Pioneer Natural Resources (PXD) Earnings Report: Q3 2014...

CompanyName:PioneerNaturalResourcesCoCompanyTicker:PXDSector:BasicMaterials

Industry:EnergyEventDescription:Q32014 EarningsCall

PioneerNaturalResources(PXD)EarningsReport:Q32014ConferenceCallTranscriptThefollowingPioneerNaturalResourcesconferencecalltookplaceonNovember5,2014,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

FrankHopkins;PioneerNaturalResources;SVP-IRScottSheffield;PioneerNaturalResources;Chairman,CEOTimDove;PioneerNaturalResources;President,COORichDealy;PioneerNaturalResources;CFO

OtherPart icipants

DougLeggate;BankofAmerica-MerrillLynch;AnalystCharlesMeade;JohnsonRice;AnalystDaveKistler;Simmons&Company;AnalystBrianSinger;GoldmanSachs;AnalystJosephAllman;JPMorgan;AnalystMattPortillo;Tudor,Pickering,Holt;AnalystLeoMariani;RBCCapitalMarkets;AnalystEvanCalio;MorganStanley;AnalystJohnFreeman;RaymondJames;AnalystEliKantor;CanaccordGenuity;AnalystGilYang;Discern;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

WelcometoPioneerNaturalResourcesthirdquarterconferencecall.

JoiningustodaywillbeScottSheffield,chairmanandchiefexecutiveOfficer,TimDove,presidentandchiefoperatingofficer,RichDealy,executivevicepresidentandchieffinancialofficer,andFrankHopkins,seniorvicepresidentofInvestorRelations.

PioneerhaspreparedPowerPointslidestosupplementtheircommentstoday.TheseslidescanbeaccessedovertheInternetatwww.PXD.com.Again,theInternetsitetoaccesstheslidesrelatedtotoday'scalliswww.PXD.com.

Atthewebsite,selectinvestorsandselectearningsandwebcast.

Thiscallisbeingrecorded.AreplayofthecallwillbearchivedontheInternetsitethroughNovember30th.

Thecompany'scommentstodaywillincludeforward-lookingstatementsmadepursuanttotheSafeHarborProvisionsofthePrivateSecuritiesLitigationReformActof1995.ThesestatementsandbusinessprospectsofPioneeraresubjecttoanumberofrisksanduncertaintiesthatmaycauseactualresultsinfutureperiodstodiffermateriallyfromtheforward-lookingstatements.TheserisksanduncertaintiesaredescribedinPioneer'snewsreleaseonpage2oftheslidepresentationandinPioneer'spublicfilingsmadewiththe

SecuritiesandExchangeCommission.

Atthistimeforopeningremarks,IwouldliketoturnthecallovertoPioneer'sseniorvicepresidentofInvestorRelations,FrankHopkins.Pleasegoahead,sir.

FrankHopkins (SVP-IR):

Thankyou,Shannon.

Goodday,everyone,andthankyouforjoiningus.

AsShannonmentioned,youcanfindtheslidesforthiscallatwww.PXD.com.Iwantyoutonotethattheversionoftheseslidesthat'sonthewebsitenowhasbeenupdatedfromtheversionthatwepostedlastnight.Itnowincludestwoslidesrelatedtoourequityoffering,whichwillbediscussedduringthiscall.Thisupdatedversionistheonethatwillbeusedontoday'scall,andthepagenumberswillbealignedtothatversion.

Withthathousekeepingmattersoutoftheway,letmebrieflygoovertheagendaforthecalltoday.Scott'sgoingtobeupfirst.He'sgoingtodiscusstherationalebehindthetransactionsthatwereannouncedlasteveningtoenhancePioneer'sbalancesheet.He'llalsoprovideoperatinghighlightsforthethirdquarter.Again,anothergreatquarterforPioneer,andonewhichhighlightsthatwearesuccessfullyexecutingthegrowthprogramwecommittedtoatthebeginningofthisyear.

AfterScottconcludeshisremarks,TimwillreviewourcontinuedstronghorizontaldrillingresultsintheSpraberry/WolfcampandEagleFordShale.He'llalsoprovidecoloronsomeofthefront-endloadedinfrastructureprojectsthatarebeingprogressedtosupportPioneer'slong-termgrowthplanfortheSpraberry/Wolfcamp.

Richwillthencoverthethirdquarterfinancialsandprovideearningsguidanceforthefourthquarter.

Withthat--orafterthat,we'llopenthecallupforyourquestions.AndnowI' llturnthecallovertoScott.

Scot t Shef f ield(Chairman,CEO):

Thanks,Frank.Goodmorning.

OnSlidenumber3,onourrationale,capitalfunding,thecombinationwassellingabillionofequitycombiningwithannouncingtheexpectedsaleofourEagleFordMidstreambusiness.ItallowsPioneertoreallyprudentlydevelopitsassetsinwhatIbelievecouldeasilybea$70to$80oilpriceenvironmentoverthenexttwoyears.

Asyouallknow,thepriceofoilhasdroppedabout$30abarrel.Itisatrilliondollarstimulusperyeartotheworld'seconomy.It'sgoingtotakeawhiletogetthedemandsideupintheworldtoday.Atthesametime,we'reinabattlewithSaudiArabiainregardtomarketshareversusUSshaleoil.

Thisallowsusinbothtransactionstobeabletohavecontinuedsuccess,asFrankmentioned,ofannualproductiongrowthof16%to21%through'16atveryattractivereturnsof40%to80%beforetax.Asfootnoted,thosereturnscouldsignificantlyimprove.

Youseeasignificantdropintherigcount,whichIexpectinfirstquarter,amongotherindustryparticipantsandvariousplaysthroughouttheUS

Inadditiontootherinitiativesthatweareinitiatingoutinthefield,anoptimizationprogram.Wewon'tdecideonourfinalrigcountuntilweannounceitinearlyFebruaryonourschedule,whetherit'szerorigs,whetherit'sfiverigsorwhetherit's10rigsaddduringtheyear.Wehavetremendousflexibilitywithourrigcontracts,

asmostofthemareonathree-yearcontract,butwepurposelyhadthemexpiringathirdin'15,athirdin'16,athirdin'17.Italldependsonwhatoilpricesareoverthenextthreemonths.

Again,theuseofproceedsinadditiontothegrowthandcontinuedsuccessistofundfront-endloadedinfrastructure,whichwillprovidesignificantcostsavingsinthefuture.Totalofabout$1.4billionto$1.6billionoverthetwo-yearperiod.Themaincostwillbe$500millionto$700millionforourwaterdistributionsystemandnetworkcomingoutofthecityofOdessaandthecityofMidland,whichTimwillgivemoredetailon,whichwillsaveusaboutahalfamillion--overahalfamillionperwell.Whenyoulookatover20,000drillinglocations,it'sover$10billionofsavingsoverthenextseveralyears.

Inaddition,we'recontinuingtobuildoutlargehorizontaltankbatteries.Andeventually,aswegetintodevelopmentdrilling,wewon'thavetospendthemoneyonthosetankbatteries,andsaveoverahalfamillionperwell.Inaddition,we'llbe--severalnewgasprocessingfacilitieswillbecomingon.We'llbeexpandingoursandminetoalmostthreetimesfor$125million.Andwe'redoingallthisoverthenexttwoyearstomakesurewemaintainadebttobookbelow35%anddebttocashflowbelow1.5%.So,bothoftheseallowsustoprudentlydevelopourindustry-leadingposition,andprobablythelargestoilfieldintheUSandtheworld-classSpraberry/Wolfcampoilfield.

Slidenumber4,alittlebackgroundontheEagleFordMidstreamdivestiture.Pioneerowned50.1%.We'redoingitjointlywithReliance,whoowns49.9%.Pioneeristheoperator.DataroomwillopeninDecember.Bidsareexpectedshortlythereafter.Weexpecttoannounceasuccessfulsalesometimebetweenmidandlatefirstquarter.SaleproceedsbackintotheSpraberry/Wolfcampassets.

Therestofthedetailinregardtothedescription,Iwon'tgooverthatdetail.ProbablythemostimportantitemisourforecastedcashflowtoPioneerisalittlebitover$100millionfor2015.And,obviously,withtheMLPstilltradingatavery,veryrichpremium,weexpectsomesignificantoffersforthisasset.

Also,ourabilitytoexport--processcondensateremainsunaffectedbythisexpecteddivestiture.

Inaddition,wehavenoplanstodivestourEagleFordShaleupstreamassets.

Slidenumber5.Justtosummarizewhat'shappenedinPioneeroverthelastthreeyears,wehavesuccessfullytransformedourSpraberry/Wolfcampacreagefromaverticalplayintoaworld-classhorizontalplayonour825,000acres,appraisingsixhighlyrespectivestackedintervals,withstrongEURsandinternalrateofreturnswithveryhighoilcontent.

We'vegrownourresourcepotentialfrom3.1billionbarrelsoverthreetimesto9.6billionbarrelsofoilequivalent,addingsignificantnetassetvalue.

Over20,000horizontaldrillinglocations.Morethandoubleproductionfrom45,000barrelsadayequivalenttoover100,000barrelsaday.EnteredinourjointventurewithSinochem,developedaworld-classpremierepressurepumpingcompany,inadditiontoacquiringthefourthlargestsandmineintheUS,whichisonlyaboutathree-hourdriveouttoWestTexas.

Increasedourgas-processingcapacity,withourownershipbeing27%to30%fromroughly285millionadayto1Baday.Securedalong-termwatersupplytomoveawayfromfreshwateroverthenextseveralyears.Andwenegotiatedthird-partytransactionstogetpremiumpricingbymovingawayfromtheMid-Cushdifferential,andalsogettingoverhalfofourproductioneventuallywillbepricedofftheGulfCoastorLLS,minustransportation.

OnSlide6,justtoshowwherewe'vegonefromin'011to'014,from3billionto9.6billionbarrelsofoilequivalentinthelargestoilfieldintheUStoday,threetimes.

