Q4 2019 Earnings Call
Greetings and welcome to the Antero resources, 2024th quarter earnings Conference call.
Time, all participants are any of listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator system. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Michael Kennedy You may begin.
Thank you for joining us for Anteros fourth quarter 2019, Investor Conference call.
Well spend a few minutes going through the financial and operational highlights and then we'll open it up Q1 night.
I'd also like to direct you to the home page of our website at Www Dot Antero resources Dot com.
Where we have provided a separate earnings call presentation, there will be reviewed during today's call.
Before we start or comments I'd first like to remind you that during this call.
Taro management will make forward looking statements such statements are based on our current judgments regarding factors that will impact the future performance of Antero and.
And are subject to a number of risks and uncertainties many of which are beyond anteros control.
Actual outcomes and results could materially different from what is expressed or implied or forecast.
Such statements.
Today's call May also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures.
Joining me on the call today are already chairman and CEO, and Glenn Warren President and CFO.
I'll now turn the call over to Paul.
Thank you Mike Thank you to everyone for listening to the call today.
In my comments I'll begin with an update on the continued momentum around our internal cost savings initiatives.
Including our lower well cost targets for 2020.
And then Glenn will highlight our balance sheet and liquidity position and provide a brief update on our ongoing asset monetization efforts.
Let's start by discussing the cost reduction the met him across all of anteros cost structure.
Detailed on slide number three.
<unk> cost reduction momentum.
Nearly half of these reductions won't come from lower well cost as we target almost a 2 billion dollar per well cost reduction in 2020 relative to our initial 2019 capital budget.
[music].
This equates to roughly $240 million in total well cost savings assuming our budgeted 125 completed wells in 2020 with an average lateral lengths of 11400 feet.
Lower midstream fees that marketing expense Ll, Lee and Gionee make up the remaining savings of approximately 280 million.
In total we expect our cost structure to be reduced by $520 million in 2020 as compared to 29 team.
Now.
Let's move on to slide number four titled.
Marcellus well cost reductions, which provides an update to our Marcellus well cost targets.
[noise] driven by expanded flowback water blending operations, that's continued step change improvements in our drilling and completion efficiencies.
We're now targeting a reduction of 15% to 18%.
Our $1.7 million to $2.8 million per well.
The left hand side or the page illustrates a ours January 2019, budgeted well cost at $970 per lateral foot.
As we exited the fourth quarter of 29 team a ours well costs were approximately $840 per foot.
Which equates to $1.5 million per well of savings achieved as compared to our initial our initial 2019 budget.
This also represents $55 per foot improvement from our previously targeted fourth quarter 2019, a EFI.
These accelerated savings were primarily driven by dryer completions enhanced drill out technology and lower costs of flowback water as antero midstream implemented water blending and localized storage operations.
The coordinated effort between a our and am allowed us to quickly and successfully execute our blending program.
And deliver savings ahead of schedule.
Looking ahead in 2020, we are targeting a well cost range $795 to $825 per lateral foot, which will be driven by implementing dryer completions and 100% of our wells.
Expanding produced water service through Am's pipeline pipeline system.
And further drilling and completion efficiencies.
[noise] slide number five titled significant reduction in operating cost structure.
The straight how material these cost savings are on a unit cost basis.
We expect 2020, all in cash expense to be $2.30 per Mcf equivalent.
Which is.
22 cents lower than the full year 2019 guidance.
We are forecasting an 11 cents per mcf fee reduction in L. we.
GSK.
And GP into year or gathering processing and transportation, but the biggest driver is an 11 cents decrease in net marketing expense.
This substantial year over year reduction is due to a combination of higher production volumes and renegotiated terms with third party service providers that allow us to optimize more of our premium priced from transportation.
As we grow into our firm transportation portfolio through 2021.
We anticipate further reductions, bringing our all in cash expense to due to $2.10 per mcf equivalent in 2022.
In 2022, we expect net marketing marketing expense to be $50 million per year, or just three cents per mcf fee as compared to over $250 million or 22 cents per mcf the last year.
Reduced cost structure will provide us with flexibility and allow antero to generate subs sustainable free cash flow in 2022 and beyond at current strip prices.
Now, let's turn to the operational side.
