PIONEER NATURAL RESOURCES COMPANY DoublePoint Acquisition and Parsley Acquisition
The Company regularly seeks to acquire or trade acreage that complements its operations, provides exploration and development opportunities, increases the lateral length of future horizontal wells and provides superior returns on investment. InMay 2021 , the Company acquired Double Eagle III Midco 1 LLC (the "DoublePoint Acquisition") in exchange for 27 million shares of Pioneer common stock and$1.0 billion of cash. The Pioneer stock consideration transferred had a fair value of$4.2 billion .
In
Delaware Divestiture and Glasscock Divestiture
The Company regularly reviews its asset base to identify nonstrategic assets, the disposition of which would increase capital resources available for other activities, create organizational and operational efficiencies and further the Company's objective of maintaining a strong balance sheet to ensure financial flexibility. InDecember 2021 , the Company completed the sale of its assets in theDelaware Basin (the "Delaware Divestiture") to Continental Resources, Inc. ("Continental") for cash proceeds of$3.1 billion , after normal closing adjustments. The Company'sDelaware Basin assets were acquired as part of the Parsley Acquisition. InOctober 2021 , the Company completed the sale of 20,000 net acres in westernGlasscock County to Laredo Petroleum, Inc. ("Laredo") in exchange for$137 million in cash and 960 thousand shares of Laredo's common stock representing total consideration transferred of$206 million , after normal closing adjustments.
Financial and Operating Performance
The Company's financial and operating performance for the three months ended
•Net income attributable to common stockholders for the three months endedMarch 31, 2022 was$2.0 billion ($7.85 per diluted share), as compared to a net loss of$70 million ($0.33 per diluted share) for the same period in 2021. The primary components of the$2.1 billion increase in earnings attributable to common stockholders include: •a$2.1 billion increase in oil and gas revenues, primarily due to (i) a 60 percent increase in average realized commodity prices per BOE as a result of higher commodity prices in 2022 due to the continued recovery in oil and gas demand, low worldwide inventory levels,OPEC supplies being below agreed quotas and the expected impact to global oil and gas supplies resulting from sanctions againstRussia related to their unprovoked invasion ofUkraine and (ii) a 35 percent increase in daily sales volumes due to additional production from the Company's successful horizontal drilling program in theMidland Basin combined with the incremental production added from the assets acquired in the DoublePoint Acquisition inMay 2021 , partially offset by the reduced production associated with the assets divested as part of the Delaware Divestiture inDecember 2021 ;
•a
•a$227 million decrease in other expense, primarily due to$197 million of transaction costs related to the Parsley Acquisition and$80 million of costs related to covering firm gas commitments due to Winter Storm Uri during the three months endedMarch 31, 2021 , partially offset by$47 million in losses on early extinguishment of the Company's 0.750% Senior Notes due 2024 and the 4.450% Senior Notes due 2026 for the three months endedMarch 31, 2022 ;
•an
•a$66 million increase in net interest and other income, primarily due to noncash gains attributable to the increases in the fair value of (i) the Company's investment in affiliate of$96 million during the three months endedMarch 31, 2022 as compared to a noncash gain of$54 million for the same period in 2021 and (ii) the Company's short-term investment of$18 million during the three months endedMarch 31, 2022 ; 28 --------------------------------------------------------------------------------PIONEER NATURAL RESOURCES COMPANY
partially offset by:
•a
•a$275 million increase in production costs, including taxes, primarily attributable to (i) increased costs attributable to the Company's successful horizontal drilling program in theMidland Basin and production added from the DoublePoint Acquisition and (ii) an increase in production taxes and ad valorem taxes as a result of the increase in commodity prices, partially offset by a decrease in costs attributable to the Delaware Divestiture; and
•a
•During the three months endedMarch 31, 2022 , average daily sales volumes increased on a BOE basis by 35 percent to 637,756 BOEPD, as compared to 473,937 BOEPD during the same period in 2021, primarily due to the Company's successful horizontal drilling program and the incremental production added from the assets acquired in the DoublePoint Acquisition, partially offset by the reduced production associated with the assets divested as part of the Company'sDelaware Divestiture. •Average oil and NGL prices per Bbl and average gas prices per Mcf increased to$94.60 ,$41.37 and$4.81 , respectively, during the three months endedMarch 31, 2022 , as compared to$56.71 ,$25.90 and$3.04 , respectively, for the same period in 2021. •Cash provided by operating activities increased during the three months endedMarch 31, 2022 to$2.6 billion , as compared to$377 million for the same period in 2021. The increase in net cash flow provided by operating activities during the three months endedMarch 31, 2022 , as compared to the same period in 2021, is primarily due to (i) the aforementioned increase in oil and gas revenues as a result of higher commodity prices and sales volumes and (ii) a decrease in cash used in derivative activities, partially offset by an increase in production costs, including taxes.
