Thank you, Ken. Good morning, everyone, and thank you for joining us for Pioneer's second quarter earnings call.

Today, we will be discussing Pioneer's strong second quarter results and our enhanced return of capital strategy. We will also present our continued strong execution, underpinning our low reinvestment rate and best-in-class breakeven oil price.

This is all accomplished, while maintaining our safe operations and environmental stewardship in the field. After that, we will open up the call for your questions.

With that, I'll turn it over to Scott.

Thank you, Neil. Good morning.

Obviously, we're very excited after talking about it for 18 months to announce that we are both accelerating our first variable dividend payment into the third quarter this year as well as increasing the payment to reflect 75% of second quarter free cash flow. After payment of the base dividend as our balance sheet continues to strengthen due to higher strip pricing as a result of improved oil demand and a successful vaccine.

In addition, we had 2 highly accretive transactions that also led us to making this decision and accelerating. When combined with the base dividend, total dividend payments in the third quarter will be greater than $2 per share or a total of approximately $490 million returned to shareholders during the third quarter alone.

Great. Thanks, Scott, and good morning.

Before I start on the slide, I just wanted to give a special thanks to our entire Pioneer team, including all the great people that came over from the Parsley and DoublePoint transactions, for the excellent job they've done in integrating both transactions this year.

Thank you, Rich. On Slide 12, you'll see Pioneer's high-quality asset base, which yields a peer-leading oil percent that drives our high margin barrels, positioning Pioneer is the only E&P amongst our peers to realize a corporate breakeven below $30 a barrel WTI.

This peer-leading oil mix, combined with our unparalleled breakeven oil price in the high 20s, not only underpins our operational and financial strength, it enables Pioneer's low reinvestment rate and drive significant and durable free cash flow and return of capital to shareholders well into the future. With that, I'll turn it over to Joey to discuss our strong operations.

Thanks, Neal, and good morning to everybody. I'm going to be starting on Slide 13, where our drilling and completions teams have continued their continuous improvement journey.

As you can see, since 2017, these two teams have seen more than 75% improvement in their completed feet per day and more than 65% improvement in their drill feet per day. This journey is even more impressive when considering our increased activity levels, including the integration of Parsley and DoublePoint.

As Rich mentioned, we've also seen the continued success of our simulfrac operations. Consequently, we're in the process of starting up our second simulfrac fleet.

Our capital projects and production operations teams are working diligently to upgrade partially in DoublePoint facilities to our operational and environmental standards. And our teams are progressing our ESG initiatives by trialing new low-carbon technologies to power our operations.

As in the past, we're only noting the improvements in drilling and completions, but I want to emphasize that we continue to see tremendous performance in our production operations, construction and water management teams. And as always, none of this will be possible without the great effort from our development planning team, our robust supply chain and other groups that support our operations.

Thank you, Joey. On slide number 16, Pioneer continues to hold all pillars of ESG of great importance.

I think one of the most important points with the recent Rystad report, the Permian Basin has declined over the last 18 months as since we've been talking about it from about a B a day to less than 200 million a day in regard to flaring. So, people are focused on reducing flaring to less than 1%, almost all companies.

We continue -- the biggest flares, continue to be the private companies in the Permian, and we need to continue to ask you in regard to if you find your private equity. We got to put pressure on the private companies in the Permian Basin.

We continue to promote a diverse workforce, which reflects the community in which we live and work. As you can see, when you look at our top 15 individuals that run the company, we're at 47%.

Lastly, we would like to welcome Lori Billingsley to our Board of Directors. Lori is an officer of D&I with Coca-Cola.

We're very excited to have her experience and our leadership play a pivotal role in navigating the changing global energy landscape. Our 2021 sustainability report is scheduled for release in the third quarter, which will include Pioneer's progress on the environmental targets outlined in the left portion of the slide.

And finally, on slide 17. Pioneer is committed to driving all of these values for our shareholders.

Now, we'll open it up for Q&A.

Yes. Thank you very much.

I appreciate the time and congratulations to you guys in introducing disparable or accelerating the introduction of the variable contracts that you've been talking about. I guess the first question is just can you give us a sense of how you're going to plan on updating the market around the variable dividend?

