Pioneer Natural Resources Company (PXD) CEO Scott Sheffield on Q4 2021 Results - Earnings Transcript Call

Pioneer Natural Resources Company (NYSE:PXD) Q4 2021 Earnings Conference Call February 17, 2022 10:00 AM ET

Company Participants

Neal Shah - SVP & CFO

Scott Sheffield - CEO

Rich Dealy - President & COO

Conference Call Participants

Neil Mehta - Goldman Sachs

Nitin Kumar - Wells Fargo Securities

John Freeman - Raymond James

Charles Meade - Johnson Rice

Derrick Whitfield - Stifel

Jeanine Wai - Barclays

Doug Leggate - Bank of America Merrill Lynch

Neal Dingmann - Truist Securities, Inc.

Paul Cheng - Scotiabank

Operator

Welcome to Pioneer Natural Resources Fourth Quarter Conference Call. Joining us today will be Scott Sheffield, Chief Executive Officer, Rich Dealy, President and Chief Operating Officer, and Neal Shah, Senior Vice President and Chief Financial Officer. Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at www. pxd.com.

Again, the Internet site to access the slides related to today's call is www. pxd.com. at the website, select Investors, then select Earnings and Webcasts. This call is being recorded. A replay of the call will be archived on the internet site through March 18 2022.

The Company's comments today will include forward-looking statements made pursuant to the Safe Harbor's 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 two of the slide presentation and in Pioneer’s public filings made 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 and Chief Financial Officer, Neal Shah. Please go ahead, sir.

Neal Shah

Thank you, Lauren. Good morning, everyone. And thank you for joining us for Pioneer's fourth quarter earnings call. Today, we will be discussing our strong fourth quarter results and our best-in-class return of capital program. In addition, we will discuss our 2022 outlook, which encompasses a low reinvestment rate, significant free cash flow generation and shareholder return all through our high margin Midland Basin asset. We will then open up the call for your questions.

With that. I'll turn it over to Scott.

Scott Sheffield

Good morning. Thank you, Neal. Good morning everyone. Starting on Slide number 3, Pioneer delivered a great fourth quarter closing out a strong year which we generated a record $3.2 billion of free cash flow and returned $1.9 billion back to the shareholders through dividends and share repurchases. With a material base dividend increase of greater than 25%, this quarter’s base plus variable dividend of $3.78 will be paid in March. This dividend payment represents approximately a 7% yield on annualized basis and an 8% yield would you include the additional $0.62 base dividend paid in the first week of January.

We have now merged our quarterly base and variable dividend components into one dividend payment or one check, to ensure that third-party data providers properly represent our dividend yield and reflect our return to capital. I want to thank FactSet and Bloomberg in working with us. FactSet will look in the past, the past four quarters and Bloomberg will take the current dividend yield, which will show about 7% going forward. And that's how they'll do it. So we're getting recognized now with our variable dividend.

Additionally, due to our unhedged opposition and strong commodity prices, our second quarter variable dividend is poised to increase by greater than 60% from the first quarter. Payable in the second quarter will equate to about 11% yield.

When take into account fourth quarter share repurchases of $250 million and dividend payments of approximately $8.75, we’ve returned greater than 100% of our fourth quarter free cash flow to shareholders. In addition to our fourth quarter repurchases, our Board has authorized a new $4 billion share repurchase program, replacing our previous authorization which provides increased capacity to purchase a significant amount of stock. These record results are driven by high quality asset base which generate a 17% return on capital employed, in '21 we expect this to increase this year to the mid-20s at current stripped prices of mid 20s around 25% return on capital employed.

Going to Slide number 4. Again solid execution drives strong fourth quarter results. Continued during the fourth quarter as both all production and total production in the upper half of our guidance when adjusting for the volume sold with the Delaware divestiture. And you can see it in the boxes that we showed two numbers, one with Delaware until the end of the year and one without the last 11 days.

As I mentioned on the prior slide, this production supported another quarter of strong cash flow, resulting in record free cash flow of $3.2 billion in 2021. Our Midland horizontal LOE remain low at $2.68 and peer leading during the quarter and $2.46 for the year. Looking forward, we expect to remain a very low leverage profile at approximately 0.2 net debt to EBITDA at year end 2022. Essentially, we had the best balance sheet in the company's 25-year history.

Moving to Slide number 5. Committed to significant return of capital, we remain committed to our core investment thesis, underpinned by low leverage strong corporate returns at a low reinvestment rate, which generates significant free cash flow. Majority of this free cash flows returned to shareholders in the form of base plus variable dividends, with total shareholder return through dividends representing almost 80% of our free cash flow.

At current strip prices total dividends are expected to exceed $20 per share in '22, representing approximately three times increase from 2021. We will continue to maintain a pristine balance sheet and supplement are compelling base plus variable dividend framework with opportunistic share repurchases, under our new $4 billion share repurchase authorization.

