Devon Energy Corporation (DVN) Earnings Call Transcript & Summary

All right. Well, terrific. This is a highlight of the Goldman Conference every year to have Rick Muncrief, President and CEO of Devon, Travis Stice CEO Director of Diamondback and Scott Sheffield, CEO of Pioneer Natural Resources, to talk about the outlook for the Permian, but the exciting thing about this year is we're going to talk about offering outsized capital returns in the Permian. And last year, we've seen a transformation and capital allocation strategies for all 3 of these organizations and offering some of the most competitive returns in the entire market, not just in the energy sector. So gentlemen, thank you all for being here, and appreciate you sharing your insights.

It's good to see this morning, Neil.

Well, where I wanted to start was a high-level question, which is how do you see the oil market shaking up in the near and medium term? And then also walk us through what's idiosyncratic about your business? What do you think is really differentiated that after good moves in all of these equities over the last year, you think is underappreciated as we think about the go-forward investment case for your companies? And Scott Sheffield, I'll start with you for Pioneer, and we'll move after that.

Yes. Thanks, Neil. Good morning, and thanks for inviting us, all 3 of us. I think what's setting this up is the lack of investment in the world. We're about $1 trillion less investment over the last 5 years versus the previous 5 years. And it's been stated in the last 3 weeks, we've had the least number of discoveries in the world since 1946. So obviously, we're in a situation where demand is going to exceed capacity at some point in late '22, early '23, and that's what the concern is. I hope Pioneer believes that we'll be in the $75 to call it, $90 to $100 range. I hope it stays there, $110, $120 oil are higher like what Europe is seeing is not going to help our industry if we see the equivalent of $200 oil, like Europe and Asia is seeing in regard to Pioneers has designed our return program to return over 80% of our free cash flow back to the investor in regard to a base dividend, a variable dividend which makes up around 11% dividend in '22. In regard to we announced that we are buying back stock, we bought back $250 million already. We'll continue to buy back stock during 2022. So when you add the production growth, 11% dividend return and then buying back stock, you're getting up in that high mid-teens potential for the investor. So I'll stop there and let Rick and Travis talk.

Thanks, Scott. Travis?

Yes. Great comments that Scott made. I just want to pause for a minute because I think it's illustrative to say, 18 months ago, we were in a global apocalypse for the energy sector. And now you're talking about outsized returns. And it's been remarkable this capital allocation strategy that all of us -- all of these meaningful companies that are on the screen today have gone from who can grow the fastest and now seeing who can return cash flow the most significant. I think we should all pause and recognize the tectonic shift that, that is in capital allocation. Now specifically to Diamondback, we're not unlike the other companies on the screen here today that we've been more prescriptive with the way that we're going to describe returning at least 50% of our free cash flow. And I say at least, to 50% of our free cash flow. Our primary method has always been our base dividend where we've grown it at a quarterly compounded growth rate of over 10% per quarter. Now that's not sustainable, and that's why like Scott just mentioned, we've talked about share repurchasing. We typically make share repurchase decisions on some form of mid-cycle oil price which for us is around $55 or $60 a barrel. It may not be quite as high as Scott's forecast there. But I think $60 to $80 per range with the mid-cycle oil price and $55 to $60 a barrel means that when we run the net asset value for our company says that we need to grow, we need to do share repurchases, opportunistically, and we know volatility is going to be there. And so taking advantage of volatility in buying shares back when that volatility presents itself is important. And while we're very clear that Diamondback is not growing, we are growing on a per share basis as you continue to repurchase shares. So the capital that historically we would spend in growing the company, now we're redeploying that primarily in the form of share repurchases. And to the extent we don't -- the calculus doesn't work or we don't get them all repurchased, then we'll kick it into a variable dividend as well, too. But I think on a global perspective, we still need to see what the surplus capacity of OPEC plus companies -- countries look like. We need to see what the virus is going to continue to -- how it's going to evolve and the associated impact on demand. And then we also need to see shareholder sentiment change. Right now for most of the shareholders are saying, we don't want you to grow. We're in love with returns. So give us the return growth the experiment of OPEC ceding market share didn't play out too well for us in the past. So that's what we're hearing there as well, too. So I think when all of those 3 items start to point to each other, they'll never completely triangulate but you need to see what the oil price is. And if the oil price is like what Scott was talking about, $75 to $90 a barrel, well, that's probably not much growth or maybe slow growth. On the other hand, if it's $50 a barrel when those 3 things happen, that certainly doesn't mean growth. And then I don't think it would be good for industry, but if oil is over $100 a barrel, then that probably does signal some growth. And then one last thing is you always got to keep an eye on the forward curve. You can argue and debate whether or not that's really a good a good bellwether for growth incentive or not. But certainly, right now, we're still backwardated. And when that changes, well, then that's another clear signal.

