Parsley Energy (PE) Q1 2018 Results - Earnings Call Transcript

Parsley Energy, Inc. (NYSE:PE) Q1 2018 Earnings Call May 4, 2018 9:00 AM ET

Executives

Brad C. Smith - Parsley Energy, Inc.

Bryan Sheffield - Parsley Energy, Inc.

Matthew Gallagher - Parsley Energy, Inc.

Ryan Dalton - Parsley Energy, Inc.

Analysts

Scott Hanold - RBC Capital Markets LLC

Charles A. Meade - Johnson Rice & Co. LLC

John A. Freeman - Raymond James & Associates, Inc.

Asit Sen - Bank of America Merrill Lynch

Irene Haas - Imperial Capital LLC

Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.

Michael Anthony Hall - Heikkinen Energy Advisors LLC

Jeff Grampp - Northland Securities, Inc.

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc.

Michael Stephen Scialla - Stifel, Nicolaus & Co., Inc.

Kashy Harrison - Simmons / Piper Jaffray

Daniel Eugene McSpirit - BMO Capital Markets (United States)

Michael Dugan Kelly - Seaport Global Securities LLC

Leo P. Mariani - National Alliance Securities LLC

John Nelson - Goldman Sachs & Co. LLC

Michael A. Glick - JPMorgan Securities LLC

Gail Nicholson - KLR Group LLC

Operator

Greetings and welcome to the Parsley Energy First Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

It's now my pleasure to introduce your host, Brad Smith, Senior Vice President, Strategy and Investor Relations. Please go ahead, sir.

Brad C. Smith - Parsley Energy, Inc.

Thank you, operator, and good morning, everyone. With me this morning are Parsley's Chairman and CEO, Bryan Sheffield; President and COO, Matt Gallagher; and Chief Financial Officer, Ryan Dalton.

During this call, we'll refer to an investor presentation that can be found on our website. Our remarks may contain forward-looking statements. So, please see our earnings release for a discussion of these statements and associated risks, including the fact that actual results may differ materially from our expectation. We also make reference to non-GAAP measures. So, please see the reconciliations in the earnings release. After our prepared remarks, we'll be happy to take your questions.

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

Bryan Sheffield - Parsley Energy, Inc.

Thanks, Brad. We're off to a good start this year with healthy execution, translating to strong first quarter results. We grew oil volumes by almost 8,000 barrels per day during Q1 and we're right on track with our expected well count. So, our simplified development plan is unfolding as we hoped.

Our aggressive activity ramp last year and the volume growth it produced means we are benefiting more than others from higher oil prices today, and it's important to put our growth in context. As you can see on the chart on slide 4, our oil growth has easily outpaced growth in our balance sheet. In addition to solid overall well productivity, strong first quarter volume growth was primarily a function of three things, each of which has to do with timing.

First was efficient operations that resulted in some of our wells coming online ahead of schedule. Second was a faster-than-expected return to full production following winter weather events early in the quarter. And third was an infusion of non-operated production that likewise came online earlier than we anticipated. While some of these dynamics were one-time in nature, we're pleased to get off to a quick start this year.

Unit cash costs decreased as we held LOE per Boe steady at an already low level, and G&A came down with stable costs spread over higher volumes, and we're retaining more value than ever from each barrel equivalent in production.

Turning to slide 5, for several reasons, we're optimistic that the type of execution and results we delivered this quarter will be the rule going forward. For one thing, we're not writing any one particular development area. As you can see, we brought wells online across an acreage footprint in the first quarter. And if anything, we expect our geographic mix to improve with rigs having shifted to Pecos, Midland and Martin Counties. The other key factor is that we continue to expect a steady development pace over the rest of the year. This means we're not subject to the friction costs associated with adding and subtracting rigs or crews.

Turning to slide 6, in light of recent volatility in regional crude pricing, we wanted to walk through our advantaged takeaway positioning. For a good while now we've been very intentional when it comes to flow assurance and pricing diversification, and we expect this to distinguish us going forward.

On the oil side, around 85% of our volume is on pipe with more to come as we get connected in Reeves County. Most of our oil is on the Medallion system and most of the rest is on the NuStar system. We have acreage dedications with our gatherers that require them to take all the barrels we produced in those areas over the next several years.

We have the highest priority shipper status on Medallion, which carries several advantages. These include firm space up to the limits of our production as well as the ability to access each of the major connection points. And the fact that our purchasers inherit this flexibility to direct our barrels to Midland, Crane and Colorado City is a big benefit to them and one of the things that makes our barrels particularly attractive.

This optionality also helps us negotiate more favorable pricing agreements. We sell our oil at the wellhead and therefore don't take any downstream risk, and we have firm transport agreements with our purchasers, who in turn have physical space on a variety of pipelines. We've intentionally partnered with large scale purchasers that have access to key downstream markets through multiple channels out of the basin. So, to summarize on flow assurance, our gathering agreements ensure delivery within the basin, and our purchasing agreements ensure delivery beyond the basin.

Turning to slide 7, our second guiding principle when it comes to takeaway strategy is diversification. We have diversified our oil pricing to insulate us from the type of basis expansion we've recently seen. A pre-specified portion of our barrels are priced off Midland, Cushing and Gulf Coast benchmarks. These prices aren't based on physical deliveries. We get these prices on the specified portion of our barrels regardless of where the barrels actually end up.

