Parsley Energy Inc  (NYSE:PE)

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Q1 2019 Earnings Call
May. 02, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, welcome to Parsley Energy's First Quarter 2019 Earnings Call. My name is Umar, and I will be your operator today. As a reminder, this call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. And now, I'm pleased to turn the call over to Kyle Rhodes, Parsley Energy's, Director of Investor Relations.

Kyle Rhodes -- Director of Investor Relations

Thank you, operator and good morning everyone. With me on the call this morning are President and CEO, Matt Gallagher; Chief Operating Officer, David Dell'Osso; and Chief Financial Officer, Ryan Dalton.

Our remarks today may contain forward-looking statements, so please see our earnings release for a discussion of these statements and associated risks, including the fact that actual results may differ materially from our expectations. We also make reference to non-GAAP measures, so, please see the reconciliations in the earnings release.

During this call, we'll refer to investor presentation that can be found on our website and our prepared remarks, we are going to reference to Slide 3 of that presentation. After our prepared remarks, we'll be happy to take your questions. With that, I'll turn the call over to Matt.

Matt Gallagher -- President and Chief Executive Officer

Thanks Kyle. Given the recent industry activity and since I'm starting the presentation on our overview slide. In the hopes of there were a few folks dialed in, that are new to the Parsley Energy story. In short, we are a Permian pure play operator with a long runway of reinvestment opportunities, capable of delivering efficient and sustainable production and cash flow growth. Now, we are in the market that recognizes actions has little patience for words.

So with that in mind, let's jump to Slide 4. Here we revisit a page that we showed on our fourth quarter call that clearly laid out some of our goals for 2019. What's new on this slide is the far right column, where we provide a progress report. We recognize it's still early in the year, but we took a confidence step forward in 1Q '19. We continue to build operational momentum with regards to drilling and completion efficiency. We delivered a strong operations update across the Board and in the Delaware.

We minimize the effects of winter downtime. We adopted the returns-focused closely measured as part of our 2019 incentive plan. Simply put, Parsley 2019 action plan is on track, on target and on budget. We look forward to providing further updates on these objectives as we move through the year.

Moving on to Slide 5, it is no secret to anyone dialed into this call that valuations in the E&P space have suffered. Despite the sector now being fundamentally healthier than any point in recent memory. With the significant insider ownership stake, we are acutely aware of this development and aligned with all of you. Parsley has set of course that prioritizes key long-term value drivers to steer through short-term sector volatility. And we remain convicted in this strategy.

You can find some of these long-term value drivers in the chart and at the end of the day, they have prompt some essential questions. If we put $1 in the ground or we getting well over $1 back. Do we have the scale to deploy development Delaware as efficiently as any other peers in the basin. Because our asset base allow us to consistently grow our cash flow and does that cash flow growth accrued to shareholders.

The ability to consistently answer, yes, to these fundamental questions tells us the model is working. Delivering consistently high rankings across these metrics tells us we have a competitive advantage, which is sustained by our high-quality asset base and more importantly, our top-tier operational teams. Before leaving this slide, I wanted to point out that the biggest gap between companies with high multiples and those of low multiples occurs in the column ranking operators by horizontal rig count in the lower 48.

Suggesting the market is placing a premium on operational scale. So observing this we wanted to dive deeper and we do so on Slide 6.

This illustrates our view on optimal scale in the shale game, and I want to do these zooming in on our backyard the Permian Basin. Recently, there has been a growing narrative that sufficient scale as needed to efficiently compete in shale. We agree and believe we are within that scales, sweet spot of sorts. As you can see in the left hand side of the graph there are more than 50 operators in the Permian running two rigs or fewer, it is tough to compete at that size. We know, because that was us many years ago.

We knew we needed to scale up to have significant voice in the marketplace with access to preferred oilfield services and Midstream Partners. Alongside our growth, we saw more competitive bidding, a higher quality of service and a more efficient use of our corporate resources. We have detailed some of Parsley's real world examples in the table build up. All of these factors facilitate stronger capital efficiency.

However, in our view, at a certain point, the marginal operational benefits of scale begin to level off, and move from 2 rigs to 12 rigs can have tangible benefits to cost structure and efficiency levels. And moved from 30 rigs to 40 rigs is less likely to move the needle on those fronts. Furthermore, pushing into mega scale territory, maybe start to introducing unique challenges of its own, a racing many with benefits of shales short cycle, unconventional, resource play model.

