Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Cimarex Energy Co (NYSE:XEC)
Q2 2020 Earnings Call
Aug 6, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Cimarex Second Quarter 2020 Earnings Release Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Karen Acierno, VP of Investor Relations. Please go ahead.

Tom Jorden -- President and Chief Executive Officer

Thanks Danielle, and good morning, everyone. Once again welcome to our second quarter 2020 conference call. An updated presentation was posted to our website yesterday afternoon. You may reference that presentation on our call today. So just as a reminder, our discussion will contain forward-looking statements. A number of actions could cause actual results to differ materially from what we discuss. You should read our disclosures on forward-looking statements in our news release and in our latest 10-K for the year ended December 31, 2019, for the risk factors associated with our business. We plan to file our 10-Q on Friday, August 7.

Our prepared remarks will begin with an overview from our CEO, Tom Jorden, followed by a few comments from Cimarex s CFO, Mark Burford. Blake Sirgo, VP of Operations will then provide a brief operational cost update. Also present on the call to answer questions is John Lambuth, EVP of Exploration.

As always, and so that we can accommodate more of your questions during the hour we have allotted. We'd like to ask that you limit yourself to one question and one follow-up. Feel free to get back in the queue, if you like.

So with that, I'll turn the call over to Tom. Thank you, Karen. And thanks to all of you for joining us on the call. Thank you to your interest in Cimarex. The second quarter was a wild ride. I want to acknowledge the tremendous dedication and professionalism of our organization. This was particularly evident in the second quarter during, which most of our office staff worked remotely; our field staff scrambled to manage production shut-ins while achieving outstanding safety performance, and we scrubbed every element of cost structure to preserve cash and maximize cash flow. We began staging our office workforce back in May and currently have approximately half of our office workforce back. We are cautiously pleased to report that we have not had a single occurrence of work place transmission of COVID-19. This includes office and field. During this time with the dual challenges of business downturn and health crisis, our employees have given it everything they have. They have responded with drive, creativity, team work and willingness to examine every aspect of our business and response to these challenges. I'd like to acknowledge this tremendous effort and express my personal thanks to each and every member of our team. It is been an interesting earnings season thus far. Clearly, most of us in the independent ENP sector are embracing the new demands of Shale 3.0. During this call, you'll hear a refreshed outlook from Cimarex; as we look ahead to 2021 and beyond, we're setting goals for ourselves and crafting long-term plans that allow us to focus on generating free cash flow, growing our dividend; decreasing our debt and demonstrate that our assets can sustain a financially responsible future that puts our shareholders first. The days of investing every bit of our cash flow for maximum growth are gone. Our long-range plan involves spending a reduced portion of our cash flow 70% to 80% as a target, and generating significant free cash. Our plans for 2021 and beyond are based on the assumption of $35 NYMEX oil and $2.50 cents NYMEX gas, with which we can maintain our production; grow our dividend and generate free cash in excess of our dividend. Commodity pricing in excess of $35, $2.50 assumptions will allow the opportunity to accelerate our free cash generation. Mark will discuss this in more detail. We are also examining every aspect of our cost structure. This includes capital expenditures, operating costs and G&A. Blake will provide an update in our capital and operating costs. We have made great progress here, but we have more work to do. During our last call, we were in the midst of a curtailment of 20% of our production volumes. Our decisions on curtailment were the result of detailed analyses of our fixed and variable lease operating expenses, as well as a deep dive on well specific marketing netbacks. Our technical teams analyzed reservoir performance and concluded that for the majority of our reservoirs, our wells could be shut-in or curtailed without damaging their long-term producibility. This freed us to make decisions solely based upon economic considerations with confidence that the production would rebound once we brought the wells back online. We also had the luxury of few production volume commitments; so our shortfall penalties were minimal. We are pleased to report that our curtailed and shut-in production has come back as predicted; hats off to our technical team for calling this one right. Our financial health remains strong. During the second quarter, we generated almost $50 million in free cash flow, $26 million after paying our dividend. We remain committed to our dividend and fully intend to sustain and grow it over time. It is important to our Board and important to our management team that we not cut or suspend our dividend during this downturn; so far so good. We are on track to exit 2020 having generated over $250 million in free cash flow before our dividend or $150 million in free cash flow inclusive of the dividend. We incurred no incremental borrowings through the first half of 2020. We are committed to reduce our net debt over time. We have no borrowings in our revolver; $1.3 billion in unused liquidity and no debt maturities until 2024. Prior to our last call, we had reduced our drilling program to a single rig and released all of our completion crews. We discussed our intention of bringing some rigs back during the summer with the option of also bringing completion crews back sometime during the late summer or fall. Although, we are not out of the woods yet, we are sufficiently confident in the stability of the commodity markets to get back to work. We currently have three drilling rigs deployed in the Delaware Basin and will stage a fourth rig in early September. We plan to add two frac crews in early September as well. Although, we're not ready to provide granularity regarding 2021, I'd like to take the opportunity to make a few directional comments. Our plans will generate increased capital efficiency in 2021 and beyond. This is driven by three primary factors. First, we will modestly draw down our duck inventory during 2021. This will not be a major driver of capital efficiency, but it does bear mentioning. Secondly, our cost structure has improved, and we are getting more bangs for our bucks. Blake will provide additional detail here. Third, we fully expect to achieve better average well productivity going forward. Our program for the remainder of 2020 and beyond will be dominated by development projects. We are relaxing our well spacing based upon recent learnings. We have collected a great deal of data that has led to a working hypothesis that it is more efficient to relax well spacing and compensate for it by modestly increasing completion effort. We think we can recover the same ultimate recovery out of a given drilling spacing unit with fewer wells. Thus where we once modeled our Delaware Wolfcamp asset at 8 to 10 wells per drilling spacing unit; we now think we can recover the same volumes at 7 to 9 walls per drilling spacing unit. This has significant implications to our capital efficiency. Before we leave the Delaware Basin, I'd like to make a few comments regarding federal permits. Our preliminary plans for New Mexico drilling for the next three years, that's 2021 through 2023, include wells on approximately 5,000 net federal acres. Federal permits are good for two years and are renewable for an additional two years. Although, these extensions have been routinely granted; there's no guarantee that this will be the case in the future. We are confident in our approach to federal permitting, but it would be misleading to claim an inventory beyond two years. Cimarex is confident that the BLM will continue to grant and renew drilling permits in New Mexico, but this is not without risk. Fortunately, we have the ability to pivot our Delaware Basin program to our Texas assets, which have a deep and profitable inventory life. Don't be surprised if we modestly increase our Anadarko capital in 2021. We have some tremendous opportunities in our Anadarko assets. This opportunity is well calibrated and competes heads up with our Delaware Basin program. Although I would not expect it to be more than 10% to 15% of our total drilling and completion capital; our hunt for returns makes this an obvious choice. Finally, before I turn the call over to Mark, I want to offer a few quick comments on ESG. We have not let up in our environmental goals for 2020 nor will we. We are reducing our emissions, reducing and eliminating flaring; analyzing data analytics on spills to identify systemic root causes and eliminate them, and constantly reinforcing our safety culture. Our commitment to these initiatives arises from our core values, which do not rise and fall with commodity pricing. With that, I'd like to turn the call over to Mark to give you more details on our financials.

