Q1 2020 Earnings Call

Dead dead dead dead.

Thursday

welcome to the Pioneer Natural Resources or squasher conference calls joining us today will be Scott president and chief executive officer of Rich Daley Executive Vice President and Chief Financial Officer. Joey Hall Executive Vice President of Operations and off by President investor relations. Pioneer has prepared PowerPoint slides to the supplement their comments today. These lights can be effective over the internet.

At www to access to today's call is dead. Com.

At the website select investor, then select earnings and webcast. This call is being recorded a replay of the call will be archived on the internet through June 5th, 2020 companies 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. How may I call is actual results in future periods to differ materially from the forward-looking statements.

please

And uncertainties are described in Pioneer news release on page two of the slide presentation and in Pioneers public filings made with the Securities and Exchange Commission.

At this time for opening remarks. I would like to turn the call over to Pioneer vice president investor relations neosha, please go ahead sir.

Thank you Marguerite. 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 have some open remarks in this unprecedented environment would also discuss a strong first-quarter results turned back to solid execution from the teams and our continued efficiency games after Scott concludes his remarks, which will then update you on our strong financial position and balance sheet strength. Joey will then review our strong horizontal. Well performance optimized for rate of return while delivering best-in-class oil production Scott will then return to discuss Pioneer spoke 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.

Going to slide three the key points here. Obviously, it's maintaining our top-tier balance sheet through Capital distant combined with significant cost reductions in 2020.

Thank you Neil. Good morning. I appreciate everyone taking the time to listen to our call this morning and hope you and your families are safe. And well, I think it's important to begin by thinking to health care workers First Responders and all people in the office and find the coronavirus will also like to thank all of our employees at Pioneer for their hard work and dedication during these challenging challenging times on here in this unique time and possess the strength supported by a pristine balance sheet and are stronger this position. We have adjusted our 2020 plan to the current environment reducing our capex by 55% at this point yet maintaining

Lowering our capex by about three hundred million in the March update.

What's more important on production expenses is the program we started about a year ago after I returned would we decreased 60 to 70 million on an annual basis option expenses. A lot of it has to do with our vertical program a year ago are vertical operating expense was about $35 for Billy, please Lord it only down to about $20 per Billy. You'll see later on a later slide or horizontal operating costs down to about $250 per Billy. In addition. We're taking about eighty to ninety million off course ahead related cost if you remember last year we took about a little over a hundred million off.

Well myself the officers and the board of directors are taking voluntary reductions in compensation. You look at myself. It's over seventy percent of cash compensation reduced from last year. We're also suspending annual cash monsters for employees and implementing additional cash in a reductions. Again. We were last year will continue to the top quartile. Our Capital allocation priorities are balance sheet dividends and capital spending.

when it's light number four

We were operating the guidance on both on production.

Also significant Capital efficiencies with joy, we'll talk about in a minute, but their cost improvements the generating about a hundred million free cash flow in the first quarter.

On the flight number five again a key measure going forward. It's how low can we get these costs? When you look at this cash cost on horizontal 256g and I cash costs down to about a dollar fifty and interest $0.80 for a total of under $5 at $4.80 up again with a high-net-worth is combined with these low cash costs continue to improve cash margins and the paired to fears and you take both l o e and g n a savings and what's important is the fact that we've already achieved this in the first quarter. Some of our peers are just for casting they're going to achieve it. We've achieved it in the first quarter annual Savings of $140 and $560 million a year.

But it's like number six updated operational plan.

Again, the key Point Capital down 55% while maintaining flat production from 2019 levels are fourth-quarter access estimated to be about a hundred nine hundred ninety-five thousand barrels of oil per day.

Account for the during the next three quarters be 5:00 to 8 on rigs with one in the joint venture area broccoli averaging about two to three months continue to see significant reduction and will cost was Julie or talk about in a minute.

In addition in regard to the Pharaohs we have about 7,000 barrels of oil per day currently curtailed. That's primarily High operating costs vertical Wells.

A precise activity letters levels will be a function of the macro and all price Outlook and obviously we don't anticipate potential future curtailments.