Slidenumber7.AsFranksaidearlier,again,we'reexecutingonourgrowthplanwithgreatsuccess.We'reat

thehighendofproductionagain,asweweresecondquarter,againinthirdquarterat186,000barrelsaday,up10,000.Theoilproductionis90%ofthat,up9,000.6%comparedtosecondquarterand12%onoilproductiongrowthcomparedtosecondquarter.Again,drivenprimarilybyoursuccessintheSpraberry/Wolfcampplay.

We'renarrowingguidancetotheupperendofourrangeto18to19.We'remorethandoublethenumberofhorizontalwellsplacedonproductioninsecondhalfcomparedtothefirsthalf.Already,productioninmid-Octoberismorethan195,000barrelsadayequivalent.Ourguidanceforthequarterwillbe200,000barrelsto205,000barrelsaday.

Aslightincreaseinourcapital,roughlyabout$100millionondrillingcapital,primarilyforoptimizationinregardtoabout30wellsthatwe'reoptimizingwithmuchbiggerfracs,bothsandandfluid.Andthenalsoinaddition,someearlyexpendituresonourwaterdistributionsystem.Again,forecastingproductiongrowthinthislowerpriceenvironmentof16to21overthenexttwoyears.

Wehavegreathedgesinplacealso,probablythebesthedgesinplaceamongtheindustryin2015and2016onoil.And,again,we're100%protectedontheMid-Cushdifferential,asImentionedearlier.

Slidenumber18.Again,IthinkthemostimportantpointforthequarteristhatwehavedelineatedtheWolfcampAinterval.Ifyourememberpreviously,wehadonewellontheonegoodAwell,andweputanother11wellsintheAthroughouttheentireNorthernprogram.Alltremendouswells,over1200barrelsofoilequivalentperday.That'sanaveragelaterallengthofabout7,000feet.

EagleFordcontinuedtoshine,withbothdownspacingandtheuppertargets.Resultscontinuetobeveryencouraging,continuedtoexportcargoesaroundtheworld,bothtoEuropeandtoAsia.Ourprocessedcondensatewithsignificantimprovedpricing.We'llcontinuetoincreasethatamountofbarrelsexportedgoinginto2015.

Also,what'simportant,we'vehadmultipleindependentstudiessupportliftingtheoilexportban,inadditiontothefactthatgasolinepriceswouldactuallybeloweredifweexportedoil.

TheEIAcameoutlastweek.It'saverypositivereportinregardtosayingthatUSgasolinepricesisgovernedbyBrentoilandbyworldgasolineprices.

Wecontinuetomaintain,obviously,strongfinancialflexibilityinadditiontotheequityoffering,andalsotheexpectedsaleofEagleFordMidstream.Cashonhandof$550million.AndwedidcloseHugoton/Barnettduringthequarterfor$328millionand$150million,alltoredeploythroughtheSpraberry/Wolfcamparea.

Slidenumber9.Again,onproductiongrowth,wehadagreatquarter,186,000,69%liquids.Guidance,200,000to205,000forthefourthquarter.Andalreadyinmid-October,weareover195,000barrelsofequivalentperday.

Aswesee,wemoveupto75%liquidsby2016.

I' llnowturnitovertoTimtogooverinmoredetailsofourassets.

TimDove (President,COO):

Thanks,Scott.

Andnowthatwe'vecompletedaprettysubstantialdrillingprogramallthewayfrom2013intotheninemonthsof2014,we'vecompiledaverysubstantialsetofdataonthevariouszonesintheNorthernSpraberry/Wolfcamparea.And,infact,we'veput56wellsonproductionintheWolfcampzone,asshowninthetable,aswellasseveralinthelowerSpraberryshale,aswell.

Youcanseeonthemapwe'vehadawidespreadareaofdrilling.Wehavesomeareaswestillhavenotdoneanydrillingon,butwillbeshortly,aswe'veneededtocomplete3Dseismicbeforebeginningdrillinginsomeofthoseareas.

Themainimportantmessagehereisthatwecontinuetoseeconsistentresultsonthesewells.TheproductioncontinuestosupportverystrongEURsandreturns.Infact,asScottalludedto,eveninthe$70to$80oilenvironment,we'relookingatreturnsintheneighborhoodof40%to80%.

IntermsoftheJoMillandtheMiddleSpraberryShale,you'llrecallinthesecondquarterwehadsomemixedcompletionissues.I'mgladtosay,lookingatthewellsweputonproductioninthethirdquarter,they'retrackingverywellandlookalotstronger,reflectingthebestwellswehadreportedoninthesecondquarter,withJoMilltrackingabout800,000BOEandtheMiddleSpraberryShale,about700,000BOE.

Dataonourstrongestindividualwellscanbeactuallyseeninyesterday'spressrelease.Butashasbeenourpracticeinthelastseveralquarters,you'llseeonSlide11dataonallthewellsthathavebeendrilled.And,infact,onSlide11,westartwithareviewofalloftheWolfcampBwells--largedatasetnow--33wellsinfourcounties.Andyoucanseeveryconsistentresultshere,showingthattheWolfcampB,webelieve,cansupportEURsfrom800,000barrelstoamillionbarrels.Andthisdatasetcontinuesto--tosupportthenotionofveryhighreturnsintheWolfcampB.

Similarly,asweturntoSlide12andthentheWolfcampA--ScottmentionedthefactweonlyhadlimitedamountofdataintheWolfcampApriortothethirdquarter,butwehaveput11morewellsonproduction.Andyoucanseetheaverageofthesewells,ofall11,intheredline.AndIwouldconsiderthesetobeverystrongresults.ItgivesusalotofconfidenceintheWolfcampA,andleadsustotheconclusionthattheEURsarealsointhat800,000toperhapsoveramillionBOEonaverage.

TurningnowonSlide13totheWolfcampD,we'vegotacouplelinesonthisgraph,andIneedtoexplainwhattheymean.Ifyoutakealookatthedarkestofthepurplelines,thisisthecaseinwhichwe'reshowingalltheTier1wellsthatweredrilled,ofwhichthereareatotalof11.

ThelighterpurplelinehastodowithacoupleofMartinCountywellsthatwedrilledthatweconsidertobeinTier2acreage.And,as--asprognosed,theydidunderperformversusthetier1wells.Weneededtodrilltheseinordertotestourgeologicmodelintofullacreage.Obviously,thisleadsustotheconclusionthatcertainareaswherewehaveTier2acreageintheD,wewillnotbedrillinginthoseareasgoingfurther.Butthemainmessageis,ourTier1drillinglooksverygood.AndwewouldcalltheEURstillinarange,but650,000to,insomecases,overamillionBOEinthe--indifferentareasofthosefourcounties.

TurningnowtoSlide14,thisisreferencingthelowerSpraberryShale.Ninewellsnowinthatdataset.Relativelyshorterlaterals,asisthecaseinsomesituationswherewehaveleaseholdconfigurationissues.Butyoualsoseeacontinuationofwhathasbeenmentionedinpriorcalls,whichisadifferenttrajectoryofproductiongrowththanyouseeintheWolfcamp,aswaterisdrawnoffthesystem.Butnonetheless,inthefullnessoftime,especiallyafterabout90days,oncethesewellshavebeenputonproduction,youshowverystrongresults.Andconsistentresults,forthatmatter,again,withEURsrangingfrom650,000BOEto,again,overamillionBOE.So,verystrongresultsinthelowerSpraberryShale,asexpected.

ThenextslideshowssomeofthenewdataregardingtherecentMiddleSpraberryShaleandJoMillwellsthatwedrilled.Remember,asImentionedearlier,thatinthesecondquarter,wehadsomecompletionissues,sowegotsomemixeddrillingresults.Butmuchbetterresultshere.Ifyoutakealookat,forexample,inthebluelines,particularlythedarkBlueline,thisistheMiddleSpraberryShale--itgoestoUptonCounty--arelativelyshortlateral.It'sinearlydaysofproduction,butisingenerallookingprettygood.

Similarly,thelighterblueistheMiddleSpraberryShale,drilledinMidlandCounty.Andit'sexhibitingover650,000barrel-typecurveatthispoint.

TheJoMilltendstobeabitofadifferenttrajectory,showingalittlebitmorelikelowerSpraberryShale.Andthesewellsarelookingverygood,boththeredandthegreenlines,alittleover5,000-footlaterals,andshowingrangesthatcouldbe650,000BOEupto800,000BOE.

I'dconsiderthisstilltobearelativelysmalldataset.Andso,we'regoingtocontinuetoappraisethesewells.Ofcourse,theamountofappraisalwedowouldbedependinguponwhatourtotalrigcountis.Prettyclearly,we'regoingtobefocusingontheotherzonesthathavebeenmentionedpriorintermsofourfocusfor2015.

TurningtoSlide16--well,Iguesswhenyoulookatwhetherwe'vehadsuccessinexecutionornot,youshouldbelookingatproduction.AndI'mverypleasedtosay,we'veshownverystrongproductiongrowthinthequarter.Ofcourse,that'saresultofthefactthatweexpectedthat,duetothebackend-loadednatureofthecompletions.Andwiththerigcountbuildingonlyduringthemiddlepartoftheyearandgoingtopredominantlypaddrilling.Thoughwedidputon73wellsinthecombinationoftheNorthernandSouthernacreageduringthequarter.Production,103,000BOEaday,upsubstantially,withthevastmajorityofthat,asScottmentionedearlier,beingoil.Andyoucanpointthentoasignificantamountofgrowthinthefourthquarterforexactlythesamereason.

Sotome,thisgraphdepictsthefactthatwearereallyhittingonallcylindersfromanexecutionstandpoint.

TurningtoSlide17,I'mgoingtonowchangetoadiscussionsurroundingourdevelopmentcampaigninthefuture.

Itwassuchalargecampaignofdevelopmentthatwehavecomingoverthenextseveralyears,we'retakingaveryholisticapproachtothedevelopment,really,ina10-yearhorizon.

Youcanseeonthisparticularslidethevariousthingswehavetodealwithwhenitcomestoa10-yearprogramofdrilling.Inparticular,I'mgoingtotalkaboutthreeofthesethatarethesubjectofthecapitalraisingsthatScotthadmentioned,thatbeinggasprocessing,fieldinfrastructure,andwater.

