Industrias Peñoles, S.A.B. de C.V.

Thank you, operator, and good morning, everyone. We are again dialing in from our respective home offices this morning.

With me on the call are President, and CEO, Matt Gallagher, Chief Operating Officer, David Dell'Osso; Chief Financial Officer, Ryan Dalton; and Senior Vice President of Corporate Development, Land and Midstream, Stephanie Reed. Our remarks today may contain forward-looking statements.

So please see our earnings release for a discussion of these statements and associated risks, including the fact that actual results may differ materially from our expectations. We also make reference to non-GAAP measures, so please see the reconciliations in the earnings release.

During this call, we will refer to an Investor Presentation that can be found on our website, and our prepared remarks will begin with reference to Slide 3 of that presentation. After our prepared remarks, we'll be happy to take your questions.

And with that, I'll turn the call over to Matt.

Thanks, Kyle. I believe the sign of true professional excellence, whatever the occupation is executing a difficult task and making it look easy.

That is exactly what our team did during a challenging second quarter and you can see some of those highlights on the left of Slide 3. Before digging into some of the team's accomplishments, I wanted to quickly remind those investors that might be newer to our stories that our asset base is located in the core of the Texas Permian Basin, as you can see in the map on the right, and we have zero exposure to Federal lands.

We consistently deliver high operating margins that have a deep bench of high working interest operated in locations to prosecute in years to come. Our strategy since early 2019 has been to extract optimum financial returns in a given market condition from our resource base, leading to increasing free cash flows, and increasing returns to shareholders, all while taking a leadership position in the ESG space.

With that, let's turn to Slide 4. Corporate Agility was imperative during the second quarter where oil price volatility surged.

We previously mentioned that we implemented a voluntary production curtailment strategy during the month of May and plan to restore a vast majority of that production during the month of June. So that's the one line summary conclusion you might read in a press release.

For getting from point A in May to point B in June, so much work went on behind the scenes to execute this curtailment strategy safely and responsibly and ultimately help deliver the cash flow uplift. It takes integrated operations that are best-in-class and continue to layer on new remote capabilities.

It takes collaboration and attention to detail across multiple disciplines, and our team of professionals made it look easy with safety, environmental stewardship, and cost efficiency always at the forefront of our decision making process. Moving on to Slide 5, from a macro standpoint, the second quarter represented an unforgiving stress test for much of our industry.

While the worst may be over, we harbor no illusions to the difficulties facing our industry, and Parsley Energy remains well built for that endurance test. During this challenging second quarter, our team did not merely run in place, but instead made strides on some of our key 2020 initiatives.

Corporate sustainability requires that resources be marshaled on two fronts. On this slide, we focus on the financial front, and specifically, on our unwavering commitment to delivering sustainable free cash flow through the commodity cycles.

As shown in the bottom graph, we turned the corner to free cash flow in the third quarter of 2019 and in lockstep initiated a regular dividend program. We have now notched four consecutive quarters of free cash flow generation and bumped up our return of capital program earlier this year.

Even during the recent downdraft in oil prices, our dividend remains well funded by organic cash flow. As a reminder, our initial 2020 budget called for at least $200 million of free cash flow at $50 WTI oil.

As oil prices have dropped sharply in March and April, we quickly adapted to protect our balance sheet prioritizing free cash flow and defending our dividend. This decisive action translated into a company record free cash flow in the second quarter.

We now expect to generate at least $350 million and that's assuming $35 oil for the rest of the year. And although we're still a few months away from our formal 2021 budgeting process, our mindset is that growth capital is not needed nor justifiable in a world with significant excess spare capacity.

We're at over 11 million barrels a day in June and swollen global inventories with OACD crude stocks over 3.2 billion barrels. That's over 300 million barrels above seasonal norms and COVID-related demand uncertainty ahead of us.

Let's be frank, North American E&Ps are in a battle for investment relevance, not a battle for global market share. Allocating growth capital into a global market with artificially constrained supply is a trap; our industry is falling into time and time again.

At Parsley we will avoid that trap and are committed to delivering healthy and sustainable free cash flow again in 2021. There will be a time when the world market needs growth barrels from the United States.

And when that day comes, I believe, Parsley will be uniquely situated to allocate efficient growth capital to meet that demand, while continuing to deliver free cash flow. We have also provided a full progress report on our broader 2020 action plan in the supplementary slides where you can see we're still on track to achieve many of our goals despite the global pandemic.