To sum it up, we believe Parsley possesses the scale necessary to allocate capital as efficiently as any operator in the basin. And retains a corporate agility suitable for managing short cycle projects in a dynamic energy world.

With that, I'll turn it over to David to discuss some of the positive development trends, we've seen on the operational front.

David Dell'Osso -- Executive Vice President, Chief Operating Officer

Thanks Matt. Let's turn to Slide 7, where we can see some of the benefits of scale playing out in real-time. As shown in the graph, operational continuity with experienced service providers helped drive a step change in efficiency in late 2018. We continue to push on that front 2019.

On the drilling side, a combination of process improvements and equipment upgrades help drive a 15% sequential improvement in both Midland and Delaware efficiencies. On the completion side, we're holding line near record efficiency level the Company registered during 4Q '18 despite increased proppant loading in compressed stage tests.

In this regard, the push is really a win. I also want to recognize our production operations team at Delaware effectively steering us through a challenging winter. There were days with below freezing temperatures, gusting wins and even an unusually late freeze in March, but the team's collective preparedness and responsiveness allowed us to keep a machine running throughout the quarter.

In Slide 8, we provide an encouraging update from our Delaware Basin assets. As you can see in the map, nine wells have brought on this quarter, two with standard, our acreage position in Pecos and Reeves Counties. And include two-step out wells in the eastern edge of our acreage footprint.

All nine wells registered consistently strong well performance with high (inaudible). Notably, 7 of these 9 wells benefited from an enhanced net revenue interest same-store sizable mineral position. While solid well results are always welcome. Our teams is going to be just as focus on the cost side of the equation.

On that front, I am excited by the step change we are seeing on the operational efficiency side, leading to faster cycle times and shorter payback periods.

Furthermore, we now have 150 days with the data from our first regional sand completion project in the Delaware and things look good so far. Production is essentially in line with offset wells that were completed with (inaudible) white sand.

And the cost saving shook at over $0.5 million per well. As such, we scheduled additional regional say in completion test for the next coming, late the second quarter. Although new term activity remains weighted toward the Midland Basin, I'm encouraged by the trajectory of our operational efficiencies in the Delaware Basin, we sustain the execution at these levels the Delaware lines higher in our returns focused project portfolio and enable scenarios for greater capital allocation and future budget cycles.

Now, I'll pass it over to Ryan to discuss our 2019 outlook and financial position.

Ryan Dalton -- Executive Vice President, Chief Financial Officer

Thanks, David. Turning to Slide 9, our 2019 development plan is on track, and we are reaffirming the guidance ranges and capital budget we detailed in February. As a reminder, this plan was underwritten on $50 WTI oil, that was aim to deliver improved capital efficiency, disciplined oil growth and progress toward sustainable free cash flow by the end of the year.

Oil prices are north of $50 today, but I want to reiterate that Parsley has no plan to increase 2019 equipment levels beyond our baseline budget. If oil prices as whole it's simply provide an opportunity to compress our timeline to self-funded growth. Next, I wanted to provide a little more detail and how we started off the year. The first quarter really played out as well or better than we expected. We delivered 2% sequential oil growth despite a frac holiday divestiture in December.

David touched on the solid Delaware results. The Midland performance during the first quarter was strong as well. On the activity side, we started January with 14 rigs tapered down to high graded fleet of 12 rigs during the quarter. We expect to maintain a maximum activity level of 12 rigs and 3 to 4 frac spreads, through the end of 2019.

I also wanted to touch on one of the recent cost cutting initiatives we have undertaken. Since year-end 2018 we have seen an 8% reduction to our total employee count. This decision was not easy and was not made lightly but it underscores our commitment to free cash flow and a disciplined returns focused approach. We believe that the streamline team we have in place today will continue to deliver the kind of results you grow to expect for Parsley Energy.

Before leaving this Slide, let's take a quick look into the second quarter, where we are guiding to oil production at 81,000 to 85,000 barrels per day, representing 5% sequential growth at the midpoint. We expect to turn 34 to 36 gross horizontal wells to production. The vast majority of which will be in the Midland Basin. The working interest on our second quarter wells is expected to average roughly 95%. In the back half of the year, we would expect a similar number of gross wells to production. But note these wells should have modestly lower working interest in our first half completions.

