Q3 2019 Earnings Call

[noise] pioneer natural resources third quarter conference call joining us today will be Scott, Sheffield President and Chief Executive Officer.

Switching Bailey executive Vice President and Chief Financial Officer.

Yeah, we call executive Vice President impairment operations, and Neil Shah Vice President Investor Relations.

Pioneer has prepared Powerpoint slides to supplement our comments today.

These slides can be accessed over the internet.

You bet BMW Dot Pete X D Dot com.

Again, the Internet site to access the slides related for today's call cats, Www Dot PXP dot com.

The website slide 10 investors, that's a lot to earnings under Webcasts.

This call is being recorded.

A replay of the called will be archived on the Internet site through December 2nd 2019.

The company's comments today will include forward looking statements made pursuant to the safe Harbor provisions on the private Securities Litigation Reform Act up 19 nineties.

These statements and that business prospects, a 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 I described in pioneers in years to relief on page two of the slide presentation and Enplanements public filings made with the Securities and Exchange Commission.

At that time for opening remarks, I'm really trying to call over to pioneers Vice President Investor Relations Neil Shah. Please go ahead sorry.

Thank you Ana good morning, everyone. Thank you for joining US let me briefly review the agenda for todays call Scott will be up first he will discuss our strong third quarter results driven by solid execution from the pioneer team.

After Scott concludes his remarks, Joe will review, our strong horizontal well performance optimized for rate of return, while delivering best in class oil production.

Rich will then update you on the benefits of our downstream planning for both oil and gas.

Scott will then return to discuss pioneers focus on sustainable practices, and our commitment to social and governance issues. After that we will open up the call for your questions. Thank you so with that I'll turn it over to Scott.

Thank you Neil good morning.

First of all I want to thank all of our employees in our management team for really three great quarters.

And especially for achieving 250 million.

In free cash flow into third quarter, and just a short very very short timeframe.

We're reducing the top end of our full year guidance again by additional $150 million.

We're increasing our full year production guidance by 3% at the midpoint.

Continued to see I'm positive benefits for our exit exporting about crude oil 46 million in the quarter uplift.

Total for 279 million for the year.

Also as you noticed we're starting to putting in some E.S.G. slides.

Okay.

And we are reducing our.

16 to 18 time period, we've had a 38% reduction in our total greenhouse gas emissions intensity will talk talk more about that later.

Again focused on free cash flow yield and return on capital employed.

[noise] going to slide number four again, a very solid execution is driving our third quarter results.

Again production as a top into guidance.

Also significantly improved capital efficiency coming through quarter by quarter by quarter.

[noise] going to slide number five.

Again continued improved capital efficiency.

Again, we're the top end of the de Cnf drilling completion facilities range being reduced again by additional $150 million approximately 5%.

We did achieve 100 million and facility savings already ahead of schedule you remember it was a goal to achieve.

The year 2020, we achieved it.

In a very very short timeframe due to the focus of our production people.

Continued improvements in DNC efficiencies as we're seeing.

Again, increasing the midpoint of production got its about 3% won't be Elise again stronger bailey growth or triple to increase into your NGL yields. From addition, Neptune is gas plants were going up from about 135.

Sales per million to about 155 barrels per million.

On those plants.

Going to slide number six.

2019 outlook again lowering top into guidance. These cnf do about 2.85 billion.

Again or do you see teams are continuing to execute every quarter at a very very high level.

We're updating our 19 average rate guidance to about 21 and that does include adding one rig that's already started in early November .

Starting to pop about 290 wells towards the upper end Barbara <unk> original guidance up to 65 to 290.

Regarding our midstream and Drillco initiatives.

There's really nothing new to report for the quarter, we're still in the process stage, we'll update you once we have more information.

On slide number seven.

Again, the priorities are along with shareholders.

Continue to buy back stock in the quarter, roughly about 200 million or an average price for about 125.

We bought back about 3% of their shares year to date.

When you include the production growth of mid teens results and our annualized dividend results in about a 20% shareholder return.

Still tend to increase the dividend over time.

You can bet competitive with that of the S&P 500 yield.

Slide number eight.

