Concho Resources Inc. (CXO) Q2 2018 Earnings Conference Call Transcript

Concho Resources, Inc. (CXO)
Q2 2018 Earnings Conference Call
August 2, 2018, 9 a.m. EDT

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. And welcome to the Concho Resources second quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. If anyone should require operator assistance during the call, please press * then 0 on your touchtone telephone. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Ms. Megan Hays. Ma'am, you may begin.

Megan Hays -- Vice President, Investor Relations

Thank you. Good morning and welcome to Concho's second quarter 2018 earnings call. I'm joined today in Midland by Tim Leach, Chairman and CEO, Jack Harper, President and CFO, and Will Giraud, Executive Vice President, as well as members of the Concho senior management team. Our earnings release and corporate presentation are both available on our website, and we plan to file our quarterly report on Form 10-Q today after market close. Please note that we will make forward-looking statements based on current expectations this morning. Also, some of our comments may reference non-GAAP financial metrics. Forward-looking statements and other disclaimers, as well as reconciliations to the nearest corresponding GAAP metrics, are in our earnings release and our corporate presentation. We have a lot of great news to discuss with you today. Tim will start the call, and then you will hear from Jack. Following their prepared remarks, we will take your questions. Now, let me turn the call over to Tim.

Tim Leach -- Chairman, Chief Executive Officer

Thanks, Megan. Good morning. With nearly half the drilling rigs and completion crews in the country running in the Permian Basin, the region's as busy as we've ever seen. We estimate that more than $50 billion in capital will be invested to drill and complete wells in the Permian in 2018. Industry's capital investments headed even higher when you add up midstream, refining, and other services. It's an environment like this where our scale, experience, and being right in the middle of the action helps us deliver. Second quarter was another strong quarter. We achieved record production of 229,000 BOEs per day with oil production up 26% compared to a year ago. Our performance this quarter wasn't driven by any one asset. Rather, it was the outcome of strong results from large-scale development across the entire portfolio. And even with a busy environment, the team's done good work fighting inflationary trends by getting more efficient and increasing our use of Permian sand.

We talked about reaching inflection points in the past. The shift to horizontal development in 2011 is one example. Establishing a position in the Northern Delaware is another. And it was about a year ago that we described another inflection point: our progression to large-scale development. Horizontal drilling in the Northern Delaware turned out to be huge value drivers for the company. And we believe manufacturing mode will do the same thing. This transition has been one of our most important operational and strategic priorities. And we're early in realizing the positive impacts to capital efficiency, returns, and recoveries that we believe large-scale development will deliver. The RSP acquisition solidifies our scale advantage and reinforces our growth platform for bigger wells and increasing returns. With the transaction now complete, our most important phase of work begins. Realizing the benefits of this powerful combination by successfully integrating our teams and operations.

You've heard me say before that our people are our greatest asset. And with RSP, our team grows even stronger. I welcome the 171 RSP employees to the Concho team. The RSP assets enhance some of the best parts of our portfolio with exceptional development potential. We started unlocking that potential on day one by directing capital to several projects on the RSP assets. Following the closing, we're running 32 horizontal rigs which is the largest program in the Permian. And eight of those rigs are running on former RSP assets. Jack will cover the development plans for the second half of the year in more detail. The key takeaway is we're taking premium resource and making it more valuable with our operational machine. So far, 2018 has been unprecedented in terms of the transformative actions we've taken and the solid results we've delivered.

In the first half of the year, we organically added 18,000 BOEs per day of production, generated about $150 million in free cash flow, executed several trades to block up core acreage, sold non-core leasehold, and announced the RSP acquisition. The acquisition combines two great companies focused on the highest quality resource in the Permian Basin, has scale and expertise necessary to compete globally. As we move forward, I'm even more optimistic and energized about the outlook for the company. We have distinct, competitive advantages, execution strength, the depth of our quality resource, and capital efficiency, financial strength. And RSP reinforces each of these and enhances our ability to drive sustainable growth and returns for our shareholders. Jack will now discuss the quarter in more detail and provide an update on our outlook for the year.

Jack Harper -- President, Chief Financial Officer

Thank you, Tim. And good morning. Our strategy and execution translated to strong operational and financial performance. Production for the quarter totaled 229,000 BOEs per day which was in line with the high-end of our guidance. Oil production averaged 143,000 barrels per day, a 26% increase compared to the prior year at flat versus the first quarter of '18. At this point, we're right where we expected to be. Over the past 12 months, US oil production has grown considerably, and the engine behind this growth was the Permian Basin. The EIA estimates that the Permian has added an average 75,000 barrels per day each month so far in '18 with August production expected to be a record 3.4 million barrels per day. This growth is showing up faster than forecasted. And while new long-haul pipe projects are being built, these new projects are slated to come online with little margin for delay. As we described last quarter, our midstream strategy has evolved significantly over the past decade.

