Pioneer Natural Resources Company has reported financial and operating results for the quarter ended March 31, 2020. Pioneer reported first quarter net income attributable to common stockholders of $289 million, or $1.74 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 first quarter was $190 million, or $1.15 per diluted share. Cash flow from operating activities for the first quarter was $825 million. 

Highlights 

• Delivered strong first quarter free cash flow(1) of $100 million 
• Averaged first quarter oil production of 223 thousand barrels of oil per day (MBOPD), in the upper half of guidance 
• Averaged first quarter production of 375 thousand barrels of oil equivalent per day (MBOEPD), at the top end of guidance 
• Capital expenditures(2) of $620 million during the first quarter, significantly underspending planned capital budget  
• Further reducing 2020 capital budget by additional $300 million from March update; total reduction(3) of approximately 55% when compared to original 2020 budget 
• Decreasing production costs by $60 million to $70 million in 2020 
• Reducing corporate overhead related costs by $80 million to $90 million in 2020 
• CEO, Officers and Board of Directors electing voluntary compensation reductions, including a greater than 70% reduction for CEO in total cash compensation 

President and CEO Scott D. Sheffield stated, 
"Through these challenging times, Pioneer's primary focus will continue to be the health and safety of our employees and the communities within which we operate. Despite the macroeconomic headwinds during the first quarter, the team executed at a very high level, generating $100 million of free cash flow1. 

“Drilling and completions efficiencies continued to improve, exceeding full-year 2020 targets in the first three months of the year, resulting in well cost reductions and greater capital efficiency than expected. This led to materially underspending our first quarter capital budget and underpins our revised full-year program that maintains similar production to 2019 levels while achieving a 55% reduction3 to our original capital budget. 

“Pioneer entered this difficult environment with one of the strongest balance sheets in the sector and it is our plan to emerge from this downturn in a similar position. As evidenced by our additional capital reduction and other cost reduction initiatives, our business plan remains flexible and responsive to economic conditions. I am confident that our strong balance sheet, world-class assets and dedicated employees are competitive advantages that will continue to differentiate Pioneer.” 

Financial Highlights 

Pioneer maintains a strong balance sheet, with unrestricted cash on hand at the end of the first quarter of $784 million and net debt of $1.9 billion. The Company had $2.4 billion of liquidity as of March 31, 2020, comprised of $784 million of unrestricted cash, $700 million available on its unsecured credit facility and a $905 million 364-day credit facility. 

During the first quarter, the Company’s drilling, completion and facilities capital expenditures totaled $591 million. The Company’s total capital expenditures(2), including water infrastructure, totaled $620 million. 

Cash flow from operating activities during the first quarter was $825 million, leading to free cash flow(1) of $100 million for the quarter. 

In December 2018, the Board of Directors authorized a $2 billion common stock repurchase program. During the first quarter, the Company repurchased $110 million of common stock under this program. To date, the Company has repurchased a total of 6.4 million shares for $859 million under this authorization. The Company evaluates many factors, including market conditions and corporate considerations, such as liquidity and capital needs, in assessing the Company’s ability to repurchase shares. 

Financial Results 

For the first quarter, the average realized price for oil was $45.60 per barrel. The average realized price for natural gas liquids (NGLs) was $14.52 per barrel, and the average realized price for gas was $1.61 per thousand cubic feet. These prices exclude the effects of derivatives. 

Production costs, including taxes, averaged $7.31 per barrel of oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $12.71 per BOE. Exploration and abandonment costs were $9 million. General and administrative (G&A) expense was $56 million. Interest expense was $27 million. Other expense was $85 million, or $8 million excluding unusual items(4). 

Operations Update 

Pioneer continued to see strong efficiency gains during the first quarter, enabling the Company to place 85 horizontal wells on production. Drilling operations averaged greater than 1,100 feet per day and completions showed a similar trend, delivering greater than 1,750 completed feet per day, both surpassing full-year 2020 expectations within the first quarter. These accelerated efficiency gains, coupled with service cost deflation, are reducing well costs and significantly improving capital efficiency. 

