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PDC Energy Inc (NASDAQ:PDCE)
Q1 2020 Earnings Call
May 9, 2020, 11:00 p.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 PDC Energy First Quarter 2020 Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker for today, Mike Edwards, Senior Director, Investor Relations. Sir, you may begin.

Michael Edwards -- Senior Director Investor Relations

Thank you. Good morning, everyone, and welcome. On the call today, we have Bart Brookman, President and CEO; Lance Lauck, Executive Vice President; Scott Reasoner, our Chief Operating Officer; and Scott Meyers, Chief Financial Officer. Yesterday afternoon, we issued our press release and posted a slide presentation that accompanies our remarks today. We also filed our Form 10-Q. The press release and presentation are available on the Investor Relations page of our website, pdce.com.

I'd like to call your attention to slide two of that presentation and our forward-looking statements. We will present some non-U. S. GAAP financial numbers today, so I'd also like to call your attention to the appendix slides of that presentation, where you'll find the reconciliation of those non-U. S. GAAP financial measures.

With that, we can get started, and I'll turn the call over to our CEO, Bart Brookman. Bart?

Barton R. Brookman, Jr. -- President and Chief Executive Officer

Thank you, Mike. Hello, everyone. I want to begin this call by expressing my deepest appreciation to the medical workers, first responders, truckers, farmers, oilfield workers and all those frontline heroes who have stepped up during this crisis. And to the PDC employees, thank you. Through this tumultuous time, some of it incredibly painful, you have hunkered down at home, helped modify our business plan, are efficiently implementing our resilient strategy, you have truly delivered. Thanks to your efforts, we are confident PDC will survive this downturn and be firmly positioned for a strong rebound in 2021.

Today, I will leave the quarterly highlights to Scott Reasoner and Scott Meyers, while I outline the decisive actions we have taken to ensure the long-term viability of PDC. First, thanks to our long history of conservative balance sheet management and strong risk mitigation programs. As highlighted on slide four, PDC was well positioned to enter the turmoil in this difficult market. I am proud of this track record and our disciplined approach toward running the company, you can expect this to continue. Then recognizing the depth of this market correction, we have made several tactical moves around our drilling and completion programs. By cutting capex approximately 50%, we expect our capital spend to be $500 million to $600 million, while we slow our corporate operating pace to one Wattenberg operating rig and no frac fleets planned until the fourth quarter. This is the slowest capital pace for the company in many, many years.

Next, the PDC organization has been through dramatic and sometimes painful changes. Besides a work-from-home transition in mid-March, we have implemented a reduction in force, modifications to the organization, significant adjustments to compensation, and a deep scrutiny of every dollar spent. We have worked with every vendor as we pursue cost reductions. These actions have resulted in lower capital structure on a per-well basis and lower corporate operating costs.

Additionally, as commodity prices plummeted, coupled with expanding differentials, we began a detailed evaluation of shutting in the company's production. This is a first for PDC. Well by well, pad by pad, we focused on cash flow optimization in each basin. This resulted in anticipated production shut-ins ranging from 20% to 30% over the next several months. And we maintain the flexibility to keep production shut-in as we go through the balance of the year, depending on market conditions.

I'd like to thank the marketing, engineering, production and strategy groups for their insightful and thorough approach to this ever-changing evaluation. Today, you will also get an update on another key component of the company's viability, our bank line. We've recently reaffirmed our commitment level of $1.7 billion, giving us over $1 billion of liquidity and considerable financial flexibility. I'd like to thank all of our banks for their ongoing support of PDC, particularly this year, given the unique market conditions.

So in the end, what do these critical decisions and tactical moves add up to for PDC? As my team will explain on the call today, our ability to generate free cash flow estimated to be over $200 million for years 2020 and 2021 combined. Ample liquidity to run our business, and industry-respected leverage ratio as we go through the next two years, competitive free cash flow yields and an organization with assets and capability to prosper as we enter next year.

With that, I'm going to turn this call over to Lance Lauck, who will provide some clarity on our shut-in decisions in the current marketing and midstream commitments.

Lance A. Lauck -- Executive Vice President Corporate Development and Strategy

Thanks, Bart. Given the level of extreme uncertainty and volatility in today's commodity price environment, caused in large part by the global COVID-19 pandemic, I want to take a few moments to discuss PDC's approach to production curtailments, while also providing an overview of our firm marketing midstream commitments. Beginning on slide seven, you can see that PDC implements a multifaceted analysis to arrive at our anticipated curtailment during this demand-destruction period of time. There are several factors in that analysis, including firm transport, fixed and variable LOE, gatherer/processor fees, lease obligations and commodity mix.