We've made strategic investments in infrastructure that are intended to protect our upstream business by ensuring operational continuity. Approximately 90% of our oil is gathered and transported by pipe, most of which is covered by firm sales agreements with the remaining 10% directed to regional refineries. Our marketing strategy has always prioritized the highest wellhead price while maximizing flexibility. As crude takeaway gets tight, we are leveraging our size and scale to secure flow assurance today. Importantly, our firm sales agreements provide near-term flow assurance without limiting long-term pricing flexibility. And just as we mitigate flow assurance risk through firm sales agreements, we also mitigate the financial risk of the Midland-Cushing differential with basis hedges. On the other side of the margin equation, our controllable cash costs look good. Cash G&A was stable when compared to the first quarter of the year while both LOE and interest expense decreased.

In the second quarter, adjusted net income per share was $1.24, and we generated $592 million of EBITDA. When oil prices moved lower in late '14, we moved quickly to align capital spending with cash flow from operations. And we've done that for 11 out of the past 12 quarters. In fact, over that time period, we've generated more than $600 million in free cash flow. In the earnings material, we only show operating cash flow and D&C capital for the past two years which is also impressive. We've increased production 50% and generated approximately $250 million in free cash over that period. I believe that stacks up well against our peers. And I can't think of a better illustration of the commitment we have to capital discipline and of the quality of our assets. Turning now to the balance sheet, maintaining a strong financial position enables us to deliver near-term results, invest for the long-term, and better manage risk.

Following the RSP transaction, we maintained a strong balance sheet which was acknowledged by the upgrades to BBB minus by Moody's and BBB flat by Fitch. We now have investment grade ratings from all three agencies. We recently completed a $1.6 billion senior notes offering, consisting of both 10-year and 30-year tranches at a blended rate of 4.5%. The proceeds were used to redeem RSP senior notes for $1.2 billion and repay a portion of the outstanding balance under their credit facility. These transactions achieve a key cost-savings target by reducing proforma annual interest expense by more than $15 million. After giving effect to the liability management actions and associated transaction cost, we would have had long-term debt of $4.2 billion at June 30th. Importantly, our leverage ratio remains below 1.5 times. We're proud of the RSP acquisition and the entire position we've carefully and strategically built in the Permian over the last decade.

As a result of closing the transaction, we've updated our guidance for production and capital to include RSP beginning on the closing date of July 19th. Although RSP reported production volumes on a three-stream basis, we will continue to report on a two-stream basis and have converted RSP's volumes to two-stream which results in an approximate 10% reduction in their equivalent volumes but has no impact to cash flow. In the third quarter, we expect production to average 280 to 285 thousand BOEs per day with RSP contributing to production beginning on July 19th. The fourth quarter will be our first full quarter with RSP. And we expect production will average 305 to 310 thousand BOEs per day. For both third and fourth quarters, we're guiding to an oil mix of 65%. For full-year 2018, we expect reported production to average about 260,000 BOEs per day, consisting of 64% oil.

To help calibrate models, on slide 12 in the earnings presentation, we provided proforma production on a two-stream basis for full-year '17 through the second quart of '18. On a proforma basis, the new full-year '18 guidance equates to approximately 21% to 23% production growth year-over-year. Moving RSP's premium assets to developer mode is the most efficient way to build value in the combined company. Post-transaction operations and integration activities are going well. And in the second half of the year, we plan to jump-start large-scale projects on RSP's assets. In the Northern Delaware, we have one planned project, the Tailor. In the Midland Basin, RSP recently achieved solid results in Glasscock County. We plan to continue this success with a six-well project there. We also plan to develop a five-well project on the Spanish Trail lease in Midland County and a 13-well project in Martin County.

We're also completing several infrastructure projects that facilitate large-scale development in the Northern Delaware on RSP's assets. All of this activity is reflected in our updated capital outlook of $2.5 to 2.6 billion. There are two points I wanna emphasize. First, there is no change to our investment philosophy. We expect operating cash flow to fully fund the capital program which will be allocated based on rate of return. Our production growth is the output of this investment framework. And second, the RSP transaction enhances the capital efficiency of Concho as we help define the new E&P business model. We continue to believe that leadership in our industry is defined by execution strength and capital discipline. I hope you've come to expect Concho to deliver on these principles. We're well-positioned to leverage the power of our portfolio and the strength of our team to extend our track record of profitable growth and returns. And with that, we'll turn it over to the operator.

