Pioneer Natural Resources Co at Barclays CEO Energy-Power Conference - Scott Sheffield webcast: Conference Breakfast Keynote

Irving Sep 8, 2016 (Thomson StreetEvents) -- Edited Transcript of Pioneer Natural Resources Co presentation Thursday, September 8, 2016 at 11:40:00am GMT

TEXT version of Transcript

Corporate Participants

   * Scott Sheffield

      Pioneer Natural Resources Company - Chairman and CEO

Conference Call Participants

   * Tom Driscoll

      Barclays Capital - Analyst


 Tom Driscoll, Barclays Capital - Analyst [1]

 (Audio in progress) here today. We are very pleased to have Scott Sheffield here with us today. Scott Sheffield has been in Pioneer Natural Resources and predecessor companies for quite a few years. I got a little statistic earlier today that he has been serving as a public company CEO for 25 years, which is in the top 10 of all CEOs within the S&P 500. So, certainly long standing, certainly a great career, lot of lessons learned through lots of cycles. Scott will probably tell you how many, I lose track, but certainly lots of exciting cycles, both up and down. And clearly leaving on a high note, leaving this this company in great shape, we have Tim Dove sitting at the front table here. And if you folks haven't gotten to know Tim, I'm sure you will over time. And I promise Scott I'll be off the podium very quickly.

 And with that let me turn over to Scott.

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [2]

 Thank you Tom for especially inviting me to -- this is my last investor conference. I'll still do public speaking about the industry throughout the US and around the world over time, but this is my last investor conference. And so, I'm going to speak mostly about the Permian. And you heard Tim yesterday speak about the Company. So, I'm going to talk about the Permian, what it really -- I think it can do over the next several years. Talk a little bit about pricing and then end with a few slides on what I've learned over the last 31 years.

 You'll have seen some of these slides as we have posted over the last few weeks, as I have spoken across some places in the US and in Europe, but what's important -- and we came out, I think, in 2013 with the original slide when we set the Spraberry/Wolfcamp 75 billion barrels was the second largest field in the world. And we came out three years ago with that slide. I don't think a lot of people believe this and that's recoverable. And just to give you a number, the Apache discovery yesterday was very important in size, but all in place was only about 16 billion barrels, when you divide the 3 billion, divide [6 into 75 Tcf]. The all in place in the Spraberry/Wolfcamp is over 1 trillion barrels. So it was a 1 trillion barrel discovery made through the shale back in 2013 when we announced that. I know RSP has moved it up to about 99 billion barrels, but it's going to be somewhere between 75 billion to 100 billion barrels.

 When you look at the Permian Basin, it has produced about 35 billion barrels of oil equivalent to-date. The Midland Basin at 75 billion barrels, which is only one field. The Delaware, if you look at the statistics, it's pretty much six fields that make up the statistics there. And we're estimating, even though we're not in the Delaware, somewhere around 40 billion barrels to 45 billion barrels, because I'll show you a geologic map in a minute. There is about 5 million acres in the Delaware in the general area that what I'll call the best areas to be drilling and there is about 9 million acres in the Midland Basin.

 A couple other quotes recently. Rystad Energy is a consulting firm out of Norway, and more and more they are getting bigger and bigger, more prominent. They came out this last July and said US now holds more oil reserves in Russia and Saudi Arabia. And they're using a conservative number in their Permian number too. An important statement. Wood Mackenzie, I think most of you all know this. Midland and Delaware basins have the largest number of undrilled locations by far in the lower 48 and that's the obvious reason why the rig count -- the oil rig count is continually increasing in the Permian Basin and has about half the US oil rig count today.

 Geologically, we do have to explain the difference between the two, the Midland Basin and the Delaware basin. They are both Permian age. As I've said, the Midland Basin, the playing field is about 9 million acres, the Delaware is about 5 million acres. I think Apache may have increased it roughly 0.5 million acres, because most people on -- where they have -- we call that the [line of death], basically on the western side of the Delaware, where most of us really thought there was no oil and gas. So, they made a very, very important discovery, great success for John and Apache. I'm glad it's probably a little bit more gas than oil, so we don't continue to have too much oil from the Permian Basin.

