Q2 2020 Devon Energy Corp Earnings Call
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Good morning, and thank you everyone for joining us on the call today.
Last night, we issued an earnings release in order and updated outlook for the year.
The call today, we will make references to our second quarter earnings presentation to support our prepared remarks, and these slides can be found on our website Devon energy Dot com.
Joining me on the call today, our Dave Hager, our president and CEO, David Heres, our executive Vice President of exploration and production and Jeff written our Chief Financial Officer Summit team.
Comments on the call today will include plants forecasts and estimates that are forward looking statements under U.S. Securities Law. These comments are subject to assumptions risks and uncertainties that could cause these statements.
Please take note of our cautionary language and risk factors provided in our FCC filings and earnings materials.
With that I'll turn the call over to Dave.
Thank you Scott and good morning, we appreciate everyone, taking the time to join US on the call today, and I sincerely hope everyone in or audience.
So.
The second quarter for Devon.
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Hi, Bob.
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And the second quarter.
From an operating costs outperformed our guidance.
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And by the capital efficiency gains.
These efficiency gains are fast paced with all eyes.
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Good morning, everyone to reiterate Dave's comments from earlier I also want to say that I could not be proud are hard.
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Thanks, David My comments today will be focused on detailing the next steps in the execution or financial strategy.
Beginning with a review of our balance sheet, we have a tremendous amount of flexibility when it comes to our financial position at the end of June Evan had $4.7 billion liquidity, consisting of 1.7 billion of cash on heat and 3 billion of Undrawn capacity on our unsecured credit facility. It does not mature until the end of 22.
[music].
As you can see on slide eight also adding to Devon financial margin of safety is our low leverage no outstanding debt obligations until the end 2025.
Our near term debt maturity runway is best in class within the industry more than five years of time until our first on that.
This is a critical competitive advantage in this period of economic uncertain.
Given these traits you're confident but that's the financial strength navigate challenging times flourish when the recovery desktop.
Well our balance sheet is in great shape, we have tremendous flexibility, we're not done making prudent.
Looking ahead in the second half when it's funny, we expect our cash balance build as we've taken decisive action scale or operating cost generate free cash.
In addition to our free cash flow generating capabilities and other items bolster our liquidity <unk> closing of our Barnett shale the best.
He recently a steep received notice in our counterparty what these early close now expected.
In fact October for.
For those of you not familiar with this transaction, we agreed to sell or Barnett shale assets.
$830 million, it'll probably be consistent at 570, Mike Ashley.
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After adjusting for purchase price doesn't.
Which include 870 million dollar deposit we keep in April and accrued national <unk> from the date, we expect to receive a net.
Greater than 800 million dollar.
As I've mentioned many times path.
I already for the large amount of cash we have I mean, even if.
As Dave mentioned earlier, we intend to repurchase up to $1 billion issue with that.
This debt reduction.
At night.
Cash flow building he built working interest savings approximately $75 million email runrate eight.
Given the uncertainty we still they open Nike right.
We will remain flexible with the timing of our program and how we execute purchase which may include both open market transactions into girl.
Longer term it is our fundamental belief that that's <unk> company, we werent us maintain extremely low level level leverage.
In accordance with <unk> leap, we will continue to manage towards our stated leverage target of less than 110 times net debt EBITDA in a mid cycle pricing environment.
Another key financial objective for Devon fill rate the return of cash sure.
With our improved cost structure and lower breakeven they are well positioned the live.
Feedback from our shareholders, it's been consistent regarding the desire activity.
With regard to our dividend policy, we plan to maintain our quarterly dividend, Oregon, Anable payout ratio <unk> percent operating.
Mid cycle price.
In addition to our traditional quarterly dividend. We're also excited to announce our first special.
Given our expectations generate generation of excess cash flow in the second here in the early closing of the Barnett transaction. Our board has approved they 100 million dollar special cash dividend.
Special dividends will be payable in October 1st the shareholders of record on August <unk>.
This action clearly demonstrates our commitment to returning shareholder.
We are eager to use a lot utilize special dividend restaurant.
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As we generate additional free cash flow throughout the remainder of this year and into the future. We will evaluate additional special dividends based on expected market conditions at the time as we look to the feature of this business. We have a high degree of conviction that a special dividend isn't necessary capital allocation tool for a well managed DMP company.
