Q3 2020 Pioneer Natural Resources Co Earnings Call
Welcome to pioneer natural resources third quarter conference call joining us today will be Scott, Sheffield President and Chief Executive Officer.
Daily Executive Vice President and Chief Financial Officer.
Joey Hogan executive Vice President of Permian operations, and Neil Shah Vice President Investor Relations.
Pioneers prepared Powerpoint slides to supplement their comments today. These.
Slides can be accessed over the internet at Www Dot <unk> dot com again, the internet site to access the slides related to today's call is www dot P.S.D. dot com.
At the website select investors and select earnings and webcast.
This call is being recorded a replay of the call will be archived on the Internet site through December 1st 2020.
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 in 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 these forward looking statements.
These risks and uncertainties are described in Pioneer's news release on page two of the slide presentation and in Pioneer's public filings made with the Securities and Exchange Commission.
At this time for opening remarks, I would like to turn the call over to find he was vice President of Investor Relations Neil Shah. Please go ahead Sir.
Thank you Nick good morning, everyone and thank you for joining US let me briefly review the agenda for today's call Scott will be a first he will review our excellent third quarter results to discuss a few highlights from the quarter.
Rich will then provide an update on our pure leading cost structure, our continually improving 2020 plan our strong financial position after.
After rich concludes his remarks Joey will then review our strong operational performance and best in class oil production.
Scott will then return to briefly touch on our pending acquisition of parsley energy and pioneers focus on sustainable practices. After that we will open up the call for your questions. Thank you so with that I'll turn it over to Scott.
Thank you Neil and good morning.
On slide number four we had strong start.
Third quarter free cash flow generation of 131 million, despite low commodity pricing.
Which would have been 202 million how did not name for the effects of our corporate restructuring excuse this quarter, which impacted cash flow of 71 million.
That brought our DNA, you'll hear later down cash DNA down to about $1.50 per be a week.
Year to date free cash flow totaled approximately 400 million forecasting 600 million or free cash flow for the full year at strip pricing.
Creating our full year production by leaving Capex unchanged highlighting continued improvements in capital efficiency.
Also continued to reduce our controllable cash costs.
Approximately 25% when compared to the full year 2019.
And lastly, we announced the acquisition of Parsley energy, creating significant accretion to free cash flow per share return on capital employed and other key financial metrics.
Interaction closes and integration is completed.
Turning to slide eight.
You can see what the continued improvements in capital efficiency, we are revising our full year 2020 oil production guidance from 208000 Boe's.
Barrels of oil per day at the midpoint to 210000 barrels a day, while keeping our 2020 capital guidance unchanged at 1.4 to 1.6 billion.
Our new guidance really reflects the great job. The team has done they've done an excellent job and improving execution and cycle times, reducing costs and simply doing more with less so they've really.
A lot of gratitude what they've accomplished.
Given the full per year production is revised higher our fourth quarter exit right will also increase to 202000 barrels of oil per day at the midpoint.
Up from 200000 barrels of oil per day.
Again, all while keeping our 2020 capital unchanged at 1.4 to one 6 billion.
We are currently running eight rigs in for Frank fleets, which is at the high end of our prior guidance ranges. This includes running one rig in our JV acreage as well as we recently added one rig in our <unk> area, which is in the southern part of the JV as we've talked about before the drill co activity provides an avenue to pull value forward for.
Our long dated inventory with minimal capital exposure.
As it relates to 2021 capital we are working through the partially transition and still formulating our 2021 capital plans, but.
To add some additional rigs during the latter half of the fourth quarter that are needed as part of achieving our base maintenance program for 2021.
We also have the best 24 month cumulative oil production. The punch line here is that pioneer has the oil this production mix and drills and most productive wells in the basin.
These two factors combined with our lower cost structure should lead to the best margins and the highest returns compared to our Permian basin beers peers, regardless of oil price.
