Q4 2019 Earnings Call

And I know we always say it.

Because in this industry the Landscapes constantly changing and because it differs from our peers, please allow me to say it again all of our decisions resources tactics and focus they all concentrate on optimizing the nav per share the company our decisions are based on making risk-adjusted returns. They use a hurdle rate for these decisions. We've reduced our Share account meaningfully since the Inception of our share buyback program. It started back in 2017 and for fourth quarter of 2019, we didn't retire any shares but instead our Focus was on addressing our 2022 notes with free cash flow that we expect to generate. It's what the math and the logic dictate. And again, it's Capital allocators. These decisions are fluid in a commodity business. You have to have the flexibility to adapt as variables change and you have to have discipline to stick to your values and what you were ultimately solving for through the up and down Cycles. All that being said, we see a tremendous long-term opportunity to retire meaningful number of shares in the future.

Slide Five provide specifics on highlights and the context of a tough macro-environment. We're now forecasting 250 million dollars in total free cash flow per year in each of 2012 and 2021 which includes approximately fifty million in assets sales each year half a billion dollars of free cash flow over two years is an impressive feat by itself with what makes it more impressive or Thursday details associated with the guidance first were highly hedged on nymex and basis for twenty twenty and twenty Twenty-One and that of course insulates us from the threat of prolonged or further depressed pricing second the half a billion dollars in free cash flow assumes around a hundred billion dollars in cumulative asset sales over those two years. That's a very manageable asset-sale Target with much of it driven by things like surface acres wage and rights-of-way sales things. Not nearly as challenged as underworld acreage and a tough macro-environment.

I want to spend.

A couple of minutes on the recently-announced see you next Midstream simplification transaction and really what it means for both parties. But first I'd like to provide a brief history of the MLP and that is shown on slide in Six Lakes resources. We have been thoughtful disciplined and focused with cnx Midstream through the ups and downs of both the commodity cycles and the MLP markets and as you can see since the birth of the Michigan companies performed phenomenally and cnx is work hand-in-hand with them through a score transactions. We build a best-in-class Appalachian Midstream company. It's grown tremendously and is projected to continue to do so in the future that transaction track record coupled with the Midstream team smooth execution. Help Drive twenty nineteen. I'm sorry help drive. Just 2019 results, but also nineteen couple of quarters of 15% distribution growth which in turn sets us up for an ID our transaction that strengthened both companies in a big way all these things create a really exciting future.

5 7

I chose the details of the transaction in short cnx resources receives $26 million regular common LP units 3 million Class B units that convert automatically to Common units in 2022 and finally found thirty-five million dollars in cash over three annual installments the steel transactions simplifies our capital structure. It reduces see you next midstream's cost of capital and it further lines cnx equity loan with common unit holders and finally removes a key overhang expressed by the investor base. If you move to slide eight, it's a simply highlights why we're so excited to be a majority owner in this company the historical and forecasted ebitda growth rates for cnx Midstream there tremendous and they compare favorably to any industry and the cash flow. See you next receives from the distributions or Material Company and growing over time. We do this sponsored MLP as a strategic Advantage going forward is we look to navigate down turns and position both companies for the up terms case in point. No peer has the flub.

Ability that we have to combine mistreatment Upstream.

Teams to unlock synergies savings and efficiencies like we can reiterate we're very excited for the future of see you next mid-stream before I handed over to the team chat rep to discuss the quarter more detail. I just want to reiterate a few key points that underline the strong strategic position. We find ourselves in as we in our peers look down the barrel of a very challenging 20/20 off. Our class are among the lowest in the Basin our sg&a. Spend is among the lowest in the Basin and we're building additional contingency optionality and liquidity to maintain a strong balance sheet capable of withstanding a worsening macro-environment, but we're not going to take our foot off the pedal in 2020 or Beyond will continue to push on cost in sg&a so that we defined best-in-class in those areas will continue to focus on efficiencies and simplification across the business. It will never stop setting the bar higher While others struggle to tread water through the next year and perhaps Beyond will be ready to take advantage and continually assess for teaching opportunities wage.