That's been very clear. Rick?

Yes. Thanks, Neil. And Devon -- I don't know I can add a whole lot to what thought in Travis or sand similar to them. that we have a fixed dividend, the variable dividend. And in last November, we announced our share repurchase program. And we do want to take advantage of in the markets that we see occasionally. So we'll be doing that. We will review things in the first quarter of this year, which is now we're in the first quarter, which is an annual redetermination of where are we with our fixed dividend, should we bump that or not. And certainly, we'll be doing that and announcing that in our February earnings call. I think the thing for us is, when you're an early adopter to a variable dividend approach, which we were, and then you have a track record quarter after quarter after quarter of increasing dividends and getting that capital back into shareholders' hands. I think that's played really well with our shareholders. We've got a lot of very, very positive feedback. And I can't disagree with Travis' comments around the share repurchases. And I know Scott has been doing the same thing. It's a pretty good time. And if you're if you're longer term, a little more bullish than what we have been over the last few years, that's where we're at. We think not only the commodity price, but I think the recognition in the markets, I believe that were on the bird or some real nice market multiple expansion. A few years ago, I recall the day Scott and I actually talked about this, he was concerned about contraction in our multiple a few years ago and that played out. And I think right now, we're on the verge of a nice sector rotation. People are going to be their start for yield, they're worried about some of these sectors that have been trading at multiples that really are probably unsustainable. And so they're going to be looking for a great place to invest. I think I think Energy certainly is a sector. I think in E&P, you get well-run E&P companies they're disciplined, have strong balance sheet, great assets. And I would argue the 3 companies here certainly do that. It's going to be a great place to invest. And so stronger commodity prices, coupled with the multiple expansion, I'm convinced that we're going to be seeing over the next couple of years, quite honestly, that really sets us up for something like a share repurchase and being opportunistic with that. The variable dividend is something that we've got an incredible amount of positive feedback and having that track record of continuing quarter after quarter delivering on that out real well.

And Rick, as Travis talked about requiring a substantially higher oil price than even where we are right now. to go back into a growth orientation. And so it's one prioritizing free cash flow over growth. What would it take for you to actually shift away from a free cash flow framework to a growth rate?

Well, I think, for us, we have to have clear evidence that the market is calling for renewed growth from companies such as ours. And we simply don't see that with the backdrop, Scott talked about the obvious underinvestment in our sector, you know that day could come down the road. But near term, still questions around OPEC plus the capacity there. We've seen some activity increases on the private side primarily. So you're seeing some growth there, but that's not going to -- I don't think it's going to be a game changer at the end of the day. For us, we really look at that forward curve. And it's not real compelling. Even though we have $75, $77 WTI today, but you lose $10 of that over the next 12 to 18 months. It's just not real compelling to want to lean in on growth right now. And so for us, we're going to be patient and provide what shareholders are asking us to do and wait for that multiple expansion that I'm convinced will happen. I think it's going to play out real well. We're going to be great sector. And I think our company can be a great company to invest there. And quite honestly, Neil, that's not changed. This variety is the 1-year anniversary of the merger between Devon and WPX. And our story has not changed in the last 12 months, even with the stronger commodity prices, stronger equity performance and everything else.