Once again, congrats to the entire pioneer team on another great quarter, and I'm going to turn it back over to Scott.
Thank you Kelly I'm going to slide number 12.
Unmatched portfolio of top tier Permian acreage.
Our recently announced acquisition of Parsley energy creates really the only Permian pure play independent of size and scale with a great balance sheet.
The acquisition is accretive on all key financial metrics, including free cash flow per share and corporate returns.
Both companies have significant amounts of inventory and while the combined quality of inventories or improve the acquisition does not materially change the duration of either inventory.
We are excited with our entrance into the Delaware Basin par.
Partially has done a great job building, a very contiguous acreage position that has several benefits when compared to the rest of the Delaware.
It's all in the state of Texas, So as no federal acreage or regulatory issues regarding product transportation across state lines very high net revenue interest due to significant mineral ownership, which enhances returns.
They built out significant water additional infrastructure that drives lower well cost and reduced operating cost. In addition is a very high oil cut.
They have worked diligently.
Diligently to reduce flaring and emissions and we will continue to prove on those metrics.
The graph on the right side really just shows the sales side analysis, highlighting the significance of both pioneers and partially is combined top tier inventory relative periods across all us shale basis, not just the Permian, we probably have about eight times the nearest competitor competitor.
Turning to slide number 13.
The addition of partially enhances our investment thesis through improved free cash flow generation and stronger corporate returns one of the main benefits of combining our top two tier assets is the ability to lower our reinvestment rate from 70% to 80% to 65% to 75% generating more free cash flow.
For the shareholder.
Also our variable dividend proposition has improved through increased increase free cash flow per share.
We continue to maintain one of the best balance sheets in the industry, while our 2021 net debt to EBITDA will be slightly above our target of 0.75.
We plan to gradually reduce our leverage to below this target, while improving return of capital to shareholders.
We're currently in the process of formulating and evaluating our 2021 plan.
There are still several announced that we will continue to evaluate during our budgeting process the impacts of the election and the timing of coal the 19 vaccine and then turn the return and stabilization of all demand.
Specialty what OPEC decides to do in mid November to December Onest OPEC meetings.
I want to reiterate that our investment framework highlight on this slide is governed by a reinvestment rate that prioritizes free cash flow shareholder returns corporate returns and a healthy balance sheet.
Production growth is simply an output of this reinvestment rate.
For 2021 at current strip pricing, we will likely be closer to the middle of the zero to 5% pro forma all growth year over year.
We plan to pay our base dividend accumulate additional free cash flow to pay our variable dividend beginning in 2022.
Going to slide 14, improving free cash flow profile.
Our pro forma maintenance capital corporate breakeven is at a very very attractive low in the low thirtys Wi Fi, including the base dividend.
The combination of the top to the inventories drives a highly accretive free cash flow profile and achieve double digit accretion inclusive of free cash flow per share.
We expect to achieve synergies.
$2 billion on a PV 10 basis over the next 10 years to drive additional free cash flow.
Based on the pro forma market cap, we expect our free cash flow yield to approach double digits in 2022, allowing for increased return of capital to shareholders.
Going to slide 15, a summary, slide we been using shown that show law is generated in a ready relatively low emission fashion when compared to other all development strategies not.
Not only as panera developing when the lowest emission sources of oil as you will see in the following slide we are leading shale all peers with very low flaring intensity.
Going to slide 16, again continued strong focus on ESG the.
The combined company a partially in pioneer as very low flaring intensity of 0.6% compared to peers of 1.7% we will continue to.
Partially his efforts to reduce flaring on the legacy jagged peak acreage to improve these metrics further.
Pioneers contracts with the city of Midland Odessa utilize a flowing water and completions, what's in it significantly reduced dependency on freshwater the pro forma company.
This acquisition combines two key members of the Permian strategic partnership.
The Permian is a foundation.
For both companies and we look forward to continue to preserve promote and improve Permian basin communities.
