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Welcome to Pioneer Natural Resources first quarter conference call. Joining us today will be Scott Sheffield, Chief Executive Officer; Rich Dealy, President and Chief Operating Officer; Joey Hall, Executive Vice President of Operations; and Neal Shah, Senior Vice President and Chief Financial Officer.
Pioneer has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at www.pxd.com. A gain, 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 Webcast. This call is being recorded. A replay of the call will be archived on the Internet site through June 1, 2021.
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 the 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 Senior Vice President and Chief Financial Officer, Neal Shah. Please go ahead, sir.
Thank you, Nick. Good morning, everyone, and thank you for joining us. Today, we will be discussing our strong first quarter results and the highly accretive acquisition of DoublePoint Energy that leads to a stronger outlook with significant free cash flow generation. We will also detail the high level of execution our teams continue to deliver and the top-tier ESG standards to which we adhere. 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. Slide 3. Pioneer delivered a very strong first quarter, generating free cash flow of approximately $370 million when adjusted for partially acquisition cost. You can see that we increased our '21 estimated free cash flow up to about $2.7 billion. That's at strip pricing, which includes the contribution for the very accretive acquisition at DoublePoint and obviously, higher commodity prices as the strip continues to move up. You can see the magnitude of the synergies, $525 million, which will improve our free cash flow generation, which will be highlighted on a subsequent slide. And again, we'll remain focused on environmental stewardship and minimize flaring through our operations.
Lastly, you can see now with DoublePoint, we're the largest producer in the Permian. That brings lower cost of capital, economies of scale, shared facilities and infrastructure. And going into 2022, the company will be over 700,000 barrels of oil equivalent per day just in the Permian Basin in 2022.
Going to Slide 4. I think the key point here, solid execution from all levels of operation and our field drive strong first quarter results. Again, the outperformance have exceeded the top end of guidance, oil production, was due to our field staff, bringing our production back online sooner, in the wake of the winter storm and also the outperformance of new wells.
Going to Slide 5. As Neal mentioned, we closed yesterday on our DoublePoint acquisition, approximately 100,000 acres right in the heart -- core of the core of the Midland Basin. This will take our Midland Basin on up to over 900,000 net acres. This transaction generates double-digit free cash flow on accretion per share, enabling increased variable dividends over the next several years.
Now with the contiguous acreage and the operational synergies, just to give you an idea how dominant we are in the Midland Basin, we'll have 25% of the basin rig count and 25% of the basin frac fleet rig count. Again, allow us for continued synergies, drilling longer laterals on which Rich will talk about later.
Our production exceeded -- as discussed in the press release, production of DoublePoint exceeded 92,000 barrels of oil equivalent per day this week, which is way ahead of schedule, as we're moving forward to averaging over about 100,000 barrels of oil equivalent per day in the last 6 months of 2021.
Going to Slide 6, long-term investment thesis. When you look at the strip, last year -- I mean, of the strip over the next several years as it continues to move up and look at our model of growing oil production 5% per year over the next several years, our reinvestment rate will actually be below, we say 50 to 60% here. It'll actually be below 50%.
We generate strong corporate returns, double-digit returns. We'll continue to reduce our leverage. It's at 1 today. We'll continue to reduce it below 0.75 next year and continue to drive it down to a very, very low level. We remain committed to our -- really, our key thesis and returning most of our capital back to the shareholders. So we're targeting a 10% total return. We'll talk more about that later.
Going to Slide 7, compelling free cash flow generation. We're showing now, with DoublePoint Energy on top in the brighter -- darker blue color, adding about $5 billion of free cash flow over the next several years to 2026, increasing our total free cash flow at the company.
With the strip, and this is a strip a few days ago. So the number continues to move up with the strip moving up, generating $23 billion of free cash flow. As we have already stated, approximately -- this actually represents 50% of our current enterprise value, that 20 -- total enterprise value, including market cap plus debt.
The addition of DoublePoint is a 25% increase on top of our free cash flow. That's taken the $5 billion over the $23 billion -- $5 billion over $23 billion. I think what's key is that when you look at the current stock price, our dividend yield will move up from 1.5% to over 4% in 2022 and over 8% in the following years to 2026. That's at the current stock price.
I do have to have a call out for Devon and Rig's great slide, comparing their dividend to peers, I think we're in there around 1.5% toward the bottom quartile. They're showing them leading this year at 7%. Pioneer will move to second place next year, moving over 4, and then moving up to the top spot above Devon. And the primary driver is really just our low -- our margins in the high 20s, our low-cost basis in addition to the fact that we're paying out 75% of our cash flow versus Devon's 50%.
Going to Slide 8. Again, just emphasizing the variable dividend long-term shareholder return model. Last quarter, we initiated the mechanics of it. Mechanics will be paying out long term, roughly 75% of the remaining annual free cash flow after the base dividend is paid. When you look at -- including the base dividend, approximately 80% of the company's free cash flow is expected to be returned to shareholders. Between the base and the variable dividend, shareholders next year will -- should expect 8 separate dividend checks per year. Obviously, this is all subject to our Board approval, like we do on the base dividend and the variable dividend.
Let me now turn it over to Rich.