And that feedback we get for all 3 of your companies in the industry in general, there's better consistency of message, which the message here is free cash flow over growth, which I think is resonating well. And you can see in the stock price performance. So Scott, I want to get your perspective on the variable dividend because we are advocates of the strategy, but the key pushback that we get is, will investors ever really capitalize that yield? Or is it only a onetime benefit? How do you think about the variable dividend? Why do you think it is the optimal allocation of capital? And talk about that versus buybacks made some comments on the most recent earnings call, leaving the door open for share repurchases, but what are your latest thoughts?

Yes, Neil, the -- we've seen, as Rick says, the -- we've had significant positive feedback from existing shareholders on the variable dividend. I think the most comments we're getting back is that under certain oil price decks, we all think we can increase the base. And so the reason we went to a variable is simply because we don't want to be one of those majors -- several majors over time in history have cut their dividend. It's a no, as you know, to cut the base dividend. It's a death flow for several years when you do it. And so the concept of the variable was the best way. Now we've had feedback under, let's say, long-term oil next 20 years will be $45, $50 under I think you'll see Pioneer shift the variable to the base, a portion of it, the same amount of cash flow will go out toward the base because will we get enough credit for the variable long term. Also, we're trying to get all their trading platforms, Bloomberg, FactSet, all the other trading platforms to recognize, and we're making progress in that regard, either some are going to do the trailing 12 months, including the base and the variable, they'll put it together. And so that is a big step and we can get the trading platforms to recognize the variable also once we establish a track record. So I think nobody wants us to increase the base significantly to a point where you're taking risk of cutting in. And that was the whole concept of the variable. And like Rick said, we need to establish that long-term track record. The last component with our balance sheet now after the sale of Continental in the Delaware. We have the best balance sheet in Pioneer's history. In fact, by the end of 2022, will almost be the 0 debt. We've never been there before. And that's why we've had a buyback program over the last couple of years, we bought a lot back about $1 billion back in 2019. We bought -- we were one of the only companies that bought in 2020. We bought some back during the pandemic, believe it or not. And the history of the oil and gas industry, they always buy their stock back at the top. The question is what is at the top. So they always buy at the wrong time. So we think it's important to have a great balance sheet. So I think you'll see us buy some, call it, either opportunistically or dislocations. We'll buy some like we did with the $250 million we just bought back fourth quarter. We'll continue to buy back some. But we want to save firepower if something happens in 2 years to go in there and buy 10% of the stock. So it's been great to -- we bottomed out at $50 last year. I wish I had the firepower to buy a lot of stock last year. We didn't. So I think the great balance sheet is the best solution long term.

Neil, can I add?

Yes.

Yes Scott is exactly right. And I think 1 of the things in order to be opportunistic in share repurchases that our industry has to become comfortable with is parking cash, some amount of cash on the balance sheet. And so -- and that allows a little bit of insulation to, as Scott pointed out, always buying stock on the way up. That is -- that has been a historic problem for our industry. The second point I wanted to add is each of the 3 companies on this stage has done remarkable capital improvements and efficiency gains so that our breakeven costs now are, I don't know, somewhere around $30-ish a barrel. There's different ways to calculate it, but $30 or $35 a barrel. And so we're all as a company is going to be able to generate significant free cash flow even down to a $45 or $50 per barrel oil price, which we have to understand that, that could be there again. So that gives a little comfort to those that are leaning into their base dividend because you're right, as Scott pointed out, you don't ever want to cut your base dividend. But the fundamentals of our business has changed over the last 5 years where our breakeven costs have dropped so dramatically that we're somewhat insulated to even increasing the base and having to worry about cutting it.

That's very clear. Well, Travis, thanks. If I could stay with you. You made a comment on the, I guess, it was second quarter call, it feels like yesterday, it was last August that we were talking about M&A after all 3 of you have executed very successful transactions late 2020 or early 2021. And you said, at this point, it feels more like a seller's market than it was a buyer's market. Now to be fair, the stock was in the low 70s at that point as well, and now you're at 125 as of right now. Do you think there's an evolution? And do you think it's now become a little bit more of a virus market, especially now the debt currency or not necessarily?