This mechanism provides us flexibility to return cash windfall to shareholders without over committing to an unsustainable quarterly payout that is often plagued the industry in past cycles and with that I'll now turn the call back over to Scott for QNX.
Thanks, Jeff we recognize from some feedback from our audience, we're having some audio issues. So what we're going to combat that we will send out a script to our audience today and are you can see what our prepared remarks are a that being said, we won't pivoted into the queue in a conversation and ER. Please limit yourself to.
One question then a follow up a this will allow us to get to more of your questions, which I'm sure you're going to have since some of the prepared remarks were a at times inaudible. So we apologize for that but we'll do our best to bridge that gap that being said operator, we'll take our first question.
Thank you again, if you like to ask the questions. Please press Star One your first question comes from Paul Cheng with Scotiabank. Your line is open.
Hi, Good morning, guys that Tony if we can hear me because that was picking up pretty bad beisel.
Two questions. One can you tell us said, what's the Mac and to some of the 1.5 billion that reduction since that you have no mature with it isn't going to be I tend to all of that you're just going to bite on the topic Marquette and secondly that on the especially visit them and why are we are not musings on Monday Paul.
That given how cheap yes, the valuation that's probably is currently yes. Thank you.
Hi, Yeah. This is Jeff I'm, so as it relates to the debt repurchase the 1.5 billion that we've highlighted our expectation is to do probably a mix between open market and tender that's gonna be depended upon market conditions. So we're going to evaluate the debt maturities across the curve and where the best best value sets and then was enacted that.
As well as we work our way through the rest of this year and likely into next year as well. So it's it's likely going to be a mixed bag. We certainly want to see interest reduction or excuse me interest cost come down as we've highlighted as our new annual run rate, but we also are gonna have a focus on reducing absolute leverage so it's going to be a balance between the two.
As it relates to the special dividend as I mentioned in my prepared remarks with you all probably a good not here yeah. The feedback from our investors has been incredibly clear, they're looking for a continuation of cash dividends from the space and specifically from Devon and so we think with the work that we've done around our cost structure or lowering our breakeven well you know.
Uniquely positioned within the sector to provide this cash returns to shareholders. So it's really consistent with what we're hearing from our largest shareholders and we're excited to move forward with not only our quarterly dividend, but the potential for variable dividends as we moved through the next couple of years, a and evaluate market conditions.
Jeff cannot just follow up that on the that when you touched on do you have a timeline. When you think you were completed yet.
Yeah, we were certainly going to look to do some of that here over the next several months again as market conditions allow and then likely some of that war will move our way into 2021 as well. So again, it's going to be it's gonna be a function of the market conditions and what we see with how the debts trading I'm. You know we're also comfortable holding the cash Oh, you know on the balance sheet.
Makes sense that the value proposition isn't there, but the key point, we want to make is that that that cash is earmarked for debt repayment. So we are we are absolutely expecting to continue though to lower our absolute leverage overtime.
Thank you.
Your next question comes from a room Jay room. Your line is open.
Yeah. Good morning, I was wondering if you could maybe elaborate on the 150 million dollar reduction in sustaining Capex Oh from 1.1 billion. A combined 15, just help us think about the broad buckets that drove that.
Pretty material decline there.
Hi, or and this is Dave I think David Harris is going to ask them good information around that.
Alright, and this is David yeah. Thanks for the question Yeah. As you've noted we've we've driven that 2021 maintenance capital level down about $150 million from our prior disclosure to to a level that we think weekend. We can carry out in 2021 of about $950 million in and then in broad buckets.
I would I would tell you that's equally split between capital efficiencies, we're saying, particularly in the wolfcamp as well as the impact of lower decline rates I'd note that the a lot of the production out performance. We saw this years has come from the good focus we've had on our base production levels and we continue to outperform.
From a base perspective, so those lower decline rate certainly certainly give us a boost as we think about the maintenance capital we need.
To drive the business Ford and then the other half a would be service cost savings that we believe we have line of sight to here.
Just given the environment we're in.
Got it got how much would you view that is call. It sustainable if if you are more permanent the David.
[noise] well, it's it's a good question I you know I would tell you guys. I've told you in the past I mean, we always look to try to make all of this is sustainable and as permanent as we can certainly you know here in this part of the cycle from Skype supply cost perspective.
