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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Pioneer Natural Resources Third quarter Conference Call. Joining us today will be Scott Sheffield, President and Chief Executive Officer; Rich Dealy, Executive Vice President and Chief Financial Officer; Joey Hall, Executive Vice President of Permian Operations; and Neal Shah, Vice President, Investor Relations.
Pioneers 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 and webcasts. This call is being recorded. A replay of the call will be archived on the Internet site through December 1, 2020. The company's comments today will include forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements and the business prospects of Pioneer are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from these forward-looking statements. These risks and uncertainties are described in Pioneer's news release on page 2 of the slide presentation and in Pioneer's public filings made with the Securities and Exchange Commission.
At this time, for opening remarks, I would like to turn the call over to Pioneer's Vice President of Investor Relations, Neal Shah. Please go ahead, sir.
Thank you, Nick. Good morning, everyone, and thank you for joining us. Let me briefly review the agenda for today's call. Scott will be up first. He will review our excellent third quarter results to discuss a few highlights from the quarter. Rich will then provide an update on our peer-leading cost structure, our continually improving 2020 plan and our strong financial position. After Rich concludes his remarks, Joey will then review our strong operational performance and best-in-class oil production. Scott will then return to briefly touch on our pending acquisition of Parsley Energy and Pioneer's focus on sustainable practices. After that, we will open up the call for your questions. Thank you.
So with that, I'll turn it over to Scott.
Thank you, Neil. Good morning. On slide number 4, we had strong third quarter free cash flow generation of $131 million despite low commodity pricing, which would have been $202 million had it not been for the effects of our corporate restructuring executed this quarter, which impacted cash flow of $71 million. That brought our G&A, you'll hear later down, cash G&A down to about $1.50 per BOE. Year-to-date free cash flow totalled approximately $400 million, forecasting $600 million of free cash flow for the full year at strip pricing.
Increasing our full year production while leaving CapEx unchanged, highlighting continued improvements in capital efficiency. Also continue to reduce our controllable cash cost by approximately 25% when compared to the full year 2019. And lastly, we announced the acquisition of Parsley Energy, creating significant accretion to free cash flow per share return on capital employment and other key financial metrics and expecting $325 million in annual synergies.
Going to slide number 5. Also, we had a great third quarter. Execution remained strong. Oil production was at the top end of our third quarter guidance range. The team continues to deliver terrific results with yet another quarter of free cash flow generation. Again, that would have been $71 million higher if it wasn't for the restructuring charge.
Let me now turn it over to Rich.
Thanks, Scott. I'm going to start on Slide 6. And as Scott talked about, our controllable cash costs continue to trend lower with a 25% reduction year-to-date when compared to 2019 levels. As our teams continue to improve efficiencies and reduce costs, we do expect to be able to drive LOE and G&A per BOE even lower over time. Our bond refinancings that we accomplished this year, including the new 10-year bond that we did in August at a rate of 1.9%, set us up well to continuing lowering cash interest costs going forward. In addition, we plan to refinance the partially debt once the transaction closes, which is expected to result in another $75 million of annual interest savings related to their debt.
Turning to slide 7. You can see our best-in-class G&A. You can see that our cost reduction efforts over the past 18 months has led to peer-leading G&A per BOE with a cash G&A cost of roughly $1.50 per BOE. As a result of our most recent restructuring, the organization is now aligned with the lower growth rate provided in our investment framework. And when combined with the synergies expected from the Parsley transaction, we anticipate cash G&A per BOE to be below $1.30 after the transaction closes and integration is completed.
Turning to slide 8. You can see with the continued improvements in capital efficiency, we are revising our full year 2020 oil production guidance from 208,000 BOEs barrels oil per day at the midpoint to 210,000 barrels a day, while keeping our 2020 capital guidance unchanged at $1.4 billion to $1.6 billion. Our new guidance really reflects the great job the team has done. They've done an excellent job in improving execution and cycle times, reducing cost and simply doing more with less. So they really -- we owe a lot of gratitude to what they've accomplished.