Our free cash flow over the next five years at the five-year strip is over $28 billion. In addition, we run our model out through life of inventory. Our free cash flow over the life of our assets until the last well is drilled and the last well has produced, it's well over $200 billion at long-term strip pricing.

Going to Slide number 6, best-in-class cash returns to shareholders. Obviously, with a high base plus variable, we are at the highest percent of returning cash back to the shareholders. Our investment framework returns the highest percentage of free cash flow to investors through dividends when compared to any one of our peers or majors. This cash is directly returned to the investor.

We have seen a tremendous benefit attracting dividend value funds over the last several quarters, and also seen a significant change among the culture of our employees who all own the stock and always are looking forward to that dividend check.

Slide number 7, compelling dividend yield amongst the peers. As a function of our strong free cash flow generation, a high percentage return to shareholders, our dividend yield exceeds all peers and majors in the average yield of the S&P 500 based on current share price. This top-tier yield demonstrates the cash flow power and underlying quality of Pioneer's assets and strength of our peer-leading return of capital strategy.

Again, we had 7% first quarter when you exclude the return -- the extra base dividend, which would bring it up to 8% for the first quarter, and that's increasing to approximately 11% next quarter.

Slide number 8, in comparison to that same yield versus all industries and the S&P 500. When looking beyond our peer group, Pioneer's expected yield all far surpasses every S&P 500 sector. In fact, based on strip pricing, Pioneer's yield, 2022 yield is more than 6x the average of the S&P 500 and almost 2.5x the average of the oil majors. With this strong dividend yield, share repurchases and modest growth from the investor perspective, the case for owning Pioneer's stock is compelling.

Going to Slide number 9, return of capital framework. We believe a strong and growing base dividend is a commitment to our shareholders and a key pillar of our investment thesis. As I mentioned earlier, we have further strengthened our base dividend with an increase of greater than 25% from last quarter's increase. This increase is predicated on our balance sheet strength and durability of our cash flow across commodity price cycles. This is the second straight quarterly based dividend increase and represents 40% base dividend growth since the third quarter of 2021. And going forward, we will continue to increase the base significantly.

Inclusive of the increased our 6-year base dividend compound annual growth rate of greater than 80% exceeds all peers in the U.S. majors. Further augmenting our strong shareholder returns, our Board of Directors has approved a new $4 billion share repurchase authorization. This new authorization excludes the impact of the $250 million already purchased in the fourth quarter under the prior authorization.

We will continue to buy shares on a quarterly basis. Our long-term objective is to reduce share count. We have one of the best balance sheets in the industry to repurchase a significant amount of stock opportunistically.

Going to Slide number 10, dividends through the cycle. Pioneer, this is a chart a lot of people have asked us in regard to the dividend funds and also the retail sector as we continue to get on calls promoting more to the retail sector.

Pioneer's high-quality assets, low breakeven of around $30 capital discipline provides the ability to return significant free cash flow through commodity price cycles. As I mentioned, it's well over $200 billion at strip prices long term. As seen on the graph, Pioneer shareholders have significant upside to higher oil prices as we have zero 2022 all hedges and going forward, with dividends greater than $24 per share at oil prices above $90.

Additionally, dividends remain resilient at lower oil prices, providing material sustainable return of capital at lower commodity prices. Also it generates a significant amount of free cash flow, but our current strip prices generate a mid-20s return of capital employed in 2022.

I'll now turn it over to Rich.

Rich Dealy

Thanks, Scott, and good morning, everybody. I'm going to start on Slide 11, where we outline our 2022 plan. And consistent with the preliminary 2022 guidance that we discussed in our third quarter call, after the sale of Delaware and Glasscock County assets, we expect annual 2022 oil production to average between 350,000 and 365,000 barrels of oil per day. With total production on a BOE basis is expected to average between 623,000 and 648,000 BOEs per day.

Capital for 2022 is forecasted to be $3.3 billion to $3.6 billion or $3.45 billion at the midpoint. Of the total capital budget, roughly 50% is locked in and not subject to any further incremental inflation.

Based on the midpoints of both capital and production ranges, along with strip pricing, we expect to generate over $10.5 billion of operating cash flow, which will be a record for the company. After backing our capital, this results in over $7 billion of forecasted free cash flow for 2022. So you can see taking into account the capital as a percentage of our operating cash flow, our reinvestment rate is less than 35%, the lowest in the company's history.

Turning to Slide 12, looking at our program, you can see this slide really reiterates graphically our capital program, representing a reinvestment rate of 35%, with the large majority of the remaining 65% of cash flow being returned to investors through our base and variable dividend program and share repurchases that Scott discussed.