Our new sustainability report should be released this quarter and will flat reflect significant strides in our effort to remain a leader in sustainable operations.
Recent Rasta Rice did data just release. This last week has brought the amount of gas in the total Permian flaring down below 300 million a day for the entire basin, both in Texas, and New Mexico is the lowest since 2017 and Thats.
On preliminary data for the third quarter. After the next new pipelines come on in the next six months I would expect this number to continue to drop significantly. So since we started discussing flaring about 18 months ago I think the basin has made tremendous steps with all peers.
Going to slide number 17.
Yes.
Pioneer has committed obviously to drive value for all of our shareholders I'm going to stop there and we'll open it up for Q Annette. Thank you.
Thank you if you would like to ask a question. Please signal that pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question and we will pause for just a moment to allow everyone an opportunity to signal.
And our first question comes from John Freeman with Raymond James. Please go ahead Sir.
Good morning, guys.
Hey, John.
Scott When you mentioned that next year do you anticipate being sort of in the middle of that zero to 5% growth I just want to make sure that.
On the same pages, that's pro forma with parsley.
Yes.
Yes, Okay, and so so I guess, we're just assume until told otherwise it basically it's probably pioneer legacy pioneer assets are kind of around that 5% growth you talked about previously and and partly its kind of in that closer to that than flattish type of a profile that aggregate and kind of that number.
Yes, we haven't changed partially at this point in time.
They've come out with a maintenance program over going into 21, keeping production flat and also we noticed over the last week John.
The all strip for Brent just last week got down to 39 50. So.
So its dropped about 12, 13% it's back up to $43. So obviously with the second call it the second or third wave.
And upcoming OPEC meetings as I've mentioned in previous.
Previous comments, we will have to decide so previous comment on the 5% production growth was based on last quarter was based on a 45 branch strip.
And so we really have to believe and what the strip is going to do during 2021, that's why we're leaving flexibility.
Okay, and then just just a follow up Scott where would that this kind of growth outlook, where would that puts you on the reinvestment rate at the current strip for next year.
The current strip would put us at the home run.
Roughly the midpoint of it probably.
Midpoint okay.
Thats great I appreciate you guys well done.
Okay. Thanks.
Thank you. Our next question comes from David Deckelbaum with Cowen. Please go ahead.
Good morning, Scott and Tim Thanks for my questions today.
Yes.
Curious just that you made some more headways on the well cost side this quarter mainly.
Maintaining that 60% a sustainable long term.
At 6.8 million.
Do you see more efficiencies going into 2021 with the parsley acquisition that would be in addition to some of the synergies you've already identified and what are your early observations on some of the improvements you can make on the pro forma well cost side going into next year or should we be thinking about it appears the capex guidance that you've given but.
For isn't necessarily incorporating these these leading edge rates. So just curious what you're seeing there.
Yes, David were still you know the teams working on it every day to continue to drive down those well costs. So that's something that we'll be continue ongoing with different technologies and different efficiency gains are there you are working on in terms of the partially acquisition and the synergies that come from that and it's really the ones Weve enumerated before in terms of.
No shared tank batteries, the using our water infrastructure that we've talked about that we'll see benefits pressure pumping equipment that we have under contract or other contracts on sand and diesel for instance, so it's those type of thing John the Elouise size will be on.
Route maintenance and routes and optimizing those with the within the field is.
Properties that are adjacent to each other so it's all those type of things that the teams are working on through the transition period right now to really enhance those efficiencies and capture all those synergies that we laid out as part of the transaction.
I appreciate that.
My second question.
It is it's just talking about when you acquired partially the original call.
Some people were asking about your attitude towards the Delaware, How you view the portfolio and what's core I know the impetus for the transaction was largely financial in nature.
Greets free cash per share.
Leverage ends up being neutral and then declines.
Allows you to return capital more robustly to shareholders, but.