Mark Burford -- Senior Vice President and Chief Financial Officer

Thank you, Tom. Our second quarter results demonstrate the immediate steps we took to maintain our financial health by reducing our capital investment, cutting cost and preserving cash flow. As Tom discussed, by mid-May we released all but one drilling rig and halt the completion activity, reducing capital investment from $284 million in the second quarter down 69% from the first quarter levels. Our total cash operating cost comprised of LOE, transportation, production taxes and G&A decreased 12% sequentially from $7.09 per BOE in the first quarter to $6.92 per BOE in the second quarter. The first half 2020 G&A cost includes severance expense of $14.5 million for employees, who elected to participate in a voluntary early retirement program offered in the first quarter this year. This program will result in approximately 10% reduction to our staff and ultimately save $25 million on an annual basis.

Also this quarter, we received hedge cash settlements of $64 million and year-to-date we received $107 million. For the first half of 2020, we generated $450 million of cash flow and $35 million of free cash flow after the dividend. For the balance of the year with resumption of activity, we project 2020 capital to be approximately $600 million in line with our guidance assuming an operational restart. With our completion activity starting September on multi-well pads, we do not have any new operating wells coming on production in Q3. We expect to have 10 net wells brought on in Q4, which are coming on late in the quarter and would contribute a minimal amount of production; approximately 3,000 barrels of oil per day for the fourth quarter.

We do have strong momentum heading into 2021 with resumption of completion activity. Assuming similar capital levels in 2021 as 2020, $35 WTI and $2.50 Henry Hub gas, we can generate free cash flow and access our dividend and keep annual year-over-year production flat to slightly up. When we finalize announce our 2021 budget, we expect to target a capital reinvestment rate of 70% to 80% of cash flow. As we look out over the next several years with a strong underlying asset base and cost structure, we expect to generate free cash flow in excess of a growing dividend $35 WTI with flat to modestly increasing production. We expect to be -- at higher prices expected bank significantly higher free cash flow, with a clear goal of having more than sufficient cash to retire $750 million to 2024 notes which is our nearest maturity.

With that I will turn the call over to Blake.

Blake Sirgo -- Vice President of Operations

Thanks Mark. Despite the recent improvement in oil prices, we find ourselves in a lower commodity environment than we had planned. Cimarex is continuing our relentless focus on every piece of the value chain. There is not a dollar invested or spent that our organization is not constantly trying to optimize. We are seeing the fruits of these efforts show up in our results. Our operational environment looks much different than it did a year ago. Our current drilling and completion costs are down 23% versus our full year 2019 cost on a per foot basis. 75% to 80% of this reduction is driven by lower vendor pricing. The remaining is driven by innovation and reengineering. As we are bidding out drilling rigs and frac crews, we are seeing day rates coming in 20% to 30% lower compared to a year ago. We are also continuing to make strides and efficiency in all parts of our operation.

Drilling days in our Upper Wolfcamp program are down 17% year-over-year driven by pad drilling and offline cementing. Our simulation team continues to raise the bar on performance with our 2020 completed fee per day up by 33% for the same design from a year ago. We continue to focus on every piece of our capital investments, including things like wells per pad versus directional cost; central tank batteries versus flow line cost, and facility sizing versus peak rates. When we deliver a dollar per foot on a project, we are seeing the amalgamation of all those decisions and every piece of capital it took to bring that development online is included. As a result, we are acing new projects at an average of $800 to $900 per foot across our Permian program.

This average includes well costs that vary by area. For instance, in our Culberson County program, we are executing projects at $750 to $800 per foot compared to our LEA County program which is coming in at $900 to $1,000 per foot. Greece County falls right in the middle at $800 to $850 per foot. Cimarex's Q2 lifting cost is down 21% from a year ago. We have received rate reductions in services like rental compression, chemical and roustabout while also reducing our work over activity. We are also seeing new innovations from our ops teams to reduce cost in the field, by using automation and real-time analytics; we have been able to implement a risk-based pump by exception program. This allows us to monitor our operations with closer scrutiny, but with also less manpower.

