Pioneer Natural Resources Company (NYSE:PXD) ("Pioneer" or "the Company") today announced that it is taking decisive action in response to lower oil prices and global macroeconomic uncertainty.
Pioneer is reducing its 2020 drilling, completion and facilities capital budget by approximately 45% and expects it to range between $1.6 billion to $1.8 billion. Additionally, Pioneer is reducing its budgeted water infrastructure spending to approximately $100 million, resulting in a total 2020 capital budget1 range of $1.7 billion to $1.9 billion. The Company expects its revised capital program to be fully funded from forecasted cash flow2 of approximately $2.3 billion and generate free cash flow3 of approximately $500 million (at the midpoint of capital guidance), assuming WTI oil prices average $35 per barrel for the remainder of 2020. The free cash flow is forecasted to be used to fund the Company’s quarterly dividend and maintain its strong balance sheet. In this challenging environment, Pioneer believes its plan to preserve low leverage and generate free cash flow positions the Company to be stronger when the global economy rebounds.
As a result, Pioneer plans to take immediate action in response to current commodity prices and will reduce its operated rig count from 22 currently to 11 operated rigs within the next two months. In addition, the Company plans to reduce its contracted completion crews from six currently to two to three completion crews during the same time period. Pioneer expects full-year 2020 oil production to be similar to the Company’s 2019 Permian oil production average of approximately 211 thousand barrels of oil per day (MBOPD). Pioneer will release additional details during its first quarter 2020 earnings conference call.
In addition to the Company’s strong balance sheet, Pioneer recently enhanced its derivative position to provide additional downside protection. For the remainder of 2020, Pioneer has derivative coverage for approximately 90% of its revised 2020 oil production estimate. In addition, the Company has increased its derivative coverage for 2021 to include approximately 94 MBOPD. Details on Pioneer’s updated derivative position as of March 16, 2020 can be found in the table below.
President and CEO Scott D. Sheffield stated, “As they have in the past, global headwinds and macroeconomic factors are impacting commodity prices. After successfully managing through the previous five cycles, it is apparent to me companies that maintain strong balance sheets and low leverage during these difficult times will prosper when economies eventually rebound and commodity prices recover.
“As such, during this challenging environment, Pioneer will protect our pristine balance sheet and focus on free cash flow generation by cutting our capital budget by approximately forty-five percent. Our balance sheet is among the best in the energy sector and provides us ample financial flexibility to manage through a period of prolonged low oil prices. We are making these capital reductions based on a $30 to $35 WTI oil price outlook, but will continue to monitor the fluid macro environment and adjust our capital program as needed to preserve our strong financial position, while maintaining a focus on the health and safety of our employees.