Thanks, Scott, and good morning. I'm going to start on Slide 9. And with the closing of the DoublePoint transaction yesterday, we wanted to provide an updated outlook for our 2021 production and capital. As Scott mentioned, DoublePoint is currently producing at 92,000 BOEs per day, and we expect to ramp them up to about 100,000 BOEs per day by the end of the quarter and with an additional 20 to 25 POPs planned between now and quarter end. We plan to maintain that production, 100,000 BOEs a day for the second half of the year. And so that's embedded in our updated guidance. And we also have adjusted our guidance to reflect the actual results for Q1 where we were able to recover production from the winter storm quicker-than-anticipated and along with the Q1 strength of our well performance and execution by our operating teams. So overall, we are forecasting 2021 production of 351,000 barrels of oil per day to 366,000 barrels of oil per day. And on a BOE basis, 605,000 to 631,000.
Looking at capital, we are adding $530 million to $570 million of incremental capital related to the DoublePoint transaction over the course of the remainder of the year. This is up from the bottom of our previous announcement since we were able to close the transaction earlier than originally anticipated. Total CapEx is now projected at $2.95 billion to $3.25 billion on cash flow of about $5.9 billion based on strip prices, which is leading to what Scott talked about, $2.7 billion of free cash flow for the year.
Turning to Slide 10. You can see our -- for a full year, that we plan to average 22 to 24 rigs and deliver 470 to 510 POPs. If you take that just for the remainder of the year, we plan to run with the addition of DoublePoint, 24 to 26 rigs and 7 to 9 frac fleets. Currently, we're at 26 rigs and 9 frac fleets. This does reflect the fact that we do plan on reducing DoublePoint rig count from 7 to 5 by year-end. And longer term, as we think about reducing our growth rate from 30% down to 5%, we can drive that down to 3 to 4 rigs as we are consistent with our 5% growth plan over the long term.
You can see on the map there over 1 million acres, predominantly in the Midland Basin, 920,000 and 100,000 acres in the Delaware. In terms of Delaware plans, we will start drilling our first well later this year. The team is looking forward to bringing that same efficiency gains that we've achieved in the Midland Basin to the Delaware and see how we can further improve our wealth returns, especially given the higher oil cut that we see in Delaware and the lower royalty burden. And just for a point of reference, first quarter production was 74% oil in the Delaware.
Turning to Slide 11. I want to provide an update on our planned synergies related to the Parsley and DoublePoint transactions. On G&A, we've accomplished $100 million of Parsley savings. So that's -- we checked that box. As it relates to DoublePoint, they're running about $25 million annually in G&A. We expect to bring that under $10 million on an annual basis, and we think we'll be there beginning of the third quarter of 2021.
On interest, we refinanced Parsley's bonds in January. If you recall, those were over 5% coupon. We refinanced those on a weighted average base well under 2%. And we plan on refinancing the DoublePoint volumes later this month. So along with paying off DoublePoint's credit facility that happened yesterday, we're going to accomplish our interest savings sooner than we originally anticipated, and we'll have that fully done by the end of this month.
On operational synergies, we are making great progress on those. We've been able to leverage our supplier relationships and are seeing significant savings on things of like pressure pumping, wireline, cement, casing and tubulars to name a few examples. We've also, and Joey will talk more about this, successfully tested simulfrac on our acreage during the first quarter, and we're seeing significant savings like the industry -- other industry participants in that $200,000 to $300,000 per well. So this is something that we'll be able to not only execute across Pioneer's acreage, but we'll also be able to execute that, I guess, across Parsley's and DoublePoint's acreage.
The team has also continuing to optimize our development plans to take advantage of existing facilities. So looking at tank batteries, water disposal, salt water disposal gathering system, reuse facilities and really optimizing those as we move into the 2021 -- 2022 program, sorry, to really take advantage of those savings.
And then as Scott mentioned, one of the other significant benefits of combining Parsley and DoublePoint is really adding to our contiguous acreage position. And what this allows us to do, is we've successfully drilled longer laterals out to 15,000 feet, really up from the 9,000 to 10,000 feet that we've been drilling at, really allow for a lot of locations that we can drill longer laterals on, which is much more capital efficient and really adding essentially the same production by drilling fewer wells. So it's still early, but it should add significant long-term value across our portfolio and just demonstrates the benefit of having contiguous blocking acreage to be able to drill that type of laterals.
Turning to Slide 12. Really, this just reflects our trend of what we've accomplished on G&A over the past 3 years, including the synergies from the acquisitions. We are forecasting G&A per BOE to be around $1.15 to $1.20 by year-end. And so, I think this is just an example of, really -- and highlights the focus of the company's had on improving returns and improving our return of capital to shareholders. So it's really lowering our overall cost structure. So you've seen us drive down well costs, lower LOE, lower G&A per BOE, lower interest per BOE, all with the idea of improving our free cash flow profile.
With that, I'll turn it to Neal to talk about breakevens.
Thanks, Rich. On Slide 13, you can see how Pioneer's high-quality asset base positions us as the only E&P to realize a corporate breakeven below $30 a barrel WTI within our peer group. As Scott stated earlier, it's this attractive peer-leading breakeven oil price that enables Pioneer's low investment rate and drive significant free cash flow generation and return of capital to our shareholders. This low breakeven price reflects the quality and the resilience of Pioneer's portfolio, underpinning our operational and financial strength and flexibility.
With that, I'll turn it over to Joey.
Thanks, Neal, and good morning, everybody. I'm going to be starting on Slide 14. Our drilling and completions teams continued their streak of resetting the bar with another great quarter of efficiency gains.
