Item 2.02 Results of Operations and Financial Condition
Explanatory note:Pioneer Natural Resources Company and its subsidiaries ("Pioneer" or the "Company") presents in this Item 2.02 certain information for the three and twelve months endedDecember 31, 2022 regarding (i) the impact to results of operations related to changes in the fair value of derivative instruments and certain other information regarding its derivative instruments, (ii) the impact to results of operations from the change in fair value of the Company's investment in affiliate, (iii) the net effect of third party purchases and sales of oil, gas, diesel and sand on its results of operations, (iv) a fourth quarter and full year 2022 production update and (v) the weighted average basic and diluted shares outstanding.
Derivative Activity
The following table summarizes the net derivative results that the Company
expects to report in its earnings for the three and twelve months ended
Three Months Ended Twelve Months Ended December 31, 2022 December 31, 2022 (in millions) Noncash changes in fair value: Oil derivative gain, net $ 4 $ 1 Gas derivative gain, net 134 157 Marketing derivative loss, net (138) (63) Convertible debt conversion option derivative gain, net 1 1 Total noncash derivative gain, net 1 96 Cash payments on settled derivative instruments: Oil derivative payments (3) (8) Gas derivative payments, net (103) (350) Marketing derivative payments (19) (66)
Convertible debt conversion option derivative receipts (payments), net
(4) 13 Total cash payments on settled derivative instruments, net (129) (411) Total derivative loss, net $ (128) $ (315) Investment in Affiliate The Company owns 16.6 million shares of ProPetro Holding Corp. ("ProPetro"), which is measured on a recurring basis at fair value. The Company expects to report noncash gains of$38 million and$37 million on its investment in ProPetro for the three and twelve months endedDecember 31, 2022 , respectively.
Sales of
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 . The Company also enters into purchase commitments to secure sand supply for 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. The Company periodically sells diesel and sand to unaffiliated third parties in thePermian Basin if it has supply in excess of its operational needs. The Company expects the net earnings effect of third party purchases and sales of oil, gas, diesel and sand for the three and twelve months endedDecember 31, 2022 to result in losses of$76 million and$161 million , respectively.
Fourth Quarter and Full Year 2022 Production Update
DuringDecember 2022 , the Company's operations inWest Texas were impacted by Winter Storm Elliott, which led to abnormally cold temperatures across the state ofTexas . As a result, the Company experienced unexpected weather-related downtime that negatively impacted its fourth quarter 2022 production by approximately 4,500 barrels of oil per day and 8,500 barrels of oil equivalent per day. The Company expects to report fourth quarter 2022 average daily production of 351 thousand barrels of oil per day and 662 thousand barrels of oil equivalent per day. Excluding the impacts of Winter Storm Elliott, the Company would have expected production for the fourth quarter 2022 to average 355 thousand barrels of oil per day and 670 thousand barrels of oil equivalent per day. The Company successfully restored the affected production by the end of December -------------------------------------------------------------------------------- 2022. The Company expects to report full year 2022 average daily production of 352 thousand barrels of oil per day and 650 thousand barrels of oil equivalent per day.
Weighted Average Basic and Diluted Shares Outstanding
The components of basic and diluted weighted average shares outstanding for the
three and twelve months ended
Three Months Ended Twelve Months Ended December 31, 2022 December 31, 2022 (in millions) Basic weighted average shares outstanding 237 240 Convertible notes dilution (a) 10 12 Diluted weighted average shares outstanding 247 252 _____________________ (a)Diluted weighted average common shares outstanding includes the dilutive effect had the Company's convertible notes been converted as of the beginning of the three and twelve months endedDecember 31, 2022 , respectively. If converted by the holder, the Company may settle in cash, shares of the Company's common stock or a combination thereof, at the Company's election. --------------------------------------------------------------------------------
Item 7.01 Regulation FD Disclosure
Commodity derivatives. As ofJanuary 25, 2023 , the Company's outstanding commodity derivative contracts include 3,000 barrels of oil per day of Brent basis swaps forJanuary 2024 throughDecember 2024 . The basis swap contracts fix the basis differential between the West Texas Intermediate ("WTI") index price (the price at which the Company buysMidland Basin oil for transport to theGulf Coast ) and the Brent index price (the price at which a portion of theMidland Basin purchased oil is sold in theGulf Coast market) at a weighted average differential of$4.33 . Marketing derivatives. As ofJanuary 25, 2023 , the Company's outstanding marketing derivatives reflect long-term marketing contracts whereby the Company agreed to purchase and simultaneously sell barrels of oil at an oil terminal inMidland, Texas .
In
InApril 2022 , the Company agreed to purchase and simultaneously sell (i) 40 thousand barrels of oil per day beginningMay 1, 2022 and endingApril 30, 2027 and (ii) 30 thousand barrels of oil per day beginningAugust 1, 2022 and endingJuly 31, 2027 . The price the Company pays to purchase the oil volumes under the purchase contracts is based on a Midland WTI price and the price the Company receives for the oil volumes sold is a weighted average sales price that a non-affiliated counterparty receives for selling oil through aGulf Coast storage and export facility at prices that are highly correlated with Brent oil prices during the same month of the purchase. -------------------------------------------------------------------------------- Cautionary Statement Concerning Forward-Looking Statements Except for historical information contained herein, the statements in this Current Report on Form 8-K are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements and the business prospects of the Company are subject to a number of risks and uncertainties that may cause the Company's actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of commodity prices; product supply and demand; the impact of armed conflict (including the war inUkraine ) and political instability on economic activity and oil and gas supply and demand; competition; the ability to obtain drilling, environmental and other permits and the timing thereof; the effect of future regulatory or legislative actions on Pioneer or the industry in which it operates, including potential changes to tax laws; the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms; potential liability resulting from pending or future litigation; the costs, including the potential impact of increases due to inflation and supply chain disruptions, and results of drilling and operating activities; the impact of a widespread outbreak of an illness, such as the COVID-19 pandemic, on global andU.S. economic activity, oil and gas demand, and global andU.S. supply chains; the risk of new restrictions with respect to development activities, including potential changes to regulations resulting in limitations on the Company's ability to dispose of produced water; availability of equipment, services, resources and personnel required to perform the Company's drilling and operating activities; access to and availability of transportation, processing, fractionation, refining, storage and export facilities; Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled; the Company's ability to achieve its emissions reduction, flaring and other ESG goals; access to and cost of capital; the financial strength of counterparties to Pioneer's credit facility and derivative contracts, and purchasers of Pioneer's oil, NGL and gas production and downstream sales of purchased oil and gas; uncertainties about estimates of reserves; identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying forecasts, including forecasts of production, operating cash flow, well costs, capital expenditures, rates of return, expenses and cash flow from downstream purchases and sales of oil and gas, net of firm transportation commitments; tax rates; quality of technical data; environmental and weather risks, including the possible impacts of climate change on the Company's operations and demand for its products; cybersecurity risks; the risks associated with the ownership and operation of the Company's water services business and acts of war or terrorism. These and other risks are described in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 and other filings with theUnited States Securities and Exchange Commission . In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. The Company undertakes no duty to publicly update these statements except as required by law.
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