Turning to slide six entitled.
Our salus drilling and completion efficiencies.
As we continue to make improvements on cycle time.
For 2019, we averaged 50 934 lateral feet drilled per day, a 30% increase compared to 2018.
During the fourth quarter, we set new records for average lateral lateral feet drilled per day, averaging 7000 feet per day and set another new one well world record drilling.
The 10453 lateral feet and one day.
The quarterly average represents a 17% increase in lateral performance from the prior quarter at a 38% increase compared to 220 18 average in lateral performance.
Further the reduction in freshwater used in our completions helped increase our completion stages per day to a new quarterly record of 6.3 stages per day, an increase of 7% from the prior quarter.
In summary, our cost reduction efforts have already delivered significant results.
Our fourth quarter DMC spend was $300 million and our full year 2019, DMC spend was one point said $1.27 billion, a 14% decreased from 2018.
Our 2020, DMC Capex budget of $1.15 billion is 10% lower than 2019, while still delivering modest production growth of 9% highlighting the improving capital efficiency of our asset.
These savings along with our industry, leading hedge position.
Support our modest growth strategy through 2021, as we fill our premium unused firm transportation commitments.
It is important to note that this program is projected to be cash flow neutral in 2020 based on today's commodity strip and including the 125 million dollar water earn out payment that we received in January 2020.
With that I will turn it over to Glenn for his comments.
Thanks, Paul turning to slide number seven titled substantial liquidity enhancements I'd like to start with anteros liquidity position and discuss how we're thinking about upcoming debt maturities in November of 2021 in December of 2022 in early December we announced in three prong approach to address these upcoming debt.
Charities. The first two shown at the top of the slide internal cost reductions and midstream fee reductions have already been specifically detailed as Paul just highlighted our cost reduction initiatives are projected to reduce our all in cost structure by approximately $520 million in 2020.
As compared to 2019.
These savings combined with the water earn out payment and our robos, our robust hedge position lead to a free cash flow neutral profile in 2020, even at today's depressed commodity price strips.
The third part of our strategy is targeted asset sales. As previously stated we are targeting 750 million to $1 billion in asset sales in the year 2020 with proceeds being used to reduce absolute debt.
The chart on that page shows our liquidity outlook, starting with our liquidity position at year end 2019 of $1.5 billion as I mentioned before we expect to be cash flow neutral in 2020. So as you can see the successful execution of our asset sale program will significantly enhance our liquidity position providing more than enough.
Liquidity to address both our 2021 and 2022 remaining maturities illustrated on the right side of the chart, we were able to repurchase a notional amount of $225 million of our 2021, and 2020 twos and an overall discount of 17% effectively reducing absolute debt by.
$37 million.
Now, let's review the asset monetization options that we are evaluating turning to slide number eight title asset monetization monetization opportunity set you can see we have a multitude of options available to us. We have 541000 net acres in Appalachia with 19 Tcf fee of proved reserves and 12.
He have proved developed reserves, we have an 84% net revenue interest in our leasehold well above most of our peers, our hedge book, while always core to our company strategy could be restructured to bring forward a portion of the approximately $1.1 billion and value that holes today.
Lastly, we owned 28% of Antero midstream, where the current market cap roughly $685 million.
That's the market value.
And that we held our goal is to complete our asset sale program in 2020 and reduced absolute debt, having multiple options gives us great confidence that we will be able to achieve our asset sale proceeds target in the coming quarters.
Now I'd like to discuss our NGL realizations for the quarter on slide number nine as we saw tremendous improvement with regard to our C plus NGL pricing during the fourth quarter Antero realized a pre hedge C plus NGL price of $29.63 per barrel.
$1.26 cents per barrel premium to Mont Belvieu. This premium was primarily driven by the recently widened international pricing arbitrage versus Mont Belvieu that we were able to capture through our committed propane and butane volumes on Mariner East two.
Looking forward, we are well positioned to continue realizing premium prices to Mont belvieu due to our advantage position as the largest NGL export or in the U.S. and from our access to international markets through Marcus Hook in Pennsylvania.
As depicted on slide number nine Antero resources, most advantaged NGL producers Antero is able to capture the international arbitrage versus Mont Belvieu through direct sales into international markets fix terminal rates and local fractionation.