Turning to Slide 10, we continue to work from a position of financial strength. We recently completed our spring redetermination which resulted in a $400 million increase in our borrowing base, to $2.7 billion. Our borrowing base has more than quadrupled in the last four years. Given our healthy liquidity outlook and potential acceleration of free cash flow generation, we elected to maintain our committed amount to $1 billion.

Our leverage profile was also healthy with their trailing leverage ratio sitting at a comfortable 1.6 times. And we received an upgrade from one of the credit agencies in April. We continue to protect our cash flow stream and balance sheet through methodical hedging program, we have added to our 20-20 positions in recent weeks.

I'd encourage you to review our latest hedge position in the supplementary slides. Again our hedge structure preserves meaningful upside exposure in a stronger oil price environment which is quite uncommon in the industry.

Finally, I will note that we also have gas basis hedges in place, which help mitigate the impact of near term regional gas weakness of 25% to 30% of our expected gas production in 2019. To conclude, we are pleased to have such a strong start to the year and remain convicted in our 2019 action plan.

With that, we'll be happy to take your questions.

Questions and Answers:

Operator

At this time, we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from John Freeman, Raymond James. Please proceed with your question.

John Freeman -- Raymond James & Associates -- Analyst

Good morning, guys.

Matt Gallagher -- President and Chief Executive Officer

Hi, John .

John Freeman -- Raymond James & Associates -- Analyst

Following the, the really strong drilling in efficiency improvements that you saw in the Delaware and the recent well results, you mentioned in the commentary that may get moved up in the development schedule if these trends continue and -- and/or $60 plus oil prices and just with the 12-month strip today above 60, if that is a course of action. And I'll decide to pursue and move up the development schedule of the Delaware just how should we think about possible changes in that kind of 85/15 split of Midland and Delaware activity on sort of a go-forward basis?

Ryan Dalton -- Executive Vice President, Chief Financial Officer

That's a great question, John and you cash it right with the split 85/15. So as we go into 2020 budget cycle, you would expect to see that creep back up to the 75/25 range in this type of environment. Really good results out of the Delaware and cost compression on the drilling and completion side. Cost savings for well really helps the return profile over there.

John Freeman -- Raymond James & Associates -- Analyst

Great. And then my follow-up question part of the 2019 action plan that sort of carried over from 2018 is -- all are really focusing kind of on your core zones doing kind of less of the exploratory type testing instead, choosing to kind of monitor peer results and those other zones and I'm just curious as you monitor those pure results on those other zones across your portfolio if there is any positive developments that you've seen that was maybe more increased attention as you think about 2020 activity.

Matt Gallagher -- President and Chief Executive Officer

Not on a zone basis we like where we are developing and we foresee that for the near future. But (inaudible) learn 20 rigs running in the basin thats close to $50 billion of external capital being spent year-end, so we can carve a lot of learnings from that and that's going to help with spacing sequencing and development over time. So that's our focus. We have an internal team stood up analyzing 2only that as well as our own internal data obviously.

So those are the things that we're really dial in complete optimization over time for Permian operators. But we feel good about the developing zones, we're in no need to really reach out and test new zones, nothing unusual that we're seeing out there on new zones as well.

Operator

Our next question comes from Gabe Daoud, Cowen & Company. Please proceed with your question.

Gabriel Daoud -- Cowen and Company -- Analyst

Hi, good morning everyone and thanks for all the prepared remarks this morning. Just and that really interesting slide on the Permian scale and I just I guess just given the increased focused on -- focus on M&A, just how does this slide drive your thinking on continued consolidation within the sector. Do you think operators should -- operators in the optimal mega scale bucket should try to take advantage of the valuation disconnect and continue to consolidate. I mean maybe somewhat of a obvious answer, but just curious to hear your thoughts there .

Matt Gallagher -- President and Chief Executive Officer

Yes, I think the slides speaks to that we're in a very unique and comfortable position. We like where we're at. We like our assets and we have a long runway to develop these for along on more than decade into the future.

It does highlight some unique issues the as we go to small scale, but that's something that each company in that arena has to compete with. And then there are many years ago and there are challenges in the growth profile and competing in the marketplace at that time. The point of this is that we think we're in a sufficient scale to deliver at a best operational measures in the basin.

Gabriel Daoud -- Cowen and Company -- Analyst

Great thanks Matt. And then just a follow-up, maybe give us a little bit of an update on the strategic review under way on the water infrastructure assets and then another area where you could potentially extract value from as your attractive mineral position. Is there any kind of updated thoughts on that as well? Thanks a lot.