Again, the competitive advantages the Midland Basin.

Over the Delaware Basin again, I'll take them. The main change we made from the last quarter. A we've had a lot of questions about how much federal acreage do you have in the Midland Basin. The answer is zero, so regardless of who gets elected and this next election.

Pioneer essentially has no risk we have no infrastructure risk as all of our lines will move from the Midland Basin to the Gulf Coast within Texas.

I won't go over the other comparisons because they've been repeated.

Since last quarter.

[noise] slide number nine.

Again really no change again, we're focused on return on capital employed looks like it'll continue to move up or 2019 and over the next several years, we're still focused on mid teen moved it up to the mid teens range.

And a $55 W.P. a environment.

[noise] slide number 10 that says a uh huh, a new slide again showing percent of acreage developed.

That's coming out of the Wells Fargo Gray with our peer group and showing the acreage quality years of inventory breakeven price less than 50 dollar WT Ah you can see pioneer it's best to be far right and toward the bottom obviously.

In addition, we probably have probably assume the highest working interest and probably some of the lowest royalty burden obviously allows us to achieve.

Much better economics on all of our drilling activity.

[noise] I'll now turn it over to Joey ought to go over operations, Thanks, Scott and good morning to everybody.

Taking over on slide 11.

Still seeing great results in the Wolfcamp D appraisal program our approach to delineation combined with our completion optimization is resulting in approximately 100% improvement and Wolfcamp D performance from the 12 wells drilled since 2017.

As Scott mentioned earlier, we are adding a rig in November to set up for 2020 program.

And our operations team was able to fully accelerate the $100 million, an annualized facilities savings through value engineering and optimization.

Moving now to slide 12.

Simply reiterating our approach to address market concerns regarding the negative consequences of tighter spacing.

Our large acreage position allows us to prioritize returns and we do not downspaced artificially increase or inventory.

And risks negative parent child Unpacks.

Our development approach in conjunction with completion optimization has allowed or well productivity through improved year over year.

Now on slide 13, starting on the left once you normalize gross production for all peers on a two strain basis finer has the highest all percentage and then looking over on the right. We also have the best 12 month cumulative oil production.

These two factors combined should lead to the best margins in the highest returns in the basin overtime.

I'd like to add my congratulations to our sub surface drilling completions and operations teams for an excellent quarter on all fronts and I'll now turn it over to rich.

Thanks, Joey and good morning, I'm going to start on slide 14, where you can see the bar chart that shows that we are generating peer leading EBITDA margins per Boe and as you can imagine that's the foundation for generating free cash flow and strong corporate returns and really what allows us to be able to return capital to shareholders. The second thing that I think it highlights the benefits of us moving our oil and gas out of the Permian basin to higher.

Were priced markets and that combined with our cost reduction efforts. A this year is really leading to create great margins. Now these will improve further relative to the appears this does not reflect the benefits that we've seen from our DNA reduction efforts earlier this year that were not fully realized until the third quarter.

So when you combine that higher margins with our strong balance sheet and it really provide significant financial flexibility as we move into 2020.

Turning to slide 15.

You can see at the upper left there is where our price realizations were $56 per barrel for the quarter. This is relative to Permian peers. It would have realized $54 or so so two dollar increase really it was provided by our firm transportation to move our oil to the Gulf Coast, where we realized $46 million incremental cash flow for the quarter and too.

Earned $79 million a year to date.

For the quarter, we didn't move about 205000 barrels to the Gulf coast about 75% of which was exported during the quarter that is increasing to 225000 here in November .

And our volumes that will transfer to the Gulf Coast. If you look at the fourth quarter, what's happened with narrowing differentials and shipping costs that have been higher due to the tanker sanctions.

Limited availability of ship. So we are forecasting a nominal the slightly positive cash flow impact in the fourth quarter.

And then the other thing I'd point out is that similar to oil we do move our gas out of the basin and with Gulf Coast Express coming on we're moving about 300 million a day down to the Gulf Coast. So starting in the fourth quarter will be about 60% of our gas will go to the Gulf Coast, where we'll be priced off Houston ship channel or Nymex indexes, and then about 40% will still move out to Arizona, California markets there.