Given the full year production is revised higher, our fourth quarter exit rate will also increase to 202,000 barrels oil per day at the midpoint, up from 200,000 barrels of oil per day. Again, all while keeping our 2020 capital unchanged at $1.4 billion to $1.6 billion. We are currently running 8 rigs in 4 frac fleets, which is at the high end of our prior guidance ranges. This includes running one rig in our JV acreage as well as we recently added one rig in our DrillCo area, which is in the southern part of the JV. As we've talked about before, the DrillCo activity provides an avenue to pull value forward from our long-dated inventory with minimal capital exposure.
As it relates to 2021 capital, we are working through the Parsley transition and still formulating our 2021 capital plans, but we do expect to add some additional rigs during the latter half of the fourth quarter that are needed as part of achieving our base maintenance program for 2021. And lastly, we continue to have about 5,500 barrels of oil per day of vertical production curtailed just given where prices are at, but the majority of that unlikely to return.
Turning to slide 9, and you've seen this slide before, but it's meant to show really the strength of our balance sheet relative to peers. And given that strength of that balance sheet, Pioneer will be able to return free cash flow to shareholders much sooner than many of our peers that were required to use free cash flow to repair their balance sheets. After we close the Parsley transaction, our position will be the same on this chart, and we will continue to have one of the top balance sheets in the industry with an even better cash flow generation profile.
So with that, let me turn it over to Joey.
All right. Thanks, Rich, and good morning to everybody. I'll be starting on slide 10, where the story of efficiency gains continued in Q3. This, of course, translates into lower well costs and further improvements in our capital efficiencies has already been discussed. Well costs are now $2 million less per well when compared to our original 2020 budget. And even though we're just highlighting drilling and completions here, we're seeing similar gains across all of our operations. And I'd just like to say these gains would not be possible without the hard work of our entire staff, supply chain team and great partnerships with our suppliers and service companies. So thank you to all of you who have participated in this great success.
We still expect that approximately 60% of these reductions are sustainable. And lastly, given these strong efficiency gains and considering our current activity level, we are expecting to POP between 45 and 55 wells in Q4. Now moving on to slide 11. Starting on the left, once you normalize gross production for all peers on a 2-stream basis, Pioneer has the highest oil percentage. And then looking over at the right, we also have the best 24-month cumulative oil production. The punchline here is that Pioneer has the oiliest production mix and drills the most productive wells in the basin. These 2 facts, combined with our lower cost structure should lead to the best margins and the highest returns compared to our Permian Basin beers -- peers regardless of oil price. Once again, congrats to the entire Pioneer team on another great quarter, and I'm going to turn it back over to Scott.
Thank you, Joey. I'm going to slide 12, unmatched portfolio of top-tier Permian acreage. Our recently announced acquisition of Parsley Energy creates really the only Permian pure-play independent of size and scale with a great balance sheet. The acquisition is accretive on all key financial metrics, including free cash flow per share and corporate returns. Both companies have significant amounts of inventory. And while the combined quality of inventories are improved, the acquisition does not materially change the duration of either inventory. We are excited with our entrance into the Delaware Basin. Parsley has done a great job building a very continuous acre position that has several benefits when compared to the rest of the Delaware.
It's all in the State of Texas, so has no federal acreage or regulatory issues regarding product transportation across state lines. Very high net revenue interest due to significant mineral ownership, which enhances returns. They built out significant water and additional infrastructure that drives lower well cost and reduced operating costs. In addition, it has a very high oil cut. They have worked diligently to reduce flaring and emissions, and we'll continue to improve on those metrics. The graph on the right side really just shows a sell-side analysis, highlighting the significance both Pioneers and Parsley's combined top-tier inventory, relative peers across all US shale bases, not just the Permian. We probably have about 8 times the nearest competitor.
Going to slide number 13. The addition of Parsley enhances our investment thesis through improved free cash flow generation and stronger corporate returns. One of the main benefits of combining our top 2 tier assets is the ability to lower our reinvestment rate from 70% to 80% to 65% to 75%, generating more free cash flow for the shareholder. Also, our variable dividend proposition has improved through increased free cash flow per share. We continue to maintain 1 of the best balance sheets in the industry. While our 2021 net debt-to-EBITDA will be slightly above our target of 0.75.
