WPX Energy Inc (WPX) Q4 2018 Earnings Conference Call Transcript

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WPX Energy Inc (NYSE: WPX)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks

• Questions and Answers

• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 WPX Energy Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions)

It is now my pleasure to introduce, Director of Investor Relations, Mr. David Sullivan. Please go ahead, sir.

David Sullivan -- Director of Investor Relations

Thank you. Good morning, everybody. Welcome to the WPX Energy Fourth Quarter 2018 Call. We appreciate your interest in WPX Energy. Rick Muncrief, our CEO; Clay Gaspar, our COO; and Kevin Vann, our CFO, will review the prepared slide presentation this morning. Along with Rick, Clay, and Kevin, other members of the management team are available for questions after the presentation. On our website, wpxenergy.com, you will find today's presentation and the press release that was issued after the market closed yesterday. Also, our 10-K will be filed later today.

Please review the forward-looking statements and disclaimer on oil and gas reserves at the end of the presentation. They are important and integral to our remarks. So, please review them.

So, with that, Rick, I'll turn it over to you.

Richard Muncrief -- Chairman & Chief Executive Officer

Thanks, David. It's good to be here this morning and we certainly appreciate everyone take time to join us. It's always an honor to represent the talented team we have here at WPX and we look forward to discussing our fourth quarter and our 2018 full year results.

But before we jump here, let's recap how we arrived at this juncture. It really started with an effective strategy, a bias for action and numerous transactions coupled with an ongoing commitment to evolve our culture in how we run the business. We saw a new future for WPX. We've rebuilt our portfolio and completely retooled our inventory. With that, we laid out a plan to increase our oil production fivefold during a five-year period, we actually did it two years ahead of schedule. Today, our oil output is nearly 20% greater than the original goal.

The reason for this growth was very simple. We wanted to see a significant improvement in margins, because in a commodity-based industry, margins really matter and will ultimately distinguish the winners from the losers. We also said we pay down debt and reduce our leverage by the end of 2018 and that's exactly what we do. Financially and operationally, we now have the strength and flexibility to weather most of the volatility in commodity pricing. This also gave us the opportunity to adjust our 2019 guidance, where we recently announced we would cut our 2019 capital by more than $350 million to live within our cash flow from operations. I'm extremely proud of what our people have accomplished during 2018. Now, WPX is set up nicely for consistent execution, discipline and continued value creation, which is exactly what the market expects.

Now let's turn to page two. Last year, we set a high bar, we challenged ourselves, and we kept our eyes focused on the future. We narrowed our operating focus to maximize our capital efficiency. We paid down nearly $500 million of long-term debt, and we also increased our revolver capacity. Our midstream joint venture in the Permian Basin brought a new gas processing plant online, and is running very well. And although we've always said our production growth is an outcome of our business approach and not the only objective, our net oil volumes are now approaching 100,000 barrels per day. This puts WPX in a much stronger position from a revenue and cash flow perspective.

And with our strategic decisions and investments, we're putting about 80% of our oil in the Permian on pipe, which is key to protecting our realized prices. Now, 2018 was a great year, because it was such a pivotal year. I look forward to Clay and Kevin walking us through the details here in a few moments.

Let's turn to page three. Today, we want you to know that we are upping our game. The competition for investor dollars is more intense than it's ever been, we recognize them. Earning and maintaining credibility, trust and respect isn't enough anymore. This is about outright relevance, there will be some winners in our sectors, but only ones who are laser focus on returning capital to shareholders in one form, fashion(ph)or another, and still show some degree of growth. At WPX, we get it, and here's what we're doing: A, our 2019 capital plan is cash flow neutral at $50 oil and is positive in our current commodity prices; b, we plan to return capital to shareholders starting at 2021, this could be in the form of dividends, stock repurchases and/or debt retirement; c, we own a very attractive midstream portfolio, it continues to represent upside that we feel is not recognized and then other players simply don't have.

And we've currently got a lot of flexibility with that upside. Financially, there's something to be said for monetizations and how you successfully redeployed proceeds. Operationally, we can leverage midstream assets to create efficiencies, reduce cost, improve reliability, you name it, and it's not necessarily either/or, it could be a combination of both.

Now, let's turn to page four, and Clay is going to now walk you through what's going on in the operations.

Clay Gaspar -- President & Chief Operating Officer

Thank you, Rick; and good morning, everyone. 2018 really was a pivotal year for WPX, both operationally and financially. Operationally, we continue to gain momentum in both basins and our midstream strategy in the Delaware is beginning to create significant value. Financially, we significantly improved our debt metrics and remain on solid footing. Now, we did run hot on capital in the fourth quarter. We've planned on mitigating that outspend by pushing out some of the Williston completions to January and selling off some of the non-operated opportunities in a promoted deal structure. In the end, we elected to take advantage of favorable weather that we were seeing in North Dakota in December and with the falling oil price, the terms of the promoted non-op deal were no longer the right business decision for us. We understand that capital creep is frustrating to investors and we're very focused on 2019 capital, hitting our quarterly and annual targets.

During 2018, in the Delaware, we continue to -- the evolution to extended lateral full development drilling. We believe that we are well ahead of our Delaware peers in understanding the nuances of parent/child wells and I'll share some of those results in the upcoming slides.

We've also gained drilling and completion efficiencies throughout the year, the run-up in activity in Permian hit everyone. You can see this in well costs as well as well timing. We worked with our vendors very closely and reclaimed much of that efficiency. Early results in 2019 are showing much more improvement on well cost as well as what we believe will be production enhancements. Since late 2016, we worked on our midstream and marketing strategy in the Delaware. In 2018, that strategy became a reality with WhiteWater and Oryx team coming online and our Atmos transport capacity ramping up to 200 million cubic feet a day in the fourth quarter.

Our joint venture with Howard Energy Partners hit an important milestone with the start up of the first 200 million a day cryogenic processing train in September and the second train is scheduled to start up in the second quarter of 2019. Our oil, gas and NGL price realizations in the Delaware are result of our proactive marketing strategy, which included basis hedges and structured down stream deals in anticipation of basin constraints. When you include the basis hedges in our Permian oil realizations, we were $1.44 under WTI in the fourth quarter.

In the Williston, we continue to deliver great well results well beyond the epicenter of our best area. We pushed the rigs on less developed southern portion of our acreage, these results and these tests give us great confidence that we can deliver the performance and returns that we've all come to expect in the Williston.

Now let's turn to slide five and we'll talk about the Delaware Basin. The wells in the top right plot are great examples of tremendous results we're seeing in the Wolfcamp A and the Third Bone Spring. Both Wolfcamp A and Third Bone Spring wells are averaging well above a 1.7 million BOE type curve, that in itself is pretty exciting when you think about scaling up our 1 mile 1 million BOE type curve to the 2 mile length of these wells are. These wells are clearly beating the 1.7 scaling factor that we've seen in other plays. Also, it's important to note that the Bone Spring wells are various tests of the Stateline area, throughout the geography. They are also very -- they are very early in the optimization. We will continue to fine-tune the landing zone and completion designs that I expect will continue to improve the performance.

In 2019, we plan to invest about 75% of our Delaware capital on developing the Upper Wolfcamp and about 15% of our Delaware capital on the Third Bone Spring. The Third Bone Spring capital will be focused on fine-tuning landing zones, completion designs, as well as start to understanding the spacing. The Wolfcamp A wells in this plot are examples of our long lateral full development drilling. These are child wells that have enough flow back time to demonstrate how the well spacing will impact all the performance. These downspaced wells are tracking north of $2 million barrel BOE type curve. This gives us great indications that we're working toward the right development scheme.

While the top half of the page talks about well results, the bottom half is focused on cost and efficiency. In 2018, we increased lateral feet, we completed per day by 58% and drove normalized completion costs down 40%. The technical work on the Pecos State pad that I discussed on the previous call is paying dividends today. Since the last call, we've modified our completion design in the Delaware, which is contributing to our anticipated reduction in total D&C for 2019.