This is in direct contrast to producers with exposure to the Gulf Coast, you receive Mont Belvieu less pricing due to constrained export and storage capacity in the region and no local fractionalization.
That would enable purity product sales.
Looking ahead to the year 2020, we expect our.
C plus NGL price realizations to continue to be at a premium to Mont belvieu, providing a truly differentiated NGL story for antero.
Now, let's move to slide number 10, titled well protected from near term gas pricing weakness.
Antero resources has a long track record of hedging and selling production forward as we have generated $4.7 billion net cash hedge gains since the year 2008.
For 2020, Hey, Rs hedged, 94% of its expected natural gas production at $2.87 for MMP to you or approximately 38% above current strip pricing.
Our aim is also well hedged in 2021 with 93% of expected natural gas production hedged at $2. An 80 cents per ml Beach, you are approximately 20% above current strip pricing for that year.
As you can see on slide number 11 title significant oil and oil equivalent hedge position.
Antero resources is 100% hedged on 26000 barrels a day of 2020 crude oil and pentane production at approximately $56, a barrel or 10% above current strip prices.
In conclusion, I will round out my comments by directing you to slide number 12, entitled Antero long term strategy.
We have detailed our cost savings initiatives that are expected to extract approximately $520 million from our cost structure in 2020 through lower well costs and reduce cash expenses.
Our new well cost target of $795 per foot at the low end. This a substantial decrease from the $970 per foot and our initial 2019 budget so a year ago.
These savings are already delivering critical benefits as shown by our capital budget that is 10% below 2019, while still generating moderate production growth.
Our modest growth strategy allows us to realize the $75 million and previously announced gathering processing and transportation expense savings in your 2020, and ultimately results in $350 million in total savings between 2020 in 2023.
Additionally, by growing into our Unutilized firm transportation commitments, we reduce our cost structure by another $200 million by the year 20 to 22.
Combined with our liquids focus in a world class hedge, but we are forecasting a free cash flow neutral profile in 2020, despite the deterioration in the commodity strip.
Our asset sale program as well underway with proceeds to be used to bolster our liquidity position and reduce absolute debt. Ultimately further through the asset sale program. We will have substantial liquidity available to address our late 2021 in late 2022 debt maturities and to net navigate the lower commodity price environment that we're in today.
[music].
With that I'll now turn the call over to the operator for questions.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask your question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question Q.
You mean press star too if you would actually remove your question from the Q for participants using speaker equipment and may be necessary to pick up hence it before person they start.
One moment, please while we pull for questions.
And our first question is from David Deckelbaum.
Please proceed with your question.
Good morning, Poland, everyone. Thanks for taking my questions.
I had two primary ones one you guys had.
Some pretty strong drilling records this quarter.
Realizing your target I think for the years.
Somewhere in that 6500 lateral feet per day.
Yes can talk about what drove that huge increase was it just drilling some of the longer lateral lengths and realizing efficiencies there.
And where do you see that progressing I guess the rest of the year.
Yes, as we mentioned in that.
In this part quarter, we averaged 7000 feet sideways per day, which.
Is it continued increase and it's really competitive techniques I would say that.
We used to get faster and faster.
In our budget, we've been conservative as to amount at footage per day, but theres a very good chance that we'll be able to exceed even what we achieved in the fourth quarter that is more than 7000 feet per day. So.
Really hats off to a.
Our drilling department for making such inroads I think we've we've compare to cross.
All of the shale plays in where right there at the top in terms of.
Lateral feet per day its.
It's it's multiples of what some of the other basins is going to achieve so we're very very proud of it but.
To answer your question I think we'll be able to keep it up and even get faster.
I guess im asking what's the difference and perhaps that average and.
Record of.
10453 feet per day.
I guess, what what was able to be achieved there.
Well the stars do we have to align in terms of being at the rat right spot in the lateral if you have a nice long lateral of 14000 feet and then you're off to the race as you can go 10443 feet in the lateral within 24 hours, but the stars donors.
Hi, and then you all we have.
A.
9000 foot lateral to make that point door, if your two thirds or the way through and you only have a 7000 feet remaining.