Considering the inventory that you're picking up that you're not necessarily accelerating on what have been down has been like sort of post. The announcement have you seen more interest on the Drillco side. I think you commented at the time that obviously drillco capital is fairly dried up right now that the market for.
Non develop their undeveloped assets is pretty pretty scarce right now.
Have you received any sort of surprise inbounds of people that would that would be looking to put more capital into inventory that you or otherwise.
For lack of a better term not necessarily optimizing pro forma that bring that value forward.
Yes, David I'd say, the Delaware acreage as we've talked about things can tend to 12% of our acreage position. We do consider it core we got one rig that would be running there and really because of the high end ROI interest that they have in the high oil cut competes very well with the Midland basin on a chunk of that acreage.
In terms of the inbound to just too early we haven't really seen anything at this point I mean, let's get the transaction closed they did have a small piece of parcel over the head and.
We are marketing and that probably will go through.
So, but otherwise its core for us we're looking we're excited to get our people and really learned from what partially done over there and see if we can't jointly make it better. So that's the game plan going forward.
Appreciate it guys and I don't know.
And on just on the DRONCO, we've got that going in the southern JV and there may be other opportunities down the road, but.
But we know Weve got the one that were.
Involved in right now that's getting started right now with one rig and we'll see what others in the future makes sense.
Thank you guys.
Thank you. Our next question comes from Jeanine way with Barclays. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
My first question is good morning.
My first question is on the framework and my second question is following up on David's question about the cost structure on the framework. The the 10% dividend plus growth target that was announced that I think is 45, Brian for any TTR, you mentioned with 5% growth in mind, Mr. It's lower than that even at least on a maintenance breakeven that then.
Hello, Thirtyth. So can you just provide some insight on your budgeting process for next year in terms of how much conservatism you layer into your price forecast given volatility in oil prices and uncertainty in the macro and I guess if oil prices further deteriorate, what's your appetite to go below maintenance levels in order to try.
To deliver still on that 10% target return.
Yeah, Jeanine I pretty much covered in that one slide but theres a lot of caveats, obviously timing of vaccines the upcoming OPEC meeting.
We saw recently the brand strip getting down to below 40 to backup to 43 today. So it's very volatile and so we're going to take a look at it over the next three months and really not decide.
That's why we gave a range it could be zero it could be 5%, but it's all depend on the activity and so we're going to be somewhere in that zero to five but.
But it all depends on what happens with all these other factors so and we wont release, our budget until sometime in mid February.
Okay, Great. That's really helpful. Thank you and my second question on the cost structure.
Given your service provider partnerships, which I think is a little unusual and then also your scale are we at a point, where the current cost structure from an opex and capex structure is relatively stable. If we get kind of stable oil prices. I know you said, 60% of the cost savings is sustainable, but I'm thinking specifically about other.
Factors, such as Workovers on expense or in the capital buckets that may be coming back next year. As you start you now re ramping that program and I'm starting to kind of maintain that beef production. Thank you.
Yeah Jeanine Great question, Yeah, I would say that based on the current outlook for prices, where they sit on the strip and where they've generally been this year post the second quarter I think we would see relatively stable service costs.
In an environment price environments at slate looks like that even with increased activity because those buildings will be not many operators will have significant increased activity in 2020 at those price levels just given their balance sheet concerns. So I think we ought to expect and Rick and we're looking at them as being relatively stable for 21.
And would you mind, just commenting on the work overs for next year.
I'm here with the Workovers vary based on activity levels I can't really tell you other than that we've picked up activity as prices improved in the third quarter and we haven't seen any change in rates and so as we move into next year I think it will be from a fairly steady state to what you saw in the third quarter, maybe slightly higher prices.
It improves on but generally pretty flat with what was on the third quarter.
Great. Thank you very much.
Sure.
Thank you and our next question comes from Doug Leggate with Bank of America. Please go ahead.
Thanks, everyone. Good morning.