Now, let's turn to slide six and let's talk about the Delaware and midstream strategy. Looking at the plots on the right side of the page, you can see how our marketing strategy is creating real value today. In the fourth quarter, our realized prices were nearly in line with those -- the posted prices that allows us -- that allowed us to gain nearly $80 million relative to floating with the Midland well high market. As you know, in this environment, that is a very important $80 million.

As you can see in the top left of the slide, the great story for 2018 in marketing could even improve further in 2019. We expect approximately 80% of our Delaware crude volumes to be exposed to Gulf Coast or Brent pricing. In 2019, our midstream strategy should drive stronger well results, stronger results as well. The second cryo processing plant will come into service, providing processing capacity to WPX and third-party volumes as well. The JV is also connecting our Central Reeves area, also known as Sand Lakes to our Stateline processing facility.

Let's turn to slide seven and I'll discuss the Williston. The Williston is a well-oiled machine that continues to deliver strong well results. As I mentioned on the third quarter call, we're testing wells in the southern portion of our acreage position. Last quarter, I discussed the very positive results of the Otter Woman pad and this quarter you can see impressive results from three additional pads. The productivity of these wells are very important and are indicative of most of the drilling you'll see from us for the coming years in the Williston. As you know, we've maintained our $1 million BOE type curve with the caution that this curve represents the overall expected average results for the next few years of drilling. The results we're seeing, including the most southern tests at the Howling Wolf gives us great confidence in our ability to continue to deliver.

I know it's human nature to foresee (technical difficulty) drilling for the bottom, two wells that are under the type curve. I would remind you that we guide toward average performance. Also, these two wells in particular were immediate offsets to a well drilled in 2013. In addition, because this area was a step out for us, we had to truck much more oil than in the other areas. This required us to choke these wells back a little more than we would have liked.

In November and December of 2018, the local pricing hub experienced an abrupt widening and differentials due to the unique alignment of very significant refinery turnarounds and increased production and also, what I would call, an overreaction to this disruption. Our Williston differentials for the quarter were WTI less $9.85. Unlike Permian, we believe that this disruption was temporary, unique and short-term. The basis issues in the Williston corrected after the first of the year with January expressed approximately minus $6 and February basis estimated at minus $2.50. You may ask if you do as well in the Permian, why were you not better protected in the Williston? Like the rest of the market, we didn't see this incoming. We study the fundamentals and we do some very simple math. I'm happy to report with our positions in the Williston and in Permian, the math works very well in our favor of going forward.

Now, I'll turn it over to Kevin, our CFO, for financial updates.

Kevin Vann -- Executive Vice President & Chief Financial Officer

Thank you, Clay. Our two-basin optionality continues to be a strength of this company. Of course, that was a strategic decision we made to give us flexibility given the sporadic challenges we see in a particular geography from time to time. As Clay mentioned, Williston differentials were surprisingly difficult over the last couple of months of 2018, but at the same time I will put our Permian marketing strategy up against anybody's.

First, as Clay indicated for the fourth quarter, our Delaware production realized WTI minus $1.44, inclusive of our Midland basin swaps. However, our Williston barrels were sold, as Clay indicated, a WTI less $9.85 as a result of the significant refinery outages in those markets. We have estimated that our fourth quarter earnings were negatively impacted by $20 million to $25 million at the basis differentials settled closer to October's number. During the first quarter, as Clay indicated, we have seen those differentials come back in dramatically. But regardless of the short-term pricing conditions in Williston, both basins delivered robust production growth year-over-year. But as we've emphasized our story isn't about increased production, it's about the improved balance sheet strength, quality of the assets and the WPX people.

Back in 2016, we committed to driving our leverage below 2.5 turns. As you should expect, we kept our work. Today our leverage on a 12-month trailing basis is below the goal we established then. In fact, our leverage is right at 2 turns when we annualized our fourth quarter results. Meeting this commitment is a true reflection of how we milled our strengths at WPX to deliver on a very prescribed and intentional financial strategy. Our operations and financial teams work hand in hand in developing our financial and operational goals. Our WPX team collaborates and we all understand the importance of hitting those goals. We've conquered leverage, now the next step is to spend within cash flows and start returning capital to shareholders.

With that, let's turn to page nine (technical difficulty) the detailed picture of what our portfolio accomplished in 2018. For the quarter, at 96,000 barrels per day, our oil production is 49% higher than for the same period of 2017. This oil growth was fueled by a 55% increase in our Delaware production together with the 44% growth in Williston volumes. For the full year, our oil growth -- our oil production is 57% higher than last year. Again, this growth was not achieved just to put production numbers up on the scoreboard. As we have previously discussed, these results were the outcome of the leverage goals we established for ourselves.

Again, I'm pleased to say that more important than any production goal, we hit our leverage target. However, you don't always make more money just because you are producing more barrels, WPX has been and will continue to be focused on increasing our margins per barrel. That formula includes everything from how we protect our basis differentials, operate our wells and manage all the cost across the company. We were positioned for the growth that we have seen over the last couple of years. We have our eyes now focused on spending within cash flows and driving our leverage even lower. At nearly 205 million cubic feet per day, our natural gas natural gas production for the fourth quarter have increased 67% from the same quarter of 2017 and up 77% for the full year. Our NGL production hit over 26,000 barrels per day, up 109% versus the same quarter of 2017. For the full year, we produced over 18,000 barrels per day, which was up 84%.

At over 156,000 equivalent barrels per day, our production is 61% higher than for the fourth quarter of last year and at 127,000 barrels per day equivalent barrels per day we are 64% higher on a full year basis, again, as Rick and Clay have discussed, this year was such a pivotal year for us. We are now reaping the benefits of the Delaware acquisition we made over three years ago. I knew it was a big bite at the time, but we also had a vision as to where we were going with these assets and what these assets would mean for our shareholders. We stressed into our capital structure then and made all the necessary decisions to grow into it. We are there now and still have years of running room.

For the fourth quarter, we are reporting an adjusted EBITDA -- an adjusted EBITDAX of $306 million, which is $94 million higher than for the fourth quarter of 2017. The nearly $1.1 billion of EBITDAX was $511 million higher than the last -- than last year and approximately $750 million on an unhedged basis. We have great assets and a great team here to execute on them. We did see some increase in our cash operating cost, inclusive of lease operating expense, gathering processing and transportation and production taxes. On a per unit basis, these costs went from $9.51 in 2017 to $11.54 per barrel this year. However, our GP&T rate increase was driven primarily by the adoption of ASC 606, which is the new revenue recognition accounting standard. The impact to GP&T for the standard was $1.11 per barrel. Many of our peer companies will not have the same impact depending on how they ultimately market and sell their production, these higher GP&T costs are offset in revenues.

As far as other cost in the system, our G&A and interest expense, both, went down dramatically on a per unit basis. Our interest expense was almost half of the previous year at $2.75 per barrel.

For the quarter, we are reporting an adjusted net income of $9 million versus a net loss of $12 million in 2017. The improvement was driven by the same factors impacting adjusted EBITDAX, but also impacting those numbers was $235 million of higher depreciation, depletion and amortization in 2018. The higher absolute level of DD&A was driven by the higher production volumes. However, again, our DD&A rates continue to fall as we drill better wells at lower cost.

Our capital expenditures incurred for the fourth quarter totaled $436 million. On a year-to-date basis, our total CapEx of $1.5 billion includes $65 million of land acquisition cost, $80 million related to midstream development opportunities, and $27 million related to discontinued operations that was reimbursed to us in conjunction with our San Juan sale. As Clay indicated, our CapEx was a little higher than anticipated this year. The drivers of the increase was higher-than-anticipated non-operated activity in the Delaware, resulting from higher oil prices during the year, build-out of infrastructure that will benefit future development and a slight acceleration of Williston activity while there were favorable weather conditions.