Priced out of a so called index, so very minimal warhol exposure moving forward.

And then lastly, just an update on our derivative positions for the fourth quarter. We have added incremental barrels. So we're now at a 110000 barrels a day of oil hedged at roughly $65, Brent and for 2020 word 80000 barrels at roughly $63 Brent with upside from there so.

So that I'm going to turn it back over to Scott.

Thanks, Rich I will now open it up for well not Auckland I forgot we do have a our yes, GCE last sorry, I got to have myself.

On slide on slide number or 16.

I think the key points here is that the company is focused on all three these measures.

And we'll continue to.

To highlight to all of these measures going forward, we have a great.

Third year in a row, we just released our E.S.G. report, but again focused on the environmental side again, we've had a 40% reduction in methane intensity in at 38% reduction and greenhouse gas emissions intensity from 16 to 18.

One of the key things that we do we do not connect any new horizontal wells.

To production unless the gas line is already in place I think thats something that should be adopted by all producers in the Permian basin.

Also were one of the few companies that are facility, 100% of our facilities are airlie monitored for leak detection and repair.

We do it through Ariel fly in about three to 5000 feet. We do at once a year very very important practice determine where your methane leaks and fix those lakes as soon as possible.

Again on the social side, we have one pioneer we're focused on humidity culture and talent development continued focused on improving.

Gender diversity.

Continuing to move this up significantly in regard to the percent of women inside the oil and gas industry inside the management teams the board level and all employees throughout the company.

And then on the governance I'm over the last few years, we have set up some key committees.

Committees, both I guess any committee oversight and how that very very strong corporate governance Committee.

Going to slide number 17 gives you a better break down on our greenhouse gas intensity and methane intensity in regard to our appears again its peer leading for 2018 data going forward already discussed the reasons why that we are taking we are leading our peers in regard to some of our our business.

Practices out in the field.

Slide number 18 has been a very hot topic off.

Recently over the last several months about how much flaring is going on in the Permian Basin. This data was taken by company called Rice data, Norway. It's already been published in the New York Times and also in several newspaper newspapers I think one of the best thing to do everybody needs to focus on getting down to 2% or below 2% regardless.

Lending and flaring and will take this off the industry.

You can see there is a lot of peers that are way above the average everybody needs to have the same practice and focused for the same reasons that we had in regard to new wells coming on they need to be connected to a gas line and secondly, everybody needs to do some type of monitoring on the flaring side.

And finishing on slide number 19 again the company against had three great quarters in a row.

And excited about going into 2020.

It's all about execution, delivering free cash flow and delivering higher return on capital employed numbers over the next several years again. Thanks, We're now open it up for you in a.

Thank you and if he would like to ask a question. Please second now my pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure your mute function as Turnbaugh tolling volumes tend not to retrain Clement.

Again that is star one if you might ask a question.

Well now take question around Tehran with JP Morgan.

Good morning, I was wondering if you could comment on what is driving.

Facility cost reduction efforts I think you mentioned.

Through the redesign of your facilities, you're expecting capex to be $100 million less so I guess my ultimate question would be how are you looking at facilities today with more of a focused on free cash flow generation versus perhaps before when you had the million barrel target.

Yes around it was simply and I think I've said this probably before is really since we have lowered our growth the company growth rates from 20% to 25% as they have shown the last two years to a mid teens growth rate.

It's not worth building for the next five years, so we're designing our facilities.

We're paying special attention to fill everyone thats an awful.

Secondly, we're making small changes in the design of the size of our facilities based on a mid teens growth. So it was achieving that.

Probably three to six months earlier, we're hoping to go into 2020. So we achieved about third quarter. So it's really achieved three to six months earlier than I thought. So the team was focused that they did a great job, but those are the main two drivers.

Great and my follow up Scott as I'm wondering if you could provide any commentary on your plans in 2020.

We did note that you added a rig in November I think there's two scenarios that you're looking at one was either to add a couple two three rigs.

And at late in 2019 to support 2020 growth or maybe add a couple two or three rigs at later in 2020.