Importantly, it also points out the quality of our high-margin asset base and the efficiency of our capital program, which, on a combined basis, drives breakeven, WT oil prices at approximately $30 to fund that program. And as I mentioned on the previous slide, 50% of our capital program is locked in, in protected from inflation. The remaining 50% of our capital budget includes approximately 10% of forecasted incremental inflation, which is embedded in the midpoint of our guidance range.

Turning to Slide 13. You can see that Pioneer has the largest and most contiguous acreage position in the Midland Basin from the graph there on the right, where we're focusing on high margin, high return development of our 15 -- our over 15,000 well locations that we have in our portfolio.

During 2022, just on specifically, we plan to run 22 to 24 rigs. We plan to run approximately 6 frac fleets, of which 2 are simul frac fleets and place on production roughly 475 to 505 new wells. As you can see, our lateral length continues to creep up as we add more 15,000-foot laterals into the drilling program, and we expect it to average 10,500 feet in 2022, up from approximately 10,000 feet in the last couple of years.

Inclusive in this program is putting on 50 longer lateral wells that are in that 15,000-foot range. And these save basically 15% on a per foot basis for drilling and completions compared to a 10,000-foot well. As I mentioned earlier, we are continuing to utilize simul frac operations, which reduces well costs and shortens our cycle time from spud-to-POP, another benefit to the company. And as we said in the press release, we are evaluating a third simul frac fleet later this year or in early 2023.

Turning to Slide 14, really our best-in-class margins that Neal mentioned early on. You can see on the left side here that our realized prices amongst our peers is the highest of anyone, really reflects the -- our high quality wells and our oil percentage as a percentage of our production. If you look at the right side of the chart, you can see that we also have best-in-class cash costs, reflecting our highly efficient field operations, our low corporate overhead structure, combined with our low borrowing costs. So when you put those two together, it really is a top-tier combination that translates into peer-leading margins.

Turning to Slide 15. This slide dovetails nicely with the previous slide. It shows that our peer-leading margins combined with our efficient capital program generates best-in-class free cash flow per BOE, that is highly sustainable for many years given the company's great inventory duration of high-returning wells with low breakeven oil prices. And so it just kind of shows where we're seeing the upper right, the benefits of high margins and a great inventory base.

Turning to Slide 16. Our high cash flow per BOE, combined with having one of the best balance sheets in the industry, really underpins what Scott talked about our return on capital framework, allowing us to return significant capital to shareholders while at the same time, continuing to improve cash margins by retiring higher coupon debt that we recently announced. As Scott mentioned, our great balance sheet and strong free cash flow generation allows us to return roughly 80% of our free cash flow to shareholders via our base plus variable dividend program with the remainder available for share repurchases.

So I'll stop here, and I'll turn it back over to Scott to discuss our continued progress on reducing emissions.

Scott Sheffield

Thank you, Rich. Starting on Slide 17, leading sustainability plan. During the third quarter, we published our 2021 sustainability report, which outlines a robust emission intensity reduction goals, including our ambition to achieve net zero emissions by 2050 for both Scope 1 and Scope 2. Throughout the report, we highlight our strong environmental practice, key initiatives that are underway and support our enhanced emission reduction targets, seen on the right side, reducing greenhouse gas emissions by 50% and reducing methane emissions by 75% by 2030.

In addition to emissions-related goals, we've adopted a target to reduce freshwater used in our completion activities to 25% by 2026. Our focus on environmental, social and governance has established Pioneer as a leader in the industry, which continues to be reflected by many third-party rating agencies.

On Slide 18, again, in comparison with our peers, Pioneer has one of the lowest current emissions intensities among peers and continues to place a high priority on environmental stewardship. As seen on the left, Pioneer's 2019 and '20 reported emission intensities are already lower than the majority of our peers' reduction goals.

Pioneer's 2030 emission intensity goals represent one of the strongest reduction targets in the industry, demonstrating continued progress on our pathway to net zero. On Slide number 19, again, a chart that we have used in the past, Pioneer continues to bring low emissions barrels to the market, producing some of the lowest emission barrels in the world as compared with other countries. When compared with our low maintenance breakeven oil price of $30 a barrel, Pioneer provides exceptionally resilient production that we expect will have a place in the global marketplace for a very long period of time.

On Slide number 20, we brought back a flaring slide that we have used in the past. The primary reason for this is to show that the Permian Basin has made great strides in reducing venting and flaring the past years, going from a peak of 750 million a day to less than 200 million a day just recently. Pioneer and many others, primarily other publics have driven flaring under 1%. And continue to make improvements. Long term, we hope companies will go less than 0.5% and eventually down to 0.2%.

