Feb 24, 2021
Operator
Welcome to Pioneer Natural Resources Fourth Quarter Conference Call. Joining us today will be Scott Sheffield, Chief Executive Officer; Rich Dealy, President and Chief Operating Officer; Joey Hall, Executive Vice President of Operations; and Neal Shah, Senior Vice President and Chief Financial Officer.
Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at www.pxd.com.
Again, the Internet site to access the slides related to today's call is www.pxd.com. At the website, select Investors, then select Earnings & Webcasts.
This call is being recorded. A replay of the call will be archived on the Internet site through March 22, 2021.
Neal Shah
Thank you, Orlando. Good morning, everyone, and thank you for joining us.
During today's conference call, we will be discussing our strong fourth quarter results, in addition to providing our 2021 outlook, detailing our strong financial position and discussing the initiation of our variable dividend policy. We will also include an update on the synergies we are achieving through our Parsley transaction and our significant ESG momentum, with new goals and targets set at the end of last year.
After that, we will open up the call for your questions. So with that, I'll turn it over to Scott.
Scott Sheffield
Thank you, Neal. Good morning.
We're going to start off on Slide 3. We had very, very strong free cash flow generation of approximately $300 million, driven by strong production, low CapEx due to continued efficiency improvements from the operational teams at all levels.
We're announcing our formalized long-term variable dividend structure, which we have several slides. We'll be returning up to 75% of post base dividend free cash flow to shareholders, and we'll give you some examples later on, significantly improving return of capital to shareholders.
We'll generate significant free cash flow generation of approximately $2 billion expected in 2021 at $55 WTI. Currently, the strip is about $60 WTI.
So we hope to beat that, driven by peer-leading corporate breakeven in the high $20s per barrel range. Synergies from Parsley acquisition are exceeding previous guidance, especially on a recent bond deal, interest savings additional $25 million.
And we expect to achieve better savings on G&A as we go into the second and third quarters. We expect the synergies there of about $100 million.
We also expect to realize our full operational synergy run rate of $150 million per year by year-end '21, Rich will talk more -- give more detail about that, and fully benefiting 2022 and thereafter.
Richard Dealy
Thanks, Scott, and good morning. I'm going to start on Slide 9.
And with the combination with Parsley, we are the only 100% focused Permian entity of size and scale. You can see from the math, that on a combined basis, we have a footprint of about 920,000 net acres, with a substantial inventory of high-returning wells.
And importantly, zero exposure to federal land.
Neal Shah
On Slide 12, you can see Pioneer's premier asset-based position, positions us to the only E&P to have a corporate breakeven below $30 a barrel WTI within our peer group, enabling Pioneer to have a low reinvestment rate and drive significant free cash flow generation. This low breakeven price reflects the quality and the resilience of Pioneer's portfolio, underpinning our operational and financial strength.
In addition, our unmatched high-quality asset base has no exposure to federal lands. Turning to Page 13.
To the right, you can see the graphic that demonstrates our best-in-class breakeven price with our low leverage that supports substantial return of capital to shareholders as well as providing Pioneer both operational and financial flexibility. We witnessed the benefits of our strong balance sheet during the downturn in 2020.
And it was Pioneer's strong financial position that facilitated the refinancing of Parsley's debt from an average coupon of greater than 5% to an average coupon of less than 1.5%, driving our interest savings synergies of $100 million that Rich discussed earlier. With our investment framework, our net debt-to-EBITDA will continue to trend lower, while concurrently returning significant capital to shareholders through our base and variable dividends, creating value for shareholders while bolstering our fortress balance sheet.
With that, I'll turn it over to Joey.
Joey Hall
Thanks, Neal, and good morning to everybody. I'm going to be starting on Slide 14.
We came off our best year ever in 2019, and the drilling and completions teams committed to demonstrate similar gains in 2020. And the graph on the left shows they delivered on their promise.
The chart on the right-hand side illustrates the significant progress also made in reducing our facilities costs. Our construction and operation teams partnered together to decrease the initial cost of our facilities by 40% since 2018.
All of this has been accomplished without compromising our commitment to safety and protecting the environment. To the contrary, and most importantly, we improved on all safety metrics in 2020.