You know, we've seen some pretty material reductions.
We believe we can capture that we haven't baked a lot of that that we don't have line of sight to and going forward. So I think it's consistent with what we think we're going to see here over the next 12 to 18 months.
Right I'm I'd, just add we like what we've even seen some service cost reductions beyond what we built into this at this point. So we're not building all of the leading edge cost reductions and we have into this 950.
Great Great I guess my follow up it was just on a you'd appreciate the disclosure around your federal a permit backlog in both the Delaware and then the PRB.
[laughter] my understanding is that the permits are valid for two years and you can get up to a.
Well, it's another how called automatic are the is that extension brought the.
[noise] earn you're correct that the our federal permits have a have a two year initial term and then there are eligible for a two year extension period.
Typically it's a routine part of our business we filed for those extensions, let's say three months out from a when those oh those permits will expire typically it's a very quick approval process, we've never been declined and extension and importantly, the the environmental assessments that underlie those.
Permits are good for a period of five years.
Great great and so you're saying today that.
That's fair under a sustaining capex about 75% of your contemplated activity over the next four years would be kind of what permits in hand is that a is that correct understanding yes, that's absolutely correct.
Okay. Thanks, a lot.
[noise]. Your next question concerning Doug Leggate with Bank of America. Your line is okay [noise].
Hi, Thanks, everyone on what must take one do swung there, but it seems the audio is not signing so thank you for us we're getting assorted I will tell you can hear me okay.
If you have gone backwards and forwards on this this fall this model for some time I just want to commend you guys for.
Introducing what I think is a really differentiated model.
I'll be curious to see how how does this has received by the market.
My question, However, as I Wonder, if you or Jeff could explain the mechanism.
How do you intend to share what is your words from the last call windfall cash flows with investors.
Well I think yeah, thanks, Doug and we're very proud of the model and we think it is the right business model and certainly we feel like we have moved this model quickly and probably as quick as anybody in the industry and hopefully others continue to.
Following up with actions.
As we have already started to do here I think the first thing to keep in mind is that our breakeven is now the funds our maintenance capital around 35 dollar WT API.
And then.
And we actually then on the dividend the normal dividend plus or minus capital around $39 WT high so or are you start really getting into the issue is when you start to balance our growth opportunities beyond if we're in an environment above $39 Wi Fi how do you.
Balance that with the the return of free cash flow to shareholders.
And certainly we're going to look at the economic climate that were in at the time to make that call, whether we would undertake select growth opportunities or whether we think it's better to return cash to shareholders as we as we move above that as we sit here today, we're obviously still in the middle of a global.
And then Mike.
And so even though the scrap is sitting there at that currently somewhere right around $45 today I the way I would describe it as there is a big error bar on that stir up there's a lot of uncertainty associated with that strip at that at this point and how sustainable that is so we're not at this point prepared.
To say, okay, it's $45 screw up now we're going to start going more into growth mode. Our thought process has more we're gonna stay closer to maintenance capital around maintenance PAPCO and return those incremental dollars to shareholders now there may be an environment in the future where are we don't feel as much risk because there is on oil.
Oil pricing right now given the global pandemic.
We're still.
Still under so there may be at some point, where we do start to as we get above 40 and toward 45 or would you say, we're going to mix it a little bit of growth and what's the returned value to shareholders, but we're going to take into account all the economic conditions at the time on how to best make that judgment. So it's not going to be an absolute.
Formula I think.
Yes, inevitably I think whenever you try to live by an absolute formula you all.
Fine that the formula doesn't work as well he wishes pad and so it is going to involve some level of business judgment, where our business judgment is right now that we appeal us more appropriate to find it maintenance capital level.
And return that incremental dollars shareholder, but that could change at some point in the future.
Appreciate the answer Dave if I may offer us a common thing there is a subtle differences and perception between a special dividend in a variable dividend, so presumably you're talking about a variable dividend.
Yeah, Yeah, we are talking about a variable dividend and yeah, I think we see there's a subtle difference to and.
And that.
Especially was why is fairly space or when you actually do it and so that's why we call. It a special and we've done [laughter]. Okay. So my follow up is hopefully well thought out there I'm sorry, yes capital allocation, Dave if you are slowing down the growth rate up to 5%.