 The Delaware probably is more broken up geologically than the Midland Basin. The Midland Basin we always say is more generally closer to infrastructure, it's easier to operate, and we're just fortunate enough to have most of our -- almost all of our acres, 800,000 acres right around Midland, Texas, which makes it very easy for us.

 Also, we have to explain why there is half the rig count as we speak and talk to investors around the world, but it's because the Midland Basin and the Delaware, there's 4,000 feet of shales. And I'm stopping at the Wolfcamp D when I say 4,000 feet. So it's gone from about 7,000 to almost 11,000. And I'll show you a log later. We do have Barnett and Woodford, Mississippian below our Midland Basin acreage. We just haven't happened to drill a well yet. So there is potential, there is a lot more zone, there are 12 zones. And we've only proven up about six zones ourselves and we're focused primarily on three zones; the Wolfcamp A and the B and the lower Spraberry shale. And we've proven up three more zones. Other operators have proven up the Atoka and the Clear Fork. It's going to take a higher oil price before Pioneer commits capital to proving that up.

 But this is the chart that we came out with in 2013. 75 billion barrels, really hadn't been updated. I think over time you will see downspacing, continued optimization, higher recovery rates. 75 billion out of 1 trillion, we're only getting 7.5% recovery rate. And so, I think over time technology will allow us to move that number on up to 10%, 12% over time.

 This is a chart showing the Spraberry/Wolfcamp and what it's done over the last few years. The first -- if you remember, when I joined the Company in 1979, I was the fifth employee. We had probably about 200 barrels a day in the Spraberry/Wolfcamp field, total production in the Company. And the field rocked along for a long time at about 100,000 barrels a day of oil equivalent for several years. Maybe eventually got up to about 150,000 barrels a day. [As you can see] in 2011 and 2012, through the Wolfberry play, going into the Wolfcamp and drilling vertical wells, bigger frac jobs, it started moving up and now it's been shifted entirely to horizontal drilling. And so, it's still growing significantly. And I will show you a slide at the end, this number will easily double. It may even get up to 3 million barrels a day at some point time of oil equivalent over the next several years.

 Also, the field is really the only growing field in this downturn, growing to stabilized production. You can see what's happened with the price of oil. This field is continuing to increase. And I'll show you a slide later with 70 rigs being added. I mean, the Permian will see the effects of that over the next few months, probably late this year, maybe first quarter to first half of 2017. But the Permian has been sort of flattish the last few months at around 2 million barrels a day of oil. And a lot of people forget that it does produce about 6 Bcf a day of gas. And I'm going to talk about long-term forecast on the gas side also. But the 2 million barrels a day, I would expect to see increases starting in the first half of 2017.

 We do have the Central Basin Platform that sits in the middle. It's mostly conventional secondary recovery and it's declining. So the Delaware and the Midland are both growing, overcoming the decline of the Central Basin Platform.

 Again, another slide to show what's happened to US production. We're down -- I look at the monthly numbers. Adam Szymanski has always told me, look at the monthly numbers Scott, because the weekly numbers are not accurate until they come out three months later with the monthly numbers. So, June is down to [8.7 million barrels]. We peaked at [9.7 million barrels]. And if you look at Eagle Ford, Eagle Ford has gone from 1.7 million to 1 million barrels a day, so it's 700,000 decline. The Bakken from 1.25 million to 1 million barrels a day, so it's [250,000 barrels a day]. So, really the Bakken and the Eagle Ford, the two big drivers for declines in US production. And I would expect their numbers are fairly close, they've adjusted them upward. I think you'll see maybe level out around 8.3 million barrels a day, is my guess. So I think there's another 300,000 to 400,000 barrels a day of decline in US production.

 A slide that just shows what's happened with the Permian, is really your last big shale play. Most people don't realize, most of the production was all held by production. And so, people ask us all the time, why was the Permian the last big shale play? Now it's 50% of the rig count. Just four years ago it was 15% of the rig count. People went after the Bakken and the Eagle Ford. A lot of leases were expiring. In the Permian, everything was pretty much held by production. So people took their time. And also a lot of small independents held the production, both in the Midland Basin and the Delaware. So it's taken time to move operatorship and change hands. And that's why it's taken a while for the Permian to really get going. Plus, it had 4,000 feet of shales. We're all testing 6 to 12 different zones over the last several years.

