Wednesday, January 20

Devon Energy Corporation (DVN) CEO Dave Hager on Q2 2020 Results – Earnings Call Transcript

Devon Energy Corporation (NYSE:DVN) Q2 2020 Earnings Conference Call August 5, 2020 11:00 AM ET

Company Participants

Scott Coody – Vice President, Investor Relations

Dave Hager – President and Chief Executive Officer

David Harris – Executive Vice President, Exploration and Production

Jeff Ritenour – Executive Vice President and Chief Financial Officer

Conference Call Participants

Arun Jayaram – JPMorgan

Doug Leggate – Bank of America Merrill Lynch

Neal Dingmann – Truist Securities

Jeanine Wai – Barclays Capital

Matthew Portillo – Tudor, Pickering, Holt & Co.

Scott Hanold – RBC Capital Markets

Nitin Kumar – Wells Fargo Securities, LLC

Brian Singer – Goldman Sachs

Brian Downey – Citigroup

Operator

Due to an audio issue on the webcast, this replay only includes the Q&A portion of the conference call. Please visit Devon’s website for a transcript of the prepared remarks from the Devon management team.

Question-and-Answer Session

Q – Unidentified Analyst

Hi, good morning, guys. I don’t know if you can hear me, because the voice is breaking up pretty bad on my home. I think two questions. One, can you tell us what’s the mechanism of the $1.5 billion debt reduction since that you have no maturity? Is it going to be a tender or that you’re just going to buy from the public market?

And secondly, that on the special dividend and why we are not using that money for buyback, given how cheap is the valuation the stock is currently is? Thank you.

Jeff Ritenour

Hi. Yes, this is Jeff. So as it relates to the debt repurchase, the $1.5 billion that we’ve highlighted, our expectation is to do probably a mix between open market and tender. That’s going to be dependent upon market conditions. So we’re going to evaluate the maturities across the curve and where the best value sits. And then we’ll enact that as we work our way through the rest of this year and likely into next year as well.

So it’s likely going to be a mixed bag. We certainly want to see interest reduction – excuse me, interest costs come down as we’ve highlighted as our new annual run rate, but we also are going to have a focus on reducing absolute leverage. So it’s going to be a balance between the two.

As it relates to the special dividend, as I mentioned in my prepared remarks, which you all probably could not hear, the feedback from our investors has been incredibly clear. They’re looking for a continuation of cash dividends from the space and specifically from Devon. And so we think with the work that we’ve done around our cost structure, lowering our break-even, we’re uniquely positioned within the sector to provide those cash returns to shareholders.

So it’s really consistent with what we’re hearing from our largest shareholders. And we’re excited to move forward with not only our quarterly dividend, but the potential for variable dividends as we move through the next couple of years and evaluate market conditions.

Unidentified Analyst

Jeff, can I just follow-up that on the debt reduction? Do you have a timeline when you think you will complete it?

Jeff Ritenour

Yes. We’re certainly going to look to do some of that here over the next several months, again, as market conditions allow, and then likely, some of that will move our way into 2021 as well. So, again, it’s going to be a function of the market conditions and what we see with how the debt is trading.

We’re also comfortable holding the cash on the balance sheet to the extent that the value proposition isn’t there. But the key point we want to make is that, that cash is earmarked for debt repayment. So we are absolutely expecting to continue to lower our absolute leverage over time.

Unidentified Analyst

Thank you.

Operator

Your next question comes from Arun Jayaram. Your line is open.

Arun Jayaram

Yes, good morning. I was wondering if you could maybe elaborate on the $150 million reduction in sustaining CapEx from $1.1 billion to $950 million. Just help us think about the broad buckets that drove that pretty material decline there?

Dave Hager

Hi, Arun, this is Dave. I think David Harris is going to have some good information around that.

David Harris

Arun, this is David. Yes, thanks for the question. Yes, as you’ve noted, we’ve driven that 2021 maintenance capital level down about $150 million from our prior disclosure to a level that we think we can carry out in 2021 of about $950 million. In broad buckets, I would tell you that’s equally split between capital efficiencies we’re seeing, particularly in the Wolfcamp, as well as the impact of lower decline rates.