I think the current consensus forecast is calling for about 13% oil growth.

Just under 3.4 billion in Capex. So just wanted to get your thoughts on 2020 and were consistent where consensus sits today.

Yes, thanks around.

As we have stated publicly we're going to be adding a roughly about two to three rigs per year over the next several years.

We've our mid teens growth rate.

When you look at about a 140 million per rig and the rigs we add you back out.

I was the fact that we've already achieved facilities.

We are going to have reduction in regard to the.

Both the water and the midstream side from 300 million to a much lower number going into 2000.

20 that I think the street is fairly close to their numbers.

We haven't will be going into the board over the next this November Board meeting and then early in January and releasing in early February but.

When you go do the math, it's still implies that 2020 capex budget of roughly about 3.3 billion.

Thanks, a lot Scott.

Well now take a question John Freeman with Raymond James.

Good morning, guys.

John just there just a follow up on the prior question. So.

Previously talked about kinda, averaging 21 to 23 rigs and you know even with the Oh the rig out in November which I know as was previously planned you're now targeting 21 rigs in.

I'm just curious if that's just all efficiency gains or is it a timing issue where maybe some of the additional rigs you might have added for 2020 might not happen until early next year.

Hi, John This is Joe you and you answered. The question you know all this is due to efficiency gains.

Whenever you see a 30% improvement cycle times year over year. It doesn't take much to start winding down your rig count so.

Yes, the the reduction in rig numbers is purely due to efficiency gains.

Great and then just my follow up question, you know you've done a really good job.

Kind of historically kinda opportunistically, putting these these hedges on it kind of that.

Low to mid sort of Sixtyv price for Brett I'm just curious if.

Just anything you're seeing on the macro side with the you know the rig counts continue to fall expectations for U.S. growth continuing to be sort of reduce if that sort of maybe changing the thank you know what levels you'd be willing to hedge it.

Going forward.

Yes, John .

I think we still have to get through 2020, but I've been on public record.

Sure.

Talking about the Permian is going to slow down significantly over the next several years.

Lowered my target semiannual targets a lot of it has to do with free cash flow to start with the free cash flow model that public independents are adopting the issues that private equity firms are are going through in regard to consolidation reducing activity.

At the reduction of NGL prices significantly we've.

Hi, good long term from about 70% to 50% of Wi Fi now, we're down to 30% of WT, especially for propane and butane.

All that is left revenue the string balance sheets allow the company's half.

The.

The the parent child relationships that companies are having.

People drilling a lot of tier two acreage so I'm, probably getting much more optimistic about 21 to 25 now in regard to all price I.

I don't think OPEC has to worry that much more about U.S. shell growth long term.

And all that is very beneficial so we probably going to be more careful in the years 21 to 25, because there's not much coming on after the three big.

Countries that are bringing on discoveries.

Over the next 12 months, Norway, Brazil and Guyana.

Guyana will continue obviously, but I'm definitely becoming more optimistic that.

We're probably at the bottom end of the cycle in regard to oil price. So we're still going to hedge in 2020.

To protect what may happen with China trade agreement and other things that may happen, but we'll be very mark will be more cautious as we go 21 to 25 time period.

Thanks, Scott I appreciate it.

Well take our next question from Ryan Todd with Simmons energy.

Yeah. Thanks.

Maybe a.

A quick follow up on the Capex reductions that were obviously quite impressive during the third quarter.

We've seen big step downs over the course is Europe and sand in pressure pumping shifts to then reduction in completion efficiencies in facility to us.

Are the big pieces behind you at this point do you see the potential for further.

Further gains going forward, particularly on the completion efficiency side, where where it's been pretty impressive this year.

Yeah, Ryan we certainly had a tremendous year this year from a cycle time improvement and cost reduction perspective, and I would I would temper expectations for.

2020, because we did have some huge gains, particularly related to the pro Petro transaction and again.

You know these efficiency gains we made in big steps. This year, primarily by just focus on lean manufacturing methodologies and you know.

I tell people all the time one of the best things that ever happens to an operations team as a slowing down and being able to catch your breath and reflect.