Is this something that we should expect on a quarterly basis, on a go-forward? And then also just talk about, as you look forward, the right payout ratio, do you see the potential for this variable dividend payout to continue to move higher over time?

Yes, Neil, thanks for the opening comments. The -- as you know, at the bottom of our slides, everything, including the base is subject to Board approval.

But our long-term intention is to pay up to 75% of free cash flow every quarter for the next several years. That's how we're running our business.

With the number of locations that we have, we have over 15,000 locations. We're drilling roughly about probably around 500 a year.

So, we have probably the largest inventory of anybody out there. So, we can go on and produce 5% growth and deliver strong yields for the next several years.

So, it should be the go-to energy stock. If you're focused on dividends.

we're focused on dividends primarily, it was because of the feedback when we talked to all of our shareholders back over the last 18 months, that was the focus feedback that we got. They really don't want buybacks.

They want to take the dividends and buy back our stock, they can do that. They want the ability to invest the dividends in any stock they want to was the feedback that we got.

So that's why we're focused and we have the greatest payout up to 75%. So the variability, obviously, will be commodity price.

One of the feedbacks we will ask for, we do not plan to do any hedging in regard to the variable dividend. If we do any hedging, it will be at the very, very low end.

It will be to protect the capital budget and balance sheet. If shareholders want us to protect the variable dividend, they'll have to give us that feedback in regard to hedging.

I'll stop there.

And it sounds like we'll get an update on the quarterly -- on the variable dividend on a quarterly basis going forward?

Yes.

Okay. And then the follow-up is just around M&A.

So two questions around this. One is, can you provide a little bit more color in addition to what you provided in the slides here about capturing the synergies associated with the Double Point transaction.

And just in general, do you view this as a buyer or buyers or a seller's market as it relates to A&D at this point? In other words, are you at the point as Pioneer given the inventory that you're really going to work on your existing asset base as opposed to pursuing incremental transactions for you?

Neil, it's Rich. Our focus is really on executing our program related to the Parsley and DoublePoint transactions along with the base Pioneer.

On the synergies, I think, as I mentioned, we've captured the G&A and interest. We're focused on the operational side and have identified over 50% of those that we're focused on incorporating into our plan, including simulfrac that Joey talked about, the longer laterals, integration of our facilities capital that and using that integration capital that we spent to -- or spending to upgrade the facilities related to Parsley and DoublePoint to our high operational standards.

And you'll see that when you see our sustainability report come out, some of the dollars, we've got high standards that we want to adhere to and you're going to see that in our sustainability report. And so those dollars are being spent to accomplish those activities.

And on your second question, Neal, the -- as I said, we had two became available, Parsley and DoublePoint. They were the best opportunities.

They had great Tier 1 inventory. We bought them.

There was nothing available at the current time. And I don't anticipate anything becoming available.

So there's no need for us to look at other opportunities at this point in time.

Terrific. Thanks guys.

Good morning guys.

Hi John.

Hi John.

It's great to see we have a variable dividend paid well ahead of schedule. And obviously, the mechanics of that variable dividend payout you lave laid out really well.

I'm trying to get a sense though on -- when I look at the base dividend, how the mechanics are the thought process works on the base dividend side of things? I know Scott, in the past, you've talked about that long-term plan assumes roughly like a 2% to 3% per year, average increase in the base dividend.

So if the variable dividend, as I've said in the past, the main toggle there is the commodity price, is the base dividend, is it mainly just linked to the balance sheet as leverage goes lower, that gives you the ability to raise that? Just any additional color on the base dividend?

Yes, on the base, we're still building in, just as you said, that 2% to 3% increase in the base that's still subject to Board approval, but that's our intention, is on an annual basis over the next five years to increase the base. So as we increase the base, keeping the strip the same, it reduces the variable a little bit so...

Got it. And then just my other question, is there any update yet on the Delaware.

We've got the one rig there and we're starting to drill those initial wells. That area looks to try to compete for some capital.

Just any updates on what you're seeing in the Delaware on the early results?

Yes, John, we're just getting started. We're -- just this quarter, we're putting our first rigs over there.

And so we'll have more data into this year or into next year on performance. But we fully expect to bring the operational benefits that we've seen in the Midland Basin to the Delaware Basin.

We're excited to get started over there. But it's just early at this point.

So I don't really have any results yet to share until probably early 2022.

