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Pioneer Natural Resources (NYSE:PXD)
Q3 2019 Earnings Call
Nov 05, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to Pioneer Natural Resources third-quarter conference call. Joining us today will be Scott Sheffield, president, and chief executive officer; Richard Daley, executive vice president and chief financial officer; Joey Hall, executive vice president in Permian operations; and Neal Shah, vice president, investor relations. Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at www.pxd.com.

At the website, select Investors, then select earnings and webcasts. This call is being recorded. A replay of the call will be archived on the Internet site through December 2nd, 2019. 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 and the business prospects of Pioneer are subject to a number of risks and uncertainties that may cause actual results and future brands to differ materially from the forward-looking statements. These risks and uncertainties are described in Pioneer's news release, on Page 2 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 Pioneer's Vice President, Investor Relations Neal Shah. Please go ahead, sir.

Neal Shah -- Vice President of Investor Relations

Thank you, Anna. Good morning, everyone, and thank you for joining us. Let me briefly review the agenda for today's call. Scott will be up first.

He will discuss our strong third-quarter results driven by solid execution from the Pioneer team. After Scott concludes his remarks, Joey will review our strong horizontal well performance, optimized for rate of return while delivering best-in-class oil production. Rich will then update you on the benefits of our downstream planning for both oil and gas. Scott will then return to discuss Pioneer's focus on sustainable practices and our commitment to social and governance issues.

After that, we will open up the call for your questions. Thank you. So with that, I'll turn it over to Scott.

Scott Sheffield -- President and Chief Executive Officer

Thank you, Neal. Good morning. First of all, I want to thank all of our employees and our management team for really three great quarters and especially for achieving $250 million in free cash flow in the third quarter in just a short -- very, very short time frame. We're reducing the top end of our full-year guidance again by additional $150 million.

We're increasing our full-year production guidance by 3% at the midpoint. We continue to see positive benefits for our exporting of our crude oil, $46 million in the quarter, uplift, a total for $279 million for the year. Also, as you noticed, we're starting to put in some ESG slides and we are reducing our -- although '16 to '18 time period, we've had a 38% reduction in our total greenhouse gas emissions intensity. We'll talk more about that later.

Again, focused on free cash flow yield and return on capital employed. Going to Slide No. 4. Again, a very, very solid execution is driving our third-quarter results.

Again, production at the top end of guidance, also significantly improved capital efficiency coming through quarter by quarter by quarter. Going to Slide No. 5. Again, continued improved capital efficiency.

Again, we're at the top end of the DC&F, drilling completion facilities range being reduced again by additional $150 million, approximately 5%. We did achieve $100 million in facility savings already ahead of schedule. If you remember, it was a goal to achieve for the year 2020. We achieved it in a very, very short time frame due to the focus of our production people.

Continued improvements in D&C efficiencies as we're seeing. Again, increasing the midpoint of production guidance by 3% on BOEs. Again, stronger BOE growth attributable to increased NGA -- NGL yields from addition of two new gas plants. We're going up from about 135 barrels per million to about 155 barrels per million on those plants.

Going to Slide No. 6. The 2019 outlook, again lowering top end of guidance, DC&F to about $2.85 billion. Again, our D&C teams are continuing to execute every quarter at a very, very high level.

We're updating our '19 average rig guidance to about 21, and that does include adding one rig that's already started in early November, expecting to pump about 290 wells toward the upper end of our original guidance of 265 to 290. Regarding our Midstream and DrillCo initiatives, there's really nothing new to report. For the quarter, we're still in the process stage. We will update you once we have more information.

On Slide No. 7. Again, the priorities are aligned with shareholders, continued to buy back stock in the quarter, roughly about $200 million at an average price of about $1.25. We bought back about 3% of the shares year-to-date when you include the production growth of mid-teens results and our annualized dividend results in about a 20% shareholder return, still tend to increase the dividend over time to be competitive with that of the S&P 500 yield.

Slide No. 8. Again, the competitive advantage of the Midland Basin over the Delaware Basin. Again, I think the main change made from the last quarter.

We've had a lot of questions about how much federal acreage do you have in the Midland Basin, the answer is zero. So, regardless of who gets elected in this next election, Pioneer essentially has no risk. We have no infrastructure risk as all of our lines will move from the Midland Basin to the Gulf Coast within Texas. I won't go over the other comparisons because they've been repeated since last quarter.

Slide No. 9. Again, really no change. Again, we're focused on return on capital employed.

It looks like it will continue to move up for 2019. And over the next several years, we're still focused on mid-teens -- moving it up to the mid-teens range in a $55 WTI environment. Slide No. 10.