As you can see on the chart to the right, our diversified pricing along with our favorable gathering agreements are already translating the leading oil price realizations and we expect this advantage will increase if we continue to see Midland pricing disconnect from other price points.

I'll briefly touch on our gas takeaway position. What matters most is an alignment with the right partners. In our case, Targa gathers, processes and sells approximately 80% of our gas stream. As with our oil gathering, we have acreage dedications in place and to access to essentially all relevant downstream gas and NGL markets.

The nature of our proceeds contracts means we get the same price as Targa. So, they are motivated to deliver the best price. And our proximity to Waha, especially in the Delaware Basin, limits compression requirements and transportation costs. With our high liquids content, gas isn't a big needle mover for us, but we still feel we are well-positioned on this front.

Looking ahead, we continue to feel good about our development plan for the year. Strong oil prices make us even happier to have already gone through our big activity ramp and we're comfortable with our current development pace.

With that, I'll hand it off to Matt for more detail on our operations.

Matthew Gallagher - Parsley Energy, Inc.

Thanks, Bryan. We're pleased with our execution this quarter. Despite the well-publicized labor tightness in the Permian, we're showing stable to improving efficiencies in most areas. Drilling times are down in both basins and we showed progress on the completion side as well, with stimulated lateral footage per day up in both the Midland and Delaware Basins. It's been a while since we've zoomed in on our Delaware Basin, in large part because we haven't brought on as many Delaware wells in recent quarters. But with half of our POPs this quarter in the Delaware, this is a good time to focus on that part of our portfolio.

We generated a strong surge in the Delaware oil production, increasing volumes by more than 50% in one quarter. And as you can see on slide 8, these results were a function of wells across our Delaware acreage. We've continued to march east and south across our Pecos County leasehold with two wells in the southeast portion of that acreage, establishing Parsley-record initial production rates during Q1. This is a promising indication of the quality of this asset as a whole.

We're also pleased with the initial results on our first 3rd Bone Spring well. We completed this well with a two-mile lateral in Reeves County and it has been one of our stronger Delaware wells this quarter. We continue to be selective in our delineation projects and this is just one well, but it's a good indication that there's upside on our Delaware position.

Drilling in the Delaware has been challenging in the past, but we're making good progress. As you can see on the chart, we took a step forward in feet drilled per day per rig during the first quarter. Some of that may be a function of well mix, but a good portion is the result of adjustments our teams have made. Frac utilization and stimulated footage per day increased as well. So, operationally, things are really coming together in the Delaware. And overall, we're drilling bigger, more productive wells in less time in the Delaware. So, we're pleased with the capital efficiency trend as well. Our Delaware acreage benefits from certain economic advantages.

As slide 9 details, these advantages encompass both the revenue and expense sides of the economic equation. On the top line, mineral ownership amplifies Delaware production at no additional cost. 18 of the 21 wells we brought online in the first quarter were on minerals acreage, and consequently, we more than doubled minerals production during the quarter. This year, we expect an average royalty burden reduction of 10% on all of our Delaware wells by virtue of our minerals ownership. And as you can see, this translates to enhanced project economics.

We acquired our Delaware minerals position during a downturn at an attractive price, and we're poised for a healthy return on this investment as we scale up development on associated assets. We also acquired surface rights on a good portion of our Delaware acreage, and this too is paying healthy dividends.

During the first quarter alone, we saved more than $3 million on water sourcing and disposal. We also brought an electrical substation online that is already saving us around $150,000 per month.

We're in good shape in terms of water sourcing and disposal on the Midland Basin side as well. We operate more than 30 saltwater disposal wells in the Midland Basin with a permanent capacity of more than 0.5 million barrels per day. And we have over 500,000 barrels per day of freshwater sourcing in the Midland Basin as well, with more than 10% of this from Parsley-owned surface acreage.

To echo Bryan's comments, the fact that we increased activity last year set us up for strong execution this year, and that will continue to be our focus moving forward.

Now, I'll hand off to Ryan for more detail on our financial position.

Ryan Dalton - Parsley Energy, Inc.

Thanks, Matt. Strong operational performance flowed through to the bottom line in Q1, with adjusted EBITDAX up 30% versus the prior quarter.

As we noted in our press release, adoption of a new revenue recognition standard had a modest impact on our production and costs this quarter. Essentially, we grossed up any gas and NGL volumes that would previously have been reported net of volumes deducted as compensation for transportation and processing. The resulting increase in revenue is exactly offset by a corresponding transportation and processing expense. This is purely an accounting change with no impact on net income or cash flow. And since this was an anticipated transition, there is no change to our annual guidance.

We're not updating any of our annual guidance on account of first quarter results either. We certainly hope to sustain the efficiency gains we posted in the first quarter. But while faster drilling de-risks the completion schedule, we're deliberately sticking to the steady POP cadence we've outlined. And more non-op production in the first quarter likely means less non-op contribution in subsequent quarters.

We consider it a win to hold LOE per Boe relatively steady at a very low level. We do expect LOE per Boe to increase to some extent from here for a couple of reasons. For one thing, workover activity increases seasonally, and this impact will be heightened by the fact that we just deferred some planned workovers due to adverse weather in Q1. We also expect some degree of inflation tied in large part to labor tightness. So we're off to a strong start on the LOE front, but we're holding annual guidance as is for now.

