We utilize the following short-, medium- and long-term time frames for our risk assessment and strategy and planning processes:
SHORT-TERM (0—3 YEARS)
Driven by our near-term operational budgeting and planning schedule
MEDIUM-TERM (3—10 YEARS)
Aligns with the timeframe of our strategic and financial planning process
LONG-TERM (10+ YEARS)
Reflects a variety of supply and demand scenarios, underpinned by broader changes to the macro environment, such as potential structural changes to supply and demand fundamentals, technology advancements and emerging trends
SHORT-TERM STRATEGY (0–3 YEARS)
Pioneer’s approach to budgeting and planning utilizes a bottom-up methodology, with detailed scheduling of activity on a well-by-well basis. Over many years, we have built a variety of in-house tools and leveraged external software to provide visibility into an operationalized three- to five-year development plan. This capability lets Pioneer forecast drilling, completions, facility, gathering, processing, power, water and other infrastructure requirements to mitigate GHG emissions, as well as oil and gas takeaway options and other constraints on a location-specific basis.
This also enables us to assess potential risks to execution and capital efficiency, allowing the company to select the most economic and operationally feasible drilling locations. The plan also provides the flexibility to accommodate operational or acute risks (e.g., extreme weather events, infrastructure availability and supply chain constraints) and efficiency improvements.
Additional examples of short-term planning that mitigate emissions risks include Pioneer refraining from placing a well on production without the necessary infrastructure being connected to allow gas to be gathered and flow to sales points. The company also employs robust leak detection and mitigation practices, including flying over our acreage footprint in search of leaks, which helps identify fugitive emissions as soon as possible. The company’s annual planning processes includes associated capital and resources necessary to achieve our emissions reduction targets through a combination of: (1) electrification of our operations to reduce CO2 emissions, (2) improvement of production and gathering facilities and leak detection technologies to reduce methane leaks, venting and flaring and (3) use of renewable power generation to reduce Scope 2 emissions.Other near-term considerations include the potential for abrupt policy risks associated with changes in environmental standards. We strive to be best-in-class environmental stewards, and we invest in development programs that help meet our efficiency goals as well as our environmental and safety standards.
As standards are modified by federal or state regulators, we are confident that our track record and operational philosophy will allow the company to meet or exceed regulatory requirements, while leading the industry in environmental practices. For example, we have been a consistent leader in advocating for the federal regulation of methane emissions during the Obama and Biden administrations and opposing the rollback of methane emissions regulations that were proposed by the Trump administration. In addition, we have supported the Texas Railroad Commission’s work to limit flaring and have designed our facilities to maintain this leadership position. Finally, we engage with prominent non-governmental organizations (NGOs) and others to jointly define key performance indicators (KPIs) in the near-term for leading sustainability practices for exploration and production companies.
MEDIUM-TERM STRATEGY (3-10 YEARS)
Early in 2020, Pioneer established an internal scenario planning process whereby an extensive list of forces affecting Pioneer and the broader energy industry over the next decade were compiled and ranked in terms of impact and uncertainty (i.e., oil supply and demand; potential regulatory changes, including adoption of carbon abatement regulations; and the pace of the energy transition). These forces were identified in a collaborative working session that included a cross-functional team and the Executive Committee, with regular reporting to the Board. These scenarios were then used to develop four distinct future states with each scenario, including several medium-term climate-related risks. See the Risk Management chapter of this report for more details.
To inform Pioneer’s future world view, the company continues to monitor key leading indicators associated with these scenarios, which are shared on a case-by-case basis with the Board and the Executive Committee. Through this process, Pioneer seeks to stress-test our business strategy and identify opportunities to improve the resiliency of the business over a medium-term timeframe. Examples of these improvements include our focus on reducing GHG emissions and freshwater use through electrification of our field operations and enhanced recycling of produced water. This will lead to an increase in our future electricity consumption and associated electric infrastructure investments in the Permian Basin, initially supporting the conversion of drilling rigs and completions fleets from diesel and natural gas fuel to electric power. With increased field electrification, Pioneer is focused on enhancing our electricity supply with renewable power to reduce our Scope 2 emissions. See the Emissions Management chapter of this report for more details.
Additionally, in conjunction with the medium-term strategy review process, the company conducts a financial impact assessment by stress-testing our corporate 10-year financial model under a variety of climate scenarios, further detailed below. The result of this medium-term financial impact assessment is presented to both the Board and the Executive Committee, and a summary of that analysis is provided in this report.
LONG-TERM STRATEGY (10+ YEARS)
On an annual basis, Pioneer conducts a long-term strategy review, with active involvement from the Board and the Executive Committee. We compare a variety of well-recognized, long-term energy scenarios published by government agencies, large energy companies and research firms. We select a subset of scenarios that we believe best represent the range of potential outcomes and utilize the assumptions from each of the selected scenarios to stress-test Pioneer’s full inventory development model, resulting in net asset value (NAV), resource and inventory impact assessments. Additionally, Pioneer leverages external experts, such as research, think tank, private equity and venture capital firms, to gain insights into how the ever-changing energy landscape may impact our scenario and strategic planning process. Pioneer’s scenario and strategic planning process is not designed to predict a given outcome. Instead, the process is intended to test the company’s strategic plan in a variety of future scenarios and identify opportunities to improve the resiliency of the business.
In 2022, Pioneer developed a series of long-term models to understand the inventory resiliency and growth of the Permian Basin as a whole, worldwide oil demand and even physical climate risks in the Permian Basin (in collaboration with a third-party analysis), and these models were updated in 2023 based on current factors. Building and updating these foundational models provides a better understanding of the potential risks and opportunities to an asset that is geographically concentrated and oil-centric.