Q2 2019 Earnings Call

Welcome to pioneer natural resources second quarter conference call joining us today will be Scott, Sheffield President and Chief Executive Officer.

Rich Daly Executive Vice President and Chief Financial Officer, Joey Hall, Executive Vice President of <unk> operations, and Neil Shah Vice President Investor Relations.

Pioneer has prepared Powerpoint slides to supplement their comments today.

These slides can be accessed over the internet at <unk>.

Www Dot P Xtandi dot com.

Again, the Internet site to access the slides related to today's call is www.

Got P XT dot com.

At the website select investors, then select earnings and webcast.

This call is being recorded.

A replay of the call will be archived on the Internet site through September 1st 2019.

The company's comments today will include forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

These statements and the business prospects of 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 are described in Pioneer's news release on page two of the slide presentation.

And then pioneer's public filings made with Securities and Exchange Commission.

At this time for opening remarks, I would like to turn the call over to Pioneer's, Vice President Investor Relations Neil Shah. Please go ahead Sir.

Thank you Anna good morning, everyone and thank you for joining US let me briefly review the agenda for today's call.

Scott will be up first he will discuss our strong second quarter results underpinned by solid execution and a reduced capital guidance for the full year.

After Scott concludes his remarks, Joey will review, our strong horizontal well performance optimized for rate of return.

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

Scott will then return with a brief recap in commentary after that we will open up the call for your questions. So with that I'll turn it over to Scott.

Thank you Neil and good morning.

On slide number three on creating value.

The first key point is we're continue to buy back stock and obviously, where the stock is today well be continuing to aggressively buyback stock third quarter.

An averaging our price down.

What's great is that we have the best balance sheet of the independents in the business to allow us to do this.

[noise], we lowered the top end of guidance of our capital by 150 million.

The capital efficiency, we increased our dividend up to $1.76 per share.

With the yield about 1.5% and we moved to a quarterly distribution.

We achieved our DNA savings much quicker than expected.

Third quarter will be down to about 225 would be only on a cash basis will be below $2 moving toward a target that much damage for the company toward $2 in 2020.

Below $1.70 on a cash basis on a daily basis.

We did achieve free cash flow when you add back in our restructuring charge for the second quarter.

Based on the SREP I'm about a week ago.

We're establishing significant free cash flow second half of 2019.

Based on the CNL.

Oh footnote too.

Turning to show great cash flow uplift for our vision about exporting crude oil several years ago to the Gulf coast and exporting around the world.

81 million second quarter 230 million the first half.

Going to slide number four.

Again, we're at the top end of guidance on production.

[laughter] on which it was significant improved capital efficiency.

[laughter] next slide.

Slide number five again, I mentioned that we're reducing our capital guidance on the top and bottom 50 million.

Our drilling and completion teams are performing at very high levels.

Around the clock.

We will accelerate our west, Texas San utilization.

And reducing our infrastructure cost spending by about 50 million.

Lowering the top end of guidance by approximately 4.5%.

Slide number six.

Outlook is still great.

Our three and a half million dollars would have been increased over 3.6 billion without the restructuring charges.

Again, I mentioned congratulate our DC teams are executing at a very high level of efficiency throughout the company.

[noise] slide number seven on improving our cost structure I've already given the highlights.

Moving on to our targets down significantly we're already in the top quartile of our peers.

The goal is to stay there as I said the goal long term goal is get below $2 per Billy on a cash basis, we both below $1.70 and continue to drive that down overtime.

[laughter] slide number eight.

Our properties are line now with our shareholders.

Returning 825 million already to the shareholders.

Including when you pro forma the dividend yield of 1.5% and buying back over 2% of our stock already with future buybacks to occur in the third and fourth quarter.

Increasing the dividend already as I mentioned, the 1.5% yield and go on to a quarterly distribution.

It's up 2100% already from first quarter and 17.

When you look at buying back our shares pro forma dividends.

And growing mid teens, we're giving 20% back to the shareholders.