Questions and Answers:

Operator

Ladies and gentlemen, if you have a question at this time, please press the * then the No. 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. Our first question comes from John Freeman with Raymond James. Your line is now open.

John Freeman -- Raymond James & Associates -- Analyst

Good morning, guys.

Tim Leach -- Chairman, Chief Executive Officer

Good morning, John.

William Giraud -- Executive Vice President

Hi.

John Freeman -- Raymond James & Associates -- Analyst

When I look at slide 13, clearly you guys are hitting the ground running immediately on the RSP acreage with these large-scale projects. I know that stand-alone Concho had about two-thirds of its activity that was focused on these large-scale projects. And ballpark, it looks like on second half '18, over half of the activity in the RSP acreage is devoted to these larger-scale projects. And I'm just trying to get a sense just from a high-level, rough estimate of the projects that are detailed on slide 13, just a ballpark rough idea of what percentage of those wells or projects don't come online until either -- call it second half 4Q or into '19.

William Giraud -- Executive Vice President

Yeah. Hey, John. This is Will. All of those will come on later in 2019.

John Freeman -- Raymond James & Associates -- Analyst

Perfect. And then when I'm looking at the various sizes of the projects, anywhere from five-well pads to 20-well pads. And you all do mention in the slides that, for example, on the Dominator pad, you all had to basically coordinate over a year in advance with the midstream partners with that project. I'm just curious how much the midstream component has an impact on the size of these pads and then longer-term if we should think that these projects are likely gonna gravitate toward the larger end of that range over time.

William Giraud -- Executive Vice President

Sure. Midstream is certainly one of the elements that goes into sizing it. But I would say the bigger driver is -- well, let me step back for a minute. I think we've been one of the leaders in moving to these larger-scale development projects. And that's been a steady evolution over the last couple of years as we've tested different spacing within a zone and between zones. And so, these bigger and bigger projects I think are just a further evolution of that trend. Where you see some of the smaller projects that that's continuing to test, sider spacing or different spacing within a zone or between zones, again. And so, I think you're right. Longer-term, you'll see an evolution to the bigger and bigger projects. And we're still learning as we go. And so, I think you'll see a blend of different sizes.

John Freeman -- Raymond James & Associates -- Analyst

Thanks. I appreciate. Nice quarter.

William Giraud -- Executive Vice President

Thank you.

Tim Leach -- Chairman, Chief Executive Officer

Thanks, John.

Operator

Our next question comes from Bob Morris with Citi. Your line's now open.

Robert Morris -- Citigroup -- Analyst

Good morning. Congratulations, Tim and Jack in getting the RSP deal completed and in the fold here. Looking at the rate count that you've ramped up to combined for the two companies at 32, you've added about five since the deal was announced. And four of those five are on the Concho properties which at 24 rigs is a little bit higher-paced than what you'd originally planned for the year. Could you just talk a little bit about the acceleration now on Legacy Concho assets and why you're seeing more acceleration there at this stage as opposed to RSP deals and just overall the acceleration activity if that's driven by oil prices or just the better positioning of the combined companies?

William Giraud -- Executive Vice President

Sure. This is Will again. I'd say that what we're doing on the Concho properties is consistent with what our plan had been for the year. We did add those rigs here over the last month or two. But we've also added a rig to the RSP properties. And like I said, at this point, it really just reflects what the two companies were doing on a stand-alone basis. And I think you'll see -- you're starting to see it now that we've closed. And over the course of this year, you'll continue to see us put our stamp on those properties. But I wouldn't really characterize that as anything different than what you should have expected earlier in the year.

Robert Morris -- Citigroup -- Analyst

Okay. All right. And then my second question is on the Northern Delaware Basin, the Columbus four-well pad, the 30-day IPs were sharply above what we've seen in the Delaware Basin historically. Can you just talk a little bit about where you are in the completion optimization process as far as that contributing to the much better results there at Columbus versus what is just location nor acreage there as being better than what we've seen in other areas in your portfolio?

William Giraud -- Executive Vice President

Yeah. We're drilling really good Wolfcamp wells. And I think that Columbus project is an example of that. I think we're getting better and better at targeting and also continuing to refund our completions. So, I think it just reflects a good area and also good work by the team drilling really good wells.

Robert Morris -- Citigroup -- Analyst

Great. Thank you. Congratulations again.

William Giraud -- Executive Vice President

Thank you.