We reported capital expenditures of $424 million for the first quarter. This is right in line with expected per well cost, given a 50%-50% weighting between the Midland and Delaware Basins, higher than expected average working interest of 97%, and $14 million of non-op spending. We expect lower cost per well in future quarters as our activity mix shifts back toward the Midland Basin.

Turning to slide 11, we continue to work from a position of financial strength with a peer-leading liquidity position. We recently completed our spring redetermination, which resulted in a $500 million increase to our borrowing base to $2.3 billion. Our borrowing base has now quadrupled in the last three years. Given our healthy liquidity outlook, we elected to maintain our commitment amount at $1 billion.

One indication of our financial health is that our weighted average cost of debt has decreased by roughly 250 basis points over the last two years. And in light of our strong financial position, we're able to move forward on our development program with confidence.

So in summary, we've built a stable platform from which to build on the solid first quarter. And we look forward to delivering consistently strong results as we progress through the year.

With that, we'll be happy to take your questions.

Question-and-Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. Our first question today is coming from Scott Hanold from RBC Capital Markets. Your line is now live.

Scott Hanold - RBC Capital Markets LLC

Thanks. Good morning, guys.

Matthew Gallagher - Parsley Energy, Inc.

Morning, Scott.

Scott Hanold - RBC Capital Markets LLC

Hey. I like the incremental focus on the Delaware. It seems like some of the results look pretty solid. Could you talk about a couple things? One, you discussed obviously production up 50%. Could you quantify that a little bit, like what is Delaware net production to Parsley? And how much of that actually comes from the mineral ownership?

And then also maybe a little color on, it looks like that 3rd Bone Springs well that you – obviously had looked pretty good. What are the plans on some of the future targets for the rest of this year there?

Matthew Gallagher - Parsley Energy, Inc.

Sure, Scott. We're clipping along around 20,000-plus barrels a day over in the Delaware and a couple of those are attributed to the minerals. So it's just starting to ramp up on that front, now that we've got a stabilized production development plan going on and excited to see that unfold.

Really, this Bone Spring test was one of the few delineation projects we had throughout the year. So we're keeping the plan intact. We like the result from it, but sticking to the original plan throughout the remainder of the year. And we'll evaluate as we go into the 2019 budget process on additional zones.

Scott Hanold - RBC Capital Markets LLC

Okay. Appreciate that. And on those production rate, did you say barrels per day or is that Boe per day?

Matthew Gallagher - Parsley Energy, Inc.

That's Boe per day.

Scott Hanold - RBC Capital Markets LLC

Boe per day. So, thanks. And then, Bryan, you'd mentioned that you all have the highest priority on the Medallion line. Could you define how you got that status and what that really means?

Matthew Gallagher - Parsley Energy, Inc.

I'll actually grab that. We have been working with Medallion really since the inception of us as a public company. So, it's just been a long nurtured strategic relationship buttressed by competitive bidding as we build out the gathering system. But there have been some synergies there that have continued to win the work. So, that's really over time that's allowed us to strategically add these positions.

We had a view to get a diversified marketed barrel that we could bring to many of the top tier marketers and purchasers and this interconnected system really allows us to do that, gets us barrels to Crane interconnects gets us barrels to Colorado City interconnects. And then, from there you have physical pump over connections to the majority of all the long haul pipes and our purchasers take the space on that pipe when we bid it out to fuel (18:28). It's just been a methodical process over the years.

Bryan Sheffield - Parsley Energy, Inc.

Hey. It's Bryan. In a nutshell, I look at it as like the anchor tenant on that pipeline. We were the first one to get it going and they built to us. I think there was one other company, but we were the first one in North Upton County and South Midland.

Operator

Thank you. Our next question is coming from Charles Meade from Johnson Rice. Your line is now live.

Charles A. Meade - Johnson Rice & Co. LLC

Good morning, Bryan and Matt, and to the rest of the team there.

Matthew Gallagher - Parsley Energy, Inc.

Hey, Charles.

Charles A. Meade - Johnson Rice & Co. LLC

I wanted to go back to the Delaware Basin and those Trees Ranch wells. Can you talk about, I'm sure you guys looking at these results are updating your view of how attractive those are relative to the rest of your portfolio. Can you talk about what if anything has changed in your view on how this area may rank within your portfolio? And also to the extent, I think there are some other assets in the area that are looking for a home. Is that something that you guys would be looking at?

Matthew Gallagher - Parsley Energy, Inc.

Yeah. I think as you look at the results, I think just mechanically it moves them up in the process as you gain your efficiencies on your capital allocation. However, 2018 plan is in place and we're really sticking to a model in 2018. So, we won't have a lot of schedule changes planned, but it rolls into the 2019 plus budgeting in a very favorable manner.

And then, the focus for Parsley Energy is staying disciplined and delivering on our assets. We have a tremendous runway. So, job number one is doing just what we've done in this quarter and execute on our assets. So, not a lot of consideration given to assets finding new homes.

Bryan Sheffield - Parsley Energy, Inc.

Hey, Charles, we have 5,000 high priority locations and even hitting just Bone Spring, I mean you can move – I'm looking at our chart, you can move 130 more locations up to the 5,000 locations. So, I just don't – we have such a long runway, I just don't see us even looking around this acreage.