Well, if you're going to fund an acquisition to use of equity, yes, higher equity makes deals more -- you can make more accretive deals at a higher equity price. My comment in the second quarter wasn't so much what Travis' comments it's a sellers market. I made the comment. But what my view is, is that the sellers believe it's a seller's market. And so when the sellers believe that it's a seller's market, then that typically means there's a spread between bid and ask. But look, I think all of our companies are going to continue to do these smart bolt-on -- around here, we call them little small acquisition bolt-ons as part of a good capital allocation process and with the free cash flow each of these companies are generating, we can certainly do that. I can tell you specifically for Diamondback, I'm spending more time with regulatory rhetoric and COVID-related business decisions than we're spending on M&A right now. So I think across the board, Scott and Rick would echo this, is that all of our companies now have the people, the assets the business relationships and the balance sheets to be very efficient executors of our capital program. So we can worry about other things besides those 4 things. And so M&A can come and go. But at least from Diamondback's perspective, right now, we're laser-focused on our 2022 plan.

Yes, Scott I'd love for you to build on that. It strikes me that the company has executed a number of transactions. But at this point, you can say grace over your portfolio. And in fact, over the last couple of months, you start to monetize some of that longer-dated maybe higher cost of supply inventory. So what is your A&D strategy from here? And how should investors think about that for '22 and beyond?

Yes. I mean, obviously, we did 2 highly accretive transactions. They've been totally integrated into Pioneer. What they did -- we already had the largest contiguous shale, oil shale position anywhere in the U.S., we just added to it. They fit like a puzzle, both transactions. We have over 1,000 locations now that we can drill 15,000-foot plus laterals. As Travis has talked about, simul-frac is something very, very important. We're looking at moving to 3 rigs -- fleets in regard to simul-frac, so getting those capital efficiencies. Long term, we have -- as I have mentioned before, we have 15 to 20 years of inventory, probably have one of the longest oil shale inventories of anyone out there. We're getting more optimistic about our enhanced oil recovery project. We're always trying to figure out how to recover. We're only getting 6% to 8% of the oil out of the rock. So we're getting more optimistic about that long term to extend that inventory. And so we're always going to do trades both on selling and buying small either extending laterals or buying royalties, or buying working interest in our existing acreage in the Midland Basin. At the same time, we'll do deals like Laredo. We sold Tier 3 properties to Laredo. Also, we're doing a couple of drill code deals that are Tier 3. It just happens that Tier 3 looks pretty economical at $80 oil. Well, we would not get to it for 20 years.

Yes. This is -- thanks Scott. One of the points that we made in our comments this morning as a source of frustration is the market doesn't appear to be giving a lot of credit for inventory debt and whether that is a project in offshore in Guyana or long-dated Permian value. And so I wonder, Scott or Rick, Rick, maybe I'll direct this question to you. Is this a market where you should be selling some noncore assets if the market isn't going to be willing to give credit for that longer-dated resource value?