Andseveraloftheseresourceswillbedealtwithwhenitcomestothiscapitalbeingraised.ButthecapitalisneededupfrontoverthenextseveralyearstopreparetobringthisPVofthistotalprojectforward,asdrillingacceleratesintothefuture.SoI' lltouchonseveraloftheseinthenextslide.

TurningtoSlide18--obviously,waterisaverysignificantneedwhenyoulookattheresourcesrequiredtodevelopthisasset.Oneofthemainobjectives,ofcourse,inourcaseistomakesurewecanbringinrelativelyattractivewaterwhenitcomestocosts,intermsofitsacquisitionandtransportation.Andalargewatersystemwillberequiredtodothat.Obviously,wewanttogettoapointwherewe'rereducingourreliance,and,infact,eliminatingourrelianceonfreshwateratsomepointinthefuture,andalsoreducetheneedfordisposalofproducedwaterthroughincreasingourrecyclingprograms.

We'reverypleasedtonotethatwehavegoodsupplysourcesintermsofeffluentwaterfromboththecityofOdessa,andwe'refinalizinganagreementwiththecityofMidlandtodeliverupwardsof360,000barrelsperdayofwater--effluentwateroverthenextthreeyearsorso.

We'vecreatedanentitywithinPioneerwithsomegreatemployeeswhoareactivelyworkingthisproject.Andwe'rereallymakinggreatstridestowardsmakingourwateravailabilitysomethingthatwouldnotbeaconcern,includingdrillingourownbrackishwaterwells,buyingbrackishwaterfromthirdsourcesandrunningseveralpilotsforrecycling.

So,we'rereally,Ithink,atastepaheadherewhenitcomestowater.Butoneimportantpartofthis,asshownonSlide19,thatis,averylargeprojectthatwe'rebeginningtospendmoneyonforthetransportationofwater,storage,utilizationandrecycling.

Asshownonthecartoonthat'sdepictedontheright,we'regoingtobebuildingabouta100-milemainline,

principallyNorth-South,andthengoingtotheSoutheast--averylargediameterpipe.We'llalsobelayingfiberoptics,cable--fiberopticcablesinthesameditchto,inessence,createwhatwillbeastateoftheartsystemintermsofcommunicationsandintermsofcontrolwithverylimitedpeopleinthefield.Itwillbeaworld-classsystem,withoutadoubt.

We'llalsoneedtobuildfeederlinesregardingthenewwatersupplyfromOdessaandMidland,andinadditiontowhich,inthefuture,we'llbedrilling--bebuildingsubsystemsthatareoutinthefieldareastosupportdrilling.Andassociatedwiththat,fracponds--some120to150fracpondsthatarebuiltstrategicallynearwherethedrillingwillbeoccurring.

Anticipatethetotalprojectwillberoughly$800milliontoabilliondollarsspentoverthenext,say,fourtofiveyears.Andit' llbebuiltinphases,ofcourse.Thefirstphaseofwhichisthesubjectofspendingin2015and2016.It'sbasicallythemainlinesystemandthefeederlinestobringinthenewwatersources,andit'sreallythebackboneofthesystem.

Wecancontrolsubsystemsandfracpondsjustbasedonwheredrillingoccurs.Andso,itwilldependuponwherewelandintermsofthecapitalbudget.Butnonetheless,overall,we'regoingtobespendingprobablyaminimumof$250millioneachofthenexttwoyears,2015and2016,inthisinitialphaseoftheproject.

TurningtoPage20--andwereallybelieveultimatelythebenefitsofthisaresignificant.It'sobviouslycriticalfromthestandpointofthesuccessofexecutingonourplans,butitalsowillprovideusrelativelylow-costcompetitivewatertodevelopthesystem,inadditiontowhichwebelievetheeconomicsofthisprojectaregoingtobeverystrong,probablyintheneighborhoodof35%IRRs.Oneimportantthingitdoesisgetwateroutoftrucks,getstrucksofftheroads.Andifyou'vebeeninMidland,youknowwhatI'mtalkingabout.It'sadangerousplace.Andweneedtodoeverythingwecantogettrucksoffroadsoutthere.Andwe'llbeheadingmoretowardsarecyclingworldthatwillallowustoutilizeourproducedwater.

Ultimately,again,leadingtoaconclusion,we'renotusinganyfreshwaterofanysignificance.Scottmentionedthis,butthisissignificant,becauseit'sgoingtosaveus$500,000perwell.Ina20,000-wellcampaign,that'sveryimpressive.

TurningtoPage21--twoothercriticalfront-loadedcapitalrequirementsareintheformoftankbatteriesandsaltwaterdisposalontheonehandandgasprocessingontheother.WedohavetobuildverylargescalebatteriesanddisposalwellsandfacilitiesinordertodealwiththeveryhighvolumewellsintheSpraberry/Wolfcampthatrequirethatkindofvolume.In2014,forexample,wespentabout$250millionforthesekindoffacilities.

Wewillhavebuiltover30tankbatteriesandover25saltwaterdisposalfacilitiesthisyear,andexpectthatormoreoverthenextcoupleofyears.Probablywe'llbespending$300millioneachin2015and2016andsimilarexpenditures.Thiswillbegoingonforafewmoreyearsuntilwehaveallofthisbuiltout,readyforthesignificantaccelerationofdrillingwells,andwe'llhavethetankbatteriesreadyforallofthisvolume.

It'seasytocalculateingasprocessingourneedforperhapsuptoa200millioncubicfeetadaynewgasprocessingfacilityevery12to18months.Andyoucanseethatoccurringalreadythisyear.Wehavetwonewplantscomingon.Oneisalreadyonproduction,theEdwardplantwithAtlas,andanother[WGTG]plantcomingoninaboutamonthorso.

Andwehaveplans--infact,havealreadymadetheorderstobuildanotherplant,inthiscase,MartinCountywithAtlas,thatwillcomeoninthesummerof2015.Probablywillneedadditionalplantsin2016,thewayitcurrentlylooks.

So,we'reearmarkingabout$175millionofcapitalforthenexttwoyearsintotaltofundourshareofthesefacilities.

Andthenfinally,turningtoSlide22--sandisjustanothercriticalcomponentinthelong-termplan.Andwe'rereally,reallyfortunatetohaveourBradysandminelocatedveryclosetoourfieldactivities.Ithasabout750,000tonsayearofcurrentcapacity,verysignificantreservesbehindthatof68milliontonsonaprovedandprobablebasis.We'vegotamultidecadeinventoryofsand.Andmostofthat,ofcourse,isusedonourownwellsand,infact,goinginthefuture,thevastmajoritywillbeusedonlybyPioneerwells.With[wintergrowingneeds],though,it'sveryclearweneedtogoaheadandcompletetheexpansionofthisfacility.

Wehaveaplanin2015tospend125milliontoexpandcapacityto2.1milliontons.Andthatincludesstoragefacilitiesandsomepreinvestmenttotheextentwewanttoaddanotherexpansionintwoorthreeyears.

Wecalculatethistohaveaveryfastpayout.Becausewhenyouconsiderthisvolumeofsand,theonlyalternativewewouldhavewouldbetobringitinfromtheMidwest,thatistosaywhitesand.Andthetransportationcostsandtheissuespertainingtologisticsandgettingthesanddownthereareverysignificant,sowethinkthisisaveryfastpayoutproject.

TurningtoSlide23,you'renotreallyturningawayfromPermianintoEagleFord.Youknow,wecontinuetoseethebenefitsintheEagleFordShaleofourdownspacingandstaggeringprogram.Infact,weexpecttoputabout50wellsonproductionintheuppertargetsasapartofthatdownspacingandstaggeringandaddingupperEagleFordShaletargets.About35wellsofwhichhavebeenplacedonproductionsofarthisyear,and18inthethirdquarter.Ithinkwe'repleasedjusttosaythattheupperwellsareshowingverysimilarresults,atleastwhenitcomestoearlyproduction,ascomparedtotheiroffsetlowerwells.Infact,youcanseeinthegraphtotheright,therearecases--oneshownhereinKarnesCounty--ofasituationwheretheupperwellactuallyexceedsthevolumeinthelowerwellandthatoftheparentwellnextdoor.

So,we'reverypleasedwithhowthisprogram'sgoing.Andit' llbealargepartofourprogramgoingforwardin2015andbeyond.

TurningnowtoSlide24--resultswereverygoodintheEagleFord.Infact,recordproductionofabout47,000BOEperday.You'llnoticethatwasnotupverysubstantiallyfromthesecondquarter.However,itwasanexpectednumber,simplybecauseweknewwe'dhavequitealargevolumeofwellsoffproductionduetooffsetfracsthatwerebeingperformed.Weprobablylost1,000barrelsadayduetothat.

Andalso,wehadanticipatedaback-weightedpopscheduleinthequarter,andthat'sexactlywhathappened.Andyoucanseeinourexpectationsforthefourthquarterthatproductioncontinueswithasubstanialramp-upto50,000to52,000BOEperday.

Wedidput35wellsonproduction.We'redoingagreatjobofutilizingtwo-stringcasingdesigns,andthat'ssavingussomewhereintheneighborhoodof$750,000to$1millionperwell.

Ouroptimizationprogramwe'vetalkedaboutthroughtimeisreallyworkingwell.Westillseea20%to30%increasewhenitcomestopumpingmoresand,pumpinghighervolumesoffluidsandchangingthespacingintermsofthefracs.

TheexportationoftheEagleFordcontinues.We'reexportingcurrentlyabout25%ofourvolume.Ourprocesscondensate--we'reactuallytargetingthattobealmosthalfofourproductionnextyear.We'veparticipatedinsixcargoesduringtheJuly-to-Novembertimeframe.AndweareseeingprettysubstantialincreasesinpricingrelatedtotheexportofthecondensateascomparedtoleavingitinwithaswampedUSmarket.

And,incidentally,wewillcontinuetobeabletoexportcondensateintheeventofapositivesaleofourEFSmidstreamassets.