•As of
Oil and Gas Industry Considerations
The COVID-19 pandemic resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil throughout the world, and created significant volatility, uncertainty and turmoil in the oil and gas industry. The decrease in demand for oil, combined with excess supply of oil and related products, resulted in oil prices declining significantly beginning in lateFebruary 2020 . Since mid-2020, oil prices have improved, with demand steadily increasing despite the uncertainties surrounding the COVID-19 variants that have continued to inhibit a full global demand recovery. In addition, worldwide oil inventories are, from a historical perspective, very low and supply increases fromOPEC and other oil producing nations are not expected to be sufficient to meet forecasted oil demand growth in 2022 and 2023, with manyOPEC countries not able to produce at theirOPEC agreed upon quota levels due to their lack of capital investments over the past few years in developing incremental oil supplies. Furthermore, sanctions and import bans onRussia have been implemented by various countries in response to the war inUkraine , further impacting global oil supply. As a result of global supply and demand imbalances, oil and natural gas prices have increased significantly, with average NYMEX oil and NYMEX gas prices for the three months endedMarch 31, 2022 being$94.29 per Bbl and$4.95 per Mcf, respectively, as compared to$57.84 per Bbl and$2.71 per Mcf for the same period in 2021. In addition, in response to continued supply chain disruptions attributable to the pandemic and theRussia /Ukraine conflict, cost inflation is occurring. Specifically, the Company's 2022 capital program is primarily being impacted by inflation in steel, diesel and chemical prices. Global oil price levels and inflationary pressures will ultimately depend on various factors that are beyond the Company's control, such as (i) the effectiveness of responses to combat the COVID-19 virus and their impact on domestic and worldwide demand, (ii) the ability ofOPEC and other oil producing nations to manage the global oil supply, (iii) the impact of sanctions and import bans on production fromRussia , (iv) the timing and supply impact of any Iranian sanction relief onIran's ability to export oil, (v) additional actions by businesses and governments in response to the pandemic, (vi) the global supply chain constraints associated with manufacturing delays, (vii) oilfield service demand and cost inflation, and (viii) political stability of oil consuming countries. The Company continues to assess and monitor the impact of these factors and consequences on the Company and its operations. 29 --------------------------------------------------------------------------------PIONEER NATURAL RESOURCES COMPANY
Second Quarter 2022 Outlook
Based on current estimates, the Company expects the following operating and financial results for the second quarter of 2022:
Three Months Ending June 30, 2022
Guidance
($ in millions, except per BOE
amounts)
Average daily production (MBOE) (a) 623 - 648
Average daily oil production (MBbls) (a) 342 - 357
Production costs per BOE $11.00 - $12.50
DD&A per BOE $10.50 - $12.00
Exploration and abandonments expense $10 - $20
General and administrative expense $70 - $80
Accretion of discount on asset retirement obligations $2 - $5
Interest expense $32 - $37
Other expense $20 - $40
Cash flow impact from firm transportation (b) $(55) - $(25)
Current income tax provision (c) $120 - $140
Effective tax rate 22% - 27%
_____________________
(a)During the first quarter of 2022, the Company's contracted sand supply was
disrupted by a third-party sand mine outage, impacting forecasted second quarter
production. The sand mine outage was fully restored in late March 2022 . The
Company has temporarily added a frac fleet during the second quarter of 2022 to
mitigate the impact to the Company's full-year production forecast.
(b)The cash flow impact from firm transportation is primarily based on the
forecasted differential between WTI oil prices and Brent oil prices less the
costs to transport purchased oil from the areas of the Company's production to
the Gulf Coast . To the extent that the Company's Gulf Coast sales of purchased
oil does not cover the purchase price and associated firm transport costs, the
Company's results of operations will reflect the negative cash flow impact
attributable to the shortfall.
(c)Reflects estimated state and federal cash taxes that will be paid during the
second quarter based on full-year 2022 forecasted taxable earnings.