These gains would not have been possible without the hard work of our entire staff, supply chain team, and great collaboration with our suppliers and service companies. Adding the complexities introduced by the pandemic, then this has been a truly remarkable year by any measure.
Scott Sheffield
Thank you, Joey. Starting off on Slide 16, developing low-emission barrels.
I think being in the Permian Basin and the actions that we have taken as a company, we are at the lowest -- one of the lowest CO2 emissions per BOE produced worldwide. This is an interesting chart that we have found.
It's essentially all state-owned oil companies, majors, large independents. So it's the largest global operators in the world, making up over 64 million barrels of hydrocarbon liquids per day.
Pioneer's operations produced barrels is one of the lowest associated CO2 emission intensity globally. Our low cost, low emissions barrels continue to be desired around the world.
Jumping to Slide 17. We continue to make changes in our executive compensation going forward.
One of the first things we've done, we did this last year, was tie myself, the CEO, for 100% on any LTIP based on performance. So it's all based on performance.
So Pioneer has to perform for myself, the CEO, to be paid anything long term. We started that program last year.
Right now, we're the only company that is doing this. No CEOs average about 51% in the S&P 500.
We added the S&P 500 index into our TSR peer group beginning in 2021. We've also added some new goals and increased some goals.
We increased ESG and HSE from 10% to 20%. And We have now ROCE and CROCI combined weighting of 20%.
And last year, we did remove any production and reserve goals going forward. As Rich mentioned, we do have 20% in strategic, he mentioned that.
In that strategic, we do have to achieve our Parsley synergies to make that number work on any annual incentive in that regard. Going to Slide 18, strong focus on ESG.
Pioneer continues to hold all pillars of ESG of great importance. Our new sustainability report was released last quarter and reflects our significant strides in reducing both Scope 1 and Scope 2 greenhouse gas and methane emissions.
It incorporates emissions intensity reduction goals on both. Inclusive of Parsley, we have a very low flaring intensity of 0.7% compared to the peers' average of 1.4%.
We continue to promote a diverse workforce, which reflects community in which we live and work. Finally, on the last slide, #19, we're committed to driving value for our shareholders, and we're looking forward to finally commencing with our variable dividend structure.
Again, thank you. We'll open it up now for Q&A.
Operator
. And we'll take our first question from John Freeman with Raymond James.
John Freeman
I appreciate all the extra detail, Scott, on the variable dividend policy. And I just wanted to make sure -- just to clarify a few things.
So when we think about like long term, the strategy to distribute up to 75% of the prior year's free cash flow after the base. And then -- but this first year, it will be basically up to 50% of the '21 free cash flow after the base.
Just maybe sort of how to think about in any given year how you all are deciding between if it's 50% and 75%. Obviously, your leverage metrics are already really low.
But just if there's anything that we should be thinking about how you'll are kind of coming to that conclusion.
Scott Sheffield
Yes. I think, first of all, John, we used the word up to give us flexibility.
Our goal all along is to pay 50% for this year and 75% of the free cash flow for '22 and beyond. We do up to simply because of the volatility nature of our industry and of the commodity prices.
So our intention -- true intention is to do 50% and 75% long term. That's our goal.
And at some point, I didn't make this point, but if you look at the numbers over 6 years, our debt-to-EBITDA targets are -- even get better than 0.75. We actually, after a 6-year time period, we get our debt essentially down to 0.
So at point -- at some point, the Board will reopen whether or not we continue at 75%. We could go higher because at some point, if we have no debt, no balance sheet.
And the reason we're doing that, as you have heard me talk, we're not a firm believer of buying back stock annually long term. But we think when you have extreme downturns like we experienced last year, which we had the firepower to buy a lot of stock at $50.
So we'd like to have a great enough balance sheet to go into any future downturns to be able to buy back stock at 1/3 of the current price. And so you'll see our balance sheet get better and better over time.
We just think it's better to have a great balance sheet due to the volatility of our industry. So I hope that helps.
John Freeman
That does. And then just a follow-up on how to think about the operational synergies, which I know a good bit of Neal Shah talked about would really occur in the second half of 2021.