Yeah, the potential to advance the businesses they arrive.

And with that now, imma turn it over to Chad and he's going to discuss our operational results. Thanks, Nick, as you can see on slide 9 2019 was a strong year in terms of our financial and operational performs looking at some of our major metrics. We finished 2019 around $539 BC Fe which was at the top end of our guidance range while adjusted Standalone you would act finished of our guys range and finally total e&p. Capital says below the low end of our 2018 guidance range as a result. We finish 2019 near the free cash flow neutral when including the $4,000 in assets sales that we completed during the year and the distributions. We we received as part of our ownership and see you next Midstream. We had a very active year until sixty-six Wells completed 50 Banks turned it on 51, which was all in line with our prior expectations.

We also had several operational successes in the year some of which we've already discussed during prior calls a new example from the quarter was our original 71 pad in Southwest PA during 2018. We drilled and completed six months old as well as on this pad for a total of just over 95,000 lateral feet. One of the Wells on that pad the Rich Hill 71 be well for the Pennsylvania state record for the longest lateral. So shy of twenty thousand feet the pad average just under sixteen thousand feet of lateral per well, which drove Capital efficiency on this pad down around $800 per lateral foot.

slide ten

Highlights some additional capital and operations improvements that we saw throughout the year. We have continued to focus on driving Capital costs lower by attacking it on multiple fronts. We've we've become much more diverse with completion designs customizing each well as completion design based on the reservoir characteristics of each while the production resulting from those changing designs and selecting the design that generates the best rate of return home cycle times while tremendous progress has previously been made improving the productive time. We made additional gains in 2019 by studying the non-productive time preventing downtime from happening and reduce off when it does similarly. We've made improvements on how quickly it takes our Fleet to move from one wall to the next and are incentivizing our service providers to deliver on much more aggressive mobilization targets.

Operating expense continues to improve and many improvements continue to be driven by a real-time Operating Center. What was formerly a split Midstream team and Upstream team has been integrated and cross-trained now, he's in control and field service dispatch on a coordinated basis. We also expanded our control room by adding a round-the-clock water dispatch desk that monitors who manages our water assets.

Finally we finished the number of

Infrastructure projects during 2019, which we expect to pay dividends for years to come. We expand our water system material You by by adding the Ohio river water line and significantly expanded our water storage capacity. We also built and commissioned the Greenfield Midstream system our Waits town area.

Flat 12 covers the blending strategy. We are executing in a ritual field as part of that plan strategy. We expect to turn in line around one Swiffer dry. Utica pad per year during 2020 and 2021. We bought had a few of these Wells come online during 2019 and while the results of varied the economic benefit, they provide the damn Marsalis still supports these Wells on a real return basis the Swiffer Utica continues serve integral economic purpose in our Investment Portfolio, which again is primarily the blending strategy in that purpose will continue to provide opportunities for continual Reservoir productivity optimization wage 20 and Beyond.

Island on five fourteen which highlights are trailing 12-month production cash costs compared to our Appalachian peers, as you can see cnx is top-tier cost structure provides a huge competitive Advantage, especially in the week in the current week natural gas pricing environment. We believe strongly that in a highly competitive commodity Market the low-cost producer wins. We will continue our laser focus on driving costs off with that. I'm going to turn it over to Don. Thanks Chad and good morning everyone just to briefly at go next remarks all the work we've put in over the past few years is beginning to pay dividends and that set us up to get even stronger over the next few years even as the macro conditions around us get worse.

We're prepared for what lies ahead is we continue to differential?

Eight ourselves from our peer group now. Let me start on slide Fifteen by hitting on a couple of the results that Nick and Chad already touched on as you will no gas prices have gotten significantly worse since our Q2 calls 6 months ago was 2029. Next future is falling from $2.55 per mmbtu $202.10 recently moved and despite the worsening macro backdrop. See you next his fundamentals and forward-looking business plans have improved. Once again are expected Capital through 2019-2020 versus the midpoint of guidance at the time of our queue to call has come down by approximately one hundred and forty four million dollars while Reb attacks over that same time frame increased by approximately twenty million dollars quite an accomplishment by our internal teams.