Rich I wonder if I could take a look at slide 14, just for a second I want to.
I just want to make sure I'm understanding this correctly so.
The free cash flow was stripped guests when you publish this strip was more like low fortys.
$1.2 billion from Josh how how would you allocate won't be probably north brawley cute enough free cash in 2021.
Yeah, well, Doug it'll be a combination of.
Like anything when we look to calculate that free cash flow.
And that will clearly have as Scott talked about the base dividend will be.
First it comes out of that free cash flow and then second will be a combination of balance sheet and variable dividend will do that as well calculated into 2021 and.
Then we'll pay out the variable in 2022 is the game plan, but you know that allocation will be predominantly we almost have a strong balance sheet. So it's still a fair amount of it is going to go to the variable, but there will be a combination of both.
Well come out with more detail in February, but we're still working through the exact mechanics Evan.
That framework and we'll come out with more detail in February but you know the gist of it is it will be a balance between the balance sheet and the variable.
Right. So so just to be clear rich would do we still need to wait to 2022, this year variable pay down or be solved before though.
Right now its still 22 2022 is the plan for the variable to get paid out.
Okay. Thanks, My follow up is just on going back to I think the other question on growth Scott.
Obviously calc, the 5% plus for Standalone planed year on obviously with partly on the night school space as you've come down into the zero to 5%. My question is what about longer term are we back to 5% plus for the combined company order you be setting the combined company to US It was zero to 5% guidance for both.
The longer term.
As I said earlier Doug.
The growth is an output.
So our framework still stays the same on that one slide that shows 10% with the base the variable and the growth rate that growth rates and output. It's all the key is to.
Only spend about 65% of our of our.
Of our cash flow amount on capital and and have 35% available.
Available long term for the base and then the variable dividend. So we're still long term in that same framework.
I'm a firm believer that long term crude will be brand will be above $45. So it's premised on that too long term also.
From your remarks to God's ears, Scott and look forward to chatting next week. Thanks Charles.
Thanks.
Thank you. Our next question comes from a room Jr. Him with JP Morgan. Please go ahead.
Hi, good morning.
I was wondering if you could give us an update on how you to 2020, well productivity is trending relative to your expectations you guys have messages that it's obviously been lower.
Just given as you look to cut cost optimize infrastructure spend I was wondering how.
The shape of the curve is playing out relative to your expectations.
Hi, Good morning, earning this is Joey I'm really in the in the framework of your question China is the answer things have progressed just as we've described and we continue to focus on capital efficiency and do everything we can to deliver as much oil as we can with the least amount of expenses we can.
And what we do is we actually look at these on a quarter by quarter basis, and just as you described even though their initial production rates may not look similar to what we said in the past as you progress throughout the next quarter and for the next quarter you see that those curves start to come back and match so the cumulative production.
It was very similar to what we've seen in the past and we continue to see that trend and we continue to focus on capital efficiency and minimize our infrastructure spend to make sure we keep our capital cost in line.
Got it and my follow up is just you know just maybe a follow up on the parsley transaction.
One of the cult that people I think do recognize.
The financial merits of the transaction, but one of the Pushbacks that we've gotten is just the the timing of the development of the parsley assets.
Just given the fact that historically pioneers well productivity has been a bit higher so Scott how do you address that and the fact that the concern that some of these partially assets maybe.
Developed a bit later.
Yes.
Ryan its rich I mean, I'd say that.
A big chunk of their portfolio competes very well with our high grade.
Portfolio in the Midland Basin to me a lot of these locations are adjacent to where we're drilling so those can be very well and we talked about the Delaware in their high end, our eye areas and so it will be a balance and we will get the portfolio together, we'll look for we have operational and synergies, Oregon use combined tank batteries and really be capital efficient as Joey talked about but from our perspective, a big chunk.
Our portfolio will look a lot like our portfolio and be developed overtime really commensurate with how we develop our portfolio.
