Pioneer Natural Resources' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Pioneer Natural Resources (PXD)

Q4 2011 Earnings Call

February 07, 2012 10:00 am ET


Frank E. Hopkins - Vice President of Investor Relations

Scott D. Sheffield - Chairman and Chief Executive Officer

Timothy L. Dove - President and Chief Operating Officer

Richard P. Dealy - Chief Financial Officer and Executive Vice President


Brian M. Corales - Howard Weil Incorporated, Research Division

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Gil Yang - BofA Merrill Lynch, Research Division

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

David W. Kistler - Simmons & Company International, Research Division

Amir Arif - Stifel, Nicolaus & Co., Inc., Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Daniel J. Morrison - Global Hunter Securities, LLC, Research Division

John P. Herrlin - Societe Generale Cross Asset Research

Richard M. Tullis - Capital One Southcoast, Inc., Research Division



Welcome, ladies and gentlemen to Pioneer Natural Resources' Fourth Quarter Conference Call. Joining us today will be Scott Sheffield, Chairman and Chief Executive Officer; Tim Dove, President and Chief Operating Officer; Rich Dealy, Executive Vice President and Chief Financial Officer; and Frank Hopkins, Senior Vice President of Investor Relations.

Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at Again, the Internet site to access the slides related to today's call is At the website, select Investors then select Investor Presentations. Today's call is being recorded and a replay of the call will be archived on the Internet site through February 28.

The company's comments today will include forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements and the business prospects of Pioneer are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties are described in Pioneer's news release, on Page 2 of the slide presentation and in Pioneer's public filings with the Securities and Exchange Commission.

At this time, for opening remarks, I would like to turn the call over to Pioneer's Senior Vice President of Investor Relations, Mr. Frank Hopkins. Please go ahead, sir.

Frank E. Hopkins

Thank you. Good day, everyone, and thank you for joining us. Let me briefly review the agenda for today's call. Scott will be the first speaker. He'll provide the financial and operating highlights for the fourth quarter of 2011, another strong quarter for Pioneer. He'll then update you on the company's reserve replacement performance in 2011, and that will be followed by a summary of our 2012 capital program. After Scott concludes his remarks, Tim will discuss our drilling results and plans for the Wolfcamp Shale, the Spraberry field, the Eagle Ford Shale and the Barnett Shale Combo Play. Rich will then cover the fourth quarter financials in more detail and provide earnings guidance for the first quarter. After that, we will open up the call for your questions.

So with that, I'll turn the call over to Scott.

Scott D. Sheffield

Thanks, Frank. Good morning.

We're on the highlights on Page #3. We had another great quarter in the fourth quarter of '11 with adjusted income $147 million or $1.19 per share as compared to a consensus of $1.03. This does exclude some mark-to-market derivative losses of $22 million and also some unusual items of $1.94, $236 million.

Fourth quarter production, we were at the high end of 140,000 barrels of oil equivalent per day. We are moving South Africa into discontinued operations. That would put us at 137,000 barrels of oil equivalent per day. We have a process that's underway and should be completed by the first half of 2012. That will be the divestment of our only remaining international asset.

Again, production was up 12,000 barrels of oil equivalent per day, up 9% versus the third quarter. Also, 19% quarter-to-quarter on oil growth primarily related to the growth in the Spraberry, Eagle Ford Shale and the Barnett Shale Combo. For the year, we averaged at 124,000 barrels of oil equivalent per day. This includes our discontinued ops in South Africa. We're up 14% versus year end -- for the full year of 2010. If we exclude discontinued ops, we're up 16%.

What's more important, and Tim will talk more about it in detail, we drilled our second successful horizontal Wolfcamp Shale well, performing exactly like the first well. Both wells are above expectations. This will probably end up being one of the largest oil shale plays in the U.S. We are the largest acreage holder in that play with well over 400,000 acres.

We're continuing our successful deeper drilling to the Strawn, Atoka and Mississippian, with about half our wells going into these areas or more in 2012. Continuing to add additional frac capacity totaling 70,000 horsepower in both Spraberry and Eagle Ford in the fourth quarter. Again, delivered great drillbit finding cost, drillbit reserve placement, 313% reserve replacement, 148 million barrels of oil equivalent and a drillbit finding cost of $13.83 per barrel of oil equivalent. Also a big achievement: reaching investment grade by S&P and also moving our debt-to-book down to 26% at year-end 2011.

Going to Slide #4. We are increasing our annual production growth of 23% to 27% from '11 to '12 as compared to the 22%. It does exclude South Africa. The primary reason for the growth increase, again, is the horizontal Wolfcamp play and the ramp-up there.

We continue to high-grade our liquids-rich drilling to optimize returns in response to low gas prices. We'll talk more about it with the activity, but obviously focusing on higher capital efficiency in liquids-rich drilling in the Spraberry, horizontal Wolfcamp Shale and Eagle Ford Shale primarily.

We are reducing our rig count expectations. We're keeping it at 12 rigs during 2012. We're moving back our planned goal of 14 rigs in 2013 in the Eagle Ford, maintaining Barnett Shale at 2 rigs and we'll be moving to 4 rigs toward the end of the year, going into 2013.

Targeting 20% compounded annual growth rate, which is an increase from 18% previously, and also expect to achieve a 25% compounded annual operating cash flow growth rate for 2012 to '14. We'll be adding more frac capacity than we have planned during 2011 of 70,000 in the Spraberry for a total of 300,000 horsepower and that's primarily due to the ramp-up of the horizontal Wolfcamp play. With the recent runoff several weeks ago of WTI, we've added some more oil derivative positions from the years 2012 to 2014. Primarily, the 3 ways that we have been doing in the past.

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