Operations and Drilling Highlights
Average daily oil, NGL and gas sales volumes are as follows:
Three Months Ended March 31, 2022
Oil (Bbls) 355,270
NGL (Bbls) 152,929
Gas (Mcf) 777,343
Total (BOE) 637,756
The Company's liquids production was 80 percent of total production, on a BOE
basis, for the three months ended
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PIONEER NATURAL RESOURCES COMPANY Costs incurred are as follows:
Three Months Ended March 31, 2022
( in millions)
Proved property acquisition costs $ 3
Unproved property acquisitions (a) (19)
Exploration/extension costs 730
Development costs 109
Asset retirement obligations 2
$ 825
_____________________
(a)Includes DoublePoint Acquisition measurement period adjustments that resulted
in a
Development and exploration/extension drilling activity is as follows:
Three Months Ended March 31, 2022
Development Exploration/Extension
Beginning wells in progress 26 270
Wells spud 3 121
Successful wells (22) (122)
Ending wells in progress 7 269
As of
During the three months endedMarch 31, 2022 , the Company successfully completed 106 horizontal wells and 6 vertical wells in the northern portion of theMidland Basin and 32 horizontal wells in the southern portion of theMidland Basin . In the northern portion of theMidland Basin , 30 percent of the horizontal wells placed on production were Wolfcamp B interval wells, 23 percent were Wolfcamp A interval wells and the remaining 47 percent were Spraberry interval wells. In the southern portion of theMidland Basin , all of the wells placed on production were Wolfcamp A and B interval wells.
Results of Operations
Oil and gas revenues. The Company's revenues are derived from sales of oil, NGL
and gas production. Increases or decreases in the Company's revenues,
profitability and future production are highly dependent on commodity prices.
Prices are market driven and future prices will fluctuate due to supply and
demand factors, availability of transportation, seasonality, geopolitical
developments and economic factors, among other items.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Oil and gas revenues $ 3,930 $ 1,824 $ 2,106 Average daily sales volumes are as follows:
Three Months Ended March 31,
2022 2021 % Change
Oil (Bbls) 355,270 281,017 26 %
NGLs (Bbls) 152,929 105,675 45 %
Gas (Mcf) 777,343 523,467 48 %
Total (BOE) 637,756 473,937 35 %
Average daily sales volumes per BOE increased for the three months ended
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PIONEER NATURAL RESOURCES COMPANY production added from the assets acquired in the DoublePoint Acquisition, partially offset by the reduced production associated with the assets divested as part of the Company's Delaware Divestiture.
The oil, NGL and gas prices reported by the Company are based on the market prices received for each commodity. Commodity prices for the three months endedMarch 31, 2022 , as compared to the same period in 2021, increased due to the continued recovery in oil, NGL and gas demand, low worldwide inventory levels,OPEC supplies being below agreed quotas and the expected impact to global oil and gas supplies resulting from sanctions againstRussia related to their unprovoked invasion ofUkraine . The average prices are as follows: Three Months Ended March 31, 2022 2021 % Change Oil per Bbl$ 94.60 $ 56.71 67 % NGLs per Bbl$ 41.37 $ 25.90 60 % Gas per Mcf$ 4.81 $ 3.04 58 % Total per BOE$ 68.48 $ 42.75 60 % Net sales of purchased commodities. The Company enters into pipeline capacity commitments in order to secure available oil, NGLs and gas transportation capacity from the Company's areas of production and secure diesel supply from theGulf Coast to the Company's operations in theMidland Basin . The Company enters into purchase transactions with third parties and separate sale transactions with third parties to diversify a portion of the Company's oil and gas sales to (i)Gulf Coast refineries, (ii)Gulf Coast andWest Coast gas markets and (iii) international oil markets, and to satisfy unused gas pipeline capacity commitments. Revenues and expenses from these transactions are generally presented on a gross basis in sales of purchased commodities and purchased commodities expense in the accompanying consolidated statements of operations as the Company acts as a principal in the transaction by assuming both the risks and rewards of ownership, including credit risk, of the commodities purchased and the responsibility to deliver the commodities sold. In conjunction with the Company's downstream sales, the Company also enters into pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from the Company's areas of production to downstream sales points. The transportation costs associated with these transactions are included in purchased commodities expense. The net effect of third party purchases and sales of commodities is as follows: Three Months Ended March 31, 2022 2021 Change (in millions) Sales of purchased commodities$ 2,217 $ 1,240 $ 977 Purchased commodities 2,152 1,255 897$ 65 $ (15) $ 80 The increase in net sales of purchased commodities for the three months endedMarch 31, 2022 , as compared to the same period in 2021 is attributable to oil that was purchased and in transit via pipeline to theGulf Coast or inGulf Coast storage at the end ofDecember 2021 ,January 2022 andFebruary 2022 . This oil inventory is sold in the following month at contracted prices that are generally tied to monthly average index oil prices (typically Brent oil prices). As a result of increasing oil prices during the three months endedMarch 31, 2022 , the oil inventory in transit or stored at the end ofDecember 2021 ,January 2022 andFebruary 2022 was sold inJanuary 2022 ,February 2022 andMarch 2022 , respectively, at higher prices. Firm transportation payments on excess pipeline capacity are included in other expense in the accompanying consolidated statements of operations. See Note 14 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. 32 -------------------------------------------------------------------------------- PIONEER NATURAL RESOURCES COMPANY
Interest and other income, net.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Interest and other income, net $
126
The increase in interest and other income for the three months endedMarch 31, 2022 , as compared to the same period in 2021, is primarily due to noncash gains attributable to the increases in the fair value of (i) the Company's investment in affiliate of$96 million during the three months endedMarch 31, 2022 as compared to a noncash gain of$54 million for the same period in 2021 and (ii) the Company's short-term investment of$18 million during the three months endedMarch 31, 2022 .