Our simulfrac operations contributed to these gains with the successful execution of 4 pads in Q1, where we were able to achieve approximately 3,000 feet of completed lateral per day. This is greater than a 50% improvement when compared to our program average. It's still early days, but we estimate savings to be in the range of $200,000 to $300,000 per well. We will continue to refine our simulfrac operations and conduct more trials throughout the second quarter.
You will note that our wells per pad projection for 2021 is down slightly from last quarter, and this is due to the integration of DoublePoint pads into our schedule. Still, our wells per pad continues to increase, which further contributes to our efficiency gains.
I know this slide only illustrates improvements in drilling and completions, so I want to emphasize that we are also seeing tremendous performance in our production operations, facilities, construction and water management teams, and none of this would be possible with those that support development planning, our robust supply chain and our expanding use of technology. I also want to thank all the teams for their efficient integration of Parsley and a great start on DoublePoint. We remain focused on delivering peer leading performance, keeping our people safe and reducing our environmental footprint. And so congratulations to all the teams for their contributions to our safe and efficient execution in Q1.
I'm now going to go to Slide 15. I know that Scott covered this in some detail last quarter, so I'll be brief. So this chart represents more than 64 million barrels of hydrocarbon liquids per day, including the largest national oil companies, majors and independents. Pioneer's operations produced barrels with one of the lowest associated CO2 emissions intensities globally. Our low-cost, low-emissions barrels will continue to be desired around the world.
And with that, I'm going to turn it back over to Scott.
Thank you, Joey. On Slide 16, the strong focus on ESG. Pioneer continues to hold all pillars of ESG of great importance. We've talked about our new sustainability report released late last year, which reflects our significant strides in reducing both Scope 1 and Scope 2 greenhouse gas and methane emissions, and incorporates emissions intensity reduction goals on both. Pioneer inclusive of Parsley is a very low flaring intensity of 0.4% compared to peers of 1.3%. We will also work to bring DoublePoint's assets in line with Pioneer's high standards of environmental stewardship.
We also continue to promote a diverse workforce, all the way up to the Board level, which reflects the community in which we live and work.
Again, on Slide 17, we're really committed to driving value for our shareholders and returning cash flow back to the shareholders over the next several years.
We'll stop there and open it up for Q&A.
[Operator Instructions]. And our first question comes from Neil Mehta with Goldman Sachs.
I guess, the first question is, in a short period of time, you've done two acquisitions here, both in Parsley and DoublePoint and just wanted to get your perspective, Scott, on whether you view Pioneer as a roll-up story and a natural consolidator in the Permian Basin? Or were these just two opportunistic transactions that made sense in the moment?
No, we are focused primarily on the Midland Basin. Two opportunities came to us. They came to us earlier than we had thought. They're great opportunities. They're both highly accretive, and we're focused on bringing those two. We pretty much have already accomplished the -- a lot of the synergies on Parsley because we had started so much earlier before we closed in last October.
DoublePoint, I'm confident our team will be able to bring that on. But those are primarily the two key components of Midland Basin and makes us stronger, as we talked about in the Midland Basin. The other opportunity I've mentioned in the past to our shareholder base and to other analysts is not available, the other large opportunity in the Midland Basin.
So fair to assume that you're going to take some time to digest these transactions before moving ahead with another one?
Exactly.
Okay. And the follow-up is on Slide 7. This is a really good one. And I just wanted to kind of walk through the math with you guys. Let me know if any of this sounds off. But you got $23 billion of cumulative free cash flow, $3 billion in 2021. So the period from 2022 to 2026, that 5-year period, you've got $20 billion of free cash flow. Over 5 years, that's like $4 billion of free cash flow per year. On a $40 billion market cap or so, it's 10% through cash flow yield. And I think on the next slide, you said you plan on paying out 80% of that in the form of a dividend, either fixed or variable. So is it fair to assume, based on this framework, we should be thinking about kind of 8% through the cycle dividend yield on the current market cap? Anything that I'm missing there? And anything you'd add?
Neil, you got the numbers perfectly, and that's why we stated what we had stated. And it's all -- you got to realize the strip is in a $10 backwardation. So if you take the current strip today and go out through '26, it's 10 years. So you can imagine what the free cash flow is, if you just march the current price forward through '26, the number significantly increases. So it is an extreme backwardation, even with the $23 billion. But your calculation of 8% plus is very good.
And our next question comes from John Freeman with Raymond James.
Anything else, Neal?
Can you guys hear me?
Operator?
Yes. Please go ahead, Mr. Freeman.
Yes, can you hear me?
Yes, we can hear you.
Okay, great. Sorry about that. So Rich, I just want to make sure that I heard right on one the...
Operator, did we lose you? Or are you still there?
Can you not year me? Just you, operator?
I can year you. Hold on just a moment [Technical Difficulty].
Okay...
All right, first of all -- we want to...
Sorry to interrupt that.
Hey, John. It's Neal Shah. Apologies to everyone on the line. For some reason we dropped. Not sure why, but we dialed in. We'll be sure to extend it to ensure we get all the questions in as required. But apologies on our end. We're back on. Happy to answer and take all your questions.
Great. This is John.
Sorry, John. We never heard your first question.
Hey, no worries. So I was just following up, Rich, on -- I just want to make sure that I heard right on the DoublePoint -- legacy DoublePoint. So after you dropped down to the 5 rigs to kind of hold that 100,000 barrels base flat in the second half of '22, did you say that it drops to basically 3 to 4 rigs, if you wanted it to kind of have the 5% sort of growth rate similar to legacy Pioneer?