In short, we are doing more with less. Nowhere is this more evident than in our contract labor costs, which are down 58% from a year ago. This same focus on field efficiency is showing up in our Cimarex operated midstream assets, which moved 42% of our total company gas and disposed of 62% of our total company water. Because we own and control these strategic assets, we can be flexible and control our costs in times like these versus being beholden to a contract with a fixed fee that escalates over time.

We have been able to release unneeded compression, renegotiate compressor rental rates; invest less capital and optimize manpower in the field. These valuable assets continue to provide margin expansion and market optionality. When we look across our value chain, we see our cost structure improving at every level. While we can't control where market pricing goes; we can control our efficiencies and execution. Our operations team remains focused on finding new ways to reduce our cost structure and push against the status quo. Thank you.

Tom Jorden -- President and Chief Executive Officer

Danielle, I think that we're open up for a question-and-answer session.

Questions and Answers:

Operator

The first question comes from Gabriel Daoud of Cowen. Please go ahead.

Gabriel Daoud -- Cowen and Company -- Analyst

Hey, yes. Good morning, everyone. I appreciate all the remarks so far. I guess, Tom, maybe starting with slide 16 and the long-term plan that you guys have kind of articulated. I guess how does the $600 million in capital kind of evolved past 2021; particularly as you look to spend 70% to 80% of your cash flow and you also talk about a potentially mid-signal digit oil growth number?

Tom Jorden -- President and Chief Executive Officer

Well, long-term planning is a little difficult right now. Quarter by quarter is certainly unpredictable, but we're looking at a $35 flat price and how we lay out our long-term plan in 2021. Our capital will float up and down obviously with the pricing, but our marker is that 70% to 80% of cash flow and really our strategic goal are generating maximum free cash and in particular we want to have cash on hand to retire those notes. We can't underscore that. We're going to do that. That's really a marker we've thrown down for ourselves. And it's one that we are absolutely dedicated to achieve.

Now we're also dedicated to achieve a discipline. We understand loud and clear the new mandate upon us and upon our sector; and so what slide 16 is meant to illustrate is what that discipline looks like at $35 price. We don't do a very good job of predicting the price; but we do a good job of is maintaining discipline. Mark, you want to add anything to that?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Gabe. I would just add that our capital as we go out into the years -- future years, we're trying to target that 70%-80% as Tom mentioned, and it will fluctuate as Tom said. But there's a little upper trend as you go out into the future years with that capital. But we are staying at 70% to 80%, that's how we're trying to target it.

Gabriel Daoud -- Cowen and Company -- Analyst

Got it. Thanks guys. And then maybe just as a follow-up. I guess Tom elaborating a little bit on your spacing comment. I guess what have you seen thus far from -- perhaps from a productivity standpoint and I guess what does this mean for your Delaware Basin inventory that does you kind of tighten spacing from 8 to 10 per section to 7 to 9 as you mentioned.

Tom Jorden -- President and Chief Executive Officer

Well, I'll take those in reverse order. We've recently done a very deep refresh on our inventory. And we're quite pleased with the depth of our inventory. I mean we -- I think it's probably no surprise that we don't view that we have an inventory problem. And that's given us the luxury to focus more on financial performance rather than reservoir capture. We try a lot of things and we've got a real science emphasis here at Cimarex. And we've really pushed our teams to over the last few years to focus on reservoir not leaving any wasted resources, recovery and reservoir efficiency. And we try a lot of things. We have a lot of successes and we make a lot of mistakes. I will say that as we look back on our program on 2019, I think we push spacing a little too aggressively and probably saw more well interference than we think we need to achieve.

So in analyzing the data of our own program and the science we've collected, we have decided that the depth of our inventory gives us freedom to relax at spacing; achieve greater capital efficiency and focus those assets on long-term financial performance as opposed to long-term reservoir efficiency.

Operator

The next question comes from Arun Jayaram from JPMorgan. Please go ahead.

Arun Jayaram -- JPMorgan Chase & Co -- Analyst

Yes. Good morning. Can you hear me? I just wanted to make sure. I wanted to see if we could talk a little bit about 2021 and some of the outlook comments; you kind of left us some breadcrumbs around 2021 citing how oil production could be flat to up a little bit. We did the math assuming your $35 breakeven to cover capex in the dividend thus we could see strips at $45, Tom, today for next year if you produce 76 and odd thousand barrels a day that would equate to call 28 million barrels of overall production, which would support call --approaching $300 million of free cash flow. So, first, I wanted to see if my math was in the right ballpark and talk to us about how you're contemplating dividend increases versus paying down some debt as you articulated in the prepared comments.

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. Arun, I'll start off and then maybe Tom will want to finish it fill in any gaps but with the 2021 using the strip price and I guess we use the strip price of a few days ago like high $43 strip and $2.74 gas and your statistic around $300 million of free cash flow after the dividend is -- that is very logical, Arun. So, yes, we could be generating significantly more free cash flow if the strip is to be trusted which we've been obviously become a little reluctant to put too much weight on the strip really focusing on flat price cases, which we think are really defendable and that's where we're trying to plan around it's flat price cases.