But as we think about sort of the different synergy kind of leverage, let's say, whether it's sharing the tank batteries, water infrastructure, some of the continuous acreage. Maybe just some additional details on sort of which of those you're able to kind of realize pretty quickly versus those that may take later on into the year to fully realize.
Richard Dealy
Yes, John. I think the field optimization in terms of just the operational side and the production side are things that we'll capture quickly, the supply chain stuff are things that I think we'll capture quickly in terms of just leveraging our suppliers and maximizing our best contracts.
So I think those are the easier ones. I think as we've talked about the integration capital that we have in the budget, connecting the water systems, getting the disposal systems connected and optimizing the tank batteries, those will take a little bit longer.
So those are probably more second half related and into 2022. So I think that's really the timing of those things of what kind of comes first and what kind of comes later.
Operator
And up next, we'll hear from Brian Singer with Goldman Sachs.
Brian Singer
My first question is with regards to the reserve report. You had substantial upward revisions in natural gas and NGLs.
You had downward revisions to oil. I realize there may be price adjustments driving some of this.
And I wondered if you could comment on the drivers of the reserve report and the revisions beyond price. And what implications, if any, there are for Pioneer's production mix in the area and the ratio going forward as what get us ?
Scott Sheffield
Yes, Brian. Great question.
I think as you mentioned, clearly, oil prices were a driver, which I'll get on to the NGL and gas ones. But as you know, oil prices, I guess using the SEC pricing, was down 30% from 2019 to 2020 and start from $56 WTI down to about $40 WTI.
So that's really driving the negative revisions on oil for the most part. When you look at the positive revisions that we're seeing on gas and NGL, it's really coming from a couple of things.
One is just our enhanced completions continue to improve our fracture networks. And so that's leading to better recoveries from the wells, not only on oil, but NGLs and gas as well.
We've also seen improved infrastructure out there, and so better capacity, which has reduced line pressures to allow more gas to flow, and therefore, added more NGL and gas reserves. So if you kind of strip those out, that F&D that was in the low $4s, probably be moving closer to $7.
And so I think that's kind of the background of what the reserve changes were during the year.
Neal Shah
And I think in terms of long term, you're thinking in terms of long-term mix. I think we've been running in that, call it, 57%, 58% range on oil.
And we still anticipate that to be -- longer term at this lower growth rate to be the right level.
Brian Singer
Great. And then my follow-up, in risk of Scott of asking a question that I think you've been asked a few times over the last couple of months.
When you think about where production this year is going to exit, I think you said it could be up -- you might have said up about 8% -- to 8%, but something that's above the 5% threshold. The plan, when you announced it, you had some materially lower oil price views than where we're at today.
And I just wonder if -- how you're thinking about that flexibility into 2022 and the torque between growing at an above 5% rate versus reducing or potentially reducing activity to increase free cash flow and stick within the 5%.
Scott Sheffield
Brian, I still are -- we're committed to the long-term growth rate starting in '22 and beyond of about 5%. Some years, we may be 6% or 7%.
Some years, we'll be 3% or 4%. And unless we get into another extreme downturn, we have the flexibility to go back to 0 growth, like we did in 2020 or '21, too.
And so we're not going to let the growth rate jump up. If it turns out, we're achieving -- if Joey and his team continue to achieve great capital efficiencies, and it looks like we're going to grow 8% to 10% in '22, we're going to dial back to capital going into '22.
Operator
And next, we'll take a question from Jeanine Wai with Barclays.
Jeanine Wai
I think just following up on the response to John's question. You mentioned getting to net zero, and I think -- or sorry, not zero, getting the net debt of being 0.
And I think you said 6 years. And at what point do you consider the company to be under levered?
Is it at zero net debt? Is it at 0.5, 0.25?
So how are you thinking about that level?
Scott Sheffield
I mean at this point in time, seeing three downturns in 11 years, to me, I just think it's better to have the best balance sheet in the business. It gives you so much flexibility.
We have choices like -- I gave one choice. We have 0 debt.
We can buy back stock in extreme downturns. If the Board wants to continue a high variable dividend for a year or 2, even though our free cash flow may not be as strong, they have that flexibility.