Charles A. Meade - Johnson Rice & Co. LLC

Got it. That's helpful color, both of you guys. Thank you. And then, if I could ask about what you guys are seeing. What you're seeing on kind of the service and activity levels? I know you guys already talked a little bit about labor in the Permian Basin. But it seems like a lot of companies are reporting CapEx kind of at the high end or maybe a little bit ahead of an annualized pace this quarter. You guys are in that number. But I recognize you have reasons for that, which you guys have explained well, but can you talk about what you're seeing on your service availability, service quality and perhaps inflation, and where, if anything, you guys might expect some issues to crop up if they do?

Matthew Gallagher - Parsley Energy, Inc.

Yeah. I think if you netted back down to a per well cost, we're actually really pleased with how we've been able to keep per well cost flat in the Midland and Delaware Basins. And then, our unit costs, really pleased with the teams there, getting outside of the box and some good solutions to keeping our LOE at industry-leading rates.

So, really on the service capability side, our partners on that front are working with us to bring good product to market. I haven't seen tremendous amount of pressure on that front. We do expect, as with probably the rest of the companies, that there will be a labor component throughout the remainder of the year, and that's our 5% to 10% assumed cost increases throughout the year. So, those will trickle in throughout the year as unemployment is probably at record lows in the Permian Basin. So, really nothing's changed in our view.

Operator

Thank you. Our next question today is coming from John Freeman from Raymond James. Your line is now live.

John A. Freeman - Raymond James & Associates, Inc.

Good morning, guys.

Matthew Gallagher - Parsley Energy, Inc.

Good morning.

John A. Freeman - Raymond James & Associates, Inc.

You had a huge step change in the drilling efficiencies this quarter, especially in the Delaware and you all mentioned though that you're just going to right now maintain kind of the prior POP schedule that you all provided. So, should we just assume that that means that the plan could likely mean either you build more docks or even potentially gives you more flexibility on the number of rigs you need to run?

Matthew Gallagher - Parsley Energy, Inc.

Hey, John, I think that's a great way to look at it. So, that builds a cushion as you get out in front on your drilling efficiencies, as you regain that traction that we've been able to deliver since being a public company in the past. It just simply gives you a cushion and adds flexibility. As what's cropping up in the midstream section and the takeaway side of things, there's always something to contend with and this allows some flexibility. So, I think that's a great way to look at it.

John A. Freeman - Raymond James & Associates, Inc.

Great. And then my one follow-up, I believe the plan was to drop from five rigs in the Delaware to three. Could you just let us know where those rigs are going to get relocate within the Midland?

Matthew Gallagher - Parsley Energy, Inc.

They're essentially going to the Northern Midland Basin within Midland County and Martin County.

Operator

Thank you. Our next question today is coming from Asit Sen from Bank of America Merrill Lynch. Your line is now live.

Asit Sen - Bank of America Merrill Lynch

Thanks. Good morning. Matt, looks like your 2018 plans appear fairly set. But given success in Delaware, could you talk about potentially the completion outlook next year or the split between Delaware and Midland? And then, how many locations do you have in the Delaware currently? And could you talk about the counties of those locations that are subject to royalty, due to mineral ownership?

Matthew Gallagher - Parsley Energy, Inc.

Sure. Really too early to talk about 2019, but obviously, the results give us comfort to add activity proportionally or reallocate capital to the best returning projects. So, that's always our approach and have a distributed approach across the asset footprint.

And then on the inventory side, the majority of our minerals are in that North Pecos position. That's called our Trees Ranch. If you can flip to slide 8, that's where the majority of them are, but we also extend a healthy position into Reeves as well throughout the years we've been able to bolt on in those areas.

Asit Sen - Bank of America Merrill Lynch

Great. And then on costs, you talked about improvements in footage per day per rig. Could you update us on cycle times in Delaware and Midland and what's going on with the use of in-basin sand?

Matthew Gallagher - Parsley Energy, Inc.

Yeah. We're about 20% on spud to rig release in the Delaware Basin. So, that puts us in – remember, we're drilling essentially 10,000-foot wells, 9,500-foot completed laterals. So, that's about a 35-day cycle time. We're running a 25-day ballpark for the equivalent length in the Midland Basin.

And we did not budget for in-basin sand intentionally. So, we have agreements with our pressure providers to get allocations as needed as our lab tests come back and a couple of spot test wells come back and we get comfortable with the productivity. And as we get comfortable with that, we'll increase the usage throughout the remainder of the year. So, that's a tailwind to our capital cost structure.

Operator

Thank you. Our next question is coming from Irene Haas from Imperial Capital. Please, proceed with your question.

Irene Haas - Imperial Capital LLC

Good morning. Congratulations on getting a really good cadence and momentum going first quarter. My question has to do with, firstly, any update on Wolfcamp C in Reagan County? Secondarily, Delaware County, Pecos County, what's your current type curve, and how much is the type curves, I'm sorry, and also how deep are the target depth and I believe lateral length you say about 10,000? And these are the two questions I have.

Matthew Gallagher - Parsley Energy, Inc.

All right, Irene. Wolfcamp C is producing as expected. It's always been a gassier component. So, that's why it's not gaining additional capital from the original plan going into 2018. But these are strong rates out of the gate and healthy declines comparable to our Wolfcamp B zone, and then the gas component is slightly higher. So, I think following up with the IR team on the individual type curve modeling would be the best route, but we're pleased with the results out of the Wolfcamp C.

Irene Haas - Imperial Capital LLC

Okay. How about Pecos County? What's your existing type curve for the Wolfcamp?