[noise] on slide number 910, 11 and 12.

I'm going to go ahead and give some comments on the big picture.

Items and hit a few highlights on those four slides on 910 11 12.

After returning a study in recent reports.

Put out a rice dad, woodmac, I guess S&P global when some sell side.

Reports I convinced pioneer.

Has the most productive wells and the highest returns in the Permian Basin.

With the most contiguous acreage position.

That's been drilling the wider spacing wells more than anybody else over the last six years, we do not have to down space.

Due to our contiguous nature of our position in the Midland Basin.

From these reports the Delaware is being drilled aggressively by many more operators.

Rig count.

And tier one acreage has been exhausted at a very quick right.

Some of the reports have Delaware picking in 2024.

Because of the aggressive drilling and down spacing because companies are essentially running out of inventory.

The same reports are showing the Midland basin, well not peak until the mid 2030.

Hi, I'm Laurie my expectations are the Permian, reaching 1 million barrels of oil per day.

Growth annually as it did in 2018.

I'm still convinced the Permian will reach 8 million barrels a day, but at a much slower pace.

With the Midland Basin as the only growing basin in the U.S. past 2025.

Going back to slide number 910, 11, 12, just make a few key points.

And we'll turn it over to our next speaker.

On slide number nine obviously are just points to make.

As I mentioned already I think they're all mostly obvious I wanted to Midland Basin is the best place to be with our acreage position in regard to well cost or quality.

Opex and commodity mix.

Going to slide number 10.

This is a slide from the sell side.

Also to help with those returns rich will talk more about the fact that we've aggressively hedged with the ramp in price several weeks ago.

With brand up into the mid Sixtys, we're aggressively hedging and 2019 with swaps and also for the second half and also in 2020, which will help our return on capital employed grow.

Over the next several years the goal is to get our Aro see up to the mid teens over the next three to five years in a $60 Brent market, our 53 $54 W. D market.

Slide number 11, the key there is the fact that we.

Oh already have taken positions of X 40, almost all of our crude we're getting the highest prices.

And the fact that W.T.I. in Midland.

41 degree gravity is getting a premium priced Delaware grid.

In slide number 12.

Again, we have an unmatched footprint.

Probably the highest net revenue interest among all the independents lower quality.

And it's interesting the fact that we saw a couple of things happen one with US we saw some non core assets.

This quarter for 20000 per acre is the first time, we've seen a cash deal coming in from private equity over the last two years.

We will continue to do that as we see great opportunity to deliver on non core asset sales. In addition, we saw noncore assets go for 31500 per acre with the deal that Oxy announced recently.

I'll now turn it over to Joey on for Slide number 13.

Thanks, Scott good morning, everybody.

I'm going to be picking up on slide 13, and I know theres been a lot of discussion recently about well spacing and the resulting parent child effects.

And as Scott just noted.

Piner isn't the enviable position of having approximately 680000, mostly contiguous acres.

And that's our acreage position that allows us to prioritize returns and capital efficiency, rather than artificially increasing our inventory tighter well spacing, which as we know increases your exposure to the parent child impacts.

Assist development strategy combined with advances in our completions methodology over time.

Is what has allowed us to improve well productivity year over year as you can see there on the right hand side.

I'm going to be moving on to slide 14.

Here were illustrating an additional factor in our ability to sustainably deliver strong margins.

Looking on the left hand side, you can see that based on gross production and normalizing on a two stream basis pioneer has consistently delivered the highest oil percentage in the basin since 2016.

And then on the right hand side you can see the pioneer also has the best 12 month cumulative oil production in the basin.

These two factors combined with our development strategy discussed on the previous slide should lead to the best margins are the highest returns in the basin overtime.

Now moving on to Slide 15, my last slide.

Here were highlighting enough another successful Wolfcamp D appraisal.

This was a wolfcamp D two well pad in Western Glasscock County, and after 180 days. It is outperforming previous wells in the same area by 82%.