Jack Harper -- President, Chief Financial Officer

Thank you.

Operator

The next question comes from Brian Singer with Goldman Sachs. Your line's now open.

Brian Singer -- Goldman Sachs & Co. -- Analyst

Thank you. Good morning.

Tim Leach -- Chairman, Chief Executive Officer

Good morning, Brian.

Brian Singer -- Goldman Sachs & Co. -- Analyst

Shifting to the firm sales agreements and the real-life pricing side of the equation, can you add a bit more specifics on those firm sales agreements, particularly how they provide long-term pricing optionality as you described and then whether the agreements provide the flow assurance for the 90% of the crude that your gathering systems are moving, the full 100% when including the piece you'll sell regionally or some other percentage?

William Giraud -- Executive Vice President

Yeah, Brian. Let me first say that when I think about the issue of crude oil leaving the Permian Basin, it seems like there's two issues. One is can you move your crude oil, and secondly, what price you get paid for it. And I think as we described, we have firm sales agreements that cover our crude oil in such a way that we have a high confidence level that our crude will move and, on the pricing side, that we've used hedges the way we've historically used hedges for the differentials, as a shock absorber that covers most of our exposure for this year and next year. So, I feel good about our position. I don't think that transportation is gonna affect any of our plans. In fact, you can see by the way we're ramping up, that we have confidence that we're gonna be able to expand going into next year. I'll turn it to Jack to talk about any specifics he wants to talk about.

Jack Harper -- President, Chief Financial Officer

Yeah. Brian, I would add to that that the flexibility we're talking about in '20 is just a reflection of how we attempt to style these agreements which give that opportunity at a later date. And if history repeats itself, when you get through this period of tightness and Midland pricing becomes at parity again, you have a lot more options at that point than you do today.

Brian Singer -- Goldman Sachs & Co. -- Analyst

Great. Thanks. And I guess to tie that into the production trajectory -- and I think this was covered a little bit earlier by virtue of increasing the scale with the longer lead time projects on slide 13. You would seem to have a lot more visibility on the cadence of wells being brought to sales not just for the next two quarters but potentially for the first three-plus quarters of 2019. Is it fair to say that the second quarter and the third quarter of '19 are when a lot of these new projects are going to come online? And to your point just now, for many, that's when Permian oversupply may very well be at its worst.

Jack Harper -- President, Chief Financial Officer

That's a fair assessment, Brian. And that does line up with the timing of a lot of these larger scale projects. So, that is correct. And it's also just in line with how we were planning to go about our business anyway. So, it's nice that it lines up that way.

Brian Singer -- Goldman Sachs & Co. -- Analyst

Thanks. And are you still taking efforts to expose the company to pricing points beyond Midland and your hedges Cushing? And is that something that could have an impact on 2019? Or is that longer term?

Jack Harper -- President, Chief Financial Officer

Oh, it's longer term. And I think you could see that optionality in price begin in late '19, early '20. And I feel very confident that we will have opportunities to look at it more as a portfolio approach if we choose to do that. However, we do think Midland will be a good place to price a barrel longer-term due to the options that we have here.

Brian Singer -- Goldman Sachs & Co. -- Analyst

Thank you.

Jack Harper -- President, Chief Financial Officer

Thank you.

Operator

Our next question comes from Doug Leggate with Bank of America. Your line's now open.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Thanks, everybody. Good morning. Tim, I feel as if I ask you this question every quarter, but for the conveying company, you're well in a stand-alone basis in Q2. You generated free cash flow in the conveying company in this commodity deck. It looks like that might continue even at a higher activity level. How should we think about your prior comments about spending cash flow? And I think a couple of quarters ago, you talked about when you do something, it will be significant as it relates to surplus cash, whether it be dividend or buyback or something. But can you just frame your thoughts if post the Permian bottlenecks, oil prices will actually see a holdup for this new trading range we've seen recently?

Tim Leach -- Chairman, Chief Executive Officer

Yeah. Well, I think one of the most important things to start with is that these capital programs we put together are the highest rate of return capital efficient programs we've ever had in the company's history. So, a lot of our cash flow goes back into those programs because they create so much value. I would say over the longer-term though -- oh, and going into the next year or two, oil prices have been very volatile. And we've been pretty conservative on how we build our capital program and what commodity price we look at for that program to break even. I like the notion of generating free cash flow and growing dramatically. And so, I think in the short-term, you're gonna see us generating free cash flow and growing dramatically. And then beyond 2020, I think as we've discussed in the past, we have all the options in front of us on what's the best way to create value for our shareholders, what's the optimal rate to run our machine. And I think we're just gonna be really well-positioned.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

I know it's not an easy one to answer, but I guess we'll have to wait a couple of years. My follow-up, if I may -- and this really goes to my discussion with Megan last night. I realize that -- not to put words in her mouth, but you really couldn't do a whole heck of a lot with RSP prior to the close. So, now that you've got a hold of this thing, you haven't given us updated outlooks for '19 and '20 the way you did for Concho. And I'm just wondering if I could press you a little bit to give us some ideas to maybe how you see the proforma company get off profile over the next couple years, referencing the guidance you used to give us for Concho. And I realize it's a little early, but any help would be appreciated. And I'll leave you there. Thanks.