However, the analysis begins with our projected netback pricing. We arrived at our realized netbacks by first making a projection for NYMEX. Then we take out all of our expected deducts, including crude quality, the roll and transportation deducts as well as TGP then to arrive at a realized netback price. As global oil demand has substantially deteriorated in the recent months, NYMEX crude oil prices have followed suit. Second quarter has declined nearly 70% from first quarter levels, such that we're projecting just $15 per barrel oil. Added to the low NYMEX has been the extreme widening of both the quality and roll deducts as crude oil storage continues to build toward capacities over the coming weeks and months.

The combination of low NYMEX and high differentials have put substantial pressure on realized netback pricing, especially in the second quarter. We project both of these price movements as well as the corresponding projected realized netback for the coming quarters in the table on the right of the slide. The second quarter is projected to be most negatively impacted quarter, delivering low single-digit netbacks. As a result, we've projected 20% to 30% production curtailment on a BOE basis over the next few months. For the second half of the year, PDC anticipates a slight improvement in realized netbacks from both an improving NYMEX oil price and tightening deducts.

So we've assumed less curtailment during the third quarter and little to no curtailments in the fourth quarter. Keep in mind, however, that the market is still very dynamic, given the demand destruction that our industry is currently experiencing and our projected production curtailments could change. But know that we're well prepared to manage through it, whether prices stabilize or further deteriorate. One of the key takeaways from this slide is that our updated 2020 free cash flow guidance of more than $125 million is based on the assumptions shown on this slide.

On slide eight, we've outlined our gross, oil and financial commitments by quarter in 2020 and on an annual basis for both 2020 and 2021. PDC's strategy related to marketing and midstream agreements is to enter into a variety of contracts with different volume and time commitments to ensure that a meaningful portion of our oil and natural gas production has firm transportation to various end markets. These contracts are written on a gross basis, meaning our working interest partners are responsible for their portion of the cost once we produce and deliver the product. However, PDC is responsible for any deficiency payments should we fail to meet the gross committed volume of a given contract. The purpose of this slide is to not only summarize our firm commitments but to also provide the magnitude of potential minimum margin and deficiency payments based upon two example production curtailment levels.

First of all, for each quarter, we have a contractual minimum margin fee with our primary Wattenberg midstream provider related to their two most recent gas plant expansions. Based on projected oil and NGL pricing within our midstream POP contracts, we project this minimum margin payment to be approximately $10 million per quarter. This payment is based on pricing and only begins to have an additional volume deficiency component should we shut in significant volumes on their system. The second component is related to our corporate production curtailments, where we're showing two examples: 25% and a very high side, 50% of our projected volumes in any given quarter.

In these two scenarios, our deficiency payments are projected to be a very modest $5 million to $8 million per quarter. Then when you combine both our midstream and marketing payments based upon the 25% and very high side 50% level, they are relatively modest and range from a total of $15 million per quarter, up to $18 million per quarter. At our projected 20% to 30% curtailments over the next few months, we'll be toward the lower end of the total payment range on a quarterly basis. Then in the second half of the year, we'd expect the total payments to trend down a bit further.

With that, I'll turn the call over to Scott Reasoner.

Scott J. Reasoner -- Chief Operating Officer

Thanks, Lance, and good morning, everyone. Before I give an overview of our results and updated guidance, I want to also thank our entire team for the tremendous work they've all done this year, but particularly in the last few weeks. The price world, Lance just described, has not only led to an incredible amount of change to our operating plan, but a tremendous amount of work and analysis from the team. We appreciate your flexibility through these times. Obviously, most of the focus is on our strategy and plan moving forward, but in terms of the first quarter, results were largely in line with our expectation and the integration with SRC has continued to progress in a very smooth manner.

Our capital investments for the quarter of $260 million were below our expectations due to better-than-anticipated well costs in each basin. Meanwhile, LOE per BOE of $2.94 was in line with our expectations and included a Wattenberg rate of approximately $2.75 and a Delaware rate of under $4. For the rest of the year, our per-BOE spend has a little bit of variability associated with our ultimate levels of shut-ins. So as you'll see in a moment, we're providing guidance on an absolute spend basis instead. Finally, overall production and particularly oil production were in line with our expectations.