I’d note that a lot of the production outperformance we saw this year has come from the good focus we’ve had on our base production levels and we continue to outperform from a base perspective. So those lower decline rates certainly give us a boost as we think about the maintenance capital we need to drive the business forward. And then the other half would be service cost savings that we believe we have line of sight to here just given the environment we’re in.

Arun Jayaram

Got it. Got it. How much would you view that as, call it, sustainable in the future or more permanent, David?

David Harris

Well, it’s a good question. I would tell you, as I’ve told you in the past, I mean, we always look to try to make all of this as sustainable and as permanent as we can. Certainly, here, in this part of the cycle from supply-cost perspective, we’ve seen some pretty material reductions. We believe we can capture that. We haven’t baked a lot of that, that we don’t have line of sight to and going forward. So I think it’s consistent with what we think we’re going to see here over the next 12 to 18 months.

Dave Hager

Arun, I might just add that we’ve even seen some service cost reductions beyond what we’ve built into this at this point. So we’re not building all of the leading-edge cost reductions that we have into this $950 million.

Arun Jayaram

Great. I guess, my follow-up was just on – I appreciate the disclosure around your federal permit backlog in both the Delaware and the PRB. My understanding is that the permits are valid for two years and you can get up to a two-year extension on those. How, call it, automatic are the – is that extension process?

Dave Hager

Arun, you’re correct. Our federal permits have a two-year initial term and then they’re eligible for a two-year extension period. Typically, it’s a routine part of our business. We file for those extensions, say, three months out from when those permits will expire. Typically, it’s a very quick approval process. We’ve never been declined an extension. And importantly, the environmental assessments that underlie those permits are good for a period of fie years.

Arun Jayaram

Great. And so you’re saying today that under a sustaining CapEx mode that 75% of your contemplated activity over the next four years would be kind of with permits in hand? Is that the correct understanding?

Dave Hager

Yes. That’s absolutely correct.

Arun Jayaram

Okay. Thanks a lot.

Operator

Your next question comes from Douglas Leggate with Bank of America. Your line is open.

Doug Leggate

Thanks, everyone. I don’t know what magic wand you swung there, but it seems the audio is now fine. So thank you for getting that sorted out. Hopefully, you can hear me okay. Dave, you and I have gone backwards and forwards on this model for sometime. I just want to commend you guys for introducing what I think is a really differentiated model, and I’ll be curious to see how this is received by the market.

My question, however, is I wonder if you or Jeff could explain the mechanism by how you intend to share, I’ll use your words from the last call, windfall cash flows with investors.

Dave Hager

Well, I think – thanks, Doug, and we’re very proud of the model and we think it is the right business model. And certainly, we feel like we have moved this model quickly and probably as quick as anybody in the industry. And hopefully, others continue to follow it up with actions as we have already started to do here.

I think the first thing to keep in mind is that our break-even is now – that funds our maintenance capital is around $35 WTI. And then – and we actually then funded the dividend – the normal dividend plus our maintenance capital around $39 WTI. So where you start really getting into the issue is, when you start to balance our growth opportunities beyond – if we’re in an environment above $39 WTI, how do you balance that with the return of free cash flow to shareholders.

And certainly, we’re going to look at the economic climate that we’re in at the time to make that call whether we would undertake select growth opportunities or whether we think it’s better to return that cash to shareholders as we move above that.

As we sit here today, we’re obviously still in the middle of a global pandemic. And so even though the strip is sitting there at currently somewhere right around $45 today, the way I would describe it is there’s a big error bar on that strip. There’s a lot of uncertainty associated with that strip at this point and how sustainable that is.

So we are not, at this point, prepared to say, “Okay, it’s $45 strip. Now we’re going to start going more into growth mode.” Our thought process is more we’re going to stay closer to maintenance capital or at maintenance capital and return those incremental dollars to shareholders. Now there may be an environment in the future where we don’t feel as much risk as there is on oil pricing right now, given the global pandemic that we’re still under.

So there may be at some point where we do start to – as we get above $40 and towards $45, where we say we’re going to mix in a little bit of growth and with the return to value to shareholders. But we’re going to take into account all the economic conditions at the time on how to best make that judgment.

