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WPX Energy Inc (NYSE:WPX)
Q4 2019 Earnings Call
Feb 27, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2019 WPX Energy Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your speaker today, Mr. David Sullivan, Vice President of Investor Relations. Please go ahead, sir.

David Sullivan -- Director, Investor Relations

Thank you. Good morning to everybody. Welcome to WPX Energy fourth quarter 2019 call. We appreciate your interest in WPX Energy. Rick Muncrief, our Chairmand and CEO; Clay Gaspar, our President and COO; and Kevin Vann, our CFO, will review the prepared slide presentation this morning. Along with Rick, Clay and Kevin, other members of the management team are available for questions after the presentation. On our website wpxenergy.com, you will find today's presentation and a press release that was issued after the market closed yesterday. Also our 10-K will be filed later today. Please review the forward-looking statement and disclaimer on oil and gas reserves at the end of the presentation. They're important and integral to our remarks, so please review them.

So with that, Rick, I'll turn it over to you.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thank you, David, and thank you to everyone who is joining us this morning. We sincerely appreciate your valuable time and your interest in our company. Today, we're going to discuss our strong fourth quarter and full year results for 2019, provide an update on our attractive acquisition of Felix Energy that we announced in mid-December. Sure thoughts [Phonetic] on balancing free cash flow generation with capital spending and growth and provide a perspective on some of the concerns the investment community and the entire world are currently feeling.

Certainly, the financial markets are unnerved by the spread of the coronavirus that healthcare professionals and governments around the world are actively fighting. We wish them Godspeed as they diligently work to lessen the impact. I don't think they have many essential tools and pharmaceutical components that are derived from the very products that our industry delivers as they battle this awful sickness. Because of how the commodity markets are currently being impacted, I want to remind investors of just how hard the WPX team has worked to stay focused and build a company that can withstand headwinds such as these. You should know we're positioned to perform well regardless of commodity prices. I believe this is one of the Felix transactions, so also well received by both the debt and equity markets.

As we shared, we can continue to return capital to shareholders much sooner than we contemplated. Headwinds are something our team has come to anticipate. The counteract that we've employed to our financial discipline, our technical and operational savvy, our commercial acumen, our flexibility and our sense [Phonetic] for transactional timing. You can also be assured that we take our environmental, social and government -- governance actions to heart. We will stay proactive as we engage both shareholders and other stakeholders in the pursuit of continuous improvement.

WPX today is the financial story, and outperformance story and a free cash flow story. Currently, the 2020 guidance we gave at the time of our Felix announcement remains intact. Post close on Felix, we will immediately be producing over 150,000 barrels of oil per day with an attractive cost structure, a strong hedge book and a solid balance sheet. That's a very nice position to be in. From my perspective, after organically tripling our oil production through the drill bit, through excellent execution over the past three years in both the Permian and Williston Basin and then adding an attractive and accretive acquisition on top of that, doubts about our ability to deliver growth should be few and far between.

Now that being said, we're intently watching and evaluating data and trends. Our current plans deliver well over $200 million of free cash flow this year, net of our planned dividend assuming $50 oil prices. You'll get more details throughout today's discussion, but if market conditions dictate, we have the ability to moderate our growth by pulling back some more capex and thus generating even more free cash flow. That's the flexibility I was speaking about earlier.

With that, let's turn to Page 2. In 2019, WPX shares closed the year up 21% versus an average decline of 13% in our peer group. We also raised adjusted EBITDAX by 27% despite a 10% decline in our oil price realizations and a 21% decline in our natural gas realization. So how is that possible? It all ties back to the outperformance that you see here on Page 2. We made promises, then we over-delivered. We also did it in ways that accelerated what we thought was practical and possible at the time. That happens when you do things like turning to $125 million of midstream investments into $0.5 billion in proceeds. That happens too when you bet on yourself. For example, we said we'll start returning capital to shareholders by 2021, instead we were able to execute on that beginning in 2019. We did so by retiring 5.7 million shares of our equity and we will certainly remain opportunistic if we see a rationality in our share price again.

We also paid down debt last year, reduced our leverage metric to nearly 1.5 turns and exceeded our guidance for output by a wide margin without increasing our capital budget. In my mind, we're even starting to look more and more like an investment-grade company. Just a few weeks ago, we obtained an acquisition-related financing at a rate of just 4.5% for a 10-year term. That outcome reflects on the clarity of our plans, the equality of our vision and the credibility we have in the market. We worked hard to earn it, and we'll keep working hard to retain it.

So now let's turn to Page 3. So for 2020, here's what you can expect from us. First and foremost, we're poised and ready to close on our acquisition of Felix Energy very quickly pending shareholder approval on March 5th. We fully expect it to be a smooth seamless integration that will help further strengthen the outlook for our company. As you may recall, the intent behind this acquisition is to accelerate how quickly we can reach our five-year targets. The acreage we're acquiring complements our core Stateline position in the Northern Delaware Basin and enhances our already strong per share metrics. The transaction increases our margin per Boe, delivers meaningful cash flow, increases our oil cut, which will allow us to maintain a consolidated commodity mix of over 60% crude oil on a three-stream basis for the foreseeable future.

In 2019, we generated $101 million of free cash flow at the back half the year. And with the additional -- and with the addition of the Felix assets, we believe that we can more than double that amount in 2020. All of this helps pave the way for WPX's first dividend on a common stock. We're targeting $0.10 per share on an annualized basis with the first payment expected in the third quarter of this year. And we'll begin to chip away at our leverage in 2020 with the goal of hopefully getting it down to a single turn in a couple of years.

Now, let's turn to Page 4, and I'll hand the call over to Clay Gaspar, our President and Chief Operating Officer.

Clay Gaspar -- President and Chief Operating Officer

Thank you, Rick, and good morning, everyone. As I look back at our 2019 results, there are several key events and accomplishments to be very proud of. The greater WPX team was once again prepared and positioned to act as opportunities materialize. We were also patient as evidenced by our three-year acquisition hiatus and then courageously moving when the stars aligned on a Felix opportunity. We've also executed on literal millions of decisions and tasks that never make the light of the earnings call, but nonetheless allow us to deliver impressive results quarter-after-quarter. And importantly, we're extremely aware of our responsibility to all stakeholders, not just investors, to cultivate those critical relationships in our communities, with our service providers and with the greater public. Courage, results and relationships are the key ingredients of our WPX culture and our success.