Tom Jorden -- President and Chief Executive Officer

Yes and again, Arun, I'm always going to leave ourselves a lot of wiggle room here. We haven't announced 2021 capital but what Mark's quoting you the plans were guiding to discuss around our real plans with real assets, I mean, we've got a material plan that we think we can stand behind. But I'll take the second part of your question. What do we do with free cash? First and foremost, we would like to have enough free cash to call those notes. And I know that you can look at the pace of that and say, well, if you can generate that much cash in a given year, that's more aggressive and yada, yada. But we'd like to get that cash; cash doesn't spoil. It'll be just fine sitting waiting for those notes when they're callable.

Now as far as when that happens and as we look at the strip, I would concur with your core observation that it will happen sooner than later. If the current strip holds and a lot of contingencies there, but we'll give you that point. We are in the business of working for our shareholders. And so I think you would see us want to increase our dividend over time and then there's been a lot of talk this season about a variable dividend. That's an interesting concept. I will say that we haven't had a chance to kick that around in the boardroom. But the concept is one that I think is very consistent with our philosophy. So I don't really worry that that cash is going to be poorly deployed. I think we understand what our requirement is working for our shareholders. But first and foremost we want to generate it.

Arun Jayaram -- JPMorgan Chase & Co -- Analyst

Great and just my follow-up, Tom, you mentioned a reinvestment level for Cimarex at a 70% to 80% of CFO, I just wanted to see if you could provide a little bit more commentary around that. Is that a target at mid cycle or how do you think about that reinvestment level just given the vagaries and ups and downs of the energy cycle?

Tom Jorden -- President and Chief Executive Officer

Yes. I don't know what mid-cycle means. It's like what part of the roller coaster do you think was average. We think at fairly anemic prices, we can live within 70% to 80% of our cash flow. And obviously, we're defining $35 as a degree of anemia. But I think the more important point, Arun, is that we will not return to an era of let's put the pedal to the floor and do everything we can.

Now you might say, wait a minute, what if prices go to 65? Are you still going to invest 70% to 80% of your cash flow? Our goal is -- I'm going to return to our DNA here. Our goal is to make prudent investments and generate great returns on invested capital. Now I want to separate that from what we do with free cash flow regenerate, but our DNA has not changed. We fundamentally run this company based on prudent investments. And cash flow is a consequence of good investment decisions not a primary driver. But we would like to grow our cash flow over time. I mean, so if we're saying we're shareholder friendly, we want to return cash to our shareholders. I think it's also reasonable add on to say, and we'd like to increase our capacity to do that thing over time. And so that's where that 70% -80% kind of comes from is we're going to be in business for a long, long time. And we're not interested in liquidating.

Arun Jayaram -- JPMorgan Chase & Co -- Analyst

Great, thanks a lot.

Operator

The next question comes from Jeanine Wai of Barclays. Please go ahead.

Jeanine Wai -- Barclays Bank -- Analyst

Good morning. Just following up on Arun's last question there. Can you talk a little bit more specifically about what's driving the range of that 0% to 10% growth over the medium term? Is it really a matter of just setting aside a certain amount per year for that debt repayment, and then a certain amount for the reasonable annual dividend growth that you talked about? And then the rest just kind of be directed toward growth? And what does that mean in terms of capital going toward more toward exploration or going after new opportunities more so in the future?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Jeanine. We're not really targeting a certain growth rate, that's an outcome of the planning and we're looking at what our assets can deliver based on capital range. And right now again, we're still planning around that $35 WTI starting point. So we're not targeting and production growth range; we're targeting what investments we can make and what those assets then could deliver. So in really, I've been talking about 0% to 10%, Jeanine, we're going to be kind of laid this out at $35 oil, we're talking more like, well, flat to slightly up is how we're mostly characterizing it as maybe low single digits. But again our goal is our investment, generating free cash flow to limiting our investments to 70% to 80% of our cash flow.

Jeanine Wai -- Barclays Bank -- Analyst

Okay, great. Thank you. And then I guess maybe pivoting to the federal discussion. I thought in your slides it was really interesting about the pivot between federal versus non-federal starting next year since there's only those 46 wells planned over the next three years. Can you just discuss maybe relative well productivity or relative capital efficiency between your federal and non-federal wells outside of the spacing augmentation that you talked about?

John Lambuth -- Executive Vice President of Exploration

This is John, I guess, well, it goes without saying that our federal acreage is located in some of the best part of Delaware Basin; it's in the deepest part, is the most pressure part. And it's oil in the reservoir. So and it has some of the better water cuts. So when we compare different assets, although they all are outstanding, by a little bit more, you would say, the federal acreage is very attractive to us and thus why we want to get some things done right now.

Yes, also, as Tom points out with very great nets because it is federal acreage, I mean, they're at 87.5 versus 75. All that leads to better economics. But of course, it also means there's a very detailed permitting process. It takes a while to get all that put together.

But we're in a great position. And I want to be clear that as much as we really like the opportunity on our federal lands, we also very much like our opportunity, say in Culberson County where our well costs are cheaper does -- it drives our economics very comparable.

Jeanine Wai -- Barclays Bank -- Analyst

Thank you for taking my questions.

John Lambuth -- Executive Vice President of Exploration

Thanks Jeanine

Operator

The next question comes from Nitin Kumar. Please go ahead.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Good morning, Tom and welcome to shale 3.0 club. I mean I guess it's fair to say that this wasn't as big of a leap for you as for some of your peers, given your historical returns, focus and dividend yield. I guess just following up on one part of it. Are you comfortable maybe talking about is there a total return target between your dividend, your growth and excess free cash flow that down the road you would like to get to?

Tom Jorden -- President and Chief Executive Officer

I'm going to let Mark hit that.