We did pop 83 wells in Q2, and it's important to note that weve deferred some facilities projects until the back half of the year.

Once again as Scott noted a solid quarter of execution for the Permian team Congrats to all and I'm going to turn it over to rich.

Thanks, Joe and good morning, I'm going to start on slide 16, where you can see that we had realized oil prices of $60 a barrel for the quarter that did include a significant uplift related to the firm transportation as Scott talked about moving or older. The Gulf Coast, where we get Brent related pricing.

This increased our price by over $4 for oil.

For the quarter and as Scott mentioned provided about $81 million of incremental cash flow or $230 million year to date through June [noise].

Based on our forecasted prices for the third quarter, we are expecting an uplift of about $25 million to $75 million in the third quarter from the ability to move our oil and exported on the Gulf Coast.

During the second quarter, we moved about 90% of our oil or roughly 200 over 200000 barrels a day to the Gulf coast of which 80% of it was exported.

With roughly 60% of that going to Asia, and 40% to Europe .

Longer term our firm transportation commitments increased about 250000 barrels but into 2020.

Which is consistent with our forecasted production growth.

As I've discussed in prior quarters, we try to move all of our products to higher priced markets and during the second quarter, we moved about 60% of our get gas out west and priced off the so Cal index.

During the second quarter. This provided about $20 million to $25 million of incremental cash flow and improved our gas price realizations relative to other Permian players.

Once Gulf Coast Express comes on in the fourth quarter.

We will move about 300 million cubic feet, a day to the Gulf coast in price that on a ship channel price index.

And at that point virtually all of our gas will be sold outside of the Permian basin.

As Scott mentioned before the pullback in commodity prices, we did aggressively hedged for 2019 2020. So now we have we have for the remainder of 2019 72000 barrels a day of oil.

Hedge did brand or Brent prices around $67 and 67000 barrels a day.

2020.

Production hedged at roughly $64 per barrel each of those with upside.

Turning to slide 17, I think this slide highlights two key financial benefits at pioneer has.

First it highlights the fact that we have the strongest balance sheet amongst our peers.

And you can see that by a measured against debt versus EBITDA.

Basis, and then secondly, it highlights the quality of our wells and our cost structure as we have the highest EBITDA per BOE a day of our peers. This does not reflect the recent.

Restructuring that we went through and the annualized hundred million dollar savings and so that will just further improve our margins.

Both of these point to our industry, leading financial position and our efforts to continue to improve margins and corporate returns.

So why don't I stop there and I'll turn it back to Scott for a few closing comments.

Thank you rich.

On slide 18, I think all these key points speak for themselves but.

My primary goal was to get the company to free cash flow.

As quickly as possible as I came back and I'm surprised how efficient and all to all 2000 employees are working around the clock and got US there already second quarter. When I made the comment about getting free cash flow, we add back the restructuring charges for second quarter. So thats, what I'm most proud of.

We're going to continue deliver free cash flow and assembly a balance.

Between growth.

Returning increasing dividends.

As I mentioned earlier.

In the past the goal is to get up to the average of the S&P 500 as quickly as possible.

And also continuing our share buyback program.

So again I think all these key points speak for themselves. So I won't go over detail again, Thanks, we'll turn it over now to a Q and a session.

Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad and hearing anything a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again that is star one if you would like to ask a question.

And well now take our first question from Iran, Jr. From JP Morgan.

Yeah good morning.

The first question, perhaps for jelly, but was wondering Joe if you could maybe discuss.

The optimal project or well package size that you think.

Is is is there to optimize.

Returns and free cash flow generations from your asset base.

So from an execution perspective.

No. The three well pad is what has been our bread and butter through and through but as time is going on now we're increasing that to four and six wells and we're getting extremely good at that but it's kind of hard to explain it as a package because.

Sometimes we drill these larger projects with one rig and sometimes we do it was saying two rigs, but I would say going forward.

Not going to be uncommon for us to see 468 and well pads.