Turning to slide 10, we released our revised plan for 2019 a few weeks ago. This new guidance was our update to the initial 2019 plan we showed during our third quarter results presentation. At that time, oil prices for 2019 were trading there $70 per barrel. We indicated that we would make the right decisions, if we were to see a declining oil prices. Our new guidance demonstrates our discipline to spend within cash flows and the strength of our assets, even in a $50 crude oil world. We've reduced our capital guidance by $350 million, again managing the business to spend within cash flows and still growing our oil production at 20% year-over-year.

As strip pricing, we are generating free cash flow and this is the next step in the evolution of WPX. Also, even with our strong fourth quarter 2018 oil production, our fourth quarter 2019 is expected to grow between 5% to 10% over those results. You can only accomplish these -- accomplish these results with good execution and good assets. So over the last couple of years, I've answered a lot of questions regarding our leverage. Not only did we drive leverage lower this past year, we've reduced our senior debt by nearly $500 million and restacked our debt towers, resulting in no maturities until 2022.

With that, I will turn it back to Rick for some closing comments.

Richard Muncrief -- Chairman & Chief Executive Officer

Thanks, Kevin. Nice job. Well, I appreciate you and Clay's comments this morning. As most of you know, I care very deeply about our industry, I care about the men and women who Invest their live to help our nation and others to enjoy a quality of life is unparalleled. I have a core conviction of the fundamental importance of what we do. Here at WPX, we also care about advancing our expertise, delivering the right results and fulfilling our vision. This is our mutual responsibility to all stakeholders.

And to that end, we are going to publish our ESG report online before the end of March. It will highlight the people and practices that make our energy production and development happening into a socially responsible manner. You'll hear about drones, water recycling, gender advancement, talent retention, and gas capture. These are the things that will help contribute to our continued success. It's how we deliver 57% year-over-year oil growth in last year. It's a foundation of how we will lower cost and increased margins. It's also how this team will continue to not only maintain, but even grow our credibility overtime with the investment community and all stakeholders.

At this time, we can now open the lines for questions, and I'll turn it back over to you, operator.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Derrick Whitfield with Stifel. Your line is now open.

Derrick Whitfield -- Stifel, Nicolaus & Company -- Analyst

Thanks. Good morning, all, and congrats on your capital discipline outlook.

Richard Muncrief -- Chairman & Chief Executive Officer

Thanks, Derrick.

Derrick Whitfield -- Stifel, Nicolaus & Company -- Analyst

In your prepared remarks, Rick, you noted the return of capital to shareholders in 2021. Would it be fair to assume that WPX will target free cash neutrality in 2020 as you look to moderate spending to further lower your base decline?

Richard Muncrief -- Chairman & Chief Executive Officer

That is absolutely true, Derrick. Yeah. We are laser focused on that and we think that -- that's just being fundamental for us being able to deliver on our goal of returning cash to shareholders in 2021. So 2019 and 2020 are important year for us and we feel very, very good about it.

Derrick Whitfield -- Stifel, Nicolaus & Company -- Analyst

And then, perhaps for Rick or Clay, you guys have historically been ahead of your peers in navigating through bottlenecks in the Permian. As you think about your next three years development activity, what gives you the greatest concern as it relates to your operations?

Clay Gaspar -- President & Chief Operating Officer

I don't think it's -- from my perspective, I think it's less about the midstream kind of -- essentially downstream from where we're at. I think a lot about -- a little bit upstream from where we're at you. I think -- OK, if we're sitting right there in the epicenter, we've got the right rod, we've got the right team, we've handled some of the midstream constraint issues, I think we're really well there. You move one step upstream from us and we started thinking about service company availability, people, supply of the commodities that we use, like sand and water, we've recently closed the deal to purchase the surface acreage over some of our most precious Stateline acreage. I can't tell you how beneficial that is to our operations. It is a forward move for us to make sure that we maintain full control of our ability to create the most value from that subsurface resource. So those are some of the moves that we're making, it's a little bit more, I think, of vertical integration in a sense, but we're moving kind of upstream from where we're at to make sure that we're protecting our ability to execute.

Derrick Whitfield -- Stifel, Nicolaus & Company -- Analyst

Very helpful, Clay. Thanks.

Richard Muncrief -- Chairman & Chief Executive Officer

And Derrick, I think from my perspective, we think a lot about this country and I think we need to make sure -- I feel very good about our oil exports capabilities, I feel really good about our natural gas export facilities, but we just need to continue to focus on that and be able to meet the world's demand for natural gas and I think these LNG facilities around the country will continue to be important, so our test keep those on track.

Derrick Whitfield -- Stifel, Nicolaus & Company -- Analyst

Very helpful, guys. Thanks for the detail.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Brad Heffern with RBC Capital Markets. Your line is now open.

Bradley Heffern -- RBC Capital Markets -- Analyst

Hey. Good morning, everyone.

Richard Muncrief -- Chairman & Chief Executive Officer

Good morning.

Bradley Heffern -- RBC Capital Markets -- Analyst

Just as a follow on to Derrick's question on 2021, as you said in the prepared comments, at strip, you guys would be cash flow positive this year and presumably in 2020 as well, so is there potential for that target to move forward if there is commodity price upside or would those proceeds be reinvested in some way?

Richard Muncrief -- Chairman & Chief Executive Officer

I think we will be very thoughtful. I think there is the possibility of that, but I think, at this point in time, we all had somewhat of a head fake, if you will, on commodity prices in the last six months. So where we sit here today, I think we're going to target 2021, we will be looking at the fundamental cash flow generation and, obviously, if we have underestimated uplift to the commodity pricing, yeah, we're not going to totally rule out that we would adjust that. Right now, I think it's probably (technical difficulty) prudent thing to plan for.

Bradley Heffern -- RBC Capital Markets -- Analyst

Okay. Thanks for that. And then, I guess, any update on plans for the Howard JV, post the second train being built out. I think in the past you've talked about potentially doing drops into that vehicle, just any thoughts on the purpose it serves, sort of, after the near-term build out this time?

Clay Gaspar -- President & Chief Operating Officer

Yeah, we continue to be real pleased with that partnership. We have a great partner that operates the business. I think we are very aligned, we've been able to attract some third-party business as well, which is something that we always thought would be a little bit more of a struggle under the WPX flag. And so, that's worked out really well for us. After the second train comes on, of course, there is plans on the drawing board for the third train, but we want to be real thoughtful about that. As we watch our growth, we are 50:50 heads up on the capital investment. So we have direct skin in the game to make sure that we are investing prudently and looking at all the options as we attempt to attract third-party business and, of course, grow our own equity position as well.

Bradley Heffern -- RBC Capital Markets -- Analyst

Great. Thanks.

Richard Muncrief -- Chairman & Chief Executive Officer

Operator?

David Sullivan -- Director of Investor Relations

Operator?

Operator

Yes. Our next question comes from the line of Neal Dingmann with SunTrust. Your line is now open.

Neal Dingmann -- SunTrust Robinson Humphrey, Inc. -- Analyst

Good morning, guys. Thought I get cut off. Rick, Clay, my question may be a little bit tail on that last question, just overall could you talk a little bit about just the timing and magnitude remaining in your midstream around potential monetizations at all, you certainly seem to have a lot of value that are still locked up, but I don't know how much more you can say about as it concerns -- let's just look at '19 about potential timing or magnitude of any potential monetizations and all?

Clay Gaspar -- President & Chief Operating Officer

Neal, I think the only thing we've kind of tipped our hands on '19 is around the Oryx equity position. Again, we don't operate that and so we are -- we have indicated that we would follow the lead of the operator most likely, don't have a clear expectation on the timing, but we would -- we hope that that's a potentially a second half '19 event. But, again, we'll have to wait and see on that one.