Ryan Dalton -- Executive Vice President, Chief Financial Officer

Yes, it's -- It's Ryan. I'll start with the water, water assets. I'd say all options and create value are you still on the table. We are working with (inaudible) advisor. We've been in communication with the Board. We're assessing opportunities. Now we will be able to provide an update as this progresses. And then as for as for minerals we've got a significant minerals footprint as everybody knows and we continue to evaluate all options on these assets one option being that we provide more color as to the quality of the best -- of these best-in-class just as I said we -- we want to -- we want to market that asset went into production is on a significant growth trajectory and has a clear line of sight to sustainable growth (inaudible) I'd say given we're shifting away from the Delaware. The rest of the year is unlikely to 2019. As the year that we pursue they an alternative view.

Operator

Our next question comes from Matt Portillo, TPH. Please proceed with your question.

Matt Portillo -- Tudor, Pickering, Holt & Co. -- Analyst

Good morning, guys. Just one question for me, the gas market in the Permian has weakened significantly over the last few months and the outlook remains fairly constrained until Gulf Coast Express comes on later this year. Given the overall view of pacing growth, how are you all thinking about the marketing strategy on this hydrocarbon over the next year and what role you might play, obviously you have a pretty unique position with target as a partner, but just trying to think through, how you think about gas in the basin on a go forward perspective?

Stephanie Reed -- Senior Vice President, Land and Marketing

Hi Matt, this is Stephanie, for gas realizations and really the production, I think we saw this quarter. We saw small shift in more ethane recovery as a plant to 63% oil, but still inland full-year guidance. And we did see some price weakness at Waha hub and no interruption inflows. We certainly kind of line of sight to Waha strengthening, we expect an additional 2.5 Bcf of downstream residue takeaway to come online this year and we expect the first tranche of that with Waha are and in the larger remaining portion of that 2 Bcf total attributed to the Gulf Coast Express.

And as Ryan mentioned in the prepared remarks, we've also been proactive and our hedging program, we've added some gas basis swaps covering 25% to 30% of our expected 2019 revenue production. And then on the NGL front, also keeping an eye on great increase coming online.

Matt Portillo -- Tudor, Pickering, Holt & Co. -- Analyst

Thank you.

Operator

Our next question comes from Brian Downey, Citigroup. Please proceed with your question.

Brian Downey -- Citigroup -- Analyst

Great, thanks for taking my questions. On your Trees State well results as you pointed out those are on the eastern most wells you've drilled in paper so far and clearly a solid result there. Could you describe how you view your Pecos position as you move from West to East and if you had any surprises on that Eastern Edge or doing anything differently toward that side?

David Dell'Osso -- Executive Vice President, Chief Operating Officer

Hey, good morning Brian, this is David. I'd say we weren't surprised we did look at those results in the East as kind of empirical data validating our hypothesis the growth pattern spend a little bit that direction, but we have core over on these side and so we had confidence with the reservoir quality was good, again, it's nice to print result like this and show high quality performance across the breadth of our Pecos and Reeves positions.

Brian Downey -- Citigroup -- Analyst

Great. I appreciate it.

Operator

Our next question comes from Mike Kelly, Seaport Global Securities. Please proceed with your question.

Mike Kelly -- Seaport Global Securities -- Analyst

Hey, good morning guys. Yeah, it looks like in Q1 you have almost accomplished a lot of the efficiency gains and productivity gains that you've maybe set out for the entire year, so I am just curious if there's how you feeling about this going to go forward throughout the rest of the year, if there is still more gains to be had, may if I am just kind of looking at slide 14 we lay out the checklist there everything is like the accomplish to see where you're right now and we're going to have more room to improve? Thanks.

Matt Gallagher -- President and Chief Executive Officer

Thanks, Mike, I think clearly, we have some wind in our sales or very early in the transition to returns focused strategy and we're just starting to see some fruit from that labor and for one quarter is little early to, go hog wild on the results. So we need to continue to print results, we 100% execution focus and discipline as we aggressively to this free cash flow model, and get some shareholder friendly returns going. So we feel good about the first quarter and we can't rest here, we have to continue to execute.

Mike Kelly -- Seaport Global Securities -- Analyst

Okay, fair enough. And then just kind of a specific one for me, do you guys have a range or some sort of kind of guidance you can give us on the second quarter capital. Thanks .