And probably the sweet spot.

Somewhere in the six well pad size.

Great and just as my follow up Scott in the press release.

You guys highlighted how you believe.

That executing on a mid mid teens oil growth.

Outlook is the best or optimal in terms of generating.

Top your returns.

At optimizing your free cash flow generation.

My question is thinking about the next couple of years.

You started the year running 24 rigs.

You know you're down to 19.

Thank your.

Guidance called for a rig count between 21 to 23 this year and we thought you needed to add.

Two or three rigs kind of per annum to support that growth. So just wondering how you're thinking about the next couple of years, particularly late with Brent prices now moving towards the mid Fiftys.

Yes first of all I, just don't think the world's going away.

It could but.

I don't think the world's going to be $55 for the next three years.

That puts Wi Fi down to about 40, 840 49 net prices. The people are 45, you're going to see a significant fall back in Permian growth, you'll probably move toward no growth for most people and so.

But on that basis, we got a great balance sheet, we have cash on the balance sheet and we can drill through the cycle we choose.

So we're sticking with our mid teens growth long term, adding two to three rigs per year.

So I haven't we haven't changed our opinion at this point in time, even if we go to the mid Fiftys.

Great. Thanks, a lot.

Well now take our next question from Doug Leggate with Bank of America.

Thanks, Good morning.

Scott yourself on your offspring or the two only when we spoke screen. The screen. This morning. So congrats on the progress you've made since you go back.

I got two questions if I may.

First on the commentary in the press release about acreage sales on.

Longer dated.

You know stuff that you might not get to in a in this floor rate of growth I guess.

Versus what we had previously CFO of pioneer who is up process evolving.

Do you expect meaningful asset sales period.

And if you could maybe just give us a broader update on how things are going with targa on maybe your considerations are on water infrastructure. Thanks.

Yes.

In regard to all three built infrastructure items you mentioned.

Natural gas midstream in water.

And also on Drillco.

We will update when we complete those three items. So I expect to have it will be done by the end of the year.

And then water as we mentioned in the past, we're evaluating a now and we'll make it the board will make a decision in 2020.

So all three are being evaluated proceeding as expected.

In regard to the acreage sales, we will continue as I mentioned in the past over the last two years there hasn't been much dot.

Except for the.

Oxy transaction, which people have established acreage cost somewhere between 40 and 55000 per acre for that transaction by various sell side and external reports we've seen this recent transaction for Ecopetrol.

Doing a deal with oxy at 31500 per acre.

In our treasure map to the Midland basins is where the experts only 15% of that acreage was in core 85% was noncore. So it seems like a very very high price for noncore acreage, we would sell noncore acreage all day long at 31500 breaker hopefully, we'll get continued asset noncore acreage for 20000 breaker. So we're excited about that transaction.

And so far the drillco process as I mentioned earlier.

If we decide to pursue with that by the end of the year.

It's established around the same price prices I've already mentioned somewhere in that 20 to 30000 breaker is what we would be.

Selling a piece of the acreage for when you look at their at the returns so hope that helps Doug.

It does go up my follow up is maybe for for rich.

And it's kind of a philosophical question, I guess, because tripling or stepping up the dividend the way that you've done.

Really starts to address an issue I guess to the whole industry has been challenged with which is how to follow you.

The year sector. The you in particular and then obviously the generally in PC space.

Almost to the point of thinking along the lines of a dividend discount model with the depth of the acreage that you have inventory and so on so.

My question really is in order to help the general as do something like that you need to have an idea what your thoughts are on future dividend strategy.

Payout ratios trajectory for high growth, Mike full year underlying capacity for cash flow growth. So I just wonder if you could share with those now that you've reset the dividend to remain competitive Haas the hobbit grocery with it how do you think about that.

Yes, I think as we demonstrate and Scott talked about increasing from eight cents on an annualized basis over the last couple of years to $1.76. It's clearly a focus of the company as we move to free cash flow generative model.