We plan to gradually reduce our leverage to below this target, while improving return of capital to shareholders. We're currently in the process of formulating and evaluating our 2021 plan. There are still several unknowns that we will continue to evaluate during our budgeting process. The impact of the election, the timing of COVID-19 vaccine and in turn, the return and stabilization of oil demand, especially what OPEC decides to do in mid-November to December 1, OPEC meetings. I want to reiterate that our investment framework highlight on this slide is government by a reinvestment rate that prioritizes free cash flow, shareholder returns, corporate returns and a healthy balance sheet. The production growth is simply an output of this reinvestment rate. For 2021 at current strip pricing, we will likely be closer to the middle of the 0% to 5% pro forma oil growth year-over-year. We plan to pay our base dividend and accumulate additional free cash flow to pay our variable dividend beginning in 2022.
Going to slide 14, improving free cash flow profile. Our pro forma maintenance capital corporate breakeven is at a very, very attractive low -- in the low 30s WTI, including the base dividend. The combination of the top 2 inventories drives a highly accretive free cash flow profile and achieved double-digit accretion, inclusive of free cash flow per share. We expect to achieve synergies of $2 billion on a PV-10 basis over the next 10 years to drive additional free cash flow. Based on the pro forma market cap, we expect our free cash flow yield to approach double-digits in 2022, allowing for increased return of capital to shareholders.
Going to slide 15, a similar slide we've been using, showing that shallow is generated in a relatively low-emission fashion when compared to other oil development strategies. Not only is Pioneer developing 1 of the lowest emission sources of oil as you will see in the following slide, we are leading shell oil peers with very low flaring intensity.
Going to slide 16, again, continued strong focus on ESG. The combined company of Parsley and Pioneer has very low flaring intensity of 0.6% compared to peers of 1.7%. We will continue to Parsley these efforts to reduce flaring of a legacy Jagged peak acreage to improve these metrics further. Pioneer's contracts with the city of Midland Odessa to utilize effluent water and completions will significantly reduce dependency on freshwater of the pro forma company. This acquisition combines 2 key members of the Permian strategic partnership. The Permian is a foundation for both companies, and we look forward to continue to preserve, promote and improve Permian Basin communities. Our new sustainability report should be released this quarter and reflect significant strides in our effort to remain a leader in sustainable operations. Recent Rystad data just released this last week has brought the amount of gas in the total Permian flaring down below 300 million a day for the entire basin, both in Texas and New Mexico. It's the lowest since 2017, and that's on preliminary data for the third quarter. After the next 2 pipelines come on in the next 6 months, I would expect this number to continue to drop significantly. So since we started discussing flaring about 18 months ago, I think the basin has made tremendous steps with all peers. Going to slide number 17. Pioneer is committed, obviously, to drive value for all of our shareholders.
I'm going to stop there, and we'll open it up for Q&A. Thank you.
[Operator Instructions] Our first question comes from John Freeman with Raymond James. Please go ahead, sir.
Good morning, guys.
Hi, John.
Scott, when you mentioned that next year, you anticipate being sort of in the middle of that 0% to 5% growth. I just want to make sure that I'm on the same pages, that's pro forma with Parsley?
Yes.
Okay. And so I guess we just assume until otherwise, it basically, it's probably Pioneer legacy Pioneer assets are kind of around that 5% growth you've talked about previously and Parsley is kind of in that closer to the flattish type of a profile, that how you're getting kind of that number?
Yes. We haven't changed Parsley at this point in time. They've come out with a maintenance program over -- going into 2021, keeping production flat. And also, if you noticed over the last week, John, the all strip for Brent, just last week, got down to $39.50. So it's dropped about 12%, 13%. It's back up to $43. So obviously, with the second -- call it, the second or third wave and upcoming OPEC meetings, as I've mentioned in my previous comments, we'll have to decide. So previous comment on the 5% production growth was based on -- last quarter, it was based on a 45 Brent strip. And so we really have to believe in what the strip is going to do during 2021. That's why we're leaving flexibility.
Okay. And then just a follow-up, Scott, where would that -- this kind of growth outlook, where would that put you on the reinvestment rate at the current strip for next year?
At the current strip, it put us at the roughly midpoint of it, probably?
Midpoint. Okay. That’s great. Appreciate it guys. Well done.
Thanks.
Thank you. Our next question comes from David Deckelbaum with Cowen. Please go ahead.