Again, reminding everybody stable production year-over-year. We're reducing capital of 55%

On the slide number seven again. We have an unmatched footprint world-class asset in the Midland Basin average acreage cost is about $500 per acre compared to the peers of about 34000 breaker still have over ten billion barrels of oil equipment the resource base 680 thousand acres.

It's all comes to enhancing corporate returns in r o c e as we go forward.

Flight number 8 again comparing the Delaware the Midland a couple of key points here the pricing and the Delaware is getting more expensive for a oil as in the indicated on the graph.

Also a note mini appears that have both billing and Delaware have reallocated a higher portion of their drilling activity to the Midland Basin from the Delaware wage. And when you see are flaring slides later on the presentation, obviously, the biggest culprit is in the Texas portion of the Delaware. It's about half of the flaring activity in the Delaware month.

Due to lack of infrastructure.

Definitely well protected on a strong balance sheet.

Turning to slide eleven and really talking about the long-term benefits of firm Transportation. You know, I think it's important if you take a long-term view of our ft. And we believe moving the Gulf Coast and getting access to the World Market will provide incrementally better pricing. I think that's evidence in 2018 and 2019 and we had over seven hundred million dollars of incremental cash flow off by moving our barrels to the Gulf Coast clearly the market disruption in the first quarter and to a lesser extent here in the second quarter impacted us and we're experiencing some short-term declines in dead body prices and and that, you know, mainly related and will impact us mainly relate because our barrels that were in transit that and as prices reverse and stabilize will begin to recover that money back in in future months.

But in addition to the ability to move our barrels to the Gulf Coast, it's an active world markets and improve margins. It also minimizes our exposure to Midland market and any purchaser curtailment. It's real life. We're moving all of our Burl's out of the basement that we should not be subject to curtailment anecdotally. I can tell you that we've sold all of our April and May volumes on the Gulf Coast and we're well on our way on June sales month after talking to our marketing team. I can tell you that, you know things feel much better than they did in May and June Market feels stronger and more positive than we did in May so, you know things are on the right track so that I'll turn it to Joey right? Thanks Rich and good morning to everybody. I'm going to be starting on slide twelve and I want to start off by congratulating and thanking the entire Pioneer team for an outstanding quarter, especially during these challenging circumstances. You haven't just kept things steady. You've taken it to new levels reflecting back on 2019. It was undoubtedly. Yep.

Of our best years in terms of safety performance efficiency gains and cost reductions with that momentum has carried strongly into twenty-twenty and you looked at the grass on the left. It's important to point out that the dash of lines represent the efficiency gains. We expected to achieve for the full year of 2020. But as you can see, we've already exceeded these full-year targets and just the first quarter these efficiency gains coupled with service cost inflation are continuing to drive down our well costs are production operations team is doing what they do Best by intensely focusing on lowering r l o e r. We're also limiting our maintenance activities and curtailing our higher-cost vertical well production as Scott mentioned earlier. We believe that approximately 75% of our operating cost reductions are sustainable going forward.

Lastly it's also worth noting that do to our Midland Basin acreage position and deep inventory. Our development strategy is unchanged and remains focused on well returns off on a move to slide 13.

Starting on the left to normalize gross production for all peers on a two string basis linear has the highest oil percentage and then moving to the right. We also have the best 24-month oil production selling it up find your has the Oilers production mix and drills the most productive wells in the Basin these two facts combined should lead to the best margins in the highest returns compared to our Permian Basin peers regardless of oil price. Once again, I want to express my congratulations to everybody on a great quarter and I'm going to turn it back over to Scott. Thank you Joey. I work two or three more slides slide fourteen. Again. This is a slide with the last quarter. She'll is still very important on resource and providing when the second lowest in regard to a mission Barrels in regard to oil around the world.

Going to slide down fifteen. This is an update from Rice said the rice dad updates their numbers about every quarter.

What's positive here a couple of things Pioneer still is the lowest intensity in regard to everybody in the Permian Basin of all operators regard to flaring as indicated in the the light turquoise color versus the darker blue color. You can see improvements. Also another note that 75% of the companies are improving. So congratulations on the right Dad. We're putting out this data. I think peer pressure does help us indicated here as companies are continuing to improve lastly another way obviously between prorate I mentioned this at the hearing whether or not the Railroad Commission will act. Am I recommended that they shut in all companies that are about 2% in regard to intensity in regards to flowering intensity.