Got it. Thanks, guys.

Congratulations.

Thanks.

Good morning, all and congrats on your quarter and variable dividend update. With my first question, I wanted to focus on ops.

Perhaps for Joey, are there any practical limitations that can limit your deployment of simulfrac ops program-wide?

Yes. One of the questions I get quite often because of the great success we've seen on simulfrac is why not convert all of our fleets to simulfrac.

And there's a couple of things that limit that. One, is logistics, particularly around water because we basically doubled the water requirements in one area if all of our frac fleets were working under some frac operations, we'd have to spend a significant amount of capital to upgrade our water systems and of course, logistics around the sand as well.

But the other maybe more trivial matter is also the number of wells on the pad. If you have an odd number of wells on the pad, it can have a slight impact on the efficiency.

But primarily, we want to make sure that we're efficiently deploying capital and we're getting the bang for the buck. So water logistics is probably the single most impactful thing that we look at to deploying simulfrac.

Understood. And staying on ops with my follow-up question, referencing Slide 10 in your prepared comments on moderal lengths.

I wanted to ask a 2022 activity question. As you guys internally prepared for 2022 from a permitting and infrastructure perspective.

Are there any broad activity outlines you could share with us on average pad size and lateral lengths that are possible for 2022?

Yes. I think as we've talked about in the past, as we talk about that pad size of basically four wells per pad on average four this year.

I think that's going to be fairly consistent for 2022. And then when we talk about longer laterals, we're still in the midst of developing the exact locations for 2022 and how many of the longer laterals will drill, but it will be definitely a bigger part of our portfolio in 2022 than what has been in the past and in 2021 as we've looked at that.

And obviously, the capital efficiency drilling longer laterals continues to improve. So it's probably an overall on 15,000-foot laterals on a drilling and completions per foot basis, 15-plus percent cost savings on an average per foot basis.

All right. Great update and thanks again for your time.

Sure.

Thanks. Good morning, everybody.

Thanks for taking my question. Scott, I've got two.

I think they're probably more for you. And I guess, the first one is on -- well, they’re both related to M&A.

There's obviously been some -- a little bit of criticism over the price of the DP acquisition. Obviously, all stock means your share price, given where it is today, you have an opportunity to reset the acquisition cost by buying in some of your shares.

Now I understand the variable dividend policy. But I'm just curious, if that ever occurred to management or the opportunity that's been given by this overhang that you clarified, your -- the implied acquisition price is a lot cheaper today, if you like, and you have a chance to lower that cost by buying in your stock or not?

Yeah, Doug. First of all, I think the market totally misunderstood the DoublePoint transaction.

When you look at unproved property and each of you all can do that on our balance sheet, we paid the same -- exact same price as we paid for Parsley. It's in the low $20,000 per acre.

So anybody is criticizing us, we're paying $40,000 per acre, had no idea what they're talking about. Secondly, it was a great transaction.

In regard to buybacks, I'm listening to the shareholder base. As we drive our debt-to-EBITDA below one, I've stated already in prior conference calls, that the -- we will definitely be subject to Board approval.

We'll be buying back stock when we see dislocations. So I'm a firm believer, when we're at the bottom of the markets, like we saw last year, I want to have one of the best balance sheets, so I can buy a lot of stock at $50.

And so, I think buying it at today's price, I think I'd rather distribute all of our cash flow, 75% or 80% of it back to the investor. So I sort of agree with you, but at the same time, I'd rather save my firepower, if we see -- I hope we don't see dislocations like we saw last year in the marketplace.

I've got more confidence in what OPEC is doing and creating stability, less volatility than we've seen in the last five years, over the next five years based on what's happening, what's happening with U.S. shale and other places around the world.

So that's how we're thinking today.

Okay. I appreciate answer.

We can take the acreage mark off-line. I think that's the output rather than the input, but I completely agree with you.

My follow-up, Scott, is a little bit more of a truce question. Similar to Cabot, S4 came out, and appeared at least, if we join the dots, to suggest that Pioneer has taken a hard look at Cabot.

So in light of everything that you said about the two best opportunities being Parsley and DoublePoint, I wonder if you could help us start with thinking that might have gone into that and whether you were drilling yourself out of the possible shell packages for sale in Delaware?