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. Tom and I looking at each other, Nitin. [Multiple Speakers]

Tom Jorden -- President and Chief Executive Officer

Yes. You can never be too rich or too thin. I don't know if you can prolific?

Mark Burford -- Senior Vice President and Chief Financial Officer

Nitin, I think as you know, we mentioned right now we're really focused our priority is to have a growing dividend and in reducing our debt, which benefits our stockholders. And beyond that as we get a plan with the assets we have and we're investing at 70% to 80% of our cash flow is going to allow for a significant amount of return to our owners, and whether -- obviously, still very price dependent, so to set a target is challenging. That's why as Tom mentioned the variable dividend might be a good option to have a growing regular dividend. But then if the private environment is much better, we'd have an option to return more to owners maybe through the variable dividend at points in time. So certainly our framework, what we're trying to accomplish with fixing the amount of capital we reinvest and leaving a balance over for returns is I think and allow for a significant return to our owners.

Tom Jorden -- President and Chief Executive Officer

Nitin, just adding on to that, what I really hope people take away is our commitment to an approach and a philosophy. We can't predict the future. And there could be lots of events unforeseen. Certainly there can be geopolitical events, there can be new policies that are implemented that have a tendency to backfire, and could drive oil and gas prices significantly higher. There can be lots of things that we wouldn't be forced to respond to that we currently don't anticipate. And it's wonderful for me to say that on the second quarter call, because I've just defined what the second quarter was all about, responding to events we don't anticipate. But what I hope people will take from us is that our commitment is real. Our understanding of what we owe our shareholders is real. And we're going to make decisions based on the commitments that we've outlined.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Got it. I guess my other next question is a little bit tougher. But in the past, you've focused on big projects and that has led to a little bit of, I guess, inconsistency between quarters depending on the timing of wells and things like that. In this new world as you're trying to stabilize operations, you talked about a little bit wider spacing, but I know you're not giving us quarterly guidance. But can you talk a little bit about how the cadence of your spending your cash flows should trend outside of normal commodity volatility; we want to understand that exists. I'm just looking at the operational cadence going forward.

Tom Jorden -- President and Chief Executive Officer

Well, I'll tee it up and then I'll Mark comment. I would love to be able to answer that. We'll have regular capital cadence, even in the field of operations and regular production. Either -- they will be volatile. I'd love to be able to say that but it really is a function of individual projects. And I guess -- I also say, we don't view that necessarily as a quarterly problem. We really look at annual averages and we would like to see consistent performance on annual basis; quarter-to-quarter fluctuations I know are confusing at times. But they are a consequence of development projects, which is our most capital efficient approach. Mark, you want to add to that?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. Our development projects are naturally having some variability quarter-to-quarter, Nitin, but we are definitely on a case or on maybe relative historical where we did have more buyback and loaded programs at times. We were bringing flexing up and down frac crews in this kind of a market, I think, we're definitely focused on having a more regular cadence, but that doesn't necessarily translate exactly into a production cadence at complicity level. So in this environment where efficiency is so important to having that kind of regular operational speed is also part of the efficiencies we can gain. thanks for question.

Nitin Kumar -- Wells Fargo Securities -- Analyst

My questions and congratulations on great quarter.

Operator

The next question comes from David Heikkinen of Heikkinen Energy Advisors. Please go ahead.

David Heikkinen -- Heikkinen Energy Advisors -- Analyst

Good morning. And thank you for taking my question. I've been thinking about the space as a whole, I think y'all can be helpful because I'm pondering like this lower cash flow breakeven pricing, but then like, what, where companies will fall as far as long dated returns on capital through the cycle. Like I can imagine Exxon having very stable base production and ability to stabilize that but generating low returns on capital. And I'm not trying to pick on Exxon, but as I think down the group, as you invest 70% to 80% of cash flow. What do you think your corporate return on capital employed should stabilize that?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, David, we obviously still somewhat price level dependent. But if you look at a strip kind of environment, looking at our return on capital employed, we even probably expected to start stabilizing in the teens is probably high single digit to low teens is probably likely where we could be at a return on capital employed approach in high 20s to low 30s.

Tom Jorden -- President and Chief Executive Officer

David. Let me just jump in here. I think it bears mentioning that we, I'm going sound like a broken record here. But it's all about return on investment capital, and that over time will lead to a return on capital employed at the corporate level. At $35, we have scrubbed our investment landscape, and these opportunities generate very, very nice returns. Now they're held by the lower cost structure, but that's all tied to the commodity price. These are returns at a $35 to $2.50 price file that we are very, very happy to make. And we think we're well calibrated and a very confident that we're investing prudently.

David Heikkinen -- Heikkinen Energy Advisors -- Analyst

That's great, thanks.

Operator

The next question comes from Douglas Leggate of Bank of America. Please go ahead.

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

Well, thanks. Good morning, everyone. Thanks for taking my questions. Also, Tom, this is a very consistent message from what you've had for a long time I guess in terms of focus on return. So, glad to hear you. The first one, I think to phrase it as Shale 3.0. So my question I'm afraid is a clarification on the Slide 16. You've talked about single digit growth, and I guess it's about the 70% to 80% reinvestment rate. Single digits is 1% to 9%, it's a pretty wide range. What are you trying to signal here?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Doug, we're just trying to signal that at a flat at $35 and $2.50 type price environment, our assets can deliver flat to slightly up, low single digits probably would have been maybe better turn to put in there than just single digits. But we are saying that our assets can not only generate free cash flow beyond our dividend, but we also have a flat to slightly up production profile.