So it gives you so many more choices. Sticking -- I mean we thought we had a great balance sheet for '20, and we were even afraid to buy back our stock at $50.
So we had no idea how long the downturn is going to occur. So I just -- I've gone -- I've probably been through more downturns than any CEO out there.
And I just think it's better to have a great balance sheet, an even better balance sheet. So we have the flexibility also, as I said, to take the 75% up higher the Board does to 80% or 90% or 95% or 100%.
So we -- you have so many more choices when you have even a better balance sheet than debt-to-EBITDA of 0.75. So we don't have a stated target.
I prefer to have -- eventually, at some point in time, 0 debt would be my ideal target So...
Jeanine Wai
Okay. Options are good.
We like that. And then my follow-up is just on hedges.
And so how does -- your new kind of net debt projections, how does that factor into your hedge philosophy going forward? Could we see less hedging?
Because I know we're kind of walking a fine line here in some respects. But generally, hedges are for risk protection, balance sheet protection.
And generally, we see companies with the better balance sheets having less hedges. So that reserves some more upside because you have the balance sheet for protection.
So just wondering if your hedge philosophy is evolving going forward as well.
Scott Sheffield
It's still evolving. The big change, we used to spend 100% of our CapEx.
Now we're only spending 50% to 60% of our cash flow as CapEx. And so that's a big change.
We may hedge. We may limit it just to protect that going forward.
We may hedge enough to protect the base dividend. But because the market is in extreme -- the way Saudi and OPEC has engineered this latest rise, it's in extreme backwardation.
And the volatility and less liquidity in the market makes it tough to do any floors, to do any collars. So when you used to be able to do a collar on each side of the strip, $5 on each side or $10, so they give you very little upside anymore.
So it's really -- as long as it's an extreme backwardation, we'll probably see us do less hedging. And then lastly, the variable dividend is something that's going directly into the shareholder base.
So if we try to hedge that guess, it's a direct reflection on what happens to that variable dividend. And so I'm going to guess, long term, we're probably going to do less.
But at the same time, we continue to see spikes or the backwardation that's taken out of the market, you may see us do a little bit more. So we're going to remain opportunistic.
Operator
And our next question comes from Arun Jayaram with JPMorgan.
Arun Jayaram
Scott, Rich, I was wondering if you could maybe help us better understand the shaping of the 2021 production and CapEx profile just given some of the weather disruptions that you highlighted. And that -- and we're estimating, based on that 8% exit rate, we had around 3.35 oil for 4Q.
So I just wonder if you could walk through the progression.
Richard Dealy
Yes. Arun, I think when we look at it, setting aside the first quarter because of the weather impacts, we'd said that it was going to be more towards the back end just because of the rig ramp that started late last year and just takes 180 days to kind of do that.
But I think as you move into the second quarter through the fourth quarter, it is a ratable increase in production over that 3-quarter time period. And I think your exit rate is, in the ballpark, it may be slightly higher than that, but it's in that zip code.
And then on capital, I think we were pretty good about getting the activity to the average rig and frac fleet rates starting in January. So I would think your capital is pretty ratable throughout the year.
So I think really from a perspective that it's ratable on capital and ratable Q3 -- or Q2 through Q4 on production.
Arun Jayaram
Great. Great.
And just my follow-up. One of the questions that's kind of come in is Pioneer obviously delivered on legacy in terms of the fourth quarter.
But some of the Parsley volumes as you 8-K-ed a few weeks back were a little bit light of what the market was thinking. Have you done a bit of a postmortem there?
Any conclusions there regarding the Parsley 4Q performance?
Richard Dealy
Yes. A couple of things.
One, they sold their Big Tex acre, had about 1,400 barrels a day of oil production associated with it. So that was one piece of it.
And then I think the other piece of it was just reduced activity. They just didn't get the activity started back up on the frac fleet quick enough.
And so they had a limited number of pops in the fourth quarter relative to what they had in the third quarter. And so it really was just production just didn't come -- stay at that level given the decline.
And so really, that's -- our assessment was just really driven by activity levels, but the well performance has been fine. It's nothing that, it just was activity.