How does that change your capital allocation across the portfolio and I guess.
It's really a question about high grading inventory I'm, just wondering if the incremental drilling activity.
She is another reset and productivity in capital efficiency, because you're obviously slowing down the activity levels, while I'll leave it there. Thank you.
Well. Thank you can look for us to continue to drive more capital efficiency into the business in general how you are seeing how we're continuing to drive down.
Drilling and completion costs and improve the capital efficiency in the Delaware Basin.
You can if you look at the stack play we've done a couple things there, where we are really redesigned our wells and when we go back out there that we feel that we're going to be.
Drilling and completing those wells per significantly less.
Then one last time are out there. In addition, we did the.
Transaction with Dow, where we brought in promoter capital were essentially won't be paying one third of our costs in any given well per 50% of our working interest. So that is certainly going to drive capital efficiency.
Eagleford Oh, we work very closely with BP to drive the efficiency there and are beryllium.
The economics on the remaining development inventory as well as a redevelopment opportunities. We're seeing are very capital efficient and finally, we're learning in an awful lot about the powder River basin.
Particularly in the Niobrara and.
We have really just been an appraisal mode up there so far so as we go into full development and the powder or brace basin, you will see those well costs potentially move down dramatically as well so absolutely will be and assess will be at high grading by drilling the best opportunities.
All of these opportunities are going to continue to improve because of the measures that we have been executing on internally.
[noise] fusion time, guys. Congrats again, thank you.
[laughter]. Your next question comes from Neal Dingmann with choice Securities. Your line is open.
One day belt, maybe you guys talked a lot about these cash dividends I mean, my question is around sort of the the debt production growth levels. So I'm just wanted to make sure to clear is there a certain level you want to get debt down to and sort of the a certain minimum level production growth you'd like before sort of considering these more frequent very.
Windsor, you know how should we think about that.
Well I tried to say a first on the other dad I mean, our targeted mid cycle pricing as we get to that the he would are down around 1.0 or less now we're not quite there yet and we're probably going to need a little bit better pricing to do it.
On the variable dividend. So I've tried to lay out that you know right right, it's going to depend somewhat on our perception of the economic outlook as to.
How much we want and why on our confidence in foreign pricing.
As to how much we would just returned cash to shareholders.
Versus investing in a limited amount of growth opportunities up to 5% so.
And I'm trying to highlight that we're going to assess sat at the time right now are often not particularly confident in the economic outlook on prices and may per matter, but we're still in the middle Pandemics, there's a lot of uncertainty around it so we'd be leaning more towards the cash returned side of it right now so enjoy Neil this is Jeff but.
Well I think I would add is a distinction for Devon versus some of our peers is we have the cash on hand to accomplish our data objectives, our target that levels.
So any free cash flow that we generate can then go back to shareholders as Dave articulated a lot of a lot of other folks in the sector are gonna have to generate free cash flow and then try to accomplish that are they're lower leverage objectives, but we're in a unique position with a cash than we have on hand, we can take care of that and then generate free cash flow with a lower.
Breakevens that weve that we've created and return to shareholders.
No great great clarification here that the cash is certainly obvious for you all on what gives you a lot of options and that's just a one one follow up.
On you, Dave you mentioned with the stripped it doesn't cause you to think about him boost in activity in sort of with this whole ties in with his plan you've been talking about but I'm just thinking when when you know to strip does get up to a certain point rehab more confidence behind that with the focus essentially still initially just be Delaware or would you continue would you start looking.
At the Eagle Ford Powder, you know Anadarko et cetera.
Thanks, Neil This is David Harris, I think as we move into 2021, I think you'll continue to see US have a capital program was a pretty heavy deller emphasis but I do think you'll you'll see us bring back some activity across all three of those areas and take advantage of.
The diversity in the portfolio.
As Dave alluded to the high quality opportunities that we have across those areas as well.
Great details thanks, guys.
[laughter].
Your next question comes from GE named away. Your line is open.
Hi, My name really hoping to hear me, yes, we heard if I hope you'll hear us now.
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Well I guess my first question.
That's great. Thanks, Oh Jeez, if you adjusted near to tell everybody.