Flipping to Slide 6. I now want to provide some high-level direction on our plans for the second half of 2020.

As a quick reminder, with regional crude prices dipping below $20 a barrel, we shut down drilling and completion operations for most of the second quarter. In July, we reactivated two rigs and two frac spreads as oil fundamentals firmed a bit and prices consistently traded above $35, which is our baseline budget assumption.

Provided market fundamentals hold up, we would anticipate moving into a stabilized activity plan with four to five rigs and one to two frac spreads deployed in the fourth quarter. Turning now to Slide 7.

The graph on this page depicts what our stabilized activity plan translates to from a production standpoint with a lighter blue wedge reflecting our current base case development cadence. As we stated last quarter, we expect that if this stabilized activity plan were maintained, we would be able to hold fourth quarter 2020 oil production flat to subsequent year at a cost of roughly $600 million.

In 2021, we get a nice tailwind from the expected drawdown of about 20 to 25 drilled but uncompleted wells. This is roughly a $50 million benefit.

Additionally, our base decline shallows during 2021, requiring less replacement barrels in 2022, so all else equal $600 million would also be a fair assumption for a 2022 maintenance capital program. I'll conclude by reiterating that we expect to generate a healthy amount of free cash flow in 2020, and exit the year with a solid balance sheet, ample scale, a shallower oil-based decline, and visibility to sustained free cash flow in 2021 and beyond.

With that, I'll turn it over to David for more operational details.

Thanks Matt. Let's turn to Slide 8.

This slide was inspired by conversations with some of our top shareholders over the summer. The blunt question was essentially whether U.S.

operators should deploy any near-term capital against a $35 oil backdrop? The short answer for most of the U.S.

E&P industry is probably not. Unhedged returns on incremental capital deployed are non-existent and negative for most operators at $35 oil.

In our view, Parsley is amongst select few operators with the asset quality, cost structure, and scale to make a positive unhedged return on its second half of 2020 program at $35 oil. Let's unpack this slide a bit.

When we sanction a capital program for a given year, there are two big underlying inputs to the building of that budget, capital efficiency and commodity prices. Capital efficiency is something we can directly influence and track.

In short, it's a $1 of capital delivering oil volumes we expected. On the other hand, we have minimal direct influence on oil prices that so we can't control the level of conservatism baked into our price deck.

Let's start with a graph on the left, which is essentially an early look back at our 2019 program. This was our pivot year to optimize return at a resource level.

Given the focus on sustainable free cash flow, we thought it would be helpful to look at this through the lens of payout duration for when do I get my money back? The gray bar is the actual capital cost of our program, the cash that went out the door.

The solid blue bar is the actual unhedged cash flow, our programs generated after roughly one year. The dash blue bars are the unhedged cash flow; we would expect to receive over the next two years at current stripped pricing of roughly $40 oil.

And if you look at that gray X, you can see that when we initially sanctioned this program in late 2018, we were underwriting a program wide payback period of just over two-and-a-half years. That was using a $50 oil deck which is 5% to 10% below futures prices at that time.

So how is our 2019 program performed versus our initial expectations? We've delivered a better capital efficiency outcome than we forecasted, highlighted by lower than forecasted well costs.

However, oil prices fell sharply below our base case price deck earlier this year, extending our payout duration that we expect to roughly three years which is now marked by the orange X. This impact from a downdraft in commodity prices is why we methodically hedge our production and insulate our future cash flow stream.

Moving over to the graph on the right. This gets back to the original question, as a public company is really our investors capital that we're allocating to the second half of 2020 program.

So the question holds when do I get my money back? On an old price deck at $35, we're forecasting this reactivated capital program will payout in less than two-and-a-half years.

At the current strip price of around $40 oil, it would payout in a little under two years. In short, this is why we're reactivating capital in the back half of this year.

Turning to Slide 9. As I just mentioned capital costs are a foundational piece of an E&P's capital allocation framework and budgeting process.

Our team delivered strong drilling and completions efficiency gains, which led to lower than budgeted well costs in the first half of 2020. With modest development activity reactivated in July, we expect capital costs to take another step lower in the second half of 2020 and in-hand service costs deflation flows through our well cost.