Tom Jorden -- President and Chief Executive Officer

So, Doug, you're giving us way too much credit for signaling,. What we did is we just said all right; let's just say what if we were to hold capital flat at $35 price? And we obviously looked to optimize our program. And we found that we could generate a little bit of oil growth next year, generate free cash flow after our dividend. There really wasn't any intent to have a deeper message than that, and we didn't really spend a lot of time iterating it. We just said, OK, that's a good result. Let's just disclose that.

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

Got it. Thank you for that. My follow up is if I may go back to your comments about the interesting discussion around variable dividends. And I look, I think Karen has put up with my questions about free cash flow and DCF and all the rest of it for a long time. But we laid out a pretty transparent view of your value this morning in our note. And I wanted to just talk a little bit on this because it -- what you're laying out is a tremendous free cash flow yield story. And there are a couple of ways to grow your dividend. One is to grow the dividend burden and the other is to buyback your shares. And right now, there seems to be a fairly wide value gap between what your stock represents as our free cash flow story versus where it's trading. So, why is buyback not part of the story, in addition to variable dividends in addition to the base dividend growth?

Mark Burford -- Senior Vice President and Chief Financial Officer

Well, Doug, we're certainly focused on as we've laid out on Slide 16. Our initial focus is on investment in what we think conservative price deck that would allow us to grow, increase our dividend, maintain flat to sell your production. And then further the most important item for us is to make --is to retire those notes in 2024. We want to get back to their long history. We have a very low levered balance sheet. We feel our balance sheets in very strong shape right now. But we'd like to even be sub 1 in a mid cycle price environment whatever that means.

But we're at 1.6x trailing 12-months debt to EBITDA right now, paying down those notes and having EBITDA growth, well slightly EBITDA growth we think -- we should be targeting to less than 1x debt to EBITDA. So our debt focus is primary right now and as time goes on, we'll see what other avenues you want to take for free cash flow.

Tom Jorden -- President and Chief Executive Officer

Dough, I want to be clear. We are not taking a buyback off the table. I mean that's certainly within the realm of discussion fairway. Our Board has had lots of discussions on buybacks. We haven't embarked upon one up till now. But it's a reasonable question. I just wanted to leave you with. It's in the fairway of discussion.

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

Tremendous messaging guys. And I hope you and your peers can be succeeding in bringing investors back for the space. So, thanks again.

Operator

Your next question comes from Matt Portillo from Tudor, Pickering, Holt. Please go ahead.

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

Good morning, all. I had two quick asset specific questions. I wanted to see if you could flush out a little bit more detail around the spacing design change from 2019. It sounds like you're having some positive success with the wider design and completion change. And just curious if you could provide any color as to how your leading-edge results are comparing versus the 2019 vintage and how that's improving capital efficiency heading into 2021?

John Lambuth -- Executive Vice President of Exploration

Yes, Matt, this is John. Really as a follow-up to what Tom said, we are recognizing that for a good part of our acreage going forward, we can essentially achieve the same total recoverable reserves for a particular drilling space and unit with just less wells, which just means relaxed spacing. Or to put it another way, the amount of overlap between wells was quite frankly greater what we originally anticipated when we first designed those particular developments. We got it wrong. I mean that happens sometimes. But what we recognized though, is by pulling back some, you're now looking at achieving the same ultimate recoverable with far less capital. And that's where the efficiencies come in. And we feel very good about that based on some of our more recent results and really where we're guiding to. And that's why we feel very good going forward about our expectations for that acreage both in Reeves, Culberson and LEA.

Tom Jorden -- President and Chief Executive Officer

Now this is only true for the Wolfcamp. We are still -- we really have some amazing projects in the Woodford. And there that's a totally different reservoir. And it's a different conclusion.

John Lambuth -- Executive Vice President of Exploration

It's fair to say it's everything I was speaking to was directly related to the Wolfcamp. Quite frankly, when you think about other intervals even within the Delaware Basin, whether they be Bone Spring or Avalon, we feel very good about our spacing choices there going forward. And then likewise, as Tom said, when we do put more capital in Anadarko, we have a wealth of history behind us there that we feel very confident in our spacing decisions there as well. It's been within the Wolfcamp, that there's been a major learning over the last year and a half and we've made that now adjustment and that's what you'll see us doing going forward.

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

Great, that's very helpful. And then just a second question on the asset front. The rock and Culberson obviously is extremely productive and highly capital efficient. On the slide deck you provided -- you show your Culberson results, which are really a standout. I was curious on Reeves County. That is a portion of the next heading into 2021. How you view your results and Reeves relative to -- I think there's a lot of noise in the industry data, given the delineation and down spacing that occurred around Reeves. And so just curious how your results compare between those two basins on the drilling program for next year?

John Lambuth -- Executive Vice President of Exploration

Well, again, this is John and I do recognize that as much as we show an average Reeves result on that slide, which is Page 12. I can at least tell you that when we've reviewed our efforts relative to peer companies, we feel very good about our results. But that said we also recognize that 2019 was not our best that it's going to get better. And again that's some of the over spacing that was done in Reeves for us and thus are backing off some in terms of total wealth count in Reeves. But again, I can tell you that when we've looked at other projects in the immediate area, we feel very good about our frac design. Very good about our landing choice and very good about our go forward economics there.

Operator

The next question comes from Michael Scialla with Stifel. Please go ahead.

Michael Scialla -- Stifel, Nicolaus & Company -- Analyst

Hi, good morning, everybody. You said in 2021 plan could probably generate $300 million plus based on strip prices and Blake showed that slide 11 your current well cost AFEs, are those the cost that are built into that 2021 plan or where do you expect those to go directionally next year?