Matt Gallagher -- President and Chief Executive Officer

We would point you to the growth, 34 to 36 wells as well as the 95% working interest for the second quarter.

Mike Kelly -- Seaport Global Securities -- Analyst

Okay. Thanks guys, good quarter.

Matt Gallagher -- President and Chief Executive Officer

The downward trajectory versus Q1.

Operator

Our next question comes from Leo Mariani, KeyBanc. Please proceed with your question.

Leo Mariani -- KeyBanc Capital Markets Inc. -- Analyst

Hey, guys one of the fold, little bit more on some of the efficiency gains that you guys had on the wells here. I wanted to see if you guys can maybe help to translate that a little bit into well cost reduction and now you said that well costs were down in Delaware 0.5 million bucks because of sand, but certainly looks like drilling times are faster, fracking times are faster, so overall better cycle times. I just wanted to get a sense on maybe how you're Midland wells have changed in terms of the cost maybe versus say six months ago as you started to kind of really improved the cycle times.

David Dell'Osso -- Executive Vice President, Chief Operating Officer

Good morning, Leo. Its David. I'll say that hold the line a little bit on our expectation of well costs were down, because as Matt just mentioned, we're focused on repeating what we've just done that certainly improvements in cycle times on drilling completions can have an impact on your well costs and really there's no one thing that led to we've looked at all aspects of our drilling completions everything from then BHA selection is the programs and high graded the fleet as we've mentioned. So all those things have the potential to translate into cost, but we need to continue to stay about those results, prints in the quarters and see it in the rear view before we start revising our estimates of well cost. Right now, I've stated at about 9.5 million per well in the Midland outflow in the Delaware for the time being.

Leo Mariani -- KeyBanc Capital Markets Inc. -- Analyst

Okay, I'm just kind of give me over to the projection side, you certainly talked about kind of 5% sequential oil growth in 2Q versus 1Q and now say 1Q and obviously 1Q was pretty solid as well just kind of looking at the guidance for the year, the 80,000, 85,000 I guess if I was to kind of assume the midpoint, that implies that your sequential oil production growth slows a little bit in the second half of the year, is that how you guys see it playing out? If you talk to some slightly smaller kind of working interest well by this year?

Matt Gallagher -- President and Chief Executive Officer

That's right Leo, we do see the largest growth quarter in the second quarter and then tempered growth in the back half of the year.

Operator

Our next question comes from Charles Meade, Johnson Rice. Please proceed with your question.

Charles Meade -- Johnson Rice & Company -- Analyst

Good morning, Matt to you and the whole team there.

Matt Gallagher -- President and Chief Executive Officer

Hi Charlie.

Charles Meade -- Johnson Rice & Company -- Analyst 

One thing if you could give us a bit of an update on your -- you talked about compressing the time to free cash flow, but what about the parameters that most relevant for you, I guess, the bad one bone being in oil price. So, being oil price -- when do you guys see is a kind of a reasonable window where, you will make that phase transition?

Matt Gallagher -- President and Chief Executive Officer

We are very active in our hedging in the first quarter and at the end of last year. And so as prices of run-up, we will continue to add to those positions, so that gives us comfort in achieving the back half of the year in a wide range of conditions as where our focus is at. And obviously we have a capability to do it even sooner toward the front end of that time-frame as opposed to the back end. So we're working on every single line item to aggressively pull that forward and that's been our mantra really since October of last year, it's been a corporate mindset shift and we're taking all steps very aggressively and it's really playing out nicely for the underlying model.

Charles Meade -- Johnson Rice & Company -- Analyst

Got it. Thank you for that Matt. And then if can I ask some about the assets, the Delaware Basin well results, obviously those Trees State results -- kind of the Easter eggs where strong results and glad to see those, but what was driving some of the variability on some of these other well results that -- they were closer down to call it 1,400 barrels a day?

Matt Gallagher -- President and Chief Executive Officer

Go ahead, David.

David Dell'Osso -- Executive Vice President, Chief Operating Officer

Charles, I'll say, there certainly is a little bit of variability that we consider those all of the strong well results. So, -- and say it's all within the natural variability, we see out there, but we consider those all to be high and encouraging from a return standpoint as we continue to focus on cost efficiency in the Delaware and drive down our cost per foot.

Charles Meade -- Johnson Rice & Company -- Analyst

Got it. So just within the pre-range?

Matt Gallagher -- President and Chief Executive Officer

It's right.