As we think about longer term I think we want to get to a dividend level, that's competitive with the S&P 500, and we'd like to do that as soon as possible, but we got to be.

Prudent about it where commodity prices are at.

And as I said before I mean, it's returning capital to shareholders is an important part of our.

Value proposition and it's something that will continue over time.

But is it like a payout target that you would consider like let keeping at less than 10% of cash flow or something of elk.

Oh, I think does over time want to evaluate that clearly want to be free cash flow positive in it.

A chunk of that will be.

Designated to go back and returning money to shareholders.

Okay, well see how many thanks, thanks guys.

Oh, sorry go ahead.

Hi, Jim.

The exact percentage today I just can't tell you what the exact percentage would be but it will be a fair amount of that free cash flow will be returned to shareholders.

Oh, sorry, thanks, rich appreciate the answers guys.

Well now take a question from Jenny Huang with Barclays.

Hi, good morning, everyone.

Morning.

So in terms of the rig addition, potentially in the back half of the year and time to best position Pioneer operationally for 2020 can you talk about what the primary considerations are for deciding on whether you do add those rigs later in the year and maybe how much lead time, you need for planning purposes, and how quickly you can actually pick up right.

Janine hates Neil.

In terms of where our rig count average we put out in the beginning of the year in terms of re budgeted we have an average of 21 to 23 for the full year.

We started the year for 20 424 rigs we average roughly around that 20 122. During Q2, we are exiting at 18 to 19.

So where we expect and will remain well within our guidance.

The Q3 will roughly be from a rig count perspective flat with Q2.

In Q4 activity will be based on our thoughts on final 2020 plans, which were still evaluating currently but historically as you've seen from last year. You know we it's all encompass as you as we know as we discussed within the budget. So there would be no increase whatsoever to capex as we we think about Q4 rig adds or activity as in advance of 2020, but again, we're still in the process of formulating our 2020 plans and Janine I'll just add that as far as advance notice. We we have rigs that are prevailed available to us and we just need.

30 to 60 days in advance notice to get those rigs back out again and mobilized.

Okay, Great and then I guess switching gears and your marketing strategy is a big differentiator for pioneer and you transport it tuned in 5000 barrels a day to the Gulf coast during Q and I believe that amount of firm transport. It ramps as you ramped are on production.

Over 250000 barrels a day or the next couple of years and there's been some debate in the industry on the status of just kind of new dock, new tank build and Corpus Christi, the status of port dredging and on without Assaf.

Do you think you can generally comment on your thoughts on the industry wide and then if you could provide any details on pioneers incremental stock and tank capacity that supports going from the 2.5 to 250 and whether there are any changes in your existing associated infrastructure over the next couple of years too. So just trying to evaluate the risk reward us.

Your marketing agreements.

Sure Denny I think when you look at it.

Look at what's happening on the Gulf coast, particularly in Corpus, there's a tremendous amount of.

Export capacity being added.

And so we don't see that as really a restrictive thing and we're glad to see that those are being added were glad to see the SPM projects that are you know.

Hopefully get approved and take all offshore and load bigger ships offshore.

So I don't really see a bottleneck from that perspective relate to what the growth of the U.S. crude market will be because most has got to get exported what I would say on terms of pioneers contracts. When we built our profile going from when we started that 15000 barrels a day after the 250, but into 2020, we built in ALDA in those agreements that we would have storage capacity and dock space for all those barrels and so even past 2020.

As that 250 continues to grow we have dock space and.

Contracted and distorted as well so.

We have matched all those things together and make sure that we don't get stuck without being able to get on the water.

I guess also the.

Part of that is there is some debate on whether there's delays and new capacity would dock space and pangs and things. So can you just verify that everything you have is existing are you relying on new projects.

And I know ours it all existing so we're not relying on any new projects to meet our trajectory of production growth and moving those barrels offshore.

Okay, great. Thank you for taking my questions.

Sure.

Well now take our next question from John Freeman with Raymond James.