Blake Sirgo -- Vice President of Operations

Yes, this is Blake. Those costs are directly out of our 2021 plan. So those averages we're showing those are real AFEs. Those are real bids that we're getting the day and that are what's plugged directly into this model.

Tom Jorden -- President and Chief Executive Officer

And, Matt, Michael, I might just point out that those are real costs as Blake said. Yes, I know a lot of people talk about pacesetter costs or leading-edge costs. And that's a really good thing to talk about. But these are really well calibrated. These are based on actual results, and we're highly confident not only can we achieve them, but we have achieved them.

Michael Scialla -- Stifel, Nicolaus & Company -- Analyst

Very good. And one of the other drivers behind the improved 2021 capital efficiency you anticipate, Tom, you mentioned modest drawdown in DUCS. Just wanted to see if you put any numbers behind what you're anticipating there?

Tom Jorden -- President and Chief Executive Officer

Well, we haven't given any numbers. But when we -- because we do have a 2021 plan. This is not arm waving, but the only thing reason I use that terminology is because when we look at our beginning of year DUCS versus end of your DUCS. On our current scenario, there's not a huge difference. So we're not doing a major drawdown. But again, we really don't want to get more granular than that because we haven't announced are 2021 plans. And I'd hate to put something out there that then would be modified. But I'm just really my point is I listed three elements of capital efficiency. And I think the DUC part is probably the minor contribution of those three.

Michael Scialla -- Stifel, Nicolaus & Company -- Analyst

Great, thank you.

Operator

The next question comes from Neal Dingmann of Truist Securities. Please go ahead.

Neal Dingmann -- Truist Securities -- Analyst

Good morning, Tom or Mark. I'm just curious as to how you all think about your 2021 plan including potential return in Anadarko and how this will alter -- what are the sensitivities to gas and NGLS on this plan?

Tom Jorden -- President and Chief Executive Officer

Well, I'll tee it up and I'll let either Mark or John follow. But the Anadarko projects that we would stage in 2021 are very liquid rich, really nice oil production. And so depending on how the commodity swings, they look as robust as our Delaware investments. Mark or John, do you want to follow up on that?

John Lambuth -- Executive Vice President of Exploration

Yes, I'll just mention, Neal, that yes, the areas in the Anadarko, we've had some areas we've really had high regard for. I can particularly around lone rock. And there's some returns in there that as we continue to see, it'll strengthen gas prices and NGL prices. They are also a boost to it, but they're highly liquid oil components. So those returns as we look at them, they are very competitive to the Permian and we've been really have been under lowering our investment in Anadarko, but there are certain areas there that definitely deserve some capital.

Neal Dingmann -- Truist Securities -- Analyst

Okay, makes sense. And then just lastly, certainly a positive outlook for 2021 especially on the backdrop of just the volatility we've seen in 2020. So I'm just wondering that expectations for kind of flattish oil, with a flattish or so capex. I'm just wondering, Tom, you've hit around this a lot on the call today, is this just driven more by efficiencies? Or they're just wondering, are there other things that are driving that or what is really behind that that sort of 2021 that you're able to do that after, coming off such a such a difficult year this year?

Tom Jorden -- President and Chief Executive Officer

Well, it's driven by lower costs. Certainly, we're getting as I said, we're getting more out of every dollar we invest. And that cost structure is across the value chain as Blake outlined. Our organization has been tremendously creative in scrubbing all elements of our cost structure, which -- the operating expenses always seem to get a backseat to this discussion, but they contribute handily to our netbacks. It's driven by asset performance. This plan is driven by calibrated go forward results.

Yes, we just -- when you have great assets, great organization, a low-cost structure, it shows up in the roll up and that's what we're talking about.

Neal Dingmann -- Truist Securities -- Analyst

Very good, thanks guys.

Tom Jorden -- President and Chief Executive Officer

Thanks, Neil.

Operator

Next question comes from Brian Singer of Goldman Sachs. Please go ahead.

Brian Singer -- Goldman Sachs -- Analyst

Thank you. Good morning. As you think about the best ways to invest capital. Did you value at this price level, and its current valuations in the market in pursuing acreage expansion or any kind of consolidation toward lowering the cost structure of your current assets further or is what you're addressing with the costs having come down and maybe the slower pace at wider spacing is sufficient where investing in the drill bit is likely to remain more competitive than M&A?

Tom Jorden -- President and Chief Executive Officer

Well, we're a cyclic business and then anything I say is subject to cyclic overprint. But we've always preferred investing through the drill bit. And that is always with us associated with a low entry cost. Investing through the drill bit is a half cycle discussion. And if you don't include what you paid to acquire the asset, you're misleading yourself, much less the investing public. We are always interested in good ideas that have a low entry cost. And I will tell you that John and his organization is hard at work finding additional good cash flow through opportunities that we can enter cheaply. And that's always going to be a part of our business. It's probably the most challenging part of our business; it's probably the least predictable part of our business. And it's probably the one that we can least plan around.