Tim Leach -- Chairman, Chief Executive Officer

Yeah. Well, I think, as Jack said, our philosophies haven't changed on how we run the business. And RSP, that acquisition brings in very high-quality properties. So, one of the ways we create value is by aggressively managing our portfolio of assets. You'll see that continue. And then as we look at our capital budget and allocate capital, you're gonna see capital going to the highest rate of return projects which, as Jack's described in his presentation, are bigger and bigger percentages of multi-well pads and those kind of projects. Lots of those will be on RSP. And as far as when we give guidance for 2019, historically, we've transitioned to giving guidance after the year has been completed. I think we just got our hands on the steering wheel on the RSP assets. But we've already started to reallocate capital. And the earliest I think you could see us give you any guidance would be probably at the end of the next quarter.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Sorry, Tim. Just to be clear, are you pointing toward an acceleration of asset sales?

Tim Leach -- Chairman, Chief Executive Officer

I wouldn't call it a --

[Crosstalk]

Tim Leach -- Chairman, Chief Executive Officer

I think an acceleration would be a mischaracterization. I just think it's an ongoing, aggressive portfolio management to high-grade our portfolio. We've got great assets across both basins. But we will continue to very aggressively manage those, to block up high-grade. And you oughtta see our map getting more concentrated over time.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

I'll take aggressive. Thanks a lot, fellas. Appreciate it.

Tim Leach -- Chairman, Chief Executive Officer

All right. Thanks.

Jack Harper -- President, Chief Financial Officer

Thank you.

Operator

Our next question comes from Mike Kelly with Seaport Globals. Your line's now open.

Michael Kelly -- Seaport Global Securities -- Analyst

Hey, guys. Good morning. Really just wanted to get your take, the high-level of how you see the dynamics playing out in the Permian over the next six or 12 months. Jack mentioned in his prepared remarks that production has really exceeded expectations. And as we near our pipeline capacity, just really curious on how you see the potential for differentials to vary, what dynamics you could see ultimately happen with producers, certain behavior, etc. Just really your high-level thoughts. Thanks.

Tim Leach -- Chairman, Chief Executive Officer

Okay. Well, let me start with the high-level thoughts. We have not had any problem moving or selling our crude oil. And historically, we've seen situations like this before where -- it was just two years ago that everyone was asking about access to service and supply. And it came along big time for us. So, the Permian's a great place to be. Transportation resources out of the Permian I think will supply all the needs that the industry has. And I think that -- my expectation is, from a very high level, that when there is a need and there are economics involved, that our industry is great at responding to that need. So, I think that we've seen these blowouts and differentials before. That's why we have the type of hedging program we have. I think this problem will be solved more quickly than anybody's estimating. And then we'll be on to the next problem.

Michael Kelly -- Seaport Global Securities -- Analyst

Fair enough. You guys do have great basis swaps. Protected there. How about activity levels for you guys? If differentials really do get to excessive, egregious levels, do you think about slowing activity? Or how do you respond to that?

Jack Harper -- President, Chief Financial Officer

Mike, cash flow is the ultimate governor of our business. And we're also prudent in the way we go about our business. So, if you did have some period of dislocation that brought down the cash flow, we would match up our activity over time with that.

Michael Kelly -- Seaport Global Securities -- Analyst

Got it. Appreciate it. Thanks, guys.

Tim Leach -- Chairman, Chief Executive Officer

Thanks.

Operator

Our next question comes from Michael Hall with Heikkinen Energy. Your line's now open.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Thanks. Good morning.

Tim Leach -- Chairman, Chief Executive Officer

Good morning.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Just wanted to talk a little bit about the 2018 -- the back half guide on the proforma basis. I guess as we combined the two, we had a bit higher fourth quarter number, in particular, relative to what you all had. You talked in the deck about project timing on the legacy assets and shifting the manufacturing on the RSP assets. Just wondering how much that impacted the fourth quarter number relative to what it maybe would have been on a just go-forward RSP, in terms of the way they had been managing that business. And how quickly do we make that up? Should we expect to see a big uptick in the first quarter '19? Or just how does that transition to manufacturing? How long does that have to take to play out? A few questions there. I appreciate it.