So it’s not going to be an absolute formula. I think, if you – inevitably, I think, whenever you try to live by an absolute formula, you will find that the formula doesn’t work as well as you wish it had. And so it’s going to involve some level of business judgment, where our business judgment is right now that we feel it’s more appropriate to fund at maintenance capital level and return at incremental dollars to the shareholder. But that could change at some point in the future.

Doug Leggate

I appreciate the answer, Dave. If I may offer a comment, I think, there is a subtle difference in perception between a special dividend and a variable dividend. So presumably, you’re talking about a variable dividend.

Dave Hager

Yes, yes, we are talking about a variable dividend. And yes, I think we see there’s a subtle difference, too. And a special is one, it’s really special when you actually do it. And so that’s why we call it special and we’ve done it.

Doug Leggate

Okay. So my follow-up is hopefully…

Dave Hager

I’m being a little funny there for you.

Doug Leggate

…yes. capital allocation, Dave, if you’re slowing down the growth rate up to 5%, how does that change your capital allocation across the portfolio? And I guess, it’s really a question about high-grading inventory. I’m just wondering if the incremental drilling activity sees another upward reset in productivity and capital efficiency, because you’re obviously slowing down the activity level as well? I’ll leave it there. Thank you.

Dave Hager

Well, I think, you can look for us to continue to drive more capital efficiency into the business in general. You’re seeing how we’re continuing to drive down the drilling and completion costs and improve the capital efficiency in the Delaware Basin. You can – if you look at the stack play, we’ve done a couple of things there, where we have really redesigned our wells. And when we go back out there, that we feel that we’re going to be drilling and completing those wells for significantly less than when the last time we were out there.

In addition, we did the transaction with Dow, where we brought in promoted capital, where essentially we’ll be paying one-third of our costs in a given well for 50% of our working interest. So that is certainly going to drive capital efficiency. Eagle Ford, we work very closely with BP to drive the efficiency there and really the economics on the remaining development inventory, as well as the redevelopment opportunities we’re seeing are very capital efficient.

And finally, we’re learning an awfully lot about the Powder River Basin, particularly in the Niobrara. And we have really just been in appraisal mode up there so far. So as we go into full development in the Powder River Basin, you will see those well costs potentially move down dramatically as well.

So absolutely, we’ll be – in a sense, we’ll be high grading by drilling the best opportunities. But all of these opportunities are going to continue to improve because of the measures that we have been executing on internally.

Doug Leggate

I appreciate and thank, guys. Congrats, again. Thank you.

Operator

Your next question comes from Neal Dingmann with Truist Securities. Your line is open.

Neal Dingmann

Good morning, Dave, and I’ll – maybe you guys talked a lot about these cash dividends. I mean, my question is around sort of the debt and production growth levels. So I just want to make sure clear. Is there a certain level you want to get debt down to and sort of a certain minimum level of production growth you would like before sort of considering these more frequent variable dividends, or how should we think about that?

Dave Hager

Well, I tried to say – first, on the debt, I mean, our target in mid-cycle pricing is get the debt the – EBITDAR down around 1.0 or less. Now we’re not quite there yet and we’re probably going to need a little bit better pricing to do it.

On the variable dividend, so I tried to lay out that it’s going to depend somewhat on our perception of the economic outlook as to how much we want and our confidence in forward pricing as to how much we would just return cash to shareholders versus invest in a limited amount of growth opportunities up to 5%.

So – and I tried to highlight that we’re going to assess that at the time. Right now, we’re not particularly confident in the economic outlook on prices. It may prove better, but we’re still in the middle of a pandemic, so there’s a lot of uncertainty around it. So we’d be leaning more towards the cash return side of it right now, so.

Jeff Ritenour

Neal, this is Jeff. But just one thing I would add is a distinction for Devon versus some of our peers is, we have the cash on hand to accomplish our debt objectives, our target debt levels. So any free cash flow that we generate can then go back to shareholders, as Dave articulated.