Yes. During the extreme downturn, we had a lot of discussions with a lot of different CEOs.

Obviously, just like Exxon and Chevron did at the top, -- And so, we don't comment on specific opportunities, but were looking at Parsley early on and continue to look at Parsley all during last summer. So, we are 100% focused on the Permian Basin and probably 99.9% focused, obviously, on the Midland Basin.

So, that's where our focus lies.

All right. Thanks for trying to answer the question.

Appreciate it.

Yes thanks. Congrats on the quarter.

I'm going to ask a question maybe a little bit more again back to the hedging and your strategy there. And certainly, I have to commend you for your effort to listen to investors and then appropriately adjust your business model.

But what feedback have you been getting from investors to this point on hedging? And has that determined the path you're moving forward at this point in time.

Yes. We have -- due to what's happened with COVID-19 and the ability to travel.

We're just now going to start getting out over the next few weeks and talk with several shareholders. Obviously, the conferences, it's sort of hard to get feedback through those virtual conferences.

We like to do it in one-on-one meeting. So, you're going to see the Pioneer team over the next eight to 10 weeks, travel throughout the US and talking to shareholders.

So, at this point, I'll have to reserve the feedback on what they give us in regard to hedging in regard to the variable dividend. So, probably it's a question for us in November to ask.

Okay. So, this is still a developing sort of thought process going forward?

Because I guess the point I would make is that certainly with your $23 billion of free cash flow outlook. And obviously, I think you've stated a pretty strong return to shareholder plan with that.

To a certain extent, obviously, that's underpinned by operations, but also the current commodity price. And so obviously, we know oil is volatile.

It looks good now, but like the thought process like why put that at the $23 billion of free cash flow at risk when you can lock some of that in. But it sounds like that's something that you all need to evaluate a little bit further with shareholders.

Is that sort of right?

Yes, that's right. Because it's totally changed.

We used to spend every dollar to drill a well. It would protect the capital budget primarily.

And now we're -- the free cash flow essentially all -- most of it all goes back to the shareholder base. So, we're going to visit with our shareholders to get feedback.

So, there probably won't be consensus above them, but it is something that we've done historically is get shareholder feedback and develop our long-term policies.

Absolutely. Look forward to it.

Thank you.

Good morning. Scott and team -- am I live this time?

Yes, it working. Sorry about last--

Not sure would happen. But anyway, Scott, I apologize I had time for belaboring this A&D question.

But in your prepared comments, I believe I heard you say we're not looking at any other big Midland Basin acquisitions. And I think -- so I guess, literally, you might think, well, are you guys looking to tack on in the Delaware Basin, but maybe the right way to think about it is it really you're at your core are Midland Basin company.

And so you really – the way to interpret that is that you really just focus on the Midland Basin is the future of Pioneer. So how should we interpret that?

Well, it's 95% of our company in our locations is the Midland Basin. So that's why I say that.

The Delaware, as Rich said, we're focused on drilling wells. We're moving in several rigs.

We're averaging one rig, but we're moving in more than one rig for a short time frame, and we need to develop our own economics, the returns at today's price look tremendous in the Delaware also. And so higher oil prices go, the Delaware is close to being equal with the Midland Basin.

So this inventory moves up significantly in the $60, $70 range versus the $40 to $50 range. So we're just focused on our current asset base and try to get every dollar back to the shareholder is where we're focused on both the Delaware and the Midland Basin.

We are continuing to do trades I think Rich may have mentioned we're doing drill code number two on our Tier 2 properties. We'll continue to look at small divestitures.

So there could be some small opportunities on the small side, but it's insignificant and doesn't affect free cash flow. And that's where the focus is.

Got it. Thank you.

And then -- And then, Scott, I wondered if you could offer your more kind of maybe macro thoughts, but maybe not so much on price, but what do you think the world is expecting to see in terms of volume growth from US onshore in 2022? And what do you think they're likely to get versus those expectations?

Most of the numbers I look at, yes, has the highest numbers. They're at 11.85%.

I think they're way too high. Most of the other in tanks that I look at, they're around 11.5%.

That's probably more realistic. But I'm still looking at about a 5% growth in the Permian and most other basins will be flat to declining.

And when you put all that together, we'll be lucky to grow 5% a year over the next several years in the US lower 48. That's my general opinion.