Yes. I would say the first is that we dropped to -- we keep it 100,000 flat for the second half of 2021, not '22. And just free them at 2021.
Sorry, that's what I meant, yes.
And so, as we move into '22, we'll be in that 5-rig, but we're just saying longer term is their decline rate that's in the 40% -- higher 40% range moderates back to our 30 -- mid-30s to low 30% rate, that it'll will move down to 3 to 4 rigs to keep production at that 5% growth, consistent with our growth plan. So it's really -- that's what we think it'll take long term to grow their assets at 5%, consistent with growing our assets at 5%.
Got it. And then on Slide 11, we all sort of show the progress that all you've made on the synergies up to this point and what's to come. And then, Scott, you said, I believe, that you'd already sort of realized most of the synergies associated with the Parsley transaction. So does that mean that the $100 million that was sort of in the budget for the Parsley integration expenses, that, that will largely show up in the financials by 2Q? Is that the way to think about that?
No. John, I would think about it, it really is the G&A and the interest. We've accomplished those. The operational ones, we're progressing, but it's still going to be year-end before we get some of that capital tie in -- deep disposal wells to tie in, different tank batteries to tie-in water systems. So there's just -- and bring their standards up to ours in terms of environmental. So there's still -- that capital is still going to be progressing throughout the year. So we've made good progress on G&A and interest. Those are done for Parsley.
Operationally, we're well on our way on the supply chain side of things and other things that we've been able to accomplish, but it won't be complete until we get to closer to year-end.
Our next question comes from Jeanine Wai with Barclays.
Our first question is on maybe inventory. Now that Parsley and DoublePoint, they're both in the portfolio, can you update us on the number of Tier 1 inventory that you have at the current 5% growth rate? And what do you think the right amount of inventory is from a value perspective?
Yes, Jeanine, what I'd tell you, is with the -- adding these things, probably our Tier 1 inventory is close to 15,000 locations at this point, with the combination of the 3 transactions. And so, these are all premium locations that will get developed, even in low commodity prices. So that's really what we're focused on executing, and that's a long inventory out there to get developed.
Okay. Great. Sounds good. And then, maybe if I could sneak one in on 2022 since you have a little bit of longer-term commentary out there. Can you please talk about how you see activity levels in the back half of '21 once you've got DoublePoint fully up and running?
And I guess, I'm just thinking back to last quarter, pre-DoublePoint, when Pioneer was forecasting a strong 8% to 10% exit rate this year, 4Q-to-4Q, and that set up for a favorable 2022. But now you've got DoublePoint, it looks like the exit rate will be moderating a bit, could be strong -- still see very strong capital efficiency in 2022. But maybe just looking for a little bit of commentary on how you see the back half of the year and the exit.
Yes, Jeanine, great question. As I mentioned in my prepared remarks, we'll be running like 24 to 26 rigs and 7 to 9 frac fleets. But when we think about 2022, think about it basically on an oil basis being 5% growth on a normalized 2021. And when I say normalized 2021, I mean, assuming 100,000 BOEs a day for Devil Point, as for that number and then assuming that we had the 11 days from Parsley and adjusting for the weather. And so when you adjust for those things and look at in 2022, it's basically going to be in that 5% oil growth. And as Scott talked about, that will be slightly on a BOE basis, slightly over 700,000 BOEs a day.
Our next question comes from Derrick Whitfield with Stifel.
Perhaps for Rich or Joey. The revised 2021 operational plan is now targeting longer lateral lengths. To what degree to Double Eagle directly or indirectly impact that estimate based on their legacy plans or your revised legacy plans, inclusive of their position?
Yes, Derrick, I'd say we're still -- in terms of longer laterals, the team's working on that. But we -- most of our development plan for '21 and Devil Point and Parsley, as we talked about earlier, because of permitting and everything, those are already well established. So there may be a few tweaks here and there. But I would think about longer laterals purely coming into our portfolios more in the -- late this year, but more likely in 2022 as we can plan for them and get them on the schedule appropriate. And they'll just be part of our capital allocation process. Now that we have confidence in doing it and have experience, we'll start looking at just how that looks in our capital allocation and where those rise in terms of rate of return and focusing on those high rate of return projects first.
And as my follow-up and perhaps just to dig a little further on lateral lengths, wanted to get your view on optimal lateral lengths as we've noticed a few 15,000-foot laterals show up in state data. And specifically, could you comment on your appraisal activity to date, the technical challenges you're experiencing and where you think your efficient frontier is for Pioneer? Certainly, with your -- highly contiguous and blocky position and inventory depth, we believe you guys stand to gain the most from long lateral development.
Yes, Derrick, we've kind of taken the -- rather than jump in to the water, taking the slow approach into moving into the longer laterals. I don't know the exact count, but we've drilled quite a few 15,000-foot laterals already. And again, we'll continue to feather those into our program as the land opportunity presents itself.
In the early days, we were trying to mitigate the risks primarily associated with completions. But we've done a tremendous job, particularly on the drill-out side of being able to mitigate those risks, and we've seen minimal to no challenges. So long story short there, we'll continue to put those into our portfolio as the opportunity allows.
And I assume that on the appraisal question you're talking about, appraising the 15,000-foot lateral, Are you talking about the entire portfolio?
More around appraisal of the 15,000-foot lateral, but certainly, there's going to be an applicability factor within your portfolio.