See Note 13 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Derivative loss, net.
Three Months Ended
March 31,
2022 2021 Change
(in millions)
Commodity price derivatives:
Noncash derivative loss, net $ (111) $ (350) $ 239
Cash payments on settled derivatives, net (57) (314) 257
Total commodity derivative loss, net (168) (664) 496
Marketing derivatives:
Noncash derivative gain (loss), net 44 (20) 64
Cash payments on settled derivatives, net (11) (7) (4)
Total marketing derivative gain (loss), net 33 (27) 60
Derivative loss, net $ (135) $ (691) $ 556 The Company primarily utilizes derivative contracts to reduce the effect of
price volatility on the commodities the Company produces and sells or consumes.
The Company uses marketing derivatives to diversify its oil pricing to
Commodity price derivatives and the relative price impact are as follows:
Three Months Ended March 31,
2022 2021
Net Cash Net Cash
Payments Price Impact Payments Price Impact
(in millions) (in millions)
Oil derivative payments, net (a) $ (1) $ (0.04) per Bbl $ (293) $ (11.58) per Bbl
Gas derivative payments, net (56) $ (0.79) per Mcf (8) $ (0.16) per Mcf
$ (57) $ (301)
_____________________
(a)Excludes cash payments of $78 million during the three months ended March 31,
2022 related to entering into equal and offsetting oil and gas commodity
derivative trades in the fourth quarter of 2021, that had the net effect of
eliminating certain of the Company's 2022 derivative obligations. Excludes the
effect from early settlement of certain of the Company's commodity derivative
contracts, which resulted in cash payments of $13 million for the three months
ended ended March 31, 2021 .
The Company's open derivative contracts are subject to continuing market risk. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" and
Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
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PIONEER NATURAL RESOURCES COMPANY Gain on disposition of assets, net.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Gain on disposition of assets, net The increase in net gain on disposition of assets for the three months endedMarch 31, 2022 , as compared to the same period in 2021, was primarily due to the divestment of certain undeveloped acres and producing wells in theMidland Basin for cash proceeds of$85 million , resulting in a gain on the sales of$41 million , as compared to a$9 million gain on the sale of the Company's well services business during for the three months endedMarch 31, 2021 .
See Note 3 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Oil and gas production costs.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Oil and gas production costs $ 416 $ 252 $ 164
The increase in oil and gas production costs for the three months ended
March 31, 2022 , as compared to the same period in 2021, was primarily due to (i)
increased costs related to production increases from the Company's successful
horizontal drilling program in the Midland Basin and production added from the
assets acquired in the DoublePoint Acquisition, partially offset by the reduced
production associated with assets divested as part of the Delaware Divestiture,
(ii) increased gas and NGL prices during the three months ended March 31, 2022
that resulted in increased gas processing costs for those contractual volumes
retained by the processor as payment for their services, (iii) increased labor,
maintenance and fuel costs and (iv) increased workover activity as a result of
improved commodity prices being realized in 2022, which increased the economic
benefit of repairing certain of the Company's oil and gas wells.
Total production costs per BOE are as follows:
Three Months Ended
March 31,
2022 2021 % Change
Lease operating expense (a) $ 3.46 $ 3.47 - %
Gathering, processing and transportation expense (b) 3.85 3.05 26 %
Workover costs (a) 0.79 0.43 84 %
Net natural gas plant income (c) (0.86) (1.05) (18 %)
$ 7.24 $ 5.90 23 %
_____________________
(a)Lease operating expense and workover costs represent the components of oil
and gas production costs over which the Company has management control.
(b)Gathering, processing and transportation expense represents the costs to (i)
gather, process, transport and fractionate the Company's gas and NGLs to a point
of sale and, to a lesser extent, (ii) gather and transport certain of the
Company's oil production to a point of sale.
(c)Net natural gas plant income represents the earnings from the Company's
ownership share of gas processing facilities that gather and process the
Company's and third party gas.