Matthew Gallagher - Parsley Energy, Inc.

We have some reference curves in the back of the deck, and it's approximate to that Delaware Basin oil curve. So, that's inclusive of the Reagan and Pecos?

Ryan Dalton - Parsley Energy, Inc.

Reeves.

Matthew Gallagher - Parsley Energy, Inc.

Sorry, Reeves, Reeves and Pecos. But Pecos does have a slightly higher oil component than Reeves.

Irene Haas - Imperial Capital LLC

Got you. One more question to follow up is that your drilling cost right now is actually looking pretty good, so $11 million to $12 million. Do you see any opportunity to kind of compress that a little more with more efficiency gain?

Matthew Gallagher - Parsley Energy, Inc.

There are some internal targets and you build out your best segment of each well, and so there is a technical opportunity and a technical limit that we've delivered on these wells before. So if you string those together across a program, yeah, there's a line of sight to continued improvement. So keeping these rigs and these crews in place and having a steady program throughout the year, we're optimistic of continued improvement, but we're not budgeting for it right now.

Bryan Sheffield - Parsley Energy, Inc.

We're seeing the same sort of pattern we saw in the Midland Basin. I mean I feel like we're still in the early innings in Delaware. But as time passes more and more, we're seeing those drill times come down just like in the Midland Basin a few years ago.

Operator

Thank you. Our next question is coming from Matt Portillo from Tudor, Pickering, Holt. Your line is now live.

Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.

Good morning, all. Just one quick follow-up from me. Matt, you mentioned roughly 2,000 barrels a day of production associated with your mineral interest. Probably a question for either Bryan or Matt. Historically, the business hasn't necessarily had the scale to extract value in the public market. As the business evolves, how do you think about this in the context of Parsley going forward? And do you see the ability to extract value outside the drill bit with your mineral ownership?

Bryan Sheffield - Parsley Energy, Inc.

That's a good question. The question has come up in previous calls. And I think we're definitely looking at – looking into this. And there's a competitor that has another similar company, a spin-off company, that has been trading really well. So it's kind of a wake-up call for us. And as we drill these minerals in Pecos, it's something to look into.

But I do feel like our – the sellside analysts do give us credit for those minerals. And with these new Delaware wells that have come online, we hope it would sharpen their pencils.

Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.

Thanks, guys. That's it from me.

Bryan Sheffield - Parsley Energy, Inc.

Thanks.

Operator

Thank you. Our next question is coming from Michael Hall from Heikkinen Energy Advisors. Your line is now live.

Michael Anthony Hall - Heikkinen Energy Advisors LLC

Thanks. Good morning. Congrats on a solid quarter. Just trying to think about the kind of progression through the rest of the year. You guys came in really strong in the quarter. Obviously, like you said, you had some non-op activity that kind of got pulled forward. But you also had weather that impacted here early in the quarter.

So if I take the quarter-on-quarter growth that we saw in the first quarter and kind of string that forward, we end up somewhere ahead of the guide for the full year. Just kind of curious, what aspects of the quarter would you say – or how would you quantify the kind of one-time component of the quarter versus what we are likely to see going forward? And yes, any color you can provide on that will be helpful.

Matthew Gallagher - Parsley Energy, Inc.

Sure, Michael. We've got a couple thousand bump from non-ops coming in Q1 as opposed to modeled in Q2 and no additional modeled non-op for the remainder of the year. So you won't get that bump in the remainder of the year.

And then you shift from Delaware to Midland with a couple of the rigs, which flattened out the capital burn rate, but also flattened out the productivity uplift. So that will be another, on the net, 1,000 barrels a day or so against the absolute growth in the first quarter. So ballpark, those are some key differences.

Michael Anthony Hall - Heikkinen Energy Advisors LLC

And how much did weather take you down in the quarter, would you estimate, if you could?

Matthew Gallagher - Parsley Energy, Inc.

Over the entire quarter, it's a few hundred barrels.

Michael Anthony Hall - Heikkinen Energy Advisors LLC

Okay. And then I guess I just wanted to think about the – on the oil marketing side, because obviously set yourselves up really well for the year on that. I'm just trying to think about incremental volumes as we make our way into 2019. What sorts of purchasing agreements are you working on currently? What do you view as needed? And kind of what's the strategy as you move forward with that, given the tightness in the current market?

Matthew Gallagher - Parsley Energy, Inc.

The strategy is same as it has been for the last few years, deliverability and diversification. And we have a in-house marketing team that's been with us for a long time and they do great work, and have a methodical kind of bidding approach.

So they're already in full swings on the yearly updates as this thing started tightening. So we'd anticipate more methodical adds as our volumes ratchet up. Obviously, the market condition is a little tighter, but there's some strategic benefits to our barrels that we hope can edge out a little bit of benefits to us over time on those incremental barrels.

And then I think the broad market agrees that everybody's trying to solve for a pinch point going between now and this time next year, in June next year, 2019. So that's where we have to get creative on those incremental barrels. They're really not a massive exposure, given our agreements through 2020 on an exceeding chunk – larger chunk than our current production.

Operator

Thank you. Our next question is coming from Jeff Grampp from Northland Capital Markets. Your line is now live.

Jeff Grampp - Northland Securities, Inc.

Morning, guys. Question on – I noticed one of the pads you brought on in Delaware in the first quarter look to be pretty close to the platform there. Was just kind of curious maybe if you guys could talk about that pad specifically, how that's performing and maybe what that might mean for the rest of your acreage in the general area?