Yes. No, you'll continue to see us drill more and more 15,000-foot laterals. One of the bigger challenges, like I said, is on the drill outside. And so where we were hesitant was on the shallower zones because you have lower pressures and it makes it more difficult. We've had great success, and our Parsley predecessors had some great success in drilling some of those shallower zones and being able to get them completed and drilled out. So I think that is just another opportunity that we've recognized, and you'll continue to see us expand our use of 15,000-foot laterals going forward.
Once again, Derrick, just highlights the benefit of having contiguous and blocky acreage and lease configuration to allow us to get to those lengths. They'll just be much more capital efficient going forward.
And our next question comes from Charles Meade with Johnson Rice.
I wanted to ask a question, and maybe this is for Joey. I'm not sure, but I wanted to ask a question to drill down a little bit more on the 1,200 DoublePoint locations. Can you give us a sense of -- this is picking up a bit on the long lateral question, can you give us a sense of what the average lateral length of those 1,200 locations is? And how they break down across, say, Wolfcamp B, Wolfcamp A, Middle, Lower Spraberry, that sort of a look?
Yes. I don't have the exact numbers here in front of me. But in general, the 1,200 are in -- you saw on the map, the blocky acreage in Midland County and down in Upland County. And so generally, they've been drilling 8,000 to 9,000 feet laterals. Typically, we're 9,000 to 10,000. So call it, that -- they're all going to be in that 8,000 to 10,000. But we haven't assessed their acreage yet for the longer laterals in terms of what that would look like. We surround all that acreage.
And so there's clearly going to be a big chunk of acreage that we can put 15,000 on. We just haven't done that work. So that's something we have to continue to do over the course of the next few months. And so more to come later on. I don't remember the exact counts by zone, so apologies for that.
Got it. Yes, that makes sense.
Predominantly, it's all -- it's in the core of the core. So it's all the same 6 zones that we're drilling in terms of Jo Mill, Middle Spraberry, Lower Spraberry A and B and D, for sure.
Got it. And yes, it does make sense. And so maybe a 5,000 or 10,000 could turn into a 10,000 or 15,000 foot location. And Scott, I think this is -- I'll ask a question of you on that Slide 7. And I really appreciate that you guys have given us a glimpse that we don't often get of, in this case, a 6-year plan. And it really -- to me, it really highlights the -- or kind of underscores the value in this group right now. But I wanted to ask you is, in your career at Pioneer or even some of the predecessors, have you ever -- do you recall another time when 6 years of free cash flow at the strip represented 50% or more than 50% of EV of a company you were working for?
No. In fact, Ember has put out a recent publication, and they used Pioneer as an example. We never did confirm the numbers. But what's interesting to me, they said we spent 133% of our cash flow over the last 10 years, and we grew over 25% per year, the last 10 years. And I think this new model, spending less than 50% of our cash flow and returning over 80% back to the shareholders is going to be a much better stock performance for us, for all shareholders at Pioneer.
And so I just think it's a unique model, and I hope all public companies stay disciplined. Because I'm very optimistic about the pricing environment over the next several years. So this is not going to be -- so the price is going to keep going up. I've been stating we're going to bounce around between 50 and 70. But obviously, we're going to be over 70 before we know it. And the one thing that's going to bring it down, it's not going to be supplied this time because U.S. production has moderated. It's going to be what -- how long will demand continue to pay a higher price.
And you have to go back to 2013 and '14 when oil was closer to $100 a barrel. And somewhere between $80 and $100 a barrel is where demand's going to reduce -- is going to take demand reducing the price. So I like the cycles, obviously, much better of too much supply coming on and tanking the market, and let's let supply/demand take care of us. So I'm very optimistic about pricing over the next several years.
And our next question comes from Paul Cheng with Scotiabank.
Scott, talking about -- you are more optimistic about the pricing outlook. And the company is also a very different company. From that standpoint, how should we look at hedging program for the company going forward. Should that be dramatically scaled back or even eliminated? That's the first question.
Second question is for maybe Rich. I think why now in the DoublePoint, you're running, say, 7 rig and you're scaling down to 5. So you're averaging about 6 rigs, and you're saying that you're going to stay about flat at 100,000 barrels per day. But then that for next year, you think that at 5 rig or more, you probably would be able -- as around 5 rigs, you will be able to grow at about 5%. So are you building a lot of stock for the remaining of this year? Just trying to reconcile why that the higher rig program for this -- for the second half of the year will only be able to keep you safe while by next year, that lower rig program will be able to grow you?
Obviously, we just had a little hedging for 2022. So far, our core hedge in the first half of '21 is on that. So that's why we have such stronger free cash model into the back half of '21. [Indiscernible] One reason we were doing more hedging in [indiscernible] into that [indiscernible] price range or probably [indiscernible]. Obviously.
And then, Paul, on the rig count, really on DoublePoint, we're moving from this -- the rigs down to 5 by the end of the year and then growing their production from that 100,000 to the 105,000. I mean, you're exactly right on those numbers.
Really, the plan in 2022 would be roughly around that 5-rig program. And as I talked about in John's question, that no longer term moving that to 3 to 4 rigs, but it's really just being driven because they have a steeper base decline rate, just given they've grown faster. And so this will moderate that growth as we cut their production growth from 30% back to 5, but it just takes a little while to get on that. We saw that back when we're -- looked at Parsley when they came in out of 2019, 2020. They were growing a big rate in 2019, slowed their activity in 2020 and then moderated their production back into that low to mid-30s like ours. So we anticipate the same thing happening with DoublePoint, and that rig count will move down to 5 and ultimately lower.