Well, I think just at the highest level, you've seen the market shift from Devon that was driven primarily from NAV, and that's where the inventory is really, really an inventory debt is so terribly critical to Devon that's driven more by cash flows and which is maybe more of a shorter term worth the money type approach versus the patients. So to your point, you're talking about, you're not seeing the companies get really rewarded necessarily for that inventory depth that most of us have. And so that -- I think that will come on time. For us, certainly, the merger that we completed a year ago, gave us some great inventory depth gave us some optionality and the chance for us to do continued exploration work on our own assets that we have, different horizons. I think that our sector has a complete new chapter that will be written over the next 2 to 3 years as we learn more and more about these -- especially in the Permian, where you see so many different landing zones. And we continue to -- we'll continue to focus on trades, coring up. Certainly, one of the things that a year ago, many people thought was a huge negative, and that was exposure to federal acreage in places like Lee County and Eddy County, New Mexico, you've seen the productivity from those areas. And I think a lot of that rhetoric has diminished. And then certainly, when you have the federal units, you can drill 3 miles, you can drill 4-mile laterals if you want to, and then continue to drive that capital efficiency, those numbers higher and higher. So we're excited about continuing to do that, the bolt-ons, small trades that Scott and Travis both referred to, we will be doing most of those. It's where we're going to have most of our focus. But once again, it's focused. We're we hear back on our 2022 plan. We're basically at the same rig count where we were at the close of the merger, quite honestly, even the 2 companies that brought the merger. So our activity level has not increased since the best of the pandemic. And so that steady state of operating has been very beneficial to us from a supply chain management from a cost perspective, and then we start putting 2 companies together, best practices sharing. You're seeing just a completely new level. I think kind of capital efficiencies where -- and it's paying off in a big way for us. I will also say that we have 4 positions in 5 basins. And we're in a very comfortable -- couple pace and all 5 of those generate some of the basin just generated a lot of free cash flows right now, some -- maybe a little shorter on the inventory life in a couple of our assets. But I can tell you that some of them such as our has got much longer mated inventory. And yes, we can be very thoughtful and put our expertise into play and turn that into a very, very valuable asset over the long haul.

Neil, can I just add 1 comment to close out the inventory discussion?

Yes.

If all 3 companies on the screen have sufficient inventory and each of us can define it in a different way. But I think what's more important rather than how we define it is really how investors look at it and what investors are asking as they do their work on each of our individual companies is do they have a durable enough inventory to survive another down cycle, whenever that is because they don't want to make an investment in any of our companies. And then when the down cycle occurs, we're at the tail end of an inventory cycle and it's the worst of both worlds. So I think all of our companies, whether organically or inorganically have put together an inventory now that even an investor that's not an expert in our space would say that, yes, I have plenty of time to invest, generate or receive these returns that each of the companies are talking about and then get out if there is a downturn occurrence. So I think regardless of years, quarters, decades, it's really do investors have enough confidence that a company has inventory that's durable through a down cycle.

Thanks, Travis. Travis, you guys are known and all great viewer on for being low-cost producers. But we are in an inflationary environment right now how are you seeing that inflation materialize in your business? And how are you offsetting it? I'd start with you Travis, but I'd love those comments from all of you.

Sure. I think that one of the biggest challenges our industry is going to face in 2022 is CapEx management in an inflationary environment. Now historically, our industry has done a spectacular job. And I would say Rick and Scotch companies have also demonstrated a spectacular ability to offset most inflationary pressures through capital efficiency improvements. And when you look specifically at Diamondback, we've already kind of issued our guide for 2022, and we said 10% to 15% inflationary pressures. And we've set our budget guidelines, the budgets to budget. So we're going to have to continue like all companies are to look for ways primarily on the variable side of the cost. The fixed side, oilfield country tubular goods those are up a lot. But companies, real market moving companies like the 3 on the screen here today, we've been able to go out and address most of the fixed costs by prepurchases or being in front of the queue for steel and other services to offset some of those. The Ropes open dope side of the equation, it's going to increase in 2022. But again, the biggest challenge is now who can manage that inflation within their CapEx guidelines most efficiently. And all 3 companies on the screen have a long and very productive track record of doing that.

Yes. Thanks, Travis. And then Scott, any thought -- early thoughts on how some of these forces are going to impact the '22 capital spending levels and your thoughts about how you are going about offsetting some of these inflationary forces?

Yes, Neil, we're -- our numbers are probably a little bit different from Travis just depends on what year we're talking about. But in '21, we went from 0 to about 10% by year-end. So we already built in going into '22, an increase in CapEx budget. Our discussions are about mid-single digits inflation. That's assuming oil prices stay where they're at. The more they move towards $100 a barrel, which could easily happen, I think we're going to see inflation pick up more. We're already being asked when we sacrifice our production growth to allow the free cash flow to stay constant, and that will be an option the Board will have to decide a pioneer numbers, do we go back to 3% production if inflation really gets out of hand, and we start digging into our free cash flow. So that's an option that we'll seriously look at.