 I won't comment -- Tom mentioned I have gone through several downturns. I'll compare this downturn to the early 1980s. I think the big difference is, there were 6 million to 8 million barrels a day of excess capacity and it took 15 years to absorb that. Today I think the capacity is tight. I'll show a slide in a minute about the disruptions around the world. But the big difference is the extra supply back in the early 1980s. But definitely from a debt standpoint, they have 90 upstream companies going bankrupt, totaling $70 billion. It's as bad as the early 1980s, or probably worse from a standpoint of the number of bankruptcies and also the amount of debt that had gone under.

 This slide has gotten a lot of attention. Tim and I were on CNBC the other day. [Brian Selbo] was trying to pin us down to exact price, what was the breakeven price. Breakeven is -- what I look at is a PV-10 number, where you get your money back, plus 10%. And so, we took this Financial Times article, there posted -- in my opinion is Saudi is trying to shut down everything above Canadian oil sands and above. And so that includes most deepwater, most exploration, all sands, conventional around the world. And when you see oil prices get high enough, they start bringing those projects back on. I think we're going to have too much supply again.

 And so, what's happened is that the Midland Basin sticked out on top. Our breakeven price is below $30 a barrel. Our operating cost is $2 a BOE, plus taxes, is about $4, when you include the ad valorem taxes. And then our finding cost is in the $8 to $10 per BOE. So you can see that the Company -- and when you add G&A, if you want to fully burn that G&A and interest that gets up to $4, $5. And so you can see, all it takes is about $15, is your starting point, where you can make a lot of money. That doesn't mean you can grow at $28, $29, you can't. You just don't get enough free cash flow in that margin to be able to grow. And I'll talk about using the strip and what we look like over the next several years and with the Permian Basin.

 Also we got lot of questions yesterday about acreage values. Acreage values have moved up to the same price, or higher than they were in 2013 and 2014. I think it shows most companies that are not in the Permian or have to move with the Permian. Most of the Midland Basin has already been bought up. The highest price paid in the Midland Basin recently was [$58,000] per acre. People are generally paying [$40,000 to $45,000] per acre. And then in the Delaware, it's up to [$37,000] per acre. And so, things are being bid up, simply because there is a lack of inventory. People know that the Permian is very oily and they have to be there long term, especially if you believe in the strip pricing over the next several years. We do say that there is room to make money, but when you pay those prices, because we use a PV-10. When you take a 1 million BOE equivalent well and run it out, it's worth somewhere between $80,000 and $100,000 per acre. So that's why people are still paying up to $60,000 per acre. There is still room to make money if you believe in the existing strip price.

 What's unique about Pioneer? Almost all of our acreage has zero basis. So we don't have to pay -- our well costs are going be the lowest, because people when they show their well cost, they don't show the acreage value on top. They say that's not cost. And so, when you look at Pioneer, we have the highest net revenue, 83% of entire position of 800,000 acres. And essentially, most of the acreage, except from some university lands down South, and except for the recent Devon transaction, almost all of our acreage has a zero basis on it, because we acquired it in the 1980s and 1990s and paid nothing for it. We bought this at a time when you weren't paying for undeveloped acreage at all. We were buying the existing production.

 This shows the most active operators. Pioneer as the most active operators. I know Concho has moved up and is adding rigs. This is first quarter numbers. We'll be up to 17 fairly quickly. And long term, we'll talk about it, we're adding about six rigs per year, horizontal rigs. But it's -- a lot of transactions. I expect the rig count, which is at 200, it wouldn't surprise me if another 100 rigs are added in the next 12 months. Too many people when they -- every time you see a deal being done, people are going to add three to five rigs. So the Permian could easily get up to 300 rigs. But it peaked at 570 back in 2014. And a lot of those were vertical. You're going to see a changeover. There's going to be probably as many horizontal rigs. In fact, Tim and I've talked about, we can grow -- we were showing 15% growth with 26, 27 horizontal rigs back in 2014. Now, we're showing with 12 to 15 rigs, 15% production growth. So, that shows you how -- more efficient that we've evolved the [company].