Beyond that, everything is -- there's a lot of other things that are certainly within our control. I don't anticipate a whole lot in '19. The first thing that Kevin is always thinking about is, use of proceeds, what do we do with that, what's our motivation to do so. I think there's a -- the right time to sale aligns with the right buyers showing up but also the right use of proceeds. So we think about some of the other things that are kind of in our portfolio.

All of the water infrastructure has tremendous interest these days. We handle over 200,000 barrels a day just in the Stateline area. Water disposal wells gathering, the recycling, the supply, it is a very robust business, not ready to hand that over but we're certainly listening to a lot of discussion right now, lot of interest. The gas gathering position inside the Stateline, once again, that seems to be a natural fit with our JV partner, but we haven't made that move yet. I mentioned in my prepared remarks that our Sand Lakes area that we're going to be sending that to the Stateline processing, that's a really a nice deal for us.

Outside of that, we still have Rustler Breaks that we have some options around we haven't committed to. I think we are considering options there and then, of course, the Haley area. It's a little bit more disbursed, but we have some opportunities there as well. So, we'll continue to look at the opportunities. Is it something we roll up into one bigger package. Is it something we really want to hold on to make sure we're watching our margins as best we can or is there an opportunity to partner or is this an opportunity to monetize cash out? Yeah, as we've shown that we have a willingness to do before I would say those are the options that are -- that Rick was really talking about and that we're not singularly looking in one direction or another.

Neal Dingmann -- SunTrust Robinson Humphrey, Inc. -- Analyst

Sure. And then my follow-up just on CapEx, you mentioned, I think, Kevin even gave more details on maybe why you went a little hard for 4Q, but wondering in the '19 and your guide there, when you look at sort of those three things, non-op, the midstream and surge at Bakken in general, I guess will that normalize or maybe some of that that you spent in 4Q could make maybe estimate this year bit end up being a bit conservative?

Clay Gaspar -- President & Chief Operating Officer

Yeah. I think two things are at work, Neal. One, we have a really good handle on where we're at trajectory, already the numbers that are rolling in from January will give us really positive indications and then remember we are in a significantly different market in Delaware today than we were for most of '18. The inflationary market, I mean, things just kind of nip actually from every direction, we're already seeing those -- that momentum shift significantly. Our well costs are coming in materially different. The build-out work that we've done, Kevin alluded to some of the infrastructure, that's fundamentally important. When you're building out a 3 mile pipe to a new well, a single well, that hits that well really, really hard, but the next 20, 30, 40 wells that benefit from that piece of pipe, essentially it's already carried into the prior capital. So as we continue to scale up our position, we move to longer laterals, more multi-well pads, just to continue that things become much more efficient on a relative basis and we expect to see that throughout 2019.

Neal Dingmann -- SunTrust Robinson Humphrey, Inc. -- Analyst

Thanks for details, Clay.

Clay Gaspar -- President & Chief Operating Officer

You bet, Neal.

Operator

Thank you. And our next question comes from the line of Leo Mariani with KeyBanc. Your line is now open.

Leo Mariani -- KeyBanc Capital Markets, Inc. -- Analyst

Hey, guys. Just wanted to follow up a little bit on the spending trends here. Just in terms of the way 2019 plays out, should we sort of assume that your first quarter is kind of the high quarter for CapEx, as you guys unwind some of the activity and maybe start to benefit a little bit more from some service cost reductions in subsequent quarters or can you kind of tell us about that, where that's going to trend?

Kevin Vann -- Executive Vice President & Chief Financial Officer

Yeah. I think that's a great way to say it and think about it. This -- everything we're talking about today is kind of predicated on this $50 to $55 commodity price environment. We've baked our forward look at a $50 world. The cash from neutrality and all that, so assuming that is the case. Because I would build the caveat in there. We're back into a $70 world in six weeks, things change pretty abruptly, but assuming we are in that $50 to $55 world, yeah, we see the numbers rolling down. We have deals in place, we are changing out vendors, we're renegotiating agreements and those don't fully materialize. We are not fully materialized in the first quarter, so expect that there to be a step down in the first quarter and then another step down in the second and probably a leveling in third and fourth assuming, once again, a relatively stable price environment.

Leo Mariani -- KeyBanc Capital Markets, Inc. -- Analyst

Okay. That's certainly helpful on the cost perspective, but just in terms of an activity perspective, are you kind of seeing similar terminology as well on activity, not just the cost piece?

Kevin Vann -- Executive Vice President & Chief Financial Officer

Activity, we stepped down rig count, we stepped down proportionately the completion rigs, the completion crews, and so you'll see probably a little higher spend in that regard, again in the first quarter, that will be fully worked through in the first quarter and I would say it would be relatively flat from an activity basis for the remaining years. Now how that translates into production, we actually expect kind of a reasonable -- we talked about 5% to 10% exit to exit. I think if you draw a relatively straight line, obviously you get some benefit later in the year, but we should see some steady improvement in that regard throughout the year.

Leo Mariani -- KeyBanc Capital Markets, Inc. -- Analyst

Okay. That's a very helpful color for sure and just wanted to shift a little bit to the potential acreage purchase side. Obviously you guys have sold some assets recently, other plans to hopefully execute on orders, I guess, later this year, just wanted to get a sense of whether or not you guys are seeing potential available bolt-on acreage out there and are you still of a mind that if you are able to get more asset sale proceeds later this year that you would use some of that for bolt-ons, what can you kind of tell us about that piece of it.

Clay Gaspar -- President & Chief Operating Officer

Yeah. I'd put it in kind of three buckets. We've talked quite a bit and bragged on our team on the trade that we've been able to do, those are typically $0 trade opportunities. We are full speed ahead, we haven't slowed down one bit, we continue to make really good progress on that.

Second category is what you call bolt-on acquisitions. In my mind that is essentially relatively adjacent acreage either, maybe because(ph)-- so you've got it above existing acreage we already own or maybe right in line with existing infrastructure and already the economies of scale that you have running, that makes a tremendous amount of sense. Usually, we can often justify that much better than anyone else around and we watch that very closely as those opportunities that are rare, but when they do come up we certainly want to be involved and aggressively consider those.

The third piece, because some people consider bolt-on like a Panther deal I wouldn't consider that a -- a bolt-on, that is a material piece of business. We look very, very often and very diligently in all those deals, Bryan Guderian's team is still in place. The team that's done with tremendous work to get our position in place, they continue to look. The challenges, the bar, has continued to raise time and time again. And so, you've seen us over the last couple of years not do one of those deals. It's not because Bryan's team on vacation, those guys are working as hard as ever, it's just the interior -- the motivation for us and the bar is just very, very high for us to get a deal done. When you see us do deal, it will be -- you will know that it's met those thresholds and something we're very excited about.

Leo Mariani -- KeyBanc Capital Markets, Inc. -- Analyst

All right. That's great color. Thank you.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you. Leo.

Operator

Thank you. And our next question comes from the line of William Thompson with Barclays. Your line is now open.

William Thompson -- Barclays Plc -- Analyst

Hey. Good morning.

Richard Muncrief -- Chairman & Chief Executive Officer

Hi.

William Thompson -- Barclays Plc -- Analyst

Maybe for Clay. Can you talk to the main drivers of capital efficiency gains associated with the cut CapEx 22% versus the November guidance with only a 6% impact on 2019 production. I assume some of the -- our production is sticky as they carry from the second half of 2018, but given how E&P budget seem to be second-half loaded and the relative fluid nature of service pricing agreements comes visibility you -- do you have in terms of well costs, obviously your switch to local sand is a meaningful structural benefit, but -- and you've highlighted the improvement in frac crew efficiencies, we're hoping to just get a sense on the amount of conservatism, if any, baked in the 2019 budget?