Good morning, Scott and team, thanks for my questions today. Curious just that you made some more headways on the well cost side this quarter, maintaining that 60% is sustainable long term. At $6.8 million, do you see more efficiencies going into 2021 with the Parsley acquisition that would be in addition to some of the synergies you've already identified? And what are your early observations on some of the improvements you can make on the pro forma well cost side going into next year, or should we be thinking about -- it appears the CapEx guidance that you've given before, isn't necessarily incorporating these leading edge rates. So just curious what you're seeing there.
Yes, David, we're still -- the team is working on it every day to continue to drive down those well costs. So that's something that will be continue ongoing with different technologies and different efficiency gains that they're working on. In terms of the partly acquisition and the synergies that come from that, it's really the ones we've enumerated before in terms of shared tank batteries, using our water infrastructure that we've talked about, that we'll see benefits, pressure pumping equipment that we have under contract, our other contracts on sand and diesel, for instance. So it's those type of things, John. The LOE side will be route maintenance and routes and optimizing those within the field is properties that are adjacent to each other. So it's all those types of things that the teams are working on through the transition period right now to really enhance those efficiencies and capture all those synergies that we laid out as part of the transaction.
I appreciate that. My second question, is just talking about when you acquired Parsley the original call, I know some people were asking about your attitude toward the Delaware, how you view the portfolio and what's core I know the impetus for the transaction was largely financial in nature that creates free cash per share. Leverage ends up being neutral and then declines allows you to return capital more robustly to shareholders. But considering the inventory that you're picking up that you're not necessarily accelerating on, what have inbounds been like sort of post the announcement? Have you seen more interest on the DrillCo side? I think you commented at the time that obviously DrillCo capital is fairly dried up right now that the market for non-developed or undeveloped assets is pretty scarce right now. Have you received any sort of surprise inbounds of people that would be looking to put more capital into inventory that you're otherwise, for lack of a better return, not necessarily optimizing pro forma to bring that value forward?
Yes, David, I'd say the Delaware acreage, as we talked about, is kind of 10% to 12% of our acreage position, we do consider it at core. We got one rig that would be running there. And really because of the high NRI interest that they have here in the high oil cut competes very well with the Midland Basin on a chunk of that acreage. In terms of the inbounds, it's just too early. We haven't really seen anything at this point. I mean, let's get the transaction closed. They did have a small piece of Parsley over there that they had were marketing, and that probably will go through. So -- but otherwise, it's core for us. We're excited to get our people and really learn from what Parsley has done over there and see if we can jointly make it better. So that's the game plan going forward.
Appreciate it. Thanks a lot.
Sure. And just on the DrillCo, we've got that going in the Southern JV, and there may be other opportunities down the road. But we know we've got the 1 that we're involved in right now that's getting started right now with one rig, and we'll see what other in the future makes sense.
Thank you, guys.
Thank you. Our next question comes from Jeanine Wai with Barclays. Please go ahead.
Hi. Good morning, everyone. Thanks for taking my questions.
Good morning.
Good morning. My first question my first question is on the framework. And my second question is following up on David's question about the cost structure. On the framework, the 10% dividend plus growth target that was announced at I think it was 45 Brent and 42 TI you mentioned with 5% growth in mind. The strip is lower than that. You released a maintenance breakeven that's in the low 30s. So can you just provide some insight on your budgeting process for next year in terms of how much conservatism you layer into your price forecast given volatility in oil prices and uncertainty in the macro? And I guess, if oil prices further deteriorate, what's your appetite to go below maintenance levels in order to try to deliver still on that 10% target return?
Yes. Jeanine, I pretty much covered in that one slide, but there's a lot of caveats, obviously, timing of vaccines, the upcoming OPEC meeting. We saw recently the Brent strip getting down to below $40, it's back up to $43 today. So it's very volatile. And so we're going to take a look at it over the next 3 months and really not decide. That's why we gave a range. It could be 0. It could be 5%. But it's all depending on the activity. And so we're going to be somewhere in that 0% to 5%, but it all depends on what happens with all these other factors. So -- and we won't release our budget until sometime in mid-February.
