Pioneer, Marathon raise capital budgets but keep output targets flattish

Pioneer Natural Resources and Marathon Oil both raised their capital budgets for 2022, their top executives said Feb. 17, although both pledged during respective conference calls to keep oil production flat or nearly so as they reward shareholders and maximize inventory.

The pair in separate conference calls also pledged fiscal discipline for this year, saying they refused to be tempted by crude oil prices currently over $90/b WTI or even beyond that level to produce more.

"At $100 oil, $150/b oil, we're not going to change our growth rate," Pioneer Natural Resources CEO Scott Sheffield said. "We think it's important to return cash back to the shareholders."

"Private independents, a few of them, have said they're going to grow 15%-20% per year, but eventually they'll run out of inventory fairly quickly," Sheffield said.

Chevron and ExxonMobil have each announced "significant growth rates" in the Permian Basin of West Texas/New Mexico, he noted. Chevron recently said it planned to grow 10% in the giant basin in 2022, while ExxonMobil said it will grow over 25%.

While capex increases for Pioneer and Marathon Oil were quite different, the actual dollar hikes may not be too far apart.

Marathon's capex for this year will be $1.2 billion, up 20% from $1 billion in 2021, while Pioneer's percentage increase is much lower. Its capex will increase from $3.3 billion in 2021 to a range this year of $3.3 billion-$3.6 billion – just under 5% at midpoint.

Guiding to nearly flat production

But both companies are guiding to nearly flat production: Marathon strictly flat, although Pioneer's oil growth is restrained up to 5%.

Marathon even pre-answered analysts' perennial question in its Q4 earnings press release issued late Feb. 16 of whether rising oil prices would tempt it grow production this year.

"The company does not plan to deviate from its [2022] announced capital budget in the event of continued strong commodity pricing," it stated. "By staying disciplined and maintaining a low reinvestment rate, Marathon Oil expects to exceed its commitment to return a minimum of 40% of cash flow from operations to equity investors, assuming an oil price of $60/b WTI or higher."

That statement was echoed multiple times during Marathon's call by CEO Lee Tillman and other executives.

At $80/b WTI and $4/MMBtu gas, Marathon's 2022 program is expected to deliver more than $3 billion of free cash flow. Marathon Chief Financial Officer Dane Whitehead said the company is on pace to return over 50% of its cash flow from operations to investors in Q1 2022, and for full-year the giveback to investors could be as high as 70% at those same commodity prices.

Pioneer expects to generate $10.5 billion of free cash flow this year and expects to return about 80% of that to shareholders in 2022.

In addition, Marathon will spend roughly 75% of its capital budget in the Eagle Ford Shale in South Texas and the Bakken Shale of North Dakota/Montana in 2022, with the balance going to the Permian and Oklahoma, Michael Henderson, Marathon Oil's executive vice president of operations said.

Redevelopment testing

Marathon plans to continue redevelopment testing in the Eagle Ford of 15 wells in 2022 and so far has added a little over 100 high-return redevelopment locations to inventory in the play, he added. The company is also looking at longer laterals in both the Eagle Ford and in its Oklahoma plays.

Like the Bakken, the Eagle Ford is considered to be a maturing play.

Both Marathon's oil and total production this year are projected flat with 2021's respective averages of 173,000 b/d and 348,000 boe/d, he added.

For fourth-quarter 2021, Marathon Oil's total production averaged 353,000 boe/d, up 2% from Q3 and flat year on year. Oil production in Q4 totaled 181,000 b/d, up 8% from Q3 and 5% from a year ago. Oil production in Q4 included 172,000 from the US and was up nearly 10% from three months earlier, and up 8% on the year.

Meanwhile, Pioneer's oil production is expected to be flat to 2% higher than 2021, and average 350,000 b/d-365,000 b/d, while total production is projected to increase 3% to a range of 623,000 boe/d-648,000 boe/d.

In Q4, Pioneer's total production averaged 687,000 boe/d, almost double the 365,000 boe/d from a year ago due to two major acquisitions last year. Q4 total production was up nearly 2% from Q3. For oil, the 393,500 b/d produced in Q4 was up 1% from Q3.

During 2022 Pioneer plans to run 22-24 rigs, Pioneer Chief Operating Officer Rich Dealy said – the same number as in late 2021. The company is also adding more 15,000-foot lateral wells, as many operators are doing, up from 10,000 feet a few years ago.

"These save basically 15% on a per foot basis for drilling and completions compared to a 10,000-foot well," Dealy said.