Focused on performance and Thats what transpired.

During this last slowdown source able to focus on the basics and make big gains, but going forward in your commentary is correct.

I wouldn't expect to see huge leaps going forward, but I Wouldnt also suggests that we don't have room to improve.

Thanks and.

You're guiding to relatively flat oil production in the fourth quarter can you can you provide any maybe any high level of color on on cadence or trajectory of activity.

James over the next few quarters or at least at a high level in 2000 is one or whether we should see a relatively consistent growth or front or back end loaded.

Hey, Ryan its Neil if you look at the cadence of our of our rigs throughout the year. We started a 24 rig count came down throughout the year down to 18 right. Now we're sitting we exited Q3 18, we added additional rigs were at 19, but if you look at how those rigs dropped in terms of the pop cadence from a quarterly perspective.

We've yet to formalize the precise plants in the teams are still working for it but I don't see any reason why you would see consistent growth quarter over quarter as it progressed through 2020, but that's just really setting to framework I think the team used to work through that precise plans and as you know will announced on February .

Great. Thanks, Neil.

Yes.

Well now take our next question from and then come up with Wells Fargo.

Good morning, guys and thanks for taking my question.

God, if you could talk a little bit about the M&A market. A you know you mentioned that Drillco strategy you saw the parsley Jagged peak deal you talked about guys getting tier two acreage just kind of interested on.

How are you thinking about that.

Yes, I think any type of transaction like partially did that consolidates acreage that is very contiguous improves the balance sheet.

As accretive.

Companies should do.

There's probably not a lot of those.

Well on record, saying the majors are the most aggressive in regard to drilling activity.

They will have to bulk up to decide whether or not to bulk up their inventory over the next two to three years and decide whether or not to acquire any independents.

And so besides that it just it is not going to happen for a while it may happen, if we get into a better oil price market. So that's really.

About it.

And then just going back to slide 11 on the Wolfcamp D.

All the seed gaining confidence in that zone when should we expect it to move from appraisal into development mode.

Yep, that's one of the beauty is to having such a large acreage position is that you can do this appraisal and sit back and watch results.

From these wells and make sure long term the to fully understand.

The the.

The decline curves and also look go back and look at your cost and see if you have the opportunity to reduce costs to make them, even more economic and in the meantime, we can still go back to our traditional wolfcamp, a wolfcamp b lower spraberry shale and continue to develop those until we fully understand.

The production from the Wolfcamp D. So what I would suggest you would see next year from an activity perspective is probably pretty similar to what you saw this year.

If you look at the Jo Mill for example, I would say I went through a similar transition that we appraised for awhile and then we started slowly adding more Jo mill wells on to the program this year up to 7%.

Wolfcamp D. it was a pretty small percentage of our program not sure it'll probably be a little smaller percentage next year, but and the out years, you'll start to see come in after we make sure we fully understand it and were able to continue to put that under a program.

Great. Thanks.

A question.

We'll now take our next question from Gennine away with Barclays.

Hi, good morning, everyone.

So.

Hi, good morning.

Following up on earnings question on the rig adds can you walk through or talk about how you're balancing the 2019 capex budget with perhaps trying to mitigate any operational friction with having to add maybe more faster in 2020 versus a more ratable cadence or is the right way to think about it really on efficiency, meaning.

That would be efficiency gains that you've been achieving the historical two to three rig adds really can be biased downward and so therefore kind of concerns on operational fiction might be overblown Tony Tony.

Judging no I wouldn't account that to anything related to operational friction I would just say just like you saw the 2019 program play out.

The numbers and we put out in the beginning of the air was fully what we anticipated the rig count would be but because of the efficiency gains. We saw during the year. We just frankly didn't need more rigs you can even look at frac fleets, we dropped four frac fleets sooner than we had expected.

Whenever you look at 2020, that's just changing the game and.

The amount of equipment, you need to accomplish a certain amount of work just gets less and less as you continue to grow efficiencies. So it's it's it's not related to any.

Alan Schnitzer operational frictions, it's 100% due to the fact that we've just gotten better drilling and better completing wells from the cycle time perspective.