And just maybe a quick follow up rich you, obviously on the supply chain side.
Pioneer has the agreement with pump other opportunities to leverage.
The supply chain to your advantage on the parsley assets.
There are and so we'll we're working through those things now, but I mean for instance on the pump we have idle.
Idle frac fleets that we'll be able to deploy on.
Barclays assets and so to me that's just a benefit that we'll be able to capture as part of the combined entity.
Great. Thanks, a lot.
Sure. Thanks.
Thank you. Our next question comes from Brian singer with Goldman Sachs. Please go ahead.
Thank you good morning.
And Brian I wanted to follow up on the discussion on.
Oil growth.
As part of follow up on Doug's question, but just to start at the midpoint dividends you're at a 5% pro forma oil growth range for next year, if you're planning to grow the pioneer legacy piece by about 5% given the lower well cost you highlighted can you just remind us the capex that would be needed there in the rig count that would be needed and.
Then from an oil production perspective that would appear to imply just for the legacy assets double digit growth in the second half and wondered philosophically what interest level. The commodity environment is right and it's supported within your reinvestment range. You would you would exceed 5% in the year not next year, but in future year or if you would draw.
Activity at needed even at healthy oil prices to limit annual growth to 5%.
You have to long that's a long question, Brian the free part and first of all we will yes, I know we will never I stated before we will never go above 5% long term. Okay. So we'll make that clear regardless of what the all strip is doing.
We gave a range next year of zero to five I can give you several scenarios in the all strip in the Brent strip is closer to 40, we will most likely go to no growth for either company and just keep things flat. After the all strip is very positive 45 or greater we could move both companies.
Toward that 5% range and so we just don't know at this point in time, and we're just going to watch things, we got to watch the vaccine the key drivers and the upcoming OPEC meeting to make sure. They do not bring on an extra 2 million barrels a day. During the first things are positive from what I'm hearing and so those are two key events that we have to van.
Anyway, which is going to have a great effect on the on the all strip. So that's basically those two events as well we're waiting on before we set our budgets clearly for both companies for 2021.
Got it so I guess, the I guess, you're saying philosophically that for whatever reason you're at the midpoint of that range or at least part of your portfolio the pioneer portfolio exceeds 10% or sorry, the 5% goal.
Going into 2022, you would just reduce activity and focus on free cash flow to.
And limit the growth on an annual basis to get to 5%.
Yeah, I know the whole the whole focus is for is a free cash flow and just like I've said before a and b to C. Whatever growth rate. We if the output is what happens is that maybe the first couple of years, you end up generating a little bit more free cash flow, but between zero and five.
It's not that there is not that big a difference and free cash flow and after a couple of years. They cross the the AD hoc that higher growth rate from zero to five actually crosses over and delivers more free cash flow long term then just staying flat for the next five years and so but the key driver is.
Where are the all strip is going to be and the events and where it whether or not it's going to be 45 or above our 45 and below.
And Brian anything I'd add is that you know the when we talk about the mid point of the zero to five is for 2021 that was is the comment that Scott made was really predicated on a $43.
Strip today and that clearly will evolve for all the reasons Scott talked about and so therefore that zero to five will fluctuate as we see how commodity prices look as we get into next year.
Yeah, and we Havent come out with the capital.
Thank you Brian you asked about cap, we haven't come out with capital yet.
In regard to the 5% growth rate case for pioneer only.
We just stay we won't do that until in February.
Great. Thanks, if I could just sneak in one more you've commented in the past any comments on this call on OPEC behavior as a key arbiter of your level of activity and while it is a lot that still a note about the U.S. election, I just wondered since.
Since the since it that may become a focus area how.
U.S., Iran policy and clarity on us or anticipate any implications for Iran production how.
How important that is there is that potential constraint to to your level of capex waiting to have that waiting to have that clarity within the reinvestment range that you've set.
Yeah, Hi, thank you.