The remaining companies, as you can see on the right-hand side, primarily private operators continue to vent and flare much greater than 1%. We still somehow need to take action on those type companies. They need to operate more responsible and take the necessary actions to reduce their flaring intensity.

Slide 21, again, Pioneer, we're actually celebrating our 25th anniversary this year. Obviously, it's been -- had one of the best track records on shareholder return during the Shell industry over the last 10 years. Continue to focus on returns, capital discipline, allocation of capital, return of capital to shareholders the greatest among any peer, one of the best balance sheets in the industry. And again, 15 to 20-year inventory, probably one of the longest or the longest in the U.S. Shell industry, and again, continue to lead on ESG.

We will now open it up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs.

Neil Mehta

Thanks team. And I appreciate the dividend yield sensitivity at different oil prices. That's helpful. My question was around share repurchases. And how do you guys see that as a tool in the tool box as we think about 2022, do you intend to execute that ratably, be opportunistic and your framework around share repurchases would be great, Scott and Neal.

Scott Sheffield

Yes, Neil, I mean, yes, Neil, the -- we got two Neils here.

Neal Shah

I didn't realize that.

Scott Sheffield

The -- is what I said, we're still going to buy quarterly. We've got a great balance sheet. So we did exercise it in the fourth quarter, and we'll continue to look at that. So like I said before, we'll continue to reduce shares substantially. But the primary provider of return to the shareholders is going to remain the dividends. We just happen to have a great balance sheet to continue to buy. I’m coming -- obviously, it's a lot easier when you have the best balance sheet in your history.

And secondly, I'm getting more and more confident about the long-term oil strip being much higher than we had expected some last year. So all strips continue to move up. We had the closing of our Delaware sale. So you'll see us continue to be in the market buying fairly aggressively.

Neil Mehta

Yes. Thanks Scott. The follow-up was on the macro, but just to tie it into your production. As you think about your production '22 versus '21, on the same-store basis, there are a lot of moving pieces. But I'd be curious, you've said up to 5% in the past, how does this number compare to that? And how should we think about it exit to exit. And then to put that in the context of the broader oil macro, how are you thinking about the call on U.S. shale plan out as we go through '22. There are a lot of moving pieces, most notably now around Iran, but do you see a clear call on the industry?

Scott Sheffield

No, there's no change for us. Long term, we're still in that 0% to 5%. It's going to vary. We're not going to change, as I said, at $100 oil, $150 oil, we're not going to change our growth rate. We think it's important to return cash back to the shareholders.

In regard to the industry, it's been interesting watching some of the announcements so far, the public independents are staying in line. I'm confident they will continue to stay in line. The private independents, a few of them, as we all know, are growing -- they've announced growth rates in the 15% to 25% per year range.

As I've stated, eventually, they're going to run out of inventory as written by the Wall Street Journal article that came out in the last two weeks, people that are growing at 15% to 20% are going to run out of inventory fairly quickly. Also, they're experiencing -- there's been articles written by some of you all on the call. There is -- we're not experiencing a lot of companies, a lot of the privates are experiencing labor issues, cost issues, can't get equipment so that's going to prevent the rig ramp up. So I'm hoping at the end of the day, in the two majors, I know that they are balancing their other entire portfolio. They've announced higher growth rates than 5% in the Permian Basin. One has a significant amount of DUCs. Those DUCs will go down over time. I don't think those companies can continue to grow at those type of rates or they will significantly reduce their inventory fairly quickly.

Neil Mehta

Got it.

Operator

Our next question comes from Nitin Kumar with Wells Fargo.

Nitin Kumar

Hi, good morning, and thanks for taking my question. Scott, I want to start with maybe on the financial side, you discussed the Slide 10, where you show the sensitivity of your dividend to different oil prices. You also got rid of your hedges. So I'm curious, why not preserve some downside protection? It's a financial case -- investment case that you're highlighting. So why get rid of hedges?

Scott Sheffield

Yes, you have to realize it's totally different. I think you've seen enough articles, oil could easily go to $150. Demand is stronger than it ever has been in the world and OPEC and OPEC Plus is going to run out of capacity by the end of '22. That's even been stated by several OPEC and OPEC plus countries.

So that's ignoring the Iran and the Ukraine situation. Both of them, obviously, there's no reason putting on a hedge when it's obvious that things could easily move up north. Secondly, the hedges are -- the oil strip is totally in backwardation. So right now, we're in the low 90s. It drops about $20 a barrel when you go out five years.

So if you could buy a $100 put for five years, that's a different question, you can't. And so you can only buy a $70 or $60 put. That's probably the bottom end of where oil prices are going to bottom out over the next several years. So it doesn't make sense to put on a put at $60. So that's -- I hope that answers your question, Nitin.