Arun Jayaram
Got it. Got it.
And that's all baked into your updated forecast, right?
Richard Dealy
That's correct, Arun.
Operator
And the next question will come from Charles Meade with Johnson Rice.
Charles Meade
I apologize for belaboring this point a little bit. But on -- again, the shape of the '21 kind of production curve, it looks to me like you guys are going to have -- obviously, there's going to be a big bounce back.
And it's not really a valid comparison to go 2Q versus 1Q because of all the weather downtime. But it looks like in the back half of the year, you guys are going to be showing 3% to 4% sequential quarterly growth.
Is that kind of close to what you guys are looking at internally?
Richard Dealy
It seems a little high to me, but just because I think the exit-to-exit that Scott got talked about was kind of 10%. So it would seem to be slide.
But in general, I mean, it's directionally in the right place.
Charles Meade
Got it. And then my second question, this isn't really a new one for you guys, but it's highlighted again by the 5% CapEx allocation to the Delaware.
That -- again, it's not new. That kind of seems like it either needs to grow or -- as a percentage term, you guys would be seller.
So can you offer us any kind of refresh to your thinking on how the Delaware is going to play in your asset portfolio longer term?
Richard Dealy
Yes. I think, Charles, it's -- as we've talked about before, Delaware acreage is very attractive for a number of reasons.
There is a higher oil cut that's there. We have a high NRI and we've got good infrastructure over there.
So really, the 5% for 2021 is really driven by the program that Parsley had outlined early in the year. And so we will be looking at that program.
Given the run-up in oil prices, the economics are very favorable for Delaware. And so we'll look at how do we, back half of the year or into 2022, reallocate capital from Midland over to the Delaware.
So we're still extremely pleased with that acreage and look forward to developing it as we get a chance to get our hands on it and move forward.
Operator
And our next question will come from Scott Gruber with Citigroup.
Scott Gruber
First question here on LOE. Will the storm have any material impact on 1Q LOE?
And then, as production normalizes into 2Q, full contribution from Parsley, how should we think about LOE in 2Q in the second half? Are there any extra production costs early on as you integrate Parsley that's not captured in the incremental CapEx?
And if so, how those roll off?
Neal Shah
Yes. I think if you look at our LOE guidance for the first quarter, we did adjust that up about $0.25 a BOE, just to take into account the repairs that we're seeing on -- they're minor in the grand scheme of things, but repairs on our wells and facilities due to the storm.
And so we did factor that into our first quarter guidance range. And so if you take that range and back it down $0.25 per BOE for the Q2 and beyond, that will give you a good guidance range.
Scott Gruber
Got you. And any kind of incremental process we should be thinking of kind of above and beyond the incremental CapEx that made the production here early on the portion?
Neal Shah
No, I don't think so. Scott, I think that we wouldn't anticipate any.
Scott Gruber
Got you. And then just a follow-up here on simul-frac.
A few of your peers have gotten excited about the technique and the opportunity to drive another leg here of completion efficiency gains. Can you talk about your interest in the technique and potential deployment?
Joey Hall
Scott, this is Joey. We actually just finished our first simul-frac right before the winter storm hit.
Great success there. And we have plans to do more as the year goes on and then feather them into our operations over time.
Scott Gruber
Okay. Any color on kind of rates of efficiency improvement or savings on the D&C side in your first program?
Joey Hall
Yes. From a -- of course, we just completed it so I don't have all the assessment on the cost side.
But from a time perspective, we did reduce the typical time that we would take to do a 4-well pad by about 1/3. So significantly reduced the amount of time on location.
So we'll continue to evaluate that. We'll get a look at what the cost savings were, which, of course, will be material, and then we'll continue to evolve that into our operations.
Operator
And next, we'll hear from Doug Leggate with Bank of America.
Doug Leggate
Scott, first of all, I think the way you've laid out this morning is really pretty present. So congratulations on the framework consumers that Shah has got his fingerprints all over this.
So congratulations, guys, on laying this out. My question is really a couple of things about the longer term.
You've talked about 5% plus as a growth trajectory. I just want to make sure that, that hasn't changed with the 75% of the free cash beyond the dividend because it's probably a bit more than market is expecting.