Then you can get those 10000 feet a day records so.
It all has to fall into place we have to but.
Not many days as you can imagine we make the turn at around 6300 feet. So there's not that many days spent in the lateral so you just need to have a nice long lateral with a good run at it.
Got it and then just to the last one for me just you've made some headway I guess on.
Some of the transport cost relief out of the from portfolio.
And are you optimistic that theres more there's more room to go there I guess, what sort of structure are these negotiations taking list with some of these from contracts that you have or these are.
Are these us the signs now at lower tariffs or buddies being off loaded the other parties and you're trading out of them just any color you could provide there.
Yeah, I would say itself.
It's not lower tear ups there the tariffs are FERC regulated so we have offloaded, some and we've announced that I think in the fourth quarter and.
Earlier, we do enter call that asset management agreements, there FERC regulated, but a amaze, where a third party marketing party might take the.
Mike the trends might take the transportation path to off our hands and pay us a fee upfront to do that in a negative market around it and it's a way for us to recoup.
A good amount of our demand charges, so thats out there, but as we as we grow.
We'll be filling at all with our own equity gas in the meantime, it's that either laying it off or buying distressed third party gas at that many receipt points that we have and being able to move it and collect the spread and.
Offset the demand charges or at least some of them and be able to fill the and utilize that way and continue to whittle down those costs.
Thanks for the answers guys.
Our next question from wells.
Patrick.
But your question.
Hi, good morning.
Hi, good morning.
Obviously.
Really impressive drilling records you guys are doing up there in the Marcellus and needless to say, it's a good problem to have.
This is speed. Thank you guys are putting these things away at now I mean does that mean that maybe we should be a little bit more biased to front half weighted capex or possibly even even flex down the rig count at some point.
Well I do think flexing down the rig count at at some point for US is possible. We're just we've made the point before of that years ago. We had a high of I think 22 rigs drilling across Marcellus and Utica and what we can achieve now with four rigs.
Really three big rigs and a smaller top center rig that.
Yes, it's down to the curve, it's just amazing what we can achieve with justice. So good antero be able to accomplish as much.
So with fewer rigs seven day, yes, thats possible.
Certainly we're a leader in that the drilling side of things as well it translate across the industry will everybody be able to.
Achieved this note probably not depending on the play and so.
Circumstances, if everybody's inventory so.
It's possible to drill drop our rig count at some point.
And maintain our growth but.
Don't know if it translates to the rest of industry.
Okay, Okay makes sense and then.
Going to the presentation it looks like that the acreage dropped by 43000.
541, It Hey is am I right.
Comparing that to the last presentation and B is that mainly coming from maybe you'd get stuff you wouldn't be getting too for for decades.
Yeah, it's really a explorations kind of around the French that we wouldn't be drilling anytime soon so we've let some things go here and there.
Okay makes total sense. Thank you guys, yes. Thank you.
Our next question is from Jeoffrey Lambujon from Tudor Pickering.
Good morning.
Good morning, Thanks for taking my questions.
First let's just on longer term financing the free cash flow fall certainly improves year on year as you guys point out as you continue to bring down costs, but are still appear to be gap between cumulative free cash generation and some pause coming attorneys and we look out assuming strip pricing as illustrated in the deck and I know that asset sales or targeting solution for the two.
20 ones, which would augment the credit facility capacity, but how do you generally think about not only financing those in the 2020 twos, but also addressing just a longer term objective of bringing down aggregate debt.
Yes, the asset sales, obviously bring down aggregate get dad. So we're targeting $2 billion of asset sales and we've made go beyond that over time, so we'd like to take at least $1 billion out of our.
Total absolute debt getting us down into the mid 2 billion range on absolute debt. So that's that's really our objective there as far as it maturities go obviously the asset sales also address that.
We don't have a need to go to the bond market, if we're able to.
Execute on the asset sales this year or so.
We think it's pretty concrete plan and you can't.
Short change the cost restructuring because.
These are obviously subdued prices right now there is kind of a perfect storm here over the last few months around natural gas and then.
And then the oil and NGL. So I don't think you can take those prices as the longer term view on price. So we have tremendous leverage to prices for instance, if we had.