Nitin Kumar

That's great. And I guess my second question, Permian gas takeaway is becoming an issue. You talked a little bit about the private drilling and the majors. Could you talk about how you are positioned in terms of exposure to oil pricing and what your thoughts are on gas to take away for the basin?

Rich Dealy

Yes, Nitin, it's Rich. I think broader terms, when you think about the macro for the Permian Basin, and we're going to need another 2 Bcf a day, pipeline every couple of years in the Permian Basin. And so I think that is the basin, even at the modest growth rates that we talk about, you're still going to need that level of capacity takeaway.

Specifically, as it relates to Pioneer, there's a couple of pipelines that are in the works right now that are looking for commitments. We're evaluating those. And most likely, we will take volumes on one of those into the Gulf Coast and that will be here in the next three to four months. I think those things will get announced at whichever one of those pipelines gets done.

In terms of what our exposure is, we move probably 35% of our gas out to the California market, call it, 45% to 50% down to the Gulf Coast market and at least 15% to 20% in the Waha market today. Longer term, I think we'll reduce that Waha exposure as we move more gas out of the basin, but that's really where we sit currently. Hope that helps.

Nitin Kumar

Yes, awesome. Thank you so much for your answers.

Operator

Our next question comes from John Freeman with Raymond James.

John Freeman

Good morning guys. My first question, Scott, on just trying to understand the kind of the long-term kind of framework on the base dividend, which it was nice to see that continuing to grow. It looks like at least on the current strip that base dividend and ballpark somewhere around 10% of the free cash flow. Can you just remind us sort of kind of the methodology that goes into determining the appropriate base dividend like in terms of percentage of cash flow or some long-term kind of oil price assumption?

Scott Sheffield

Yes. I've been pretty open that we're going to move it up fairly significantly to get up to where we have roughly about a $50 WTI long-term price. And that's where we're going to move it up to. So you can -- it would be easy for everybody to calculate that, but we'll continue to move it up very aggressively over the next couple of years to that long-term $50 WTI that we can easily pay that base dividend at a $50 WTI.

John Freeman

And then, Scott, is -- do you want the base to represent a certain percent of free cash flow at that $50 level?

Scott Sheffield

No, it doesn't -- we don't look at it that way. So we look at it, as you know, the history of our industry, a lot of companies have either stopped dividends or lower dividends during the price cycles. So we are making a projection on the down cycle. If it drops below 50%, it's going to come back to $50 fairly quickly in our opinion. That's why we're using $50 as a long-term test.

John Freeman

Got it. And then just my other question on the simul frac, which -- obviously, we're seeing a good bit of savings last year on and looks like you're likely going to add a third. I believe like in the past, Joey had mentioned like one of the big impediments to more aggressively expanding the simul frac fleets was just the water infrastructure side of things just sort of the water and sand logistics and maybe just sort of how to think about the amount of the capital that's got to go toward water if we're going to continue to expand the simul frac relative to last year, I think I'll spend about $100 million on water infrastructure.

Rich Dealy

Yes, John, that's exactly right. In the sense of water being the key item that we've got -- that we're working on logistics on. I think we've got in our capital budget, roughly $70 million or so for water, this year for 2022. But the real thing that we're working on is spreading out because we've got the significant water infrastructure that goes north and south and we recently board under Interstate 20 and are moving our water north is really allowing to take a full advantage of our water system is to have a simulfrac fleet in the north, one in the middle and one in the South. In that way, it gives us the ability with our pipeline to move the most amount of water to meet those logistics.

And so that's really what we're working on now is just putting all that together such that we can run three and really use the benefits of investing in that water infrastructure to their fullest potential. And so that's what we're really working on today. And hopefully, by end of this year, early 2023, we'll be at that point.

John Freeman

Great. Thanks guys.

Operator

Our next question comes from Charles Meade with Johnson Rice.

Charles Meade

Good morning Scott to you and your team there. Scott I want to go back to comments you got into a bit in response to Neil's question. So we see the same thing you're seeing. It's been one of the delights of this earnings season that the large public independents are staying in line. But there is that -- there seems like there's this tension between what the PXD and its peers are doing and the acceleration of both the majors and the independents. So that seems like a tension that it's going to have to break one way or another. And I think you answered this, but I want to make sure I understand your thing.

The concern on the part of investors is that it's with $90 oil, it's going to break in the form of the large independents returning to spending more and growing more. But that's not -- if -- well, could you offer your opinion on how you see that tension resolving if you agree that there is some tension between those two?

Scott Sheffield

Yes, it's only tension is that the world doesn't need the extra oil. And so the question is how long will they go on and you get into their inventory issues, like I said earlier, and it's all back to demand. So as I said, we're seeing record demand in this country. We're seeing record demand in several other countries around the world. And everybody has demand increasing 3.5 million to 4 million barrels a day in 2022. When you look at all the various reports around it ranges between 3.5 and 4.