And I think as more companies deliver their free cash flow model, they can't change it. So just like Diamondback committed to 50; the Cabot Cimarex merger is committed to 50; Devon was committed to 50.

So more and more companies, whether they commit to 50 or 75, they're not going to change. And so I'm getting more comfortable with the fact they're just not going to grow that much US shale, which helps…

Yes, good morning. Just following up on the comments around the -- an appetite to buyback stock during a market dislocation, which would make sense.

But just to clarify, Scott, would you approach converting some of the variable dividends, the buyback for a period or would you remaining 25% of free cash flow to buyback stock is a supplement of variable in base? How would you approach varying buybacks during a differentiation?

No, a dislocation is what happened last year or in late 2014. That's what I call dislocations.

When – and we want to have the best balance sheet. So our debt-to-EBITDA gets below 0.5 in 2023.

So as it gets down to below 0.5, then we'll have the firepower, when we see a dislocation. I'm talking about a major dislocation.

I'd rather buy shares all day long at $50 instead of using firepower to buy shares at $1.40 or $1.50. I'd rather not risk the balance sheet and distribute 80% of our free cash flow back to the investor.

So that's the plan.

Got it. And then just, certainly, back to ops, can you just given the efficiency gains that you guys are seeing in potential future gains as you roll out simulfrac and the 15k laterals.

What is the rig count and frac crude count that we should be thinking about for Pioneer to maintain a 5% growth rate in 2022? And then thinking about the inflation that's percolating up through the industry today, how much of the underlying industry inflation do you think you'll be able to offset with efficiency gains around these initiatives next year, based on what you're seeing today?

Yes, Scott, it's Rich. On the just longer-term growth plans, like we've talked about before, I mean, to accomplish the 5% growth as you got one to two rigs that we would add, drilling rigs per year to accomplish that.

And so, that really how I would, from a modeling perspective, look at it going forward. On inflation, we are seeing some pressure and fortunately, our efficiency improvements and our long-term contracts have dampened that.

But overall, we're seeing it in tubulars, diesel, cement, chemicals, but we're also starting to see a little bit in labor as well. And so, for this year, we're projecting, what I'd call, in the mid-single digits of inflation, most of which were offsetting with efficiencies.

But in the back half of this year, we do expect that to grow to about 10%. And so that's something that we'll have to look at in 2022 of where do we see inflation versus what efficiency gains we've been able to capture this year.

So we're still going to be highly focused on getting efficiency gains, but I do think inflation is going to play a part in our 2022 capital budget.

Got it. Appreciate it.

Thank you.

You’re welcome.

Good morning, guys and thank you for taking the question. As I thought the acquisition and you all really helping clean up the Permian, can you provide what Parsley's flaring intensity was relative to where you've been at the lowest and same thing for DoublePoint.

Just trying to put it into a percent, quantify how big an impact the moves you're making in the second and third quarter will impact their flaring and then their venting.

Yes, David, I don't have the exact numbers, but we can get them for you. But they are definitely coming down and making progress.

They were higher than where pioneers were, but I don't have to -- I can't remember the exact numbers, but like we can get it for you. But definitely, the capital that we're -- from an integration standpoint and improving their facilities is a big focus and a big focus on those continuing to lower our emissions footprint.

So it's definitely something that we're spending capital on.

And David this is Scott. David, if you're looking at Rystad, we were down to one-tenth of 1% before the two acquisitions.

Now we're about half of 1%. And so, we're like number six in the Permian Basin.

Our goal is to get back to being number one. So that's -- when you look at the Rystad report, you can get a better feel, if you look at them on a quarterly basis.

That will be in your updated sustainability report, too. So that will be helpful.

Did you quantify the barrels of -- like you have some curtailment, because you do the pneumatics and you do the VRUs, maybe I missed the third quarter, like what amount of curtailment did you have? I was just trying to dial in an exact number of that -- this cleanup work that you all are doing?

Yeah, Dave, I don't have the exact numbers on that. What I'd tell you is our Q3 guidance is right where we expected it to be.

And so -- and it takes into account our focus on being capital efficient and making sure that our -- we're not overspending capital on facilities and choking back wells. So we still, as we've talked about in the past, have a choke back wells to be capital efficient, and therefore, we have lower IP rates and flatter declines.