Matthew Gallagher - Parsley Energy, Inc.

Yeah. I think we have proprietary 3D seismic shot over this position. We know where the platform intrudes and where the edge is. And I think all pads performed very well throughout the quarter. So, if anything, it's the drilling time challenge as you're coming through shorter – I mean, shallower zones, the carbonate influence just slows you down a little bit. But then, we're not putting anything in inventory or anything on our drill schedule that doesn't have a good shale component verified through 3D seismic.

Jeff Grampp - Northland Securities, Inc.

All right. Appreciate that. And for my follow-up, as you guys kind of put these rigs into, I guess, the north central part of the Midland, in Martin and Midland Counties, does Lower Spraberry garner some capital for you guys in that neck of the woods, or is it primarily kind of Upper Wolfcamp A and B type of development for you guys?

Matthew Gallagher - Parsley Energy, Inc.

Yeah, it will be a part of the pads. So, small component, eight or so wells on the year when you go into these pads, Spraberry A and B stack, before we go into full scale development mode into 2019 and beyond where you do more of the tank style development across a particular lease.

Operator

Thank you. Our next question is coming from Neal Dingmann from SunTrust Robinson Humphrey. Please proceed with your question.

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc.

Good morning, guys. Matt or Bryan, my first question, just you mentioned the self sourcing on some of the sand. Just wondering how for either one of you all think about further vertical integration around any of the services going forward?

Bryan Sheffield - Parsley Energy, Inc.

We've always had the culture of relying on our partners and it's to our pressure pumping to the midstream. We're just talking about the midstream. So, we've never really – we've always had the mentality of not having the fear and just – of not getting the product because we believe in our partners. So, I think that nothing's changed there as the company moves forward.

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc.

Okay. That makes sense. And then just one follow-up, just, you mentioned, I forget either a quarter or two ago, Bryan, you or Matt, was talking about all the success you've had on just sort of blocking up. Again, given your development plan, I know there's not a big need in all the inventory, not a big need for acquisitions, but I know you had a lot of success sort of blocking up some of your acreage and just what that meant accretively? Is there still opportunities for that for one of you all to maybe hit that?

Bryan Sheffield - Parsley Energy, Inc.

Yeah. It seems like that that opportunity won't go away. I mean, it's always – there's always a lot of churning. Now, the churning hopefully is not in front of our drilling schedule this year and we've mentioned that in the last call, but we're always looking, we're always talking with the operators. And sometimes it slows down because when you're dealing with larger companies, it takes hard to get the approval through 10 layers of a large company versus a smaller company where approval is just one layer. So, you can see some of that, and that's why sometimes it takes a couple of quarters before you see another big trade.

Operator

Thank you. Our next question is coming from Mike Scialla from Stifel. Your line is now live.

Michael Stephen Scialla - Stifel, Nicolaus & Co., Inc.

Yeah. Thanks. Good morning, everybody. Bryan, you talked about the agreement you have with Targa for your gas and you said they're motivated to get the best price for you or your share in that. Can you talk about their ability to move their gas to market, say downstream of Waha?

Matthew Gallagher - Parsley Energy, Inc.

Well, I think they're partnered and their Midland assets are partially owned by another large asset or another large competitor. And they've mentioned about a firm access to takeaway points. So, really, Targa would be the best reference for that on that front, but they have firm and the way they structure their deals, they don't enter into the firm unless they have contracted burn commitments on the other side.

So, it's not like it's going to Mexico with nobody on the other side. So, we feel very good about their operations and they've delivered quarter in and quarter out in the past.

Michael Stephen Scialla - Stifel, Nicolaus & Co., Inc.

Okay, very good. And then, Matt, you'd mentioned in an answer to the previous question, you kind of alluded to doing some more of tank style development maybe in 2019. I wanted to investigate that a little bit more. You've got this simplified plan really focused primarily on the Wolfcamp A and B for this year. So, does that change a little bit moving into next year? What kind of zones are you potentially looking at co-developing?

Matthew Gallagher - Parsley Energy, Inc.

I think we have a component of Lower Spraberry this year. So, it will be – as we look at it, it'll logically be a component of Lower Spraberry, Wolfcamp A and Wolfcamp B, and then in what order and what size it wants is up for discussion. But if we're averaging just under three-well pads this year, that will creep up over time. I don't think we flip a light switch and go to 12 to 30 across on one individual lease. So, I think you methodically layer into it over time.

Operator

Thank you. Our next question today is coming from Kashy Harrison from Simmons/Piper Jaffray. Your line is now live.

Kashy Harrison - Simmons / Piper Jaffray

Good morning, everyone, and congrats on delivering a strong oil production growth this quarter.

Matthew Gallagher - Parsley Energy, Inc.

Thanks, Kashy.

Kashy Harrison - Simmons / Piper Jaffray

Yeah. So, just one set of questions from me. Given that oil prices have moved higher more recently, I was just hoping you could update us of the point at which you achieve cash flow neutrality over the next several years, and if you could also comment on whether that cash flow neutral point involves modest increases in activity.

Ryan Dalton - Parsley Energy, Inc.