 This is an interesting slide that we used for our Board Meeting recently a couple weeks ago. It just shows you how dominant Pioneer is in the Midland Basin. So this is strictly horizontal production by IHS there. And it shows all the largest operators -- this is gross production, horizontal only. And so, you can see we're well over 100,000 barrels a day. And so we're two times -- five times greater than the peer group, two times greater than our closest competitor in horizontal production, that's Apache. You can see in red, one of the fastest growing companies is Exxon. Another fast growing company who I highly recommend is a little company called Parsley Energy too.

 So, let's talk a little bit about supply and disruption and a little bit about oil prices. To me it's something -- disruptions we'll have to watch very carefully, because I think we are all totally surprised about Iran, what the President did and how fast they came up. They added 1 million barrels a day fairly quickly. And I don't know if there's going to be -- this freeze is going to happen. I do know they're all suffering at $45 oil, Russia, Saudi and Iran, and the rest of OPEC. And so, they're going to do whatever they can to take the shorts out of the marketplace and make statements in general to keep the price as close to $50 as they can. They would love to see -- the article yesterday summarizes my thoughts. They would like to move it in that $50 to $60 band. And the question is what happens if they're successful to supply between $50 and $60. We're always going to have disruptions. Most people say Nigeria is not going to come back anytime soon. Venezuela, we got to watch their debt. They have several billion due late this year, and they got about [18 billion] due in the spring of next year. So, most people will expect Venezuela to default. Something is going to happen major in Venezuela in the next 12 to 18 months. So Nigeria is off. Libya, too many warring factions. Maybe they've gotten rid of ISIS and Sirte. But they're still arguing about whether or not the country should be divided, who is going to manage their oil. So, I don't expect Libya to be on anytime soon. But eventually they have to, because they need revenues inside the country. So I would expect Libya over of the next 12, 18 months, you could see some movement in regard to Libya. But then you got to watch West Africa. Gabon is another example, with elections people being killed, corruption. In all West Africa, you're going to have several elections over the next several months. So watch West Africa very carefully, what may happen, obviously in those countries. And then obviously, Iran, Iraq, and it's continued, Saudi Arabia.

 This is the biggest difference in oil prices that I have seen. And I think here, the top right chart is the best one to look at. So almost everything think-tank firm worldwide is projecting we're moving back up into $80 to $100 barrel range. The reason is simply because demand is moving up 1.2 million barrels a day, most people are at 1.2 million barrels a day long term. And then you look at the decline and lack of investment. There's going be an estimate of about $1 trillion of lack of investment when you look at the years 2015 to about 2020. So that product -- that investment will not lead to any production increases. In the last year we're going to see -- 2017 is really the last year we're going to see major production increases from projects invested in from 2007, 2008, all the way through to 2014. So, 2017 is going to be your last year where you see several major projects; Gulf of Mexico, Oil Sand projects, Brazil projects, some Russian projects continue to come on around the world. And then things are going to start getting tight in 2018, 2019, and 2020. So what's going to happen to the price of oil? But there's a big difference between the strip and forecast. The strip right today -- next year it's $50 per WTI and it moves up to about $59 over about a 10-year period. It's been as low as $46 recently, next year, and then moving up to $56 in regard to our long-term modeling.

 In the Spraberry/Wolfcamp, this shows our Company chart growing. We've had a track record growing it significantly. You can see the changeover between vertical, is in dark green; light green is the horizontal shift. So verticals essentially down close to about 50,000 barrels a day. And the rest is horizontal, growing significantly. The Company should be well over, or close to 200,000 barrels a day going into 2017.

 So what we did, we've shown you a five year forecast for Pioneer with 15% growth and that's using the strip at $46 for WTI next year. Going to 2020, it goes up about $1 per year. We are growing 15% a year. And we could lay out a 10-year plan. We can do this for 10 years. So we took our 10-year model, which gets Pioneer up to about a million barrels a day to about 700,000 barrels of oil of that and we modeled and looked at our activity and what we think the Permian can do with rig count. And that's how we modeled this, and it's probably conservative. This doesn't include what Apache is going to do on their Alpine project, even though it's going to be condensate and more gas. But we go from 2 million barrels of oil per day up to 5 million barrels of oil per day. So that's about 300,000 barrels a day per year. And I do believe the world is going to need it. Now the question is, if the Bakken and Eagle Ford start growing again, we're going to add -- if the price gets too high, and you start seeing the Bakken and Eagle Ford start growing again, US is going to start adding 600,000, 70,000, 800,000 barrels a day of growth, which I think is way too much. I don't think the world is going to need it at that point in time, but that could easily happen, depending on where prices go.