A lot of other folks in the sector are going to have to generate free cash flow and then try to accomplish their lower leverage objectives. But we’re in a unique position with the cash that we have on hand. We can take care of that and then generate free cash flow with the lower break-evens that we’ve created and returned that to shareholders.

Neal Dingmann

Great clarification. The cash is certainly obvious for you all. It gives you a lot of options. And then just one follow-up. On – Dave, you mentioned with the strip, it doesn’t cause you to think about boosting activity and sort of with this whole – ties in with this plan you’ve been talking about. But I’m just thinking when – if the strip does get up to a certain point where you have more confidence behind that, would the focus essentially still initially just be Delaware, or would you continue – would you start looking more at the Eagle Ford, Powder, Anadarko, et cetera?

David Harris

Neal, this is David Harris. I think as we move into 2021, I think you will continue to see us have a capital program with a pretty heavy Delaware emphasis. But I do think you’ll see us bring back some activity across all three of those areas and take advantage of the diversity in the portfolio and, as Dave alluded to, the high-quality opportunity set we have across those areas as well.

Neal Dingmann

Great details. Thanks, guys.

Operator

Your next question comes from Jeanine Wai. Your line is open.

Jeanine Wai

Hi, good morning, everyone. I hope you can hear me.

Dave Hager

Yes. We hear you fine. Hope you can hear us now.

Jeanine Wai

Okay. We got you. Thank you. So I guess, my first question is on the reinvestment framework. And apologies if you’ve addressed this in your prepared remarks. But the 70% to 80% target for CapEx to cash flow, you mentioned this is at a mid-cycle price. What mid-cycle price are you using? And could you provide any color on the price band or the sensitivities that you looked at around various reinvestment and payout ratios?

Jeff Ritenour

Hey, Jeanine, this is Jeff. Yes, so when we talk about mid-cycle pricing, we generally talked about $50 oil. So that reinvestment ratio that we talked about the 70% to 80%, it obviously really kicks in when you get to those sorts of levels. Prior to that, again, as Dave has articulated, we’re going to be focused on the maintenance capital and generating free cash flow and returning that to shareholders.

But once you get to those higher levels of WTI pricing, given our low break-evens, we do think that it makes sense to limit our reinvestment to that 70% to 80% kind of level. And effectively, we can accomplish all of our objectives of the 5% growth, our quarterly dividend and generating free cash flow when you get to that kind of mid-cycle type pricing.

Jeanine Wai

Okay, great. Thank you for that clarification. My follow-up is just moving to the Delaware and well productivity, maybe following up on Arun’s question on the federal. In maintenance mode, it looks like you’ve mitigated a significant amount of risk in the Delaware through a lot of good forward permitting. But can you talk about in terms of the well productivity, how does this vary between your federal and non-federal acreage? Thank you.

David Harris

Jeanine, it’s David. As we’ve said before, although about 55% of our federal – our acreage in the Delaware is federal. Certainly, as you think about the core in Lea and Eddy County, that’s where some of our highest return opportunities are. And so that’s why we wanted to highlight, from a permitting standpoint, of those 400 or so permits that we expect to have by the fall in the Delaware, about half of those include our drilling program for the next two years.

So they’re specific to those programs and what we would expect to see. And so, I would expect that you’ll continue to see us lean on that permit inventory, drill those wells and then supplement it with state wells where we can and need to.

Jeanine Wai

Okay. Thank you very much.

Operator

Your next question comes from Matt Portillo with TPH. Your line is open.

Matthew Portillo

Good morning, all.

Dave Hager

Good morning, Matt.

Matthew Portillo

Two asset-specific questions. Just curious as you look out into 2021, with the improvement in the gas forward curve, curious how you’re thinking about capital allocation to the stack, specifically with the carrier that you have with the Dow JV?

David Harris

Matt, it’s David. We’re – we were scheduled to begin that activity this year. Obviously, with what we’ve seen from a pandemic and a commodity price standpoint, we’ve deferred that activity. We’re currently working with our partner and would contemplate restarting that activity in 2021.

I think that our best guess based on those discussions and sort of how we would see that plan laying out is probably something like a two-rig program in 2021 potentially to prosecute the initial stages of the Dow partnership.

