Pioneer Natural Resources Co. and Devon Energy Corp. plan a variable dividend, executives at the U.S. shale producers said Aug. 6 as companies in the battered sector seek ways to reward shareholders after years of poor returns.

The payment could be a new model for a volatile industry out of favor with investors, said Pioneer CEO Scott Sheffield. Shares in oil and gas companies slid this year as oil prices crashed, but they underperformed other sectors for a decade even before the COVID-19 pandemic destroyed oil demand.

While Pioneer could start a variable dividend in 2022, Devon CFO Jeff Ritenour said it would look to add a variable dividend "as we move through the next couple of years and evaluate market conditions."

Top U.S. independent ConocoPhillips Co. last week said it would consider a variable dividend or share buybacks on top of its regular dividend, while Tim Leach, CEO of Concho Resources Inc., said his company would "be well positioned to do something like" a variable dividend.

A shift toward variable dividends on top of regular dividends probably will become "pervasive" among shale companies with stronger balance sheets as a way to convince investors that firms will not spend all their spare cash on drilling when oil prices rise, said Matt Portillo, analyst with Tudor, Pickering, Holt & Co.

"It's not going to be an immediate turnaround," Portillo said. "We’ve seen over the last decade that promises have been made and broken. It's a show-me-the-money situation."

Pioneer's variable dividend would be paid on top of its regular dividend, likely quarterly, though plans would be laid out next year, Sheffield said.

The board has not approved the idea but was having discussions, he said.

The oil industry has "destroyed value whether growing too fast or buying stock at very high prices," Sheffield said. Pioneer is looking at how other S&P 500 companies pay variable dividends, Sheffield said.

Onshore