Good morning, guys.

Good luck.

Last quarter Youre, you highlighted one of the initiatives was on.

Reducing fuel facilities capital spending partly due to a higher utilization.

Of existing facilities, so when I look at slide five and.

Half of the reduction in the Capex guidance was driven by.

The reduced gas processing in water infrastructure spending coming down by about 50 million.

I'm trying to get some sense of how much of that is.

I guess, you do like a permanent reduction as opposed to some of that spending just being pushed to some outer years.

Yeah, I would say.

As it relates to <unk>.

Timing on the well understood taking me in order on gas processing is really just timing them. It's when the 2020 plan.

I was going to get built.

So it's just really timing there it will eventually get done it just because of the.

Little slower growth they don't need to build those plants quite as fast.

On the.

Waterside really that's really our subsystems and so as weve reduced our growth profile, a little bit unchanged from where we were previously and how weve.

Maximize utilization of existing facilities, we were able to just put some of that capital out and so it's going to get deferred so those sub systems will be getting get built in later years.

But we don't need to build them in 2019.

Got it John .

Yes go ahead.

John has been saying that being said taken on Rich's commentary, we have talked about our water spending coming down next year as well. So it's not that you're going to see an increase in water spend for 2020 over 2019, while it is deferred.

That water spend will still come down and 2020, yes.

Midland Cross every guest.

The Midland water treatment facility sorry.

Capital for 2020 is significantly less than what it is in 2019.

And I guess sort of along those same lines as my follow up the the city of Midland The wastewater treatment facility upgrade it looks like that's a little ahead of schedule from what you. All had planned last quarter, you said sort of early 2021 and now. It's it's late 2020 can you just remind us what the cost of that that upgrade was.

Yes, the total cost episode roughly around $125 million.

And I would say John there's really no change in timing, it's on schedule and on budget.

Great I appreciate it nice quarter guys.

Thanks.

Well now take a question from Brian singer with Goldman Sachs.

Great Good morning.

You mentioned Scott in your comments that you have the flexibility to spend through the cycle and the balance sheet is certainly at a very low leverage.

With minimal debt can you talk to how willing you are to use the balance sheet and where your leverage thresholds are either to drill through a down cycle.

Or to buy back stock above and beyond internally generated free cash flow.

Yes.

I mean, obviously, we got to have various views on commodity prices, but I just think we the good long term goal is to have the flexibility and you can't have the flexibility without having a great balance sheet. So.

Like I was asked earlier about $55 Brent.

Obviously at $35 Brent the next three years.

I think it rune asked a question, we probably wouldn't change our our plans.

But we had the flexibility.

If it drops look too low.

And then.

We could reduce.

We have the flexibility to reduce the rig count we could stay with the rig count.

But we got to combine that with achieving free cash flow.

So our cost under those scenarios will come down significantly from the service companies.

As oil prices dropped so thats going to have a big so it's hard to answer the question.

If you do have a severe drop in commodities for several years generally what's happened is that I, just don't think the OPEC countries and the rest of world.

Lower oil prices will generate generally higher demand.

Then things will pick out fairly quickly as we've seen through the various cycles. So it's tough to really answer that long term.

Brian but the most important thing is that we had the flexibility to do is above that you mentioned.

I guess, what I was kind of hoping for maybe was is there any.

Upward leverage ceiling.

By which you would say you know what it's not necessarily worth drilling through or is there an upper leverage ceiling that you would be tolerant to buyback stock regardless of the commodity environment above and beyond what you're getting post dividend from free cash flow.

Yeah, I would say Brian that we wouldn't want are from a leverage metric I look in a debt to EBITDA basis. It we wouldn't want it to be above one times, we just thinking in this business that we need to be below that level. So I think that would be what I would say the upper limit would be.

Great. Thank you and then my follow up is with regard to the Wolfcamp Wolfcamp D results on slide 15 can you just add a little bit of color on what's different about the completions or the or the well performance of the locations chosen.