I'm just wondering what that means then for the 5% cost? That's my first question.
And my second question is, I wonder if I could press you to think more about -- you spoke about a 5-year view from a capital activity standpoint. I wonder if you can give us some thinking as to what that would look like in terms of rig activity and spending.
Because, obviously, you talk about 2022, but . So two questions, one on the 5% plus, and two, on the longer-term trajectory.
Scott Sheffield
Yes, Doug. The second part, I've talked about already, but I'll go over it again.
But the first part, when we say 5% plus, we're just leaving the flexibility. So we can't get 5% exactly.
Some years, we may be 6%, 7%. Some years, we may be 3% or 4%.
So our goal is to really average 5% on the production growth. If we go through down periods, I gave examples of low oil prices like we did last year, we're going to be flat growth.
And so the goal is really not to exceed 5%. But we do have to have the flexibility based on rig cadence and POP cadence to have that flexibility some years to go to 6% or 7%.
But some years, we may be 3% or 4%. And so as stated, I think -- a couple of the analysts have already asked me about '22.
So it looks like we're going to be too capital efficient going into '22, and we're going to hit 8% to 10% production growth. In '22, we'll reduce capital to get it back closer to 5% or 6%.
So I hope that answers your question. So the target is really 5% long term.
In regard to long term, I gave out some numbers going out the next 6 years. And I've seen some other projections by sell side.
Over a 10-year time period, we basically will throw off enough free cash flow that's equal to our current market cap at current strip, that $52, $51 WTI or $55 Brent. Over a 6-year time period, it's $16 billion.
And so of that $16 billion, we'll be paying out about 75% of that as a variable and 25% actually goes toward debt reduction. And so that's why I made some comments about our debts actually going to be going down over the next 6 years to almost 0 after a 6-year time period, for the reasons I gave.
So I'd rather have a much better balance sheet. It gives us more options in regard to whether we buy back stock during extreme down periods like we had last year at $50, are examples where we want to pay a higher variable than our free cash flow during a given year.
And also, as I also gave the optimism that as our debt moves towards 0, that we could increase the 75% up to a higher amount obviously, up to 90%, 95% or 100% of free cash flow. So hopefully, we're trying to give the Board various options and flexibility, obviously, in this fluctuating commodity price market.
Doug Leggate
I apologize, Scott, if I missed some of the nuance. But just to be clear, I'm trying to get a rig trajectory or maybe a POP trajectory that goes along with -- maybe that's too detailed...
Scott Sheffield
Okay. Yes, we added -- I said in one of my earlier statements -- on one of my slides that we're going to -- our long term is that we're adding 1 to 2 rigs per year.
So long term, you can figure adding 1 to 2 rigs per year long term from the current 18 to 20 rigs.
Neal Shah
5%.
Doug Leggate
Got it, Neal. Go it.
Okay. That's really helpful, guys.
And maybe just a quick follow-up then. Does your hedging philosophy change with such a robust balance sheet, and let's say, upside risk to the oil price seems to be the growing consensus, how do you think about hedging not even there?
Scott Sheffield
Yes. We're only spending about 50% to 60% of our cash flow now.
So we don't need to protect the CapEx as much as we needed to before. We do have a great balance sheet.
The market's in extreme backwardation. Due to liquidity, less liquidity, the volatility of the market, we can't get any upside on collars or free ways anymore.
So you'll probably see us do less hedging for that reason. But if we see any type of spikes, we'll probably go into the marketplace.
So we're going to be opportunistic, obviously. But the market is strong.
I'm still a strong believer that demand is going to come back strong, both on airlines and also driving around the world once we get herd immunity. So -- and I'm confident that we can assort the Iranian barrels into the marketplace over time, and that U.S.
shale is not -- no longer going to be a threat to OPEC and OPEC+.
Operator
And our next question will come from Neal Dingmann with Truist Securities.
Neal Dingmann
Scott or Neal, maybe I missed this. Could you talk a bit around just -- Scott, you just were talking about even that 10-year about what the potential could be on the variable.