 What's also interesting is, we're at 6 Bcf a day. We don't have gas on here. But the Permian produces 6 Bcf a day and we have it going to about 15 Bcf a day. So the Permian is going to be your second major contributor, besides the Marcellus, Utica to US gas supply and it's very wet gas, it's only 1,300 to 1,400 Btu. So it'll be a major contributor to the NGL market also.

 Last part of the presentation, lessons learned over 31 years. First, leverage. This is an industry you cannot afford to be over leveraged. Even though economics, business school teaches you the cheapest cost of capital is debt, but I can promise you it can get you in trouble. We've been there in 1998 and 2009. I think Tim and I, Rich have learned our lessons in regard to have a strong balance sheet going in. You never know when a downturn is going to happen. We didn't know about 2009 and most people were totally surprised about Saudi's position in late 2014. And so, that's why there is -- most companies, the majors, the good Financial Times article, the top five majors have [$184 billion] of debt. They're increasing debt every quarter. That's number one reason that they aren't buying -- I get asked why aren't they buying Permian companies? They have too much debt. They don't have the firepower. They can borrow more money as they have more firepower. But the majors have shifted entirely in regard to -- from a strong cash position seven, eight years ago, to too much leverage. Plus, you had 90 companies go under. But this shows our stock price, since we formed with Pioneer and starting at $35, went to $5, all the way up to $80. In 2008 back to $12. And then all the way from $12 to $235, back to -- so we hit a new low from the standpoint of the downturns, or a higher low of about $107. And then gone from $107 up close -- I guess yesterday to around $188. Then you can see the leverage statistics have totally changed. So my opinion is, is people going to run with a better balance sheet, because oil is going to be much more volatile. We've probably been using debt to cash flow at 1.5x. Our long-term model debt to cash flow is probably 1x or less than 1x over the next 5 to 10 years, even with our 15% growth profile. I think companies going to run -- have to run with a lower leverage. We can't afford to take that risk.

 Secondly, don't get too cute with financial engineering, we've been guilty of it. Some of this works, some didn't. We had two MLPs, one at Parker & Parsley, my predecessor, one at Pioneer. They are both successful, but they again confuse the Street. Our VPPs, we have three of those. We were one of the first companies to do them. They are really a hedge. We did the hedge at the wrong time, even though we used the proceeds to buy stock at $40. But we lucked out. I didn't know that the stock is going to be worth $200, $300. And so we bought the stock at $40. But again it confused the Street. One convert confused the Street. And then two joint ventures. We're glad we did the joint ventures, both of them, with both Sinochem and Reliance. But I can promise you, when it comes to wanting to divest of an asset or do something, it makes it really tough when you have two large partners like that. I can promise you. Simple is better. Also a lot of companies -- I'm still surprised how many companies still have too many assets into other companies, declining assets. Get rid of declining assets, evaluate all the potential, especially short lived assets. I'm a firm believer in keeping long life assets. So keep long life assets and this is what -- we have essentially moved from over -- really we had over 1,000 fields in 1998 and we are essentially moving down to a single asset company. Just one asset makes it easier to run, very efficient over time. And the chart showing the same thing. From 2005 to today, essentially move into a one asset company.

 This is a chart showing the gains from the switch in production over the last several years. And you can see, obviously, the gain from Permian horizontal. This chart does go down into the -- the other one didn't -- does go down to the Barnett, Woodford and the Mississippian. You can see that we do have pay-down there under our 800,000 acres, but there's no reason. It's deeper, it may be gassier. There is no reason for us to test it. My opinion, it will never compete with Wolfcamp A, B and lower Spraberry shale. But it is sitting there, in case we do move into a much higher price. The company can always test those zones and also test the Clear Fork. Clear Fork has huge potential on our acreage. But there's no reason to test it in this price environment. And then you heard Tim yesterday, the number one question we are getting is, when are you going to do all 3.0s? And so, Tim responded, eventually we're going to have a 7.0 just like the iPhone and a 7.0 plus. So stay tuned over the next several years for continued optimization and changes in our completion.