Additionally, the Parsley team made use of the time afforded by our activity shutdown in May and June to accelerate some of our operational technology capabilities. We now successfully deployed 24/7 real time remote monitoring capability for both drilling and completions operations and have added to our 24/7 remote production monitoring capabilities.

These strategic capabilities can help us target further improvement in operational performance and capital efficiency. Moving on to Slide 10, as our industry adjusts to a lower commodity price environment the near-term, low cost operators like Parsley will continue to differentiate themselves.

In a second quarter that was anything but normal, our team executed both efficient production curtailment and restoration, without incurring any material and incremental operating costs. Our teams also continue to focus on integrating and automating key workflows through optimized lease operator effectiveness and help reduce downtime.

We'll also continue to tighten our cost structure with regards to G&A expense. During the activity slowdown, members of our team have been adaptive and willing to shift roles to help reduce our third-party contractor expenses.

I also want to highlight that the rapid integration of Jagged Peak accelerated our timeline for G&A synergy capture. In summary, despite lower production volumes than we had initially budgeted for, we've managed to reduce our forecasts and per unit operating costs.

This is a testament to our teams dedicated focus to control those costs that are within our control, to do it safely, efficiently in an environmentally responsible manner. And now I'll pass it over to Stephanie to review the progress we've made on one of our key ESG initiatives this year.

Thanks, David. Flipping to Slide 11, Matt mentioned earlier that corporate sustainability requires attention on two fronts.

And he and David both detailed our strategy on the financial front. I now want to zoom in on the environmental front and provide a progress report on one of our key ESG initiatives this year, natural gas flaring.

In January, we took over Jagged Peak properties that had collectively flared more than 20% of production over the course of 2019. At the time of our acquisition, we committed to reduce flaring on these acquired properties to below 5% by year-end 2020.

Over the past six months, we've delivered a steady reduction in flaring through a variety of Midstream Solutions and mitigation efforts. Flaring was also a key criterion applied to well selection during our voluntary curtailment efforts in the second quarter.

Overall, we've reduced flared volumes on Jagged locations by nearly 90% since January. While this is a feat in itself, it's also important to note that our flaring mitigation efforts are not confined to these newly acquired properties.

In recent months, partially improved Legacy Midland basin facility to lessen the risk of intermittent flaring going forward. Mitigating flaring has been a longstanding priority for Parsley, and earlier this year, we included a quantifiable corporate wide flaring mitigation target in our 2020 incentive plans for all Parsley employees.

The goal was to fold Jagged Peak into the mix and push corporate wide flaring back down below 2.5% by year-end. Thanks to the efforts and priorities of our team and Midstream Partners, we've made significant strides to eliminate routine flaring entirely from our operations.

And if you can see on the right side of the graph, we equipped our flaring reduction target six months ahead of schedule, prompting us to reduce our year-end targets to below 2%. I'm very proud of our team's desire to take a meaningful and proactive stance on this critical issue.

Accountability is critical to us corporately and delivering such tangible progress in such a short time on this key environmental issue speaks to volumes. And now I'll pass it over to Ryan to discuss Parsley's sound financial position.

Thanks, Stephanie. Now on to Slide 12.

Despite the challenging macro backdrop in the second quarter, our leverage profile and liquidity positions remain healthy. With a healthy free cash flow target in 2020, and visibility for sustained free cash flow in 2021, we will continue to prioritize paying down debt, returning capital to shareholders through our dividend program, and further strengthen our financial position.

Finally, I will note that Parsley continues to protect its cash flow through an active hedging strategy and we have now initiated a small hedge position in 2022. You can view our full hedged position in the supplementary slides.

Turning to Slide 13. We are now budgeting at $35 oil for the remainder of 2020.

In this context, we're tightening our corresponding capital budget to $650 million to $700 million, with more than 50% of that spending having already occurred in the first half of the year. Following strong operating cost control in the second quarter, Parsley is reinstating full-year 2020 guidance on unit costs.

As David mentioned earlier, despite lower production volumes that we had initially budgeted for, we have managed to reduce our forecasted controllable operating costs on a per unit basis. Finally, given ongoing uncertainty caused by COVID-19, we have not elected to reinstate detailed guidance on production and activity.

That said, the light blue stabilized activity wedge in the graphic below is an illustrative view of our base case plans at this point in time. To wrap things up, despite some macro headwinds, we continue to advance our key corporate sustainability efforts on multiple fronts.