Moving to slide 11. We provide a bit more detail on our revised guidance, which was provided in early April. Our anticipated capital investments for the year are between $500 million and $600 million. This figure represents a decrease of approximately 50% from our originally published range of $1 billion to $1.5 billion back in February. Additionally, our first quarter investments equate to nearly half of our new total year projections.

Given the various moving parts throughout the second quarter, we wanted to help triangulate the cadence of our expected spend the rest of the year, which, as you can see, is expected to be less than $150 million in the second quarter, less than $50 million in the third quarter, and more than $100 million in the fourth quarter. With this new plan and the pricing outlined by Lance, we're proud to be able to project more than $125 million of free cash flow for the year. Given a modest outspend in Q1, this implies a strong level of free cash flow through the rest of 2020.

Finally, in terms of production, our overall ranges are unchanged since our supplemental update in April. However, the current estimate does point toward the possibility of June curtailments exceeding those of May, which are at 20% to 30%. Both production and oil production estimates for the remainder of the year are extremely fluid and subject to change. Given the overview landscape on our firm transportation, we are prepared to make revisions as market conditions dictate, which could include changes to our corporate GOR as the price outlook fluctuates.

Now slide 12. In the Wattenberg, we're expecting to invest approximately $450 million on the year, leaving just over $200 million remaining when factoring in what we spent in the first quarter. The updated plan includes running one rig through the second half of the year and taking a break from completions through the third quarter and should product prices cooperate, resume in the fourth quarter. With the change in activity, we expect to exit 2020 with approximately 200 DUCs, which is an increase of approximately 35 compared to our original guidance. These DUCs continue to provide tremendous flexibility to accelerate completions and/or reduce drilling, depending on the macro conditions.

On slide 13, we cover our Delaware capital program, which, as you can see, is effectively done for the year. We released our completion crew back in March and just finished drilling and released the rig for the year. Our team was making some tremendous strides in terms of drilling days and D&C costs early in the year, so we're all excited to get back to work when we can. The current plan includes us turning in line seven wells in the third quarter. However, the dollars for that project have already been invested.

With that, I'll turn the call over to Scott Meyers.

R. Scott Meyers -- Chief Financial Officer

Thanks, Scott. And I'm incredibly proud of the tremendous teamwork and flexibility displayed in the first quarter as we've all adapted to the new work environment. To complete our first quarterly close using our new SAP system, while predominantly working from home is a great accomplishment for the accounting and IT teams. There has also been a tremendous effort from a variety of departments running the countless scenarios in an effort to produce our updated guidance. I truly thank these incredible teams for all they do for PDC.

In terms of the first quarter results, we provided both GAAP and non-GAAP numbers on slide 15. As a reminder, all of our non-GAAP reconciliations can be found in the appendix. Sales between periods were effectively unchanged at $320 million. This really highlights the price deterioration we've seen in our realized price of $19 per BOE, is down 34% between periods, completely offsetting the 50% production increase which was obviously driven by the SRC merger. In terms of G&A, our all-in expense for the quarter was approximately $62 million or $3.69 per BOE.

These numbers include $20 million of associated SRC deal cost incurred in the quarter as well as approximately $5 million related to the SRC integration. Excluding only the $20 million of deal cost, would have resulted in a run rate G&A of $2.50 per BOE, which will be an improvement of nearly 25% compared to the first quarter of 2019. We project another $5 million of integration expense in the second quarter before getting to a run rate G&A of approximately $30 million per quarter in the back half of the year.

Finally, in terms of free cash flow, we ran a deficit of $50 million in the first quarter. Once again, this includes $20 million of deal cost. However, it's important to note that our original guidance excluded that expense, which would have resulted in an outspend of only $30 million this quarter. As Scott alluded to, we project free cash flow neutrality in the second quarter before generating strong levels of free cash flow in the back half of the year.

Turning to slide 16. You could argue this is the most important slide in the deck in an environment such as the one we are in. At the end of the quarter, we had just over $550 million of net debt, resulting in a liquidity position of $1.1 billion. Earlier this week, we completed our semiannual redetermination of our borrowing base, which resulted in our top line adjustment from $2.1 billion to $1.7 billion. However, we were able to maintain our commitment level of $1.7 billion. We really appreciate the support of our bank group. With our only near-term maturity being $200 million convertible note in September of 2021, we feel very comfortable with our combined liquidity position and free cash flow projections over the next couple of years.