Operator

Our next question comes from Jeff Grampp, Northland Capital Markets. Please proceed with your question.

Jeff Grampp -- Northland Capital Markets -- Analyst

Good morning guys. Was curious last quarter you touched on some 2.5, 3 mile type laterals that you guys were incorporating into the development plan, I was just curious if you could touch on the performance you're seeing on some of those and how maybe the results of those might inform any potential addition of those incrementally on the 2020 program?

David Dell'Osso -- Executive Vice President, Chief Operating Officer

Hey, Jeff. It's David. So we'll connect back to those and when we spoke in February, we were actually -- we are just in the end of drilling of that pass. So we have landed in successfully (inaudible) couple of three mile laterals, so the update from then is, we've now successfully completed those laterals. So we're in the process of drilling a mile right now, so we don't have well performance result to share just yet, but we should, the next time we visit in a quarter or so. And I think that's going to determine how much of that you see going forward in 20, 20 plus, but reminding last time. We are going to be opportunistic about that, we still look at that 2 to 2.5 miles as a sweet spot that we consider it as an indication, we can technically executes 3 miles as we need to.

Matt Gallagher -- President and Chief Executive Officer

Do you think the average is well result of 10,100 feet is industry leading. So, definitely able to deliver long laterals consistently.

Jeff Grampp -- Northland Capital Markets -- Analyst

Absolutely, and (inaudible) comments. And from my follow-up, I'm curious on the acreage trade front, obviously, you guys historically been pretty active in that market, but just kind of curious if you guys give us an update on. Is that still something that's still pretty active for you guys or is it a lot of low-hanging fruit done or just kind of the overall state of the trade market would be helpful?

Stephanie Reed -- Senior Vice President, Land and Marketing

Sure. This is Stephanie. Acreage trade they're still something that we have a lot of focus on and there's quite a few in the queue. I would say right now, those are outside of our current or near term development plans. In 2017, 2018 acreage trade are pretty prevalent. We talked about it lot. They have gotten a little stickier. There's sometimes the PDP component that's listening (ph) down, but we still have meaningful trade. We expect to cross the finish line this year.

Operator

Our next question comes from Michael Hall, Heikkinen Energy Advisors. Please proceed with your question.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Thanks. Good morning. Just curious on the local sand test in the Delaware and the cost saving highlighted there what additional follow-up tests do you have in upper to test local sand in the Delaware and is that something that could be potentially deployed in the back half of the year in a wider way? Or is that probably premature and more likely something for 2020?

Matt Gallagher -- President and Chief Executive Officer

Hi, Michael. I'd say the encouragement we saw in our first test gave us the confidence to expand the sample size of our dataset. So we're actually going to be building on that with regional sand in the Delaware. Here pretty shortly in the second quarter with our second test. And depending on the results of that and couple subsequent test we have also in 2019. We probably looking at more of a 20% plus, before we made the call or whether that becomes standard or not. But if I say at this point, we're encouraged by what we've seen and we're going to be expanding that -- at the same time we are getting more, more time on the data from our original test.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Okay, that's helpful. Now, I'm just curious on the impact of the headcount reductions, I guess on a couple of things. Number one is, I think previously you had probably some excess miles (ph) clearly seems like some excess capacity relative to your current activity levels. Do you still have any of that, so meaning if you take, let's say you take activity up in the 2020 timeframe somewhat would you need to bring back on more headcount? Or do you still have some level of access that could potentially absorb a little higher activity level in the -- let's say medium term.

And then secondarily is that Q&A or -- sorry, G&A rate from the first quarter a decent run rate to think of, for the rest of the year. (Multiple Speakers)

Ryan Dalton -- Executive Vice President, Chief Financial Officer

(Multiple Speakers) Michael and I'll touch on the first part of that capacity. When you look at our historical growth and where we're going in the type of world industry was in -- we really have the capacity to go to operate 18 to 20 rigs consistently. So a lot of thought long-term planning was put into this around what exactly what you ask? Are we going actually ramp down and ramp right back up? And we feel the answer is no. It was a pure reduction associated with near-term activity levels and mid-range -- I'm talking two to three years activity levels. And we feel like we have sufficient flexibility now across the operational teams to deliver on those outcomes. It also reinforces our commitment. I think to free cash flow model and return to shareholder modeled in this -- this says our commitment to that model. But there is a healthy amount of flexibility we need to be able to cover obviously vacations and volatility in that -- in the market three to five years down the road. So we think we're in a good spot and this was one adjustment we needed to make.