And is Nick mentioned we permanently reduced our annual sg&a run rate by approximately $30 going forward.

If we turn to slide 16, you'll see more detail on our updated twenty twenty guidance along with some preliminary guidance for production and free cash flow and twenty twenty-one.

As you can see for 20 20, we are lowering Capital guidance increasing even Tax Plus distribution guidance and increasing our organic organic free cash flow expectation to approximately $200 in 2021. We expect moderate production growth of around 5% and another two hundred million dollars of organic free cash flow.

And as you can see in the footnote when including modest asset sales, we expect to generate approximately 250 million dollars in free cash flow each year and is important to note that are assumed 20-21 Capital program used to get to our free cash flow guidance will set up both production growth and more significant free cash to the generation and twenty twenty two months. He's got its numbers clearly showcase what we have been saying for some time. Now, we've built a company that is very efficient flexible and able to produce substantial fraction flow at the current strip.

slide 17 shows the production

Payments for the year, which is fairly even with some slight growth as we head into twenty Twenty-One our heads book supports this production and our MLP. See you next Midstream works very well with this lack of activity slide eighteen is another reminder that we built our heads book methodically over the last several years and it is turned into a distinct differentiator. Now off when you scan the rest of the space as you can see for 20 20, we are almost 100% hedged And assuming the 5% production growth guidance 4:20. Thursday. We are approximately 83% hedged next year. If we were to hold twenty Twenty-One production flat into 2022 and 2023. We are significantly more heads than any of our peers there too or had you strengthen her bones sheet. Give us Dependable future cash flows and lock in our forecasted Capital returns.

And as we have been saying for some time now heads books and ft commitments are important when it comes to evaluating balance sheet strength and with the current downturn. We are all living through you are seeing see you next is philosophy at work with our balance sheet and metrics improving while our peers are deteriorating.

Slide nineteen showcases our balance sheet and how we expect it to get even stronger moving forward using our assumed total free cash flow and twenty20. We are forecasting our Standalone not that to be around one point seven eight billion dollars by year-end which produces a leverage ratio of around two point two five times.

And on the right side of the slide, we provide a scenario where we use our cnx Midstream units as an equity offset to our net debt balance and with their ID or transaction, we now offer a point seven million units worth approximately $780 looking at it. This way would result in the leverage ratio of one point three times clearly best-in-class.

That being said we see substantial value in our Midstream interest and have no plans sell the units, but rather want to highlight the layers of optionality. We have built into our business model especially relates to liquidity. And as you can see on this slide, we expect our leverage ratio to be reduced even further in 2021.

Slide twenty expands on our balance sheet strength and provides additional context as to where see you next Stan's going forward relative to peer consensus estimates. And remember our metrics are more reliable because we are substantially hedged through 2021. Our peers with smaller hedge positions are exposed to considerable balance sheet risk, if gas prices are firm pressure slide 21 highlights some additional balance sheet metrics that cnx also screens well on

You know and slide twenty-two will round out the last piece of our balance sheet management addressing our notes doing 2022, even though we still have ample time to address them have taken a proactive approach to them.

This started early last year when we launched a five hundred million dollar notes off for offering four hundred million of which went to extend the maturities of the 2022 notes. And as you can see on this slide Thursday, we have a clear path to easily address the roughly nine hundred million dollars of notes coming to

as we have

Stated we expect to expect to generate approximately $500 in total free cash flow over the next two years which will take care of more than half of it. Another option we have hinted at in the exhaust is our ability to access the project financing Market use utilizing our vast array of assets. We own as such we have been working on this front with large like-minded long-term Focus strategic partners.

This leaves 195 million dollars left to address.

Which is easily handled by incremental free cash flow or by using a small piece of our substantial two billion dollars in liquidity which by the way we can get right back utilizing the free cash flow. We expect to generate in 2022. So in summary given our free cash flow generation or hedge book and our substantial liquidity position any perceived 22030 risk has been successfully mitigated.