Well this reset cost structure, if we had the just the average prices we realized in the year 2018, we'd be generating a billion dollars or free cash flow this year.
If we look out to 2022, when our hedges have roll off if we have two dollar and 75 cents per and maybe cheap natural gas and.
And we have say 20 a dollar.
Per barrel C, plus and I'm, assuming kind of a $55 oil price and those kind of normalized pricing in bars, we're throwing off well over $500 million of free cash flow. So prices he'll heck of a lot, but we're not assuming that we're assuming that we're going to.
Monetize some of the assets and get the.
Overall debt down.
Understood appreciate the detail on that my second one is just around the flexibility around.
Maintenance timing.
Is there scenario in which you consider moving to that type capital program sooner than what's been laid on some of the previous stacks or assuming the timeline sticks, what's the thought process around considering moving to even declines in the out years, just in interest of solving for free cash flow assuming.
Sure pricing holds.
Yes repricing.
We're just a static which never does of course, but if thats your view on down on prices than in 2022, once our hedges roll off we filled our premium firm transportation. So we're still on a good free cash flow position there in 2000 2022 and beyond.
So no no plan to.
Differ from that trajectory that we've laid out.
You always have to look at that every quarter every year every year in terms of what's my view on prices how much do I have hedged but were pretty good shape right now I think to the soft spot today is is liquids prices, but we are over 30% hedged this year and we're hedged on the highest value products, which is our pentanes and.
Our oil so so we're in good shape this year from a hedge standpoint, and that really gives us the staying power to stick with our budget. So I don't see us different from that over the next couple of years, but you always have to look at what's the current outlook.
Alright, thank you.
And our next question is from Gregg Brody.
From Bank of America. Please proceed with your question.
Hi, Greg.
Hey, guys. Good morning, Thanks to update.
Maybe you can provide some.
You took your NGL per barrel guidance down much reflecting the curve with curious if you can provide some perspective on the NGL market and maybe your thoughts on the freight markets to try to help us think through.
What we pay attention to today for for price action.
Yes, well.
I think.
What we can say is over the last number of months lets say before Corona virus.
It was quite a healthy NGL market that.
International Arps, both the northwest Europe in the far East were extremely strong how do we explain that well there was.
Congestion I guess, we could say in the Bellevue and the export Dax, along the Gulf and so it's hard to clear liquids and the golf.
We have a competitive advantage in sailing time to northwest Europe. So we're able to pick up a lot of the market there, but even beyond that far east was strong they were just not getting enough liquids out of the golf due to the.
Constraints and congestion there so very healthy fourth quarter market as.
Mariner East two has come on and is ramping up its capacity, it's helping to.
During the bathtub so to speak of the northeast that's always been a healthy liquids market until so much liquids came on from the Marcellus but.
Mariner East is making a good dented it therefore the.
We keep about half our volumes.
To sell domestically and we sell it to the tailgate as Hopedale fractionator and from there we can get prices that are getting closer and closer to Bellevue a year ago, we would've been 25 cents off Bellevue now were five to 10 cents off and as.
Mariner drains the bat further.
We're seeing things that are climbing towards the Bellevue price. So so for us with the export market. It's it's been healthy lot of buyers out there no course Corona virus has put a blanket on everything so we definitely slowed down the last few weeks.
In terms of price expectation still moving our volumes, but the international markets are.
More subdued, but absent that we were quite optimistic as to the opportunities there to keep moving barrels out of market so too.
Our east in northwest Europe, there's good demand and good world growth.
So it sounds like you could also keep more volumes and Appalachian to just because pricing is improving there.
Yes, yes, that's right.
Got it and maybe just a just a quick question for you.
Obviously, the borrowing base redeterminations coming up and in the spring.
Just give us your thoughts on expectations. There and then also but the recent downgrades going away. The agencies you spoke last quarter about potentially having more Lcs postings I think you sounds like 100 to 300 million curious if you if you still feel for what that number.
Ill, maybe assure the surety bond market may offset some of that.
Yes on the borrowing base will have to see where the bank price decks come out they'll be out in the next.
Couple of weeks I think we could start to look at that again.
Keep in mind that were so well hedged on the first couple of years, that's really where the likely price action downgrade is from the the banks on their SREP. So.
