Alix Steel: Something else on the call, pivoting off of what Guy was saying, is that you said
there are only four investable E&Ps, and you named specifically EOG, Pioneer, maybe Hess, didnt have [Occidental] on there what made you say that?
Scott Sheffield: Yeah, and I had ConocoPhillips on there. Alix, there are basically four companies today that are over $10 billion in market cap.
Obviously two of those just got larger with Pioneer and with ConocoPhillips buying Concho. And so its really, when you talk to most investors today, theyre only looking at companies that are investable at a $10 billion market cap.
So the companies that are below $10 billion are going to have to merge up over time. And so I still think a lot of those companies have to de-lever with higher oil prices before they start combining. I
still think well get down to just a handful less than ten independents in this sector in the next several years.
Guy Johnson:
But you think the bigger companies, Scott, have done what theyve got to do and are probably not going to do any more there isnt a company out there that is going to do a series of roll-ups
around the region, consolidating some of those smaller businesses. Its going to be smaller business kind of getting together with smaller business and gradually acquiring scale. Im just kind of curious how long that takes.
Scott Sheffield: Yeah, I still think youll see more Devon-WPX type mergers, but companies have to de-lever instead of taking a bad balance sheet and combining with a bad balance sheet. They will have to de-lever over time. Right now, as you know, being over in London, the
three European majors have changed their investment strategy. I really dont see them acquiring any U.S. companies at this point in time with their movement into alternative energy. Exxon, Chevron, its really going to the key there
is really whether or not Chevron will continue to do other Noble-type deals. I dont know. And a big factor is the potential change in administration. There will be continued pressure on Exxon and Chevron to go the way of the three European
majors in regard to alternative energy.
Alix Steel: So, lets talk a little about that, Scott. So the rumor on the street was that you were
going to wind up selling yourself to Exxon. Now the rumor on the street is, because you bought Parsley, maybe in about two to three years, it will be nicely accretive, you can go back to Exxon and say, guys you need the acreage, you need what we can
bring to you, you should buy us. Give me some insight into that conversation that the streets having right now.
Scott Sheffield: I think
Exxon long-term is going to have to decide are going to move strongly, as the fossil fuel industry winds itself down over the next 30-40 years. Ive seen the forecast of IEA in their demand scenarios of
oil demand well probably see oil demand peak over the next 10 to 15 years. We probably wont see many increases. But the key to Exxon do they want theyre going to a million barrels a day and so do they want
another million barrels a day in the Permian. So thats the unknown question. And whether or not theyll shift their strategy to more alternative energy. But our board and Pioneer will always do the right thing for our shareholder base.
Guy Johnson: Lets talk about that shareholder base, Scott. What do they want from you? Weve talked to a number of CEOs over the last
few days as these deals have been done and it does seem to be a shift in the business model. Its more about returning excess capital to shareholders, its that kind of change that is driving this narrative to a certain extent. Is that how
you see the business model evolving as well, as we approach the run-off period?
Scott Sheffield: Yes.
Were the first company to announce a really a free cash flow model and a variable dividend model and so, in fact, Parsley does that for us. Even helps us more from their accretion of free cash flow. And so were going to get to a
double-digit free cash flow yield fairly quickly. And well be investing only about 65% of our cash flow and returning the rest of it to our shareholder base. So they basically want free cash flow and they want little to very minimal growth out
of the U.S. shale industry.
Alix Steel: Scott, there was a narrative also that before this deal you were going to have to pay a lower premium
because of the family relations between Parsley and Pioneer. Now that weve kind of gotten through that part, is your son, Bryan, going to have any responsibility at the new company? Can you give me some insight?
Scott Sheffield: No, he will have zero responsibility at the new company and he will be our largest single shareholder. Hell own about 2% of the
combined company. Also the CEO of Quantum, Wil van Loh, will own and control about 4% of the combined company. So theyll be two of our largest shareholders.
2