So I don't expect him to do something, but hopefully over time they'll get stricter and stricter.

Going to slide number 16 again the key Point here all these come together in regard to driving value for our shareholder base. So I will stop there and now open it up for Q&A. Thank you. Thank you. If you would like to ask the question on sales calls, please, press one. We can now take our first question. I'm Brian Singer from Goldman Sachs, please. Go ahead.

Thank you. Good morning.

Hey Brian. It's if we look at the cost reductions that you're high Lighting on the capital side operating in the DNA side. What do you believe will be the last name versus temporary that you talked about the temporary reductions on DNA. I know there's other things that are going on. But can you talk to how you see Pioneer cellular structure versus cyclical question. Org?

Yeah, thanks. Joey mentioned on the operating expense will definitely achieve at least 75% or greater of those going into future years. It depends on how many these high vertical well we'll come back at a at a higher price in that regard, but we'll definitely achieve 75% or higher of the operating expense in regard to the 5 GHz estimating somewhere between sixty to seventy-five per-cent of those will be achieved through either different ways. We do business less activity in other reductions. It all depends on the the forecast. And what happens with the strip using Goldman Sachs numbers. I noticed you all came out and recently the $65 rent by the end of the year obviously took a big change from my end of the twenty one. That's a little bit make a big difference where the strip is the brand strip today. I think is around $38. So it all depends on the macro and what the price I bought.

appears right but we hope that she

Leave somewhere between sixty to seventy-five per-cent of g n a and 75% or higher the operating expense going forward.

Great. Thank you. And then my follow-up is with regards to Precast versus gross and then returning Capital to shareholders views evolved in recent months on balance between growth spurts and free-cash-flow, assuming some type of oil price recovery scenario. And can you provide any update on the engagement levels that you had in recent months not on very long tradition variable dividend mechanism.

Yes, it all depends on the price where we get back into but I don't know if we'll ever get back into the 60s long-term. We saw what happened. We all depended on $60 brand $55 to WTI for the last three to four years since the OPEC plus adrenaline was put in 2016. I'm going on the premise to have will be back to 45 WTI and $5 Brent at least the minimum under those levels. I think they'll be very few companies growing in the Shell industry. Most of them will have to use a lot of the extra free cash flow to deal with obviously Pioneer will have the option whether to pick go back to 15 or go to 10 or go to 5, but really that's a decision will make it the appropriate time that we had an asset base that can provide those opportunities, but we're definitely focused on on free cash flow. It's going to be our main driver and determining that so it's really hard to pick a number right now log.

Got it in the variable and down the variable. Sorry. Yeah on the variable. I'm still a firm believer of the variable dividend, especially when you had we've had three downturns and the last eleven years in our ending. Is she you know, two thousand nine two thousand fourteen. Mm, I guess 2016 and then this one said we the downturns are coming out for quicker received like versus the first twenty-five years of my career. And so I think a variable dividend will play well have a good base dividend. And so if we see a run up in price, I hope we do at some point in time to 65 $75 Brent will take that excess cash flow and distribute it to our shareholder base has a variable dividend. I think it's the best way in regard to managing this business going forward.

Right. Thank you.

Now take our next question is from

thanks. Just following up on Brian's question a little bit done on on the longer-term plans. And just so I make sure I'm hearing you right then. Oh you had a certain vision of mid-teens growth in adding 2 to 3 months. You're obviously a lot to change. I understand that but fundamentally, if you look forward to that long-range plan, you know given what's happened last several, you know months. Are you kind of Shifting your perspective on life that longer-term growth rate?

No, it's it's my key point is is that it's hard to tell at this point in time, you know, if you look at the strip over the next five years the strip historically to go back trying the strip in a downturn in generally too conservative the strip in the in an upturn is generally too optimistic. So we're probably going to be somewhere in between and like I said, I probably have lowered my long-term scenario to an average price of $50 Brent. So it will cost continue to drop like they have, you know, our cost structure coming down and we'll have choices whether it's five ten or fifteen percent. I just can't tell you if this point. What to do what generates the most free cash flow is probably going to be the program begin.