So what lies ahead in 2021 and Beyond slide 23 tackles this question very simply we expect modest growth in 2021 along with the product of two hundred fifty million dollars in free cash flow. We expect our leverage ratio to decline and have a base level 20 21 Activity Set that grows production into 2022 with them to grow more if the conditions weren't it? If not, we have the flexibility and optionality to maintain a slow and steady plan that provides significant free cash flow under the current strength. This is not the same situation. Most of our peers find themselves in for the majority of our peer group the expectation under the current strip is for Pierre production to be flattered declining birth cash flow to be minimal or negative with. Leverage ratios and balance sheets deteriorating.

This could open up interesting opportunities for see you next and would likely lead to an improved long-term gas.

price environment as well

the bottom

Would be more of the traditional right m&a asset Acquisitions or packages. It seems like the entire Basin in some way shape or form is for sale and I want to comment on any of that news or developments that are out there on that but I put that forth on a list right now. It is to say it's a target-rich environment when it comes to our debt-equity and that incremental well on on either the Marcellus or Utica side is an understatement of the the free cash flow and the liquidity and the option now that we've got now with with where we're looking at 2021 and with where our our Holdings are with cnx Midstream, I think put in a good position to take advantage of those first three in particular. Okay, that's helpful. And then maybe for Chad or gone just talk about the the volume Cadence and life is you know, it seems like the exit the exit implied is a is a bit of a decline and so how how do we offset without with growth in in 21? Somebody just help us bridge that Gap dead.

The so so that there's a chart that's actually in the slide deck but shows a little bit what the production profile looks like. It's done already mentioned his prepared remarks. It's a little bit of a dip during the middle of the summer and then it picks back up as we head into the exit of the year. I I I don't have the exact year-over-year the exit rate year-over-year, but I I I really really be surprised to see a decline how like, you know, it's a little bit to do with eternal on Cadence. You know, we've got several tools here on the first half of the year as a little bit of a gap in a summer and frankly that that lines up well with what we think could be a particularly stressed sort of macro commodity Market in the middle of the summer. So we've got a little bit of a gap in the tills. We got a little bit of dropping production off the summer and then we we get back on the on the tills as we exit the year and that that production rate comes up as we exit the year. Yeah, and that's typical to our Q3 kind of cadence Falls in line as we get things wage.

closer to the to the winter cycle and and the gas prices here and slide slide Seventeen kind of gives you a visual decadence and in the exit exit on you know, total total production for the business does anything going up into the air versus the beginning of the year, so assuming that, you know modest amount of growth

And 21 does that mean like the tills or would then increase in 2021? Is that the way you'll have it modeled? Yeah. No, we've, you know, if you remember I talked to the 540 production level needing a $400 kind of all in capital level. So, you know as far as the tools necessary to support that, you know, we've also talked to you know, thirty five or so till year growth the business so just goes to show the the impact of the performance over Wells and really how little activity we need to do to grow.

Okay, and that maybe want just one final one for me. You know, we had a a window slight window. I guess open here in the high-yield market. I think he talked about 22 maybe the approach to taking out that maturity. Maybe just talk a little bit about what you're seeing in that market today and you know, maybe how comfortable you are. Just you know, leaning on that revolver any further.

Yeah, I mean, I think that the credit markets have been challenged for many companies fortunately for us. We've built the business in the balance sheet to take a take a disciplined page watch we're constantly engaging and interacting with with all the pockets of capital around the ecosystem on the credit side the equity side and like I mentioned some of the the banking project financing arms that were looking at here off or our standpoint is to kind of try to do it slow and steady not not rush to rush into anything and keep our eyes open and if there's opportunities that make sense to go ahead and and kick some back. Okay. If not, we have a pretty easy path. It just handle it the old-fashioned way and pay it down.

Okay. Telephone. Thank you guys.

Next question is from Samir panjwani with Tudor Pickering Holt. Please go ahead.