Jane I mean, I'm going to piggyback on Joe is response, and if you look at where we started the year radar were 24 rigs with an average of 21 to 23 with Pops up to 65 to 290.

Now, we're sitting were actually taking that average down to 21 rigs, but yet the pops are going to the high end of the Rand to 90, so if anything the increased efficiencies by the great performance from the pioneer teams has resulted I'd say in less operational friction, which has manifested itself in our numbers and the capex as well as production.

Okay, Great. That's very helpful. Thank you for taking my question.

Well now take our next question, Sam Charles Meade with Johnson Rice.

Good morning, Scott to you and your team there.

I wanted to ask.

Update or do you think you wouldn't ask if you could maybe give us an update on on how you're thinking about your your buyback pace going forward.

As I look at 20, the big differences you guys have upped your dividend meaningfully add up.

Depending what price deck, you use that that could you know takes a big chunk of the free cash flow, you're generating but well. The other side you have these assets sale. So can you can you talk a little bit about how those pieces up go together and if there's any sequencing or related to the pace of a buyback going forward.

Yes, we're still.

We still have a $2 billion buyback.

We're still evaluating it in regard to all the pieces as we deliver free cash flow how much goes to the balance sheet, how much goes to dividend and how much goes to the buyback. So we'll be discussing that in our upcoming board meetings.

Over the next several weeks and so adapt when we think it's all important we don't have any specifics at this point in time, So we'll get back with you as we develop our plans.

Thank you and then Scott I want to go back to what are the or some of your comments in your prepared remarks, I think you've made your your view on the up.

Benzene in flaring, what should what should be the industry practice, you made that pretty clear, but I'm curious do you think are you sensing a change in what's kind of socially acceptable or acceptable for the industry is a hole in other words industry coming towards you or do you still kind of Oh.

A pioneer.

No pun intended.

Regarding again, that's a good terms a bond here, we always like to be a leader and so.

About a chance to speak in new Mexico at the first methane conference by the Governor.

Grisham out there recently spoke in that.

Jason Board offs Conference last March and April and made a statement, it's a big black Guy for the Permian Basin.

And so we don't want to become what's happened in the Bakken over the last five years and so we need to do something about it so were taken steps internally to do something about it and I'm on every other company in the Permian Basin do the same thing. So we're leading and we just want people to follow us and do this take the same steps.

We also need more pipeline gas pipelines, that's an issue I haven't been able to solve and get them in faster, we do have to more lines coming in early 21 going from the Permian basin to the Gulf coast, but we definitely need.

More gas lines and people committing to those gas lines people don't really have to make illegal commitment of nbcs like pioneer So I know.

One of the Big midstream companies on the board that they will work out relationships in agreements in regard to where you don't have to commit volumes, but they still can take your gas, but we just need to free out away to shut it down and it didn't start until 2000.

12, when horizontal really took off and we just need to take it off need to take the black eye off, especially going into the next election.

Got it thanks for those comments.

Well now take our next question from that's not handled with RBC capital markets.

Yeah. Thanks, good morning, good good the you'll provide a little bit more color on the Wolfcamp D. In terms of what you'd like the kind of continue to see permit to make good competitive or maybe some context on how competes for capital in some of the other core areas.

Yes, Scott going back to now what I said earlier it is a big part of our plan going forward.

But I think everybody is aware because wolfcamp D is deeper it is more Ics and there is more expensive and it has a little bit more challenging.

Whenever we executed these last 12 wells there were several objectives one was to try our completion optimization, which you can see was successful but also intermingled and there are some spacing tests we've done.

For a different spacing configurations in different areas.

So it just takes time for those things to be understood and make sure that whenever we are ready to execute.

We fully understand.

Impact of spacing completion optimization and again like I said the cost side, we're always looking at opportunities to get the costs down so in essence, because we have the luxury of time because of a large.

Print and an ability to go and do the things that we know the best we'll just continue to optimize the solution for these and make them more and more competitive.

Being said that the Wolfcamp D wells or are very strong and competitive with the rest of our portfolio, but we just want to make them better by understanding the performance.