Once that happens, OPEC is at -- they have no extra capacity in OPEC plus. And so we have never been there before. It's going to test at the end of this year. And so we may need the extra barrels today. The question is, will we need them in '23 and '24? And what do those companies do? And then I made the point about the privates. The privates need to be reined in because they are the biggest flares in the Permian Basin. And somehow, we need to rein in the privates through regulation, whether it's EPA, state, investors, bond investors, but the privates are need to be reined in, in the Permian Basin. So hopefully, that happens. So.

Charles Meade

And then the follow-up, which is related to this, and I appreciate the clarity you guys offered on 50% your capital cost in '22 locked in and you've got a 10% inflation baked in. I wonder if you play the movie forward into '23. At $90 oil, there's -- you made the point that service availability is even starting to be a question. But in $90 oil, there's plenty of room for privates to bid up pricing to bid that service into the Permian. So how do you -- '22 in hand, but could this become an issue for PXD in the industry as a whole in '23 and beyond?

Rich Dealy

Yes, Charles, I mean I think it's always something we have to be cognizant and continue to work. I mean -- so we're working on '23 step 2, I think as it relates -- it's particularly to pioneer given that we're the largest producer, largest activity level in the Permian Basin and our relationship with our vendors, we have the ability to work on those early and make sure that we can get the best price that's out there, but a lot of it will depend on what raw materials are at and what their costs are.

And so we'll continue to do that. But I'm confident that we'll navigate that as well as anybody in terms of what that cost pressure may look like or -- and how we can mitigate it by continuing to improve our efficiencies over time.

Scott Sheffield

And Charles, I'm going to chime on to Rich's comment and also point out one other thing. If you look at our hedge position now at 0% hedged on oil. If you're talking about a $90 price environment, every $5 change in oil now is an incremental $750 million of cash flow for us. So that really would offset any real move inflation. And that's one of the reasons where Scott kind of opened up in the discussion early on in talking about our zero hedges on oil that would really benefit us vis-a-vis the peers. So while they think inflation may impact them more so relative to their cash flow, our cash flow in a $90 oil environment is higher as well.

Charles Meade

I see the way the pieces fit together. Thanks, Neal, Rich and Scott.

Operator

Our next question comes from Derrick Whitfield with Stifel.

Derrick Whitfield

Thanks and good morning all. With my first question, I wanted to focus on the success you're having with long lateral development. Specifically based on the stated increase of 15,000 foot laterals in your 2022 capital program, could you speak to the degree at which you could further accelerate this in 2023? And perhaps more broadly, if we were to think about the 15,000 locations noted on Page 13, how many of those locations are presently or could be suitable for 15,000-foot development?

Rich Dealy

Yes. Derrick, we've talked about in the past that we've identified about 1,000 locations of that 15,000 that are 15,000-foot type laterals that would be great wells to drill. As we think about the program is something that we started in 2021. We've grown that in 2022. So it wouldn't surprise me that we do more of those and push it even higher than the 50 wells we're going to complete in 2022 into 2023. So that will continue to be something because they're very capital-efficient wells. I mean, obviously, the wells come on at basically the same rate as a 10,000 foot but have a flatter decline. So there -- it's just one of those things that's a huge benefit and allows us to develop and get to acreage that we otherwise weren't going to get to potentially as well.

So there's lots of benefits to the 15,000-foot laterals, and we'll continue to push that limits to put those into the portfolio over time. Derrick, did we lose you?

Derrick Whitfield

Well, I'm here. Sorry, guys. Thanks for that. And as my follow-up, I wanted to focus on the Texas Railroad Commission letter from last December. With the understanding that you guys have an extensive water infrastructure network and excess saltwater disposal capacity, can you speak to your projected near- and longer-term business impacts if any?

Rich Dealy

Yes. Derrick, on the near term, we had wells in that, what they call the SRA, that seismic regional area they talked about response area. But we only had one deep disposal there that was impacted that we did shut in for the time being at this point. But we had plenty of water capacity in our other wells in the area to move that water around so no impact to that.

And we also have -- given our infrastructure, I talked about on John's question, water, and we have mobile reuse facilities that we can move around in the field where we have new wells coming on that have higher water production. And so we'll continue to do and move that water down the system and just really keep it away from having being disposed and reuse it in our frac job. So longer term, we'll continue to look to opportunities to move water different places. But for the foreseeable future, we're in a good place that we can manage that situation just given our extensive water infrastructure.

Derrick Whitfield

Great update. And thanks for your time.

Operator

Our next question comes from Jeanine Wai with Barclays.

Jeanine Wai

Hi, good morning everyone. Thanks for taking my questions.

Scott Sheffield

Yes, Jeanine, how you’re doing?