Jack Harper -- President, Chief Financial Officer

Yeah. Let me start by saying that most companies are doing well relative to our plans. And relative to our internal forecast, both look favorable to those. And most certainly, jump-starting the activity on large projects and RSP modestly defers the timing of some production. But really nothing materially different than what they had planned on those assets or what we had planned on ours. But it should provide us some nice momentum as we look to build the budget for next year.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Okay. And it's fair to think then we'd see a pretty healthy uptick early in '19 as that occurs? Or is it likely that there's a big lump early in 2019?

Jack Harper -- President, Chief Financial Officer

Yeah. As Tim mentioned, we're just now getting our arms around these. You see some actions we're taking here in the near-term which is building out infrastructure, starting on some of these larger projects on the newly acquired assets. And the earliest we would really guide, as Tim mentioned, would be next quarter. But we're excited, most importantly, about the added efficiency. This allows us to build a program with this new set of assets.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Okay. Makes sense. And then last, do you have an estimated base decline for the combi -- [audio cuts out] at this point? Like, what a 12-month out decline rate might look like?

Jack Harper -- President, Chief Financial Officer

Oh, combined, they're similar to what ours was prior.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Is that above 30%? Is that a reasonable level?

Jack Harper -- President, Chief Financial Officer

Yeah. It's a little bit lower than that. Depends on the timing and cadence of these projects. But yeah. It's somewhere in that plus or minus 30 is a good way to think about it.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Great. Appreciate that. Congrats, guys.

Operator

Our next question comes from Neil Dingmann with SunTrust. Your line's now open.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Morning, all. Tim, could you or Jack -- I just wanted to -- obviously, your Oryx investment continues to pay dividends there with that 24% membership interest. It was, I think, last quarter you received almost $160 million distribution there. I'm just wondering how should we think about that either the remainder of this year or go forward, what else that can generate or what else we should think about around that position?

Jack Harper -- President, Chief Financial Officer

That Oryx asset is a great asset. We're very happy that we were able to participate in that. As we described in the prepared remarks, it's helping us move that Delaware Basin oil via pipeline. And it's a real business, generating cash flow. So, we're happy with it as is. Or if there's a monetization opportunity in the future, that'd be fine too. But most importantly, it's serving the purpose that we hoped it would which is helping us move our barrels to better markets and better prices.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Jack, are there more opportunities like this to invest in that you think you'll see?

Jack Harper -- President, Chief Financial Officer

There are more midstream opportunities. We try to stay true to our E&P business roots. And really, you would most likely see us only investing in those kind of projects that our equity volumes could support some large portion of the investment.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Okay. And then just one last quick one, maybe Tim, for you. You mentioned nice to see the ramp in rigs. Just wondering what the efficiency is. You continue to see both on the drilling and completion side. How do you think about what's needed on the frack side if you're running 32 rigs? It seems like it's nice tug of war to see. You see a little more efficiency's drilling, then you see more efficiency's in the fracks. How should we think about that on a go-forward?

Tim Leach -- Chairman, Chief Executive Officer

We're running ten spreads today. And that seems to be adequate with the number of rigs we're running. Pretty happy with the balance in the business right now.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Very good. Thank you, all.

Jack Harper -- President, Chief Financial Officer

Thank you.

Operator

Our next question comes from Charles Meade with Johnson Rice. Your line's now open.

Charles Meade -- Johnson Rice & Co. -- Analyst

Good morning to Tim, Jack, and to the rest of the team there.

Tim Leach -- Chairman, Chief Executive Officer

Good morning.

Charles Meade -- Johnson Rice & Co. -- Analyst

I wanna go back to the question you had from a few questioners ago on the 4Q guidance. And I appreciate the disclosure you guys put on slide 12 on your presentation. But to put some numbers to it, it looks like the consensus on the street for 4Q was maybe 3% or so higher than what you guys are guiding to for 4Q. And of course, one possible explanation for that is that people in seats like mine maybe had some difficulty going from three-stream to two-stream. But the other possibility that is out there to me is that perhaps you guys are pulling in your horns a little bit in 4Q in response to the differential situation and your desire to continue spending within cash flow. So, is there any aspect of that in 4Q that you guys are dialing back a bit in anticipation of low cash flow? Or are you on the same course that you said earlier?