It will definitely take a if biden is the.
Is the president it will definitely take a minimum of 12 months. So I look at as an early 22 event.
To middle of 22 for a round to bring on 1.5 to 2 million barrels a day there are already bringing on.
Production going through Iraq, and other sources.
And so the world if you got the vaccine and the world is probably going to be back close in 22 to 100 million barrels a day. So it's another pickup of eight to 9 million barrels a day. So in my opinion that gets plenty of room for Opex, and OPEC plus to us or Iranian barrels a 1.5 to 2 million barrels a day.
Right.
Thank you.
Thank you and our next question comes from Neal Dingmann with true Securities. Please go ahead.
Good morning, Scott Youve already talked I, just want make couple more details on this on the.
Turning to the parts again once you settle that and picked up that.
That the debt just wondering will that change on how you'll go ahead and address leverage form will that just the way you've kind of been addressing leverage now is what I'd call a byproduct of your 10% annual return plan will you continue with that.
Yeah really from a leverage standpoint, we know it takes up our leverage ratio a little bit we're still going to have an excellent balancing top tier balance sheet. So it really won't change and we think about the variable dividend and 2022, what we pay out we believe it will still be on a combined basis either yes.
What exactly what it would have been on the standalone basis or higher going forward and so we really think the accretive nature of the transaction doesn't change that will overtime bring our debt metrics back down to below 0.75, net debt to EBITDA, but that'll happen over time and still with no decrease to the variable dividend, but only an increase to the variable dividend based on.
On our Standalone plan.
No that makes sense and then just one kind of minor point I was curious on your running just I think it extra frac spread that maybe a little bit more than the plan is this due to just taking advantage of low oil field service cost or are there other variables and this decision just to run maybe a little bit more active on the frac spread side and then plan.
Actually it was always planned so really no change to what we had planned all along when we bring back that fourth.
Frac fleet. So it was based on our existing plan coming into the year Hany, Neil Neil Shah. The if you look at our range. The range was two to three when we put out that range. We're running one frac fleet. So now running for kind of puts you in that range of that two to three and of course as we started the call off towards the high end of that range, but still within range Neal So that was always in the.
Plan, so it's kind of consistent with how we envisioned layering on additional frankly throughout the year.
Okay. Thanks, so much.
Of course.
Thank you. Our next question comes from Derrick Whitfield with Stifel. Please go ahead.
Thanks, and good morning all.
Hi, good morning take.
Taking brian's earlier question on election, and in slightly different direction, assuming the likely outcome of abiding president seen divided Congress.
What in your view is your greatest regulatory into our tax exposure in the near term.
Yes, I think first of all.
Based on the results of the Senate I guess, we're going to be down do lemke, two key Georgia races, but.
I would expect for due to win so that would be 51 on Republican on the Senate and then they'll have the run off in early January and I would expect that person. So my guess.
The Senate will end up losing one seed to Republicans will be 50 248.
In that regard there'll be should be no effect in regard to taxes going forward.
I think what Biden, we'll do the big unknown for people that own federal acreage is that Willie stop.
Giving drilling permits you already said it will be and you will not ban fracking, but he can do other things like stop giving drilling permits which would affect new Mexico, Wyoming and the Gulf of Mexico in federal waters.
So nobody knows whether or not he is going to do that but that could have a major impact on us production long term, if we stopped giving drilling permits other things you'll roll back some of the.
Trumps movement like on the emissions 2016, which we were totally against.
Trump doing that but biden would obviously with having the EPA under under his gun control will probably roll back any of 'em trumps emission. So those are the bigger issues.
That I see that will affect the industry.
Thanks, Scott and in light of the increasingly constructive gas macro backdrop is there any reasonable natural gas price scenario, where you potentially increase your capital allocation to the Wolfcamp b interval and 21 and 22.
No it will have no no effect.
Thanks, guys very helpful. Thanks for your time.