Hey guys, good morning, even talking down activity and growth in 2020, you know on these most recent conference calls, and you know, that's been a response that week pricing but seems life for a 5% growth in 2021 and then additional growth and twenty twenty-two. So I guess from a higher level standpoint what gas price signal do you need to allocate Capital Beyond either our maintenance level are volumes covered by Hedges and would it be fair to think that spending and growth were Twenty-One could be biased lower by slower if pricing continues to remain weeks wage, you know, it's gas pricing and whether it's a short-term gas price Improvement a long-term Ford strip gas price Improvement that we can hedge coupled with kind of the hand-in-glove relationship with our Midstream companies. We do have you know what we call and we don't really think so much. I mean we did we do give information around kind of our our flat case 544 maintenance Capital case, but as we've mentioned historically we we kind of look at Birth

are business a little differently on on Foundation cases and

What's the well commitments at the Midstream level? What's the right water balance to kind of hold? And how do you think about flexing and delaying across the the year to shape production profile? So it's a it's a more complicated. May I assist and you know, simply a gas prices going up or down twenty cents that leads us to the ultimate decision the the big thing to recognize and I think we've we've shown is we have the ability to change as conditions change. So as gas prices have weekend you've seen us slide back and you know as we've we've we've handed out and showed and and hence, you know with proven in the past if gas prices warranty, we have the ability to quickly brought back up. So having that flexibility is important to us and keeping track of all the all the moving pieces will make decisions as they change the what's on sets, you know,

We've said in the past will continue to do so moving forward. We we follow the math. We look at the rate of returns associated with the various Capital allocation options. We have whether it's debt, whether to other opportunities off the drill bit and seeing how those rates are returned change as the changing commodity markets and changing, you know Capital markets.

Okay, that that's helpful. And then how should we think about the IDR simplification impacting the time being our ability to conduct dropdowns to see an XM and do you see cnx as a long-term holder of the units or is there a potential for a separation or cell down overtime? So on the first front, I mean, I think we have shown that we're able to structure and execute lots of different types of trucks action would see you next Midstream. If you go back to the the Milestone chart that Nick put together. So I think going forward it hasn't changed. I mean we have the ability both upstream and Midstream two thousand different types of either drops organic build-outs and you know will work collaboratively here to to figure out the right structure timing when it makes sense, but it's important to note that both companies Midstream is an upstream. They they have base plans that work very well without without any of these so they're really only value ads for for upstream or Midstream, you know, if and and when they would occur so yep.

Comfortable there and to the second Port there's Nick mentioned. We we really like the business. We like the cash flow Generation profile the business. We'd like the synergies that does do come in.

With having the hand-in-glove relationship with their Midstream counterparty. So you know right now that's that's a that's a fit. We we like and we enjoy and we're looking forward to now that another overhang is removed Midstream company to to see its performance. Hopefully gets hit more in line with the cash flow generation potential of it.

Okay. Thank you.

The next question is from Wells Fitzpatrick with SunTrust, please go ahead. Hey, good morning.

The if we look on 5/22 kind of follow up on Holly's question. It seems like the focus for the free cash flow is on the 22s, but you know that high-yield window cracking open. Is there is there any temptation to go after the deeper discounted $27 or even to to to be more aggressive on the buyback side wage, you know, basically we're always assessing these like like we said over the past. I don't know how many calls here. These are these are analysis that we run on a continual basis and we try to page follow the mass and you know, the way we talked to is, you know goal. Number one is keep a healthy strong balance sheet, then the incremental dollars after that can chase incremental activities and in real part of the house is part of the liquidity balance coupled with, you know, the maturity extensions versus what you have on the revolver. So these are these are pieces we take into account across all the board here and you know as as we

Go forward those options will still all be on it.

Table for us and we'll take a risk adjusted approach and kind of choose choose where the dollars go wisely.

Okay. Okay, perfect. And and obviously you guys have over a decade of core inventory left. How many locations do you all have left in in the Richland? Mom plus and can you remind us if if you have any commitments that you need to meet on the Dry Ridge facility? Yes. It is mainstream commitments. They're actually in the Midstream deck that wage posted and while that call later I don't recall the is the the welcome image and the Rich Hill area that would flow predominately the Dry Ridge station off all laid out pretty well and a lot of detail in the Midstream Jack is Doug mentioned. So the way that that would work is Dry Ridge is part of the McQuades system area into the well commitments associate with Dry Ridge are all part of that equation of Samaria off. If you look at slide thirty-eight in the appendix. It's just a reproduction of the coordinators position that we've posted previously with the locations remaining and dead.