This is a new slide, again showing percent of acreage developed that's coming out of the Wells Fargo group with our peer group and showing the acreage quality, years of inventory, breakeven price less than $50 WTI. You can see Pioneer, it's best to be far-right and toward the bump obviously. In addition, we probably have -- probably some of the highest working interest and probably some of the lowest royalty burden, obviously allows us to achieve much better economics on all of our drilling activity. I'll now turn it over to Joey Hall to go over operations.

Joey Hall -- Executive Vice President in Permian Operations

Thanks, Scott, and good morning to everybody. I'll be taking over on Slide 11. Still seeing great results in the Wolfcamp D appraisal program. Our approach to delineation, combined with our completion optimization, is resulting in approximately 100% improvement in Wolfcamp D performance from the 12 wells drilled since 2017.

As Scott mentioned earlier, we are adding a rig in November to set up for our 2020 program, and our operations team was able to fully accelerate the $100 million in annualized facility savings through value engineering and optimization. Moving now to Slide 12. Simply reiterating our approach to address market concerns regarding the negative consequences of tight spacing. Our large acreage position allows us to prioritize returns,, and we do not down space to artificially increase our inventory and risk negative parent-child impacts.

Our development approach in conjunction with completion optimization has allowed our well productivity to improve year over year. And now on Slide 13. Starting on the left, once you normalize gross production for all peers on a two-stream basis, Pioneer has the highest oil percentage. And then, looking over on the right, we also have the best 12-month cumulative oil production.

These two facts combined should lead to the best margins and the highest returns in the basin over time. I'd like to add my congratulations to our subsurface drilling, completions, and operations teams for an excellent quarter on all fronts, and I'll now turn it over to Rich.

Rich Dealy -- Executive Vice President and Chief Financial Officer

Thanks, Joey, and good morning. I'm going to start on Slide 14, where you can see the bar chart that shows that we are generating peer-leading EBITDA margins per BOE. And as you can imagine, that's the foundation for generating free cash flow and strong corporate returns, and really is what allows us to be able to return capital to shareholders. The second thing that I think it highlights is the benefits of us moving our oil and gas out of the Permian Basin to higher-priced markets, and that's combined with our cost reduction efforts this year is really leading to great margins.

Now, these will improve further relative to the peers. This does not reflect the benefits that we've seen from our G&A reduction efforts earlier this year that were not fully realized until the third quarter. So, when you combine higher margins with our strong balance sheet, it really provides significant financial flexibility as we move into 2020. Turning to Slide 15.

You can see at the upper left there, where our price realizations were $56 per barrel for the quarter. This is relative to Permian peers that would have realized $54 or so. So, a $2 increase really was provided by our firm transportation to move our oil to the Gulf Coast, where we realized $46 million of incremental cash flow for the quarter and $279 million year-to-date. For the quarter, we did move about 205,000 barrels to the Gulf Coast, about 75% of which was exported during the quarter.

That is increasing to 225,000 here in November in our volumes that will transfer to the Gulf Coast. If you look at the fourth quarter, what happened with narrowing differentials and shipping costs that have been higher due to the tanker sanctions, they have a limited availability of ships. So, we are forecasting a nominal to slightly positive cash flow impact in the fourth quarter. And then, the other thing I'd point out is that similar to oil, we do move our gas out of the basin, and with Gulf Coast Express coming on, we're moving about 300 million a day down to the Gulf Coast.

So, starting in the fourth quarter, we have about 60% of our gas will go to the Gulf Coast, where it will be priced off Houston Ship Channel or NYMEX indexes, and then, about 40% will still move out to Arizona, California markets. They're priced off of a SoCal index. So very minimal Waha exposure moving forward. And then lastly, just an update on our derivative positions.

For the fourth quarter, we have added incremental barrels, so we're now at 110,000 barrels a day of oil hedged at roughly $65 Brent. And for 2020, we're at 80,000 barrels at roughly $63 Brent with upside from there. So with that, I'm going to turn it back over to Scott.

Scott Sheffield -- President and Chief Executive Officer

Thanks, Rich. We'll now open it up for -- oh no, I forgot. We do have our ESG slide, sorry. I got ahead of myself.

On Slide No. 16. I think the key point here is that the company is focused on all three of these measures, and we'll continue to highlight all of these measures going forward. We have a great third year in a row.

We just released our ESG report, again focused on the environmental side. Again, we've had a 40% reduction in methane intensity and a 38% reduction in greenhouse gas emissions intensity from '16 to '18. One of the key things that we do, we do not connect any new horizontal wells to production unless the gas line is already in place. I think that's something that should be adopted by all producers in the Permian Basin.