Yeah, Kashy, it's Ryan. From our standpoint, nothing has really changed. We continue to expect our outspend to shrink in the coming quarters. We've pointed to the back half of 2019 or the end of 2019 higher prices. Perhaps that gets accelerated a bit, but, of course, that's going to depend on commodity prices, activity levels and service costs. But I think we've said this on the last call, we're not really focused on the timing of when it's happened. We know it's coming. We're more focused on the magnitude of the cash flow once we do hit that crossover point.

Kashy Harrison - Simmons / Piper Jaffray

All right, very good. That's it from me. Thanks for taking my question.

Operator

Thank you. Our next question today is coming from Dan McSpirit from BMO Capital Markets. Your line is now live.

Daniel Eugene McSpirit - BMO Capital Markets (United States)

Thank you, folks. Good morning. I know we're nearing the end of the call here, but I was hoping we can quickly revisit slide 8 of the presentation, which captures what I believe the one-two punch of the Parsley story, at least today's Parsley story, and that's improving well productivity on reduced cycle times, and maybe that's what the business is all about. Can you sketch for us what more can be done on each front to maximize and optimize throughput assuming the company is not already at the physical limit?

Matthew Gallagher - Parsley Energy, Inc.

Yeah. Great question, Dan. And really when you look at our history, this has been our story and not to go backwards, but we essentially built a $3 billion company from scratch in the order of nine months last year, hired 188 people, broke out over the course of 12 months, seven new rigs in a tightening environment, and that's behind us. So, when you get a stable activity level, this is the kind of things we can deliver.

So, I don't think we're at a technical limit and we're really excited to continue to squeeze the sponge and wring out some additional efficiencies here. The teams are fired up and have line of sight on a lot of great processes that they're rolling out and I think the best is yet to come.

Daniel Eugene McSpirit - BMO Capital Markets (United States)

Very good. Thanks again. Have a great day.

Operator

Thank you. Our next question is coming from Mike Kelly from Seaport Global. Please proceed with your question.

Michael Dugan Kelly - Seaport Global Securities LLC

Thanks. Really just following up on Dan's question, you highlight on slide 8 the drilling efficiency gains. Matt, I was hoping maybe you could talk about what you're seeing now in terms of frac stages done per day and some of the other efficiency metrics you've been tracking outside of drilling. Just talk about the trend, maybe where you sit today versus previous quarters. Thanks.

Matthew Gallagher - Parsley Energy, Inc.

Sure. Stages per day is a little tricky as you increase and decrease size, and you increase and you do zippers and your moaving (44:53). So, we look at footage per day and we're clipping along. We've regained back to about 1,000 feet a day per crew on an operated basis. So, that's sunk down throughout last year and we've methodically grinded that back through a lot of work, a couple of crew rotations, but we have a great partner group in place right now through our five fleets and are back up to about 1,000 feet of stimulation per day per crew.

Michael Dugan Kelly - Seaport Global Securities LLC

Good. Great to hear. And then, just following up on the minerals, to Matt's question, Bryan's answer kind of got me interested here. Are you guys – are you currently assessing whether to basically hold on to the mineral rights or you're contemplating either monetizing it through a sale or a spinout? Just a little confused on where you are in that strategy. Thanks.

Bryan Sheffield - Parsley Energy, Inc.

It's way too early to actually – we're thinking about all options, but it's way too early to go down that path. I think we mentioned there's just a couple of thousand barrels. So, we need a couple more quarters to really answer that question more in depth.

Michael Dugan Kelly - Seaport Global Securities LLC

Got it. Thanks. Great quarter, guys.

Bryan Sheffield - Parsley Energy, Inc.

All right. Thanks.

Operator

Thank you. Our next question is coming from Leo Mariani from NatAlliance Securities. Your line is now live.

Leo P. Mariani - National Alliance Securities LLC

Hey, guys. Just wanted to touch base on CapEx, just trying to dig into a little bit here. Do you guys see first quarter 2018 CapEx as kind of the high for the year? And then I guess, will there be sort of a step page down as we work our way into second quarter, and then it's kind of more steady? Can you just talk about the cadence that we see in 2018?

Ryan Dalton - Parsley Energy, Inc.

Yeah, Leo, it's Ryan. We've previously pointed to two things, one of which was that Q1 CapEx was expected to be the highest of the quarter – highest quarter of the year and that's primarily due to well mix, but also higher working interest in the non-op that we expected to come in Q2. The other thing we've pointed to is the – for the full year, the high end of the guidance range.

But with the shift back to more Midland drilling and spending, you should see Q2 CapEx come down, and then it should be fairly, fairly steady quarter for each quarter the rest of the year.

Leo P. Mariani - National Alliance Securities LLC

Okay. That's helpful. And I guess in your prepared comments, I think you guys talked about how you're moving some of the rigs around to some of the most productive parts of your Midland Basin as well as the Delaware Basin for the rest of the year.

When I sort of think about that as well as the fact that there was a recent accounting change, which boosts your production a little bit, I know it doesn't affect cash flow, but it obviously leads to higher production, I sort of think about those two factors as well as the strong start to the year. This kind of certainly implies that production for 2018 is maybe tracking a little bit more towards the high end. I know you guys haven't changed the guidance, but is that sort of reasonable thinking?

Matthew Gallagher - Parsley Energy, Inc.

We hope so. But you have rig moves that occur. And everything you mentioned was contemplated in our original budget. So continued efficiency gains were not in the budget, so to the extent that we don't have any additional surprises, major electrical storm over the summer, or anything like that, we're hopeful, but we're staying disciplined throughout this first half of the year.