Okay. Great. That's really helpful. Thank you. And my second question on the cost structure. Given your service provider partnerships, which I think is a little unusual and then also your scale. Are we at a point where the current cost structure from an OpEx and CapEx structure is relatively stable if we get kind of stable oil prices? I know you said 60% of the cost savings is sustainable. But I'm thinking specifically about other factors, such as workovers on the expense or in the capital buckets that may be coming back next year as you start re-ramping the program and starting to kind of more maintain that base production? Thank you.
Yes, Jeanine, great question. I would say that based on the current outlook for prices, where they've sit on the strip and where they've generally been this year post the second quarter, I think we would see relatively stable service costs in a price environment that sits like looks like that even with increased activity because they still think there'll be -- not many operators will have significantly increased activity in 2020 at those price levels, just given their balance sheet concerns. So I think we ought to expect, and we're looking at them as being relatively stable for 2021.
And would you mind just commenting on the workovers for next year?
The workover is very based on activity level. So I can't really tell you other than that we've picked up activity as prices improved in the third quarter, and we haven't seen any change in rates. And so as we move into next year, I think it will be a fairly steady state to what you saw in the third quarter, maybe slightly higher, prices improved some, but generally pretty flat what we saw in the third quarter.
Great. Thank you very much.
Sure.
Thank you. And our next question comes from Doug Leggate of Bank of America. Please go ahead.
Thanks everyone. Good morning. Scott or Rich, I want to take a look at slide 14, just for a second, I want to -- I just want to make sure, I am understanding this correctly. So the free cash flow at strip, I guess when you published this was low 40s. $1.2 billion of free cash. How would you allocate -- what are the priorities for allocating that free cash in 2021?
Yes. Doug, it will be a combination of -- like anything, when we look -- calculate that free cash flow, and that will clearly have -- as Scott talked about, the base dividend will be first, it comes on a free cash flow. And then second, will be a combination of balance sheet and variable dividend. We'll do that -- we'll calculate at the end of 2021 then we'll pay out the variable in 2022 is the game lane. But that allocation will be predominantly -- we still have the strong balance sheet. So it's still a fair amount if it's going to go to the variable, but there'll be a combination of both. We'll come out with more detail in February. And we're still working through the exact mechanics of it. And that framework, and we'll come out with more detail in February, but the gist of it is, it will be a balance between the balance sheet and the variable.
Right. So just to be clear, Rich, do we still need to wait to 2022 to see a variable paydown, or does it happen before that?
Right now, until 2022 is the plan for the variable to get paid out.
Okay. Thanks. My follow-up is just on going back to, I think, the earlier question on growth. Scott, you previously talked about 5% plus for standalone Pioneer. And obviously, with Parsley on an ex growth basis, you've come down to 0% to 5%. My question is, what about longer term? Are we back to 5% plus for the combined company, or are you setting the combined company to us at 0% to 5% guidance for the longer term?
As I said earlier, Doug, the growth is an output so our framework still stays the same on that 1 slide that shows 10% with the base, the variable and the growth rate, that growth rates and output. The key is to only spend about 65% of our cash flow on capital and have 35% available long-term for the base and the variable dividend. So we're still long-term in that same framework. I'm a firm believer that long-term crude will be -- Brent will be above $45. So it's premised on that to long-term also.
You [indiscernible]. Looking forward to chatting next week. Thanks fellows.
Thanks.
Thank you. Our next question comes from Arun Jayaram with JPMorgan. Please go head.
Yes, good morning. I was wondering if you could give us an update on how 2020 well productivity is trending relative to your expectations, you guys have messaged that it's obviously been lower just given, as you look to, call it, optimize infrastructure spend. I was wondering how the shape of the curve is playing out relative to your expectations?
Hey, good morning, Arun. This is Joey. Really, in the framework of your question kind of is the answer. Things have progressed just as we've described, and we continue to focus on capital efficiency and do everything we can to deliver as much oil as we can with the least amount of expenses we can. And what we do is we actually look at these on a quarter-by-quarter basis. And just as you described, even though their initial production rates may not look similar to what we've seen in the past as you progress throughout the next quarter into the next quarter, you see that those curves start to come back and match. So the cumulative production is very similar to what we've seen in the past, and we continue to see that trend, and we continue to focus on capital efficiency and minimize our infrastructure spend to make sure we keep our capital cost in line.