Jack Harper -- President, Chief Financial Officer

We really have not had any significant change to our plans. The modest change to RSP's plan is more investment in the back half of the year on starting these large-scale projects both in infrastructure and in the size of the projects. But really, as I mentioned before, both companies are tracking well with the previous plan and the guidance that was laid out there last quarter.

Charles Meade -- Johnson Rice & Co. -- Analyst

Got it. Thank you for that, Jack. And then in a totally different direction, there are news reports yesterday and again, more this morning about a pipeline fire to the southeast of town where you guys are. And I'm just curious if you guys could offer any insight into whether you're affected by any of the flows on those lines and if there's any bigger industry effect that you guys are aware of right now or might anticipate.

Jack Harper -- President, Chief Financial Officer

Yeah. We are aware of that situation and don't anticipate any impact to our plans.

Charles Meade -- Johnson Rice & Co. -- Analyst

Thank you.

Tim Leach -- Chairman, Chief Executive Officer

Thanks.

Jack Harper -- President, Chief Financial Officer

Thank you.

Operator

Our next question comes from Michael McAllister with MUFG Securities. Your line's now open.

Michael McAllister -- MUFG Securities -- Analyst

Good morning, everyone. I was hoping that you could give me at least the metric that could work with -- grow dramatically within cash flow. Is it production? Resource? Reserves?

Tim Leach -- Chairman, Chief Executive Officer

I'm not sure I really understand your question. When I talk about growing dramatically within cash flow, I'm talking about growing production within our cash flow and generating free cash flow while we're doing that.

Michael McAllister -- MUFG Securities -- Analyst

That's the answer. Okay. So, it's production is the metric.

Tim Leach -- Chairman, Chief Executive Officer

And we've talked about a three-year kegger that is supported within cash flow at much lower oil prices. We gave a point in time reference to that last quarter. So, that's only been enhanced by this transaction.

Michael McAllister -- MUFG Securities -- Analyst

Okay. That's what I was looking for. That's the answer. While I have you, can you give me an update on Eddy County? What's been going on there? Will it have a development program at some point? Things shift a little with RSP. Any color on that will be helpful.

William Giraud -- Executive Vice President

Sure. You're asking about what we're gonna plan to do at Eddy County. It's clearly part of our Northern Delaware asset. We and other participants have been doing a lot of good work out there in the different Bone Spring intervals. We talked about a couple wells there last quarter. But also, people are drawn to a bunch of the different Wolfcamp zones. It has been part of the plan and will continue to be.

Michael McAllister -- MUFG Securities -- Analyst

Okay. That's helpful. Thanks.

William Giraud -- Executive Vice President

Thank you.

Operator

Our next question comes from Arun Jayaram with JPMorgan. Your line's now open.

Arun Jayaram -- JPMorgan Securities -- Analyst

Yeah. Good morning. I was wondering if you could just give us some more details on the conversion from three-stream to two-stream and just the impact to RSP volumes in the second half of the year.

Tim Leach -- Chairman, Chief Executive Officer

Sure, Arun. As I mentioned in the prepared remarks, it's about a 10% impact to their equivalent volumes. And that is starting on July 19th. That is how we have forecasted those volumes combined with ours.

Arun Jayaram -- JPMorgan Securities -- Analyst

Great. Thanks for that. And just secondly, Jack, you've gone to 32 rigs and now ten frack crews. Just your thoughts on maintaining that level of activity as move into 2019. And just wondering if also if you could comment broadly -- in 2018, the growth rate is 22% on a proforma basis -- how the assets would look like relative to that growth rate when you put that together, 2019 to 2020.

Jack Harper -- President, Chief Financial Officer

Okay. If I understand that correctly -- let me take a shot at that. We had put out guidance of 18% to 20% stand-alone. So, incrementally moving above that is -- you're seeing the benefit of their assets. And previous to this deal, we had talked about our plan, which it reinvested cash flow and grew about 20%. They had talked about reinvesting their cash flow over a longer period of time and growing about 30%. So, that's a good indication of the two asset bases. But now that we have the opportunity to put them together and base the programs on best rate of return from either set of assets, I think that's very powerful. And they bring a lot of cash flow to the table as well.

Arun Jayaram -- JPMorgan Securities -- Analyst

Great. Thanks a lot.

Tim Leach -- Chairman, Chief Executive Officer

Thank you.

Jack Harper -- President, Chief Financial Officer

Thank you.

Operator

Our next question comes from Derek Whitfield with Stifel Financial. Your line's now open.

Derrick Whitfield -- Stifel, Nicolaus & Co. -- Analyst

Good morning, all.