That's 70 to 80, that's that target [laughter] mentioned this is not a mid cycle right what looks like okay, sorry, eating and can you provide any color on nightstand sensitivity that you around various redevelopment and <unk>.
Hey, Jeanine. This is Jeff yes, so when we talk about mid cycle pricing, we generally have talked about $50 oil.
So that that reinvestment ratio that we talked about the 70, 80% in obviously really kicks in when you get to those sorts of levels prior to that again as David articulate it we're going to be focused on the maintenance capital and generating free cash flow and returning that to shareholders, but once you get to those higher levels.
Wi Fi pricing given our low breakeven, we do think that it makes sense to limit our reinvestment to that 70% to 80% kind of level and effectively we can accomplish all our <unk> all of our objectives of the 5% growth our quarterly dividend and generating free cash flow when you get to that kind of mid cycle type pricing.
Okay, great. Thank you for that clarification.
Hi, My follow up is just moving to the Delaware and I'll put it to me if I like Atlanta every question on the federal in maintenance mode. It looks like even mitigated a significant amount of risk and the dollar actually a lot of geared toward M&A that Keith Johnson, well productivity and television 18.
I don't know and I'll tell you guys. Thank you.
[noise] Janine it's David.
As we've said before although about 55% of are are you federal our acreage in the Delaware as federal certainly as you think about the core of Lea and Eddy County.
That's that's where you know some of our highest return opportunities are and so thats why we wanted to highlight from a permitting standpoint of those 400 or so permits that we expect to have by the fall in the Delaware about half those include our drilling program for the next two years.
So there are there specific to those programs and what we would while we would expect to see.
And so I would I would expect that or you will continue to see us lean on that permit inventory drill those wells and then supplement it with state wells.
Where we can and need to.
Okay. Thank you congrats.
Okay.
Your next question comes from Matt Portillo with TPH. Your line is open.
Good morning, all morning, Matt.
Oh, two asset specific questions. Just curious as you look out into 2021 with the improvement in the gas forward curve.
Curious, how you're thinking about capital allocation to the stack specifically with the carry that you have with the Dow JV.
[noise], Matt it's David.
We're we were scheduled to begin that activity. This year, obviously with what we've seen from a pandemic any commodity price standpoint, we've deferred that activity.
We're currently working with our partner.
And would contemplate restarting that activity.
In 2021.
I think the our best guess based on those discussions and sort of how we would see that plan laying out is probably something like a two rig program in 2021 potentially to prosecute.
The initial stages of of the Dow partnership.
Perfect and then just a follow up question your partner in the Eagle Ford laid out a pretty significant strategies strategy shift over the next 10 years I was just curious how you guys are thinking about capital allocation to the preferred.
That is the backdrop.
Well, we are we work very closely with BP on the capital allocation there and so far we remain to line up I will say I think.
Probably better to hear this from BP, but I think overall, they're extremely happy with that asset and.
Feel that's one of the best assets, they picked up and if not the best they picked up in the BHP transaction. So I would think that.
Even though they're having strategy shift.
I would suspect that this is juan there's going to continue to.
Be highlighted within their within their portfolio. So far we've not seen any significant alignment issues with them around that.
Okay. Obviously, if there are some point they don't consider that has had to be very viable in their portfolio would love to talk to him about that as well, but right now I can tell your we remain very aligned.
Thank you very much.
[laughter].
Your next question comes with Scott Hanold Your line is open.
Yeah. Thanks, a question on the.
The 2021 plan and the Ducks and so how should we think about that I mean do you all expect too.
Work through the Ducks in 2021 or one of those decision points.
Well, we're still finalizing our 2021 capital allocation seller.
It would be a little premature to say how much I I do know that we'd have 22 docs down any eagleford that we've had.
Ben there.
We duct and second quarter and so those are definitely going to be drawn down an early.
21, which will give us a really good start to 2021 production I think beyond that the the level, which we may consider drawing down at inventory, we're going have to order at we're working on that right now and.
Deciding whether <unk> era.
How much we may consider doing that for the for the most part I think you would consider that you just be normal working level docs.
You had always going to have some inventory, but they're probably for a few that we could drawdown of if seems appropriate.
Right right. So so just to clarify the of the as it was roughly 100 ducs. Some of that where you would include normal working inventory is that right. That's right. That's right. Yeah, yeah. Okay fair enough and then your with regards to the special dividend.