Okay, I appreciate that that's clear. And and you know, my follow-up question is is you know, you certainly may I think you've indicated it for a vocal supporter of Productions curtailments and a month and I guess you talked about curtailing right around 7 a day. Can you give us a sense of where do you get your Peak rate could be added in you know, you know considering obviously you're you're a vocal supporter of elements why why not take off or a bigger action? Right? Why not set an example, you know intake a lot more offline.

Yeah, the whole key point is pro-rating is basically to get a cut around the world of 15 to 20 million barrels a day if we can rebalance storage quicker and get a cheap cut to 15 to 20 million barrels a day. I'm talking about True Cuts. Everybody needs to realize these curtailments are all going to come back in the next 30 60 90 days and Thursday we were looking for what I call True Cuts versus curtailments and we were looking for a much higher price for us and for the industry and that's the only reason that we were moving down already what's being curtailed is the 7,000 barrels a day, even though we're hedged. We're making the decisions that goes operating costs exceed certain vertical Wells and that's the only reason as well so are studying and most likely they're going to come back especially with them run up and prices. So I hope that explains the difference between the two.

In in the eighth grade, where do you think you could be at? Peace?

Is that Peak production rates or Peak activity? I'm not pulling you know, I'm sorry. We don't really.

Yeah, giving our low-cost, you know, horizontal production our cash costs and Scott talked about being you under $5, you know, I really don't anticipate any more than the 7,000. Those were a high-cost vertical. Well. Can you give me what's happened to the forward strip? You know, I wouldn't anticipate any more than that.

Got it. Thank you.

Can I say for next question comes to the gate from Bank of America?

I think so good morning everybody can you hear me okay

yeah Doug how're you doing good good to hear from you if I could start off with your topical truly remarkable resilience that you were able to cut spending money you have and hold production Flotsam and my first question is should you think about that then is being a sustaining top of the Rebel cuz it really speaks to the free cash capacity for the whole business and a good for what

Yeah, if you remember last year, we had two point one to two point two billion to keep production. And so it's amazing what we've been able to achieve with Joey and our journey complete it efficiencies service cost reductions operating cost reductions, you know, every time you go through a downturn industry gets better and better adopted. So I think we should be able to continue to achieve what we're showing this year going forward. So I'm very optimistic so

My follow-up is obviously I want to pull up a little bit on you've been very vocal obviously about the Texas Railroad Commission and you know waste of get off an excess of reasonable birth and all the other things I've gone into that is all very backward-looking obviously for the industry did that and that's the the past that in terms of your comments are on the model going forward. You've talked about historical a 15% growth rate was optimal. The Pioneer would always say if you all the industry does that, you know, we end up in this film oversupplied situation. So, can you restore I don't I mean don't be drawn too much detail, but can you explain to us what you think the US industry and Pioneer specifically is thinking by way of a balance between top-line growth and the potential to find previews for next twelve hundred variables in the cash with the shoulders.

Yeah, Doug like like I said earlier it all depends on the Strip the strip right now. I've been on record saying us Productions going to drop probably 2 to 3 million barrels a day by the end of twenty one. That's at the current strip the strip keeps moving up and so we could be down in the 11 million barrels a day from 13 early this year by into Twenty-One as cash flow increases. A lot of companies are going to use they can't raise Equity. So they're going to they use the cash flow repair their balance sheets. And that's about ninety percent of The Independents the ones that are public and also private and so I'm you know, if you had to give me a forecast if we're in a $50 Grant World growth rates will definitely slow down for both Pioneer and for the industry. They're probably only be a handful of companies that can grow maybe five years.

my opinion any $45

$50 WTI and Brent world if it's much higher I know for a fact web Pioneer would do we're not going to increase the growth rate. We're going to give it back to shareholders. Companies may take that cash and jump back into the same model that's been destroyed over the last ten years focused on growth. It's hard to tell what other CEOs will do in that environment. But right now it's really hard to predict whether we're going to grow five ten or fifteen. So I didn't need $50 vs $60 brand world. I would guess our growth rate may moderate summer. I think you called the potential to really need what we do on this slot as you've always been so we appreciate it, Thanks for taking my questions.