And we will continue to do what is necessary to protect long-term shareholder value. And now we'll be happy to take your questions.

I was trying to get a sense, Matt, when we think about the four to five rigs sort of stabilized case that you all are comfortable with, it's a $35 oil price. And then looking at, which is obviously conservative relative with the strip that at least now is kind of over $44 for next year.

And I'm trying to get a sense of -- on the last call, you mentioned like around a $50 oil price that your bias would be sort of high-single-digit growth, but it sounds like we just at least in the current kind of uncertainty around COVID with demand et cetera then maybe it would require a higher price than that. I'm just trying to get a sense of how much of the conservatism in the way you all think about 2021 is driven by the uncertainty around COVID versus maybe how you all act in a more, post-COVID kind of world?

That’s a great question, John. It really you have to take it all into consideration the model can definitely deliver high-single-digits and free cash flow.

But we look at the macro environment, a quick flash and the price can be fleeting, when we have this type of spare capacity of over 11 million barrels in June of course, OPEC has a choice to adhere to their 2 million barrels a day increase, so there is going to be 9 million barrels a day of spare capacity here shortly. That's still the storage spare capacity.

So we don't see a need or a call for domestic road tariffs and the industry is falling into that trap over 40 years, say a quick flash in the oil price and they re-ramped growth. So we want to see the fundamentals truly firm up.

We obviously have a lot of risk associated globally with COVID reactivations. People are coming back-to-school but also how our fieldworkers going to endure throughout this reactivation.

So there's a time for conservatism in this industry, it is now, and we feel really good with the maintenance case for 2021. As you see that spare capacity get down below 5 million barrels, probably mid-2021 and you start to see the global inventories reduce that would be a signal that the demand destruction due to COVID has recovered and stabilized.

I think that's a good time to top growth. And our model is more uniquely positioned to deliver that and most lowest recycle ratio in the industry, relatively low declines for the shale sector at that point, and lower leverage ratio at that point as well.

So taking all that into consideration, given a low recycle ratios, we're really focused on the maintenance cap coming into 2021.

Great. And then my follow-up question yesterday there was a lot of discussion with companies about variable dividends, just sort of your thoughts just on a longer-term basis, kind of how you all view variable dividends as a potential another lever to kind of returning capital to shareholders?

Yes. We've demonstrated increased returns to shareholders this year after initiating a dividend last year.

We increased our dividend this year. We anticipate the strategy, the model allows for increased dividends over time.

So the base dependable dividend is our focus. And over time, we are going to have assuming things unfold in strip and obviously we're running maintenance for 2021.

And then evaluating the macro situation, we'll have a large amount of free cash flow and returns to shareholders will be a priority. So we'll look at all conditions but the focus is increasing that base dividend.

We really want to see if that has the impact of amplifying volatility for an investor or not. We want to deliver steady returns to shareholders.

So that's something we will be watching over time focuses on growing the base dividend in the near-term.

Hey, good morning, everyone. Thanks for the prepared remarks so far.

I guess, Matt, maybe starting with the second half of this year, obviously oil prices stabilizing activity we're starting to plan and you guys have some pretty good visibility to free cash flow. So I just kind of curious why not go ahead and do official volume guidance which would just be the missing piece of that equation.

And I guess should we still expect around 110,000 barrels as the exit rate for this year?

Very good question there, Gabe. I think we thought the cartoon, the chart that hasn't changed since our last slide deck is pretty straightforward.

We are in a stabilized case and yes, 110,000 barrels is our exit rate based on that chart. So we have tightened and reduced CapEx range in there.

But as we just ensure that there's no further ramifications from COVID, I guess out in the field operations really be able to solidify that shortly. But, yes, we're thinking mean on that chart for our views on volumes.

Awesome, thanks, Matt. And then I guess just as a follow-up focusing on the maintenance capital number looks like maybe there is a bit of questions over that number and sustainability over that number, if I just kind of look at where Street estimates are for 2021.

So can you maybe just remind us the D&C per foot assumption behind that number and then maybe elaborate a bit on the pieces that keeps that $600 million number flat into 2022? Thanks guys.

Sure, this is David. I remind that the capital assumptions that we put in per foot BCE for the second half of 2020 are the $900 million and $700 million for Delaware and Midland respectively.