 Hedge, I'm surprised how many people don't hedge. Ever since we started hedging three ways. We started in 2009 using three ways. We sell a call, sell a short put and by a long put. We made $2.5 billion over this time period off our hedging program. When crude in 2015 moved to $60, we were one of the few companies that hedged aggressively for 2016 and 2017. And when it moved recently to $52, we added some more for 2017. And so, it's important to protect your capital program. We're not trying to guess the price. We always want to have upside in regard to the oil price, but I'm surprised even how many large companies still do not hedge today.

 Also, a great Corporate culture and a great employee base. We've had several awards for the Best Company to Work For, both in Texas [DFW] area and also the US. Also, a great management team. We're probably one of the only companies that had the same management team working together for the last 20 years plus. Tim has been with me for 22 years, makes it easy to turn over the reins to Tim and the rest of the management team that have been working together for a long period of time.

 And then lastly, an interesting slide. Tom, this is for you, so stay tuned. Okay, so this is a certain analyst that we all know [we all love]. So, Tom and I have argued about EBITDA multiples for the last 25 years. And so, Tom did not believe in high EBITDA multiple, so he never put a buy on us. And so, recently he put a buy on us and we have a high EBITDA multiple. And so, I hope you keep this chart and remember it. And don't put a sell when Tim takes over, because you're going to be wrong again like you've been since 2009. We've been the number one energy stock in the S&P 500 upstream stock. I think we're second. One of the refining companies may have beat us. But every time Tom put -- the green is his buys. He'd always put a hold or a sell (inaudible) right after that. And so, 10% of the time you're right Tom, since 2009. And so I want you to keep this for the next five to six years and I can promise you that it'll be a home run for you. You give me a lot of performs and sell the last 25 years, but it's been a great friendship Tom. And this is really kiddingly -- it's accurate information, we got it from your database, but don't take it too seriously, because I want to end it on a high note that you gave us a buy on EBITDA multiple. And so I hope you keep that buy for Tim. So thank you very much.

 I'll be happy to take any questions. We have the time. Any questions about prices or Permian or --

Questions and Answers

 Tom Driscoll, Barclays Capital - Analyst [1]

 I can't retract any of the data, it's our database. The compliance guys will have my head. What keeps you up at night as you look at the business here? I mean everything looks great, the rock looks great, the returns look great, the cost structure look great. What do you worry about?

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [2]

 Well, actually I left out my final thought slide, which does address that. So one is world demand, oil demand. And so, a lot of people are using 1.2 million barrels a day. And so traveling around the world, just getting back from Norway and Sweden, Stavanger, speaking there. Then I think really Saudi is worried about demand. That's one of the reasons they are going to take Saudi Aramco public in 2018, is there is a big push with global warming, electric vehicle movement. With Uber movement and car sharing, there is a big movement to reduce oil demand in the world. And so, I know IHS CERA is working on a study just to find out when peak oil demand is going to happen between 2025 and 2038. But it's going to probably happen sooner and surprise us. We're still going to need the Permian shales, because this has got one of the lowest breakeven prices around the world. But if we just wake up one day and 5 to 10 years and all of a sudden peak oil demand is zero, what is the industry going to do? It'll lead to a massive consolidation in my opinion. It has to. And oil will be very volatile. But I've always said oil prices is always what I'm concerned about over the last 30 years, trying to figure out what oil prices are going to do. So I'll spent time talking to [Gary Ross, Bob McNally, Dan Ergen], all of them over the last several years, trying to get into everybody's head, everybody's mindset as they travel over the Middle East. That's one of the reasons we did an equity offering in October of 2014. We had information that said Saudi was going to launch their program. Most people didn't believe it. And so, and take -- and keep their production high, and created the price. The problem is, Saudi thought US shale would fall off the face of the earth at $70. That's where they were wrong with oil price.