Any any reduction there versus what we looked at in the fall.
You know is likely muted by the by the hedge books. So we're not too concerned about that and we feel confident that we're going to have a billion dollar plus cushion above our lender commitments of 2.6 billion, maybe it's a billion half cushion somewhere in that range, but we'll see how that shakes out so.
The good news, we have the borrowing base, we well in excess of the lender commitments. There so that keeps us in a great position from a.
Liquidity standpoint, our liquidity numbers those are all based on just the current lender commitments not the not total borrowing base of course and then.
Yes on the else fees I think Greg you should probably noted that we reduce them by $80 million in Q4.
Down to $623 million those downgrades that you mentioned from the rating agencies did increase that amount we have that amount in our 10-K at currently it's at $730 million. So.
Thats the extent of it so we basically offset the rating agency downgrades with.
Increased surety bonds and we continue to work on that and are working on other lcs to replace some of surety bonds. So hopefully we'll have some update for you in that at the end of the first quarter.
So the 730 takes into account.
All the.
Yes, I think you said there were up there so you've got done you could possibly reduce it or are you, saying right.
Right.
I'll hop back in the queue. Thank you for the time does.
Thanks, Greg.
And our next question is from Holly Stewart from Scotia, Howard Weil.
You May proceed your question.
Good morning, gentlemen.
Hi.
Maybe just a first.
You guys have talked a lot about the asset sale program.
Glenn or Paul can you just maybe talk about how the in the market is sort of shaping up right now.
Well.
First off I mean, thats not our primary focus the market. So we're not out their marketing anything specifically in a Andy market.
You know we've talked in the past about minerals and overriding royalty.
We have some discussions there.
And that the other things are sort of outside of that their unsolicited type discussions and.
You know there big numbers in terms of what we're talking about these days and how much of it gets done that remains to be same but thats kind of all we can say right now it's going to take some time and we'll see how that unfolds, but we're we're confident on getting all that done in 2020.
Okay.
Fair enough and then.
Maybe just on the capital spending program.
For the year can you just outlined some maybe this trends are the cadence I guess throughout.
Tony Tony for the spending as well as the sort of production outline.
Yeah. The production is a ratable growth Holly up to averaged 3.5 from the Q4.
2019 on the capital or the capital slightly a little more in the first and second quarter as we mentioned.
Those drilling efficiencies in our drilling ability those four rigs are currently running right now for the first three quarters minutes three rigs in the fourth quarters was slightly down in the fourth quarter, but generally even through out slightly lower in the fourth quarter 2020 compared to the other three quarters for capital.
Okay, that's great and make just a follow up on the on the LC question. So yeah. It looked like.
At year end year at 623, and you're saying.
Post the rainy he movement now your 730, and then you will look to decrease that with further surety bond issuances correct Thats correct. Okay great.
Thank you.
Thank you.
And our next question from our own dare him from JP Morgan.
Please proceed with your next question.
Yes.
When I was wondering about.
Peter your longer term hedging strategy of looking beyond 2021.
Yeah, let paula comment on that.
So we've made the point, especially on gas that were hedged through 21. So.
You know, we obviously, we've done well in the hedging over the last 10 plus years and we don't plan to stop that just gives us a lot of comfort a lot of protection against.
Price falling away like it has recently so we're looking out there but.
Prices are not interesting enough for us right now but.
Will we keep an eye on things every day every month and the opportunity will arise and.
And so we'll we'll do that will be hedging a lot of our gas in jail 22, and beyond as prices come back as hopefully they will and.
Yes, so thats, where our focus is beyond on the gas price gas hedging pricing.
As to liquids, we keep an eye on that as well and theres still some to be done in the Ngls, but were pretty solid on oil for this year and as you know its.
Well goes up and down, but very liquid and very.
Readily doable.
Short notice so we'll watch that as well from count 21.
Okay, and I know that you have.
The asset sales program a lot of different levers that you could pull.
Just wondering if you know we do have some merchandise so the geeky t. does have.
A process.
On the mineral side, and perhaps or Utica assets, but can you just talk at a at a higher level.
Well what type of interest that you're seeing.
In minerals in a range was able to do.
A couple two three or asset sales that kind of equated to.