In correct me, if I'm wrong. It you know the way you guys laid it out it doesn't sound like it it's going to be.
Highly consistent going forward once you start to initiate it in it it could be off and on I guess, depending on your view of the commodity in the macro.
And some other things is that appears Damon or are you guys designing this to be something shareholders can understand we're going to get something this quarter. We don't know what it is but you're going to have some sort of a plan for that well make no mistake that we are very dedicated to the cash return model to shareholders and I feel that Frank.
Over the first one is to actually take action with a special or variable dividend.
To where you can do this and we used the words synonymously.
We have some extra cash.
Anticipating because of the Barnett shale the other.
Is there.
I believe probably pioneer talked about this morning, and certainly we're going to be doing the same thing is as we generate.
Coin business that we will be returning that to shareholders as well now are.
Take around that approach in say, we're going to do so much every quarter.
No, we're not saying now, but when we are confident that we've generated excess cash flow in the right business environment.
Well, we need a as a company and or and again, we're limiting our growth to 5%. Then you can look for us to return cash to our shareholders were just not being so specific as to say exactly how.
How it might be now Jeff I know is may have a few additional comments on some thoughts and he's had around this as well. So yes got no I think Dave said it well the only thing I would add is obviously our quarterly our traditional quarterly dividend is going to return cash to shareholders throughout the year and then as Dave take you laid a depending on market conditions will evaluate what makes sense.
At the time as it relates to the variable dividend, but our expectation is they again I would just point into our our breakeven levels and you all can use whatever price deck.
Prefer but as we've articulated what the breakeven that we have in our maintenance capital level, we should be generating free cash flow into the foreseeable future and our game plan of dividends out of quarterly traditional dividend in the special.
As it relates to timing, obviously, we'll debate that with our board our board meets multiple times throughout the year lease quarterly.
And evaluate what makes sense based on the market conditions and the other objectives, we're trying to achieve at the Don.
And where you might look on slide 13 in our operations report to that also shows what amounts of free cash flow.
Capital at various WT.
And we anticipate that there is good.
Some of your significant free cash flow and then we will look to return atish.
Understood. Thank you.
Your next question.
It's Fargo your line is open.
And Ah Thanks for taking my questions.
I guess a lot of ground has been covered on this.
Cash occur inside you didn't mention in your slides that the buyback is still a component of cash return can you help us understand.
Well you were looking at a different avenues for it.
Shareholder return.
Yeah, and this is Jeff you are right certainly in the past we've utilized the share buyback approach as a way to return cash to Sharon and I. Appreciate you Didnt hear him given our audit audio difficulties, but in our prepared remarks, you know the feedback that we.
Clear and consistent around cat.
Sure returns and cash dividends and so going forward, our absolute expectation is to return the cash to return cash via the dividend.
This is the stock buyback.
Well I know this is going to me for you as well Jeff but.
On slide 12, you've talked about the financing cost reductions of 75 million.
And but you also mentioned about 125 million introductions from Lilly and GPN key.
Granted there may be many moving parts here, but just could you help us understand what are the targets and how will you improving your your Ella.
Okay, and then particularly I'm interested in Hollywood, improving your GP in key going for me to answer that but the 125 million novella way in GP in Ti cost reduction going into that isn't MVC that we.
We have in Oklahoma and ours that gasoline commitment sorry minimum volume commitment that we have in Oklahoma is rolling.
Now in 2021, so that's a you know that about half of that 125 million and then beyond that frankly, we're seeing lower cost and all of our categories for more detail, but whether it be chemicals compression. Our teams have done a great job of as in our cadence of war room.
The only work hard to lower the cost some of that of course is the benefit of the deflation that we've seen here lately, but what we're really seeing from the teams as an ability to and we believe keep those lower cost sustainable into the future I'll, let Dave.
You might add any color that he may have.
I think then what I would tell you is.
From an operating perspective on the LSB side.
We always start with trying to reduce downtime as our decision support centers.
That feed us data on our operations on a real time basis and so.
Not only are we able to respond more.
Quickly to downtime events in many cases, we're able to predict them and get in front of them and so that's keeping our operations up and running as always the first order business.