Thank you and as a reminder to our audience you may ask your question by pressing star one.
Our next question comes from Paul Cheng with Scotia Bank. Please go ahead.
Good morning, Thank you two.
Two quick question.
Scott I think in the past that you guys stop giving the inventory number Paul spec inventory number.
What this slide that you showed there just curious that yes that the number that you can share what would it be on the stand alone and also with possibly.
On a combined pro forma basis, what you can see that you'll premium inventory looked like.
Second question that Jason.
Looking at.
The combination of the mean Pos need the well productivity historically has been less than fine there.
Even though that at least in the midnight.
Then seems to be we need just that Jason. So we've consumed is not the quality of the wall.
So yes, it we need the completion design.
Nicole how or any other factor and how quickly you can.
Improved that and maybe I thought your own dxi or you'll technical know how to improve those we sell thank you.
Oh, Hey, Paul on the inventory side, you know as well as on quality premium inventories you know 10000, plus locations and partially you know 2500 plus locations on a combined basis. So just to kind of give you or either.
Magnitude on your second question, you know the quality of the rock and other acreages, so adjacent to ours and our team is looking forward to getting in in understanding and seeing what they've done with their completion designs, but we've got a lot of data is because of the expensive wells that we've drilled and so we plan on using that same.
As we did for the evaluation that same technology in terms of how we developed a field. So no really look to it will really put our what we've done we'll see what they have done if theres any improvements that we can make it we can learn from them.
But then we also look at we've done if we can improve it we will do that so it's really just the team coming together and figure out what's the way to optimize the field and optimize the development and recover the most recent sources we can have.
As capital efficient as you know we talked about right is that a timing that how quickly that you think you would be able to.
Compete that process.
Oh why was the teams working on it now so it's all underway and so we plan on and in terms of our 2021 capital program that will be part of that capital program and baked in.
Okay all right. Thank you.
Thank you and our next question comes from Leo Mariani with Keybanc. Please go ahead.
[noise] I just wanted to follow up a comment on a comment that you guys have made about.
Adding some rigs here kind of in that the second half of the fourth quarter, just wanted to kind of get a sense.
Scott you talked quite a bit about oil macro here is that sound like I mean, it's definitely to happen for pioneer or are you guys going to kind of wait till.
Finally after hearing the OPEC meeting in early December to kind of make a decision on that.
No Leo were those decisions are in progress now in being maintenance related to get to our base maintenance program and so that's really what these rigs would have been it was already contemplated in our capital program. It is baked in is really just as we move to 2021 and make sure that were at least at the base level of our maintenance program and these rigs are going to be needed. So.
It's it's planned and being executed as we speak so.
Okay. So I guess that would lead to some type of modest uptick in capex in the fourth quarter as you guys look at it.
That's correct.
Okay, very good but still within our still within our range, though yeah.
Yep, Okay, you, guys and really a pioneer as well as the rest of the industry has done a really good job kind of reducing lease operating expenses here.
During the pandemic and just kind of wanted to get a sense or do you think that a lot of these costs are going to be pretty sticky to work our way and a 21 in terms of being able to keep these off the blocks or if we do get into a higher commodity price environment. Eventually are going to see these cost or to creep back up.
Yeah, I would say a big chunk of it will be sticky, but there are clearly some that are service cost related that if you've got something closer to $50.
You tie that you we could see some inflation I don't see a lot of inflation or between where we are today and in the air but a big chunk of them are just doing things smarter doing a more efficiently doing them with our own internal people. So you know a chunk of them for sure are going to be sticky and there is a small percentage of it there would be subject to escalation with.
Service, causing increase in a price at higher price environment.
Okay. Thank you.
Thank you and we have no additional questions at this time I'll now turn the conference back to Mr., Scott Sheffield for closing remarks.
Again, thank you very much.
Everybody stay safe, we look forward to talking to you next quarter.
Next year. Thank you.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
Right.
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