Doing the math here again, which will try to highlight that you know or Mathis basic. It doesn't assume that we lease anymore Acres. It's just Acres. We own / how many acres you need for a well get you a 427 off locations in that Southwest VA Central area which encompasses Rich Hill and the surrounding Acres around it.

Okay fair enough. Thank you.

Next question is from Leo Mariani with KeyBank, please go ahead.

Yeah, hey guys didn't want to pull up a little bit here on on 2021 certainly get the fact that you guys are exiting 8020. It sounds like at the the high rate for the year, but just wanted to get a sense to start kind of posting the growth and and in Twenty-One. Do you guys think you'd have to maybe a Thursday or a half a rig for the year disorder to get up there or would you be able to maybe you know tweak the timing of some of the completions or reduce any of your your duck inventory to can put that higher growth in Twenty-One? Yeah. Thanks to the question. So really the what we look at $20.21 off guys with Gavin and twenty one. That's that's really assuming she consistent activity pace and and and completions activity pays throughout those two years. We would it be cheating in the docs. We're maintaining a sort of healthy Duck level.

the the the total

Duck maybe comes down but that's really just related to the fact that our activity sets narrowed slightly. So we don't need as much working inventory sitting there but we're not we're not going to be short docs. We still have a really healthy sort of working and Tori that will be available for you know, commodity Market start improving we will have those while sitting there ready we can accelerate activity on in the point is is we look into twenty one track. Oh, there's a lot of jobs out of there. So we're going to closely monitor the commodity markets what we see happening there and we'll be position to to modify our plans as the rates of return justify and as we showed on slide 38-40 well as a year grows the business grows the company and that's it's you can accomplish that with the with the current Fleet that we have running through 2020 as we look into 2021.

Okay, that's that's good color here. I guess just to respect to this project financing piece you talked about in 2020 was hoping to get maybe a little more color in that is that going to be related to the the EMP side of the business? Where is it sort of a JV or a drill KO or something like that, you know on part of your asset base is that high level sort of what you guys are thinking? Yeah, so we circled this up just for on the in the cnx call for the scenic stand-alone and it's just really highlights. I mean we've we've obviously spent a lot of money over the last decade. It's just creating an asset and it would be a 150 year old company would have a lot of assets out there to to use this kind of product for so, you know water infrastructure some of the own kind of Midstream infrastructure compressors GPU. So there's just a lot of assets that are readily available to to use in a kind of project financing matter and you know, like I mentioned in the scriptures

For a minute these kind of situation.

She's are are more I guess to give us a better ability to to sync up with some some like-minded long-term Focus folks to to Really establish kind of platforms and just bought a different diverse applications on how we Access Capital across our businesses. Yeah, that's helpful. I guess you also talked a little about, you know, some of the variability of subjects and some of the the Southwest PA you just wanted to see if there's just kind of any updated look now that 2019 is over as you kind of looked at the the well results. Have you kind of been able to maybe Target some areas that are a little bit, you know less variable just in any kind of change in that variability recently versus maybe more you were a year ago.

So we just put a number of swept of Utica Wells online during the year and it's still early will need to see the really critical time is Windows well said lot of pressure and they're not there yet. So we'll have to see how those Wells produce once they hit line pressures. But regardless what we've seen so far from those Wells is it continue to deliver the returns that are in excess our cost of capital and when you look at them from how what they do for blend of our data pharsalus and how they help us on water reuse now, we we haven't updated those type curves really since March of 2018. Those are obviously Thursday and when the updated but generally speaking and swept a the wells performing at or below its type curve Switz is performing in line with its type curve and CPA up in our Central Jersey area those walls performing at or above their type curve.

Okay.

Thank you guys.

The next question is from Jane with seafood, please go ahead.