Thanks. We can now take our next question from please. Go ahead.

Hi, good morning, everyone.

My first question is good. Thank you. How are you? My first question is on the debt maturities in terms of the debt. That's coming due. Next year is the intention could pay the $500 billion strictly out of free cash flow. We've seen that the debt Market is selectively open and Pioneer very high quality company. So would Pioneer consider tapping the debt markets extension Charities different that you also have six hundred million coming through and twenty twenty-two

Great questions your name and you know, I think we've demonstrated we've got plenty of liquidity with you know, we're seven hundred eighty million dollars of cash on the balance sheet and 1.6 billion liquid into our underlying, so we could easily pay it off at an existing liquidity if we chose to but I think you know as you mentioned the bond market has improved and so I think it will have to continue to monitor the debt markets that is always an option that we could do as well because it's just something we're going to continue to assess.

Okay, sounds good. And then my follow-up question. It's kind of in regards to Scott in the past. You talked about having the balance need to add counter. Typically if you chuse and their benefits of doing that with efficiencies and what not, and I know we're in the middle of an oil rally here, but for install only sweat 31, so if we see a pullback an oil prices to what extent are you willing to lean on the balance sheet before it long-term value? I'm not necessarily asking about like a 515 just in terms of supporting long-term values is the extent of that is that really tied to a self-employed leverage Target, which I think is a past. It's been somewhere around one time, but that might be a little different now, or is it more binary that you're just not going to ask them? Thank you.

Yes, the reason the reason we prepared for another downturn. We had Deputy the dog that down 2.5 and that's the reason why you need to have a great balance sheet and it's in fact the fact we've had some shoulder saying we ought to get down to zero debt before the next downturn. So but we will this is the times you can lean on it. So everybody remaining on their bath now, it's obvious what's nice is that we're starting at 5, so it'll go a little bit higher but not much and so we will lean on it cuz you have to during times like this Adobe itself. That's why you got to start with a great balance sheet. So I think any also if you just kind of look at it, you know, when you look at our balance sheet, you know, the debt level in the grand scheme of things really doesn't change that much. It's really what's his changing is the issue. So when you look at it from a leverage metrics, oh, yeah, it'll like set up a little bit as prices are down, but it's prices improve. It will Flex it back down to where we've been home.

Okay, and so is your historical commentary about not wanting to be above one time if that's still kind of got the right range?

Well, I think you know like it's got said it can depend on commodity prices so I could see if like, you know above 1 times in the near-term just or if prices stay low for a while, but with the idea that we're going to move it back below one times. Yeah, when price is improved.

Okay. Thank you very much.

Next question comes from Michael Hall from Hickman energy advisors, please. Go ahead.

Thank you very much. Appreciate the time missed the earlier question. So I apologize if any of this is repeated, but I'm just curious on the the the activity profile 4020 the the range and recount and reflect proof cats are reasonably wide and you know, we don't have you know, kind of well count the workaround. How are you thinking about those changes, you know or those? Uh, we were at 8 early and then, you know kind of moved down to 5 by the end of the year on the rig count, or is that a range that Thursday will be more of an average that's dependent on the price environment. And and then I guess also are you guys expecting to be exiting the year with a substantial duck inventory? And are you willing to provide an accurate rating for us?

For Michael. Hi. Good morning. It's Neil shop great questions. And I think you'll see the the Cadence of if you think about how the the capital is and and the one for the 106 guidance. What were you called 660 recorder, you know when we initially came out the guidance and the revised guidance and marks we pointed to taking the ratings down to 11:00 and then roughly running two to three months. At least we were able to accelerate that we really started dropping our rigs to where we're roughly around seven rings right now running one for actually allowing us to build up our back to what I would say is a more greater than a normalized. Count if you look at a let's call it a working inventory of trucks. So I'd say we're running at somewhat of an elevated level. We expect to be remain at an elevated level exiting twenty-twenty. It'll be providing that optionality and that flexibility to 20 21 prices. Should we get the economic signal to do so and now if you're run off

On correctly currently and replying to 2 to 3 that naturally says that the tracks lead count would have been increasing into Q3 and again increasing and into Q4 relatively speaking on a rig second through fourth quarter averages around 5 to 8 will running seven currently as I said and so you'll see that Flex as a Scott and the richest really depending on on the commodity our Outlook the macroeconomic signals and instability and the forward strip.