Rolling into 2019, we were laser-focused on generating cash flow. And as promised, we were positive for the year and generated over $100 million of free cash flow in the back half of the year. As I mentioned last quarter, this is not a one and done strategy for WPX. And as Rick just mentioned, we expect to generate over $200 million in free cash flow in 2020 at a flat $50 WTI. Also, a major focus for our operations group was to deliver more for less. This was accomplished by maintaining our capital guidance for the full year, but we delivered an incremental 5,600 barrels of oil per day above the plan.

Remember, our original full year guidance for 2019 was 98,000 barrels of oil per day, but we achieved 103,600 barrels of oil per day, a 6% increase in production with no impact on capital. Again [Phonetic] that excess production growth can be an off putting [Phonetic] comment in today's world. But let me be clear, we will always strive to create more barrels and therefore more revenue for the same or less investment. While that's a fundamental business philosophy, also I want to be clear that our preeminent driver is to create value to the bottom line that supports our five-year vision of returning significant value to shareholders and further strengthen our already strong balance sheet. As we plan forward with our variable options regarding growth, know that our conversation begins and ends with cash flow implications.

Now let's turn to Slide 5 and discuss the Felix integration that is well under way. The integration has been and continues to be a critical focus throughout the company. As Rick described in his prepared remarks, seamless integration is a key to WPX's 2020 success. As we think about deals that we've done here at WPX and others we've been involved with throughout our careers, this deal had some significant integration advantages.

First of all, Felix was designed with an exit in mind. The employees are highly incentivized to see the close and transaction -- and transition work well, and it shows. The Felix people have been a pleasure to work with and the rapport between our teams is impressive. Post close, we hope to bring over a select number of Felix employees to our Tulsa office. We'll also take this opportunity to lean on our very strong industry reputation to inject some additional talent from around the industry to keep our knowledge cool fresh [Phonetic] and deep. In the end, I would estimate that we add about 10 net G&A employees to the WPX mix. And this will allow us to be positioned well to handle the incremental 190 wells and five rigs associated with the Felix transaction.

While we were clear in the deal announcement that we were not just buying a deal on synergies, we knew that we could see some improvement to the planned $20 million G&A, and this is a nice start. Despite these built-in advantages, we're not taking anything for granted. Each functional area has been in continuous contact with their Felix counterparts. This included daily conference calls, on-site meetings in Denver and in Tulsa and multiple field visits. In conjunction with our integration, we're also looking at optimization opportunities. Some of these opportunities are provided by the scale of 12 rigs and three completion crews in the same basin. This gives us the opportunity to smooth out the completion crew utilization, which is mutually beneficial to WPX and the service companies involved.

In 2019, we continue to learn quite a bit about optimizing well design and proper spacing of our legacy Delaware position. The wells we designed in the $60 to $70 2018 world then planned, permitted, drilled, completed and then finally brought online in early 2019 saw more interference than we would have liked in a $50 to $55 environment. By mid-'19, we were again adjusting our landing zones and moving toward a four- to five-well spacing per landing zone. The wells that we brought on in the tail end of 2019 and so far in '20 have seen a nice uptick in performance and work very well on a $50 to $55 tape.

Felix appears to be about six months behind us on the spacing and landing zone work. By our estimates, the three large pads that Felix is bringing on right now may be testing too many landing zones and may be spaced a bit tight for today's price environment. We're watching these wells closely in their performance and they will help contribute to the significant upside that we may be able to achieve with this asset.

Operationally, we're not planning on making wholesale changes day one. We plan to systematically test components of our well design on the Felix assets and Felix ideas on some of the legacy WPX wells as well. We continue to be open-minded about what we do and how we do it. And every day, we strive to get better results to the bottom line. We do see some capital improvement that will aim to capture right away. In time, I expect that we'll be able to shave off more than $0.5 million per well to what Felix is doing now. We are also challenging some of our own procedures and we'll likely realize additional savings there as well. Again, we did not just buy the deal on synergies, but these are meaningful savings that will create value above and beyond our acquisition assumptions.

On the marketing and risk management side, we have been coordinating with Felix and opportunistically executing hedges on over 26,000 barrels of oil per day at a fixed price of $57.80 per barrel. Since the announcement of the deal, our marketing group is engaged with counterparties to incorporate Felix's barrels into our overall marketing strategy. As I mentioned before, I'm very proud of our strategic thinking of our marketing team, and I'm fully confident in our ability to create incremental value with this new asset.

Now let's turn to Slide 6 and talk more about the legacy Delaware assets. As I mentioned, 2019 was an important year for our Delaware Basin assets and understanding spacing and driving well cost down. Despite being less than optimal with only five rigs running in the basin, we learned a tremendous amount about the proper co-development spacing in a $50 to $55 wells. As we look to the 2020 co-development drilling program in Upper Wolfcamp, we're seeing strong well results with the four- and five-well bench spacing. Previously, we put out an EUR for 1-mile Upper Wolfcamp parent well of 1 million barrels of oil equivalent. As we shifted to co-development, we're maintaining that 1 million barrels of oil equivalent EUR for the Stateline Upper Wolfcamp. Also, we're formally giving EURs for 1.5 mile and 2-mile co-development Upper Wolfcamp of 1.4 million barrels and 1.75 million barrels of oil equivalent respectively.

On the drilling and completion side, we have been able to drive costs down significantly from 2018. Since 2018, we've dropped our total well cost -- that is drilling, completions, facilities, and artificial lift down over $500 per foot or 36% from our well plan cost for 2020 of just over $900 per lateral foot on a blended average over the entire WPX legacy program.

And fourth quarter of our Delaware realizations continue to be strong. Our average realized price in Delaware was WTI plus $0.15, including basis swaps. On the natural gas side, we averaged NYMEX minus $0.22, including basis swaps. I can't say enough about the great work our teams have done to protect prices and stay out in front of price challenges and basin differential blowouts.

Now let's turn to Slide 7 and discuss Williston's 2020 drilling program. It never gets old showing the year-over-year Williston well performance improvements. The Williston assets continue to be a strong performer for WPX. The 2020 drilling program is primarily focused on Mandaree, Mandaree South and Moccasin Creek. These are some of the same areas we drilled in '18 and '19, which should deliver similar results. Our current well cost in Williston is $6.7 million for drilling, completions, facilities, and artificial lift. We believe our Williston asset is delivering basin-leading costs and economics that should continue with our 2020 drilling program.

Now, I'll turn it over to Kevin Vann, our CFO, for the financial updates. Kevin?

Kevin Vann -- Executive Vice President and Chief Financial Officer

Thank you, Clay. Last year during our fourth quarter conference call, I stated that we had conquered leverage and that the next steps were to spend within cash flows and start returning capital to shareholders in 2021. At that time, conquering leverage looked like an annualized fourth quarter net-debt-to-EBITDA of around 2 turns. We currently stand at 1.5 turns, so check the box on that one.