And you think that it will be so quickly that you can bring down the underlying decline curve that next year? At 5-rig you actually would be able to grow at 5% already?
Yes. I think you'll see that by end of 2022, that base decline on DoublePoint is back -- normalized back to ours -- like I said, we saw the same thing with Parsley. So I would anticipate being in that range.
And our next question comes from Neal Dingmann with Truist Securities.
My first question is on your well space and specifically, guys, I was wondering, would you all -- are you going to continue to largely co-develop? And then second, just what type of spacing are you still assuming on sort of primary and secondary zones?
Yes. Our spacing hasn't changed in that 800- to 900-foot ranges that we plan on doing that. And we're still looking at that full co-development and full -- as we call it full stack, where the geology supports it, and we're going to do either the full stack development for all the zones. So that's -- there's really no change in that development program.
Okay. And then just secondly, a follow-up on long-term free cash flow guide. I'm just wondering specifically behind that, Scott, that you laid out. I'm just wondering, could you talk about -- is the price assumption just on strip behind that? And I'm just wondering, baked on that, are you including sort of quarter in, quarter out, working capital and quarterly dividends? I'm just wondering sort of the -- maybe some of the expectations -- the assumptions behind that.
Yes. It includes -- it is the strip. As I said, it's about a $10 backwardation. So it's strip as a few days ago. The strip today is obviously higher. It does include increasing the base dividend roughly 2% to 3% per year on the base dividend, and includes our 50% payout next year and 75% after that. And growing oil 5% per year.
And you do throw in the working cap in there as well -- the change in working capital in each quarter?
Yes.
And moving to our next question. This comes from Scott Gruber with Citigroup.
Yes. So as we look at the backdrop of your inflationary trends, it appear to be intensifying. Obviously, you've seen steel prices move, chemical prices move and now the service companies are starting to talk about testing pricing. Can you just speak to your ability to offset the inflationary forces near term? Obviously, you have efficiency gains in your legacy assets and further gains on the acquired assets, simulfrac, and lateral extensions next year. Just some color on your ability to fully offset these inflationary forces here in near term.
Yes, Scott. [Indiscernible] inflation is being driven by raw materials. So as you talked about particulars and [indiscernible] sand, chemicals, cement, those are the things that we're really seeing profit, notwithstanding that inflation. We have not seen any pressure on strips, Scott. [indiscernible] at this point. We're offsetting that 4% to 6% of existing [indiscernible] on the efficiencies on drilling and completions operations, rebuilding these studios and so really offsetting that 4% to 6%, you expect it to be the case for the remainder this year [indiscernible] as well. So we don't see any pressure about that we have to completely offset [indiscernible] with efficiency. So at this point, that's an interesting additional inflection.
Got it. And just as we start to think about '22, should be -- analyst community starts thinking about some modest E&C inflation or do you think you'll be able to continue to offset reasonable rate of inflation into '22 as well?
We'll have to continue to watch it to see, but our assumption going into it is that we'll continue to see efficiency gains, and we'll be able to offset it with efficiency gains.
And our next question comes from Doug Leggate with Bank of America.
First of all, can you hear me okay?
I think so, Doug. Yes. It's a little vibrating.
So I've got one philosophical question relating to DoublePoint. And then one Neal, probably for you, a valuation question. I, for one, appreciate guys the free cash flow visibility that I think the sell side is finally figuring out how to value your business, which is a great thing below market. But my question on DoublePoint is you now preside over very significant growth in the basin. In other words, adding to global supply, which kind of goes against your philosophy, Scott, about capital discipline. So why would you still look to grow when you're already acquiring a very aggressive growth story at DoublePoint in 2022? Because it kind of contradicts a little bit what you're saying about industry capital discipline.
Well, no, I think -- I mean, our acquisition actually helps the situation, obviously. But if we could take out other -- if other companies would take out other private, that would help, too. But our deal was driven primarily the fact this is core of the core acreage. And we've focused on making sure that we hit double-digit accretion and that we can add value to all of our shareholders, and we had a significant double-digit accretion on variable dividend cash flow per share. And that was the key driver.
At the same time, we got to meet our corporate returns and beat all corporate returns, ROCE, CROCI and net asset value. So the transaction did that, too. So I don't know if that's answering your question, but that was a key driver. And I hope other privates are taken out that are growing too much. They still have a large part of the rig count, and I've answered the question that I just don't think privates are going to upset the OPEC situation at this point in time. And a lot of the privates are in the Haynesville, obviously, and growing the Haynesville significantly. So does that answer your question, Doug? Or were you...
Yes. I guess, just to be clear, the feedback we have is the fact that Pioneer is prepared to do this. Great bolt-on, no question about it in terms of the acreage because they're going to encourage other privates to go crazy drilling so they can sell themselves and that's kind of the worry. What behavior is this going to encourage? So that's really what was behind my question.
I don't think there's other -- I mean, to me, It'll be interesting to watch, let me see. I think the only deal that I know of right now -- well, Chevron has a package in Central Basin platform. Oxy has a package in the Delaware. So there's a few other deals that are out there. It'd be interesting to see what they go. But I don't know of any other privates at this point in time that are going to be able to sell in this marketplace.