Also, we're one of the few companies that -- our facilities, 100% of our facilities are early monitored for leak detection and repair. We do it through aerial flying about 3,000 to 5,000 feet. We do it once a year, a very, very important practice to determine where your methane leaks and fix those leaks as soon as possible. Again, on the social side, we have one Pioneer.

We're focused on community, culture, and talent development, continued focus on improving gender diversity, continuing to move this up significantly in regard to the percent of women inside the oil and gas industry, inside the management teams, the board level, and all employees throughout the company. And then on the governance, over the last few years, we have set up some key committees, both HS&E committee, oversight, and have a very, very strong corporate governance committee. Going to Slide No. 17 gives you a better breakdown on our greenhouse gas intensity and methane intensity in regard to our peers.

Again, it's peer-leading for 2018 data going forward. I already discussed the reasons why that we are taken -- we are leading our peers in regard to some of our business practices out in the field. Slide No. 18 has been a very hot topic recently -- over the last several months about how much flaring is going on in the Permian Basin.

This data was taken by a company called Rystad out of Norway. It's already been published in The New York Times, and also in several newspapers. But I think one of the best things to do, everybody needs to focus on getting down to 2% or below 2% in regard to venting and flaring, and we'll take this off the industry. You can see there is a lot of peers that are way above the average.

Everybody needs to have the same practice and focused for the same reasons that we had. In regard to new wells coming on, they need to be connected to a gas line. And secondly, everybody needs to do some type of monitoring on the flaring side. And finishing on Slide No.

19. Again -- the company again has had three great quarters in a row and excited about going into 2020. It's all about execution, delivering free cash flow, and delivering higher return on capital employed numbers over the next several years. Again, thanks.

We'll now open it up for Q&A.

Questions & Answers:


Operator

Thank you. [Operator instructions] We'll now take a question from Arun Jayaram with JP Morgan.

Arun Jayaram -- J.P. Morgan -- Analyst

Yeah. Good morning. I was wondering if you could comment on what is driving the facility cost reduction efforts. I think you mentioned through the redesign of your facilities, you're expecting capex to be $100 million less.

So, I guess my ultimate question will be, how are you looking at facilities today with more of a focus on free cash flow generation versus perhaps before when you had the million barrel target?

Scott Sheffield -- President and Chief Executive Officer

Yes, Arun. It was simply, and I think I've stated this publicly before, is really since we have lowered our growth -- the company growth rates from 20% to 25% as they have shown the last two years to a mid-teens growth rate, it's not worth building for the next five years. So, we're designing our facilities. We're paying special attention to fill everyone.

It's not full. And secondly, we're making small changes in the design of the size of our facilities based on a mid-teens growth. So, it was achieving that probably three to six months earlier. We are hoping to go into 2020, so we achieved it by third quarter.

So, it's really achieving it three to six months earlier than I thought. So, the team was focused. They did a great job. But those are the main two drivers.

Arun Jayaram -- J.P. Morgan -- Analyst

Great. And my follow-up, Scott, is I wondered if you could provide any commentary on your plans in 2020. We did note that you added a rig in November. I think there's two scenarios that you're looking at.

One was either to add a couple -- two, three rigs in -- late in 2019 to support 2020 growth or maybe add a couple two or three rigs later in 2020. I think the current consensus forecast is calling for about 13% oil growth at just under $3.4 billion in capex. So, I just wanted to get your thoughts on 2020 and where consensus sits today.

Scott Sheffield -- President and Chief Executive Officer

Yeah. Thanks, Arun. As we have stated publicly, we're going to be adding roughly about two to three rigs per year over the next several years to achieve our mid-teens growth rate. When you look at about 140 million per rig and the rigs we add, and you back out the fact that we've already achieved facilities, we are going to have reduction in regard to the -- both the water and the midstream side from 300 million to a much lower number going into 2020 that I think The Street is fairly close to their numbers.

We have -- we'll be going to the board over the next -- this November board meeting, and then, early in January and releasing in early February. But when you go through the math, it still implies a 2020 capex budget of roughly about $3.3 billion.

Arun Jayaram -- J.P. Morgan -- Analyst

Thanks a lot Scott.

Operator

We'll now take a question from John Freeman with Raymond James.

John Freeman -- Raymond James -- Analyst

Good morning, guys.

Joey Hall -- Executive Vice President in Permian Operations

John.

John Freeman -- Raymond James -- Analyst

Just a follow-up on the prior question. So, you previously talked about kind of averaging 21 to 23 rigs, and even with the rig out in November, which I know was previously planned, you're now targeting 21 rigs. And I'm just curious if that's just all efficiency gains or is it a timing issue or maybe some of the additional rigs you might have added for 2020 might not happen until early next year.

Joey Hall -- Executive Vice President in Permian Operations

Hi, John. This is Joey. And you answered the question. All this is due to efficiency gains.