On the free cash flow front, we generated a little over $100 million in the second half of 2019. So, again, check the box on spending within cash flow and sticking to our capital guidance. Lastly, in regards to starting to return capital to shareholders, we initially had our sights set on 2021. As you know, we began our share repurchase program during the third quarter of 2019 and plan to initiate our first dividend during the third quarter of this year. Check, check and check.

As an organization, we're performing at a very high level. We can see it in our 2019 financial results. We can see it in the performance of our business development, operations, finance teams as well as all the teams that support our success behind it. We can also see it in how our teams are working on the integration of our Felix acquisition. Our ability to execute is the reason for the confidence we have in our five-year vision for shareholders. We set the bar high for a reason. It's what the market expects from a company like ours and a track record we have. And yes, there are very real challenges in the market today, but we've worked very hard to put WPX on a stable path to sustainable earnings. And with that, we obviously believe we're going to have some staying power to compete against the broader S&P 500. Building shareholder value is our job, and we're constantly thinking about new ways to accomplish it.

Now let's turn to Slide 9. For the quarter, at 111,700 barrels per day, our oil production is 16% higher than for the same period of 2018. This oil growth was fueled by a 34% increase in our Williston output. For the full year, our full production average was 103,600 barrels per day, which is 27% higher than last year. This growth was not achieved just to put production numbers up on the scoreboard. In 2018, we had to leverage a goal that drove our production growth. In 2019, we had another financial goal of achieving positive free cash flow. Again, we achieved that goal in the back half of the year. Establishing financial metric goals is not a new concept for us.

Given our size and market cap, we know that we are in a unique spot of being able to generate free cash flow at $50 WTI for years to come. Our five-year goals are the next step in establishing a new wave of financial metrics that can compete against the S&P. Given our track record and history of execution, we are extremely confident in hitting these goals. At over 179,000 equivalent barrels per day, our overall production is 15% higher than the fourth quarter of last year. And at 167,000 barrels per day, we are 31% higher on a full-year basis.

For the fourth quarter, we are reporting an adjusted EBITDAX of $366 million, which is $60 million higher than the fourth quarter of 2018. The full year $1.37 billion of EBITDAX was $288 million higher than last year. Most impressive is that we achieved this financial success with realized oil prices settling nearly $6 per barrel lower than 2018. We did see a small increase in our operating -- cash operating cost, inclusive of lease operating expense, GP&T and production taxes. On a per unit basis, those costs went from $11.54 in 2018 to approximately $12 per barrel this year. As far as other costs in the system, our G&A costs per barrel went down from $3.92 to $3.40. In addition, with our focus on deleveraging and decreasing absolute debt, our interest expense went down from $3.51 to $2.61 per barrel.

These results are what we planned on and what we told you we would deliver. For the quarter, we are reporting an adjusted net income of $42 million versus $9 million in 2019. The improvement was driven by the same factors impacting adjusted EBITDAX but also impacting those numbers was $151 million of higher depreciation, depletion and amortization in 2019. The higher asset level DD&A was driven by the higher production volumes. However, our DD&A rate fell by nearly 10% as we continue to drill better wells at lower cost.

WPX is and will remain committed to financial discipline and specifically hitting our capital budget. I said across the table from analysts, shareholders and potential shareholders in early 2019 and assured them that we would hit our capex guidance. It was definitely, and we will believe it when we see it reaction. Well, believe it, we guided to a range of $1.125 billion to $1.25 billion, which excluded land. So excluding those land expenditures, we were a little under $1.2 billion for the full year, close to the midpoint of our range. And excluding the $15 million of land and other small miscellaneous expenditures, our capex for the fourth quarter totaled $268 million.

Now turning to Slide 10, WPX enters 2020 with financial strength that is highly coveted across the industry, obviously having superior assets is part of the equation to achieving these types of financial metrics. However, you must have an operational team like we have here at WPX, a bias for action and a commitment to managing the health of the balance sheet. I had a board member tell me back in 2014, debt tariffs can come at you a lot faster than what you anticipate. Two years ago, we started thinking about how to manage our 2022 maturity. We developed a game plan to refinance, pay down and stayed committed to getting ahead of our peers across the industry who would be facing maturities during the same time period. Being a step ahead is what we pride ourselves on here at WPX and what we will continue to be. With leverage at roughly 1.5 turns, an undrawn credit facility and no significant debt maturity until 2023, we are in great shape.

We have also been active commodity risk managers over the last several years. Our approach to managing commodity risk has not changed and one we will continue to do so. For 2020, we have approximately 70% of our expected oil production hedged with fixed price swaps and collars. Inclusive of the hedges that were put on for the underlying Felix production, our 91,000 barrels per day swap position has an average price over $57 a barrel. We also have an additional 20,000 barrels per day hedged through a collar with a $53 floor and a $63 cap.

I'm very pleased with the steps that WPX team has taken in getting us to the financial position that we are in today. Our team understands how to work together to win. From Clay's operational folks to the transactions Bryan Guderian's business development team has pushed through to the legal support provided by Dennis Cameron's staff to the work Angela Kouplen's team has done on the IT and HR front, and the reliable and consistent work my F&A team brings to the table, we know how to get things done here at WPX. We know how to manage risk and we know how to be opportunistic.

With that, I'll turn it back to Rick for some closing comments.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thank you, Kevin. Before we conclude the prepared remarks, I'd love to reiterate a few key points. Number one, our assets are performing very well as evidenced by our 2019 results. Number two, the Felix transaction is on track to close soon. Those assets are quickly approaching the expected 60,000 Boe per day of which 70% is crude oil. We've already seen several opportunities to develop these assets even more efficiently. I can't wait for our team to get the keys to the car.

Number three, our focus on generating attractive free cash flow for shareholders is of extreme importance to our team. We'll strive to seek the proper balance between free cash flow, moderate growth and efficient capital spending. Number four, our plan to implement a sustainable durable dividend during the third quarter of this year is on track. Additional free cash flow could be earmarked for opportunities like share repurchases or variable dividends.

Number five, our oil production is strong and getting stronger. Our margins are strong and getting stronger. Our balance sheet is strong and getting stronger. And number six and finally, what WPX has accomplished in the last six years is simply second to none in our sector from a transformational perspective. You should expect more top tier performance from us in the future as we deliver much needed energy to a complex world in a safe, efficient and responsible manner.

At this time, we can now open the lines up for questions. And I'll turn it back over to the operator.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Gabe Daoud with Cowen. Your line is open.