For 2021, we recognize that the service cost side of things is going to be dependent on activity levels. I think other operators are starting to signal their plans for increasingly more on the kind of maintenance approach.

So that's probably indicative that runaway inflation is highly unlikely next year. But that $700 million and $900 million for Midland and Delaware respectively, is something that even in the case of some slight inflation next year, it doesn't change our view for 2021.

As you get into 2022, you lose this up drawdown lever that will pull in 2021. But what counteracts that in 2022 is the shallowing of the base decline rate.

And so those two things kind of offsets, we do view that maintenance cap rate is as durable either in past 2021.

Thanks. Good morning.

Just following-up on the maintenance capital program that you defined through 2022, which is very helpful. Within that scenario, conceptually, can you discuss the activity breakdown between Delaware and Midland?

How does that shift? Is it fairly static?

What would drive more allocation of capital of Midland East? Is this a rate of return process at the well level?

Sure, it is a rate of return allocation of capital. I would say 80%, 90% of that is, driving 80%, 90% of our capital allocations within the company and based on that with our mineral ownership, and portions of the Delaware basin, you'd see roughly a 30% capital allocation towards the Delaware in a maintenance cap year.

As you roll forward into 2022, you probably keep that absolute amount very similar. Additional growth may come from the Midland basin, if you look at it that way.

And we're looking around based on the cycle times; we see today 100 wells, 90 to 100 wells a year issue into that may delivery that maintenance cap volume.

Thanks. Matt, a question for you.

You've used $35 WTI as a defining number in your base case planning process turns out to be a pretty good number. Appreciate your thoughts in the macro earlier but how you're thinking about an upside case scenario for WTI and at what point do you reinstate your suspended guidance?

I think on volume guidance as we come into the August timeframe and put a sharp pin to the 2021 budget, there's a pretty wide range there on our $100 million range on the maintenance capital that will tighten, no doubt as you come into a formal budget cycle. So that would be the timeframe coming into the end of the year as we put a pencil to that.

And first part of your question, sorry, Asit?

On an upside scenario, planning scenario, your $35 scenario is pretty good.

Yes, that is just additional free cash flow for the company and prepared to. We have a $450 million tranche that comes up without penalty at some point, pay that off organically and then increase shareholder returns.

Thanks. Excuse me, thanks.

Matt, you had talked about trying to gain relevancy from investors here, how does an E&P as yours do that, how do you think you can compete versus some of your larger peers with greater free cash or even other sectors, obviously you've got the dividend but no to be really be competitive where do you think you need to get?

Yes, I think it comes down to financial fundamentals. When you look at our ROCE, we're going to be exceeding almost all peers on ROCE front go-forward.

I mean look at our CROCE very competitive. So it's a competitive business model across multiple industries.

And that's using the $35 base case. So obviously in this industry, we have a robust hedging position to protect the downside.

And an investor gets -- that call us -- an option call to increase oil prices down the road and then you need to ramp-up your returns to shareholders over time, as you mentioned. And I think over time that may need to be at a minimum equal to the S&P 500 yields but probably a little bit higher.

So that's what we're working for -- working towards building that cushion in the model.

Okay, understood. And then turning to flaring a little bit obviously you guys have made a lot of progress and I guess some of that's obviously in organic efforts others on it, I think you're scaling some of the Jagged Peak volumes and can you discuss that, it looks like your target would imply that you might see some of that come back online as you bring some production back on but when you step back and look at your targets, would you all curtail production in areas where you would have flaring just to limit the flaring is that the plan going forward?

Sure, Scott. Hi, this is Stephanie.

On the planning front, as you mentioned, I'm really proud of our team across our field operations, gas measurement team, marketing team, we really turned over a lot of stones. So we've evaluated marketing contracts, and then opportunities just to improve infrastructures in the field.

You mentioned curtailed volumes. We did prioritize those curtailed volumes back when we went through our curtailment time period in the second quarter, and it honestly really allowed us to bridge the gap to more permanent solution.

So as we brought production back online in June and more so in July, we didn't see that increase and I think that read through to the number that that we posted for the second quarter. And we absolutely believe that below 2% is sustainable long-term, and as a corporation, we're really focused on fully eliminating our routine planning in the field.