Whenever you see a 30% improvement in cycle times year over year, it doesn't take much to start winding down your rig count. So yes, the reduction in rig numbers is purely due to efficiency gains.

John Freeman -- Raymond James -- Analyst

Great. And then, just my follow-up question. You all have done a really good job kind of historically kind of opportunistically putting these hedges on in kind of the low to mid sort of $60s price for Brent. I'm just curious if just anything you're seeing on the macro side, with the rig counts continuing to fall, expectations for U.S.

growth continue to be sort of reduced if that's sort of maybe changing the thinking on what levels you'd be willing to hedge it going forward.

Scott Sheffield -- President and Chief Executive Officer

Yeah, John, I think we still have to get through 2020, but I've been on public record talking about the Permian is going to slow down significantly over the next several years. I've lowered my targets and my annual targets. A lot of it has to do with free cash flow to start with, the free cash flow model that public independents are adopting, the issues that private equity firms are going through in regard to consolidation-reducing activity. The reduction of NGL prices significantly, we've deviated long-term from about 70% to 50% of WTI.

Now, we're down to 30% of WTI, especially for propane and butane. All that is left revenue, the strained balance sheets a lot of the companies have, the parent-child relationships that companies are having, people drilling a lot of Tier 2 acreage, so, I'm probably getting much more optimistic about '21 to '25 now in regard to oil price. I don't think OPEC has to worry that much more about U.S. shale growth long-term.

And all that is very beneficial. So, we're probably going to be more careful in the years '21 to '25 because there's not much coming on after the three big countries that are bringing on discoveries over the next 12 months, Norway, Brazil, and Guyana. Guyana will continue obviously, but I'm definitely becoming more optimistic that we're probably at the bottom end of the cycle regarding oil price. So, we're still going to hedge in 2020 to protect what may happen with China trade agreement, and other things that may happen, but we'll be very more -- we'll be more cautious as we go into the '21 to '25 time period.

John Freeman -- Raymond James -- Analyst

Thanks, Scott. I appreciate it.

Operator

We'll take our next question from Ryan Todd with Simmons Energy.

Ryan Todd -- Simmons Energy -- Analyst

Thanks. Maybe a quick follow-up on the capex reductions that were obviously quite impressive during the third quarter. We've seen big step-downs over the course of this year from sand and pressure pumping shifts, and then, a reduction in completion efficiencies and facility costs. Are the big pieces behind you at this point? Do you see the potential for further gains going forward, particularly on the completion efficiency side where it's been pretty impressive this year?

Joey Hall -- Executive Vice President in Permian Operations

Yeah, Ryan. We certainly had a trend this year from a cycle time improvement and cost reduction perspective. And I would temper expectations for 2020 because we did have some huge gains, particularly related to the ProPetro transaction. And again, these efficiency gains, we made in big steps this year primarily by just focusing on lean manufacturing methodologies.

And I tell people all the time, one of the best things that ever happens to an operations team is slowing down and being able to catch your breath and reflect and get focused on performance. And that's what transpired during this last slowdown. So, we're just able to focus on the basics and make big gains. But going forward, your commentary is correct.

I wouldn't expect to see huge leaps going forward, but I wouldn't also suggest that we don't have room to improve.

Ryan Todd -- Simmons Energy -- Analyst

Thanks, and you're guiding to relatively flat oil production in the fourth quarter. Can you provide any -- maybe any high-level color on cadence or trajectory of activity and volumes over the next few quarters or at least at a high level on 2020, whether we should see a relatively consistent growth or front or back-end loaded?

Neal Shah -- Vice President of Investor Relations

Hey, Ryan, it's Neal. If you look at the cadence of our rigs throughout the year, we started at 24. Our rig count came down throughout the year down to 18. Right now, we're sitting -- we exited Q3 at 18.

We added the additional rig, we're at 19. But if you look at how those rigs dropped in terms of the [Inaudible] cadence, from a quarterly perspective, Q4 will reflect our lowest quarter from a perspective of POPs. So that's kind of the main driver in terms of that oil production being relatively flat quarter over quarter. Now, as you look forward to 2020, we've yet to formalize the precise plans, and the teams are still working for it, but I don't see any reason why you would see consistent growth quarter over quarter, as they progress through 2020.

But that's just really setting the framework. I think the team needs to work through their precise plans. And as you know, we'll announce that in February.

Ryan Todd -- Simmons Energy -- Analyst

Great. Thanks, guys.

Operator

We'll now take our next question from Nitin Kumar with Wells Fargo.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Good morning, guys, and thanks for taking my questions. Scott, if you could talk a little bit about the M&A market. You have mentioned the DrillCo strategy. We just saw the partly Jagged Peak deal.