Jeanine Wai

I am doing good. Thank you. First question maybe just doing a little bit of a look back and then maybe look forward, if that makes any sense. Can you talk about how the DoublePoint and Parsley deals impacted 2021 results? And was there anything somewhat unexpected that either has been addressed or that you understand better that will flow through 2022 capital efficiency?

Rich Dealy

Yes, Jeanine, I'd say as we look back on it, I would say there really wasn't anything -- given that these were all areas in and around our existing areas, there wasn't anything that was a surprise to us. I mean, clearly, there was things that we went in -- upgrade their facilities to match our standards. And we look for ways as we talk about the 2022 capital budget to take advantage of existing tank batteries, how do we make it -- take those synergies and make it more efficient operations. And so we've done that.

But all in all, the teams did a tremendous job of integrating those into the company seamlessly, it took a lot of hard work, but we're real happy how things have turned out and how they're working alongside ours. And we really see a lot of benefits in the future like we talked about last year from just having that continuous acreage position is like these 15,000-foot laterals, it's the ability to do simulfrac, things of that, take advantage of our water infrastructure. All those things are added benefits when you have contiguous acreage positions.

Jeanine Wai

Okay. Great. Our second question is still sticking to the portfolio. The A&D market seems to be pretty active these days. So just wondering if you're still in the process of divesting noncore acreage kind of beyond just general portfolio cleanup that you're always doing. And on the other side of that, Pioneer has one of the highest quality asset bases out there. And so you clearly don't need to do any transactions, but maybe just your updated thoughts on M&A, given what you see out there in the market. Thank you.

Scott Sheffield

Yes. Thanks, Jeanine. Obviously, after these last two transactions, we have no need to do anything on a material large-scale M&A, and we're not looking and do not plan to look. We think that strongest return we can realize at this point is to repurchase our stock.

In regard to smaller transactions, we will continue to -- will we get the right price. We'll continue to divest of smaller assets, and we'll continue to buy. It's really an upgrading process. So we'll buy some. We'll divest some, divest Tier 3 and at good prices, and we'll continue to buy some. In addition, we'll continue with our DrillCo opportunities on Tier 3 assets.

Jeanine Wai

That’s very helpful. Thank you.

Operator

Our next question comes from Doug Leggate with Bank of America.

Doug Leggate

Thanks. Good morning everyone. Scott, I'm sure I'm not the only one to observe that your stock price is a hereof, its all-time high when you were growing at a big rate and a much higher oil prices. So the strategy is working, and I want to congratulate you on focusing on that free cash flow.

My question, however, is on the breakeven. I'm just curious how you see that evolving? And what's behind my question is if you're not growing as quickly, presumably, you don't have as much flush production, which, I guess, means a lower decline rate. So how do you see that sustaining capital/breakeven evolving on the base business over time?

Scott Sheffield

Yes. The -- as I said, we'll bring our base dividend up equivalent to fairly quickly up to equivalent to a $50 WTI breakeven price long term. And secondly, in regard to our decline rate, since we're only growing in that 0% to 5% range, our decline rate will definitely come down.

We hope it comes down over time to the low 30s. So that's what we believe long term, and that will help in regard to -- and capital efficiency gains will help drive that breakeven price down. And then you got to deal with inflation depending on what type of oil price market we're in. So it stayed at 30 now for a good couple of years now, Doug.

Doug Leggate

So. Okay. So can I just press you on what you think the sustaining capital level is? Is that that 3, 3, 4 level? Or is it lower than that?

Scott Sheffield

It's going to be lower than that long term in a, call it, a decent oil price market. So there's extra things that we're spending on that we're not going to spend long term, whether it's water or whether it's some ESG capital, whether it's EOR capital. But there's some things longer term that drive down our breakeven, so it should be lower than the 3, 4, 5, the average of our guidance in 2022.

Doug Leggate

Okay. Thank you for that. My follow-up, I'm afraid, is a housekeeping question on cash taxes. Just given where the strip is right now, can you just give us an update as to the NOL position and when you would expect to be in a full cash tax position?

Neal Shah

Doug, it's Neal. Yes, no problem at all. So we've got about $6 billion in NOLs at year-end 2021. We would anticipate with the high free cash flow generation at the current strip, that we would utilize the majority of those NOLs as we progress through 2022. We'll probably be roughly about $150 million to $200 million in cash taxes towards the end of the year, back half of the year, then we've probably got some of that balance. That's related to the Parsley acquisition that will be subject to some limitation. So we'd probably start becoming a tax cash parent fullness in 2023 of about probably around $1 billion.

Doug Leggate

That’s really helpful. Thanks, Neal. Appreciated.

Operator

[Operator Instructions] Our next question comes from Neal Dingmann with Truist Securities.