TurningtoSlide25--thisismyfinalslide--itreferstothefactthatwestillneedalotofworktobedonehere

tomakesurethatifwereallyareinalow-priceenvironment,we'reoptimizingourreturns.Weareactivelyworkingwithourserviceproviderstoseekcostreductionsfor2015.Allofthosecontractsarenotletyet,sowehavealotofdiscussionsgoingontoreducecostsasbestwecanfor2015andafterthat,wewill,asyoumightexpect,focusin2015intheeventweareatalowercostenvironmentononlytheverybestintervals.And,asImentionedearlier,that'sprobablyseentobefocusedontheWolfcampB,AandlowerSpraberryshale.Andprobablydeferdrillinginsomeoftheotherzonesthatarequiteexcellentintermsofhowwellthey'reperforming,butwehavelessdata.Andwemightaswellfocusonthe--thehighest-returnwellsfirstinthisenvironment.

Wealsowillbecontinuingouroptimizationtesting.You'llrecallthatwe--similartowhatwedidinSouthTexasandtheEagleFord,wemovedthatteamintotheSpraberry/Wolfcampareatobegintheprocessofoptimizationearlyinthecampaignofdrilling,andthat'sbeingimplemented.We'llcontinuedoingthat.Ofcourse,somesciencecosts,butprobably,we'lltrytolimitifwe'reinalowerpriceenvironmentin2015.

Ithinkit--itgoeswithoutsayingthat--thatcontinuousimprovementinshaleplaysisjustpartof--partoftheprogram.Andaswecontinuetobeworkingonthat,itreallyamountsto,inourcase,identifyingandimplementingDNCcostreductions.Anditcomesinalotofdifferentforms.I'mnotgoingtogothrougheverythingwe'redoing,buttheexamplewouldbethesametwo-stringdesignconceptthatwereusedinEagleFord,we'renowlookingintousing,andhavesuccessfullyusedintheSouthernWolfcamparea,wherewe'vedrilledawellasfastas12days,whichisunheardofinthepast.

Ofcourse,we'recontinuingour"sim-ops"orsimultaneous--simultaneousoperationswhenitcomestothecompletionsofwells,wherewe'reactuallyputtingwellsonproduction,andatthesametimewe'redrillingoutother--otherplugs,andsoon.Andthat'scuttingseveraldays.Insomecases,abouteightdaysoutofthetimetogetthewellscompleted.

We'vealsodonealotofworktoincreaseoursubsurfaceunderstanding,andthat'shelpingustooptimizelandingzones.Itdoesn'tjuststopintermsofcostreductiononcapital,though.WearedoingalotofworkoninitiativeswhenitcomestoreducingLOE.YoucanseeourLOEcostshavedonephenomenallywell.Hastodo,firstofall,withhigh-volumewells,butwe'realsoattentivetothesecosts.Forexample,usingplungerlifts,asopposedtogasliftorESPsorrodpumps,whicharemoreexpensivewherewecandoso.

So,you'llseeuscontinuetopursuetheseinitiatives.Wepursuetheminahigh-priceenvironmentandalow-priceenvironment,soit'sjustsomethingthatwedoasapartoftheshalegame.

So,I'mgoingtoturnitovernowto--turnthecallovertoRichforadiscussionofourthirdquarterfinancialsandfourthquarterguidance.

RichDealy(CFO):

Thanks,Tim.

I'mgoingtostartonSlide26,wherewereportnetincomeattributabletocommonstockholdersof$374million,or$2.58perdilutedshareforthequarter.Thatdidincludenoncashmark-to-marketderivativegainsof$216million,or$1.49.Thatwasprimarilyaresultofourderivative--valueofourderivativeportfoliogoingup,astheoilpricesprimarilydeclinedandsoftenedduringthequarter.

Italsoincludedalossassociatedwithdiscontinuedoperationsof$37million,or$0.26perdilutedshare.ThisisprimarilyrelatedtothesaleofourBarnettandHugotonassetsthatScottreferenced.So,adjustingforthosetwoitems,weareat$195millionofearnings,or$1.35pershare.

Lookingatthebottomoftheslidewherewelookatresultsrelativetoguidance,youcansee,asFrankmentioned,wehadanothergreatquarter,beingatthetopendofproductionguidance.Iwon'tgothroughall

thelineitemshere,but,asTimmentioned,productioncostswerebelowtheguidance,really--andI' llmentionitlater--butaswebringonhorizontalwellsandourcostinitiatives.

TurningtoSlide27,lookingatpricerealizations,asyouguysareaware,wedidseesofteningofpricesduringthequarter,soyoustartout,oilpricesweredownabout5%,NGLsabout6%,andgaspricesdownabout12%.Thatwasoffsetsomebyourderivativeposition,whichyouseeatthebottomoftheslide,wherewedidhavepositiveresultsfromderivativesduringthequarter.

TurningtoSlide28,asTimmentioned,youknow,productioncostsaredownabout5%to$13.17forthequarterperBOE,mainlyaslowercosthorizontalwellsarebeingplacedonproduction.Thatisbringingitdown.Inaddition,wedidseewiththesofteningofcommodityprices,thatourproductiontaxesweredownforthequarter,inadditiontobaseLOE.

TurningtoSlide29--liquidityposition,netdebtattheendofthethirdquarterwas$2.1billion.Thatdidinclude$550millionofcashonthebalancesheet,sowe'reinexcellentfinancialpositionattheendofthequarter.Thatwillbefurtherstrengthenedbytheequityofferingthatwejustcompleted.AndoncetheEagleFordMidstreamtransactioniscompleted,thatwillstrengthenit,aswell.

Soexcellentfinancialpositionforthenextcoupleofyearsofinfrastructurebuildupandcapitalplansthatwehave.

TurningtoSlide30--lookingatfourthquarterguidance,we'vetalkedabouttheproductionbeingupsignificantlyinthefourthquarter,again,withourincrementaladditionofwellsinthesecondhalfoftheyear.So200,000BOEsto205,000BOEsperday.Therestoftheitemsherearegenerallyconsistentwithwhatwe'veshownforpastquarters,soI'mnotgoingtogothrougheachofthose.Butthey'rethereforyourreview.

So,withthat,Shannon,Ithinkwe'llgoaheadandopenupthecallforquestions.

QUESTIONS&ANSWERS

Operator:

Ifyou'dliketoaskaquestion,pressstaroneonyourtelephonekeypad.Ifyou(inaudible)...

We'lltakeourfirstquestionfromDougLeggateofBankofAmericaMerrillLynch.

DougLeggate (Analyst-BankofAmerica-MerrillLynch):

Oh,thankyou.Goodmorning,guys.Soundslikeyoumightbetravelingtoday,soIappreciateyoustillmakingtimeforthecall.

I--Ihavetwoquestions,ifImay.ThefirstoneontheMidstream.Clearly,thedecisiontoselltheEagleFordMidstream--youknow,itkindofbegsthequestion,withsuchalargespendinthePermian,whatareyourlonger-termplansforyourMidstreamassets?Becauseclearly,the--youknow,the--theMLPvalueissomethingtobeconsidered,Iguess.AndI'mjustthinkingaboutthescaleofinvestmentthatyou'regoingtohavetomake.WhatistheprognosisforhowyouthinkaboutMidstreamgoingforward?AndIhaveafollow-up,please.

Yeah,Doug.Ithinkwehaveseenthebenefitofowning--we'veownedthis27%to30%forover20years.We'veseentremendouslythebenefitbyowningapieceoftheprocessing--alltheplantsintheSpraberry/Wolfcampfieldallowsustoexecute,gettiedinquicker.Andso,it'savery,veryimportantintegratedpieceofourintegratedassetsoutintheSpraberry/Wolfcamp.

It'salwaysapossibilitywaydowntheroad,butrightnowit'sbeenatremendousbenefitforustoownapieceofeveryplanandtoeducateallofthevariousparties,justlikewedidwithAtlas.Ittookusacoupleyearstoeducatethem,togetthemtostartbuilding.Weareexcitedaboutthetargettransaction.ItleavesamuchstrongerfinanciallystrongerMLPowningtheassets.Weshouldbeabletobuildquickerandlargerplantsasweneedthem.

Okay.Thankyouforthat.Andmyfollow-upisreallyaboutthehighgradingofthePioneercapital.Soperyourpreparedremarks,ifPioneer'sgoingtobeputtingPioneerdollars,ifyoulike,intothebetterpartsoftheplay--Imean,wesawwhatlookslikeabigstep-upinoilnextthisquarterfor--youknow,forwhatyoudiddeliverbytheirproduction.

SoI'mjustkindoftryingtofigureout,well,one,whatdoesitmeanforthe--therateablegoldstarthatyou'vegivenus,giventhatyouwouldbetargetinghigherAURs?AndifImaykindofdouble--double-borrowaquestion--whatdoesitmeanforyourthoughtsonusingthirdpartycapitaltomaintainthepotentialvalueofthenon-coreassetsthatobviouslycompanymakersforsomeoneelse,ifyouchosetogothatroute?AndI' llleaveitthere.Thankyou.

Yeah,Doug.Obviously,we'regoingtowaitandcomeoutinearlyFebruarywithourcapitalbudgets,sowehavelotsofflexibility.ItdependsonwhathappenswiththeIraniannegotiationscomingonwithKerryNovember24,theOPECmeetingonthe27th,what'sgoingtobethepriceofcrudegoingintoourfinaldecisionsinlateJanuary,earlyFebruary.Wehaveextremeflexibility.It'sstillgoingtobewithinthat16%to21%range,whetherwekeeprigsflatorwhetherweaddfiveoradd10rigs.Sowehavelotsofflexibility.

Inregardtoyoursecondpartofyourquestion,referringto...

Unident if iedCompanyRepresentat ive :

Bringinginthirdpartycapital.

Oh,bringingthirdpartycapital--atthispointintimeonthesweetspotinthenorth,wejustdon'tthinkatthispointintimeit'sworthdoingathirdjointventure.It'salwaysanoptionwaydowntheroad.Itmakesit--wehavefoundoutthroughtimeitmakesittoughertodivestofassetstogetpeopleattractivewhenyoudohaveajointventurepartner.Andso,wedonotseeanyofthatasanavailabilityoverthenextcoupleyears.