Okay. My follow-up is, Neal, it's probably a few housekeeping data points if you may. And as that chart you referenced in Slide 13. So what -- how do you see your breakeven oil price and sustaining capital evolving? And given this is about a 13-year inventory, I wonder if you could just elaborate on the accretion mark. Because it's easy to accrete on the cash flow when you're using stock. But if you look at the $6.5 billion value versus a DCF of 13 years of free cash flow, the value accretion is not obvious unless you make a call in the oil price. So can you just walk us through how this changes Pioneer's sustaining capital? And how exactly you're defining accretion?
Yes. I'll start, Doug, on the sustaining capital. And sustaining capital, kind of -- it depends on where you measure it from, as you know. And so generally, we look at what I'll call maintenance capital towards the end of the year. Clearly, we've got from Q4 of 2020 to Q4 2021, growth. We've got the DoublePoint in full and Parsley in.
So when we think about maintenance capital, we'll come out later this year, really, based on fourth quarter of what that maintenance program looks like. But we've kind of got to roll that forward until then before we -- and kind of get all the pieces together. So it's still early for us to really say what that sustaining capital is to keep production flat long term just because we still need to incorporate and embed all these assets that we've brought together and the growth profile that we have this year. So stay tuned on that, and that'll come later this year.
And Doug, this is Neal. On the modeling and the accretion. I can tell you the way we approached this. We really did a well-level stick-by-stick, rolling the rigs in, frac leaks in on an annual basis, understanding the synergies that we can bring to bear, both on the Parsley and DoublePoint transactions. Calculating at our operating cash flow, the capital necessarily embedded within those annual years and then the free cash flow that we generated and then apply that in terms of how was it accretive, what did it do to ROCE, what did it do to CROCI.
And as Scott said earlier, the benefit to ROCE and CROCI were positive. The benefit to free cash flow was a double-digit accretive. And really, what we're looking here and as Scott alluded to, on that Pioneer model. I mean, it really comes back to the model and the assets. The assets and what they provide us and allow us to do is really drive that free cash flow generation with the high-margin wells with the low cost of capital we can bring to bear.
It's our goal in our ability. When I think about valuation, as you and I have talked about in the past, we look at free cash flow. E&Ps tend to trade in a pretty tight band historically on EBITDA. It's our goal that Pioneer will be able to disaggregate itself from that tight band, which E&Ps trade to trade consistent with other companies and other names and other sectors that generate a high level of free cash flow and return that capital to shareholders. I mean, that is our long-term vision and our long-term goal, really, to drive that appreciation and accretion and have it manifest itself within the stock price by returning that capital to shareholders over the course of time on an annual basis.
And as you well know, Neal, the multiple is the output of the free cash flow. So I appreciate the reaffirmation of that.
Our next question comes from Nitin Kumar with Wells Fargo.
I want to revisit Slide 7, really appreciate the look on the free cash flow opportunity. Could you talk to -- do you see any tax leakage associated with that? I know you talked about strip and 5% growth, but what is the tax impact? $23 billion is a lot of money.
So on the cash [indiscernible] the model as well. [indiscernible] we have about an $8 billion NOL. As you've seen in commodity prices, free cash flow, if you think back to our last quarterly call, Scott talked about $15 billion of free cash flow using -- bringing several [indiscernible] same price and [indiscernible] price deck that's moved up to something higher in the 23% range now, but that -- as prices have moved up, that's also accelerated our tax liability. And so, when we're looking at it before, we're in that '25, '26 time period of paying cash taxes with the improvement in commodity prices and the free cash flow from the synergies and the things that we're doing internally, that's accelerated that into that '23, '24 time period now. That's what's built into the model is that trajectory of paying cash taxes. Hopefully, that answers your question.
I appreciate that. Yes, it does. And look, making more money means you pay more taxes. That's life. Scott, my other question was for you. I appreciate the comments about the scale of Pioneer in the Midland Basin and especially the leadership you've had as a company in terms of greenhouse gas emissions. As you look forward, are there opportunities in terms of technology, given your scale where you can participate selectively in green revenues? I'm thinking of carbon capture or other technologies. Have you looked at that?
Yes. We -- some of the things we're doing, we do have 40,000, 30,000 acre ranches -- services that we're looking at both wind and solar farms on those. We're waiting for the extension of the tax credits on both of those in the infrastructure bill to go out to the marketplace.
Secondly, we're starting to electrify a lot of our practices. I see, over time, moving from diesel to natural gas or moving from natural gas to the grid. We'll be doing that. We're not getting as fast as the measures or Oxy is in the carbon capture. We're valuing it and studying it. We do have -- we talked about our enhanced [indiscernible].
But we do know that CO2 does work. It works as [indiscernible] gas. So as far as we were working an oxygen [indiscernible] research on both oxygen capture and hydrogen.
Our next question comes from Arun Jayaram with JPMorgan.
My first question is just thinking about 2022. Scott, you mentioned how production could exceed, call it, 700 MBOE per day. I'm just trying to think about what kind of oil mix would you anticipate, and some of the pushes and pulls on CapEx as we think about synergy capture from both deals, simul frac, et cetera and just trying to think about the 2022 outlook?
Yes, Arun, I would say, from an oil percentage and we still believe we're going to be in that 58% range is where we've been running. And so I don't anticipate -- maybe a be plus or minus 1% in there, but that's really the mix on that 700,000-plus BOEs a day.