Gabriel Daoud -- Cowen -- Analyst

Hey. Good morning, guys. Thanks for the prepared remarks. And maybe starting with Felix, I think looking at Stateline in 4Q maybe producing around 43,000 Boe a day net from, call it, 150 wells or so. So, in 1Q, you mentioned some of the large pads coming on. Is that, I guess, 40 wells or so to get you up to that 190 number you mentioned at the acquisition? And then, Clay, you had also mentioned perhaps spacing is a bit too tight on some of these. Has been -- has productivity been risked within the expectation to get up to 60,000 Boe a day?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Yeah, Gabe. Several questions. I'll try and address them and then I'll let you clarify what I didn't get to. Yeah, the three pads that we're bringing on -- Felix is bringing on right now is a total of about 46 wells. They are in the number to get us to 60. They are a risk to get us to 60. I just want to throw that cautionary note in there. What we've learned throughout 2019, we're actively kind of up-spacing our wells to the point that we're already seeing results from that.

I just want to make sure that we -- that you knew that we probably have that in our plans. That is baked into the inventory count that we've talked about most recently, and it's also baked into some of our guidance. How it all materializes over time, once we get our arms really around the asset, we'll be able to better talk firsthand about the actual performance and where we go from here.

Gabriel Daoud -- Cowen -- Analyst

Got it. Thanks for that. That's helpful. But -- OK, so it sounds like you did -- maybe in the 2020 guide you baked in some productivity improvements at least on WPX legacy within that volume guide. Is that right?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Yeah. I would say definitely. We have baked in some risk into the wells that we know were spaced very tight. I think we have a pretty good handle on the legacy assets and how they perform in the four to five wells upside case. We've seen that in the past. We see it in the most recent examples. But inevitably is you're bringing on -- you're moving for the Felix assets from 150 wells to nearly 200 with all at the same time you're about to close the asset. I'm an operations guy. I always throw a little cautionary risk out there just things do go bump in the night. So I want to make sure we have a little cover on that.

Gabriel Daoud -- Cowen -- Analyst

Got you. Got you. Okay. Thanks. That's helpful. And then, just to follow up, just given the rig additions on the legacy Permian position and then the rig drop in the Bakken, how should we think about production and capital cadence as you move throughout 2020?

Clay Gaspar -- President and Chief Operating Officer

Yeah. So, we're actively adding rigs right now in our legacy Delaware assets. As Felix rolls in, it'll be a flat five-rig cadence. And so, you're moving two seven rigs in the Delaware legacy, flat five in Felix, so combined to 12. You'll see a little bit of a growth profile in the first quarter on capital, and then you'll see kind of essentially a flat second, third and fourth quarter beyond that. Of course, you've got the disruption of close and partial months and partial quarters to deal with.

Williston, we're starting the year with three rigs, mid-year will drop to two rigs, and continue that cadence from there. On a completion standpoint, it should be relatively steady. I would say maybe fourth quarter we actually slowed down a little bit relative to the other quarters.

Gabriel Daoud -- Cowen -- Analyst

Great. Thanks so much, Clay.

Clay Gaspar -- President and Chief Operating Officer

You bet. Thank you, Gabe.

Operator

Thank you. Our next question comes from Neal Dingmann with SunTrust. Your line is open.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Morning, Rick and team. My first question plays for you on the well design. I'm just wondering, you all have been very proactive to space your well or your multi-zone pads properly to ensure adequate returns on each of these wells, and I'm just wondering -- or each of these pads. And I'm just wondering, could you speak how the latest plunge in oil prices might impact your upcoming pad designs or if it will?

Clay Gaspar -- President and Chief Operating Officer

Yeah. Good question, Neal. I think we look forward to getting our hands on the Felix assets. They're doing some really cool stuff that I think we'll be able to bring in to our way of thinking and vice versa. I think your question specifically around commodity price, I would say, look, we plan all of our activities in a $50 world. We're not too terribly far from $50 right now. But Rick mentioned in his prepared remarks, we've got great flexibility to dial back to more of a maintenance capital mode. What we spelled out in this environment you can see is a little bit of a growth mode, still generating free cash.

And in referencing back to my prepared remarks, all of these conversations that we regularly have and we'll have again later today and this week and the balance of the month start and end with free cash flow. We want to make sure we protect that. We're thoughtful about how do we continue to drive that year-over-year. The great news is, we have the flexibility to do that and we don't take that for granted. That's -- it's kind of a rare commodity in the business today.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Great. And my second question might involve Kevin on allocation of capital. While your stock certainly held up better than others, certainly still looks attractive here. I'm just wondering could you all talk about how the lower equity price might play a factor with capital allocation when comparing this alternative to the incremental activity or your new dividend, etc?

Kevin Vann -- Executive Vice President and Chief Financial Officer

Yeah. I mean, obviously, Neal, we talked about, as Clay mentioned, we develop the capital plan around $50 WTI and pulled back a little bit farther than $50 where we currently stand today. It's relatively new, say, within the last week. But obviously we are prepared for this in terms of how we evaluate share repurchases, and our hedge book gives us that flexibility to still continue to generate free cash flow in 2020. So, if the underlying well performance, if it doesn't make sense to continue to grow at a roughly 10% pace or cadence, then we can pull back on that and reallocate some of that capital to other means of returning value to shareholders. And obviously the implementation of the dividend in the third quarter is one thing, but having the opportunity and flexibility to buy back shares in this environment, we'll continue to look at and see what that return is versus growing at that same rate.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Yeah. I love the flexibility. Thanks, guys.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thanks, Neal.

Operator

Thank you. Our next question comes from Derrick Whitfield with Stifel. Your line is open.

Derrick Whitfield -- Stifel -- Analyst

Good morning, all, and congrats on a strong quarter and exceptional execution, particularly in such a challenging environment.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thanks, Derrick.

Derrick Whitfield -- Stifel -- Analyst

For my first question, I wanted to clarify a couple of comments on the Stateline asset. Perhaps for Clay, regarding your new development or co-development type curves, could you confirm the EUR uplift from wider spacing is reflected in those type curves and that the inventory is consistent with the inventory you noted in the Felix acquisition presentation?

Clay Gaspar -- President and Chief Operating Officer

Yeah. Thanks for that clarification, and it's yes to both. Yes, the 4 to 5 spacing is contemplated in the 1 million, 1.4 million, 1.75 million type curves, and the inventory numbers that we just put out are reflective of the same numbers as well. As I mentioned, these numbers show up in state data pretty late after we make these changes. The original -- the 19 wells contemplated in 2018, the 20 wells that we're bringing on now really all contemplated in 2019. So we've been on this case for, I would say, nine months or so in earnest.