Okay and on the potential for maybe some improved well cost reductions really is that just in experience or are there. Other things that you. All are trying right know to a eight in that.

Specifically in the Wolfcamp D. Yeah, I'm, sorry, specifically the Wolfcamp D.

Yep.

I don't think it's any secret that whenever you're stimulating these deeper higher pressured wells it is more challenging so.

It does cost more but we've seen every time that we've executed these wells that we've learned something and gotten better.

But now you want to make sure the whatever adjustments you made it doesn't impact performance.

So those two things go hand in hand, so we have gradually.

Gotten better execution, but now we're just seem to understand performance and tie those two things together.

Okay. No. Okay. Then then okay and then on your Ela, we'd cost I mean power was an issue in several areas during the summer the hot weather.

You know what are some of the things that you are looking at them to mitigate some of that and how much are you impacted by the generally speaking.

Hi, definitely it's got impacted us or during the quarter just because of the summer heat in July August , particularly where higher so it affect us on both the gas processing side, where it takes electricity in the field level. So yeah. We look at that and you know from time to time look to hedge it but for the most part its seasonal and so we're past that time very.

And would expect to see them refer back to more normal rates as we move through the rest this year.

Okay. Thank you.

Well take our next question from Bryan singer with Goldman Sachs.

Thank you good morning on a on slide 12, and 13, you highlighted the 180 and 365 day, well performance and the improvement in rates over time, well. Some of these slides are making a relative point versus peers. How do you see the absolute well productivity moving when you think about your 2020 program.

And what is the scope and drivers of potential further improvement.

Well I thanked whenever you look at the see those lines you can obviously see the theres closure year over year. So I think it's obvious that we're we're reaching a point in time, where the opportunity to improved well performance is not what it was compared to two or three years ago. So there's definitely.

Convergence there.

From a perspective of continuing to improve that.

We are still you know tweaking completion designs and cluster spacing.

Doing more science in regards to understanding the opportunity to reduce costs because at the end of the day.

We're generating economics, not just trying to produce oil so we want us make sure that all the decisions and we make from a completion perspective, however return.

So we're looking at it from that perspective as well.

But like I said I'm looking at those curves I don't I don't think anybody expects that we're going to continue to see that kind of improvement year over year, it'll it'll eventually flatten out until new technology, you are or some other opportunity presents itself all of which are things that partners looking into.

And do you think that barring that technology and technological improvement that 2020 in 2021 are up relative to 1980 that flattening is happening now for your credit for the company.

Okay, Yeah I think.

Thank you would see a continuing pattern like you do that the lines are just going to converge and you'll see a flattening. Thank you you said it best.

Great. Thanks, and then my follow up you talked earlier about the share repurchase dividends and some decisions that still need to be made in terms of the magnitude of all that going forward beyond what's already been.

Authorized but I wondered what what your long term leverage target flash acceptability acceptable level is.

Because as was mentioned earlier, you'll have some moving pieces with asset sales, but ultimately.

What do you what do you think is the is the right sustainable sustainable leverage.

Yes, we still have the same leverage target.

At the company.

Debt is cash flow a 0.75, Brian so.

No change to that.

And is it fair to say then it and asset sales.

Or operational free cash flow puts you in a 55 dollar world believer that there would be willingness to.

Return more cash to shareholders to get up to the 0.75.

Say that say your scenario again, if we're in a 55 dollar world I, you something or whatever you would regard as mid cycle.

And leverage either via asset sales or because of operational opera normal free cash flow.

The low 0.75.

Should there be willingness to continue or to add to the return of capital program to get at 2.7.

Well, we're going to look at primarily.

Toward what is our free cash flow and our free cash flow and I'm debating I'm still traveling around we're going to go out and see all of our long shareholders again early next year.

But.

We're trying to determine a long term strategy of whats best between share buybacks in regard to in addition to increasing the dividend.

Whether or not to go to variable dividend.

And balance sheet.

And just like I said share buybacks and how to distribute and.

So I did mentioned at Barclays that we have roughly approximately over the next several years about $5 billion and so we're trying to come up with the ideal plan to disperse that in regard to all three of those obviously with two thirds of that going toward shareholder friendly measures such as buybacks and dividends.