Clay Gaspar -- President & Chief Operating Officer

Yeah, I appreciate the question. I would put in kind of two different categories. First of all, when we initially roll out our guidance on November 1st, in the last call, we assumed a 5% to 7% inflation on top of the inflation that we are already experienced in 2018. Remember that was a different price environment and we wanted to make sure -- because we have been hit pretty hard on inflation throughout the year, but we maintained kind of -- ability to stay out in front of that. So with our updated guidance, instead of inflation, we actually believe and we see the deflation start to kick into place. Also, it became clear and clear throughout the year that even in a more hard activity, hydraulic horsepower is just really generally oversupplied, as is local sand. I think those are two of your biggest ticket items. 2018, we saw inflation; 2019, we are truly seeing significant deflation in those two piece of businesses that drive down a material part of your overall spend. As the earlier question indicated, we will step down throughout 2000 -- excuse me, the first quarter of 2019 and are probably fully materialized sometime in second quarter and fully baked in third and fourth.

William Thompson -- Barclays Plc -- Analyst

That's helpful color. And then you guys indicated that about 80% of oil -- the Delaware oil volumes will be linked to international Gulf Coast pricing result 55% in 2018. Correct me if I'm wrong, but I think the old slide deck had indicated close to 50% of 2019 volumes have been linked to Brent and Gulf Coast pricing. I assume the lower volumes throughout the November guide has skewed the mix a bit higher, but maybe you can comment as there's any new arrangements in place that help to increase your exposure, the premium benchmarks?

Greg Horne -- Director of Midstream Services

Yeah, this is Greg Horne. I think one part of your question is accurate, that the lower volumes probably results in a little bit higher level of exposure to international and Gulf pricing. But the team has continued to work and to get out in front and we do anticipate that the new P66 Gray Oak line will come on a little bit early, so that helps to clear more volumes toward those markets down in the Gulf.

William Thompson -- Barclays Plc -- Analyst

Great. Thanks for taking my questions.

Operator

Thank you. And our next question comes from the line of Gabe Daoud with Cowen. Your line is now open.

Gabe Daoud -- Cowen & Company -- Analyst

Hey. Good morning, everyone. I guess just a little bit more on Vision 2021 and if you could just share some guideposts around 2020 just in terms of growth and capital and costs or even just the price guide, I think you mentioned earlier it's the low-50s, but just any more clarity on the business through 2021 would be helpful?

Richard Muncrief -- Chairman & Chief Executive Officer

I think we've just laid out our 2019 guidance and you see the year-over-year 20% growth. I think that's going to -- we're going to watch commodity prices real closely, I can assure you, we're hedged nicely, I think we've got good fundamental foundation, if you will. So that -- Kevin, you pitch in if you need to -- that we have to protected the downside and when I say downside, it's ability to maintain cash flows, so we stay above our debt metrics that we have here internally. And so, we feel good about our 2019 -- as a matter of fact, we're very excited about our 2019 program and what we can do. I think if we get into 2020 and maybe a little bit early to be giving a really, really strong specifics around that, our outlook is good, we still got certainly double-digit type growth numbers planned, that should not be a problem based on current strip. And so, (technical difficulty) I think for the ability, like we've announced, that we'll be able to get some cash back to shareholders. So that's probably the prudent amount of clarity to provide today and we'll see how 2019 plays out and we're very, very optimistic that the 2019 is going to be a tremendous year for us.

Kevin Vann -- Executive Vice President & Chief Financial Officer

Yeah. Gabe, this is Kevin. It is probably a little bit too early to get into many specifics around 2020, but I can say that if you look at the current strip pricing through 2020 together with even just a flat rig count, we still -- we will still see some growth in 2020 and I would say in kind of low teens, kind of what we would be projecting now. And I'm not indicating that we're going to keep -- that's not indication of what our capital plan will be for 2020, but when you think about the cash flows that can be generated throughout 2019 and 2020 to keep with the flat rig count, you can see how it sets us up for potential return of capital in 2021.

Gabe Daoud -- Cowen & Company -- Analyst

Thanks, guys. That's really helpful. Just a quick follow-up and clarification, I guess, on volume trajectory throughout 2019. I guess, maybe, more specifically and I know it's maybe a little too focused on near-term, but just how do I think about like 1Q relative to 4Q just from a volume standpoint, and then obviously the rest of the year? Thank you.

Clay Gaspar -- President & Chief Operating Officer

Well, we're real pleased with the 4Q number. I think the history was 93,000 barrels a day, we're 96,000. We've maintained the 5% to 10% exit to exit expectation. We haven't given quarter-by-quarter, but I could tell you. I mean, if you just kind of draw a straight line between here and there, I think it gives you a pretty good feel for where we're at. So don't expect -- what we're really working hard to do is, keep our 2019 momentum positive such that we're set up for a really strong 2020 and beyond. What we didn't want to do was pulled back on capital, you can monkey capital a lot of different ways, front-load, drop all the rigs, capital number goes way down and, guess what, you've got a tailing production in the fourth quarter of '19 that would be detrimental to 2020. We stayed away from that, we're really thoughtful about where we put our rigs, how we aligned our rigs and we should expect -- we should expect from us a pretty steady growth throughout the year and that really sets us up quite well.

One of the prior questions, I forgot to answer along the way was the momentum from 2018 into 2019, I think quest was dialing back the capital, the production didn't seem to impact very much. Well, we all know that year one production associated with year one capital, there is a positive correlation, but that year two production associated with that year one capital is a massive increase. And so, 2019, we're still benefiting from the strong investment we've made in '18. What you'll see is that as we pulled down '19, we wanted to make sure that we didn't detrimentally affect '20. I think we have it structured in such a way that you'll see some really nice steady growth quarter-to-quarter and year-over-year, as we really are -- we're thoughtful about how to craft this capital plan.

Gabe Daoud -- Cowen & Company -- Analyst

Great. Thanks so much, everyone.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Mike Kelly with Seaport Global. Your line is now open.

Michael Kelly -- Seaport Global Securities -- Analyst

Hey, guys, good morning.

Richard Muncrief -- Chairman & Chief Executive Officer

Good morning.

Michael Kelly -- Seaport Global Securities -- Analyst

Rick, you mentioned in your prepared remarks that you thought the upside in your midstream assets really wasn't being recognized in the stock. And I was hoping maybe you could just kind of give us your -- what do you think the Street might be missing here and what the real opportunity set is? Thanks.

Richard Muncrief -- Chairman & Chief Executive Officer

Yeah. Mike, great questions. What do we think about a lot and how do we have efficiently articulate that. I will say that if you talk to quite a few highly regarded third-party entities, banks or financial advisors kind of companies, most of them will tell you that their view of our midstream assets are somewhere in the $1.5 billion range. When I look at that and I look at how we're trading against some of our peers with our multiples, I don't see that that value in there. Now, I know it's incumbent upon this management team to continue to beat the drum and monetize or try to realize that value over time, I think most recently was WhiteWater where we're very pleased with how that turned out for us, that was a great investment in that monetization, it was a nice deal. So, it's up to us to continue to do that. But what we want to do is, make sure that near term investors don't overlook this value that we have embedded in our company and it certainly just appears that that's the case. When you put that -- that kind of value out there, you see on a per share basis -- dollar per share basis, that's there are some upside, that's real upside.

Michael Kelly -- Seaport Global Securities -- Analyst

I appreciate you clarifying that. Good answer. Clay, turning it over to you on the Delaware. I was just hoping you could just give us what well costs are at right now for an average well out there, maybe, in just Wolfcamp A or Bone Spring and where you think this could ultimately trend throughout '19? Thanks.

Clay Gaspar -- President & Chief Operating Officer

Sure. I'll give you a little bit of color on that. As we troughed in 2016, I will use the Stateline 1 mile Wolfcamp well as kind of a proxy. So in that trough in, call it, mid-2016, we were about $5 million to $5.5 million drill complete and equipment well, so that facilities all the way through the meter there. That peaked in 2018 about $8 million for that similar well. We are already realizing and seeing in 2019 probably about a $7 million equivalent for that 1 mile well. I think by second half of the year, I think there is upside beyond that, to scale that up into the longer laterals our numbers for 2019 are $7 million for 1 mile, $8.5 million for 1.5 and then for a 2 mile well it's $10 million, and that's again state-of-the-art push in $2,500 pounds per furlong sand really being aggressive. This is not getting chancy on the completions.