Hey, guys. Certainly appreciate the comments that you made just with respect to industries practices in the past ramping volumes into an oversupplied market, just wanted to kind of get a sense, if we do see that normalization, you certainly indicated that there could be some growth in the second half of 2021, I just wanted to get a sense other than sort of having the right signals in terms of lower OpEx spare capacity, lower global inventories, is there also sort of a leverage governor that you look at and you're going to planning on operating and with free cash flow no matter what, but is there sort of a certain balance sheet level in terms of leverage that you kind of want to be at before you can kind of start to maybe resume a little bit more growth.

And, what do you think the right leverage is saying a $45 oil for Parsley?

Good morning, Leo, this is Ryan. With increased uncertainty, commodity volatility, we think investors want to take risk out of the system; lower leverage is definitely part of this.

I think long-term we want to be let's say 1.5 times. The key for us when we look at our model, I'm sure I heard, you mentioned $45 is that, it is deleveraging, so we have a path to get there.

So we get there organically over the next 12 to 18 months. So, I'd say mid-1 would be a little comfortable spot for us.

Okay, that's helpful for sure. And I guess you guys certainly talked a bit about reducing the docs 20 to 25 into 2021.

Just want to get a sense, you're below that down kind of ratably during the year in 2021 or is that kind of happen in sort of first half or you just kind of take that low hanging fruit and get all those wells sort of online, just trying to get a sense of how that plays out?

I mean a little early given that we're still putting the formal budget together, but probably more ratable than very early surge in blow down. So there is a frac utilization that we have planned throughout the year in 2021, probably in that two-ish range.

So the idea of bringing on you had to bring on a bunch of spot spreads early in the year to probably aggressively pull down harder that is not our plan. We intend to do something a little more stable which would mean more towards the ratable side.

As we put pen to paper in a more formal way on our 2021 budget that'll come into even further focus.

Matt, I wondered if you could give us a sense you picked up a couple rigs here in July, you're going to pick up a couple more in October. Outside of the D&C costs per lateral foot, which is kind of I think kind of a trailing indicator can you give us a sense of what you are really going to be focused on as you ramp backup activity to make sure that you're delivering on the capital efficiency gains that you guys captured in the first half of this year and that you're actually able to duplicate and replicate that through your program?

Sure, Charles. Step one is the health and safety of our employees and our contractors and vendor partners out in the field.

So lots of work going through, backup plans after backup plans of what happens if a whole fleet gets impacted by COVID. And how do we quarantine properly.

How do we bring in the backup personnel? And so that's -- that's step one.

Step two, is as we say just defending and extending our efficiency gain. So we have to make sure we come out of the gate strong, which we have.

We just set a company record, maybe industry record for a three mile lateral in the Delaware basin and it was actually our quickest well TD regardless of length two mile or three miles. So three miler outpacing or two milers something for the teams to really pat themselves on the back over and is that a one-off event?

We don't know. So it's first out of the gate coming out strong.

So those are the things we're looking at efficiencies across the board.

Got it, those are helpful little anecdotes. And then this may seem a little far off at this point but I'd like to get your thoughts or your outlook on the landscape for M&A or A&D, however you want to term it, it doesn't seem like that's top.

It doesn't seem like it's on your first at the top of your list of priorities right now, but one would think at some point there will be some opportunities that emerged. So can you give your thoughts on the landscape and your appetite?

Well, you're right; they're on priority list, Charles. The inward model is so what we think is helping us get a rate of change both on the leverage reduction and the financial returns, we can deliver that we want to really focus on full cycle, ROCE and CROCE when we look at a lot of the chessboard in the landscape.

We're not necessarily certain that there's a lot of accretive inventory out there. So we're not going to be looking at companies based off trading value, it's got to be accretive on a rock basis to keep this Permian pure-play at the top of the list.

And we don't see a lot of opportunity there anyways. So then our focus is internally executing on our model and our financial drivers.

Good morning. Matt, my question is, you continue to had the right call to be quite conservative, early this year, but my question is given the great efficiencies you have, low cost, hedges, et cetera all that you have, is sort of that go-forward where you are right now that conservatism I would call it that you still have now is that more just based on macro beliefs or just certainly the returns are there, given your Op side, so I'm just wondering still what's driving that sort of strategically?

Yes, I think back in February, I gave a speech called the Shale New Deal. It talks about perception, it talks about pollution that our industry needs to address, and talks about delivering on profits.

So we have to deliver on the financial side and something's been broken for the last 15, 20 years. And part of that is getting out over our skews as an industry.