But also it takes into account this integration capital that we're spending to upgrade the Parsley and DoublePoint facilities and the time that those are down. So it factors all that in.

And so really no change to what we've forecasted for the full year production guidance is exactly where we are in Q3 is what we would have expected.

Thanks guys. Keep cleaning it up.

Yeah, good morning. I wanted to get some of your thoughts on 2022.

Scott, you've outlined up to 5% oil growth and I wanted to get your thoughts on how CapEx could trend. There's obviously some pushes and pulls with $150 million of synergy tailwinds from Parsley and DoublePoint, there's simulfrac, but obviously some inflation.

So I know the Street expectations next year around 405,000 barrels for KBD for oil in just under $3.6 billion in CapEx. I was just wondering to see if you could maybe frame, how you think the business playing out relative to where the street is at for next year?

Yeah, Arun it’s Rich. It’s a little too early for us to comment on the details specifically for 2022 CapEx and production.

But I'd tell you that we're committed to our investment framework that yields that maximum of 5% oil growth for 2022. And then broadly speaking, I think that equates to much of what we said last quarter, about 400,000 barrels of oil per day for the year and about slightly over 700,000 BOEs per day for 2022.

Got it, got it. Okay.

Fair enough. And just my follow-up is in the quarter, you guys turned to sales, I think 157 wells.

I was wondering if you could maybe give us a bit of a mix between double point acreage versus maybe legacy Pioneer partly. And then how would you frame the well productivity on the acquired acreage on DoublePoint?

Yeah. Our teams did a really a great job.

As I mentioned early on about the integration and drilling completion efficiencies during Q2 were great. And so that led to the higher pop cadence during the quarter.

We do anticipate that to step down in Q3 in about 10% to 15% in terms of what that pop cadence will look like. But overall, our production was -- for Q2 was very strong.

We were very happy with the performance of all our wells. I mean, at this point, we look at them all this pioneer and so Parsley, DoublePoint, Pioneer wells all performed at expectation and did well.

So everything is progressing just as we would have liked.

Great. Thanks a lot Rich.

Thank you. Good morning.

Two questions. First, I think, is for Neal.

Can you give us some idea that how is the cash tax progression is going to be over the next several years given oil at the $70-plus currently? The second question is that -- just a theoretical.

Scott, if we look Scott, if we look out for the next, say, two or three years, in the event we still see OPEC is curtailing production to support the oil prices. Under that kind of macro environment, will Pioneer still trying to grow at 5% or that should Pioneer to grow the oil production net or under that circumstances?

Hey Paul, I'll kick it off and I'll turn it over to Scott. I mean, if you look at our current NOL balance, it's approximately $8 billion.

But if you consider the increase in commodity prices and the forward strip and the expectation for substantial free cash flow profile that Scott and Richard spoke to, our cash tax time frame did accelerate into 2023. So, that's based on the current strip and our free cash flow generation.

So, a slight acceleration, but good based upon the free cash flow profile. If you look at our current portion of taxes, those are state related.

So, that's kind of where we sit as it pertains to a cash tax payer and the profile on a go-forward basis. In regards.

I'm sorry, Scott, I was just asking when you become cash tax payer in 2023, what kind of the percent of the cash tax represent your total tax going to look like?

So, it starts to layer in, Paul, in 2023. So, we're not a maximum payer at that point, but it does layer in 2023, 2024 and start to step up throughout that timeframe.

Okay. All right.

Thank you.

Yes, on the OPEC question, Paul, the -- we say up to 5%. So, as long as demand is strong and I'm still on the assumption that the Delta variant is going to roll over.

People will continue to get vaccinated and demand is going to pick up significantly in the back half of this year and next year going into 2023. So, I still anticipate strong demand.

And as long that's happened, we'll be growing 5% a year. If for some reason there's any softness, we can actually -- we can easily back off the 5%, grow 2%, 3%, grow zero.

So, -- but right now, we're modeling 5%.

Thank you. I just want to make one observation or comment on the hedging.

Personally, that I actually -- lot of the people, you guys don't hedge, you can look at whether it's a single company or the industry over a 10-year, 20-year, 30-year, whatever you see, hedging is always a losing money proposition. I don't think the industry happen make money and with your very low breakeven requirement very strong balance sheet.