David Dell'Osso -- Executive Vice President, Chief Operating Officer

And I'll explain on the -- the 8% that I referenced in the prepared remarks was the achieved through just normal attrition in the first part of the year, we did have some performance cuts year-to-date and then the Company reduction enforce. So, only a select few are key positions of those will be backfilled. As far as your second question on G&A, but we don't see this as a significant impact to G&A in 2019, given that we're a good portion of the way through the year. I think you'll -- you feel the bigger impact of this reduction in 2020. Therefore, we would -- we're going to keep our guidance range as for now on G&A front.

Operator

Our next question comes from Neal Dingmann, SunTrust Robinson Humphrey. Please proceed with your question.

Neal Dingmann -- Suntrust Robinson Humphrey -- Analyst

Good morning all. Matt, I've question for you, one of the guys as far as. Just looking at working interest, I know you mentioned sort of -- I know the release you talked about having the minerals and how big advantage that is for (inaudible) years. You talk about how you see the percentage is sort of trending far as what the working total -- working interest you had in first quarter and how you see that trending throughout the year based on a heavier influence in the Midland going forward?

Matt Gallagher -- President and Chief Executive Officer

Yes, we are in the mid '90s here in the first quarter and as to the plan will be in the mid '80s in the back half of the year, just by -- or the development landed to the planning cycle going back over 6 to 12 months now. And so, it will drop toward the back portion of the year.

Neal Dingmann -- Suntrust Robinson Humphrey -- Analyst

Okay. And then just lastly, looking at Slide 15, obviously you have a ton of inventory running room in several of your areas. Is their thoughts, I guess when you're looking at the plan, I know your head count sort of sell of a piece are the thoughts with that sort of just a huge inventory level to maybe sell off the lower -- put you all be in the lower economic areas or maybe just talk about the overall how you sort of use your overall inventory?

Matt Gallagher -- President and Chief Executive Officer

Yeah, I think you're seeing the benefits of the flexibility of the inventory right now. The type of results we're seeing in the Delaware, we're in a $40 world, it's not as competitive in the budgeting cycles. And right now, $60 world with the strides we've been able to make operationally is more than competitive. That's one example the benefits of this type of inventory. Everything is within 5% to 10% rate of return bucket. So when we rank out the portfolio top to bottom, its a very tight spread. If we do see something shaking out consistently toward the low end, you've seen as proven in the past and given this type of inventory depth. It gives us our flexibility to look to do that in the future over time, given the valuations right now on working interest side, I don't see that in the near-term objective for us.

Neal Dingmann -- Suntrust Robinson Humphrey -- Analyst

That makes sense. Thanks so much for details.

Matt Gallagher -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Juan Jarrah, TD Securities. Please proceed with your question.

Juan Jarrah -- TD Securities -- Analyst

Yeah. Thanks everyone. Good morning. Just wanted to follow up a little bit on your 2019 action plan and more specifically could you comment a little bit about the 34 gross wells that you placed on production in the quarter. What types of spacing you employed on average say for bench or per basin if possible. Just trying to get at the whole rate of return approach versus the NPV approach in the past, if you can?

Matt Gallagher -- President and Chief Executive Officer

I'd say on an average that -- first quarter, what you've seen is in line with what we talked about in February, anywhere from four to eight across depending on zone and by area, so it does vary by reservoir by area and we get a little bit of detail on that and our -- the call in February, but say very much along the lines of what we described at that time.

Juan Jarrah -- TD Securities -- Analyst

And as a follow-up to that, have you seen any performance improvements or changes versus the previous approach?

Ryan Dalton -- Executive Vice President, Chief Financial Officer

We are seeing some encouraging signs that support our thesis and what took us to this approach, and it's all predicated on getting to free cash flow inflection and return to shareholders. I think we're -- we're just as convenient, if not more so and will continue watch these results, but they are early. So we're going to continue to push forward as we described and keep an eye on it .

Juan Jarrah -- TD Securities -- Analyst

Great, thanks. And then last one from me is you give us some sort of estimate. How much of your 2019 capital program is predicated to standing your current production versus growing production?

Matt Gallagher -- President and Chief Executive Officer

Yeah, we look at current activity levels, if you were to pull back and go into maintenance cap, we could see somewhere on the order of 800 million to maintain production at these levels.

