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Pioneer says its low costs keep oil, profits pumping under carbon constraints

Pressured by a growing crowd of energy shareholders to report on corporate prospects in a carbon-constrained future, leading Permian Basin oil driller Pioneer Natural Resources Co. cited its low-cost structure as a key to keeping oil and profits flowing.

The prediction was part of the company's first ever sustainability report, compiling Pioneer's data and aspirations on topics including greenhouse gas emissions, water conservation and safety. The company's board opposed the shareholder measure before its May annual meeting, saying the sustainability information was readily available and a new report would be duplicative and expensive. Shareholders voted 52% to see a new report anyway.

With an estimated cost of oil production below $24 per barrel, Pioneer is at or under its break-even costs for the Permian Basin, the company's report claimed, and below the roughly $30/bbl break-even costs predicted by the International Energy Agency in a world where greenhouse gas emissions are limited to 450 parts per million of CO2, which the agency said would limit temperature increases to 2 degrees C or less.

Jefferies LLC upstream analyst Mark Lear in a Dec. 1 note pegged Pioneer's 2017 oil costs at $21.21/bbl in 2017 and $24.18/bbl in 2018.

The call for a sustainability report was one of three environmental, social and governance, or ESG, proposals by oil and gas shareholders to get a majority vote in 2017 out of 35 presented, according to sustainability advocate Ceres' shareholder resolution tracker.

"It's a good start," Ceres Director of Oil and Gas Andrew Logan said. "No company does a great job in their first report. The issues are complicated. Our advice is to get something out there and get lots of feedback."

"Pioneer means something," Logan continued. "It's a leader in the Permian Basin and in an industry that's really behind. This will put pressure on their peers to perform."

The Permian Basin's leading driller said its low-cost structure can keep oil and profits flowing even in a world where carbon outputs are strictly controlled in the effort to combat climate change.

"The company is in a strong position to produce oil and gas economically and help meet global demand for oil," Pioneer's report said. "This assessment is consistent with the '2 Degrees of Separation' analysis compiled by The Carbon Tracker Initiative, which examined the oil sector's economic viability in a carbon-constrained regulatory environment."

The report concluded:"This reinforces our belief that we are in a strong position to produce oil and gas economically in a carbon constrained scenario."

While Pioneer's sustainability report detailed efforts to reduce emissions and conserve water through recycling and repurposing produced water, the report gave few details of the driller's hydraulic fracturing programs, as called for by another shareholder proposal withdrawn before the 2017 annual meeting in May.

The Pioneer sustainability report measure was sponsored by New York Comptroller Thomas DiNapoli on behalf of the New York State Common Retirement Fund.

DiNapoli and the New York retirement fund also won with 62% of the vote a shareholder proposal that Exxon Mobil Corp. produce a report on the risks of climate change restrictions under the 2-degree-rise scenario. Exxon said Dec. 12 it would produce the report "in the near future."

A call for Occidental Petroleum Corp. to produce a report on the risks of climate change restrictions under the 2-degree scenario sponsored by Wespath Benefits and Investments, an investment fund aligned with the United Methodist Church, won 67% of shareholder votes in 2017. Occidental has said it will produce the report early in 2018.

According to Ceres' tracker, shareholders have filed 25 ESG proxy proposals for 2018 annual meetings, 13 of which are focused on environmental issues such as methane emissions and risk to assets in a carbon-constrained world.