You talked about guys running Tier 2 acreage. Just kind of interested on how are you thinking about that.

Scott Sheffield -- President and Chief Executive Officer

Yeah, I think any type of transaction like partially did that consolidates acreage that is very contiguous improves the balance sheet as accretive companies should do. There's probably not a lot of those. I'm still on record saying the majors are the most aggressive in regard to drilling activity. They will have to decide whether or not to bulk up their inventory over the next two to three years and decide whether or not to acquire any independents.

And so besides that, it's just not going to happen for a while. It may happen if we get into a better oil price market. So, that's really about it.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Got it. And then, just going back to Slide 11 on the Wolfcamp D. Obviously gaining confidence in that zone. When should we expect it to move from appraisal into development mode?

Joey Hall -- Executive Vice President in Permian Operations

Yeah. That's one of the beauties to having such a large acreage position is that you can do this appraisal and sit back and watch results from these wells, and make sure long-term that you fully understand the decline curves, and also, look -- go back and look at your costs and see if you have the opportunity to reduce costs to make them even more economic. And in the meantime, we can still go back to our traditional Wolfcamp A, Wolfcamp B, lower Spraberry Shale, and continue to develop those until we fully understand the production from the Wolfcamp D. So, what I would suggest you would see next year from an activity perspective is probably pretty similar to what you saw this year.

But if you look at the Jo Mill, for example, let's say I went through a similar transition that we appraised it for a while, and then, we started slowly adding more Jo Mill wells into the program this year up to 7%. But Wolfcamp D was a pretty small percentage of our program this year. It'll probably be a little smaller percentage next year, but in the out years, you'll start to see it come in after we make sure we fully understand it, and we're able to continue to put that under our program.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Great. Thanks for asking -- answering my questions.

Operator

Our next question from Jeanine Wai with Barclays.

Jeanine Wai -- Barclays -- Analyst

Hi, good morning, everyone.

Joey Hall -- Executive Vice President in Permian Operations

Hey, Jeanine.

Jeanine Wai -- Barclays -- Analyst

Good morning. So, following up on Arun's question on the rig adds, can you walk through or talk about how you're balancing the 2019 capex budget with perhaps trying to mitigate any operational friction with having to add maybe more rigs faster in 2020 versus a more ratable cadence? Or is the right way to think about it really on efficiencies, meaning that with the efficiency gains that you've been achieving, the historical two to three rig adds really could be biased downwards, and so, therefore, kind of concerns on operational friction might be overblown for 2020?

Joey Hall -- Executive Vice President in Permian Operations

Yeah, Jeanine. No, I wouldn't account that to anything related to operational friction. I would just say, just like you saw the 2019 program play out, the numbers that we put out in the beginning of the year was fully what we anticipated the rig count would be. But because of the efficiency gains we saw during the year, we just frankly didn't need more rigs.

You can even look at frack fleets. We dropped frack fleets sooner than we had expected. And whenever you look at 2020, that's just changing the game and the amount of equipment you need to accomplish a certain amount of work just gets less and less, as you continue to grow efficiencies. So, it's not related to any challenges or operational frictions.

It's 100% due to the fact that we've just gotten better at drilling, and better at completing wells from a cycle time perspective.

Neal Shah -- Vice President of Investor Relations

Jean, I'm going to piggyback on Joey's response. And if you look at where we started the year, right, we're 24 rigs with an average of 21 to 23 with POPs of 265 to 290. And now, where we're sitting, we're actually taking that average down to 21 rigs but yet the POPs are going to the high end of the range at 290. So if anything, the increased efficiencies by the great performance from the Pioneer teams has resulted, I'd say, in less operational friction, which has manifested itself in our numbers and the capex, as well as, production.

Jeanine Wai -- Barclays -- Analyst

OK. Great. That's very helpful. Thank you for taking my question.

Operator

We'll now take our next question from Charles Meade with Johnson Rice.

Charles Meade -- Johnson Rice -- Analyst

Good morning, Scott to you and your team there. I wanted to ask for an update. Yeah, thank you. I wanted to ask if you could maybe give us an update on how you're thinking about your buyback pace going forward.

As I look at '20, the big differences, you guys have upped your dividend meaningfully. And depending on what price deck you use, that could -- takes up a big chunk of the free cash flow you're generating. But on the other side, you have these asset sales. So, can you talk a little bit about how those pieces go together? And if there's any sequencing related to the pace of a buyback going forward?

Scott Sheffield -- President and Chief Executive Officer

Yes, we still have a $2 billion buyback. We're still evaluating it, and in regard to all the pieces as we deliver free cash flow, how much goes to the balance sheet, how much goes to dividend, and how much goes to the buyback. So, we'll be discussing that in our upcoming Board meetings over the next several weeks. And so at that point, we think it's all important.

