Pioneer Natural Resources(PXD) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the three and six months ended June 30, 2023, and 2022, including balance sheets, statements of operations, equity, and cash flows, highlighting a net income of $1.1 billion for Q2 2023 and total assets of $35.5 billion Consolidated Financial Statements The company's consolidated financial statements show a significant decrease in profitability for Q2 and H1 2023 due to lower commodity prices, with Q2 2023 net income at $1.1 billion and total assets at $35.5 billion Key Financial Highlights (Q2 2023 vs. Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Oil and Gas Revenue | $2,977 million | $4,639 million | | Net Income | $1,102 million | $2,371 million | | Diluted EPS | $4.55 | $9.30 | Balance Sheet Summary (as of June 30, 2023) | Account | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $91 | | Total current assets | $2,342 | | Total assets | $35,494 | | Total current liabilities | $3,199 | | Long-term debt | $5,010 | | Total equity | $22,000 | Cash Flow Summary (Six Months Ended June 30) | Cash Flow Item | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,027 | $5,799 | | Net cash used in investing activities | $(2,466) | $(2,065) | | Net cash used in financing activities | $(2,502) | $(5,033) | Notes to Consolidated Financial Statements The notes detail significant accounting policies and transactions, including $1.1 billion in new senior notes, convertible note settlements, a new $4 billion stock repurchase program, and $8.92 per share in H1 2023 dividends - In March 2023, the Company issued $1.1 billion of 5.100% senior notes due 2026, with proceeds partially used to repay $750 million of 0.550% senior notes that matured in May 2023[85] - During the first six months of 2023, the company made cash payments of $388 million to settle exercised conversion options on its Convertible Notes and received $58 million from related Capped Call proceeds[94] - In April 2023, the Board authorized a new $4 billion common stock repurchase program, with the company repurchasing 601 thousand shares for $124 million during Q2 2023[130][131] Dividends Declared per Share (H1 2023 vs H1 2022) | Period | 2023 | 2022 | | :--- | :--- | :--- | | First Quarter | $5.58 | $3.78 | | Second Quarter | $3.34 | $7.38 | | Total H1 | $8.92 | $11.16 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the significant impact of volatile commodity prices on financial results, with Q2 2023 net income falling to $1.1 billion due to a 42% decrease in realized prices despite an 11% production volume increase, alongside revised capital budgets and strong liquidity Financial and Operating Performance Q2 2023 performance was defined by lower commodity prices, leading to a 54% decrease in net income to $1.1 billion despite an 11% increase in average daily sales volumes to 710,678 BOEPD, while continuing capital returns Q2 2023 vs. Q2 2022 Performance Summary | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Income | $1.1 billion | $2.4 billion | | Avg. Daily Sales Volumes (BOEPD) | 710,678 | 642,844 | | Avg. Realized Price per BOE | $46.03 | $79.31 | | Net Cash from Operating Activities | $1.7 billion | $3.2 billion | - The primary driver for the decrease in earnings was a $1.7 billion decline in oil and gas revenues due to a 42% drop in average realized commodity prices[137] Outlook and Drilling Highlights Pioneer expects Q3 2023 production between 705-725 MBOEPD, operating 22 drilling rigs and six frac fleets, and revised its full-year 2023 development capital budget downward to $4.375 billion to $4.575 billion due to efficiencies Q3 2023 Guidance | Metric | Guidance | | :--- | :--- | | Average daily production (MBOE) | 705 - 725 | | Average daily oil production (MBbls) | 367 - 377 | | Production costs per BOE | $10.50 - $12.00 | | DD&A per BOE | $10.50 - $12.00 | - The 2023 capital budget for development was revised down from $4.45 billion-$4.75 billion to $4.375 billion-$4.575 billion due to improved well performance and pricing[191] - In the first six months of 2023, the company successfully completed 252 horizontal wells, primarily in the Spraberry and Wolfcamp intervals[141][142] Results of Operations Analysis This section details the drivers of financial results, highlighting a 42% YoY decrease in realized price per BOE as the main factor for lower revenues, alongside an 8% fall in production costs per BOE to $7.53 and stable DD&A Average Realized Prices (Q2 2023 vs. Q2 2022) | Commodity | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Oil price per Bbl | $72.90 | $110.56 | (34%) | | NGL price per Bbl | $22.43 | $44.21 | (49%) | | Gas price per Mcf | $1.81 | $6.72 | (73%) | Production Costs per BOE (Q2 2023 vs. Q2 2022) | Cost Component | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Lease operating expense | $4.04 | $3.71 | +9% | | Gathering, processing & transport | $2.97 | $4.53 | (34%) | | Total Production Costs | $7.53 | $8.18 | (8%) | Liquidity and Capital Resources The company maintains strong liquidity with $91 million in cash and $1.8 billion available under its credit facility, with H1 2023 operating cash flow at $4.0 billion, and a modified variable dividend framework returning 75% of prior quarter's free cash flow - As of June 30, 2023, the company had $91 million in cash and $1.8 billion of unused borrowing capacity under its Credit Facility[193] Sources and Uses of Cash (Six Months Ended June 30, 2023) | Item | Amount (in millions) | | :--- | :--- | | Net cash provided by operating activities | $4,027 | | Additions to oil and gas properties | $(2,420) | | Dividends paid | $(2,100) | | Purchases of treasury stock | $(646) | | Proceeds from issuance of debt, net | $1,689 | | Repayment of debt | $(1,488) | - The variable dividend strategy was modified in April 2023 to return 75% of the prior quarter's free cash flow, inclusive of the base dividend and share repurchases[198] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is commodity price volatility, mitigated through financial flexibility and marketing derivatives, with a 10% change in Midland WTI-Brent differential impacting derivatives by $50 million, and exposure to interest rate risk on $240 million of variable-rate debt - The company's primary market risk exposure is from the price of oil, NGL, and gas, mitigated through a strong balance sheet, derivative instruments, and sales of purchased commodities[216] - The company uses long-term marketing derivatives to diversify oil pricing to Gulf Coast and international markets, where a 10% change in the differential between Midland WTI and Brent prices would impact the fair value of these derivatives by approximately $50 million[220][222] - The company is exposed to interest rate risk on its $240 million of variable-rate debt under the Credit Facility, where a 100 basis point change in rates would impact annual interest expense by about $2 million[226] Controls and Procedures Management, including the CEO and CFO, deemed the company's disclosure controls and procedures effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the principal executive officer and principal financial officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[231] - No changes occurred during Q2 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[232] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings, notably receiving an EPA Notice of Violation on May 18, 2023, alleging Clean Air Act violations, with potential penalties exceeding $300,000, though not expected to have a material adverse impact - On May 18, 2023, the Company received a Notice of Violation from the EPA alleging violations of the Clean Air Act at certain locations[235] - The company does not believe the resolution of the EPA matter will have a material adverse impact, but notes that penalties may exceed $300,000[237] Risk Factors This section confirms no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There has been no material change in the Company's risk factors from those described in the 2022 Annual Report on Form 10-K[238] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's Q2 2023 common stock repurchases, totaling 601,846 shares, with 600,742 under the publicly announced program, and a new $4 billion stock repurchase program authorized in April 2023 Q2 2023 Share Repurchases | Period | Total Shares Purchased | Shares Purchased Under Program | | :--- | :--- | :--- | | April 1-30, 2023 | 906 | — | | May 1-31, 2023 | 478,297 | 478,232 | | June 1-30, 2023 | 122,643 | 122,510 | | Total Q2 | 601,846 | 600,742 | - In April 2023, the Board authorized a new $4 billion common stock repurchase program, which has no time limit[241] Other Information The company states that no directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2023 - No directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2023[242] Exhibits This section lists all exhibits filed with the Form 10-Q, including the Second Amendment to the Credit Agreement, CEO and CFO certifications under Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL data files - Filed exhibits include the Second Amendment to the Credit Agreement, CEO/CFO certifications under Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL documents[245]