In terms of hedging, you can see our oil positions alone currently have an approximate value of $500 million. For 2020, you can see we're pretty well insulated from NYMEX oil volatility for the remainder of the year as 75% of our updated guidance is covered at a weighted average floor price of $58 per barrel. Meanwhile, in 2021, approximately 30% of our projected volumes are hedged at a floor price of $50 per barrel, with a weighting toward the first half of the year. As a reminder, all of our hedges are swaps or costless collars and we also provide more quarterly detail in the appendix.

As Scott mentioned, you can see on slide 17 that we've updated our cost guidance for both LOE and G&A, and we provided the estimates in absolute dollars as opposed to per BOE. For G&A, we expect to spend between $135 million and $140 million on the year. This is a decrease of more than 10% compared to the original guidance and a decrease of more than $50 million compared to the SRC PDC combined 2019. As a reminder, this range includes our stock-based compensation and SRC integration expenses but excludes the deal costs.

Finally, I want to quickly cover our multiyear outlook before turning the call over to Q&A. As you will see, we will project strong free cash flow over the next two years of more than $225 million which equates to approximately 20% of our current market cap. Combined with the $82 million of proceeds from the Eagle Claw payment expected later this quarter, we expect to have the ability to retire debt while maintaining favorable leverage metrics in a depressed commodity price world. There's obviously a lot of uncertainty in today's market.

At PDC, we take pride in consistently showing our multiyear outlook and demonstrating both the flexibility and the commitment to achieving our publicly stated goals. Look for this to look for us to continue to adapt while emphasizing our strength of our balance sheet with an eye on generating consistent and sustainable free cash flow for the foreseeable future.

With that, I'll turn the call over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] First question comes from the line of Will Thompson with Barclays. Your line is open.

Will Thompson -- Barclays -- Analyst

Hey, good morning everyone.

Barton R. Brookman, Jr. -- President and Chief Executive Officer

Good morning.

Will Thompson -- Barclays -- Analyst

PDC, I believe, had some recent experience reactivating some shut-in production with a bunch of the SRC well shut-in related to the DCP gas line pressures. Just curious if you can talk to your experience with that. If you how the oil has come in response to reactivating those wells and just how that's playing into your plan with the shut-ins?

Scott J. Reasoner -- Chief Operating Officer

Yes. This is Scott, and I'll take a shot at that. I think the plan that we had in place was to return those wells to production, the SRC wells I'm speaking to, particularly, as the line pressure came down last fall and into the winter, and that went very effectively. We are I guess the point that I want to make there is the SRC did a really good job of shutting in wells. They shut in the wells that produce the highest amount of gas relative to the oil, with the idea that gas was they didn't have a lot of extra capacity there. So they were focused on oil. So when we turned those wells on, they were the gassier wells that they had in their operations. We got those wells online. And obviously, at this point, we're looking at shutting those some of those wells or reducing flow, maybe a better way to say it, in some respects, but reducing flow on some of those batteries as well as a bunch of the old PDC historical wells.

So that's really what we're looking at. We've had good experience doing it. The wells seem to perform after being shut in at the level you would expect. And I think that's something that we really appreciate as we go into this process that we have that kind of information to rely on to give us more comfort in this decision as we go forward. But really, overall, our team did a really effective job of returning those wells to production and with the shut-in process for May, have done a great job of reducing the flow necessary to meet the requirements. Basically, our marketing team is working hard to get those volumes projected out into the future, but our teams in the field have done a good job of managing that and are well prepared to bring the wells back online when that time comes.

Will Thompson -- Barclays -- Analyst

That's helpful color. And then as you highlighted, you maintained your $1.1 billion of liquidity post the semiannual redetermination. You added some hedges for the first half of 2022. I know one of your peers mentioned moving to a more systematic hedging program to preserve its borrowing base. Just curious how proactive you plan to be with hedging further out and just how much that what the thoughts are there in terms of going into 2022 already?

R. Scott Meyers -- Chief Financial Officer

Yes. I mean, when we look at our hedging, again, we look to make sure we can preserve our liquidity and protect ourselves. We do not look at hedging as a money making opportunity. So when we look at various scenarios that we run to make sure we stay well within all the compliance of our debt covenants and to give us the flexibility to continue to operate. We deemed it prudent to go ahead and protect ourselves and did add in some hedges during the first quarter. I'll just say that we'll continue to look at the situation from time to time.

We feel pretty good about, obviously, what we have hedged right now for 2020. We'll continue to look for an opportunity if we deem it to make sense for us but really look more forward to 2021 and some '22 over time. We don't we're not in a rush because of the way the balance sheet has been set up and our projections, we feel pretty confident, but at the same time, we like having the extra protection out there. So we'll look to continue to add when we deem warranted.