We don't have any specifics at this point in time, so we'll get back with you as we develop our plans.

Charles Meade -- Johnson Rice -- Analyst

Got it. Thank you, and then, Scott, I want to go back to one of the -- or some of your comments in your prepared remarks. I think you made your view on the venting and flaring and what should be the industry practice. You made that pretty clear.

But I'm curious, do you think or are you sensing a change in what's kind of socially acceptable or acceptable for the industry as a whole? In other words, is the industry coming toward you or do you think you're still kind of a pioneer in that? No pun intended in that regard.

Scott Sheffield -- President and Chief Executive Officer

Yeah. No, that's a good term, a pioneer. We always like to be a leader. And so, I've had a chance to speak in New Mexico at the first Methane Conference by the Governor Grisham out there, recently spoken at Jason Bordoff's Conference last March and April, and made a statement.

It's a big black hawk for the Permian Basin. And so, we don't want to become what's happened to the Bakken over the last five years. And so, we need to do something about it. So, we're taking steps internally to do something about it, and I want every other company in the Permian Basin do the same thing.

So, we're leading and we just want people to follow us and do this -- take the same steps. We also need more pipeline, gas pipeline. That's an issue I haven't been able to solve and get them in faster. We do have two more lines coming in early '21 going from the Permian Basin to the Gulf Coast, but we definitely need more gas lines, and people committing to those gas lines.

People don't really have to make a legal commitment of MVCs like Pioneer. So, I know being on one of the big midstream companies on the Board that they will work out relationships and agreements in regard to where you don't have to commit volumes, but they still can take your gas. But we just need to figure out a way to shut it down, and it didn't start until 2012 when horizontal really took off, and we just need to take it off -- need to take the black eye off, especially going into the next election.

Charles Meade -- Johnson Rice -- Analyst

Got it. Thanks for those comments.

Operator

We'll now take our next question from Scott Hanold with RBC Capital Markets.

Scott Hanold -- RBC Capital Markets -- Analyst

Yeah. Thanks. Hi, good morning. Could you all provide a little bit more color on the Wolfcamp D in terms of what you'd like to kind of continue to see from it to make it competitive or maybe some context on how it competes for capital in some of the other core areas?

Joey Hall -- Executive Vice President in Permian Operations

Yeah, Scott, going back to what I said earlier. It is a big part of our plan going forward, but I think everybody is aware because Wolfcamp D is deeper. It is more expensive and it is a little bit more challenging. Whenever we executed these last 12 wells, there were several objectives.

One was to try our completion optimization, which you can see was successful. But also intermingled in there are some spacing tests. We've done four different spacing configurations in different areas. So, it just takes time for those things to be understood and make sure that whenever we are ready to execute, we fully understand the impact of spacing, completion optimization.

And again, like I said, the cost side, we're always looking at opportunities to get the cost down. So in essence, because we have the luxury of time because of a large footprint and an ability to go and do the things that we know the best, we'll just continue to optimize the solution for these and make them more and more competitive. Having said that, the Wolfcamp D wells are very strong and competitive with the rest of our portfolio, but we just want to make them better by understanding the performance.

Scott Hanold -- RBC Capital Markets -- Analyst

OK. And on the potential for maybe some improved well cost reductions, really, is that just experience or are there other things that you all are trying right now to aid in that?

Joey Hall -- Executive Vice President in Permian Operations

Specifically on the Wolfcamp D?

Scott Hanold -- RBC Capital Markets -- Analyst

Yeah, I'm sorry, specifically at the Wolfcamp D.

Joey Hall -- Executive Vice President in Permian Operations

Yeah. I don't think it's any secret that whenever you're stimulating these deeper, higher pressured wells, it is more challenging. So it does cost more, but we've seen every time that we've executed these wells that we've learned something and gotten better. But now you want to make sure that whatever adjustments you made doesn't impact performance.

So, those two things go hand-in-hand. So, we have gradually gotten better at execution, but now we just seem to understand performance and tie those two things together.

Scott Hanold -- RBC Capital Markets -- Analyst

OK. OK. No, that I understand. OK.

And then on your LOE cost, I mean, power was an issue in several areas during the summer because of the hot weather. What are some of the things that you're all looking at to mitigate some of that? And how much are you impacted by that generally speaking?

Rich Dealy -- Executive Vice President and Chief Financial Officer

Definitely, Scott, impacted us during the quarter just, because of the summer heat in July, August, particularly were higher. So it affects us on both the gas processing side where it takes electricity and then, at the field level. So, we look at that from time-to-time, look to hedge it. But for the most part, it's seasonal.