What -- and you've talked about -- I know you've been pretty specific about the production growth. Could you talk about the dividend -- the base dividend growth?
Kind of what -- will that just continue to flow with the other overall growth? I just want to make sure I'm clear with how you are sort of assuming that base dividend growth as -- with conjunction with the variable.
Scott Sheffield
Yes. It will be -- a small increase every year is our goal.
So it will be minimal. It will be something from -- something minimal, 1 -- in that 1% to 3% range is our expectations.
Neal Dingmann
Got it. Got it.
And then, Scott, you, Rich or Joe, I'm just wondering on what you saw or experienced with this, the outages and now the production downtime that you saw around the storm. Have you all started or will you think about or thoughts about permanent structural changes?
Or anything around either, I don't know if it's just infrastructure or tank battery, you sort of name it, are the things that you've started or would think about doing to -- I know, obviously, here in Texas, it doesn't happen to us quite often. But just your thoughts about if there's things that you could do to, I don't know, better prevent that going forward.
Richard Dealy
Yes. I think we'll take lessons learned from and see what things happen.
But in general, it was such a 50-year event or 100-year event, whatever you look at it. We still want to be capital-efficient about it.
And so we'll assess that. So not a -- no decisions today, but we'll definitely look at it just from a lessons learned.
But I would say that given the freak nature of it, that, at this point, we don't see any substantial changes that we would make.
Neal Dingmann
And everything is back online now.
Richard Dealy
Not 100%. We've got the vast majority back online and probably next week or so, we'll get the rest of it.
Operator
And next question will come from Derrick Whitfield with Stifel.
Derrick Whitfield
Perhaps for Scott or Rich, one of your peers recently committed to a plan to offset Scope 1 emissions through direct investments in CCS and/or renewable projects. From an ESG perspective, could you comment on the company's desire to pursue something similar to this as a means to offset direct carbon emissions from your operation?
Scott Sheffield
Yes. In general, we're evaluating what companies like that and another company like Oxy is doing on carbon capture long term.
We're assessed -- a couple of our also peers have stated they have ambitions -- they used the word targets and ambitions to go to net 0 by 2050. So we're assessing that also.
So -- we're assessing everything -- everything is on the table in regard to get better and better. So -- and then we'll have to see what the Biden administration does with their upcoming climate -- after the stimulus gets passed, they're going to focus on infrastructure and climate next.
And so we'll have to evaluate that also. And so everything is on the table in that regard.
Derrick Whitfield
Makes sense, Scott. And for my follow-up, perhaps for Joey.
Referencing Slide 9. As you think about the progression of your D&C operations with regard to pad size and lateral length, can you comment on where you feel the efficiency limits are today and how this slide was 2 to 3 years from now?
Joey Hall
Specifically, on pad size and project size, I would say that I wouldn't expect that to continue to increase. But certainly, from a consistency perspective, as we do more co-developments and full stack developments, more so and more so that we'll continue to have, on average, more wells per pad.
From an efficiency gain perspective, as I said in my comments, I would have never expected for us to basically achieve in 2020 what we've done in 2019. And then continuing on my other comments that the benefits of technology are having significant improvements.
The thing that I would say that's different now is that there aren't very many big wins to be had. Simul-frac may be a big win.
But for the most part, when I look at the waterfall charts, it's lots of small, incremental wins that add up to significant improvements. So we're certainly not finished on that journey.
And we'll continue to work at it relentlessly to continue to drive our cost structure lower and lower.
Operator
And next, we'll hear from Bob Brackett with Bernstein Research.
Robert Brackett
Quick question and maybe a little slower one. The quick question, what is the timing of the decision on the variable dividend payout?
So if we're sitting in 1Q of 2023, is that when the decision is made about the free cash flow payout from 1Q of 2022, for example?
Scott Sheffield
Yes. Bob, this is Scott.
We generally have our Board meetings in late January or early February, early to mid-February. And those -- that's generally when we discuss increasing the dividend, and that's when we would make the final decision at that point in time.
So you're correct.
Robert Brackett
Yes. That's clear.
The second is the trade-off between the variable dividend and share buybacks. So you clearly expressed eagerness to buy back shares sitting in the middle of last year, let's say.