Derrick Whitfield -- Stifel -- Analyst

Great. And then, as my follow up, I'd like to focus really on a bigger picture topic that Rick brought up in his prepared comments. So, perhaps for you Rick. We've been somewhat amazed by the speed at which the ESG conversation is evolving. It's clear to us, US independents are positioned to deliver hydrocarbons and certainly a clear and more efficient manner than generally the balance of the world. In light of the current political environment, could you share with us your broad views on this topic and how your business -- how you think your business should be evaluated from an ESG perspective?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Yeah. It's a good question and it is an issue that is on the minds of management teams and boards. It's on the minds of investors, banks, just really the whole arena, if you will, around energy production. And from our perspective, we're pleased with some of the dialogue that we are involved with and it comes in several areas.

Number one, some are trade groups that we have that were associated with, were involved with. Three, distinct trade groups were ESG is, for the most part, one of the pre-eminent topics of discussion. And so, we're -- number one, we need to make sure that we start talking kind of the same length which understand things. And we understand what are the best sources of issues like disclosure, things like that. So, something that I've asked Clay to really take a big lead on especially with our operating sub-organization is something that we're focused on, I call say, I'm focused on it, of course focused on it. And certainly Clay is working to show a lot of leadership here internally to WPX.

I'll turn it over to Clay.

Clay Gaspar -- President and Chief Operating Officer

Yeah. Derrick, I appreciate the question. And to add a little bit more granularity to Rick's comments, I mean, we are fully engaged in this conversation. This is internal/external conversations. The third parties that Rick mentioned we've actually engaged an environmental consultant to help kind of steer us through this maze. As you well know, it's pretty unchartered territory. There's a lot of different standard, quote semi-standards out there, and just even trying to navigate that is a bit -- can be a bit overwhelming. We want to make sure that we are taking the right steps as we take these steps forward.

Last year, we published our first ESG report. Soon, we'll publish our second ESG report. You'll see a nice step change. This is not an end product. Certainly, with the consultants, very high priority is to help us understand the right disclosures and how much do we put out. It's an infinite amount of data. Even small things that we take for granted aren't measured consistently, aren't captured consistently around the industry, and even from standard. So, we want to make sure that what we're reporting that's viable -- that's verifiable and consistent as we continue to roll that forward.

We have an internal ESG committee headed by our director of EH&S. And then, she reports -- she pulls together a larger group from around the company. We've also restructured one of our board committees, the Nom and Gov Committee, to have a heightened awareness of ESG. I'll tell you, we just had our board conversation earlier this week. There was a very large percentage of our conversation around ESG. And don't think of it as just a negative. We honestly believe every negative out there at WPX, we have an opportunity to really take a step forward and to leverage. And so, we see this as an opportunistic opportunity for us. And just know that we want to do things right. I mean, Rick, Kevin and I are all landowners. We're all -- we all have kids. We -- by definition, we're environmentalist. We want the world to be a better place to live. In my prepared remarks, we talked about relationships. All of that comes into the greater ESG focus where we want to make sure what we're doing is we're taking the right steps to move proactively in the right direction and help drive the communication.

I'm incredibly proud of our industry and the great things that we do for humankind both quantity and quality of life. So that can't be lost as well. It is an important thing that we do, and we're very proud of it. We also want to make sure that we're always looking to get better. So thanks for that question.

Derrick Whitfield -- Stifel -- Analyst

I agree and thanks. Very helpful, guys, and thanks for your thoughtful response on the matter.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thanks, Derrick.

Operator

Thank you. Our next question comes from Brian Singer with Goldman Sachs. Your line is open.

Brian Singer -- Goldman Sachs -- Analyst

Thank you. Good morning.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Good morning.

Brian Singer -- Goldman Sachs -- Analyst

On the Felix integration, one of the points that you talked about on Slide 5 was leveraging WPX's marketing agreement as well as the current takeaway agreements. And I wondered if you could talk a little bit more to that and the impact that that could have, if any, to the cost -- to the overall cost structure per Boe?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thanks, Brian. I'll let Greg Horne address that, our VP of Midstream and Marketing.

Greg Horne -- Vice President, Midstream and Marketing

Sure, Brian. Right now, Felix has a major relationship with a midstream company that is well-known throughout the industry and that we have a significant previous experience, we have very good experience. And currently, most of those barrels will end up in Midland with -- where Midland markets are for the foreseeable 12 to 18 months, we're anticipating that most of those barrels stay there. We are in active discussions to pair up and expand some of our relationships and agreements that get further downstream and that effectively hit the water and export market. So we'll continue to work on those. You'll hear more about those as the year moves on.

Clay Gaspar -- President and Chief Operating Officer

Yeah. I would just add just a brief comment about it. I mean some of the stuff is you don't just instantly put our existing contracts that we put in place a couple years ago on top of the Felix deal. That's not possible. You are limited to what's available today. You saw us proactively move from the time of signing to close more than 26,000 barrels a day, $57.80. We've locked that down. Those are kind of some thoughtfulness. Those are kind of steps that we put in place. You'll see our hedging program more reflective of 150,000-plus barrels a day and some of that stuff just takes a few quarters to really bake in. But I think the creativity that our team has shown around getting gas to market, getting oil to market.

And again, I see that as an ESG thing. We have been -- we have worked exceptionally hard to underpin a lot of projects that would not have made it otherwise to build infrastructure, critical infrastructure, to make sure the gas is not flared that it is sent the market. So, we take a lot of pride in that and will continue to do that in time.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you. And then my follow-up is with regards to the Bakken and the Wellston Basin. On Slide 7 you highlight the type curve improvements that you've seen over the last couple of years. When you think about the inventory that's left in the tank or you think about the 2020 program, how do you expect the well productivity to look?

Clay Gaspar -- President and Chief Operating Officer

Yeah. One of the things we've done is, we've drawn some kind of subareas on that map with the idea in mind that this is -- we've tested this area. You can see what areas we've drilled each year and then what we plan on drilling in 2020.

And it tends to be kind of 2018, 2019 similar activity. And so, I will put it in that category and tell you we always risk that back. Williston has some crazy weather at times, and there's always things that kind of -- or challenges associated with overall production. But when you just lay it out year after year, that continual improvement isn't going away. We're going to try and continue to drive down well cost, LOE, improve netbacks and ultimately improve production to create value to the bottom line.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you.

Clay Gaspar -- President and Chief Operating Officer

Thanks, Brian.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thanks, Brian.