Operator

Our next question comes from Biju Perincheril, Susquehanna. Please proceed with your question.

Biju Perincheril -- Susquehanna -- Analyst

Hi, good morning. And actually a follow-up on that previous question about the new sort of well spacing patterns. Specifically, the uplift that you expect to see from the staggering versus stacking of the Wolfcamp B wells, just looking through some of the -- I guess, a small sample size in New York well said, it looks like maybe around 15% an uplift in first year (inaudible), is that some reasonable -- is a reasonable expectation?

Matt Gallagher -- President and Chief Executive Officer

Hi, Biju. I think that does sound reasonable. I think we do, you mentioned the size of the samples set and the duration of the samples that those are both relatively small at this point. So I would just -- I put some brackets around that number, but I think you're on the right track with that type of a range.

Biju Perincheril -- Susquehanna -- Analyst

Okay. Thanks. And when do we expect to see some of those results? What that would from that new pattern? Is that in the 1Q wells or is that yet to be completed?

Matt Gallagher -- President and Chief Executive Officer

Biju, which kind --

Ryan Dalton -- Executive Vice President, Chief Financial Officer

I'd say that is just started feathering in 1Q and is more consistently part of the program through the back portions of the year as we go into drilling these pads it takes three to six months for the full-cycle before planning, then they get online. So just started to see some of the early indications in these results. But again these are in our forecast going forward, so we're looking forward to seeing the results and the year unfolding.

Operator

Our next question comes from Mike Scialla, Stifel. Please proceed with your question.

Michael Scialla -- Stifel Financial Corp. -- Analyst

Hey, good morning. Just going back to your slide six. I realized that was designed to address scale at the corporate level, but I'm wondering if some of those attributes carryover to the asset level in particular, wondering if the two rig program in the Delaware is optimal or would you potentially benefit from scale there?

Matt Gallagher -- President and Chief Executive Officer

Yeah, I think, it is the -- is that the asset level our (inaudible) is market level. So, are you accessing the same market condition, and when we go up for an RFQ, all the service providers can have handle back and forth between the Texas Midland and Texas Delaware basins. So we do access -- see those synergies there, same on the marketing front, we've put in years of work to connect those two. So, if our Delaware Basin asset where on an (inaudible) EP right on, but it's interconnected through our marketing, through our electrical infrastructure and then we own 28,000 acres of surface and it's very concentrated there. So, conceptually, I think you're right on asset level, but as it pertains to the partially, I think we got it covered when we access the same market there fuel find two rig cadence over there.

Michael Scialla -- Stifel Financial Corp. -- Analyst

Again just want to see, if there's any update on service costs in any inflation, deflation anywhere along the service chain?

Matt Gallagher -- President and Chief Executive Officer

Yeah, I think we mentioned last time, that there have been some softness in pressure pumping and so we have weighed in, on what we've built into the budget in terms of that component, but broadly, we didn't factor inflation or deflation there have been some things you looking at the tubular goods for example hot-rolled coil as come down. So there is potential for further savings on that, but recount still relatively high in the Permian, so we're going to still stick to our budget assumption of lack of inflation or deflation until we get a little bit farther into the year.

Michael Scialla -- Stifel Financial Corp. -- Analyst

Very good. Thank you.

Operator

We have reached the end of the question-and-answer session. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 45 minutes

Call participants:

Kyle Rhodes -- Director of Investor Relations

Matt Gallagher -- President and Chief Executive Officer

David Dell'Osso -- Executive Vice President, Chief Operating Officer

Ryan Dalton -- Executive Vice President, Chief Financial Officer

John Freeman -- Raymond James & Associates -- Analyst

Gabriel Daoud -- Cowen and Company -- Analyst

Matt Portillo -- Tudor, Pickering, Holt & Co. -- Analyst

Stephanie Reed -- Senior Vice President, Land and Marketing

Brian Downey -- Citigroup -- Analyst

Mike Kelly -- Seaport Global Securities -- Analyst

Leo Mariani -- KeyBanc Capital Markets Inc. -- Analyst

Charles Meade -- Johnson Rice & Company -- Analyst

Jeff Grampp -- Northland Capital Markets -- Analyst

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Neal Dingmann -- Suntrust Robinson Humphrey -- Analyst

Juan Jarrah -- TD Securities -- Analyst

Biju Perincheril -- Susquehanna -- Analyst

Michael Scialla -- Stifel Financial Corp. -- Analyst

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