And so, we're past that [Inaudible] and would expect to see them revert back to more normal rates as we move through the rest of this year.

Scott Hanold -- RBC Capital Markets -- Analyst

OK, thank you.

Operator

We'll take our next question from Brian Singer with Goldman Sachs.

Brian Singer -- Goldman Sachs -- Analyst

Thank you, good morning. On Slides 12 and 13, you highlighted the 180- and 365-day well performance and the improvement in rates over time. While some of these slides are making a relative point versus peers, how do you see the absolute well productivity moving when you think about your 2020 program? And what is the scope and drivers of potential further improvement?

Joey Hall -- Executive Vice President in Permian Operations

Well, I think whenever you look at the -- those lines, you can obviously see that there's closure year over year. So, I think it's obvious that we're reaching a point in time where the opportunity to improve well performance is not what it was, compared to two or three years ago. So, there's definitely a convergence there. From a perspective of continuing to improve that, we are still tweaking completion designs and cluster spacing, doing more science in regards to understanding the opportunity to reduce costs, because at the end of the day, we're generating economics, not just trying to produce oil.

So, we want to make sure that all the decisions that we make from a completion perspective have a return. So, we're looking at it from that perspective as well. But like I said, looking at those curves, I don't think anybody expects that we're going to continue to see that kind of improvement year over year. It'll eventually flatten out until new technology, EOR or some other opportunity presents itself, all of which are things that Pioneer is looking into.

Brian Singer -- Goldman Sachs -- Analyst

And do you think that barring the technology and technological improvement that 2020 and 2021 are up relative to '19 or do you think that flattening is happening now for you -- for the company?

Joey Hall -- Executive Vice President in Permian Operations

Yeah, I think you'd see a continuing pattern like you do, that the lines are just going to converge, and we'll see it flattening. I think you said it best.

Brian Singer -- Goldman Sachs -- Analyst

Great. And then my follow-up, you talked earlier about the share repurchase dividend and some decisions that still need to be made in terms of the magnitude of all that's going forward beyond what seller has been authorized. But I wondered what your long-term leverage target acceptability -- acceptable level is because as was mentioned earlier, you'll have some moving pieces with asset sales. But ultimately, what do you think is the right sustainable leverage?

Rich Dealy -- Executive Vice President and Chief Financial Officer

Yeah, we still have the same leverage target at the company, debt to cash flow of 0.75, Brian. So, there's no change to that.

Brian Singer -- Goldman Sachs -- Analyst

And is it fair to say then that if asset sales or operational free cash flow push you in a $55 world below that that there would be a willingness to return more cash to shareholders to get up to the 0.75?

Rich Dealy -- Executive Vice President and Chief Financial Officer

Say your scenario again.

Brian Singer -- Goldman Sachs -- Analyst

If we're in a $55 world, i.e., or whatever you would regard as mid-cycle and you leverage either via asset sales or because of operational -- normal free cash flow is below 0.75, would there be willingness to continue or to add to the return of capital program to get it to 0.75?

Rich Dealy -- Executive Vice President and Chief Financial Officer

Well, we're going to look at it primarily toward what is our free cash flow. And our free cash flow, and I'm debating -- I'm still traveling around. We're going to go out and see all of our long shareholders again early next year. But we're trying to determine a long-term strategy of what's best between share buybacks in regard to -- in addition to increasing the dividend, whether or not to go to a variable dividend and balance sheet, and just like I said, share buybacks and how to distribute.

And so, I did mention at Barclays that we have roughly approximately over the next several years about $5 billion. And so, we're trying to come up with the ideal plan to disperse that in regard to all three of those. Obviously, with two-thirds of that going toward shareholder-friendly measures such as buybacks and dividends, and it's all related to what the oil price deck is. So, I can't give you any specifics in that regard, but that's how we're thinking.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you.

Operator

We'll now move to David Deckelbaum with Cowen.

David Deckelbaum -- Cowen and Company -- Analyst

Thanks for moving to me. Just a couple of questions, guys. Thank you for the time. Curious, I wanted to ask around your firm transportation agreements that you have in place, getting some of that Brent pricing.

You had a huge uplift this year. You all had early mover advantage locking up some of that capacity. Scott, what's your outlook now on how you view Brent versus TI and Midland pricing? And is that an asset or a contract that you might look to swap out of and release some capacity if that arbitrage is to perhaps bring in some cash if there's willing participants on the other side.

Scott Sheffield -- President and Chief Executive Officer

Yeah. I'm going to let -- Rich is by expert. He knows far more about it than I do, so I'm going to let him answer this question.