Operator

Thank you. Our next question comes from Leo Mariani with KeyBanc. Your line is open.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Yeah. Hey, guys. Just a question on your 2020 production guide. Couldn't help to notice that you guys didn't change the guidance despite the fact that looks like you're going to be closing Felix roughly a month early. So just kind of wanted to get a sense of what's going on. Is that just a conservative stance just based on uncertainty around the timing?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Appreciate the question, Leo. Yeah, a simple math would say the number would go up. I drew caution to those three big pads, 46 wells that are coming online. It's a big unknown. And not operating the wells, not having things in your hand, it adds another layer of complexity. We thought it was prudent this time to make sure we didn't get out too far ahead of our skis on this. So we maintained it at 160. Expect in the first quarter call, we'll be able to add a lot more color on how those wells are performing. The flowback [Phonetic] technique that we've talked about with investors before, we're going to approach it the same way with these wells.

Will that evolve over time? I would fully expect that it would but not in the first quarter. But you know, having run the spreadsheets in million times, what happens in the first quarter and that first three, four months of the year just dictates the rest of the year. So, any kind of upset bubble in that could have meaningful impact. So we just want to make sure and be thoughtful about how we projected.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Okay. That's helpful for sure. And I guess just to follow-up on that line of thinking here, you certainly mentioned that 46 wells were not operated by you folks. I guess you're looking to close Felix hopefully in a few weeks. When do you guys expect that you'll be able to get in there and begin drilling and fracking WPX operated wells on the Felix acreage and when you think the kind of soonest timeframe those wells could start to come on line and make an impact for WPX would be?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Just generally speaking, it's about a six-month or so procedure when you say, OK, here's what I want to do and then let me see it show up in the meter in the tank. So that's kind of just a rough timeline. Now, we are influencing -- as I mentioned, the Felix team has been great to work with. They're wide open to suggestions. We're doing some tweaking but you're playing the cards that are dealt. And once the wells have been drilled, spaced, landed, you can't change that. And so, think of the first three months or so of that in the spacing period and then the second three months is kind of the operations of executing the drilling completion and then bringing the wells on line. So, three months from now, we'll actually be drilling wells with WPX stickers on them. Six months from now, we'll be bringing on wells with WPX 100% thoughtfulness around it.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Okay. That's helpful. And I guess you guys also were good enough to give us some updated EUR assessments at Stateline. Just wanted to get a sense, if you look at 1.5 and 2-mile laterals, how would you expect those to be different on the Felix assets? I know those are oilier. How would -- how are you going to be looking at EURs on that area?

Clay Gaspar -- President and Chief Operating Officer

Yeah. I would say, that's -- three years ago or four years ago or five years ago, I think we were having conversations about we're drilling 1 mile laterals now, how do you see this scale up? And the numbers that we've thrown out just as rules of thumb when you double up the length of the lateral, you end up with about 70% or so increase in EURs, OK, maybe 50% to 60% increase in IPs. You'll see an increased cost of 1.3 or 1.4 times. I think all those numbers are kind of holding up to what we're seeing. So, I would extrapolate that to the Felix as well kind of same way of thinking, but you hit the nail on the head. It's really a higher oil cut. So you're getting higher percentages of oil. That usually has a little bit negative impact on Boes, but it's value accretive. So, as we started thinking about Boe type curves, 1.75 million barrels as an example for Stateline, as we push over to the Felix assets higher oil cuts, if it's 1.5 million barrel type curve, no, that's very competitive with the Stateline 1.75 million.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Okay. That's helpful. Thanks, guys.

Clay Gaspar -- President and Chief Operating Officer

Thank you, Leo.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thank you, Leo.

Operator

Operator: Thank you. Next question comes from Brad Heffern with RBC. Your line is open.

Brad Heffern -- RBC Capital Markets -- Analyst

Hi, everyone. Appreciate the earlier comments about pulling back potentially in lower commodity prices. I was just wondering if you could discuss where that activity might come from. Obviously in the Bakken, you have shorter inventory life and so maybe you could extend that, but then the Permian obviously has more activity to cut. So any thoughts around that? Thanks.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Yeah, Brad. I think the comments were really meant to be somewhat global or higher level. We would actually go in. Clay's talking about what we're actually seeing with the true Felix results. We would just have to step back and look at the Bakken versus legacy versus the Felix of where you would trouble a little capital. And so, we just have to go through that, evaluate. You have things that come into play like differentials, and maybe the Bakken differential either grows or contracts and that kind of has an impact on you.

Typically, if you look at our 2020 capital program, our Bakken is at the top of the heat from a return standpoint. So you wouldn't think you would cut there necessarily first. But the true answer is, we would just have to go in and very rationally think through and evaluate, replace [Indecipherable]. I don't know Clay if you have any other thoughts there?

Clay Gaspar -- President and Chief Operating Officer

Yeah. I appreciate that, Rick. I just had a little bit. As oil price moves, obviously the Williston being 80% to 85% oil moves even more dramatically. So, $5 swing in Stateline isn't nearly as impactful as the $5 swing in Williston. So we definitely take all of that into account. Just a global statement to think about, this Felix acquisition, one of our most important objectives in doing this was to acquire more oily inventory.

We get that we are limited on Williston inventory. We love that asset. We have -- we would love to have more of it. But the reality is, we've got a couple of hundred wells left to drill. So, as we've kind of feathered that rig cadence, I can tell you that having more oily inventory via Felix kind of frees us up to just look at returns and be a little bit more objective about, hey, here's the best opportunity for us to create value, deliver that value to the bottom line and less concerned about shape of the well curve and oily inventory as you move from oily Bakken to less oily Stateline. Now you've got a midpoint in between.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Yeah. And one thing I'll just add is that the hedge position that we have in 2020, the need to react, some of the companies that are out there that don't have the hedge position that we have gives them less flexibility in terms of how quickly they need to move in order to really make money. I think when you think about our hedge book coupled with just the returns that we can get on our wells at $50 oil, now obviously it's trending below $50 oil now, and we'll be looking at it. But we have a lot more flexibility to kind of watch this thing, but we will react as quickly as we need to in order to optimize value to the shareholders

Brad Heffern -- RBC Capital Markets -- Analyst

Okay. Thanks for all the color. And then, I guess, on the up-spacing topic. I was just wondering if there has been a change in completion intensity. Have you moved higher given that you have more sort of areal extent to ticket after with the wider spacing?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Yeah, Brad. The short answer is yes. I mean, you'd never make any of these changes in a vacuum. You look at well costs. You look at productivity. You look at commodity price. All those factors play in. And as you space wells out, you certainly would adjust the completion design to optimize. That's kind of your secondary NAV. Your first NAV will be well spacing. The finer tuning would be the completion design itself, and then there's some very small subtleties beyond that.

Brad Heffern -- RBC Capital Markets -- Analyst

Okay. Thank you.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from Asit Sen with Bank of America. Your line is open.