Matthew Portillo

Perfect. And then just a follow-up question. Your partner in the Eagle Ford laid out a pretty significant strategy shift over the next 10 years. And I was just curious how you guys are thinking about capital allocation to the Eagle Ford with that as the backdrop?

Dave Hager

Well, we work very closely with BP on the capital allocation there. And so far, we’ve remained aligned. I will say, I think, probably better to hear this from BP, but I think, overall, they’re extremely happy with that asset and feel that’s one of the best assets they’ve picked up and, if not the best, they picked up in the BHP transaction. So I would think that even though they’re having a strategy shift, I would suspect that this is one that’s going to continue to be highlighted within their portfolio.

So far, we have not seen any significant alignment issues with them around that. Obviously, if there’s some point they don’t consider that asset to be very valuable in their portfolio, we’d love to talk to them about that as well. But right now, I can tell you we remain very aligned.

Matthew Portillo

Thank you very much.

Operator

Your next question comes from Scott Hanold. Your line is open.

Scott Hanold

Yes, thanks. Question on the 2021 plan in the DUCs. And so how should we think about that? I mean, do you all expect to work through the DUCs in 2021? Or what are those decision points?

Dave Hager

Well, we’re still finalizing our 2021 capital allocation. So it’d be a little premature to say how much. I do know that we’d have 22 DUCs down in the Eagle Ford that we’ve – that have been there that we DUCed in the second quarter. And so those are definitely going to be drawn down in early 2021, which will give us a really good start to 2021 production.

I think beyond that, the level at which we may consider drawing down that inventory, we’re going to have to – we’re working on that right now and deciding and whether how much we may consider doing that. For the most part, I think, you would consider that to just be normal working level of DUCs that you would – always going to have some inventory, but there probably are a few that we could draw down if it seems appropriate.

Scott Hanold

Right. So just to clarify. Of the – I think, it was roughly 100 DUCs. Some of that, you would include normal work in inventory, is that right?

Dave Hager

That’s right. That’s right.

Scott Hanold

Yes, yes. Okay. Fair enough. And then with regards to the special dividend – and correct me if I’m wrong. The way you guys laid it out, it doesn’t sound like it’s going to be highly consistent going forward once you start to initiate it and that it could be off and on, I guess, depending on your view of the commodity and the macro and some other things. Is that a fair statement? Or are you guys designing this to be something shareholders can understand we’re going to get something this quarter, we don’t know what it is, but you’re going to have some sort of a plan for that?

Dave Hager

Well, make no mistake that we are very dedicated to the cash return model to shareholders. And I feel that, frankly, we’re the first ones to actually take action with a special or variable dividend. There are probably a couple of different cases where you can do this and we use the words synonymously, frankly.

One is in this case, where we have some extra cash we’re anticipating because of the Barnett Shale. The other is that, I believe, probably Pioneer talked about this morning and certainly, we’re going to be doing the same thing, is as we generate excess cash flow from our ongoing business, that we will be returning that to shareholders as well.

Now are we going to be absolutely formulaic around that approach and say we’re going to do so much every quarter? No. We’re not saying that. But when we are confident that we have generated excess cash flow in the right business environment beyond what we need as a company and, again, we’re limiting our growth to 5%, then you can look for us to return that cash to our shareholders. We’re just not being so specific as to say exactly how it might be.

Now, Jeff, I know may have a few additional comments or some thoughts that he has had around this as well, so.

Jeff Ritenour

Yes. Scott, no, I think, Dave said it well. The one thing I would add is, obviously, our quarterly – our traditional quarterly dividend is going to return cash to shareholders throughout the year. And then as Dave articulated, depending on market conditions, we’ll evaluate what makes sense at the time as it relates to the variable dividend.

But our expectation is, again, I would just point you to our break-even levels and you all can use whatever price deck you prefer. But as we’ve articulated, with the break-even that we have in our maintenance capital level, we should be generating free cash flow into the foreseeable future. And our game plan is to return that to shareholders via the dividend, both dividends, the quarterly traditional dividend and the special.