So I think it comes from that. And I think we -- we just really have to stay steadfast, have some patience, and deliver on execution and get that industry reputation back, improve the perception in our process.

No, I think that makes sense. And then I guess just as a follow-up then, I forget when not long ago, you all had kind of that minimum kind of shareholder return, is that what you think, Matt, is probably needed to guarantee probably too strong word but to show investors that there is that sort of combination, I know that you'd all put together when you look at growth and shareholder return kind of the -- that the bare minimum that you're confident, is that something you think then that's needed to bring investors back to our group?

Yes, that framework has to be delivered on consistently. That's, right, Neal.

And there's multiple things that go in to the framework and the cash flow deliverance, and the associated yield as part of it is going to be one very attractive thing here through volatile times and then have to deliver on actual hard returns to shareholders as well. So, yes, I would say the framework still holds.

Just a quick question on long-term capital allocation philosophically, as you look at the long-term growth rate for Parsley, and kind of where the industry seems to be shaking out around a kind of a 5% CAGR over the medium to long-term. I'm curious how you guys think about that in the context of your portfolio and your balance of moderate growth versus returning additional cash flow to shareholders?

Yes, it's also [ph] a framework type of question. I think you get into kind of a reinvestment rate discussion when you look at that and you're looking at there's a lot of discussion around the 70% to 80% reinvestment rate, we'd have to really moderate our growth at that -- at that watch our growth at that time of reinvestment rates.

Our maintenance cap is far below the 70% reinvestment rate really opening up a lot of opportunities and flexibility. So we'd probably be at that 70% number, the low-end of that range, the 70% to 80% range for the long-term is what our model can deliver and we think is healthy and meets the nice call on what's going to be needed out of U.S.

shale over time.

Maybe just a follow-up to that, if crude prices do recover over the next 12 to 24 months, one of the things that you've mentioned is an industry growth over the last five or so years has really been an impediment to equity price performance. I'm just curious if there's kind of a cap on the growth rates that you would like to kind of put in place over the medium term in order to recycle all that excess free cash flow back to shareholders via some of the things you've discussed on the common dividend or share buybacks or variable dividend over time?

Yes. I think it will be single-digits.

And then we're in that single-digits, we have some time to obviously 2021 to review and assess the macro landscape. The other big announcements, the BP announcement going from 2.6 million barrels a day down to 1.5 million and granted that some that's going to be divestiture 50% and so it's going to be natural organics are the other Europeans and majors going to follow.

So I think there's a lot to be watching on the global supply/demand dynamic, but we like that single-digit long-term growth rate as moderator right now.

Yes, hi, good morning. I guess aside from operational issues, Matt, you mentioned like a frac COVID and COVID just want to kind of get a sense how durable that stabilized activity plan is, what would cause me to deviate from that case?

Would it be just simply prices below $35 or is it something lower than that?

No, we'd have to see a pullback. We have some flexibility around that price.

When we had a base case budget, so we'd have to see probably below $30, we didn't go into curtailment, voluntary curtailment without glitches or what we see about a $20 million uplift price producing those barrels later than in those months but we didn't go into that until we saw basin realizations in the $20 range. So I would say below $30.

Okay, good. And I know you don't have any federal acreage but wanted to see if you -- if we anticipate that I've seen or if you anticipate any regulatory changes, if we get a new administration that could impact you and anything you can do to mitigate those potential changes?

We view ourselves as pretty insulated against multiple different administrations. We've thrived in vastly different administrations in the past.

We like to stay out in front and consider license to operate take it as a -- as an honor and try to be best in breed on operating requirements. So I think there's an opportunity to work with either regulatory environment going forward especially given our geography of our assets.

Good morning everyone and thank you for taking my questions. So just two, yes just two related ones for me, Matt, so let's say we do get back to an environment, you feel good about spare capacity, you feel good about the global economy, crude is sustainably 50 or higher, maybe 2022, 2023 whenever, would you for lack of a better phrase low grade activity towards the productivity from the 2019 capital program in order to take advantage of the entirety of your inventory backlog.

And then if you are back to that 2019 productivity level, how long do you think you could maintain a low mid-single-digit growth rate for I know in the past, you had kind of talked about inventory in terms of 10 to 15 years, but just trying to get a sense of where inventory might be in a lower growth mode moving forward?