Michael Kelly -- Seaport Global Securities -- Analyst

Great. Thanks, guys. Good color as always.

Clay Gaspar -- President & Chief Operating Officer

Thank you.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Irene Haas with Imperial Capital. Your line is now open.

Irene Haas -- Imperial Capital -- Analyst

Yes. Hey. Thank you. Question on your Wolfcamp -- Wolfcamp versus your Third Bone Spring wells, I'm noticing that these are really strong and oily wells, and can you give me a little color on the lithology of the Third Bone Spring, is it a shale filled on lime and how extensive would this play extend and are there other landing zones?

Clay Gaspar -- President & Chief Operating Officer

Yeah. It's a great question. It's -- actually the Third Bone Spring has a shale component, sand component and a line component. We think -- you might have noticed, I referenced the Upper Wolfcamp, I was trying to articulate how I say the Upper A/Lower A sometimes B and XY, it's one flow unit. So as we land the different intervals, it's different for different parts of our development area, but we are trying to make sure that we're thoughtful about the entire flow units was hydraulically connected to make sure that as we land these wells and we put these wells online that they're positively benefiting from one another, OK.

As we move to the Third Bone Spring, we have tested a few of the different horizons in the Third Bone Spring, but I can tell you there's several more. I don't have an answer yet on how many landing zones, how we will ultimately stack and stagger these wells, but that's what we will work in and that's why we are investing about 15% of our Delaware capital to really understand that. These are just typical of the last three 2 mile wells that we've drilled, different parts of Stateline, different landing zones and they are quite phenomenal, so more information to come on that, Irene. Really good question.

Irene Haas -- Imperial Capital -- Analyst

Thank you.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Kevin MacCurdy with Heikkinen Energy.

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Good morning, guys. I wanted to ask specifically about the non-op CapEx. It rained high in 4Q18, but non-op was an area you've targeted for reductions in 2019, do you see any potential knock on effect from 4Q that could lead to higher '19 non-op spend?

Clay Gaspar -- President & Chief Operating Officer

Yeah. I think the -- obviously, it's directly proportional to everyone else's activity. It's one of the harder numbers to predict. We have regular dialog with all of our main players, but it's the opportunity as an operator to change your mind throughout the year and what we saw in late last year, we had some non-op come in pretty strong in the fourth quarter. As I mentioned in my prepared remarks, we had a promoted deal kind of in the works that was going to be a really nice opportunity for us, essentially maintaining most, if not all, of our value opportunity without having to fund the capital. As prices came down, that got pinched. I think there is a new opportunity, kind of reset the bar on that, and I think we'll continue to look at that as a financial lever to moderate and really watch that non-op capital as it comes up.

Richard Muncrief -- Chairman & Chief Executive Officer

Yeah. I think as we were working with our partners over the month of January, as they had submitted -- some of them had submitted some of their (technical difficulty) and with the pullback in commodity -- pullback in oil prices, we've seen some of them start to pull back in the amount of non-operated activity that they had originally planned for. So, again, as Clay mentioned, I think it's just commensurate with the commodity price environment and we're out a little bit ahead of maybe some of these promoted deals if that activity were to start to pick up again.

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Got you. So the higher prices mean that you will spend less on non-op, because of the promoted deals?

Clay Gaspar -- President & Chief Operating Officer

No, not necessarily. I think higher prices would be higher activity. Now what we do with that activity If we're able to manage it in our budget and if the right business opportunity for us to maintain that investment, the first thing we look at is, do we want to participate or not? I can tell in the Delaware Basin and the Williston Basin where we're at, the answer is always yes. These wells are phenomenally economic. The pinch is, while we're running hard on capital, how do we maintain the capital discipline and yet not just pass on this incredibly value-creating opportunity. So, we've look to external parties to fund these and that's where -- that's what we did in the fourth quarter and that's what we've reengaged this year. How that materializes? It really depends on how the deal looks to us and what's the best option for us considering all of business objectives.

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Great. Thanks for the color on that. And do you have an estimate of how much production in the Delaware comes from a non-up versus operated activity?

Clay Gaspar -- President & Chief Operating Officer

About to 3,000 to 4,000 barrels a day.

Richard Muncrief -- Chairman & Chief Executive Officer

Less than 10% is what -- 7% or 8% of your total production (multiple speakers)

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Great. Thank you, guys.

Richard Muncrief -- Chairman & Chief Executive Officer

Thanks.

Operator

Thank you. And our next question comes from the line of Jeff Grampp with Northland Capital. Your line is now open.

Jeffrey Grampp -- Northland Capital Markets -- Analyst

Good morning, guys.

Richard Muncrief -- Chairman & Chief Executive Officer

Good morning.

Jeffrey Grampp -- Northland Capital Markets -- Analyst

I had a question maybe for Clay in reference to the science work that you guys are doing on the Pecos State area. The press release references to seeing some cost efficiencies there, but wasn't any reference to productivity improvement. So I was wondering if any of that science work is helping on the productivity side, especially in light of that strong four-well pad that you guys announced last night.

Clay Gaspar -- President & Chief Operating Officer

Yes. The direct correlation of productivity. We're trying to be real cautious about tipping our hand too much. Obviously, we've spent some pretty significant investment dollars in effort and some of our brightest employees have really spend a lot of time understanding what the Pecos State information is telling us. So we don't want to necessarily give all of that away.

Here's what I can tell you, we saw things real-time that immediately changed our understanding of the best ways to complete these wells. It coincided with cheaper ways and more efficient ways to complete these wells. We're not cutting sand, so like we're just shutting off some of the things that we've worked hard to get to. It's a whole lot about perforations strategy and how to pump the wells, the actual pumping procedures, nuances around that, how much rate and pressure are your drivers for hydraulic horsepower just -- that's just the math and that's how we get charges through hydraulic horsepower. How we can leverage that information in renegotiating vendors as they come in, so, look, this is a recipe we're going to be using how would you bid aggressively on this scenario. That is really where we've seen a step change and I truly believe we'll not only see a step change in speed and cost, but also well performance.

Jeffrey Grampp -- Northland Capital Markets -- Analyst

Got it. That was really helpful. I appreciate that. And for my follow-up, on the recycling water side, you guys referenced a pretty meaningful cost reductions in the slide deck, I was hoping to maybe get a little bit more detail on what you guys have done over the last year or so to obtain those reductions? And do you guys really view a wider implementation of that? Is that more an economic threshold decision for you guys or is it more operationally getting the facilities in place to facilitate a wider amount of recycling done on your asset base?

Clay Gaspar -- President & Chief Operating Officer

Yeah. So it's -- first and foremost, it's the right thing to do. We're always looking for that opportunity to recycle, reuse. But throughout the course of the year, we've driven so much improvement in the cost structure. It's also substantially the economically right thing to do. So that combination really pushed us to do more. When you have the benefit of the Stateline, where such a concise contiguous peaks of acreage, that's where the economies of scale really worked well. And so, we've built very significant infrastructure throughout '18, recycling ponds, storage ponds, distribution networks of pipe and that will continue to benefit us in years to come. Now, I should say, we're also wide open to third party ideas. We realize we have the discipline and know that there are other smart people out there working exclusively on water and we're in regular communications with them, and want to make sense to farm some of that out, we do that as well. We have great partners in the area and we continue to leverage those as opportunities present.

Jeffrey Grampp -- Northland Capital Markets -- Analyst

All right. Great details. Thank for the time, guys.

Richard Muncrief -- Chairman & Chief Executive Officer

Thanks.