In terms of exaggerate production-wise mean we're you know, we had first quarter of 223,000 holiday and really forecasting for the year two thousand two thousand two hundred eight thousand barrels a day. So when you think about the midpoint of that being 203 and second quarter with the curtailment, he'll be down from the first quarter some so it really points to you know, second half wage rate type numbers in 190000 oz of water per day $295,000 per day to be in the range for the annual range of 198 to 2:08.

Great, that's helpful. And then I guess following onto that if you think about it was alluded to earlier that you can kind of maintain the current spending levels or sorry the current capital level, you know, you're optimistic that that's an achievable level going forward. I guess. I'm trying to think also offer to the expanse if there's any potential further improvements as you said, you know in downturns, you know the industry and Pioneers, you know, get stronger typically from a structure standpoint and how much more room do you see on the secular efficiency gain front and how might that theoretically benefit the maintenance capital for everything about twenty Twenty-One and Beyond

Yeah, Michael. So from an efficiency perspective as you can see, you know, what a great first quarter we have and I've been quoted numerous times about the best thing that can happen to you from a business perspective is slowing down that's always helpful. It gets too intense focus on everything. We're certainly getting the benefit of service cost equation, you know, like our prices are tied to WTI as are some of our other Commodities like the octg and stuff like that. So, you know efficiency gains from my perspective or sticky situation will continue. You know, I I would find it difficult to think that we could achieve what we did in 2019 and 2020. But as you can see in the first quarter Thursday, we had see what we had put two for the full year or so. I I always never hesitate to think that we couldn't continue to see those are going forward particularly at a lower activity level.

Our focus on everything that we're doing and Micheal from the maintenance Capital perspective and you referenced that the exit rate of stuck of earlier and the deficiencies that we saw in 2915 you saw here in 2020 early on even just from the first quarter and even from what were able to announce today. I mean that revised capital budget of you know, the 14216 on an excerpt from 20 20 roughly flat down from that capital budget would maintain that exit right into twenty twenty-one.

Great. That's that's super helpful. I appreciate you guys, and I'm navigating this storm so far. Thanks.

Next question comes from Jamal.

Good morning. Everybody had a quick question on you know, well cost. I think everyone talked about the efficiency gain evolve continues to be turned in line or Wells then when we expect it, just wanted to think about where will cost should trim by year-end giving, you know, continue deficiencies wage occur throughout the rest of the year.

So good morning, Jamal. I'm looking at going back to whenever we put out our original 2020 budget. If you did this simple math on dividing up the pops and the wage capital budget. We were looking at a cost of around eight point seven five million dollars per well and based on our q1 performance. I'd say that's come down to the range of about 7 a half a million dollars as I talked about in the previous call certainly. Some of our cost reductions are related to concessions from our vendor community and you know, you could expect if activity picked back up at some of those my Traverse but you know giving an example like regrets for example being tied to WTI oil rig rates are only 11% of total. Well cost. So even if there was a bounce-back, it's not going to have a material Effect one of the unique things that kind of illustrates this though. Is that whenever you look at our efficiency gains in our wage

Productions are about equivalent and typically that's not the case usually in efficiency gain percentage. That's not equal an equal percentage of of cost. But we've been successful through our faith sharing group and navigating through this and good times and bad times and we've actually been able to achieve similar cost reductions as we have in percentages of birth efficiency gains. So, you know, I I don't I don't expect any significant reversal from a cost perspective and on top of that I expect efficiency gains to continue. So I'm optimistic on things going

All right. Thank you. And you know just to use you all as a barometer giving the the large Legacy vertical base should we expect for a curtailment to be reverse substantially as we look at it includes trip in June July and and you know this on the opposite side of if we were to see prices returns at what price do you say thank you to you know much higher curtailment in your vertical base.