I'm not sure that why do you want to hedge your investors really want to get the upside. Thank you.

Hopefully, you're a shareholder and give me feedback, Paul.

Thank you for that. Most of the good questions have already been asked.

So, let me just chime in, which is uncharacteristic for me and say I truly appreciate the variable dividend strategy and the oxygen reducing cash return to shareholders and that modest growth. So, I'll just leave it there.

Thanks.

Thanks.

Hey, guys. Thanks.

Just one question for me, and it's really just a follow-up on the mechanics of the variable. I think the prior plan was to tie the variable component to the prior year's actual annual cash flow and just sort of pay that evenly throughout the year, every quarter, whereas the variable that you announced last night is tied to actual second quarter free cash flow.

So just to clarify a little bit variable now always be tied to the prior quarter's free cash flow? And if so, can you maybe talk about the trade-off between new format, which sort of pays out free cash flow and more of a real-time fashion, which I think is a real plus, but it also does bring a little bit more volatility into this quarterly payout.

Yes. I mean it's driven more the fact that all strip, since we announced our plan in last February, the all strip five-year-old moved up significantly.

We've made two highly accretive transactions. And we saw the benefit of what Devon was doing already.

So we decided to go ahead and move it forward. So it will fluctuate, but at least – I mean, it's like the third quarter is already pretty – is almost closed from a commodity standpoint.

Brent is trading in October already as of now. So you pretty much know the third quarter.

So it would be easy for I think analysts and investors to estimate the free cash flow with their models. Obviously, it will vary.

If we had gone the old route, we'd have to wait. It had been delayed 18 months.

That was the negative.

Yes, okay. Makes sense.

Got it. Thanks.

Thanks for squeezing me in guys. I just had a couple, hopefully, quick ones for you.

And congrats on the inaugural variable payments. Just curious, Scott, after the DoublePoint deal, if you look back where the 12-month strip was, I guess, there between then and now, you had a $10 move is the plan, I guess, still to drop those rigs and then bring that production down to a level of like 100,000 equivalent a day to maintain that.

Was there a weighing, I guess, against just maintaining that higher flush production that you had acquired?

No. That's still the plan.

No change.

And I guess just as a follow-up to that, as you talk about this potential for 5% growth every year, I guess is this always occurring as like a year-end process where there's -- it's arbitrary in terms of calendar, but is it making decisions for the following year always sort of in this fall time frame, where the 5% growth would be determined off of that point, or are there going to be points along the way throughout the year where perhaps there's a return-based function that chooses you maybe to be positioning for bringing more activity forward at that current point?

We had to make the decision to go to 5% in 2022 and early this year. You can't wait until the end of 2021 to go 5%.

You'll end up spending way too much capital. So our capital program is setting us up this year to go 5% with adding very few rigs, if any, we're dropping some this year.

And at most, we'll be adding back one to two next year. So we have to make the decisions a year ahead of time.

That's why it's best to have a great balance sheet, so you can drill through the cycle. But we also learned from what happened last year, we can shut down.

We shut down how many rigs, Joey, in a short time frame during the pandemic. I mean in two weeks, we shut down 18 rigs.

So I mean we've gone through so many down cycles over the last 11 years had to say that in 2009, 2014. And then 2020 that we've learned, we can make quick decisions at Pioneer and get to a free cash flow.

And what's amazing is 2020 was our first free cash flow model even in the worst oil price year. But that's how fast we can react and change.

I appreciate the clarity. If I could just squeeze in a quick one.

Just on the affluent water coming out of Midland's right now, where do you estimate the amount of the capacity that you'll be utilizing out of that system in 2022?

Yeah, it's still ramping up, but we can have the ability to take up to about 22,000, 40,000 barrels a day from that system. And so it really just depends on logistics and mechanics and hydraulics of the system and where the drilling is and we're going to optimize the lowest-cost water, which Midland is one of our lowest cost waters and -- so it's -- that's the game plan, and it's still being modeled, but it's -- that's basically where we would anticipate getting up to over time.

Thank you guys.

Sure.

Again, we appreciate all the questions. We look forward to seeing everybody, and hopefully, we can see everybody on the road at some point in time.

Stay safe, and we'll see you in November. Thank you.