Operator

Thank you. And our next question comes from the line of Nitin Kumar with Wells Fargo. Your line is now open.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Hey, good morning, guys. Thanks for taking my questions. Clay, this one is for you really, can you just walk us through the development strategy in the Williston, right now? I'm thinking spacing zones, et cetera, just referencing those two trials wells that did underperform, and if you could comment on the inventory life remaining in that basin?

Clay Gaspar -- President & Chief Operating Officer

Yeah, sure. I think the question really coming off of phenomenal last couple of years in Williston, an exceptionally good performance in the North Sunday Island, we're always very cautious, maybe a little too direct on saying, look, guys, these are 23 wells, please don't judge the rest of our -- the balance of our inventory based on the performance of this North Sunday Island exceptional wells. I think there was sort of concern from the market that, if that step off a little bit is that step off a whole lot. I think what we're showing both last quarter and this quarter is the quote step off as you come from North Sunday Island to essentially most of the rest of the inventory is still pretty damn good. I mean, it's really good. As we go from up in the Northwest, some of the path that we showed all the way to the most southern acreage in Howling Wolf, I think you blend all that together, it gives you a great feel for what we're going to be doing for the next few years in the area and it stands up exceptionally well.

Specific to the two wells, they were immediate offsets, this was a 2013 parent well, inferior completion, I'm not saying it was at all state-of-the-art, but certainly it's had several years to impact that immediate drainage in the area. So, we drill those kind of regular spacing, regular completion knowing that they would be most likely negatively impacted by that old well, they were. We see it in pressure, we see it in rates, but I can tell you -- I mean, the way we flow those back given the trucking constraints, I'm not at all overly disappointed and it should be noted, we don't have a whole lot of those remaining in the inventory. We typically have one well holding these positions, typically skewed way off to one side either east or west of that drilling spacing unit. So maybe you have one well out of the six to nine remaining wells in that DSU, but again we talk in terms of averages. When you average all those curves together, even just looking at the Howling Wolf, I'll take it every single day. It's a phenomenal investment opportunity for us.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Great. Thank you for that color. And then just on the -- maybe I can roll two things into one. On the marketing side, with the 8% link to Brent in mid(ph), could you give us a break out of how much of those volumes are really going to Brent market versus just the Gulf? And then just on the service cost side, I think, if I remember in 2017, you had locked in service costs worldwide, you're taking advantage of some weaker pricing, are you seeing an appetite to lock in some prices for 2019 or a little bit longer as well?

Clay Gaspar -- President & Chief Operating Officer

Yeah. First question on the commodity -- I mean, the sales mix. We will not go much more detail than we already have. The follow-on to the service cost since it's a two-part question, completely unrelated, I like the way you're working that. I would say some areas we are very successful in locking in longer-term agreements, think of rigs, some of the other -- more -- the businesses that are more established that way. We've tried a number of times to lock in frac fleets in various forms and I tell you just we have not been successful in doing so. Either we end up too far on one side or the other -- the service companies in the opposite position and we end up having to renegotiate just to kind of keep each other running along.

Our best approach, most successful approach, has been pick companies that we -- know their management, we understand the professionalism of the organization, we treat them like a partner, they treat us like a partner, and we work to maintain -- to make sure that we are in line with market over time. As long as they are in line with market, they're doing a good job, they have a right safety mindset for us, will continue using them, and that's -- in this market, that is a huge win for them to make sure their equipment is up and running, and I'll just park it against the defense lines.

Nitin Kumar -- Wells Fargo Securities -- Analyst

Okay. Thank you, guys.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Subash Chandra with Guggenheim. Your line is now open.

Subash Chandra -- Guggenheim Partners -- Analyst

All right. Clay, probably for you. For optimal development, what do you think you might need in terms of rigs in the place?

Clay Gaspar -- President & Chief Operating Officer

You're talking about both basins, Subash?

Subash Chandra -- Guggenheim Partners -- Analyst

Yeah. I think what is it? Five and two, right now, or soon to be?

Clay Gaspar -- President & Chief Operating Officer

Five and three, right now. That's what we're going to run in 2019. I think, Williston, obviously, we could run more, but we are very transparent about our -- the amount of inventory we have. I think optimally it's probably two to three rigs that gives us the right balance, the region we elected to stay with three is that organization is running at such an efficient pace. The ratio of rigs to frac fleets, the scale and the people that we have in place, it just -- it works exceptionally well. They are also benefiting from being outside of the very, very hot Permian Basin. So, they're not seeing some of the inflationary items and things like that.

Shift over to the Permian for a second. We have seen inflation. We elected to step back a couple of rigs there, I'm telling you the momentum that we're seeing on the cost structure already gives us really good indications that when the time is right to add rigs, we are ready to do that in the Permian, the original question was back to what's the optimal rig count? Man, for the Permian? I can't give you an account, I can give you a pace. What I would say is a reasonable growth pace for rig count in the Permian for our position, I would say is maybe a couple of rigs every six months. That is probably on the high-end of how we would attack it.

Now that I'm -- Kev is looking at me like what the hell are you talking about? I'm not saying we're going to do that, let's just be real clear. The growth, that's kind of an aggressive growth scenario. In reality, the way it would work when the times, right -- Kevin says green light, let's go make it happen, we had a couple of rigs, we watch that for six months, if things are going really, really well, we add another two rigs; things going really, really well, we'll do it again. In reality, we probably pause, let those digest those rigs, build our infrastructure, make sure we have our teams right. Where that peaks out optimal rig count, it's a pretty staggering number, we could handle a hell of a lot of rigs. Rick and I both done dozens of rigs easily at times. I don't see an absolute number constraint anywhere close to where we're at.

Richard Muncrief -- Chairman & Chief Executive Officer

Subash, one thing -- Clay -- he touched on, but I think is also an important point for people to takeaway and that is, on the infrastructure side, if you look at our last 12 months, you would see that this -- our oil growth is phenomenal. We actually saw more gas growth and NGL growth and that is a direct result of those flaring less, we're getting more gas into the processing plants and with the efficiencies gains that we're seeing for the drilling times, completion times in the Permian, we felt like we didn't watch it, we would lose that momentum of continuing to get even better and better with our gas capture. So I'm really pleased to say that our flaring continues to go down and that's a good thing. And -- but that team just needed a little bit of breathing room, not only on the deflationary pressures but I think just as important to me is the ability to deploy less. As Clay mentioned, the Bakken team is more mature and it's -- their capital efficiency is incredible.

Subash Chandra -- Guggenheim Partners -- Analyst

Could you just remind me the number of frac fleets that you have? I assume there is one in the Bakken, and how many you have in the Delaware?

Richard Muncrief -- Chairman & Chief Executive Officer

Yeah. We have three drilling rigs in the Bakken, one completion crew, frac crew running. In Permian, we have five. Remember, we were at seven rigs, now we're getting to the five number, we currently have two fracked lease running there.

Subash Chandra -- Guggenheim Partners -- Analyst

Got it. Okay. My follow up, I missed, Kevin might have said that or use the term that you've conquered leverage. I'm wondering if that means in 2021, if we can read into it that delevering, at least in terms of debt retirement, is not the top priority?

Kevin Vann -- Executive Vice President & Chief Financial Officer

I wouldn't necessarily consider that the top priority. I think we just have to look at commodity prices at that time where we are in relationship to the shadows and some of the -- our next debt maturity is in 2022 and when we think about returning value to shareholders, it is inclusive of paying down debt. So we will be looking at all those opportunities and I wouldn't say that any one of them, at this point, get to higher weighting in terms of the profitability in terms of how that happens. But, again, all things are on the table.

Clay Gaspar -- President & Chief Operating Officer

Yeah. And Subash. I'll just add a little bit, it's Clay. We are so proud to get to 2 turns, because of where we've been, but don't see that as a finish line. I mean, we will continue to drive that down. I mean, I think we have our eyes set on 1 to 1.5 turns as kind of the right eventual goal for us. So, yeah, that is not a mission accomplished just yet.

Richard Muncrief -- Chairman & Chief Executive Officer

We target our goal.