The change in the Company's production costs per BOE for the three months ended
•Gathering, processing and transportation expense per BOE increased for the three months endedMarch 31, 2022 , as compared to the same period in 2021, primarily due to (i) increased gas and NGL prices during the three months endedMarch 31, 2022 that resulted in increased gas processing costs for those contractual volumes retained by the processor as payment for their services and (ii) the assumption of the DoublePoint Acquisition contracts that had higher gathering, processing and transportation costs on a per BOE basis; 34 --------------------------------------------------------------------------------PIONEER NATURAL RESOURCES COMPANY •Workover costs per BOE increased for the three months endedMarch 31, 2022 , as compared to the same period in 2021, due to an increase in workover activity as a result of improved commodity prices being realized in 2022, which increased the economic benefit of repairing certain of the Company's oil and gas wells; and •Net natural gas plant income per BOE decreased for the three months endedMarch 31, 2022 , as compared to the same period in 2021, primarily due to the loss of net natural gas plant income associated with the Company'sMartin County Gas Processing Divestiture, partially offset by improved gas and NGL prices.
Production and ad valorem taxes.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Production and ad valorem taxes
In general, production taxes and ad valorem taxes are directly related to
commodity price changes; however,
Production and ad valorem taxes per BOE are as follows:
Three Months Ended March 31,
2022 2021 % Change
Production taxes per BOE $ 3.25 $ 1.98 64 %
Ad valorem taxes per BOE 0.65 0.66 (2 %)
$ 3.90 $ 2.64 48 %
Production taxes per BOE increased for the three months ended
Depletion, depreciation and amortization expense.
Three Months Ended
March 31,
2022 2021 Change
(in millions)
Depletion, depreciation and amortization Total DD&A expense per BOE is as follows:
Three Months Ended March 31,
2022 2021 % Change
DD&A per BOE $ 10.69 $ 11.11 (4 %)
Depletion expense per BOE $ 10.48
The decrease in DD&A per BOE for the three months ended
Exploration and abandonments expense.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Geological and geophysical $ 9 $ 16 $ (7)
Leasehold abandonments and other 5 3 2
$ 14 $ 19 $ (5) The decrease in geological and geophysical costs for the three months ended
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PIONEER NATURAL RESOURCES COMPANY
The increase in leasehold abandonments costs for the three months ended
During the three months ended
See Note 6 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
General and administrative expense.
Three Months Ended
March 31,
2022 2021 Change
(in millions)
Noncash general and administrative expense $ 7 $ 12 $ (5)
Cash general and administrative expense 66 56 10
$ 73 $ 68 $ 5
The change in noncash general and administrative expense for the three months
ended March 31, 2022 , as compared to the same period in 2021, was primarily due
to market fluctuations in the Company's deferred compensation obligation as a
result of mark-to-market valuation changes attributable to the Company's
deferred compensation plan assets.
The change in cash general and administrative expense for the three months ended
March 31, 2022 , as compared to the same period in 2021, was primarily due to
incremental general and administrative costs associated with an increase in
headcount due to the Parsley Acquisition and DoublePoint Acquisition.
Total general and administrative expense per BOE is as follows:
Three Months Ended
March 31,
2022 2021 % Change
Noncash general and administrative expense $ 0.12 $ 0.28 (57 %)
Cash general and administrative expense 1.16 1.32 (12 %)
$ 1.28 $ 1.60 (20 %)
The decrease in general and administrative expense per BOE for the three months
ended March 31, 2022 , as compared to the same period in 2021, reflects the
general and administrative synergies achieved from the Parsley Acquisition and
the DoublePoint Acquisition. The Company added significant sales volumes from
the acquisitions with limited associated incremental general and administrative
costs being added.
See Note 3 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Interest expense.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Noncash interest expense $ 3 $ 1 $ 2
Cash interest expense 34 38 (4)
$ 37 $ 39 $ (2)
The decrease in cash interest expense is primarily due to the early
extinguishment of the Company's 0.750% Senior Notes due 2024 and the 4.450%
Senior Notes due 2026, having aggregate principal amounts of $750 million and
$500 million , respectively, partially offset by the issuance in May 2021 of $750
million of 0.550% Senior Notes due 2023.
The weighted average cash interest rate on the Company's indebtedness for the
three months ended March 31, 2022 decreased to 1.8 percent, as compared to 2.0
percent for the same period in 2021.
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PIONEER NATURAL RESOURCES COMPANYSee Note 7 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Other expense.