As it relates to timing, obviously, we’ll debate that with our Board. Our Board meets multiple times throughout the year, at least, quarterly and evaluate what makes sense based on the market conditions and the other objectives we’re trying to achieve at the time.

Dave Hager

And we – you might look at Slide 13 in our operations report, too, that also shows what amounts of free cash flow you – we could yield at maintenance capital at various WTI prices. So just as Jeff said, we anticipate that there is going to be significant free cash flow and that we would look to return that to shareholders.

Scott Hanold

Understood. Thank you.

Operator

Your next question comes from Nitin Kumar with Wells Fargo. Your line is open.

Nitin Kumar

Good morning, gentlemen, and thanks for taking my questions. I guess, a lot of ground has been covered on this cash return side. You did mention in your slides that the buyback is still a component of – the share buyback is a component of your cash return. Can you help us understand the prioritization of how you are looking at the different avenues for shareholder return?

Jeff Ritenour

Yes, Nitin, this is Jeff. You’re right. Certainly, in the past, we’ve utilized the share buyback approach as a way to return cash to shareholders as well. As I said, and I appreciate you didn’t hear them, given our audio difficulties. But in our prepared remarks, the feedback that we’ve got from shareholders has been pretty loud and clear and consistent around cash returns and cash dividends. And so going forward, our absolute expectation is to return the cash versus – excuse me, to return cash via the dividend versus the stock buyback.

Nitin Kumar

Great. That’s helpful. And then this is going to be for you as well, Jeff. But on Slide 12, you’ve talked about the financing cost reductions of $75 million, but you also mentioned about $125 million in reductions from LOE and GP&T. Granted there may be many moving parts here. But just could you help us understand what are the targets? And how are you improving your LOE? And then particularly, I’m interested in how you’re improving your GP&T going forward?

Jeff Ritenour

Yes. So – and I’m happy to answer that. The $125 million of LOE and GP&T cost reduction that we highlighted, about $65 million of that is an MVC that we have in Oklahoma and our stack asset…

Dave Hager

Volume commitment.

Jeff Ritenour

…sorry, minimum volume commitment that we have in Oklahoma is rolling off in 2021. So that’s about half of that $125 million. And then beyond that, frankly, we’re seeing lower costs in all of our categories. David mentioned some of this earlier, he can add more detail.

But whether it be chemicals, compression, our teams have done a great job of – as we’ve changed our level of activity and our cadence of work to really work hard to lower the cost. Some of that, of course, is the benefit of the deflation that we’ve seen here lately. But what we’re really seeing from the teams is an ability to lock some of that in and, again, we believe keep those lower cost sustainable into the future.

I’ll let David add any color that he may have.

David Harris

Yes. Jeff, I think, you covered it well. I think what I would tell you is, from an operating perspective on the LOE side, we always start with trying to reduce downtime as best we can. We’ve got our decision support centers that feed us data on our operations on a real-time basis.

And so not only are we able to respond more quickly to downtime events, in many cases, we’re able to predict them and get in front of them. And so that’s keeping our operations up and running, as always, the first order of business. It varies a little bit by area how we attack the line items just given the nature of the different assets.

But Jeff, I think, covered it well. Certainly, compression costs, chemical costs across both the Anadarko and the Eagle Ford are things that we’re focused on pretty heavily. In the Rockies, we’re doing – we’re piloting some additional technology opportunities to automate the way we work.

So far, those have allowed us to cut our downtime in half year-over-year, while improving those costs and our environmental performance. And so there, we believe we’ve got a stretch target there to get our recurring LOE in the Rockies down from something on the order of $6.50 down to the mid-4s. So we believe there’s a step change there that we can continue to get.

And then in the Delaware, obviously, those types of things as well, but we’ve got a lot of important infrastructure there from both a water standpoint and otherwise that we’re leveraging to manage our costs and keep those down.

Nitin Kumar

Excellent. Thank you so much.

Operator

Your next question comes from Brian Singer. Your line is open.

Brian Singer

Thank you. Good morning.

Dave Hager

Good morning, Brian.

Brian Singer

I wanted to follow-up on that growth outlook, and it’s really just to ask if they were an above mid-cycle scenario, i.e., price is above $50, is the 5% still the max growth outlook? So any price, 5% would be the max you would consider.

