Permian Basin pure-play Diamondback Energy Inc. has dropped three rigs, reduced completion crews and plans conservative spending in 2019 because of the “dramatic decline” in oil prices.

The Midland, TX-based independent issued 2019 capital and production guidance late Tuesday, indicating it plans to operate 18-22 rigs versus 24 today; three rigs have been dropped. Eight completion crews are planned for 2019 after releasing two crews this month.

However, even with less activity, production in 2019 is forecast to reach 275,000-290,000 boe/d, which at the midpoint implies 28%-plus year/year growth.

“Due to the dramatic decline in oil prices, realized pricing in the Permian Basin is near levels not seen since the end of 2016, while service costs have increased by 35% during the same time period,” CEO Travis Stice said. “As a result, and as a sign of our commitment to capital discipline, we are reducing our planned 2019 activity to levels where we can operate within cash flow. If commodity prices continue to decline, we will further reduce activity to match our budget to expected annual operating cash flow.

“Conversely, and most importantly, if commodity prices improve dramatically, and we have significant free cash flow above our base dividend and capital budget, our capital allocation strategy will reflect a mix of growth and an increasing return of capital, getting ahead of our anticipated increase in 2020 free cash flow at nearly any commodity price.”

Capital expenditures in 2019 are set at $2.7-3.1 billion, mostly for drilling and completions ($2.35-2.7 billion) and another $350-400 million for midstream and infrastructure investments.

Diamondback expects to complete 280-320 gross wells in 2019 with average lateral lengths of about 9,200 feet.

The company also intends to increase its annual quarterly cash dividend by half to 75 cents/share from 50 cents beginning 1Q2019.

“In 2019, we will continue to target a business plan that operates within cash flow and a 50% increase to our dividend,” Stice said. “This strategy reflects the next step in capital discipline for Diamondback, where we will not focus solely on maximizing growth within cash flow, but rather deliver both growth and increasing return of capital to shareholders.”

Longer term, Diamondback plans to “consistently grow production at industry leading rates while significantly increasing our free cash flow/share and using that free cash for shareholder-friendly initiatives, including a durable and sustainable return of capital program through the cycle while maintaining our low cost structure and minimal leverage.”

Diamondback completed a merger with Permian competitor Energen Corp. in November following a busy year of bolt-on activity.

“After closing the Energen merger in November, we remain excited about our significant early progress in delivering on the well cost synergies presented with the merger announcement, including having already implemented regional sand use and simultaneous completion operations, as well as improvements to drilling times and well design,” Stice said.

Diamondback’s management “is showing the capital discipline that it’s been messaging” by reducing the rig count and number of crews,” Tudor, Pickering, Holt & Co. said in a note. “This highlights that budgeting isn’t simply maxing out rigs to match cash flow, but instead, thoughtfully managing maintenance requirements” and shareholder returns, “followed by steady acceleration as operations merit.”