 Tom Driscoll, Barclays Capital - Analyst [3]

 Can I ask another one? I think you spent more time in Washington in the past couple of years. You're working on export ban repeal and other things. What kind of policy risk do you see coming out of Washington you just want to leave it in the ground people, big environmental movements that could at some point hurt the oil industry, any major fears out of DC?

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [4]

 Yes. Some surprises at the -- I think the Democratic Party is wrestling with two groups inside their party. There is a party -- there are a lot of people I met with, really understand there's no way we're going to use alternate energy to change our Military, to change our Air Force, to change our Navy and we're not going to change long haul trucking. And so, they understand how important national security is. Hillary Clinton does understand that. And so the Democratic Party is fighting. There is a group, Sanders, Elizabeth Warren, they want to shut us down. They want to shut hydrocarbons and move strictly to alternative energy. But there's another group inside the Democratic Party, they understand it and that's why they lifted the export ban. They know we need it. They know it was important for the industry. And so, they are fighting within those two groups. I think we're going to live another four years of Democratic. Similar policies as President Obama. They're going to over regulate, probably in my opinion, the industry, but it's been -- as you said, you saw our stock price. So, I've said before, we're the Number 1 energy stock since President Obama has been in office. And I think they understand the importance of a strong oil and gas industry. And they're trying to -- so they're trying to do things on methane emission, stop leaks. We're working with them, for instance, on marginal wells. The recent EPA rules I'm concerned about. They had a 15 barrel of oil per day marginal well exemption. They've taken that away and they are proposed. And so, if that moves forward, we could shut in a million barrels a day overnight in US production. So we're trying to get the word out. So that methane emissions is probably one of the biggest issues. And eventually they're trying to regulate water. So we use water tremendously to frac wells with. And so they want -- it's in their platform to try to remove the -- people call it the [Alberto Lupo] from 2005. So that's a concern to be regulated versus the state. So that's always the argument, federal regulation versus the states. We feel like the states do a good job.

Unidentified Audience Member [5]

 You mentioned peak demand may be 2038. How do you think about peak supply in the US and do you think the US will gain market share over the long term?

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [6]

 Yes, I think the Permian -- I think at [50] -- I showed you at $47 to $57 oil price that the Permian is going to grow 300,000 barrels a day per year. It will eventually get there the next 12 months, 18 months. And so I don't think Eagle Ford, or Bakken at $47 are going to get start up. Once you get to $50 to $60, Eagle Ford and Bakken will start up at that point in time. And so I think the Eagle Ford and Bakken will at least be flat in a $50 price environment. Permian will be growing. Conventional production will be declining. And so, US may be contributing to 200,000, 300,000 barrels a day in a $47 to $50 price environment. You start moving towards $60, it will take a year or two to get it going. The US could supply 0.5 million to 750,000 barrels a day. Because at $60, the rigs will come back to work, Bakken, Eagle Ford will take off, other players will take off. And so, that's my only concern. Even though we may enter a period where the world needs it in 2018 and 2020. But eventually we're going to supply too much oil too fast, price is going to fall, just like I said on this final slide. We're going to $80 again, maybe it's higher, but we're going to see $30 to $40 again too.

Unidentified Audience Member [7]

 How much the Permian can grow? Given the strong economics there, why can't it grow more than the 300,000 a day that you are projecting over a long period of time? Is it possible that the Permian -- not just your production would change, but with all the other players there, could you see a greater spike there as you saw in the Bakken, and in the Eagle Ford in previous years?

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [8]

 Yes, it could definitely do a lot more, but you have to realize I'm using a $46 to $57 price deck over the next 10 years. If oil prices stay at $46, $47 next year, there is just not enough cash flows for companies. And also assuming that people are going to be reasonable in their balance sheet. So if people pushed their balance sheet to two to one, they can have more activity. If they continue to raise [$24 billion] a year in the equity markets every year, then yes, the Permian can be accelerated significantly, much greater than that. So it's a function of that commodity price deck and what people's debt statistics are and how much equity they raise over the next 10 years.

Unidentified Audience Member [9]

 And just one more follow-up. In terms of the spike to $80, given the short cycle, ability of the Permian and other US shale to respond, do you see $80 is a number that could stand for any period time, or is that just a brief spike?