Tim Leach -- Chairman, Chief Executive Officer

Good morning.

Derrick Whitfield -- Stifel, Nicolaus & Co. -- Analyst

Tim or Jack, so referencing slide 13, what percentage of your aggregate completions are large-scale development projects? And then how should we think generally about the cadence of completions over the next year, assuming relatively static rig activity levels?

Jack Harper -- President, Chief Financial Officer

So, more than half of the completions that will happen will be on these large-scale projects. And that's only going to continue to increase over time. And I'm sorry. What was the second part of your question?

Derrick Whitfield -- Stifel, Nicolaus & Co. -- Analyst

Sure. The second part of the question is how should we generally think about the cadence of completions quarter over quarter if we assume static rig activity levels from here?

Jack Harper -- President, Chief Financial Officer

Sure. Yeah. Ramping into the fourth quarter, you will see progressively increasing completions throughout the back half of this year.

Derrick Whitfield -- Stifel, Nicolaus & Co. -- Analyst

Okay. And as my follow-up question, regarding the Dominator pilot in Northern Delaware, how should we think about the sequencing of drilling completion and flow back operations for larger pilots like it? And specifically, when would we see first production? And then how much later would it then peak?

William Giraud -- Executive Vice President

Sure. This is Will. The goal there is to complete those wells simultaneously with multiple fracks brands and then flow them back together. And that's probably a mid to late next year timing.

Derrick Whitfield -- Stifel, Nicolaus & Co. -- Analyst

Got it. Thanks for taking my questions.

William Giraud -- Executive Vice President

Thank you.

Jack Harper -- President, Chief Financial Officer

Thanks, Derrick.

Operator

Our next question comes from Richard Tullis with Capital One. Your line's now open.

Richard Tullis -- Capital One Securities -- Analyst

Hey. Thanks. Good morning, everyone. Jack and Tim, two quick questions. So, now that the RSP acquisition is closed -- I know it's still early days -- but could you talk a little bit about your current outlook for achieving the $2 billion-plus in synergies from the deal? Do you expect to see significant synergies once you do publish your 2019 budget?

Jack Harper -- President, Chief Financial Officer

Sure. There's a lot of value creation opportunities with that deal that we've described. I'd point you toward the corporate and interest savings which we've already achieved. That gets you approximately a quarter of that larger number. And then you can see by evidence of our activity in the back half of the year, we've jump-started these large-scale projects which we think is the biggest driver. We're also spending money on the infrastructure to support those. And then outside of that, we've identified a large number of trades that we are actively working. And we continue to actively manage our portfolios via asset sales and purchases of acreage in and around some of our best areas. So, I would say we're ahead of schedule there and optimistic.

Richard Tullis -- Capital One Securities -- Analyst

Okay, Jack. And if you had to roughly estimate the impact on the updated 2018 budget from the synergies, what would you put that number at?

Jack Harper -- President, Chief Financial Officer

Well, I guess it depends on how and who's calculating that. But as I said, the corporate and interest savings have been achieved now. And by a virtue of starting these large projects in the back half of the year, we will begin to see the fruits of those investments into next year.

Richard Tullis -- Capital One Securities -- Analyst

Okay. All right. I appreciate it. Thank you.

Jack Harper -- President, Chief Financial Officer

Sure.

Operator

And at this time, I'm showing no further questions. I'd like to turn the call back over to Tim Leach, CEO, for closing remarks.

Tim Leach -- Chairman, Chief Executive Officer

Good. Thank you, again for dialing into the call. This is an exciting time for us, as we've described. I wanna compliment our team on excellent execution on getting this deal closed. And again, I wanna welcome those RSP employees to the Concho team. So, thank you very much. We look forward to talking to you at the end of next quarter. Thanks.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.

Duration: 46 minutes

Call participants:

Megan Hays -- Vice President, Investor Relations

Tim Leach -- Chairman, Chief Executive Officer

Jack Harper -- President, Chief Financial Officer

William Giraud -- Executive Vice President

John Freeman -- Raymond James & Associates -- Analyst

Robert Morris -- Citigroup -- Analyst

Brian Singer -- Goldman Sachs & Co. -- Analyst

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Michael Kelly -- Seaport Global Securities -- Analyst

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Charles Meade -- Johnson Rice & Co. -- Analyst

Michael McAllister -- MUFG Securities -- Analyst

Arun Jayaram -- JPMorgan Securities -- Analyst

Derrick Whitfield -- Stifel, Nicolaus & Co. -- Analyst

Richard Tullis -- Capital One Securities -- Analyst

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