Good morning. My first question is on new Transportation contract that you mentioned in the press release and then see you. Next time fee is maybe you can expand a little bit off those and I also I'm kind of curious what's driving the improved basis differentials for cnx in 2020 the so the the the the the ft gyi and we you know, we went up maybe ten cents here every year on what on that I'm General on the processing Gathering and transportation line item that was largely driven by two two New Jersey contracts that came online at the tail-end of 18 and early nineteen, that would be our next contract rmxp contract. And we also had sort of a another line item of a really low wage expired but really even though it was cheap after it really it still wasn't even in the money. It was sort of local. So the net effect of those three changes really drove that line up dead.

And I think the the fees were changed but most of the change they're driven by just that the annual escalation and and maybe a little bit on the margin by wet. Wet wet dry blend mix.

Okay, got it. And then basis differentials for cnx better year-over-year is is there something that you see in Basin that's driving that those are those are based off the market off the Ford strip. Right? So we're not we're not really providing a view or not on on what that for basis looks like. We're really just using our Market mix and looking at what the Ford strips are for basis and bring up with what that basis rain should be. Okay got it. And then the second question you guys are hundred percent hatched for twenty $20 and I'm curious what exactly drove your decision to reduce production lower.

So some of the incremental production that we've we've kind of laid down is really just thinking about the ordering and whether he want any spot activity in 20 versus going ahead and rolling in Twenty-One as we've said we we should have flexibility in the plan and we'll keep pay attention is the gas price unfolds throughout 20 and 21 and what the Ford strip looks like and you know, if it weren't sit we could we could add some more if it warrants it. So we have the ability to you know, stay disciplined stays steady and make small adjustments as as conditions change.

Okay, got it. And the last

If I'm a 2021 and 2022 Consolidated capex, so my understanding is it's going to be relatively flat here here year over here or is it is it the right way of thinking about it?

I'm not I'm not sure about the question sir. You're asking for the capital which which capital in 2021. Yeah. So Consolidated Consolidated that includes Midstream part as well. Is it going to be relatively flat year-over-year the way you think about it right now? But everyone yeah. Yeah on the midst on the Midstream the same stream Capital week. We give 21 numbers that is going down. So the range was 92 8290 the midpoint and we gave a $55 million-dollar directional guidance for 21 in between Upstream. We haven't given twenty Twenty-One guidance for Capital.

Okay. Got it. Thank you so much.

The next question is from Joe almond with bared, please go ahead thank you for the comments a couple of questions one in terms of the transaction. Could you talk about the analysis that went into final terms of that transaction and was there any consideration to converting cnxm to a secret? Yeah, so we haven't ran we've talked about looking at different things. But Thursday is action. We we kept very simple. It was to remove the ID or overhang that's been expressed by the group here. The focus really was getting see you next Midstream to that capital structure damage MLP investors wanted it to get into and and and figuring out a fair way that works for both parties. So when we looked at it, we looked at it really two different ways one cash flows and how much the near-term and long-term cash flows we expected from the ideal hours into the percent of the cash flows. The audio ours were expected to receive going forward versus the cash flows. We are now expecting to receive from the business wage.

And that kind of was there guideposts on trying to sort out a a a fair trade to just get the distributed into a structure that work for both parties.

Okay, that's helpful and then on the operations front.

20/20 do you expect improved capital capital efficiency versus 2019 or the expect Capital efficiency to be relatively the same do expect improved Capital efficiency wage over 19 for for a couple of reasons, you know, first and form at first, you know, we we continue to improve on our lateral let's we're not we're not sort of you know, I'm not a huge leap in those because longer laterals certainly introduced elevated levels of risk and complexity. So for us the lateral length question becomes one of optimization, right and so as wage better to stay in the Arts improved at the same technology has improved we've we've found that the optimal lateral length of delivers. The optimal rate of return risk-adjusted return has wage increase incrementally year-over-year that helps drive down our or that helps improve our Capital efficiency on our Rd. NC. Second thing is is dead.