And the base case right now is assuming a 5% production profile as we go into '22.

Exactly.

Rick, talk about how you guys are thinking about managing cost trends? And then if I could ask you a broader Permian macro question, which we have less visibility on, which is the perspective of the private competitors of yours, do you think that they can run the party of the Permian by oversupply in the market? Are they just too small to actually to grow off this capital discipline the system?

Yes, it's a good point. I think, Ross, we've talked about a flat volumes year-over-year, just keeping it flat. I just -- we've been very, very consistent in that message. And that's how we're entering '22, that's our lands for this year. We've dialed in about 10% inflation, somewhere in that range. We did a great job last year. That's the bogey, if you will, for our team to see if they can pull that down into a single digit. We'll see how that all plays out. The pressures we're seeing, I think you are seeing some of these supply chain disruptions that are so foundational irrespective of most of activity levels that they're coming into play. As far as the activity of the private companies, some of the anecdotal conversations I've had with them is that they probably anticipate right now adding a lot of activity where they've been. In other words, if they're struggling, they may not talk about it publicly like we would. But if they're struggling, to get that next stream of pipe on that next well. I've actually been at a dinner when a guy -- his dinner was rolling because he's almost TD and his packshot there, and he doesn't know where he's going to get it. And that's how -- that's not a very good feeling. I could tell you. And so I don't know that the privates will truly move the needle. I think you are seeing some growth as part of -- just as OPEC Plus bringing those volumes back in, I think it's part of the overall picture. But I think we're being very disciplined as a sector and get supply and demand back into balance. And so we may see that later this year. We'll see. We may actually be short. We'll see how that plays out. But for us, I think our team has got a great track record of overcoming. We've got a very experienced group. We high graded as a merger. So only the best state. We've got a great team here, and we think that we'll do as well as anybody in addressing the inflation question from an operating standpoint, both on the CapEx side and then on the lease operating expense side. That's where you'll also see some -- the trap someone on the top of the ropes opened so those really foundational things that you have to have just keep your operations going. So we'll apply it there.

Neil, I just want to add to Rick's comments on the private guys. And there are several of them in my building. So I get to see them all the time with moving bags into their eyes and I know with the pace that they're running at. I think there's a natural governor on those -- and Rick alluded to one of them just being piped right now. They can't get access to pipe. I think you're starting to see the Permian rig count kind of leveling out as a reflection of that, 270 or so rigs out here in the permian. U.S. has got 630 is hot rigs and about 60% of those are being run by private product companies. So the privates make up roughly 1/3 of the U.S. production. So even if they grew that at 10%, which would be kind of hard based on what Rick and I were talking about now with the private guys, you have to agree the 10%. It's definitely a non-zero impact but I don't think it's going to run the party at all. I still think you've got to look at the macro with what is the surplus capacity and how quickly is OPEC going to respond to a shortage and that surplus. But the private guys are going to do what they're going to do. And there's one other, I think, mitigating effect also is that back to my durable inventory a lot of privates don't have the same durable inventory that the 3 guys on the stage you have today. And so the pace at which they're burning through it is pretty, pretty high. So they're burning their good stuff right now, and it's probably not a sustainable pace that they're on.

So we only have a few more minutes left here, but I'm going to ask you a question that could take hours. And I'll ask you to kind of get to a bunch line on it each, which is the energy sector has lost the EST debate over the last decade? And Travis and I talked about that a few weeks ago. The value of the sector is still deeply underappreciated. And so with a better commodity price environment, you have an opportunity to actually be on the front foot and potentially win some of that debate back. So can you talk about what you guys are thinking about doing for the sector to win back the generalists and to convince people that the energy sector is not a tender? So I'll start with you, Scott.