Got it. And my follow-up is just maybe a follow-up on the Parsley transaction. One of the, call it, the people, I think, do recognize the financial merits of the transaction, but 1 of the pushbacks that we've gotten is just the timing of the development of the Parsley assets, just given the fact that historically, Pioneer's well productivity has been a bit higher. So Scott, how do you address that and the fact that the concern that some of these Parsley assets may be developed a bit later?
Yes. Ron, it's Rich. I mean I'd say that a big chunk of their portfolio competes very well with our high-grade portfolio in the Midland Basin. I mean a lot of these locations are adjacent to where we're drilling. So those compete very well, and we talked about the Delaware and their high NRI areas. And so it will be a balance. And we'll get the portfolio together. We'll look for we have operational and synergies where we can use combined tank batteries and really be capital efficient, as Joey talked about. But from our perspective, a big chunk of their portfolio will look a lot like our portfolio and be developed over time, really commensurate with how we develop our portfolio.
And just maybe a quick follow-up, Rich. Obviously, on the supply chain side, Pioneer has an agreement with Pump, are there opportunities to leverage the supply chain to your advantage on the Parsley assets?
There are. And so we're working through those things now. But I mean, for instance, on the Pump, we have idle frac fleets that we'll be able to deploy on Parsley's assets. And so to me, that's just a benefit that we'll be able to capture as part of the combined entity.
Great. Thanks a lot.
Thank you. Our next question comes from Brian Singer with Goldman Sachs. Please go ahead.
Thank you. Good morning.
Good morning, Brian.
I wanted to follow-up on the discussion on oil growth. And as part of a follow-up on Doug's question. But just to start, at the midpoint of a 0% to 5% pro forma oil growth range for next year, if you're planning to grow the Pioneer legacy piece by about 5%, given the lower well costs you highlighted, can you just remind us the CapEx that would be needed there and the rig count that would be needed? And then from an oil production perspective, that would appear to imply just for the legacy assets, double-digit growth in the second half and wondered philosophically what interest level if the commodity environment is right? And it's supported within your reinvestment range, you would exceed 5% in a year not next year, but in the future year, or if you would drop activity as needed even at healthy oil prices to limit annual growth to 5%.
Yes. That's a long question, Brian.
Three parter.
First of all, we will -- yes, I know. We will never -- I stated before, we will never go above 5% long term, okay? So we'll make that clear regardless of what the oil strip is doing. We gave a range next year of 0 to 5. I can give you several scenarios. If the oil strip -- the Brent strip is closer to 40, we will most likely go to no growth for either company and just keep things flat. If the oil strip is very positive, 45 or greater we could move both companies towards that 5% range. And so we just don't know at this point in time. And we're just going to watch things. We got to watch the vaccine, the key drivers and the upcoming OPEC meeting to make sure they do not bring on an extra 2 million barrels a day, January 1, things are positive from what I'm hearing. And so those are two key events that we have to evaluate, which is going to have a great effect on the oil strip. So that's basically those 2 events is what we're waiting on before we set our budgets clearly for both companies for 2021.
Got it. So I guess what you're saying philosophically, though, is that for one reason you're at the midpoint of that range or at least part of your portfolio, the Pioneer portfolio exceeds 10% -- or sorry, 5% in going into 2022, you would just reduce activity and focus on free cash flow too, and limit the growth on an annual basis to 5%.
Yes. No, the whole focus is free cash flow. And just like I've said before, whatever growth rate we -- the output is what happens is that maybe the first couple of years, you end up generating a little bit more free cash flow. But between 0 and 5, it's not -- there's not that big a difference in free cash flow. And after a couple of years, they crossed the higher growth rate from 0 to 5 actually crosses over and delivers more free cash flow long term. Then just staying flat for the next 5 years. And so -- but the key driver is where the oil strip is going to be and the events and whether or not it's going to be 45 or above or 45 and below.
And Brian, only thing I'd add is that when we talk about the midpoint of the 0 to 5 is for 2021, that was -- the comments that Scott made was really predicated on a $43 strip today, and that clearly will evolve for all the reasons Scott talked about. And so therefore, that 0 to 5 will fluctuate as we see how commodity prices low because we get into next year.