In terms of capital, I think it's still just early. We're trying to get everything incorporated, get the synergies captured, look at the -- where we can get more capital efficient for 2022 just on facilities and tank batteries, longer laterals. So just a lot of moving parts. So it's hard for me to tell you today.
I would tell you that long term, we still believe that we have to add to grow at 5%, 1 to 2 rigs. And so that's for modeling purpose, I'd still assume that in your capital outlook. Hopefully, that helps.
Got it. Got it. Yes. And will the water system be a potential source of synergies as well, Rich, thinking about 2022?
Yes. I think when we look at the Midland system is coming on mid this year, so it just adds -- from an ESG standpoint, it improves our ESG of getting off of freshwater, but it also adds some of our cheaper sources or water or the effluent water from the cities and our reuse facilities. So all those are getting in the mix.
And we've got a very complex algorithm of how we use water. So it takes into account the source cost of the water, but also the -- how much we have to transport it to get by location. So it's a complex thing and they optimize it to make sure that we're getting the biggest benefit we can. So all those things will play into the 2022 capital budget for sure.
Okay. And my follow-up is just post the Diamondback -- one of the questions we've gotten was, given the close of DoublePoint is, what is the timing on the registration of the shares that you're going to issue to private equity as part of the transaction?
Under the agreement we had a short period of time afterwards, so that work is basically -- I can't remember if it's actually been done yet or it's coming in the near future, but it was just part of the transaction to get those registered after closing. I just can't remember if that's done already or it will be early next week.
Our next question comes from Scott Hanold with RBC Capital Markets.
Yes. Appreciate it. Big picture question on, obviously, the narrative about generating the $23 billion of free cash flow going forward. And I apologize, some of your answers, Scott, had been a little bit choppy with the line. So it may run over on the question on your view on hedging.
But maybe big picture, holistically, on the macro at this point. You've obviously talked about jet fuel being something that may take a little bit of time to obviously come back. We do see very robust oil prices right now. You've got pretty good visibility on the curve on free cash flow. So what is your view on the macro. Is it going to continue to strengthen in your view, so it doesn't make sense to hedge? Or should you really start locking in some of these prices to obviously recognize some of the free cash flow? Because as we know, oil can be quite volatile.
Yes. I talked earlier about the positive macro. We're probably going to pick up about 5 million barrels a day of demand. The rest, toward the end of the year. We'll pick up another 2 million in '22 and pick up another 1 million to 2 million in '23. A lot of that, as you said, is jet fuel and international travel. And so we're going to pick up 8 million to 9 million barrels a day, be back up to 100 million to 101 million.
The key is there's no extra supply. And so I think the market is going to continue to be tight over the next 2 or 3 years. So for that reason, I think the price will continue to move up. It'll test where demand starts falling off.
And that if you go back to the '12, '13, '14 time period, even though we had a supply issue there, we're not going to have a supply issue there. The oil price got up to $80 to $100. So I think it'd easily test those prices over the next few years. So we will probably do less hedging. If it gets up into that $75 to $100 range, you'll probably see us continue to do some freeways at that point in time to protect, obviously, both the base and the variable dividend, not as high as we've done in the past.
And when do you say $75 to $100, you're talking Brent, is that right?
Yes, yes.
Okay. And going really quickly to Page 15. And Joey, I think you, obviously, pointed out this chart, which positions you as, obviously, a very, on a relative basis, clean producer of oil. Have you guys gone down the path of looking at responsibly sourced oil? Obviously, there's some RSG efforts that are going on. Is there any opportunity down the road for you guys to get a premium for your barrel because you do have relatively low emissions? Have you explored that? Or is that something that could actually occur?
We're just in the initial phases of looking at that and so more to come on it. We don't have -- I don't have a good answer for you right now, other than that it's something that we're looking at and getting educated on it. More to come in the future.
[Operator Instructions]. And our next question comes from David Heikkinen with Heikkinen Energy Advisors.
As you think about your current well cost after the $200,000 or $300,000 savings, where do you stand now?
Currently, we're in that $6.3 million to $6.4 million range, if you look at our capital budget and completions, and that's what it would average out to be.
Okay. And then we're trying to think through the DoublePoint acquisition and the 1,200 locations you added, as you allocate some of that purchase price to those undeveloped locations, it's several million dollars per well. How do you think about the burden of the acquisition price on that inventory?
It's not unlike we did Parsley. I mean, it's going to get booked in our undeveloped property. And -- but as Neal talked about earlier, I mean, our evaluation on this was looking at it from a bottoms-up well-by-well standpoint and what the valuation of each of these wells. And so it'll just get moved over as we develop those, but we'll prioritize those in the hierarchy just like everything else and look at the synergies and the longer laterals, and it will just all -- just -- we're going to do whatever is most capital efficient and generate the highest rate of return and free cash flow. So that's what how we have always done capital allocation, and we're going to continue to do it that way.
So that doesn't ding the asset economics for those locations versus your other? Do you think about that as a sunk cost in your undeveloped inventory from here forward?
Yes. Once it's in inventory. That's right.
And we have no additional questions at this time. I'll now turn the conference back to our presenters for any closing remarks.
Again, we apologize for a 5-minute interruption. Again, thank you for listening to the call. Look forward to seeing everybody hopefully on the road at some point in time. Hopefully, things open up in the fall. We're bringing all of our employees back to work here over the next 4 weeks. So we're excited about that. So look forward to seeing you all. Take care.
And this concludes today's call. Thank you all for your participation. You may now disconnect.