Neal Dingmann

First question, you've been asked on A&D, but just a little bit different, Scott, on is had a nice Delaware sale. My question is, given the pristine balance sheet kind of on a go forward, is there any thoughts to sell anything? I mean was that predicated on maybe the market not giving you credit for your extended inventory that you have? Or maybe just talk about any thoughts about any potential noncore sales?

Scott Sheffield

Yes. Obviously, we got a great price. And the -- when you look at the margin and the returns, we're always going to get a much better return in the Midland Basin than our part of the Delaware. So we were in the southern part of the Delaware. It's primarily only one zone, where in the Midland Basin, we have 6 primary zones that we're drilling. And so the -- it was a great price. The asset was not competing with our Midland Basin returns.

In regard to future divestitures or acquisitions, I basically already commented on that we'll continue to upgrade our acreage, our working interest owners in regard to Tier 1, we're buying some. At the same time, we'll be divesting of some over time, and we'll continue that with that practice long term.

Neal Dingmann

Sure. Certainly makes sense. Then I just follow up on the balance sheet. You certainly have a pristine balance sheet, a lot of cash flow you're generating. So I just want -- given this still is there plans to how quickly maybe continuing to pay down any more of the $6 billion debt and fund the converts? Or what -- I'm just wondering your plans on that side.

Rich Dealy

You probably saw from earlier in the year, we put out a press release related to the $750 million debt and the $500 million that we're going to be retiring here shortly. Other than that, we've got an upcoming $244 million maturity towards the third quarter. That will retire as it comes due. But as it sits now, that's pretty much the lay of the land.

Neal Dingmann

Very good. Thanks.

Operator

Our next question comes from Paul Cheng with Scotiabank.

Paul Cheng

Hi, good morning. Thank you. Two questions, please. First -- when we're looking at that, you will be pretty close to zero net debt indeed one we argue that you're pretty much there. So is there any reason that we don't expect close to 100% of your free cash flow will be returned to the shareholder. In the press release, I think you -- at the end of the presentation, you say more than 80%. But is there any reason why we should not assume pretty much that 100% of the free cash flow over the next several years will be returned?

Neal Shah

Paul, it's Neal. You're right. I mean that's the purpose of having Scott and Rich and I have voiced many times, one of the benefits of having a low net debt balance sheet and again, similar Jeanine question early and reducing gross debt is really to provide us that operational and financial flexibility. And as we articulate and I think we exemplified in 4Q, we're willing to go to that 100% of free cash flow.

I think you saw that in 4Q, if you add in the base, the variable and the $250 million that we repurchased in the quarter, that was 101% of free cash flow. So I think given an opportunity, there's an opportunistic buyback or an opportunity there related to a pullback in the market.

We'll step in. We won't be shy. And again, I think we've demonstrated that during 4Q. But the buyback, as we -- as Scott said, there will be a regular quarterly cadence associated with that. But over and above that, we will be opportunistic. So we were at 101% of free cash flow in 4Q, and we won't be shy to step in if provided that opportunity again.

Paul Cheng

Actually, that leads to my second question, Neal. On the buyback in the fourth quarter, you did $250 million. And I think Scott is saying that you guys are going to be in the market every quarter. So to determine that how much you're going to buy back and you gave us some criteria that how you guys think about that what determined that level?

Scott Sheffield

We're not going to give out the exact amount. People just don't do that and target the exact about. So just stay tuned. It will still be a significant amount each quarter. So.

Rich Dealy

Yes. There'll be a quarterly cadence associated with it, Paul. You'll see that quarterly cadence. But again, we're going to be -- also be opportunistic over and above that quarterly cadence.

Paul Cheng

Can you tell us about what that quarter cadence?

Rich Dealy

Paul, I think to Scott's point, we've got the -- you saw the increase in the authorization to $4 billion. So there's going to be a quarterly cadence, I would say, stay tuned to that and then look for that more substantial opportunistic repurchases as those opportunities present themselves. Again, similar to what we saw in 4Q, again, we won't be shy. So I don't want you to sense any hesitancy on our part because I think we demonstrated that again in 4Q, and we'll step into the market, provide that opportunity. But you will see a quarterly cadence as well. So just stay tune there, Paul. Appreciate your patience.

Operator

And that does conclude question-and-answer session. At this time, I'd like to turn the conference back to Scott Sheffield for additional or closing remarks.

Scott Sheffield

Again, we want to thank everyone. We're looking forward to getting on the road. It looks like everything is starting to open up in all the states. So hopefully, we can all meet in person a lot of these energy conferences in March looks like. Starting out, and we'll be on the road fairly aggressively over the next several weeks and months. Again, thank you.

Operator

And that does conclude today's conference. We thank you for your participation. You may now disconnect.