Yeah, I think when you look at it on a I can't speak for every other operator. I think it's probably a cash margin analysis that each of the companies are doing in terms of curtailment and what their contracts are with you know, who their purchaser on where the term contracts or month-to-month contracts that are are driving that you know, I think it's got a numerated and where are vertical costs have come down to I think it'll be a function of price and clearly the the prices of move positively so, you know at the margins expect to see some of those start coming back on it and how many people want to see stability in the price. So if we see it another month or so of that will start to finish that come back on conversely if you saw prices go back down like where we saw in late April and I think you'd see, you know, potentially more volume to get shut in.

All right. Thank you.

next question

From Raymond James, please. Go ahead.

Good morning, guys.

I was just following up on Michael's earlier question. Could you give us what the rough estimate for pops's on this new plan?

Hey John, it's Neil know we do to the macro uncertainty and the variation of the volatility that we've seen out there and the fact that we're not providing quarterly guidance. We really haven't been able to provide wage say forecast around pops. Let me let me maybe help her modeling perspective though and kind of set the table in terms of capital production that might serve as a as a helpful guide, you know, think about capital i c q one will be the high point capital. I discuss how we're able to reduce our recount pretty quickly to where we sitting out seven and one practically of that. So I would say the low point and capital is going to be Q to I've been to 3 2/4 reduced to get to that average practically counted to three capital would increase and the Q3 and relay be relatively stable for now from a production standpoint. He won't of course would be the high point. We do have a solid wave effect from q1 flows over into Q2. So we did reduce our birth.

Countdown to to 1:42 or we sit currently and so, you know, if you consider the the average production guidance for the year and the exit rate of $191 a month that would signal key one would be your high point Q2 would be lower in Q3 and Q4 be relatively flat Visa Vie quarter of a quarter but slightly lower than Q2, so hopefully that that serves as a good guy wage.

That that's very helpful. Thanks Neil and then just my follow-up question, you know Scottish. It sounds like and I'm not necessarily just saying this for y'all bit more broadly at the industry wage. It sounds like you're expecting any comments or shut-ins going forward to be voluntary in nature for the industry. So my understanding that you all don't think there'll be any Force shutdown due to storage constraints for the industry. Not necessarily all

My personal opinion is very little to shut-ins or voluntary. They people may say that but a lot of companies don't have ft. And so they're being purchasers. They can't move their oil down to the Gulf Coast cuz they can't sell it. So if you want to call that voluntarily that's fine, but they're being told by the purchaser to can't move their crude oil and so we had the benefit to be able to move all of our crude all the Gulf Coast and Export a lot of it. So that's the only my personal thing is what people say on their call may or may not be what's really happening. So

comes from John Freeman

That makes sense. I appreciate it. Congrats on the court.

Next question comes from David that coupon from Cohen, please. Go ahead.

Thanks guys. Just some of the follow-ups due to some of the earlier comments. You have made maybe this is a two-part question. So I'll just leave it at that wage. You issued the quarterly guide or you remove the quarterly guidance for the second quarter. I guess you would comment that already that you're selling volumes already for June and I think in Joey's comments you remark doing is looking at this better then maybe expected. I guess what are some of the unknowns that that you're thinking about now that you know, or or we're in a period of of Max anxiety on the horizon here. Is it is it over the next couple of weeks and in case storage fills and then I guess in the second part of that question is in the event. We do see storage building Scott. You alluded to The Operators, you know, not necessarily showing in voluntarily and it seems like Pioneers outlined that they don't see any issues.

Being able to move barrels at this point. So can you talk about what you think would happen to these barrels in the event that that storage does still here and then the earlier part of that question life.

Yeah, I think you know it's really a case of us remaining be flexible. And you know clearly will let economics, you know drive until we've seen a Resurgence in the oil strip, which is it's been positive. But you know, you just seem more time passed it to see how what happens the storage of the next few weeks to really make this. I think that's the key decision in terms of whether or not you'd have any more volumes at risk and you're clearly. We're just going to start program based on commodity prices in terms of moving Barrels in Ft. You know, I think that's really the advantage of having fifty that's got talked about that. We're able to take our barrels and I'm moving from the Permian Basin and the Gulf Coast and having a much broader Market when you get to the Gulf Coast to be able to export those to the World Market, there's just more demand and I think you know ships are becoming more available. You're seeing if people come out of the virus and ages sooner than us that demands picking up and Barrel really aren't going to get delivered until August, you know those markets and so they're forecasting what their demands met.