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [10]

 I'd say, whatever the price is, say at $70, $80, $90, you can see it for a couple of years. I think it will take a couple of years and it's going to be US shale. Now the big unknown -- in fact, a well-known consultant, I won't say his name, told me, this is interesting, is that there is only four -- besides the Permian Basin, there is only four other countries that are going to supply the world's crude; Russia, Iran, Iraq and Saudi Arabia. Once the market realizes those four countries are the only ones to supply crude oil when we need it, there is no premium, there is no premium at all, political premium being paid on the price of oil today. So the market is going to wake up someday and put an extra $5 to $10 a barrel in my opinion. But when they realize those are only four countries and a lower price environment that have the potential to increase, all very unstable places.

Unidentified Audience Member [11]

 Just looking at the price structure you painted going forward, what do you think about the costs? Are we today at the lower cost and therefore, are we at the best possible returns on a well basis, just kind of your thoughts going forward?

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [12]

 Yes, I think most producers would say that we're at the lowest point on service cost for the industry, they're breakevens. The service companies are hurting, they are at breakevens. And always expect over the next couple of years to see cost start increasing, but you got to realize, you got a couple of that with our optimization program. So Pioneer and Tim and the Group, they're going to go to a [3.5 to 4.0], a [4.5]. I'm saying with everybody else, the other competitors, they are adding more sands. We're going to [1,700 pounds to 2,000 pounds] per foot. Lot of our competitors are already at [2,500 pounds] per foot. So we'll probably have some cost pressures, because everything is focused in the Permian. We've tested our case with 10% to 20% increases. Now there is still tremendous excess capacity on both frac horsepower and also horizontal drilling rigs. And so you got a couple of that, but I do expect by 2018 to have some pressure on service cost.

Unidentified Audience Member [13]

 If you look on BOE basis, do you think that still has room to go on the downside, or we kind of in the flat environment, putting those two together?

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [14]

 On what basis?

Unidentified Audience Member [15]


 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [16]

 VOE or BOE?

Unidentified Audience Member [17]


 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [18]

 BOE. In regard to our productivity, we're still seeing with our 3.0s continued increases in productivity. And so I think we'll continue to see increases in that over time.

Unidentified Audience Member [19]

 I think you kind of addressed this just now, but we've seen pretty extraordinary improvement in productivity and efficiency. Initial production rates have exploded recently, as we're looking at the Permian. If your growth forecast plays out and we get a more than doubling of production in the Permian, do you expect that those trends will accelerate, or do you think there will be a deterioration in that efficiency over time? Are we drilling the best right now and that deteriorates as time goes on, I guess is what I'm asking.

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [20]

 Yes. I can speak from the Midland Basin standpoint. When you look at our pressure maps that we have put out in regard to the core area in Tier 1 acreage, it's such a large area that people aren't really focused, it's all best and so it's massive. We have 20,000 drilling locations. And so, we only deplete our inventory over the next 10 years by 4,000 to 5,000. We still have 15,000 drilling locations in a $50, $60 price environment. In an $80, $90 price environment, we got 35,000 locations. So I don't think -- it's such a massive play, both in the Delaware and the Midland Basin that you're not seeing the -- any changes I think for several years. Now, when you move away from the Wolfcamp A, B, in other words Spraberry shelf, when you see operators starting to drill the Jo Mill, Clear Fork, the Middle Spraberry Shale, the Wolfcamp D, then you know we're getting down to reserves that are in the 500,000 to 800,000 barrels. Even though those will get better over time also. But that's probably 20 years away from now.

 Tom Driscoll, Barclays Capital - Analyst [21]

 You mentioned you're going to share some thoughts on gas price, natural gas price.

 Scott Sheffield, Pioneer Natural Resources Company - Chairman and CEO [22]

 Yes. I don't think Apache helped yesterday with 75 tcf and a large gas discovery. And also with the Permian growing to 15 Bcf a day, I'm probably long-term still a $3 gas person. So until we move out substantial LNG out of this country and we have to overcome the regulatory hurdles of all the pipelines in the Northeast, to move all this gas down to the Gulf Coast, to move it out in LNG, I don't see much upside in gas prices, probably $3 for a long time.

 Tom, any last questions?

 Again, thanks all shareholders. Thank you very much and I appreciate it.