Dave Hager

Yes.

Brian Singer

And then as you think today…

Dave Hager

Yes.

Brian Singer

Okay. And then I guess, as you think about the impact of having a growth rate that’s maybe a little slower than it was at sometime, does that impact or maybe even limit the consideration that you – that Devon would have to either participate in or be a part of M&A and consolidation?

Dave Hager

Well, I’d say, M&A consolidation is something that we obviously recognize there is – there can be benefits out there. There’s too much overhead sitting in the entire E&P system. And to the extent that which there can be some consolidation and eliminate some of that overhead and also, in many cases, capture operational synergies that may exist between various companies, there could be some benefit there.

So I don’t really see that the limitation of the growth rate has a significant impact one way or the other. I think, frankly, many of the companies are pivoting to the same model that we are. I think we’re just a little more advanced with the implementation of this model than they are.

So I think it’s – I think this is a strategy that can make sense with acquisitions if there could be something that would be appropriate. And just on the – I gave the very quick answer, one-word answer, yes, on limited to 5% growth rate. I mean, that is absolutely the answer. The rationale behind that, I think, we all understand is that, why does it – it just doesn’t make any sense for our industry to grow at a much higher rate than the demand for the product is, and we count on OPEC to cut supplies to bail us out on prices.

And so I think, hopefully, everyone is learning their lesson on that. And I think – and frankly, I think, the industry is learning their lesson on that. So that’s why it’s just so straightforward for us to answer it the way I did.

Brian Singer

Fair enough. And then my follow-up is with regards to base decline rates. Assuming you’re at that 5% or lower growth level, how do you see the evolution of your corporate base decline rate? And can you talk about where you’ve been most effective in managing that base decline here more recently?

David Harris

Brian, it’s David. As we’ve talked about previously, as we came into 2020, our decline rate was probably in the high-30s percent on oil and the low-30% on a BOE basis. I think, as we roll forward a year, we would expect that, that oil decline rate moves to the low-30s and on a BOE basis into the mid-20s or so.

And then really, I would say from a base production standpoint, it’s become a big emphasis for us across all of our asset areas. I think all of our teams have done an excellent job arresting base declines and accretively deploying workover capital and some creative solutions to try to shallow these decline rates out as much as we can.

And certainly, as we move into this cash return model with a more moderate growth rate, that’s an extremely important part of the business that maybe people took for granted in times past. But I can tell you, our teams certainly don’t.

Brian Singer

Great. Thank you.

Operator

[Operator Instructions] Your next question comes from Brian Downey with Citigroup. Your line is open.

Brian Downey

Good morning, and thanks for taking my questions. From the prepared remarks on Slide 9, you’re understandably still restricting flowback on newer wells due to market conditions. I’m curious if that experience has changed how you’re thinking about early time initial flowback or pressure management on a go-forward basis, if there are any surprise learnings throughout that whole process during the quarter?

David Harris

Hey, Brian, it’s David. It’s good to talk to you again. No, I wouldn’t say that there has been any surprises or any differences in terms of how we would approach that. Certainly, as we think about flowback strategy, that’s an important part of how we develop our asset.

And so from time to time, we do experiment with that a bit. Certainly, as we’re doing some appraisal work, we’ll have projects where we’re restricting flowback for interference testing and the like, but no big or shattering changes or revelations that you should expect in terms of how we conduct the business.

Brian Downey

Okay. So sort of back to normal in the second-half of the year, we should anticipate on the completions there?

David Harris

Yes. I think that’s right.

Brian Downey

Okay, great. I appreciate.

Scott Coody

All right. It looks like we’re at the top of the hour, and I think we’ve got through all the questions. We appreciate everyone’s interest in Devon today. And once again, given some of the audio issues we’ve had, we’ll send out the prepared remarks to our audience, and then we’ll also post them on the website for everyone’s convenience for viewing. If you have any other further questions as well, please don’t hesitate to reach out to the Investor Relations team at any time. Thank you, and have a good day.

Operator

This concludes today’s conference call. You may now disconnect.

Source: Seeking Alpha

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