Will Thompson -- Barclays -- Analyst

Thank you.

R. Scott Meyers -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Welles Fitzpatrick with SunTrust. Your line is open.

Welles Fitzpatrick -- SunTrust -- Analyst

Hey, good morning. Those DUCs in the DJ, can those essentially, if they've either been top hole or completely drilled, can those essentially stay in that state indefinitely? Or is there some other type of ticking clock like the two years on permits that we should be aware of and looking for?

Scott J. Reasoner -- Chief Operating Officer

Yes. Well, this is Scott. And I there is not an indefinite amount of time on those. The next phase series of phases require some mechanical integrity testing and I believe that time frame is in that two years in the future. I'm saying believe because I'm not absolutely sure. But we do if we leave those wells sit for some period of time, we do have to do some mechanical integrity testing, but it's not like an imminent type thing. So really, we've got a substantial amount of time really to deal with those. Nothing that's pressing us at all. It's much more of a decision around the economics and when is the right time to get started again with the completions.

Welles Fitzpatrick -- SunTrust -- Analyst

Okay. Okay. Perfect. So kind of two years on the permits and then another two, that seems great. And then I think I know the answer to this, but obviously, it's hard to collect signatures these days. Can you give any updates? Do you think we're I don't want to say out of the woods, but do you think the situation is getting better vis-a-vis the ballot risk?

Barton R. Brookman, Jr. -- President and Chief Executive Officer

Yes. I Welles, it's a great question. And I wouldn't classify us out of the woods, but we know the opposition has some proposals on setbacks and financial assurance out there. We're hearing rumors that they're contemplating the signature collection process. I would state that, that process in a COVID world is going to be incredibly difficult. So I think it's going to be a wall for them as far as trying to collect those signatures effectively. I think everyone knows, I think they need right at 125,000 valid signatures, so they probably need to collect around 200,000. And they normally did that in very crowded venues like flea markets and fairs and things like that. So those are not events that are happening right now in the Colorado or across the country. So I think all that leans in our favor.

Welles Fitzpatrick -- SunTrust -- Analyst

Well, good. No. Any silver lining to this situation is welcome now sir, thank you for the question.

Barton R. Brookman, Jr. -- President and Chief Executive Officer

Yeah. Thank you.

Operator

Our next question comes from the line of Dun McIntosh with Johnson Rice. Your line is open.

Dun McIntosh -- Johnson Rice -- Analyst

Good morning.

Barton R. Brookman, Jr. -- President and Chief Executive Officer

Good morning.

Dun McIntosh -- Johnson Rice -- Analyst

A quick question on the shut-in. Kind of can you provide some color about how those are split maybe between the Wattenberg and the Delaware? And we've heard some of your peers talk about maybe bringing volumes back on in June, but it sounds like you all are pretty set with keeping those in through June. So I just your thoughts there and maybe what it would take to bring those on a little earlier? Any color would be appreciated.

Lance A. Lauck -- Executive Vice President Corporate Development and Strategy

This is Lance. When we go through the shut-in analysis, we actually and we project this 20% to 30%, that includes wells shut-in in both basins. And so we're looking at while the roll is the same in both basins, the two areas have perhaps different quality deducts on the crude. So that has to be factored in. And of course, we look at the operating costs on a well-by-well, pad-by-pad basis. So both areas have curtailments in the numbers that we're looking at. As far as what we look at as far as reducing curtailment over time, the key driver on this is just is the netback that we're projecting going forward.

And so as we look at oil sales for now the month of June, we start to look at the differential pricing that we're seeing there, coupled with the NYMEX pricing, and then we start to project, OK, what will be the netback from what we project for the next month. And then based on that, we've got some tremendous modeling that our operations teams runs through to then say, OK, based upon that netback oil price and then the associated gas and NGL prices as well, run that through and say, OK, what should the actual curtailment look like in both areas. So as the differentials improve, as the NYMEX improves, as we lock that in for the company, that's when you'll see us to reduce the amount of curtailments obviously, going forward.

Dun McIntosh -- Johnson Rice -- Analyst

All right, thanks, that's it for me.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Leo Mariani with KeyBanc. Your line is open.