InourNorthernacreage--becauseit'sgradereturns--asyoucansee,we'veappraised.WehavesoldpartoftheacreagetotheNorth.Therearesmallpiecesthatwemaylookatovertimeonthefringestodivest.

Allright,fellas.Congratsonagreatquarter.Thanksagain.

Thankyou.

Operator:

Andwe'lltakeournextquestionfromCharlesMeadewithJohnsonRice.

CharlesMeade (Analyst-JohnsonRice):

Goodmorning,gentlemen.IfIcouldpickupthatpointonthe--onthebiginfrastructurespend,canyoupointustoanythingeitherinyourhistoryofdevelopmentacross,youknow,acrossdifferentplays?Ormaybeinotherplacesintheindustrywhereacompanyhasledtheinfrastructuredevelopmentofaplayofthissize?Youknow,includingnotjustthetypicalMidstreamthings,butreallythekindsofthingsthatyou'refocusingon,likewaterandsand.

Yeah,Charles,Ithink--firstofall,Idon'tthinktherehaseverbeenashaledevelopmentofthemagnitudewe'retalkingabout,consideringthatshaleplaysarerelativelynewintheindustry.Imean,you'dhavetolookatthekindofinfrastructurebuildoutandtherequirementsthereassomethingakintotheNorthSlopedevelopmentinthefullnessoftime.Now,theyhave--wehavedifferentneedsinshaleplaysthantheNorthSlopedevelopmentneeded,butthat'sthescopewe'retalkingabout.Andsoit'ssomethingofvery--ofsignificance.

Gotit,Tim.Thanks.That'sthewayitseemedtome,butIdidn'twanttopresumethatyouguyswerelookingatitthatway.Butitlookslike...

Imean,itwasalot--it'salotwarmerinWestTexas,okay?

Nopolarbears,huh?Onalittlesmallerscale,theWolfcampA--ifIgobacktothinkaboutthewayyouguysweretalkingaboutthatmaybeayearortwoyearsago,IthinktherewasaconcerntherethatIthinkyouwereconfidentabouttheoilinplay.Yousaidthatsortofthing,buttherewasaconcernaboutbeingabletogeteffectivefraccontainmentthere.Canyoutalkabouthowthat's,youknow,withthese11wellsthatyou'veputonline,howdoyouthinkyou'vedone?Howdoyouthinkyou'vedoneonthatfront?AndareyoudoinganythingdifferentintheWolfcampAwithyourfracdesignsandwhatyou'redoingintheWolfcampB?AndIguessthenaturalfollow-ontothatis,giventhatWolfcampAisstillintheearlyinnings,andislookingsogood,is--isthere--doyouthinkthereismoreupsidethere?

Yes.Charles,youhaveagoodmemoryfromwhatwesaidabout18months,twoyearsago.WewereconcernedatthetimeaboutfrackingupintotheDformation.Ithinkthis--bybringingon11newwells,allgreatsuccess,microseismichasshowedallthefracswerecontainedwithintheA.Sovery,verypositiveresults.TheAdoeshavealmostasmuchoilastheB,soitallowsusreallytodeveloptheAthroughoutthenorth,justasmuchastheB.Sovery,verypositiveresults,andstillgettinggreatresultsinthelowerSpraberryshale.

Okay.Thankyouforthatdetail,Scott.

Operator:

Andwe'llmovenexttoDaveKistlerwithSimmons&Company.

DaveKist ler(Analyst-Simmons&Company):

Goodmorning,guys.

Hi,Dave.

Realquickly,yououtlinedforuswhatyouexpectkindoftherateofreturntobefromthewaterinvestmentinyourrelease.Canyougiveuscoloronkindofmaybewhatyouexpectotherinvestmentstogenerate,ormayberefreshourmemoryintermsofhowquicklythepaybackwasonthesand--originalsandmineinvestmentortherateofreturnonthat?

Yeah,Dave,Ithinkwe--whenwecalculatedtheoriginalsandmineacquisition,wewerelookingatafour-tofive-yearpayoutonthatproject.Weacquiredthatin2012,andIthinkit'sonschedule.Probablytwoorthreemoreyearstopayout,withthealternative,ofcourse,being,asImentionedearlier,evenregard--eveninregardtoourexpansions,we'dhavetobringinalot--alargequantityofwhitesandfromtheMidwest--whichhasalotofcomplication.Actually,whitesandcostsattheminearesimilartoBradyBrown,buttheproblemis,the--itcostsatleastdoubletobringitin,notwithstandingalltheinfrastructureandlogisticsthatyou'veheardaboutwithregardtotherailsystem.

So,Ithinkifwecalculatetheincrementalvaluesassociatedwiththeexpansion,theexpansionisrelativelycheaperthantheoriginalsandmine.Itjusthastodowithwe'renotacquiringreserves.We'rejustbuildingafacility.Soifwespend$125millionorsoonthat,Icalculatethepayofftobeprobablyintheneighborhoodofayearandahalf.Andso,tome,thisisareallyoutstandinginvestmentwhenyouconsiderwehavedecadesworthofsand.

Okay,Iappreciatethat.Andthenjustone,thinkingaboutbudgetingfornextyear--whenyoumakethatbudget,orasyougothroughthatprocessrightnow,howareyouthinkingaboutwhatkindofimprovementyouanticipateinwellcostsandEURs?Orareyougoingtobeusingcurrentwellcosts,currentEURs?Andcanyourefreshusonwhatyouthinkthoseareforthebudgetingpurposes?

Yeah,Ithink,Dave,rightnow,Ithinktheplanis,we'regivinginstructiontoourteams,istousethecurrentwellcosts,usecurrentEURsandbasicallyinthatsensebeconservative.Ithinkifyoulookatthecurrentwellcosts,totheextentwe'reoutto9,000-footto10,000-footlaterals,thosewellsarecosting$9millionto$10million.SoIthinkwehavesomeabilitytocutthatbackaswecontinueouroptimization.

Youknow,we'recuttingdaysoffwells,aswespeak,ifyoulookatthisquarterversuslastquarter.Wedidn'tgiveyoualotofcoloronthat.Butyou'llseeincrementalimprovements.Ithinkthequestionis,aswegofurthertowardsnewcasingdesignsandotherthingsImentionedwithregardtohowtocompletethewellsmoreefficiently,you'llseethecostscomedown.SoIthinkwe'vegotupsidewhenitcomestothecosts.

OnEURs,wehavenotyetsetexactlywhatwillbethezonestobedrilled.Sowedon'thavetherigcountssetyet,wellcountssetyet,becauseit'ssomethingwe'reintheprocessofdoing.Won'tdiscussevenuntilFebruary.

Butthatsaid,ifwe'reinthesituationwe'reintoday,andwe'regoingtobelimitingeverythingotherthanlet'sjustsayWolfcampA,BandlowerSpraberryShale,youwouldthinkthatour--thatourreturnsandourEURs

andourproductionrateswouldbebetteraswehigh-grade.Wejustsimplyhaven'tsimplygottenthenumberssurroundingthat.

Butasforrightnow,we'rehavingtheteamsevaluatethatandevaluatewhatarethebestareas,whatarethebestwellstodrillwhenitcomestoeconomics.

Great.Appreciatethat,guys.

Operator:

We'llmovenexttoBrianSingerwithGoldmanSachs.

BrianSinger(Analyst-GoldmanSachs):

Thankyou.Goodmorning.

Hi,Brian.

You'vetalkedtoabouta$1.4billionto$1.6billionhereofnewinfrastructureCapExoverthenextcoupleofyears.Andinthecontextof16%to21%growthforecast,shouldwethinkaboutthisasatrulyone-off,oristhisisagoodrateofinfrastructurespending?Orshoulditbegreateroveralonger-termperiodforthesetypesofprojectsorothersthatmaycomeup?Arguably,you'llneedmorewater,you'llneedmoresand,you'llneedadditionalinfrastructureovertime.

Yeah,Brian,Ithinkthemajorexpenditureofthewatersystemwillbeinthenexttwoyears.Therestofitwillbespreadoutoverthethree-orfour-yeartimeframe.So,that'smostlythemainTrunkline.Andso,that'sgoingtooccurin2015and2016.

Thesandmine--wecouldexpandit,butit'sgoingtobewaydowntheroadagain,severalyearsdowntheroad,sothemajorexpenditureofthat.

Ontheprocessingplants,Ithinkifwestayinthis$70to$80world,thatyou'regoingtoseesignificantcutbackbythirdpartiesandthatthe12to18-monthcyclecouldbepushedback.Andso,Ithinkprocessingplantswillprobablygetdelayed,nottheonesthatarecomingonin2015and2016,butthatscenariocouldeasilyplayoutthatway.Andsowe'refrontendloadingwith--what'sgoingtohappenisthat,ifrigsarecutbackinthefirsthalfoftheyear,you'renotgoingtoseeanydeclineinUSproductionuntiltowardthevery,veryendof'15.

So,IthinktheUSisgoingtocontinuetoputamillionbarrelsadayintothemarketover2015.PermianBasin'sabigchunkofit.So--so,Iwouldsayoverallthatmostofit'sgoingtobe'15to'16.Whenyougetinto'17and'18likeontankbatteries,we'llhavebuiltoutalotofourtankbatteries.Andsoyoushould--weshouldbegettingintodevelopmentdrilling.Beengoingintoexistingtankbatteries,cuttingcoststhere,too.So--so,I'dsaymoreofitisfront-endloadedin'15,'16.

Gotit,thanks.AndthenyoumentionedinyourpreparedremarksthatyoufoundsomelimitsoftheWolfcampDzoneinMartinCounty.Maybeyoucouldprovidemoreclarity,butitlookedlikethatwasprobablynearthe

AndrewsCountyborder.AndIwantedtoseeifyouregardthatacreagehasbeingTier2andalimitsolelyontheWolfcampD,orwhetheryouregardthatasalimittothehorizontalopportunityacrossmultiplezones.