Three Months Ended March 31,
2022 2021 Change
(in millions)
Other expense $ 77 $ 304 $ (227)
The decrease in other expense for the three months ended March 31, 2022 , as
compared to the same period in 2021, is primarily related to $197 million of
transaction costs related to the Parsley Acquisition and $80 million of costs
related to covering firm gas commitments due to Winter Storm Uri during the
three months ended March 31, 2021 , partially offset by $47 million in losses on
early extinguishment of the Company's 0.750% Senior Notes due 2024 and the
4.450% Senior Notes due 2026 for the three months ended March 31, 2022 .
See Note 14 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Income tax benefit (provision).
Three Months Ended March 31,
2022 2021 Change
(in millions)
Income tax benefit (provision) $ (552) $ 11 $ (563)
Effective tax rate 22 % 14 % 8 %
The increase in income tax provision for the three months ended March 31, 2022 ,
as compared to the same period in 2021, is primarily due to an increase of $2.6
billion in income before income taxes. The Company evaluates and updates its
annual effective income tax rate on an interim basis based on current and
forecasted earnings and tax laws. The mix and timing of the Company's actual
earnings compared to annual projections can cause interim effective tax rate
fluctuations. The Company's interim effective tax rate for the three months
ended March 31, 2022 differed from the U.S. statutory rate of 21 percent
primarily due to forecasted state income taxes.
Based on the Company's forecasted earnings, the Company currently expects that
its available tax attributes will not be sufficient to offset taxable U.S.
federal income in 2022. As a result, the Company expects to start paying U.S.
federal cash taxes in 2022. Forecasted cash taxes are expected to paid from
operating cash flows and cash on hand.
See Note 15 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Liquidity and Capital Resources
Liquidity. The Company's primary sources of short-term liquidity are (i) cash
and cash equivalents, (ii) net cash provided by operating activities, (iii)
sales of investments, (iv) unused borrowing capacity under its Credit Facility,
(v) issuances of debt or equity securities and (vi) other sources, such as sales
of nonstrategic assets.
The Company's short-term and long-term liquidity requirements consist primarily
of (i) capital expenditures, (ii) acquisitions of oil and gas properties, (iii)
payments of contractual obligations, including debt maturities, (iv) dividends
and share repurchases, (v) income taxes and (vi) working capital obligations.
Funding for these requirements may be provided by any combination of the
Company's sources of liquidity. Although the Company expects that its sources of
funding will be adequate to fund its 2022 liquidity requirements, no assurance
can be given that such funding sources will be adequate to meet the Company's
future needs.
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PIONEER NATURAL RESOURCES COMPANY
2022 capital budget. Including the effects from the aforementioned temporary
additional frac fleet during the second quarter of 2022 and the Company's
current inflation estimates, the Company's capital budget for 2022 is expected
to remain in the range of $3.3 billion to $3.6 billion , consisting of drilling
and completion related activities, including additional tank batteries and
saltwater disposal facilities, and $85 million for water infrastructure and
vehicles. The 2022 capital budget excludes acquisitions, asset retirement
obligations, capitalized interest, geological and geophysical general and
administrative expense and corporate facilities.
The 2022 capital budget is expected to be funded from operating cash flow, and,
if necessary, from cash and cash equivalents on hand or borrowings under the
Company's Credit Facility.
Capital resources. As of March 31, 2022 , the Company had no outstanding
borrowings under its Credit Facility, leaving $2.0 billion of unused borrowing
capacity. The Company was in compliance with all of its debt covenants as of
March 31, 2022 . The Company also had unrestricted cash on hand of $2.4 billion
as of March 31, 2022 .
Sources and uses of cash during the three months ended
Three Months Ended March 31,
2022 2021 Change
(in millions)
Net cash provided by operating activities $ 2,584 $ 377 $ 2,207
Net cash used in investing activities $ (1,313) $ (348) $ 965
Net cash used in financing activities $ (2,761) Operating activities. The increase in net cash flow provided by operating activities for the three months endedMarch 31, 2022 , as compared to the same period in 2021, is primarily due to (i) an increase in oil and gas revenues as a result of higher commodity prices and sales volumes attributable to the Company's successful Spraberry/Wolfcamp horizontal drilling program and the incremental production added from the assets acquired in the DoublePoint Acquisition and (ii) a decrease in cash used in derivative activities, partially offset by an increase in production costs, including taxes, and a reduction in cash flow associated with the assets divested as part of theDelaware Divestiture. Investing activities. The increase in net cash flow used in investing activities for the three months endedMarch 31, 2022 , as compared to the same period in 2021, was primarily due to (i) the Company's purchase of commercial paper for$640 million , net of$2 million of discounts, and (ii) an increase in additions to oil and gas properties of$453 million , partially offset by (i) an increase in proceeds from the disposition of assets of$187 million and proceeds from the sale of the Company's short-term investment in Laredo common stock for$75 million and (ii)$117 million of cash acquired in the Parsley Acquisition during the three months endedMarch 31, 2021 .