12, and a half time is kind of multiple in terms cash flow.
As well as what you're seeing in terms of market appetite for undeveloped acreage.
Or non cash flowing acreage in Appalachia.
Yes, I'd just say, we have we see strong interest and all that and.
We won't have any color to announce on it until we have a deal to now so that's all I'm going to say on that at this point.
Fair enough. Thanks, a lot.
Thank you.
Yes.
Our next question is from.
These young from credit Suisse.
We'll see what your question.
Thank you good morning.
Sure just looking at the on the cost side.
Cash costs came down seven pennies from guidance I'm, giving you last December and a lot of that reduction came into PMT and net marketing expense. So just trying to understand whats the key driver that reduction.
Yes over the last two month.
Okay key driver is just.
As our production grows it fills our capacity.
We've talked about laying off through asset management agreements any past that we're not using and get prepaid for it and.
As spreads have widened that is as their regional pipelines have gotten more and more fall.
So there's not that much unused capacity and the capacity that is unused and I'm talking about industry capacity through Appalachia, not everybody can reach that and so the spreads have widened they've widened to the go to Chicago. So we're able to by third party gas and.
Phil that transport and collect to spread and so all of that helps to fill what we have make the most of our assets and be able to offset some of those demand charges.
Got it so I mean, just given the magnitude of that decline certainly welcome like are there.
Even more room for dot costs to come down and then separately like could we see more relief coming from midstream partners.
Uh huh.
I wouldn't expect it eating it with midstream partners, but with long haul transport, which is held by.
Held by our of course as as spreads widen the third party gas or as spreads widen and laying off any.
I will pass and good prepaid we could see improvement as.
It becomes more constrained and as.
The spreads widen all of that goes into and do a anteros interest into our pocket and.
Helps to offset any of that ft. So sure it can definitely improve.
Yes.
Just a follow up but just on that too on the.
The reduction now we have seen based on optimization of spreads could that persists beyond 2020.
Relative to what you guys were thinking about in December.
Yes, you know that of course.
And all types the spreads get remark every day or even within the day.
And then Theres a four trading cycles in the day. So the spreads are always moving always changing but there's always the potential as.
There is more gas here in more demand there that.
Spreads can definitely improve and as they have since the fourth quarter and.
So sure Theres definitely potential for that too.
To help us.
Got it thank you for that.
Q.
And once again for you have a question.
Press Star one on your telephone keypad. Our next question is from terming Amit from JP Morgan.
You May proceed with your question.
Good morning.
Good morning.
A follow up on a on the Lcs can maybe just talk a little bit about yeah on the surety bond market kind of what you're seeing in terms of rate and tenor and that market just trying to get a sense of kind of the cost of those.
How to think about the cost of those miss the other cost which is very similar to the Lcs in there for one year term.
<unk>.
And then.
Marketing topic, just on the sort of A.M. units again sort of highlighted them as an asset you also highlighted the sort of D.A.M. RP capacity.
Maybe just talk.
Yeah, a little bit about how you think about sort of selling those units.
Two am versus selling to a third parties sort of what's the calculus in your mind between sort of control versus non control on the buyer.
Yeah first off I mean, we're in the sort of an enviable position of having time right. We're not too concerned about having to do anything right away. So.
They're not trading at attractive price for sale right now from a from a ours perspective, I don't think so we'll see how that plays out over time, Jerry but it's something that we'll just keep an eye on its not to.
Sort of our number one priority right now.
And that was literally my follow up on how do you think about the timing given that sort of every movie make on a are clearly benefits the AD valuation as well overtime is that the right way to think about staging of central self.
Well I just I wouldn't hyper focused on that I mean, you know am has some appetite probably to buy more shares. It has a program out there and those shares may be bought from a from a are bought in the open market, but they are not in a position to it's not leaning janow selling am shares right now.
I think is that the read so.
We can be patient and it's something we'll look out throughout the year.
Got it appreciate it I'll get back into queue. Thank you.
Thank you. Thank you.
[music].
And we have received and of the question and answer session.
I will turn the call back over to Michael Kennedy for closing remarks, yeah. Thank you to everyone who has joined US on our conference call. Today is there any further questions. Please feel free to contact us. Thanks again.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.