And it's all related to what the all priced active so I can't give any specifics.

In that regard, but that's how we're thinking.

Great. Thank you.

Well Mammo CAD, David Deckelbaum with Cowen.

Thanks for move into May just a couple of questions guys. Thank you for the time.

Curious.

I wanted to ask around your firm transportation agreements that you have in place getting some of that Brent pricing. The huge uplift. This year you all had early mover advantage locking up some of that capacity.

Scott with here, what's your outlook now on how you view brand versus Ti in Midland pricing and is that an asset or contracts that you might look too.

Swap out of that been released some capacity you know if that arbitrage is there to perhaps bring in some cash if there's if there is willing participants on the other side.

Yes, I'm going to let rich is by expert he knows far more about it than I do sell and let him answer. This question. Yes. Good question I would say that long term, we we see the benefits of moving the old to the Gulf coast and being higher priced markets by being exported. So I don't see a scenario at this point, where you know trading out of those contracts.

Would be the rising doing back we continue to look at you know our long term trajectory and we need incremental capacity out no three or four years or so things and they will continue to assess and I think if you look at the forward curve, it's roughly five to $6 between.

<unk> rent then WT I in Midland trades at a premium to WTC today.

Because of the pipeline is trying to get filled up with volumes.

But long term I think it'll still be an advantage to have our oil on the Gulf coast, where we can sell it either into the refinery market or export worldwide. We're we're been demonstrate that we get a price uplift. So I think we're going to continue to with that philosophy.

I appreciate the color on that and then my last one is I guess one of the larger future big ticket items in terms of cash proceeds and the door could be something around.

The water handling or water sourcing you have with city in Midland coming online at the end of 2020, you said a decision would be made around the same time I guess.

Well, what sort of factors are you weighing the most right now because that is going to be a very low cost source of water there.

How are you thinking about whether that would fit in your portfolio or not.

Meaning the city of Medlen project, specifically yeah.

Certainly the fact that we entered into it.

And because it is such a large contract in excess of 200000.

Barrels of water coming on late next year or early the next.

That's obviously a significant part of our.

Plans going forward and it is a very low cost source of water, having said that we are looking at our water system Holistically.

Looking at opportunities to make sure that we leverage that to the best of our abilities and.

More specifically our focus is on reducing our well cost I mean, the purpose of that water system is to ensure execution, we want to make sure that a.

Continues to deliver value in the city of Midland project as a big part of the.

Thank you guys.

Well now take our last question Michael Hall, with Heikkinen Energy advisors.

Thanks, Good morning.

I guess follow back up on the kind of some commentary on 2020 and and capital and rigs.

I think in response to around you confirm to the the street capital number seemed reasonable, but I'm curious on the volume side.

You know if 15% is more what we ought to be targeting or something just shy of that given the current environment heading into 2020.

Okay.

Yeah, it's too early right now they're focused on that but long term, we're still in that mid teens growth rate.

Okay.

Fair enough and.

Yes. The other question I had was just on the.

The cash flow side of things I'm, just trying to kind of square.

With our model anyways.

Cash balance at the end of the quarter was lower which seem to be a function of the kind of the the capex on the statement of cash flows are the abbreviated <unk> statement of cash flows.

Relative to the 665 million of reported capital.

Is there something going on in that that will reverse next quarter or kind of can you help bridge the gap between the the 95 on the abbreviated statement of cash flow versus the 665.

Yeah, Michael It's just timing I mean, as you can imagine as we're slowing down activity. The Joey talked about during the year. Those bills came in during the third quarter and we pay them. They were accrued as into the second quarter. So you can see our payables did drop so it's really just timing there is nothing in than you would expect that given the activity level for the third quarter that that would come down.

The demand said in the fourth quarter. So I think is really just nothing of consequence, there than just timing.

Okay.

Figure thank you.

Thanks.

And that again, thanks question.

Okay.

Yes go ahead mr. shutdown.

Okay sorry.

Again, I want to thank everyone for participating in this quarter looking forward to see inner body next quarter.

Talk to your later bye bye.

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