Financing activities. The Company's significant financing activities are as follows:
•2022: The Company (i) redeemed$1.3 billion of its outstanding 0.750% Senior Notes due 2024 and 4.450% Senior Notes due 2026, having aggregate principal amounts of$750 million and$500 million , respectively, (ii) paid dividends of$1.1 billion , (iii) paid$121 million of other liabilities and (iv) repurchased$276 million of its common stock. •2021: The Company (i) received proceeds from theJanuary 2021 Senior Notes Offering, net of$24 million of issuance costs and discounts, of$2.5 billion , (ii) repaid$140 million associated with the maturity of its 3.450% Senior Notes due inJanuary 2021 , (iii) used the proceeds from aJanuary 2021 senior notes offering to pay$1.6 billion to redeem Parsley's 5.250% Senior Notes due 2025, Parsley's 5.375% Senior Notes due 2025 and Jagged Peak's 5.875% Senior Notes due 2026, (iv) paid$852 million to purchase a portion of Parsley's 5.625% Senior Notes due 2027 and Parsley's 4.125% Senior Notes due 2028 pursuant to a cash tender offer, (v) repaid Parsley's credit facility, which had an outstanding balance of$397 million , (vi) paid$140 million of other liabilities and (vii) paid dividends of$91 million . Dividends/distributions. During the the three months endedMarch 31, 2022 , the Company's board of directors authorized the payment of base dividends of$341 million , or$0.78 per common share, compared to$91 million , or$0.55 per common share, during the three months endedMarch 31, 2021 . In addition to its base dividend program, the Company has a variable dividend strategy whereby the Company pays a quarterly variable dividend of up to 75 percent of the prior quarter's free cash flow remaining after the base dividend. 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 38 --------------------------------------------------------------------------------PIONEER NATURAL RESOURCES COMPANY activities, adjusted for changes in operating assets and liabilities, less capital expenditures. The Company believes this non-GAAP measure is a financial indicator of the Company's ability to internally fund acquisitions, debt maturities, dividends and share repurchases after capital expenditures. Capital expenditures exclude acquisitions, asset retirement obligations, capitalized interest, geological and geophysical general and administrative expenses, information technology capital investments and additions to corporate facilities. During the three months endedMarch 31, 2022 , the Company declared and paid variable dividends of$731 million , or$3.00 per common share. OnMay 4, 2022 , the board of directors of the Company declared a quarterly base dividend of$0.78 per share and a quarterly variable dividend of$6.60 per share for shareholders of record onMay 31, 2022 , with a payment date ofJune 14, 2022 . Future base and variable dividends are at the discretion of the Company's board of directors, and, if declared, the board of directors may change the dividend amount based on the Company's outlook for commodity prices, liquidity, debt levels, capital resources, free cash flow or other factors. The Company can provide no assurance that dividends will be authorized or declared in the future or as to the amount of any future dividends. Any future variable dividends, if declared and paid, will fluctuate based on the Company's free cash flow, which will depend on a number of factors beyond the Company's control, including commodity prices. Off-balance sheet arrangements. From time to time, the Company enters into arrangements and transactions that can give rise to material off-balance sheet obligations of the Company. As ofMarch 31, 2022 , the material off-balance sheet arrangements and transactions that the Company had entered into included (i) firm purchase, transportation, storage and fractionation commitments, (ii) open purchase commitments and (iii) contractual obligations for which the ultimate settlement amounts are not fixed and determinable. The contractual obligations for which the ultimate settlement amounts are not fixed and determinable include (a) derivative contracts that are sensitive to future changes in commodity prices or interest rates, (b) gathering, processing and transportation commitments on uncertain volumes of future throughput and (c) indemnification obligations following certain divestitures. In connection with its divestiture transactions, the Company may retain certain liabilities and provide the purchaser certain indemnifications, subject to defined limitations, which may apply to identified pre-closing matters, including matters of litigation, environmental contingencies, royalty and income taxes. Also associated with its divestiture transactions, the Company has issued and received guarantees to facilitate the transfer of contractual obligations, such as firm transportation agreements or gathering and processing arrangements. The Company does not recognize a liability if the fair value of the obligation is immaterial or the likelihood of making payments under these guarantees is remote. Other than the off-balance sheet arrangements described above, the Company has no transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the Company's liquidity or availability of or requirements for capital resources. The Company expects to enter into similar contractual arrangements in the future and additional firm purchase, transportation, storage and fractionation arrangements, in order to support the Company's business plans. See Note 10 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. Convertible senior notes. InMay 2020 , the Company issued$1.3 billion principal amount of convertible senior notes due 2025. The Convertible Notes bear a fixed interest rate of 0.250% per year, with interest payable onMay 15 andNovember 15 of each year. The Convertible Notes will mature onMay 15, 2025 , unless earlier redeemed, repurchased or converted. The Convertible Notes are unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company. The Convertible Notes are convertible into shares of the Company's common stock at an adjusted conversion rate of 9.5009 shares of the Company's common stock per$1,000 principal amount of the Convertible Notes (subject to further adjustment pursuant to the terms of the notes indenture), which represents an adjusted conversion price of$105.25 per share (subject to further adjustment pursuant to the terms of the notes indenture) as ofMarch 31, 2022 . As a result of the quarterly base and variable dividends declared throughMarch 31, 2022 , the Conversion Rate increased from the initial rate of 9.1098 shares of the Company's common stock per$1,000 principal amount of the Convertible Notes and the Conversion Price decreased from$109.77 . Future declarations of quarterly base dividends in excess of$0.55 per common share and declarations of future variable dividends, as previously described, will cause further adjustments to the Conversion Rate and the Conversion Price pursuant to the terms of the notes indenture. Upon conversion, the Convertible Notes may be settled in cash, shares of the Company's common stock or a combination thereof, at the Company's election. 39 --------------------------------------------------------------------------------PIONEER NATURAL RESOURCES COMPANY
Holders of the Convertible Notes may convert their notes at their option prior
to
•during the quarter following any quarter during which the last reported sales price of the Company's common stock for at least 20 of the last 30 consecutive trading days of such quarter exceeds 130 percent of the Conversion Price; •during the five-day period following any five consecutive trading day period when the trading price of the Convertible Notes is less than 98 percent of the price of the Company's common stock times the Conversion Rate; •upon notice of redemption by the Company; or •upon the occurrence of specified corporate events, including certain consolidations or mergers. On or afterFebruary 15, 2025 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time. The Company may not redeem the Convertible Notes prior toMay 20, 2023 , and after such date, may redeem the Convertible Notes only if the last reported sale price of the Company's common stock has been at least 130 percent of the Conversion Price for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides the notice of redemption. The redemption price is equal to 100 percent of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest. During the last 30 consecutive trading days of the first quarter of 2022, the last reported sales prices of the Company's common stock exceeded 130 percent of the Conversion Price for at least 20 trading days, causing the Convertible Notes to become convertible at the option of the holders during the three month period endingJune 30, 2022 . The Company reserves its right under the notes indenture to elect to settle the Convertible Notes in cash, shares of the Company's common stock or a combination of cash and common stock. See Note 7 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. Contractual obligations. The Company's contractual obligations include long-term debt, leases (primarily related to contracted drilling rigs, equipment and office facilities), capital funding obligations, derivative obligations, firm transportation, storage and fractionation commitments, minimum annual gathering, processing and transportation commitments and other liabilities (including retained obligations associated with divestitures and postretirement benefit obligations). Other joint owners in the properties operated by the Company could incur portions of the costs represented by these commitments. Firm commitments. The Company has short-term and long-term firm purchase, gathering, processing, transportation, fractionation and storage commitments representing take-or-pay agreements, which include contractual commitments (i) to purchase sand, water and diesel for use in the Company's drilling and completion operations, (ii) with midstream service companies and pipeline carriers for future gathering, processing, transportation, fractionation and storage and (iii) with oilfield services companies that provide drilling and pressure pumping services. The Company does not expect to be able to fulfill all of its short-term and long-term firm transportation volume obligations from projected production of available reserves; consequently, the Company plans to purchase third party volumes to satisfy its firm transportation commitments if it is economic to do so; otherwise, it will pay demand fees for any commitment shortfalls. The Company also has open purchase commitments for inventories, materials and other property and equipment ordered, but not received, as of March 31, 2022. See Note 10 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. Derivative obligations. The Company's commodity and marketing derivative contracts are periodically measured and recorded at fair value and continue to be subject to market and credit risk. As ofMarch 31, 2022 , these contracts represented net liabilities of$552 million , which includes$250 million of obligations related to entering into equal and offsetting oil and gas commodity derivative trades during the fourth quarter of 2021 that had the net effect of eliminating future market risk related to certain of its 2022 derivatives. The ultimate liquidation value of the Company's commodity price derivatives will be dependent upon actual future commodity prices, which may differ materially from the inputs used to determine the derivatives' fair values as ofMarch 31, 2022 . See Note 4 and Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" and "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for additional information. 40 -------------------------------------------------------------------------------- PIONEER NATURAL RESOURCES COMPANY
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