Yeah,Brian,IthinkifyoulookattheWolfcampDmappingthatwe'vedone,andwe'veshownyouguysfromtimetotime,wehaveabout400,000acresnetthatareprospectivefortheWolfcampDonouracreage.Andonlyabout10%ofthatisTier2.Thatistosay,90%ofthat'sTier1.So,Ithinkwhatwe'rereallysayingis,we'venowwell-definedthelimits.

Wefeltlikefromourgeologicmappingthatwehadaprettygoodhandleonit,butthat'swhyyoudrillthewells--tomakesureyoucantietogeologicmapping.AndwhatIsaidinthepreparedremarksisthat,naturally,we'regoingtobefocusingonTier1drilling,butweneedtoknowthat,infact,ourmodelingwascorrect,andthatwecould--andthatwecouldalsoevaluatewheretheedgeswereof,let'ssay,Tier1versusTier2,realizingtheWolfcampDisdeeper.Soithasmorechallengestodothecosts,becauseit'sdeeper,aswell.

Andso,Iguess,isthatjusttheedgeoftheWolfcampD,oristhattheedgeofsomeoftheshallowerzones,aswell?

No,no,no.Thosedifferentzonesareindifferentareas.WolfcampAandBarebasicallyubiquitousacrosstheacreage.Disnot--isnotasubiquitousacrosstheacreage.BecausewecalculateWolfcampAandBashaving650,000acres.AndImentionedjustamomentagothe,say,90%of400,000acreswouldbeTier1intheD.

Great.Thankyou.

Operator:

Andwe'llmovenexttoJosephAllmanwithJPMorgan.

JosephAllman(Analyst-JPMorgan):

Thankyou,operator.Goodmorning,everybody.

Hi,Joe.

So,justtoclarifyonyourhighgrading--soareyouintheprocessofhighgradingyourdrillingactivitynow,intobetterformations?Orareyoujustwaitingtojudgehowlongthislowerpriceoilmarket'sgoingtolast?Andkindoffollow-uptothatis,areyouintheprocessrightnowofactuallyincreasingactivity,addingrigs,andagainyou'regoingtowaitandseehowtheoilmarketplaysouttodecideifyou'regoingtodropsomeofthose?

Yeah,theanswer,Joe,onyourfirstquestion--wearenotdoingwhatIwouldcallhighgradingperse,alongthelinesofwhatyouwoulddoinalow-priceenvironmentfor2014.Our2014dealisbaked.Ourplanis

baked.Allthoserigsarecurrentlyrunningandtheyarerunningonthewellsthatwehadscheduledfromthestandpointofseveralmonthsago.So,reallywhenwetalkabouthighgrading,it'ssomethingthat'sa2015event,aswecrankoutaforecastforrigutilizationandthenwhatwellsactuallyaregoingtobedrilled.

Intermsoftherigsituation,ofcourseScottmentioned,wehavesortofacascadingorwaterfallapproachonrigs.Wedohaveseveralnewrigscominginin2015thatarecontracted,some10newrigs.Ourevaluationwillbewhethertohavethosesimplyreplaceexistingrigsor--andletexistingrigsgo,orkeepexistingrigsandbuildtherigcount.

Sothere's--that'sthe--that'stheoptionalitysurroundingwhereweseepriceswhenwehavetoeventuallypullthetriggeronthatdecision,realizingit'snotaone-timedecision.Wedon't--havetodecideonJanuary1stregardingwhatourrigcountisfortheyear.Wehaverigscomingonandoffthroughouttheyear.And,therefore,wecanadjustourrigcountonthefly.

Obviously,wewouldratherhaveasmuchofasteadystaterigcountaswecan,justtoavoidinefficiencies.Butwe'vegotalotofbitesattheapple.Exactnumberofrigsandwellswe'regoingtodrillreallythroughoutnextyear.

That'sveryhelpful,Tim.Andthenasecondquestionisonjustcompletiondesigns.Iknowthatyouareseeingimprovementbychangingthecompletiondesigns.Couldyoudescribewhatyou'redoingversuswhatyouweredoingbefore?Andwhereareyouseeingthebiggestimpactandwhereareyoumostoptimisticaboutseeingimprovementinproductivitywithchangeinthecompletiondesigns?

Well,firstofall,asImentionedtoyou--asImentionedduringthepreparedremarks,ourcompletiondesignsarereallythesubjectofstudyrightnow.We'vegotquiteafewoptimizationstudiesgoing,andquitealargenumberofwellsthatareinvolvedwiththatrightnow.

Andwedon'thave--wewon'thaveanyanswersonthatbasicallyuntilprobablywellintonextyear,asallthat'sdone.But,forexample,inMartinandMidlandCounty,weareusingsimilarconceptsthatweusedintheEagleFord.Soforexample,increasingthenumberofclustersperstagefromfourtofive,andthisactuallyreducesthenumberofstageswearepumping,whichisaverybigeconomiceffect.

Wearesubstantiallytestingtheuseofmoreprofit.Generally,wewereat1,100poundsperfoot.Now,we'rerunningitupto1,700atest.WeactuallyinthecaseofPermian,arereducingfluidvolumestotrytosavemoney.We'reactuallywhenyoudothat,pumpthesameamountofprofit,you'reincreasingyourprofitconcentration,whichwethinkcanpotentiallyleadtosubstantialimprovementsinEURsandproductionrates.

AndIthinkwe'llknowtheresultsofthisonlyinthefullnessoftimeinto2015.ButwhatIexpectis,Idon'tseeanyreasonwewouldn'tseesimilarresultsaswehaveseenintheEagleFord,wherewesawit's15%,20%,30%improvementsinEURsbyvariouscombinationsofthesetests,realizingnoteveryzonewillbeidenticalintermsofwhatwebelieveisoptimalforthatparticularzone.That'swhyit'sgoingtotakequitealongtimebeforewegettowherewereallyfeellikewe'vegotitfiguredoutineveryzone.

AndjusttofollowuponyourcommentontheEagleFord,Iknowyousaid20%to30%increase,butisthata20%to30%increaseoverwhatalreadyhadbeenanincreasebecauseofnewcompletiondesigns?Iknowit'skindofanongoingprocess.There'snoclearbeginningornoclearbaseline.Butyou'veactuallybeenkindoftweakingthingsandusingsomeofthesetechniquesforafewyears,ifIunderstandcorrectly.

That'sright.Ithinkifyoulookatit,though,whatwe'dhavetodois--thecasewherewejustkindoftestandestablishabaselinesetofwellsthatthenwecomparewith.So,allwe'resayingis,ifyoulookatthebaselinewellsthatwere,inmostcases,drilledandcompletedinthewaywewerefirstdoingitwiththeprofitconcentrationsandwiththevolumespumpandwiththestageconfigurations,wenowoffsetthatwithnewwells,utilizingthesenewtestsandtheycancalibrateandcalculatehowmuchtheyhaveimproved.

Actually,it'sthesubjectofarecentSPEpaperthatjustwentout,Ithink,lastweekinOctober,youmaywanttosearchout.Ittellsyouexactlyhowthistestingisdone.Andit'spreciselythesamekindoftestingwe'reusinginthePermian.

Allright.Veryhelpful.Thankyou.

Operator:

Okay,we'llmovetoournextquestionfromMattPortillowithTPH.

Matt Port illo (Analyst-Tudor,Pickering,Holt):

Goodmorning.

Hi,there.

Goodmorning.

Justonequickfollow-upfromyourpreparedremarks.Youmentionedservicecosts.AndIwascurioushowyouguysareseeingcurrenttrendsandpotentiallyininitiativesthatyouhaveinplacetoloweryouroverallcoststructureorservicecostsspecificallyheadinginto2015.

Imentionedwewereintheinitialstagesofthat.Weletoutasubstantialnumberofcontractsforallofourservices,bothcapitalandoperatingcostservices,fortheupcomingyear.That's--thosecontractshavebeenletout.We'reevaluatingthem.Ithinkessentiallywhatwe'redoingis,we'regoingoutforaroundtwosetofbidstoincorporatethefactthatcommoditiesappeartohavefallenprettyconsiderablycomparedtowhatpeoplewerefirstenvisioning.

Andtakinganothercrackatcostreductionswithourmajorserviceprovidersacrosstheboard.SoIwouldsaywe'rekindofintheinitialstagesofthat.Itwon'tbefinalizeduntilwegetfurtherintoyear.But,nonetheless,wedoexpectsomesignificantimprovementsincosts.

Great.Thankyouverymuch.

Operator:

Andwe'lltakeournextquestionfromLeoMarianiwithRBC.

LeoMariani(Analyst-RBCCapitalMarkets):

Hey,guys.Iknowyouhaven'tsetthebudgetyet,butyouclearlyindicatedyoustillthinkwecangettothe16%to21%growthhereoverthenextcoupleyears,Iguesscorporate-wide.Couldyouhelptomaybeputafewparametersonsortofthelowerendversusthetopend?IsthelowerendkindofthezeroincrementalNorthernMidlandrigsandthetopendcloserto10?Canyoumaybejustkindofhelpuswithsomeofthethinkingaroundthat?

Yeah,Imean,that'stherange,Leo.I'msorry.Imean,asTimsays,onwellcosts,wedon'tknowwhat--we'regoingtoknowinacouplemonthswhatourcostsavingsaregoingtobe,whichisgoingtohave--youknow,it'sreallythat,coupledwithwhatrigcounttostarttheyearwith.Andso,thosearethebigtwounknownitems.AndwegottowaitandseewhathappenswiththesetwoeventsendofNovemberwiththeIrannegotiationsonnuclearsanctionsandsecondly,followedbytheOPECmeeting.

So,thoseareallbigevents.Wejustdon'thavethedatapointsyet.So,that'swhyyoucantakeourinfrastructureandsortofspreaditoutovertwoyears.Youknowwhatthecurrentcapitalisfor2014andthecurrentrigcount.Andsoyoucanprobablybackin,ifyoucan.

Okay.No,that'shelpful.

Thatwouldnotincorporateanyaccelerateddrillingifwewouldchoosetodothat.

Orcostsavings.