Asit Sen -- Bank of America -- Analyst

Thanks. Good morning. I have one for Clay, one for Rick. Clay, I appreciate all the details on moderating capex. You're obviously well hedged for 2020. But philosophically, how long do you have to be in a sub-$50 environment to think about adjustment or make adjustment? And you earlier mentioned about -- talked about maintenance capital. Any early thoughts on maintenance capital post-Felix?

Clay Gaspar -- President and Chief Operating Officer

Yes. So, the first question is, how long until we think about it? I can say it's -- we instantaneously think about it. You gave me a little bit of a pass from that one. How long until we act? It just depends on how the numbers roll out. Kevin made an excellent point. We get that shock absorber of 70% hedge. That allows us to be more diligent and be more thoughtful to protect that free cash flow that we have clearly stated we will achieve this year. But we will see how it rolls out over time. We have a lot of flexibility in our contracts, rig contracts in particular that if we need to make a change, we can. But we are not saying that we are dropping rigs today. We're going to be clear. We are evaluating that. We have that flexibility, but we will continue to watch and be very attuned to that.

The follow-up or not follow-up, I guess, parts -- part B of your first question is around maintenance capital. I would say, for 2020, we're somewhere around $1.3 million, maybe $1.4 million, depending on what Felix rolls in, just a hold that as of March 6 flat for the year. I feel good about those numbers. I think that we can -- obviously when you fast-forward one year, that drops down in '21 to probably closer to $1.2 million, maybe $1.3 million, just so you get a little bit flatter decline with the lower pace of activity, and that's well within our bandwidth.

Again, just for clarity, we are not saying that's our plan today but know that we have that capability, and that would be something I think in the right conditions the market would appreciate as well.

Asit Sen -- Bank of America -- Analyst

Appreciate the color, Clay. And Rick, on cash return to shareholders, in this new environment, how are you thinking about the efficacy of buyback relative to dividends? Perhaps update us on your current conversation with investors and your personal views on this topic.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Sure. So, from our perspective, I think that if you ask the lion's share of investors out there, I think the preference would lead you to a good solid growing durable dividend. And I think that's what we hear probably from more investors on. And then, followed by, I think, an increasing discussion has been on a case where you do have incremental free cash being generated, something that came to a variable type dividend. And so, there's -- we've had quite a lot of dialogue with some of the larger investors. And so, we're monitoring that. We're modeling some of those sort of things.

And then, certainly the -- from a share buyback program that we implemented last year, having that in your [Indecipherable] so to speak, when you have these times where it just appears to be somewhat irrational, I think that would probably be the third of importance for us but certainly a wonderful tool to have it. And so I think it's out ranked. Number one, a good solid durable base dividend that will grow over time. Once again, that compete with S&P-type dividend within a few years. And then number two, excess free cash would be a variable dividend of some degree followed by the share repurchase.

Asit Sen -- Bank of America -- Analyst

Appreciate the color, Rick. Thank you.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Charles Meade with Johnson Rice. Your line is open.

Charles Meade -- Johnson Rice -- Analyst

Good morning, Rick and Clay, and to the whole team there. Clay, if I could go back and ask a question about this up-spacing and really -- when do you expect or when we should expect to see any effects. My understanding is, if you look at these, when you go back to wider space and you look at it on a rate versus cum chart, you don't really see any difference in upfront rate, but that this -- maybe this curve starts to diverge after six, eight, nine months depending on what the change is. Is that the right way to be thinking about the time frame for these pattern -- spacing partnerships to roll through?

Clay Gaspar -- President and Chief Operating Officer

I think, to be very thorough in your evaluation, you need six, nine, 12 months. But our experience is, you can see this earlier. I mean, even 30 days in, you can see some of the communication between the wells, the interference region for the same barrels, so to speak. And so -- and we've seen that, and you can see that especially in a vertical sense. Remember, we're thinking three dimensionally especially in a place like the Delaware, where you may have communication in a vertical sense and less in a horizontal. The vertical end communication could happen a lot quicker, maybe even instantaneously depending on how you stack and stagger those wells and how your frac develops vertically.

Now, horizontally you're relying on that matrix permeability for the transmissibility of the wave to happen. And that can take a certain amount of time. And so, I would say, yes, for a more thorough look, but we watch it much quicker and I would say you can see it much quicker as well.

Charles Meade -- Johnson Rice -- Analyst

Got it. That's helpful, Clay. And then if I could roll that theme to the next question going back to this really big sized wells that Felix is bringing on, it's going to increase their gross well cap by a third. And that would be interesting even if there wasn't a transaction going on, right? But you have the added layer that you guys are going to be taking control of these wells.

So, you mentioned earlier that maybe you'd have something to say probably around 1Q reporting two months from now. Is that the anticipated timeframe that you think you will be able to see you're anticipating some vertical communication that you're going to be able to see whether it's there or not or are we going to have to kind of wait later before you guys make a judgment on the efficacy of their spacing and how you're changing over time?

Richard E. Muncrief -- Chairman and Chief Executive Officer

All right. So, few things there, yes. I would say, we will have to communicate to the market a much firmer number around the Felix assets and we will have much more information early March -- or excuse me, early May when have our first quarter call. So I feel like we will have a much better understanding.

But back to part A of your question, the six to nine to 12 months is really important to kind of fully get your arms around it. I think we have enough experience both in the Felix area and Stateline that our tendency especially in a $50 strip would be to widen these out. And like I said, Felix is on the case as well. The wells that we're drilling -- that were drilled and that will be bringing on next that could be drilled in the [Indecipherable], those two pads are spaced a little wider. We do have higher expectations and ultimately need to compare cost benefit analysis on both scenarios.

Charles Meade -- Johnson Rice -- Analyst

Thank you. That's helpful insight to your thinking.

Richard E. Muncrief -- Chairman and Chief Executive Officer

We're thinking.

Operator

Thank you. Our next question comes from Kashy Harrison with Simmons Energy. Your line is open.

Kashy Harrison -- Simmons Energy -- Analyst

Good morning and thanks for taking my questions and all the thoughts just on everything from ESG to the guidance sensitivity. I guess I only really have one for Kevin. Can you provide us a free cash flow? You show free cash flow $200 million plus, that's $50. And I think in the past, you had showed us a $55, $60 case. But given where we are, I have to ask the dreaded question. Can you show us a $45 sensitivity? What free cash flow will look like and then maybe what free cash flow will look like at $40?