Rich Dealy -- Executive Vice President and Chief Financial Officer

Yeah, good question. I would say that long term, we see the benefits of moving the oil to the Gulf Coast and being higher-priced markets by being exported. So, I don't see a scenario at this point where trading out of those contracts would be the right thing to do. In fact, we continue to look at our long-term trajectory and we need incremental capacity out in three or four years or so.

So, I think it's something we'll continue to assess. I mean, I think if you look at the forward curve, it's roughly $5 to $6 between Brent and WTI and Midland trades at a premium to WTI today because of the pipeline is trying to get filled up with volumes. But long-term, I think it will still be an advantage to have our oil in the Gulf Coast, where we can sell it either into the refinery market or export it worldwide where we've been demonstrating that we get a price uplift. So, I think we're going to continue to -- with that philosophy.

David Deckelbaum -- Cowen and Company -- Analyst

I appreciate the color on that. And then my last one is, I guess, one of the larger future big-ticket items in terms of cash proceeds in the door could be something around the water handling or water sourcing that you have with City of Midland coming online at the end of 2020. You said the decision would be made around the same time. I guess, what sort of factors are you weighing the most right now because that is going to be a very low-cost source of water there? How are you thinking about whether that would fit in your portfolio or not?

Joey Hall -- Executive Vice President in Permian Operations

Meaning the City of Midland project specifically?

David Deckelbaum -- Cowen and Company -- Analyst

Yeah.

Joey Hall -- Executive Vice President in Permian Operations

Yeah. Certainly, the fact that we entered into it and because it is such a large contract in excess of 200,000 barrels of water coming on late next year or early the next, that's obviously, a significant part of our plans going forward and it is a very low-cost source of water. Having said that, we are looking at our water system holistically and looking at opportunities to make sure that we leverage that to the best of our abilities. And more specifically, our focus is on reducing our well cost.

I mean, the purpose of that water system is to ensure execution, but we want to make sure that it continues to deliver value in the City of Midland project is a big part of that.

David Deckelbaum -- Cowen and Company -- Analyst

Thank you, guys.

Operator

We'll now take our last question from Michael Hall with Heikkinen Energy Advisories.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Thanks. Good morning. I just wanted to, I guess, follow back up on the kind of some of the commentary around 2020 and capital and rigs. I think, in response to Arun, you confirmed The Street capital number seemed reasonable but just curious on the volume side if 15% is more what we ought to be targeting or something just shy of that, given current environment heading into 2020.

Scott Sheffield -- President and Chief Executive Officer

Yeah, it's too early right now to focus on that. But long term, we're still in that mid-teens growth rate.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

OK, fair enough. And I guess, the other question I had was just on the cash flow side of things. Just trying to kind of square with our model anyways. The cash balance at the end of the quarter was lower, which seemed to be a function of the kind of the capex on the statement of cash flows or the abbreviated statement of cash flows relative to the $665 million of reported capital.

Is there something going on in that that will reverse next quarter? Or kind of can you help bridge the gap between the $895 million on the abbreviated statement of cash flow versus the $665 million?

Rich Dealy -- Executive Vice President and Chief Financial Officer

Yeah, Michael, it's just timing. I mean, as you can imagine, as we're slowing down activity that Joey talked about during the year, those bills came in during the third quarter and we paid them. They were accrued at the end of the second quarter so you can see our payables did drop. So it's really just timing.

There's nothing and then you would expect that given the activity level for the third quarter, that that would come down to match that in the fourth quarter. So I think it's really just nothing of consequence other than just timing.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

OK. Makes sense. Figured. Thank you.

Rich Dealy -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

And that concludes the question and answer -- go ahead, Mr. Sheffield.

Scott Sheffield -- President and Chief Executive Officer

OK, sorry. Again, I want to thank everyone for participating in this quarter. Looking forward to seeing everybody next quarter. Talk to you later.

Bye-bye.

Operator

[Operator sign-off]

Duration: 48 minutes

Call participants:

Neal Shah -- Vice President of Investor Relations

Scott Sheffield -- President and Chief Executive Officer

Joey Hall -- Executive Vice President in Permian Operations

Rich Dealy -- Executive Vice President and Chief Financial Officer

Arun Jayaram -- J.P. Morgan -- Analyst

John Freeman -- Raymond James -- Analyst

Ryan Todd -- Simmons Energy -- Analyst

Nitin Kumar -- Wells Fargo Securities -- Analyst

Jeanine Wai -- Barclays -- Analyst

Charles Meade -- Johnson Rice -- Analyst

Scott Hanold -- RBC Capital Markets -- Analyst

Brian Singer -- Goldman Sachs -- Analyst

David Deckelbaum -- Cowen and Company -- Analyst

Michael Hall -- Heikkinen Energy Advisors -- Analyst

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