Yes, I do want to kind of clarify, when I say single-digits as a governor, it's hard with the type of space decline shallowing we have, I mean once we get back on it, if you're looking at high-single-digits, even with just a little bit of additional activity and still being able to meet the lower end of the reinvestment rate. So it's just the nature of the assets that we have and the productivity.

That 2019 program could go on and we were running 15 rigs, it was a decade of runway of the 2019 productivity levels. To deliver high-single-digit growth, we're going to be nowhere near 15 rigs, probably sub-10, if you fast-forward a couple of years, so a long time.

It's actually Brian Singer here.

Hi, Brain,

Good morning. I wanted to follow-up on a couple of things that you mentioned earlier really on the -- what are the pricing points and balance sheet points at which you would commit more capital to shareholders and then also to activity levels.

And appreciate the level of specificity that you've provided with a number of data points here on this call? And I think you mentioned from the perspective of returning cash to shareholders, you want to see your balance sheet down to and I think it was one-and-a-half turns and then I think you'd made a comment with regards to having enough cash for some level of maturities.

But I wondered if you could clarify that. And then assuming you've reached that objective on the 5 million barrels a day of spare capacity is that essentially then the lever at which you would consider adding activity?

So thanks, Brian, for the opportunity to clarify there. So we in that -- in our declining leverage model, we anticipate room for growing shareholder returns along the way.

So as we approach that 1.5 target, we are baking in assumptions of growing shareholder returns. It's not a wait until, it's delivered along the way, in the form of dividends, current planning.

And then yes, that's it -- that's a good 5 million barrels spare capacity and lowering global inventories is definitely a good framework for us to evaluate additional rigs which would probably push the growth into 2022.

Got it, yes, thank you. And then you had mentioned earlier the expectations for your decline rates to decline as the activity levels have fallen.

And I wondered if you could provide a little bit more color on where that decline rate goes and whether your own internal expectations for how base declines are trending has changed here over the last few months?

Hey, Brian this is Kyle. So an expectation for us is still to exit this year for the fourth quarter of 2020 at a 33% kind of one-year oil decline rolling into fourth quarter 2021.

If you fast-forward to fourth quarter 2021, again assuming kind of an extension of that stabilized activity case around 110,000 barrels a day, that basic line would kind of continue to shallow out by two or three percentage points the next year. So that's how you offset, Dave was referring to earlier is helping maintain that maintenance capital around $600 million in 2022 as well.

Yes, good morning. Matt, one of the key themes from some of your peers in earnings season has been called the shift back to the Midland Basin from the Delaware and have seen some operators put some rigs at maybe ranch and I call it 70:30 split from another of your peers, how do you see Parsley's capital allocation between the Midland and Delaware shaking out over the next call it 12 to 18 months?

Hey Arun, yes very similar, 70:30 capital allocation split. And as you know, we do have mineral position on a large chunk of our Delaware portfolio, so that always helps in realizations.

And then as we talk about this framework of 2022 and beyond maybe the growth -- additional growth to this and this, price will -- would still come from the Midland Basin. And with respect to -- but it's going to be based on rates of return, capital allocation is going to be based on rates of return at that time.

Got you, got you, that's helpful. My second question is just kind of looking at sustaining CapEx, and we do appreciate the figures on the decline rate.

But as we understand it to keep your fourth quarter oil production flat caught at around 110,000 barrels a day that's 600 million this does looks very favorable relative to the peer group. So just wondering about what do you think is leading to call it a better capital efficiency number in 2021 and thoughts about that on a kind of a go-forward basis?

I didn’t want to clarify; you say it doesn't look favorable compared to -- oh, it does, yes because we saw the lowest recycle ratio almost in the industry. Go ahead, Dave.

Yes, Arun, I say the thing. Matt mentioned the asset quality earlier, that is clearly a big, a big piece of that but even compared to some other Permian operators, the pace of efficiency gains that we've had, we feel those are sticky, a lot of the technological capabilities that we put into place give us confidence that we can keep hold of those and push even essentially further as Matt mentioned the Delaware results.

So really the combination of material improvements and efficiencies, the fact that we still have the scale to command very favorable oil at that cost. And the fact that going forward the asset quality particularly with the capital allocation, we have plans for the near-term is just a superior combination.

So that's what drives the returns, even if these lower prices and we think that's what differentiates us from many others and even the basin.

Slide 19 out there tells that.