Expect improvements and some of our service costs you every year I think our balance sheet. Our heads book has has certainly highlighted too many of our service provider service providers that CNS is here to stay home. We are we're reliable kind of parties and and and a company that folks want to do business with so it's really helped our supply chain team negotiations with some of our service providers already highlighted them in the dark and the prepared remarks some of the things we're doing on the pollution design expect to continue to to improve on that moving forward and similarly continue to focus on non-productive time, and I'm really trying to get from one while the next as quick as possible and then many things down time getting back at it if you do have down time and I think all of those factors will continue to contribute to improved Capital efficiency going forward.

That's very helpful.

Last Quick One for Don done in terms of hedging and say twenty twenty-two and Beyond are you just holding off until the price is improved? Cuz I think the average nine makes gas for 2022 somewhere in the to Thursdays. Yeah, and it's you know again, we're very happy on the proactive approach. We talked to getting a nice big hedge book built underneath of us. Like we try to talk to and guessing gas prices is wage is a difficult game with classic pieces. So we try to strike a balance of chipping away at some programmatically as you've seen, you know from the last quarter we did continue to kind of chip and and build a hedge book slow instead of time with a a weighted average craft cash dollar cost averaging kind of Mythology. But as you've seen over the last few years, we do kind of manage that actively with some more or less as as we deem appropriate. So in summary, we we do want to continue to have cash flow visibility cash flow production. We are I think one of the few companies that can generate returns. Yep.

with our with our asset quality

Dinner in our cost structure on on the board strip. So I'm optimistic in 2022 and beyond that gas prices should be better simply because most of the Dragon a space cannot exist as a go forward concern going forward business under the current strips. So got optimism, but like I said, we try to take the disciplines that he threw an approach. It's always easier to to Thursday activity when gas prices go up. But yeah, you can't unsuspend Capital that you spent at gas prices go down. So we try to take a steady disciplined approach over time and just be ready as gas prices go up to attack or activities, but we still very interested in keeping downside protection, right? It's all very helpfull. Thank you guys.

The next question is from Jeffrey Campbell with twelve he brothers, please go ahead good morning. You sort of touched on this before but I just wanted to see if this would break out any different color of the press release said that use of cash free cash would be to reduce debt or go into DNC investment. I was just wondering if you could add some color on the process of determining to invest in life over debt reduction primarily. It will come down to rate of return math for the two and that that has some obvious Patrick's and drivers on the incremental DNC side menu, which we just spoke about through the call and the Q&A and and everybody knows what those are the debt side also has some alcohol quantifiable metrics, but also some qualitative decision-making about strength balance sheet leverage ratio and free cash flow and those certainly have been bigger drivers to sort of justify rate of returns with respect.

To that Avenue of capital allocation and barring, you know a significant change with respect to Florida prices.

Or debt markets et cetera. I I suspected that's going to continue to be a very attractive Avenue for us in the near-term. Okay, great, and I appreciate that and earlier in the call you voiced confidence in your ability to execute assets sales and 2021 . Can you discuss why you expect these assets to sell even as industry activity appears to be flatlining or maybe even declining during that period. Yeah, so, I'll take it and you know want easy data point to point too is, you know, we sold almost fifty million dollars in assets in 2019, and I'm not sure if anybody even knew we did it. So, I mean if if you look at the history of see you next Thursday at five six seven years, we've clearly demonstrated an ability to to sell assets appropriately it it's strong valuations and prices. So it's one of these situations where um, we don't have to get anything done. But if you look historically it's almost impossible for us to not sell anything in a calendar. You're just due to all the surface acres that we own and the right aways. It folks need to Cross Arthur's.

Properties and things we have in other people's areas. So it's almost you know a steady-state going concern running model just due to the hundred fifty year asset Legacy assets. The company is built up over time. So nothing Monumental there. I mean, we're always looking for every possible, you know outcome and when we look at these things, but it's a pretty pretty simple steady-state thoughts kind of run rate. Okay, great. I appreciate that color. This concludes. Our question-and-answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Great. Thank you, and I'd like to

Thank everyone for joining us here this morning, and we look forward to speaking with you again next quarter. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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