Okay.No,that'shelpful,forsure.AndIguessyouguystalkedabouthighgradingkindofwithintheNorthern,youknow,MidlandBasin,asapotentialoutcome,atloweroilpricesfornextyear,should.Wealsoassumethatyouguysmay,youknow,alsotryto,youknow,putahigherpercentageofactivityandsayNorthernMidlandversusEagleFordorSouthernMidland.Canyoumaybetalktothatdynamic?

Ithink,Leo,everythingwe'redoingisbasedonwheretheratesofreturnareperwell.Andso,Ithinkwe'lltrytohighgradealsoessentiallyalongthelinesofreturns.It'sonethingtosaywellswherewehavethebestEURs.We'rereallysayingtoyouwe'regoingtodrillthebesteconomicwellsthatwehave.Andwehaven'treallylandedonhowmanywellsthatisinwhicharea.W

ehavequitealargenumberofeconomicwellsintoday'senvironmentintheEagleFordShale.Needlesstosay,thesameistrueinthesouthernWolfcamparea,especiallytheNorthernpartoftheSouthernWolfcamp.AndcertainlyintheNorthernWolfcamp.So--so,Ithinkthat'sreallythewholeproductofwhatwe'retalkingabouthere,whichisbasicallyacapitalallocationexercisetowardsthebestreturns.

And,Leo,justanotherfactorinthatis--andyouknowthis--we'vegotajointventurepartnerintheSouthernWolfcamp.We'vegotajointventurepartnerinEagleFord.Andthosediscussionsarejustgoingonrightnow.

Okay,that'shelpful.AndIguessjusttokindofhoneinoneofthepreparedremarksthatyouallhadmadehere,Iknowyoutalkedaboutsaving$500,000awell,ormaybealittlebitmorethanthat,basedonyourwatersystem.DidIalsohearyouguyssaythatyoucouldpotentiallycouldsaveanother$500,000fromtheinstallationofyoursaltwaterdisposalandtankbatteries?Justwantedtoclarifythat.

Yes.Asyouknow,weareinstallinglargertankbatteriestohandlethefirstgroupofwellsoverthenexttwoyears.Asyougetinto'17,'18drilling,Leo,youcanbasicallygobackinandtiethosedirectlyintotheexistingbatteries.It'swhat'shappeningrightnowinEagleFord.TheEagleFordcostsaredownbecausewe'regoingintoexistingCGPs.WeprettymuchhavebuiltoutalltheCGPsinEagleFord.So,it'sthesameexample,socostscomedown.

Allright,that'shelpful.Iappreciateit,guys.Thanks.

Operator:

Andwe'llmovetoournextquestionfromEvanCaliowithMorganStanley.

EvanCalio (Analyst-MorganStanley):

Hey,goodmorning,guys.Congratulationsforleadingthewayincondensateexports.And,youknow,we'reseeingourfirstself-classifiedcondensateexportsannouncedtoday.Butwhileit'searly,doyouseeafasterpacetocrudeexports,giventhepreliminaryelectionoutcomelastnight,andkindofanyroadmaptherewiththenextkeycatalyst?AndIhaveasecondquestion.Thanks.

Yeah.I'mpersonallygettingmoreoptimistic,spendingalotoftimeinD.C.

Andwe'llspendathelotoftimeoverthenextfewweeksinD.C.That'sournumberonepriority,togettheexportbanliftednextyearin2015.Andsowithwhathappenedlastnight,andsenatorMurkowskiisgoingtoruntheSenateEnergyCommittee,I'mprobablymuchmoreoptimisticthatsomethingmayhappenin'15.

WearemakingheadwaysonboththeDemocratandRepublicans,educatingthem.Sorightnow,Brentgoesto$90,$91intheoutyears.WTIstaysat$80,$81flat.Andsoifexportsarelifted,Iwouldhopethatthosetwotrendsnarrowinsteadofspreadout,liketheyare,overthenextseveralyears.AndsoUSproducerscancompetewiththerestoftheworld.Andso,IthinkyouwouldseealotofhedgingtodayifWTIhadthesamestripasBrent,goingupto$90abarrelor$91abarrelinthenextseveralyears.Sothat'sthenameofthegame.Wehopetoaccomplishitin2015.

That'sgreat.That'sgreat.Mysecondquestion,onthelonger-terminfrastructurespend,maybejustafollow-upwith--withSinger'squestion.Youclearlymapoutamoderationofthe$700millionto$800millionperannumspendoverthenexttwoyears.Anylonger-termguidanceasyouthinkaboutthat10-yearplanonanannualspend?Andrelated,youknow,withMidstreamvaluations,Imean,whywouldn'tyoumonetizethoseinvestmentsandmakeinfrastructureself-fundingonanassetsalebasisacoupleyearsout?Thanks.

Yeah.Firstofall,ifyoulookatthisyear--andyoucanusetankbatteriesasanexample--we'vespentabout$250millionontankbatteriesandsaltwaterdisposals.That'saprettyheavyload,goingtoabout300forthenextcoupleofyears.Ithinkyoucanseethatlevelgoforanothercoupleyearsafterthatandstarttocomedown.

Andoverall,we'rerealizing,asScottalreadyalludedto,wedon'thaveanothersandmineexpansiononthedocketprobablyforafewmoreyears.Wecouldaccelerateitifweneededto.

Gasplants,we'llprobablydeceleratealittlebit.So,you'reprobablygettingdown,insteadofinthis$700millionto800millionzone,probablymore$300millionorsoasyougetout,outin--or$300millionto$400million,Iwouldprobablysay,countingwaterintheyears2017,2018.Soyouprobablyhave$300millionto$400millionreduction,justbecauseyou'llhavealotofthestuffbehindyou.

Great.AndtheMidstreampiece?

IthinkwhatIwouldsayaboutthat--andScottalludedtothisinhiscommentaryaminuteago--andthatis,Ithinkwe'llhavetotakealookatit.Weneedtomakesurewegetallsomestuffbuiltinordertoexecuteourplan.Butseveraloftheassetswe'retalkingaboutbuilding,thiswouldincludewaterandsandandinfrastructureandcertaingasprocessing,areMLP'ableinthefullnessoftime.So,we'llhavetojusttakealookatthatwhenthetimecomes.ItcertainlymayprovideanoptionforusfromaCapitalMarketsperspectiveontheseassets.

Great.Great,youguys.Thankyou.

Operator:

Andwe'llmovetoournextquestionfromJohnFreemanwithRaymondJames.

JohnFreeman(Analyst-RaymondJames):

Hey,guys.FirstthingIwantedtolookat,youplacedasignificantlyhighernumberofwellsonproductionatSpraberry/Wolfcampduringthequarterthanyouallhadoriginallyexpected.YoumentioneditwasabigaccelerationinthesouthernWolfcamp.

AndthenbasedontheguidanceyouallgotforPOPsinthefourthquarter,youknow,it'sgoingtobethefirsttimewe'vehadasequentialdeclineinPOPsintheSpraberry/Wolfcamp.Sojustassumingkindofbaselevel,samelevelofactivity,wouldn'tthatindicatewewouldhaveaprettydramaticincreaseinPOPsinQ1?

Yeah,John,Ithinkfirstofall,youareright.Wedidaccelerate--mostlybecauseofefficienciesintheSouthernWolfcampareawherewe'redrillingwellsfaster.Ialludedtothatinmyearliercommentary.We'veactuallyreducedthenumberofdaysonwellsandthatjustacceleratesyourpopschedule.

Andso,whatyou'veseeniswellsthatwereotherwisescheduledinthefourthquartergettingdoneinthelast,say,coupleweeksofSeptember.Soit'soneofthereasonswhyyoulookatthefourthquarterproductionintheSpraberry/Wolfcampandseeevenfurtheraccelerations,becauseyou'regoingtogetthefullbenefitofthatproductionforthewholequarterinthefourthquarter--inthefourthquarter.Butbecauseofthat,fourthquarterPOPslookedlowerasaresult,almostbydefinitionofitbeingmovedfromthefourthtothethird.

AndIthinktherealquestionforthefirstquarteris,youknow,thesamequestiondowegetmoreofthesedoneinthefourthquarterordotheyslipintothefirstquarter?SoIdon'tthinkwehavealotofcoloronthefirstquarterPOPsbeinganysignificantlydifferentreallythanthethirdorfourthquarter.

Okay,andthenlookingattheexportinggoingfrom25%ofyourEagleFordcondensatevolumesto50%nextyear,youhadmentioned,Tim,it'saprettysubstantialdifferenceyou'reseeinghereonthepricing.Canyoujustsortofquantifythat?

Well,we'rereallynotpreparedbecausethere'ssomeconfidentialissuespertainingtopricing,needlesstosay.But,youknow,ifweweretosellthisstuffintheUSmarkettodayonly,wewouldbeprobablyachieving$10.50,$11offWTI.Icantellyouwe'rewellintothesingledigitsintermsofoff--thediscounttheWTIcomparedtothat.Soit'sbeenasubstantialimprovement.

Great.Iappreciateit,guys.Thanksalot.

Operator:

Andwe'lltakeournextquestionfromEliKantorwithCanaccordGenuity.

EliKantor(Analyst-CanaccordGenuity):

Hey,goodmorning,guys.

It'sbeenafewquarterssincewe'veseenyourgunbarrelslideinthePermianBasin.GiventheexcitingnatureofthestockpaypotentialinthePermian,canyoujustgiveusanupdateonthosedownspacingandstaggeredlateralpilotsinthe(hiddenfield)?Andasafollow-up,howmuchofyourupcomingPermianactivitywilltestthestaggered,orstackedlateralformat?AnddoyouseeanyvarianceincommunicationorinterferencebetweenwellsintheA,BzoneversuswellsinlowerSpraberry,JoMillandMiddleSpraberry.

Yeah,Eli,wecertainlyarecontinuingourtestingofvariousspacingregimes.Ithinkifyoutakealookatit,whenwestartedwiththiswholeproject,everythingwaspredicated140-acrespacing.It'sprettycleartheresultswe'veshownsofarinourowninternaltestingwouldsaythatwecangetdowntoeasily100-acre

spacing,maybeinsomecasesalittlelessthanthat.Sothat'sgoingwell.

