operating cash flow, well costs, capital expenditures, rates of return, expenses, and cash flow from downstream purchases and sales of oil and gas, net of firm transportation commitments; ; tax rates; quality of technical data; environmental and weather risks, including the possible impacts of climate change on our operations and demand for our products; cybersecurity risks; the risks associated with the ownership and operation of the Company's water services business 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, 2020, Quarterly Reports on Form 10-Q filed thereafter and other filings with the United States Securities and Exchange Commission (SEC). In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect 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.

"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 2021, (ii) transfers from proved undeveloped reserves at year-end 2020 and (iii) technical revisions of previous estimates for proved developed reserves during 2021. Revisions of previous estimates exclude price revisions.

Footnote 1: Free cash flow is a non-GAAP financial measure. As used by the Company, free cash flow is defined as net cash provided by operating activities, adjusted for changes in operating assets and liabilities, deferred obligations on the early settlement of commodity derivative contracts and cash acquisition transaction costs, less capital expenditures. See the supplemental schedules for a reconciliation of fourth quarter and full year 2021 free cash flow to the comparable GAAP number. Forecasted free cash flow numbers are non-GAAP financial measures. Due to their forward-looking nature, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as working capital changes. Accordingly, Pioneer is unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from this non-GAAP measure in future periods could be significant.

Footnote 2: Return on capital employed (ROCE) is a non-GAAP financial measure. As used by the Company, ROCE is net income adjusted for tax-effected noncash mark-to-market (MTM) adjustments, unusual items and interest expense divided by the summation of average total equity (adjusted for tax-effected noncash MTM adjustments, unusual items and interest expense) and average net debt. See reconciliation to comparable GAAP number in supplemental schedules.

Footnote 3: Excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A, information technology and corporate facilities.

Footnote 4: Future dividends, whether base or variable, are authorized and determined by the Company's Board of Directors in its sole discretion. Decisions regarding the payment of dividends are subject to a number of considerations at the time, including without limitation the Company's liquidity and capital resources, the Company's results of operations and anticipated future results of operations, the level of cash reserves the Company maintains to fund future capital expenditures or other needs, and other factors the Board of Directors deems relevant. The Company can provide no assurance that dividends will be authorized or declared in the future or the amount of any future dividends. Any future variable dividends, if declared and paid, will by their nature fluctuate based on the Company’s free cash flow, which will depend on a number of factors beyond the Company’s control, including commodities prices.

Footnote 5: Excludes unusual expenses of (i) one-time costs associated with the Company's fourth quarter divestitures and (ii) costs associated with the integration of the Parsley and DoublePoint acquisitions.

Footnote 6: Forecasted cash flow numbers are non-GAAP financial measures. The 2022 estimated cash flow number represents forecasted cash flow (before working capital changes) based on strip pricing and utilizing the midpoint of production guidance. Due to their forward-looking nature, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as working capital changes. Accordingly, Pioneer is unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from this non-GAAP measure in future periods could be significant.

Note: Estimates of future results, including cash flow and free cash flow, are based on the Company’s internal financial model prepared by management and used to assist in the management of its business. Pioneer’s financial models are not prepared with a view to public disclosure or compliance with GAAP, any guidelines of the SEC or any other body. The financial models reflect numerous assumptions, in addition to those noted in this news release, with respect to general business, economic, market and financial conditions and other matters. These assumptions regarding future events are difficult, if not impossible to predict, and many are beyond Pioneer’s control. Accordingly, there can be no assurance that the assumptions made by management in preparing the financial models will prove accurate. It is expected that there will be differences between actual and estimated or modeled results, and actual results may be materially greater or less than those contained in the Company’s financial models.

The Company has also entered into derivative contracts for 3,000 Bbls per day of Brent basis swaps for January 2024 through December 2024 production. The basis swap contracts fix the basis differential between the WTI index price at which the Company sells a portion of its Midland Basin oil and the Brent index price at a weighted average of $4.33.

Marketing derivatives. The Company's marketing derivatives reflect two long-term marketing contracts that were entered in October 2019. Under the contract terms, beginning on January 1, 2021, the Company agreed to purchase and simultaneously sell 50 thousand barrels of oil per day at an oil terminal in Midland, Texas for a six-year term that ends on December 31, 2026. The price the Company pays to purchase the oil volumes under the purchase contract is based on a Midland WTI price and the price the Company receives for the oil volumes sold is a weighted average sales price that a non-affiliated counterparty receives for selling oil through a Gulf Coast storage and export facility at prices that are highly correlated with Brent oil prices during the same month of the purchase.

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