That that drove the performance senior.

Yes so.

So this is all three of the Wolfcamp days that we reported on here recently are relatively.

Far away from each other I think.

In one instance, about 10 miles in another instance, about 18 miles.

And actually 50 miles away from our previous pad in the south area.

So what were doing is were testing different areas of the completion recipes are relatively the same.

We've done some testing of different cluster spacing.

And different amount of clusters, because the pressure is higher and our ability to create those fractures. It takes more energy.

But for the most part the completions have been relatively the same.

But again.

We're not really testing different methodologies, we're testing different areas, we've got four other future Wolfcamp D.

Test plan and there also and the two of them are in similar areas to the previous three and the other ones are in new areas. So again were mainly testing areas and appraising areas not necessarily the completion techniques and we are making tweaks as we go.

Great. Thank you.

Well now take our next question from David Deckelbaum with Cowen.

Good morning, Scott and everyone. Thanks for taking the questions.

Just wanted to to ask as you think about.

You talked about the rig plans going into next year is sensitivities around cash flows I guess just.

Commodity prices, rather you think about the 21 and 23 rigs should we still be thinking about that that sort of flat splitter five rigs in the south.

I guess what are you seeing there recently that.

Is that going to compel you to increase allocation or should that be kind of a steady state there.

No I think you could you could expect to see kind of a similar level of activity in the south as you currently see.

Okay.

I guess, just I know part of the capital budget.

Tweak down was realizing some of the are adopting some of the in basin sands a bit earlier than you had budgeted.

I guess all else equal now how do you think about.

Your well cost trends going into the end of the year from where we are today and do you still see.

You still see some fed to take out going into 20, I guess on a percentage basis.

I would say the big chunks, we've realized in the first half of the year that namely being the pro Petro transaction.

And also the West Texas sand.

The.

And some of those relate to other changes that we've made related to the type of chemicals and moving from.

Sales to less gel and given to slick water.

So those changes for the most part of transpired. So I would say moving forward most of what we'll see our efficiency gains.

Thats, what weve seen both on the completion side on the drilling side. So I would say the big gainers have mostly happened in the first half and we'll just see efficiency gains in the second half of the year.

If I could just ask one more Scott high level, you talked about how.

In your view, we don't see any other basin in North America.

I guess of size growing beyond 2025 other than Midland.

Just given that view.

How does that square with your thought process around pursuing some drill coes are selling acreage gene.

Wouldn't win that inherently kind of increase the scarcity value for your company over time.

You already have a free cash projection out there that's achievable in the mid Fiftys, you're already growing and dividends.

I guess, how how are you balancing that as you think about just managing business over the long term.

Yes, the as I've said before David the Drillco acreage is focusing on acreage that is expiring over the next five years.

And that's where the main focus of it is and so it's lower returns it's still worth drilling today.

And we've drilled a few wells on it and outside act I mean off offset activities as shown that there are some other operators are drilling in the area.

But it does it meet our current hurdle rates.

Above 50% and so that's the acres that we're focused on on Drillco. So.

Net that's the main difference, but I think.

You're right based on the scarcity in Midland Basin is the only basing growing past 2025, it will make pioneers properties worth twice as much money or three times as much money at some point in time over the next five to six years.

Looking for the CNN thanks, guys.

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

Yes. Good morning, it's got to you in whole team there.

I wanted to ask the question is you guys I've already spoken quite a bit on the.

On on your marketing arrangements and wanted to ask a question, perhaps perhaps for rich.

If you guys see theres already been years Theres been some emerging differentiation between your grades coming out of the Permian do you guys see more differentiation.

I'm talking about you are both both in how you market in the pricing. That's what did you receive going forward and looking way further down the road. If you guys had this 41 degree crude I understand it is.

That's where we're going to be relatively short in the U.S. compared to these these lighter more condensate grades and so long term do you guys anticipate that actually that crude is maybe going to make to the Gulf coast, but stay there.