Subash Chandra -- Guggenheim Partners -- Analyst

All right, guys. Hey, guys, and thank you all for all the time and color you provide on these calls, much appreciated.

Clay Gaspar -- President & Chief Operating Officer

Thanks, Subash.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of John Nelson with Goldman Sachs. Your line is now open.

John Nelson -- Goldman Sachs -- Analyst

Good morning, and congratulations for the team on the quarter.

Clay Gaspar -- President & Chief Operating Officer

Thanks, John.

John Nelson -- Goldman Sachs -- Analyst

All my questions have actually been answered. I just wanted to get one here. But I think earlier in the call, it was mentioned that The Gray Oak pipeline, you all expect to be coming on early, just what is the timing of your all's expectation to kind of better to clarify only?

Clay Gaspar -- President & Chief Operating Officer

Probably toward the latter part of the year. Yeah, I think, it's -- we were hoping Q4, in general, but we'll have to see.

John Nelson -- Goldman Sachs -- Analyst

That's all for me. Thanks.

Clay Gaspar -- President & Chief Operating Officer

Thanks, John.

Richard Muncrief -- Chairman & Chief Executive Officer

Thanks, John.

Operator

Thank you. And our next question comes from the line of Jeffrey Campbell with Tuohy Brothers. Your line is now open.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Good morning, and thanks for squeezing me in here. Rick, we've been talking a lot about future midstream monetization, but I was wondering about your thinking concerning the Reeves County and Eddy County assets going forward as Stateline continues to attract most of, if not all, of WPX's Delaware Basin capital with -- and now with additional economic zones to develop?

Richard Muncrief -- Chairman & Chief Executive Officer

Well, we've really -- if you think about Reeves County, we have the Sand Lakes area, if you recall, we did monetize some of our outline Reeves County -- Southern Reeves County acreage we now sit here a while back. And so, I really liked our quarter position. When you look at what we have there, it was just the inventory and the pace of what we realistically in a disciplined approach we will be able to get capital to -- we're feeling really good about that position. We do have some non-operated small interest scattered up on the northern shale. We'll continue to evaluate that, but it is an area that people have been pretty interested in and obviously with the oil cut both in Lee and Eddy County as high as it is, we kind of -- we like that acreage. So I think we'll continue to look for opportunities. Clay talked a little bit about bolt-on opportunity. Land team does a good job of evaluating that. We're very well connected with the industry partners and other industry participants. And so, we'll continue to evaluate what's the right scale for us.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Okay. Thank you. And I think this was mentioned earlier, but I just wanted to be clear. Are you saying that the Southerly Williston Basin locations that you've been testing successfully are going to continue to attract capital over the 2019-2020 time period?

Richard Muncrief -- Chairman & Chief Executive Officer

Yes. Yeah. Let me -- Clay -- I know we have Clay hit it on it. When you start looking at those lower two, people have a tendency to look at that, but I can tell you from a pad perspective, we're excited with what we're seeing down there. It is an important step out for us and actually exceeded our expectations from how we were looking at that area just another 12 to 24 months ago. And I think that's -- it's really good thing. And we did mention that it is area that we probably need a little bit more infrastructure over time. So how we -- how we develop that -- the time -- and we get back into a more active development down there, it's probably going to be a little later on, but something -- we are very, very pleased with the results.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Thanks. I appreciate it.

Operator

Thank you. And our next question comes from the line of Gail Nicholson with Stephens. Your line is now open.

Gail Nicholson Dodds -- Stephens, Inc. -- Analyst

Hi. Good morning. I'm looking at the 2019 type well pad in the Williston of 14 months at $50 oil is very impressive. I was just curious, what is the average payout timeframe in the Permian '19? And how do you see that potentially improving over time?

Clay Gaspar -- President & Chief Operating Officer

Gail, you caught me. I don't know that number. that we don't -- I don't usually think in terms of payout. We put that kind of factoid together on the Williston just because it is quite impressive. Our overall returns are little behind the Williston and Permian, so I would push that out a little bit further. I would say within two years, but 14 months to 2 years. As I think about the cost efficiency that we are continuing to gain, the scale that we are gaining in the Permian and the immense amount of high quality inventory we have, it just gets me really excited about the amazing business that we have and how we'll continue to pay dividends and grow substantially from there.

Richard Muncrief -- Chairman & Chief Executive Officer

Gail, it's Rick. I think that you mentioned the 14-month payout, I would think that it would be in that, as Clay mentioned, that 20 to 24 months. One thing you need to remember is in 2019, we actually deployed some capital. We drilled a handful of wells and some acreage we ultimately divested of them for Southern Reeves area and from a capital efficiency standpoint, no -- more of a higher percentage back to Stateline where you get it better. So I'm going to guess that would -- could possibly take you to that 18 to 20 months, but I think it's going to be pretty close.

Clay Gaspar -- President & Chief Operating Officer

Gail, some quick work about our planning group, it's about 18 to 20 months, so it's kind of held up.

Richard Muncrief -- Chairman & Chief Executive Officer

Okay.

Clay Gaspar -- President & Chief Operating Officer

Great. I appreciate that. And then just looking at the cryo facilities and there is a potential of, maybe, doing a third as well as the JV that you signed with third-party volumes to the second. Do you guys have -- when you think about that and now third-party volumes that you want to go through the facilities, so just kind of how we should think about that third-party volume right as you invest your time in the cryo?

Yeah. I think it's a great point. We talk a lot at the Board level on our joint venture, it's an interesting balance. When you have the capacity, you justified it on WPX's equity position and you have the existing capacity and anything you can take as an offload to fill that, it's almost pure profit. So it's wonderful opportunity. We have existing on-loan and off-load contract agreements with many of our surrounding players. And so, we will continue to leverage that as a positive. There's still a bit of constraint in the market. Now just finding that next $100 million to build that next train is a different proposition. Do we leverage some of those off-loads for our existing gas, our own equity gas, or do we have enough critical momentum internally that we can essentially fund the project and then really make extra leverage and margins on that -- the third party business. And so it's -- and then you get some times where a third-party is willing to essentially underwrite some of that business as well. So it's pretty dynamic conversation that we have. I can tell you I'm incredibly happy that we have won a great operator, but also to -- for us to be -- have a 50:50 partnership where we have continued say in that capital deployment, it's incredibly important for us.

Gail Nicholson Dodds -- Stephens, Inc. -- Analyst

Okay, great. Thank you so much.

Richard Muncrief -- Chairman & Chief Executive Officer

Thank you, Gail.

Operator, I believe that will wrap it up. We did go a little long today. I certainly appreciate everyone's interest and we look forward to a very exciting year of 2019 here at the WPX. Thank you very much, and everyone have a nice day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.

Duration: 80 minutes

Call participants:

David Sullivan -- Director of Investor Relations

Richard Muncrief -- Chairman & Chief Executive Officer

Clay Gaspar -- President & Chief Operating Officer

Kevin Vann -- Executive Vice President & Chief Financial Officer

Derrick Whitfield -- Stifel, Nicolaus & Company -- Analyst

Bradley Heffern -- RBC Capital Markets -- Analyst

Neal Dingmann -- SunTrust Robinson Humphrey, Inc. -- Analyst

Leo Mariani -- KeyBanc Capital Markets, Inc. -- Analyst

William Thompson -- Barclays Plc -- Analyst

Greg Horne -- Director of Midstream Services

Gabe Daoud -- Cowen & Company -- Analyst

Michael Kelly -- Seaport Global Securities -- Analyst

Irene Haas -- Imperial Capital -- Analyst

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Jeffrey Grampp -- Northland Capital Markets -- Analyst

Nitin Kumar -- Wells Fargo Securities -- Analyst

Subash Chandra -- Guggenheim Partners -- Analyst

John Nelson -- Goldman Sachs -- Analyst

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Gail Nicholson Dodds -- Stephens, Inc. -- Analyst

More WPX analysis

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