And we haven't come out with capital. Yes. I think, Brian, you asked about -- we haven't come out with capital yet in regard to the 5% growth rate case for Pioneer only. We just say we won't do that until -- in February.
Okay. Great. And if I could just sneak in 1 more. You've commented in the past that you commented on this call on OPEC behavior as a key arbiter of your level of activity. And while there's a lot that's still unknown about the U.S. election. I just wondered, since this may become a focus area? How U.S.-Iran policy and clarity on U.S.-Iran policy and any implications for Iran production, how important that is as a potential constraint to your level of CapEx, waiting to have that clarity within the reinvestment range that you've set?
Yes. I think it will definitely take – if Biden is the President, it will definitely take a minimum of 12 months. So I look at it as an early 2022 event, to the middle of 2022 for Iran to bring on 1.5 million to 2 million barrels a day. They're already bringing on production, going through Iraq and other sources.
And so the world -- if you got the vaccine, the world is probably going to be back close in 2022 to a 100 million barrels a day. So that's another pickup of 8 million to 9 million barrels a day. So in my opinion, that gives plenty of room for OPEC and OPEC Plus to assort Iranian barrels of 1.5 million to 2 million barrels a day.
Thank you.
Thank you. And our next question comes from Neal Dingmann with Truist Securities. Please, go ahead.
Good morning. Scott, you've already talked, but I just want to make a couple more details on this. On the part – the part if you – once you settle that and pick up that debt. Just wondering, will that change on how you'll go ahead and address leverage, or will that just the way you've kind of been addressing leverage now, is what I'd call, a byproduct of your 10% annual return plan, will you continue with that?
Yeah. Really, from a leverage standpoint, we know it takes up our leverage ratio a little bit. And we're still going to have an excellent balance sheet and top-tier balance sheet. So it really won't change. And when we think about the variable dividend in 2022, what we pay out, we believe it will still be on a combined basis, either what – exactly what it would have been on a stand-alone basis or higher going forward.
And so, we really think the accretive nature of the transaction doesn't change that. We'll, over time, bring our metrics back down to below 0.75 net debt to EBITDA, but that will happen over time and still with no decrease to the variable dividend, but only an increase to the variable dividend based on our stand-alone plan.
No, that makes sense. And then just one kind of minor my point I was curious on. You're running just, I think, an extra frac spread that maybe a little bit more than the plan. Is this due to just taking advantage of low oilfield service costs, or are there other variables in this decision, just to run maybe a little bit more active on the frac spread side than planned?
Actually, it was always planned. So really no change to what we had planned all along of when we bring back that fourth frac fleet. So it was based on our existing plan coming into the year.
Neal, its Neal Shah. If you look at our range, the range was 2% to 3%. When we put out that range, we're running one frac fleet. So now running four, kind of, puts you in that range of that two to three. And of course, as we started the call off towards the high end of that range, but still within range, Neal. So that was always in the plan. So it's kind of consistent with how we envisioned layering on additional frac fleet throughout the year.
Okay, okay. Thanks so much.
Of course.
Thank you. Our next question comes from Derrick Whitfield with Stifel. Please go ahead.
Thanks and good morning, all.
Hey, Derrick.
Good morning.
Taking Brian's earlier question on election and in a slightly different direction. Assuming the likely outcome of a Biden Presidency and divided Congress, what, in your view, is your greatest regulatory and/or tax exposure in the near term?
Yeah. I think, first of all, based on the results of the Senate, I guess we're going to be down to key – two key Georgia races, but I would expect Purdue to win. So that would be 51 Republican on the Senate, and then they'll have the runoff in early January. And I would expect that person. So my guess the Senate will end up losing one seat to Republicans will be 52, 48.
In that regard, there should be no effect in regard to tactics going forward. I think what Biden will do. The big unknown for people that own federal acreage is that will he stop giving drilling permits. He's already said he will ban, he will not ban fracking, but he can do other things like stop giving drilling permits, which would affect New Mexico, Wyoming and the Gulf of Mexico and federal waters.
And so nobody knows whether or not he's going to do that, but that could have a major impact on U.S. production long-term if he stops giving drilling permits. Other things, you'll roll back some of the Trump's movement, like on the emissions of 2016, which we were totally against Trump doing that, but Biden would, obviously, with having the EPA under his control will probably roll back any of Trump's emission. So those are the bigger issues that I see that will affect the industry.