Whether it gets I mean, it's all going to get to the Gulf coast for sure and but I still think it's a big chunk of it is going to get exported, but clearly the Midland grade 41 degree gravity grade is getting premium pricing to on for the last four months or so it's averaged about $1.50 relative to the lighter crude coming out of the Delaware.

And with the Delaware growth exceeding that of the Midland as Scott talked about.

Theres going to be.

More of the latter quality step on which there should make.

Value of our 41 degree barrel that much higher so I think you're going to continue to see that price move up on the gas side I think it's important to have takeaway out of the basin because I think any gas in the basin is theres not demand there. So it's got to get elsewhere and most of it's got to get to the Gulf coast throughout the California market and mainly in the LNG market and so we're.

Aggressively moving our gas via whether its Gulf Coast Express Whistler down to the Gulf Coast as we continue to grow and getting it.

Locked into LNG facilities are exported to Mexico. So I think both those are important things.

Got it. Thank you expect you to Ritchie and Scott I I I've always enjoyed your your macro comments and your your willingness to to offer your opinion on that I have to two quick questions for you you mentioned your Delaware, peaking in 2024 in mid may be in the mid Thirtys I was wondering what the what the Brent price assumption was for that and then and then the second piece.

As I'm watching the Permian.

Volumes through 2019.

I'm I'm starting up the way it looks to me is that there is going to have to be more growth in the back half of the year than we've seen so far too.

To reach some of these estimates for four Permian growth is in 2018 as a whole and I'm wondering if you could offer your.

Your thoughts on our Permian growth at the back half might be.

Yes, I think most think tank groups are lowering their Permian growth from last year to about 700 to six to 700000 for this year and they're also lowering yet for 2020 and going forward for all the reasons that I've said.

So.

And that's due to the fact that people are drilling aggressively theyre down spacing now people are going to have less cash flow. If we stay in a lower oil price environment.

People don't want to build that in this environment. So there's a lot of reasons why.

Just don't think we're going to see the long term growth. So the majors are the only ones that are drilling aggressively I don't see them slowing down.

They've made some comments on their calls that they are having some issues.

But.

So right now I just don't growth is coming down for the reasons that I mentioned so.

I'll I'll stop there.

Got it thank you Scott.

Well now take our next question from Bob Brackett with Bernstein Research.

Good morning question on the maturities of debt coming due and sort of 20 and 21, there that are relatively modest relative to your enterprise value, but how do you prioritize they're paying those down or refinancing them versus using the available funds for share buybacks.

Yeah, I think you know right now the current plan as you know, we really look at debt to EBITDA basis, and where our leverage sits but.

Currently right now I'd say, the 2020 were targeting to pay that off with cash on the balance sheet and still evaluate what to do in 2021.

Great and then somewhat separate question.

Scott you mentioned earlier that you'd be happy to sell non core acreage all day long instead say 30 K. can you just sort of contrast, what what you mean by non core is it really high quality acreage that you wouldn't get to in a timely fashion or is it.

So geologically sort of less core.

The piece that we sold.

For 20000 breaker was an extreme.

North Martin County.

If you remember we did an asset sale about three years ago.

And that that was on the Dallas in Martin County line and it's in that similar area was isolated so those are the type pieces that.

Our non core.

It's a question whether or not you call the.

The stuff were looking and Drillco area I sort of call it lower tier core.

And thats the acreage that we're focused on on the Drillco.

And.

So.

We got an extensive acreage position, but so.

So thats the difference between the two so I can't tell you exactly how much noncore, we have but we do have some pieces that we can trade or block it up.

We're going to sell somewhere between that 20 and 30000 per acre range.

It's fair to say its more non pioneer core versus non basin core.

Exactly exactly.

Okay. Thanks.

And that concludes today's question and answer session I'd like to turn the conference back over to Mr. Sheffield at this time for any additional or closing remarks.

Again, thank you for participating great questions and we'll talk to everybody over the next three months and see you next quarter. Thank you.

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