At some point, the shares are valued to the point where buybacks make less sense and the variable dividend makes more sense. Do you use an internal NAV to make that decision?
Or is -- what sort of thought process would go into that?
Scott Sheffield
Well, first of all, I talked to over 100 shareholders over the last 18 months. And I would say 99.9% preferred that they would -- long term, they would prefer us to pay a variable dividend versus buying back any stock.
That's long term and buying stock year after year. As you know, the industry has a terrible track record of buying back stock at the top of the market.
And so people that are talking about buying stock now were back at the -- close to maybe at top of the market. And so that's the wrong kind of a buy-in.
And so everybody is in favor of a great balance sheet, if you can afford it, to buy back in those dips. We had a chance to buy back at $50 last year.
We did -- we didn't have great enough balance sheet. So that's the -- so that's generally our feelings long term.
Buy it back only during those downturns and not buy back shares, and then focus on the variable dividend as the best way to return capital long term.
Operator
And up next, we'll take a question from Paul Cheng with Scotia Bank.
Paul Cheng
First, Scott and the team, just want to complement you guys that for resist the temptation, just spend all the free cash and put some on the balance sheet, I think is the right thing for the E&P industry for oil companies in the -- when you have excess cash flow to put into the balance sheet, and at some point that gets you to net 0 on the net debt. Anyway, two questions.
First, with the lower growth rate that you guys are targeting now, you have a great inventory backlog. So does it make sense that -- for you to look at some of the really long data inventory that it may take you 20 years from now before you get to trying to either monetize it, to sell it or through joint venture have someone else to develop and you receive the royalty or some other form?
The second question is that...
Scott Sheffield
Yes, no, yes. Go ahead.
Paul Cheng
Go ahead, Scott, sorry.
Scott Sheffield
Okay. I generally -- I can't remember two questions.
So it's better to give me one question at a time. On the first question, about long-dated inventory, the -- it's the same policy we've had.
We will continue to take our Tier 2 acreage that we have and try to divest on it over time. And I think with the oil price moving up, there could be more opportunities where people will approach us like we've -- and we've done that consistently over the last 5 years.
Secondly, we've entered into a DrillCo arrangement, as we have stated back in 2019 when I came back, that we would look at doing things like that. And that got put into place.
We've drilled 9 wells already. That's very positive.
And we're looking at extending that. So those are some of the examples that we're looking at, and we'll continue to do that.
What's your second question?
Paul Cheng
The second question is that Permian is clearly in excess takeaway capacity, and probably that will -- this situation will be here for maybe a number of years. So how that impact on your marketing effort?
And also, how you deal with your existing take-or-pay contracts? Is there any way that -- to maybe modify those?
Richard Dealy
Yes. Paul, it's Rich.
Yes, I'd say our contracts for firm transportation and move things to the Gulf Coast really are -- we have those now. And so with the lower growth rate, we have some extra capacity.
But with the Parsley transaction is -- a number of those roll off -- their marketing arrangements roll off contract. In a couple of years, we'll be able to move those barrels onto that pipeline commitments.
And plus that we have plenty of barrels that we can get in the Midland Tank Farm. So there's no concern on our part in terms of being able to get the volumes and move those down and get to the higher -- what we'd hope would be a higher-priced market with Brent prices in the refinery markets on the Gulf Coast.
I mean, clearly, where our differentials are now is that, yes, we've been slightly negative in 2020 and so far in '21. But long term, we still would think that prices on the Gulf Coast and export market will be better, but we'll have to continue to assess that.
And -- but given where the capacity is, I don't see us taking on any new commitments at this point, but we'll continue to honor the ones that we have.
Operator
And that concludes our Q&A session. I'll turn the call back over to Scott Sheffield for additional or closing remarks.
Scott Sheffield
Again, thanks, everybody. Hopefully, we'll get a chance starting in summer, late summer, early fall, where we can actually have some visits among all of us as we reach herd immunity here in the U.S.
So again, we look forward to next quarter. Again, thank you very much for tuning in to us.
Thank you.
Operator
And this concludes today's call. We thank you for your participation.
You may now disconnect.