Insomeoftheseareas,we'rejustnowbeginningtogetthoseresultsbecausethosearepadsthatwebegandrillingthemiddlepartoflastyear--ofthisyear,Ishouldsay.Soitwillbetheendofthisyearbeforewestartseeingalotmoreresults.We'llbetalkingmoreaboutthatinthefullnessoftimewhenwehavemoredata.

Andwhenitcomestostacking,theonethingwewanttomakesureofiswesortofoptimizetheproductionfromthesepads.Sothatmeansthatwewanttomakesurethatwehavewellsoffproduction,onlyalimitedamountoftime,whilewefracoffsetwells.Andsothatmayleadusto,incertainconfigurations,forexample,drillingasetofBwellsbeforewedrillAwells,andsoon.

SoIthinkwe'restillreallylearningaboutthattoday.We'relearningaboutwhat'soptimal.Andthemostsignificantoptionalityissurroundingmakingsurethatwelimittheamountofoffsetwellsthatareoffproductioninagiventime,aswellasmakesurethatweunderstandtheinterferencebetweenthewells.Rightnow,wethinkwecaneasilyfrackingcompleteAandBwells,though,inastaggeredsense.

Thanks,Tim.Andjustasafollow-up,PermianBasinhasbeenoneofthemostactiveareasforonshoreUSEandPacquisitionactivity.Givenalltheliquiditycomingintoyourbalancesheet,wouldyouguyslookatusingthedrypowdertopotentiallytakeadvantageoftherecentdeclineinassetvalues?

No.Wehave--theacreagevaluesarestillhigh.Wehaveover20,000locations.We'veonly--wepurchasedverylittlein2014,onlyplaceswherewecanbuyacreageinthe2,000to3,000,4000-peracrerangetoallowustodrill10,000-footlaterals.Sothat'stheonlyareathatwemaysee,andsoverylittlecapitaldoingthat,allgoingintoprimarilyinfrastructureanddrillingonthereturnside.

Yeah,theonlythingIwouldaddtothat,Eli,is,weareveryactiveinacreageswaps.Sosituationswherewecanmakesurethatbyvirtueofswappingacreagewithotherindustryparticipants,tobeabletoincreaseourlaterallengthsoutto,say,10,000feetversus5,000feet,we'reswappingacreageinalotofscenarios.

Thanks,guys.Nicequarter.

Operator:

AndwemovenexttoGilYangwithDiscern.

Gil,areyouthere?

Operator:

Gil,pleasecheckyourmutefunction.

Hearingnoresponse,we'llmovetoournextquestionfrom(inaudible)withIHS.

Unident if iedPart icipant :

Hey,goodmorning.IwouldliketoknowaboutBradyBrowncrushstrengthversuswhitesandandifthere's

anymisconceptionoutthereabouthowresistantitistocrushing.

Yes.AndifyoulookatallthedifferentaspectsofsandintermsofwhatmakesitAPIqualitysand,it'sthingslikecrushfactorandsphericityandroundness,andsoon.IfyoutakealookatBradyroundonthecrushfactorascomparedtowhitesands,justslightlylesswhenitcomestothecrushfactor.Butnonetheless,APIstandard.

Thatsaid,we'vebeenusingBradyBrownsandinthesedeeperzonesintheWolfcampforyearsandhaveneverhadanyissuepertainingtoanycrushfactors.Andusuallythedatawouldsayit'sgoodupto,andprobablyslightlyexceeding,11,000feetTBD.

DoyouresincoatanyofthatBradyBrownsandthatyou'vegot?Andhowmuchmightthatcost?

We'renotresincoatingit.Othersare.Youhavetogetwiththemastowhatthecostofitis.

Okay.Okay,andthenjustastothewaterthat'sbeingsourced--theeffluentwaterthat'sbeingsourced,whatwouldtheyhavedonewiththatwater,hadtheynotsoldittoyou?Andhowcleanisitwhenyouguysgetit,orwhat--doyouhavetoprocessitfurtherinordertoutilizeit?

Yeah.Myunderstandingisalotofthiswaterisjust--effluentwatertodayisjustputonthegroundbythemunicipality,soit'sotherwisebeingwasted.Wewillbeworkingwiththemunicipalitiestodosomewatercleanupsoit'sreadyforouruse.Butinprinciple,that'salreadybuiltintotheeconomicsoftheprojects.

Okay,andisthereawaytohaveageneralideaofhowmuch,howmuchit'scostingyou?Imean,sincetheywerejustgoingtodisposeofitanyway,itwouldhaverepresentedacosttothem.So,Imean,thisseemslikeawinforthemunicipality,aswellasforyouguys.Isthereanycostsyoucanhelpustounderstandhowmuchit'scostingyoutobuythatwater?

Well,now,thepricingtermsofourcontractsareconfidential,asyoumightguess.Butsufficeittosay,itisagreatwin-winforthemunicipalitiesandforusandfortheindustrythatwecanotherwisetakewaterthatisunusableandconvertingittoausethatmakessensefortheentireindustry.Andso--andthemunicipalitiesarethebeneficiaryfromarevenuestandpoint.SoIthinkit'salong-termwin-win,butIcan'tgiveyouthedetails,ofcourse.

Okay.Thanks,Tim.Okay,bye-bye.

Operator:

AndwewilltakeaquestionfromGilYangwithDiscern.

GilYang(Analyst-Discern):

Hi.Let'sseeifIcangetthisrelayedthistime.Canyouhearme?

Yes.Yourphoneisnowworking.

Allright.Sorryaboutthat.

Iwaswonderingifyouaregoingtoincreasetheefforttorenegotiateleasessoyoucandrillmorehorizontalwellsandreducetheverticalwellsdrillingobligationandwhetherornotthelowerpriceparametershelpthoseconversations.

Yeah,Gil,actually,thatwasthesubjectofoneoftheslidesthatIhadinmyslidepack.Ididn'treallymentionit.Butwearenowmovingdownfromwherewewere,about11rigsverticallydowntoaboutsixhere.Veryshortlywe'llbeatsixrigsrunningvertically,ofwhichoneofthemisdrillingwaterwellsforus.AsImentioned,we'redrillingSantaRosanon-potablewaterwellsforpartofourwatersupply.

So,Ithinktheansweriswhatwe'reusingis,we'reusingcashbasically--andrelativelylimitedamountofcashtoworkwiththelandowners,thelease--actually,themineralownersinthiscase,tonegotiatewaystoavoidthiscontinuousdrillingobligationsituationasopposedtohavingtodrillverticalwellstodoit.Andwe'vebeenverysuccessfulinthatregard.Ithinksosuccessful,we'llprobablybereducingthatverticalrigcountfurtheraswegetintothenextyear.Probablywe'llhaveessentiallyzeroverticalrigsrunninginacoupleofyears.

Canyougivesomeideaabouthowthatwillchangeyourcapitalefficiencyintermsofproductionperdollarsspent?Willthatbeanoticeableimprovementoristhatmoreinthenoise?

Well,Imean,we'rejustgoingtobeavoidingdrillingverticalwells,ifthat'swhereyou'regoingwiththat.Andthatmeanswe'lldrillthatmanymorehorizontalwells,whichwethinkaremoreefficientfromacapitalstandpointandfromaneconomicstandpoint.

Right,right.Iwastryingtogetanideaifthat--ifyouseeanoticeablechangetogrowthorisitmoreaminorblip.

Well,Ithinkit'ssignificantinthesensethatthehorizontalwellsmakesuchlargervolumes.Theissueisgoingtobewecandrillandproduceverticalwellsalotfaster,andso,becauseyougetthepaddrillingeffectonthehorizontalcampaign.Soitisatrade-offhere.Inthelong-term,youwouldmuchratherbedrillinghorizontalwells.

Okay.Right.Okay.Andthesecondquestion,forScott,isintermsofthemarketsharebattlewithSaudi

Arabia,isthisjusta--isthisastreetfight,oristhisanoutrightmarketshareissue?Orarethereotherthingsgoingon,hiddenagendasthatyoucanmaybespeaktointermsofmaybedrivingdownpricesintheUSsothattheycanpurchaseUSassets,orjustgettingtheotherOPECguysinlinesotheyallcooperateintermsofcontrollingthemarketbetter?What'stherealagendahere?

Youknow,Ithinkthat'stherealagenda.There'sbeenarticleswrittenaboutwhetherornottheyaretryingtohurttheRussiansortheIranians.ButyouhavetorealizeOPECisdowntojustSaudiArabia,maybeKuwait,maybeUAE.Butwhenyou'retryingtonegotiatewiththebankruptVenezuelansortryingtonegotiatewiththeShiiteinIraqandIran,it'sgoingtobealottougherforOPECtocometoanagreementtocutproduction.

SotheUSisstillgrowingoveramillionbarrelsaday.Mostpeoplehavetheworldgrowingonly600,000barrelsadaythisyear,becauseofEuropeeconomy,whatChinaisdoing.Andsothestimulus,Ithink,willhelplong-term,atrilliondollarstimulus.Andsopricesshouldrecoverwithinthenexttwoyears.Butit'sgoingtobereallyhardforOPEC,Ithink,tocometosometypeofanagreementjustbecauseofthestatusofthesevariousOPECcountries.

Ididn'taddLibya,butwhodoyounegotiatewithinLibyatocutproduction?Yougotthreefactions.OneofthemisAl-Qaeda-related,sowhodoyounegotiatetheretocutproduction?So,it'salottougherthanithasbeeninthepast,soit'sdowntoSauditocutproduction.Theyjustdon'twanttodoit,soit'sputtingpressureontheUSshaleoilrevolution.

Allright,thanks.

Operator:

Andtherearenofurtherquestionsinthequeue.Atthistime,I' llturnthecallbacktothespeakersforanyadditionalorclosingremarks.

FrankHopkins (SVP-IR):

Again,thankyouforlisteningtoourgreatquarter.Wegotagreatstory,agreatassetoverthenexttwoyears.So,lookforwardtoseeingeverybodyoutontheroad.

Thankyou.

Operator:

Thatdoesconcludetoday'sconference.Thankyouforyourparticipation.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

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