But it's always going to be a part of our business. We've got some things on our plate now that I think are testament to some outstanding work from John and his team, that if we could get a very low entry cost, they might be a significant part of our future cash flow generation. M&A is more is more episodic; it's pretty tough to predict the kind of consistent value generation through M&A that we found through drill bit growth. Not that we're not open to it; not that we're not going to be opportunistic, but our core strategy is built around the drill bit.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thanks. Then my follow up, you've talked a few times here about the goal of getting to that $750 million of cash to handle those maturities in 2024. Is the message that you would be or you would want to stay at the low end of a 0% to 10%? Or zero to mid-single digit type growth rate until that $750 million is in hand? Or is there any kind of balance within the range?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Brian, we really -- that's right, we have to really emphasize the importance of us paying down those notes and that's low single digits or single digit growth. It's not really the primary driver, Brian. The primary driver is reinvesting in the business pertaining free cash flow above our cash flow. Again, you keep reiterating that, we'll be targeting 70% to 80% of our cash for reinvestment. So the growth rate will be an outcome. It's never been our primary focus. It's more of an outcome when we look at the investments and we roll up the investments; we're planning to make during this particular period.

Brian Singer -- Goldman Sachs -- Analyst

Again maybe I should rephrase. Should we expect the low end of the 70%? Can we expect more of a 70% side of 70% to 80% reinvestment until the cash is in hand for the $750 million?

Mark Burford -- Senior Vice President and Chief Financial Officer

Brian, I mean, there's a lot of moving pieces in. We're just trying to set a framework for ourselves. And certainly there's a price overprint and as Doug Leggett made the comment or I guess Arun, it's $45 strip price right now that's a significant amount of free cash flow in one year. So we're trying to balance all the inputs with a framework by which we can manage to generate free cash to pay off those notes

Brian Singer -- Goldman Sachs -- Analyst

Thank you.

Mark Burford -- Senior Vice President and Chief Financial Officer

Thank you, Brian

Operator

The next question comes from Leo Mariani from Keybanc. Please go ahead.

Leo Mariani -- KeyBanc -- Analyst

I guess I just wanted to follow up a little bit on the spacing comment. It sounds like you guys have certainly done a lot of work on that. Just wanted to get a sense from you folks of what you think kind of the quantitative implication is from the tighter spacing. I'm sorry, from the wider spacing in the Wolfcamp. I was to say, throw out strip pricing, call it $45. Could you maybe say something like, yes, we think the IRRs are 5% better or 10% better any help you can kind of give us with whatever internal study done in the spacing?

Tom Jorden -- President and Chief Executive Officer

Well, the IRR should have been more than 5% or 10% better. Yes, just John, put it well. If I conclude that I can drill fewer wells and get the same reserves. I think I'm also admitting that we've over drilled in places and so the return uplift, if you can eliminate that is tremendous. We've done a lot of work on this. And I know that a lot of our peers are in the midst of doing this their own good work on this. It's not just a well spacing side-by-side. We've learned a tremendous amount about the vertical communication in these reservoirs. And a lot of what we learn has surprised us. But it all every bit of science and every bit of learning that we do here at Cimarex is completely with one goal in mind, and that's increasing our returns. And, yes, they will have a significant return uplift.

Leo Mariani -- KeyBanc -- Analyst

Okay, that's helpful. And I just wanted to follow up a little bit on the outlook as we look into the next couple years. Certainly, as we've already noted on this call $35, maybe feels a little bit conservative, particularly in the out years at this point, just wanted to kind of get a sense of how you think about balancing dividend growth with building the $750 million cash to redeem the notes. Do you kind of want to have just better line of sight and more progress on the $750 million before you can start accelerating the dividend? Is that a fair way to think about it?

Tom Jorden -- President and Chief Executive Officer

Well, we have enjoyed. It's a happy moment in our boardroom when we increase our dividend. We all come away satisfied because that's what we're here to do is work for our owners. So I don't think you necessarily need to see us wait until we had a huge amount of progress on that $750 million number before you saw us increase our dividend. Mark, do you want --

Mark Burford -- Senior Vice President and Chief Financial Officer

No. I think that's -- yes, because I think those are pretty comparable goals; both are very important to us. And I think we can manage both. I think we can have a pattern of our growth or dividend which we've historically had. And we've been a dividend payer since 2006. And we've had a nice pattern, interrupted only once during the financial 2014 and 2015 period. And we want to get back on that pattern of growth. That's a high priority as well as it's building cash to be able to pay off the debt. So both are equal high priorities to us.

Operator

There are no further questions. I'd like to turn the conference back over to Mr. Jorden for closing remarks.

Tom Jorden -- President and Chief Executive Officer

Yes, in closing, I just want to thank everybody for your attention. And Cimarex has always been a company that wants to be measured by our results. We've laid out for you some clear goals that we have, and we look forward to generating results. Go forward talk is always a lot of fun. But we intend to be able to look in hindsight and demonstrate to you that we've achieved these targets we've set out. I also want to encourage everybody wish you well, hopefully your organizations, your families, and you're all staying healthy during this very challenging time. But thank you very much for your attention. And it's just been a pleasure to talk to you this morning.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Tom Jorden -- President and Chief Executive Officer

Mark Burford -- Senior Vice President and Chief Financial Officer

Blake Sirgo -- Vice President of Operations

John Lambuth -- Executive Vice President of Exploration

Gabriel Daoud -- Cowen and Company -- Analyst

Arun Jayaram -- JPMorgan Chase & Co -- Analyst

Jeanine Wai -- Barclays Bank -- Analyst

Nitin Kumar -- Wells Fargo Securities -- Analyst

David Heikkinen -- Heikkinen Energy Advisors -- Analyst

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

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

Michael Scialla -- Stifel, Nicolaus & Company -- Analyst

Neal Dingmann -- Truist Securities -- Analyst

Brian Singer -- Goldman Sachs -- Analyst

Leo Mariani -- KeyBanc -- Analyst

More XEC analysis

All earnings call transcripts

AlphaStreet Logo

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.