Yes. Thanks, Neil. I've been focused mostly on the flaring and venting for the last 3 years since I've returned, it's a black eye for the industry. It still is. EDF is going to be putting satellites up here by the end of this year. They're going to focus on every one of our tight batteries both Diamondback, Devon and Pioneer, along with Exxon, Chevron, all the privates. So I don't want to see in the Wall Street Journal pioneers of EDF satellite and Pioneer is flaring or venting at ex-tank battery. And that's what's coming. So we all have to remove that as a black eye. And I think it will help our industry. And so I think we're going to have to all band routine lari. We all are going to have to get down to some number like 0.2%. We all got to do flyovers and put in methane sensors at every take battery. And then I'll finalize the last thing we're all doing is we're going to have to move to the grid. Right now, the grid in Texas is about 65% fossil fuel, 35% alternative. But over time, it's going to move down to more -- less also yields, but we're all going to move to the grid for both production operations for both fracking and drilling and Pioneer is at the forefront from doing all 3.

Thank you, Scott. Travis?

Yes. You're not going to hear Scott or Rick or I vary too much from what Scott's comments were, so I'm just going to add to that. The 2 things you've got to get right as an industry is flaring and methane emissions. And all of us are leaning in as hard as we can to that. The one thing I want to add, though, is that the flaring, the upstream guys take a disproportionate amount of heat for flaring. And we've got to bring our business partners on the G&P side to the table to withstand the same scrutiny that we have all on flaring. 2/3 of Diamondback's flaring as a result of G&P issues. And so in order to get to 2%, like Scott talked about, the G&P guys have to be very instrumental to that. The next thing I wanted to add to that narrative is that there's no oil producing country in the world. no oil-producing country in the world that is working as hard as the U.S. public oil and gas guys to reduce emissions, to reduce flaring, to continue to earn our environmental license as the U.S. guys are. That -- we are -- we understand what our investors are asking from us. We understand what the narrative is. And we're dedicating our balance sheet to making rapid changes to continue to earn our environmental license to operate.

Thank you, Travis. And Rick, anything you'd add?

Yes. The one thing I may add is that we are seeing increase in surveillance, but we've been very proactive here at Devon and been involved in developing technology, doing real-time emission monitoring and it's going very well, testing different systems that we've helped to actually put some capital into some seed money over the last several years is paying off. The -- certainly the drones that we deploy across the basins that we operate in, to find hotspots proactively, not wait on someone else to find them. That's what our team is very focused on. The other thing I'd say that I think we're doing a much better job as a sector is engagement with many of our investors and in even some of the group like Climate Action 100, the framework that they've laid out there, I think you see CEOs no longer say, well, I'll let my ESG folks talk to them. I mean, we're engaged with them, and we get to hear firsthand what their concerns are. And sometimes it's an education process. I find several numerous occasions. They've been surprised at the progress we've made and the commitment we have and the technology deployment that we have going on. So I think we'll continue to make very rapid progress here. And I think you just have to continue to communicate that, build that credibility, build that trust with investors. And know that we are a vital industry. If anything, COP26 showed us is that it's going to -- it's the energy transition that we all talk about. It's going to take some time. It's going to be very complicated. And we have to have increased levels of trust across all the sectors with investors and with policymakers. And so we could talk about the reality, not just aspirations that may not play out that way. So we'll see we'll see continued engagement, I believe, from the best companies with investors and building that trust.

And Neil, just to add to that, I don't know we'd wrap it up, but this is -- I think this is a really important message is that this is not a competitive advantage, either one of -- anybody on the screen is trying to address. This narrative, we are equally yoked we'll all be competitive on operation aspects until the day we die. But on this particular issue, for this sector, we are 100% locked on innovation and technology to try to do the right things by investors.

That's terrific. Well, it's a great conversation. Thank you so much. Next year, we'll definitely do it in Miami, but hopefully, to see all of Texas and Oklahoma soon. And thank you so much for a great conversation.

Thanks, Neil.

Thanks, Neil.