Kevin Vann -- Executive Vice President and Chief Financial Officer

Yeah. So at $50, I'll say that we're -- conservatively we're staying a little over $200 million, I would say. If you could kind of benchmark that to around $250 million, the $200 million that we referenced is post dividend implementation. But at the same time, I think for every $5 move in crude, you can kind of just anticipate about another $70 million plus up or down depending on whether or not that price goes up or down. But $70 kind of sensitivity to $5 movement for us. [Phonetic]

Kashy Harrison -- Simmons Energy -- Analyst

Got it. You'll still be generating free cash flow at $40 then?

Kevin Vann -- Executive Vice President and Chief Financial Officer

Absolutely.

Richard E. Muncrief -- Chairman and Chief Executive Officer

And remember at $40 flat, I would say we will probably making pretty significant changes in the capital program. So, we're not just relying on blindly going in, hey, we're hedged this year. You threw out the $40. I would say that's different than the $49 and change that we're seeing in the current environment.

Kashy Harrison -- Simmons Energy -- Analyst

Appreciate the color, guys. Thank you.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thank you.

Clay Gaspar -- President and Chief Operating Officer

Thanks, Kashy.

Operator

Thank you. Our next question comes from Jeff Grampp with Northland Capital Markets. Your line is now open.

Jeff Grampp -- Northland Capital Markets -- Analyst

Good morning, guys. Thanks for squeezing me in. I'll just keep it to one as well. I was hoping to get some kind of updated thoughts for you guys in regards to the longer term midstream strategy. And I guess in particular how you guys kind of view it in the context of the free cash flow dividend component of the WPX story. And maybe if any potential rationalization of the asset could make sense at some point in kind of the medium term for you guys.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Yeah. Jeff, we still have cards to play on that. And we're evaluating a lot of different options. We still own a very significant water business. We own a very significant gas gathering business all at Stateline. And then the bolt-ons from the other areas as well are kind of nice adders. We are always in conversations. One of the real advantages of having done some pretty unique deals is your name kind of gets out there is somebody that's willing to do pretty unique deals. And so you get to see more unique deals come your way. And so, it's kind of a bit of a self-fulfilling prophecy and we want to make sure that we are always open to creating value that could be in various forms that we've exhibited before or maybe something new we haven't done yet. So you tied it to cash -- to free cash flow dividends and all that.

What we try and do is we try and separate out the new opportunities and the disposals or the divestitures as kind of separate from core business. We really think about it as commodity price production, all the cost structure generating free cash flow making sure that that supports sustainably our dividend, sustainably our buyback program and generates cash flow above and beyond that. Now, if we end up selling an asset, I don't think that really kind of checks the box for us nor if we were to do some kind of deal, a bolt-on where we've considered that a free cash flow impact.

So, I think we think about that a little bit in two different buckets but very disciplined about making sure that we have a sustainable, durable generation of free cash flow to support the core activities.

Jeff Grampp -- Northland Capital Markets -- Analyst

All right. I appreciate the time, Clay. Thanks.

Clay Gaspar -- President and Chief Operating Officer

Thank you.

Operator

Thank you. And our final question comes from Jeffrey Campbell with Tuohy Brothers. Your line is open.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Good morning and congratulations on slide too.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thanks, Jeff.

Clay Gaspar -- President and Chief Operating Officer

Thank you.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Clay, when you mentioned the relationship between spacing and commodity price sensitivity, I just want to make sure I understand what you're talking about. Does that surround a drop in capital efficiency with the tighter spacing and you're saying that any potential wasting of the capital becomes less tolerable in a lower price environment or is there something else?

Clay Gaspar -- President and Chief Operating Officer

Well, wasting of capital is not tolerable in any price environment. What I would say is, when you're chasing -- think of it in these terms, when you're chasing $100 barrels, you can put a whole lot of effort and you could put a lot of capital to chase that. When you're chasing $50 or even worse $40 barrels, you need to be a much more disciplined. And so when you have two wells reaching for the same set of barrels, the interference or the communication between wells is more tolerated in higher price environment. As you move down the commodity price, you need more unique barrels for each well and you make sure that you have little to no well interference because the economics just can't support it. Does that help?

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Yeah. I think we're on the same wavelength there. I just want to make sure -- you referred to it a lot. I just want to make sure I understood it. It looked like you had some very nice realizations and costs in the quarter. I was just wondering since you get asked about midstream all the time. So I'm wondering to what degree is that supported by midstream assets that you own and how would that be affected if you sold them?

Richard E. Muncrief -- Chairman and Chief Executive Officer

Greg?

Greg Horne -- Vice President, Midstream and Marketing

Yeah. I'll take a stab at that, Jeffrey. So, a lot of the realized prices are supported by the midstream assets that we own from the joint venture with the Howard Energy Partners folks in our legacy asset to -- we have transport positions that move out of the Bakken as well. And if you think about the Bakken realizations there -- realizations have been very strong in the Permian. Just the nature of the Bakken right now with kind of takeaway are such that we're really looking for those to improve as you get toward the end of this year and then early '21 with a couple of new projects coming online, clearing more barrels out of that basin. So that will be a good story for the Bakken. But if we were to sell these midstream assets, I don't see a big impact to our cost structure. We're already paying gathering processing and transportation our legacy asset. So, the other one to think about is water, and we operate our water system now. And we think we do it somewhere around market rates. So I'm not sure that we see a big impact there as well.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Okay. That's a good color. I appreciate that. Thank you.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And there are no further questions at this time. I'll now go ahead and turn -- go ahead.

Richard E. Muncrief -- Chairman and Chief Executive Officer

Okay Thank you, operator. And for those of you still on the call, thank you very much. I know it's a busy day with several calls ongoing, but would like you to be left with this. Number one is that the WPX team is focused. We're working hard to make sure that we can generate free cash flow this year. We're excited about the Felix transaction and what it does to us. And just know that in a 150,000 barrel of oil a day operation, it gives you a lot more flexibility than we have had in the past. So we're excited about the future. Good luck to you and have a great day.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

David Sullivan -- Director, Investor Relations

Richard E. Muncrief -- Chairman and Chief Executive Officer

Clay Gaspar -- President and Chief Operating Officer

Kevin Vann -- Executive Vice President and Chief Financial Officer

Greg Horne -- Vice President, Midstream and Marketing

Gabriel Daoud -- Cowen -- Analyst

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Derrick Whitfield -- Stifel -- Analyst

Brian Singer -- Goldman Sachs -- Analyst

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Brad Heffern -- RBC Capital Markets -- Analyst

Asit Sen -- Bank of America -- Analyst

Charles Meade -- Johnson Rice -- Analyst

Kashy Harrison -- Simmons Energy -- Analyst

Jeff Grampp -- Northland Capital Markets -- Analyst

Jeffrey Campbell -- Tuohy Brothers -- Analyst

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