Leo Mariani -- KeyBanc -- Analyst

Hey, I just wanted to quickly expand on the answer to the last question. Certainly, I understand it's price dependent on the decisions to bring back the shut-ins. It certainly looks to me that you guys are running a relatively draconian downside case price forecast here. In 2020, I certainly hope it plays out to the upside there. But can you be a little more specific? And if we kind of get to a $35 WTI world, say, in the next couple of months, do you think all these shut-ins will probably end? What can you kind of tell us about sort of the right price point to start bringing the curtailed volumes back online?

Lance A. Lauck -- Executive Vice President Corporate Development and Strategy

Yes. Leo, what we've said in the market just to start is that while we're looking at 20% to 30% as far as our projections that we have for this year, we project that the third quarter will be much less shut-in at the $25 per barrel numbers that you see on slide seven. And then also for the fourth quarter, as we see more of the deducts improving, we expect very little shut-ins in the fourth quarter. So your case at $35 per barrel, I have the first look and see what the differentials do to make sure what that netback looks like. But with that, expect to see most all of our production coming back online within the whole company. And that's assuming there's not some unforeseen tremendous widening of those differentials that we talked about.

Leo Mariani -- KeyBanc -- Analyst

Okay. That's very helpful color. You guys mentioned in your prepared remarks here that of course, you reserve the right to adjust your guidance here in 2020. But I guess the one thing you mentioned is there could be an adjustment to the GOR guidance. Just wanted to see if you can provide any more color as to what might be thinking and what the variables are, kind of move that up and down here?

Scott J. Reasoner -- Chief Operating Officer

Yes, this is Scott. And I think that that's a really good question. And that's part of what, as Lance has described, for instance, the process of shutting in wells. One of the key factors in understanding which wells to shut-in and which wells to produce, comes around the GOR. And as those prices fluctuate in a relative sense between oil and gas, you start changing your expectations of which wells you produce. So if oil drops very low and gas is very high, we're going to produce the highest GOR wells that we have and vice versa as those prices, if they would shift the other way. That really is the factor that plays into that when you start managing this.

And the teams are prepared to make those adjustments as we go through the quarter or through the year, whatever is required, and it's a really important part of the mix of production that we have. We're not a gas-alone company, and we're not an oil-alone company. It really is a good combination that allows us that flexibility.

Leo Mariani -- KeyBanc -- Analyst

Thanks. It's very helpful. Thank you.

Operator

Our next question comes from the line of Michael Scialla with Stifel. Your line is open.

Guillermo Huerta -- Stifel -- Analyst

Good morning and thank you for taking my question. This is actually Guillermo stepping in for Mike. Maybe you could provide some additional color on base decline in 2021 under the current development plan?

Scott J. Reasoner -- Chief Operating Officer

Yes. As a company, in general, we haven't come out with an official sort of base decline for our company. There's just so many factors that go into that, that cause that to have a pretty wide range of outcomes. And part of that is, for example, say line pressures drop in the Wattenberg field, and that will be favorable for flattening of the decline. So but as you look at over the next two years, 2020 and 2021, we're looking at a volume hit of around 63 million barrels equivalent for this year. That's about approximately a 10% decline from our pro forma 2019 numbers.

I think from there, look for us to continue going forward to have slow, steady build in production over time. That's methodical. That is really an output, though, because what we're really driving here is free cash flow so that we can then reduce our debt over time. And so that's our key focus that we have. So that's our focus. And so think of production as an output and the capital programs that you're seeing, it's kind of the flat to very, very modest kind of growth going into 2021.

Guillermo Huerta -- Stifel -- Analyst

That's really helpful. Thank you.

Scott J. Reasoner -- Chief Operating Officer

Thank you.

Operator

I'm showing no further questions in the queue. I will now turn the call over to Barton Brookman for closing remarks.

Barton R. Brookman, Jr. -- President and Chief Executive Officer

Yes. Thank you, operator, and thank you, everyone, for your ongoing support. And everybody from PDC hopes that everybody out there is healthy. And we look forward to getting back to the new normal one of these days. But again, thank you for the support.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Michael Edwards -- Senior Director Investor Relations

Barton R. Brookman, Jr. -- President and Chief Executive Officer

Lance A. Lauck -- Executive Vice President Corporate Development and Strategy

Scott J. Reasoner -- Chief Operating Officer

R. Scott Meyers -- Chief Financial Officer

Will Thompson -- Barclays -- Analyst

Welles Fitzpatrick -- SunTrust -- Analyst

Dun McIntosh -- Johnson Rice -- Analyst

Leo Mariani -- KeyBanc -- Analyst

Guillermo Huerta -- Stifel -- Analyst

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