Additionally, the Company remains focused on lowering operating costs and expects a reduction of $60 million to $70 million in 2020 to be achieved through efficiency gains, reduced workover activity levels and service cost improvements. In addition, the Company is proactively curtailing lower-margin, higher-cost vertical well production in the current commodity price environment, further benefiting operating costs. The Company currently has approximately 7 MBOPD of net production curtailed. Any additional voluntary curtailments will generally be an economically driven decision evaluated on a well-by-well basis. Based on past experience, the Company does not expect any well performance issues when the curtailed wells are returned to production. 

The Company continues to transport oil, NGLs and gas from the Permian Basin to demand centers. Prior to current market dislocations, firm transportation (FT) provided the Company incremental cash flow of $741 million during 2018 and 2019. FT contracts provide access to higher priced markets, which has improved cash margins. To minimize risk and provide greater diversity of sales, the Company maintains five different FT contracts that move oil on pipelines to three different destinations along the Gulf Coast, including Corpus Christi, Houston and Nederland. The Company has sold all of its April and May volumes and is in the process of selling its June volumes. These FT contracts are supplemented with firm contracts for oil storage and dock space, enabling Pioneer to export oil or sell oil into the domestic refinery market. 

Full-Year 2020 Update 

The Company expects its revised 2020 drilling, completions and facilities capital budget to range between $1.3 billion to $1.5 billion, with an additional $100 million budgeted for Pioneer's differentiated water infrastructure, resulting in a revised total 2020 capital budget2 range of $1.4 billion to $1.6 billion. This represents a reduction of approximately 55% when compared to the Company's original 2020 capital budget. 

During the second quarter through the fourth quarter of 2020, the Company plans to operate an average of five to eight horizontal rigs in the Midland Basin, including averaging one horizontal rig in the southern joint venture area. Additionally, Pioneer plans to operate an average of two to three frac fleets during the same time period. Pioneer will continue to evaluate drilling and completion activity on an economic basis, with future activity levels assessed monthly. 

The Company continues to monitor the fluid macroeconomic environment and remains flexible and responsive to changing market conditions to preserve its strong balance sheet. Pioneer expects revised 2020 oil production to average 198 to 208 MBOPD and total production of 341 to 359 MBOEPD, which includes current voluntary curtailments of approximately 7 MBOPD. The Company’s production outlook does not include the potential for any additional curtailments. Due to the unprecedented volatility and uncertainty in commodity markets, the Company's quarterly production guidance is suspended. 

Pioneer continues to maintain substantial oil derivative coverage in order to protect the balance sheet, providing the Company with operational and financial flexibility throughout this period. 

Second Quarter 2020 Guidance 

Production costs are expected to average $6.50 per BOE to $8.00 per BOE. DD&A expense is expected to average $12.50 per BOE to $14.50 per BOE. Total exploration and abandonment expense is forecasted to be $5 million to $15 million. G&A expense is expected to be $52 million to $62 million. Interest expense is expected to be $25 million to $30 million. Other expense is forecasted to be $20 million to $30 million, including terminated and stacked drilling rig fees, idle frac fleet fees and other fees associated with reduced activity levels. 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 $10 million to $40 million, based on forward oil price estimates for the quarter. The Company’s effective income tax rate is expected to range from 21% to 25%. Current income taxes are expected to be nominal. 

1 Free cash flow is a non-GAAP measure, see reconciliation to comparable GAAP number in supplemental schedules. 
2 Excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and corporate facilities. 
3 Reflects midpoints of capital guidance ranges. 
4 Unusual items include the following: (i) $69 million increase in the estimate of deficiency fee obligations associated with the 2019 sale of the Company's Eagle Ford and South Texas assets and (ii) $8 million of terminated drilling rig charges.

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