Operator

Thank you. Our next question is coming from John Nelson from Goldman Sachs. Your line is now live.

John Nelson - Goldman Sachs & Co. LLC

Good morning and congrats on the really, really strong quarterly results.

Matthew Gallagher - Parsley Energy, Inc.

Thanks, John.

Bryan Sheffield - Parsley Energy, Inc.

Morning.

Matthew Gallagher - Parsley Energy, Inc.

Good morning.

John Nelson - Goldman Sachs & Co. LLC

I wanted to dive a bit more into the strong Delaware Basin results. Did you guys alter the completion design at all, given you hadn't kind of been out there in a few quarters? I was just particularly surprised, given – I would have thought that eastern portion of the field would have been less favorable from a geology perspective relative to the west. If you'd just comment on maybe anything that stood out to you and that is kind of a driver of the strong results?

Matthew Gallagher - Parsley Energy, Inc.

No. We've had about – we did pull back on our loading back in Q3. We did have a rig running back there and when we saw sand prices spike to the order of 60% year-over-year at that time, we pulled back on loading. And that pulled back down into the 40% range. There was just tightness, and we increased our loading back to historical norms. So we had that going on.

But then we have just standard operations out there. The 3rd Bone Spring well did exceed our budgeted numbers. So that was good. But as far as the Wolfcamp production, it falls in line with our historical completions.

We've had obviously slight improvements. There's probably 20 different design tweaks on the completion side, but they're very marginal and incremental on perf optimization, cluster optimization and loading and – but nothing incremental that's a step change function. So I think it's just steady operations.

Would agree with you that that component there isn't necessarily basin-centered. So maybe 1,000-foot of the total 5,000-foot hydrocarbon column shy as you get to the basin center. But within that, when you have 3D seismic, you land in your optimized zones and you definitely have these 300-foot to 600-foot packages that are bread and butter. So that's what we're focused on over there.

John Nelson - Goldman Sachs & Co. LLC

That's helpful. And then I guess just going back to kind of earlier comments about maybe folding that into the 2019 plan. 2018, I think it's 25% of activity is focused on the Delaware. How would you think about the range of how flexible you could be in kind of moving that as you moved into 2019?

Matthew Gallagher - Parsley Energy, Inc.

Midland returns are extremely strong. So we'll have to see how it unfolds throughout the year. But I'd give it a 10% – 25% to 35% evaluation window if we're just guessing at this point. So we'll have to see how the year unfolds.

Operator

Thank you. Our next question is coming from Michael Glick from JPMorgan. Your line is now live.

Michael A. Glick - JPMorgan Securities LLC

Morning, guys. I really just wanted to say great quarter, guys, and nice work. But seriously, just one question from me. Matt, could you talk about some of the changes you made internally in terms of processes in your organizational structure that has contributed to getting back on track on the execution side?

Matthew Gallagher - Parsley Energy, Inc.

I did mention building a company over the course of nine months, and that's really how we think we did it after the Double Eagle acquisition. So that necessitated building out some process changes and improvements. So we've – there's been some restructuring in the org chart as far as having focused teams. We have four focused teams that have their own discrete budgets and accountability measures and built from the bottom up and really put those metrics out in front.

So everyone is accountable for their own areas. And that's really seen – we've really seen a benefit on that front and everybody is working well in that structure.

Michael A. Glick - JPMorgan Securities LLC

All right. Perfect. Thank you.

Operator

Thank you. Our next question is coming from Gail Nicholson from KLR Group. Your line is now live.

Gail Nicholson - KLR Group LLC

Good morning. I was just curious, what is the average lateral length of well placement production in 2017? And then have you guys seen with the longer lateral execution in the 1Q 2018 in the Delaware a change of kind of behavior of the well, i.e., comes on maybe lower IP 30 per 1,000 lateral foot, but exhibits a shallower decline?

Bryan Sheffield - Parsley Energy, Inc.

Last year was 8,800 on average, and then I think we're now 9,300?

Matthew Gallagher - Parsley Energy, Inc.

On average around 9,500 this year.

Bryan Sheffield - Parsley Energy, Inc.

9,500.

Matthew Gallagher - Parsley Energy, Inc.

Yeah.

Bryan Sheffield - Parsley Energy, Inc.

9,500.

Matthew Gallagher - Parsley Energy, Inc.

And, yeah, as you do the longer laterals, you're still managing your drawdown. So, your productivity per foot does not follow one-to-one uplift like the EUR does in the first 30 to 60 days. So, you have managed flowback conditions on a lot of these wells and we're using downhole gauges to methodically measure that. So, EURs essentially get close to a one-to-one uplift as you add stimulated lateral length, but you're 30 and 60-day IPs should not the way we design things.

Gail Nicholson - KLR Group LLC

Okay, great. And then just looking at the movement in the commodity, does that movement adjust your hedging strategy all in the 2019 forward timeframe?

Matthew Gallagher - Parsley Energy, Inc.

I don't think it necessarily changes anything. We try to stick to the same strategy. Probably, what you're not going to see is us go 100% hedged like we did for 2018. It'll probably be closer to our – where we used to say at the IPO like the 40% to 60% hedged. But we have been active. We've been opportunistic in layering on some 2019 positions and I think you'll see us continue to do so.

Operator

Thank you. Ladies and gentlemen, we've reached the end of our question-and-answer session. That also does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.