Thanks, Scott. And in light of the increasingly constructive gas macro backdrop, is there any reasonable natural gas price scenario where you potentially increase your capital allocation to the Wolfcamp B interval in 2021 and 2022?
No, it will have no effect.
Thanks guys, very helpful. Thanks for your time.
Thank you. [Operator Instructions] Our next question comes from Paul Cheng with Scotiabank. Please go ahead.
Good morning. Thank you. Two quick questions. Scott, I think in the past you guys stopped giving the inventory number, prospect inventory number. With the slide that you showed there, just curious that, is that a number that you can share? What would be on the stand-alone and also with Parsley on a combined pro forma basis, what you consider as your premium inventory look like?
Second question that in -- when we're looking at the combination, I mean, Parsley, the well productivity historically has been less than Pioneer, even though that, at least in the Midland, the land seems to be -- we need just adjacent. So we presume it's not the quality of the work. So is it -- when is the completion design, technical knowhow or any other factor? And how quickly you can improve that and maybe about your own design or young technical knowhow to improve those results? Thank you.
Paul, on the inventory side, it's us on quality, premium inventories, 10,000 plus locations, and Parsley 2,500 plus locations on a combined basis. So just to kind of give you an order of magnitude.
On your second question, the quality of the rock, their acreage is so adjacent to ours. Our team is looking forward to getting in and understanding and seeing what they've done with their completion designs, but we've got a lot of data because of the expansive wells that we've drilled. And so we plan on using that same as we did for the evaluation, that same technology in terms of how we develop the field.
So really look to – we'll really put our – what we've done. We'll see what they've done. If there's any improvements that we can make, we can learn from them. But then we'll also look at what we've done, if we can improve it, we'll do that. So it's really just the team coming together and figuring out what's the way to optimize the field and optimize the development and recover the most recent sources we can as capital position as Joey talked about.
Right. Is there a time line that -- how quickly do you think you would be able to compete that process?
The team is working on it now. So it's all underway. And so we plan -- in terms of our 2021 capital program that will be part of that capital program and baked in.
All right. Thank you.
Thank you. And our next question comes from Leo Mariani with KeyBanc. Please go ahead.
I just wanted to follow-up a comment -- on a comment that you guys have made about adding some rigs here in the second half of the fourth quarter. Just wanted to kind of get a sense, Scott, you obviously talked quite a bit about oil macro here. Is that sound like something that's definitely going to happen for Pioneer, or are you guys going to wait until potentially after hearing the OPEC meeting in early December to make a decision on that?
No, Leo, we're -- those decisions are in progress now and being made, and it's really to get to our base maintenance program. And so that's really these rigs would have been -- it was already contemplated in our capital program. It's baked in, it's really just as we move to 2021 and make sure that we're at least at the base level of our maintenance program, and these rigs are going to be needed. So it's planned and being executed as we speak, so.
Okay. So I guess that would lead to some type of modest uptick in CapEx in the fourth quarter as you guys look at it?
That's correct.
Okay. Very good.
But still within our range, though.
Yeah. Okay. You guys -- I'm really Pioneer as well as the rest of the industry has done a really good job reducing lease operating expenses here, during the pandemic. And just wanted to get a sense, do you think that a lot of these costs are going to be pretty sticky, so we're away in the 2021 in terms of being able to keep these off the books, or if we do get into a higher commodity price environment, eventually, are you going to see these costs start to creep back up?
Yeah, I would say a big chunk of them will be sticky, but there are clearly some that are service costs related that if you got something closer to $50 WTI that we could see some inflation. I don't see a lot of inflation between where we are today and there, but a big chunk of are just doing things smarter, doing it more efficiently, doing them with our own internal people. So a chunk of them, for sure, are going to be sticky, and there's a small percentage of it that would be subject to escalation with the service cost increase in a higher price environment.
Okay. Thank you.
Thank you. And we have no additional questions at this time. I'll now turn the conference back to Mr. Scott Sheffield for closing remarks.
Again, thank you very much. Everybody stay safe. We look forward to talking to you next quarter, next year. Thank you.
Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.