It varies a little bit by area, how we attack than line items, just given that the nature of the different assets, but the Jeff I think covered it well certainly compression cost chemical cost across both the Anadarko in the Eagle Ford or things.
The that we're focused on pretty heavily in the Rockies we're doing.
Yeah, we're piloting some some additional technology.
Opportunities to automate the way we work so far those have allowed us to cut our downtime in half year over year.
While improving those costs and our environmental performance and so there.
We believe we we've got a stretch target there to get our recurring yellow we in the Rockies down.
From something on the order $6.50 down to the mid there's a step change there that we can continue to get and then in the Delaware obviously.
Those type thing.
Important infrastructure there from both a a water standpoint, and otherwise that we're leveraging.
To to manage our costs.
Excellent. Thank you.
[laughter].
Your line is open.
Thanks.
And.
One of the follow up on that growth.
Look at.
And it's really just ask if.
Cycle scenario I price.
There is about 50 it is.
Growth outlook so in it.
Maxi would consider and.
And I guess as you think about the impact of having a growth rate, that's maybe a little slower than the than it was at some.
Time does that impact or maybe even limit the consideration that you did that Devon would have to.
There are participating or be a part of M&A and consolidation.
Yeah, I'd say M&A consolidation or something new we obviously recognize there's too much overhead sitting in the.
And to the extent.
Where's the there can be some consolidate add and also in many cases capture.
Yeah.
That may exist.
Yes between various companies are there Oh I see that the limit.
Okay.
Impact one way or the other I think frankly many of them.
The company's our pivoting to think were just a little more advanced with the implementation.
Of this model.
It's you know I think this is a strategy that can make sense.
So with that with acquisitions, if there could be something there would be a approach I gave a very quick answer one where to answer yes on unlimited a 5% growth rate.
That is absolutely the answer another the rationale behind that I think we all understand isn't why doesn't it just doesn't make any sense for our in it.
Mystery to grow at a much higher rate than the demand for the buckets applies to the bayless out on prices and so I.
I think hopefully ever thank and frankly I think the industry is.
Learning or last one on that so.
So that's why it's just so.
Fair enough and then my follow up is with regards to a base decline rates I'm, assuming you're at that.
At 5% or lower growth led the evolution of yours.
Our corporate base or corporate believe than most effective in managing that base decline here more recently.
Brian It's David as we've talked about previously as we as we came into 2020, our decline rate was probably in the high thirtys percent on oil in the low 30% on a Boe basis.
We would expect that that oil decline rate moves to the low thirtys.
And on a daily basis to into the end of the mid twentys or so.
And then really I would say from a from.
It's become a big emphasis for us across all of our asset areas I think all of our teams.
I have done an excellent.
And and <unk>.
On some creative solutions.
To try to shallow theirs.
Binary that decline rates out.
As much as we.
This cash return model with a more moderate growth rate.
That's an extremely important.
Yes.
Times fast, but but I can tell you our team certainly don't.
Great. Thank you.
So again if like.
Your next question comes from Brian Downey with Citigroup. Your line is open.
Good morning on thanks for taking my questions from the prepared remarks in slide nine now you are understandably still restricting flow back on newer wells due to market conditions I'm curious if that's experience.
<unk> has changed how you're thinking about early time initial flow back or pressure management on a go forward basis, if there any surprise learnings throughout that whole process during the quarter.
Hey, Brian It's David it's going to talk to you again, no I wouldn't say that theres been any surprises there any differences.
In terms of how we would we would approach that certainly as we think about flow back strategy Thats an important part.
Of how we develop our asset and so from time to time, we do.
We do experiment without a bit certainly as we're doing some appraisal work will have projects, where a were restricted flow back for interference testing and and the like but but no no no big or shattering changes or revelations that that you should expect in terms of how we Oh, we conducted business.
Congrats on sort of back to normal in the second half the year, we should anticipate on on the completion side.
Yeah, I think thats right.
Great appreciate it.
All right it looks like we're at the top the hour on and I think we've got through all the questions. We appreciate everyone's interest in Devon today and once again, given some of the audio issues. We've had will send out the prepared remarks.
To our audience and then we'll also post them on the website for everyone's convenience for for viewing.
Do you have any other further questions as well please don't hesitate to reach out to the Investor Relations team at any time, Thank you and have a good day.
This concludes today's conference call you may now disconnect.
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