At that point in time and so I just think it's an advantage that you look at from a timing perspective being on the Gulf Coast versus being in Midlands Brent markets going to clean up faster than the Midland market sell those that don't have that are more subject to storage issues versus you know, those of us that had left you can get it to the Gulf Coast and you can access the World Market. I think I'm just going to be better off as we work through these same issues.

I appreciate that color. Thank you guys.

Next question comes from Charlie Johnson rice, please. Go ahead.

Yes a good morning to you Scott in your whole team there. I wanted to to follow up on just a couple of things that you've already touched on in your Q&A the first month, you know, $250 or $300 run rate that you guys are our tax. Whether you're looking at the back half of the year. You want to take a stab at what your what Your declining 51 might look like at that camp x-ray?

Hey Charles, it's Neil. If you think about our decline, right and you see the benefits as we spoke and build the maintenance Capital, do you think about twenty Twenty-One your decline rate obviously off auto rates in the subsequent year. So you would expect and we would expect a moderation of a decline rate from twenty twenty as we move in between twenty one. So we we spoken about our decline wage oil being some of that mid-30s mid-to-high 30s. You'd probably gravitate to that to that mid mid to low 30s potentially, but over the course of time. That's right. You'll continually see that moderate. I think that's a that's a more free cash flow, uh environment for for Capital and Cashflow.

Right. Thanks for that. I was I was more I get your point about the PDP decline. I was curious if you spend that 300 million quarter will be but but leaving leaving that aside for now. Actually, I'm back to to your to the U introduced this idea that you're not going to die the pops and and it makes sense. But if you could you or or Joe respect to give a little a little insight into your thought process of you know, is there what are the scenarios where you might go ahead and complete it well, but then defer a place in their own problems because of the price is available. What price is that?

Yeah, I think you know we've seen the positive Improvement in prices and I think you know, we would continue to put Wells on we practice on this low 30s is where I would put those wheels on production and instead that's you know, what the activity levels that we're doing. We're going to take the economic signals as we get them over the next few months. But you know, we're in that range of the economics are getting better and I will put wheels on production.

Are you rich?

Welcome.

Next question comes from Music Man from SunTrust quick one for first just on spending at least I think about five million steps of what was it the revised 1416 capex budget is for water infrastructure. So really, I'm just wandering around the water infrastructure. Will that continue to be you know, that seems like a very nice long run right now, and I'm just wondering if that's going to be the run-rate point forward and is the real point now that you really started to build that up where you consider, you know, Scott potentially monetizing this key asset.

Yeah, in terms of the capital spend a hundred million really is a big chunk of that still is the City of Midland water treatment facility is that you know, basically most of their Capital spending into this year. So you'll see it even further as we go into additional years and in terms of monetization, you know, I think that's something that you know off the table at this point, but you know something that will always continue to look at in the phone number but you know today the markets is not there to not something we're focused on

very good and then just

On your cash card seems like they continue to come down and think in the slide that says somewhere decrease more run $140 and $60 billion. I'm just wondering is it even further room to bring these down and you know, really I think about just some of the suspended B&C is is it, you know, based on again what some of these costs or what other you know, sort of caused her factors. Are you putting into that office to bring some of that other activity back?

Yeah, I think is Joey alluded to earlier. It's something that we're always focused on and we'll continue to look at other things that we can do to, you know, bring our cost structure down to be as competitive as possible and generate free cash flow. So I'm going to continue to look at new across all the corporation in terms of what d n c l o e corporate overhead costs. We're going to continue to look at all those and how do we you know have the bulb streamline the business as best we can and generate the most free cash flow.

Very good. Thank you.

There are no further questions at this time. I would now like to turn the call back to the host for any additional or closing remarks. Yes. Thank you everyone for attending again, Please be safe and stay healthy and your families and look forward to seeing y'all and on the call and August. Hopefully we can all start traveling at some point in time and seeing each other in person. Thank you very much.

That concludes today's conference. Thank you for your participation. Ladies and gentlemen, you may now disconnect service.

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