Q3 2020 CNX Resources Corp Earnings Call
Good morning.
Welcome to C. N next food sources, Sir Court or 2020 earnings conference call. All participants will be in a listen only mode should you need assistance. Please say no Ah conference specialists by pressing the star key followed by zero.
Today's presentation, so it'd be an opportunity to ask questions. Please know this event is being recorded I would now like to turn the conference over to Tyler Lewis V. P. I've Investor Relations go ahead.
Thank you and good morning to everybody welcome to see an extra is third quarter conference call. We have in the room today, Nick Julia our President and CEO Dawn Rush, our Chief Financial Officer, and chat Griffith, our Chief operating officer today, what we'd be discussing our third quarter results.
And a continued effort to simplify our message to reach a broader investor base. We have modified our earnings press release, this quarter and provided and updated investors slide presentation, which is posted to our website.
This slide presentation is focused on what we believe are the metrics that matter most who are investors.
Also detailed third quarter earnings release data such as quarterly N P data financial statements and non-GAAP reconciliations are posted to our website and a document titled three Q 2020 earnings results supplemental information, a she and X Corporation.
One other changes quarter is that in conjunction with the recently closed merger of she on X M. The company has changed its reportable segments to shell Coalbed methane and other.
The other segment actually it's nominal shallow oil and gas production, which is not significant to the company.
It also includes various other items managed outside the reportable segments more information will be available in our 10-Q, which we plan to file today.
As a reminder, any forward looking statements, we make or comments about future expectations are subject to business dress, which we have laid out for you and our materials today as well as on our previous Securities and Exchange Commission filings.
We will begin our call today with prepared remarks by Nick followed by Dawn and then we will open the call for Q&A, where Chad will participate as well with that let me turn the call over to your neck.
Tyler Good morning, everybody I want to start with two simple themes and I think these themes some up how we view C N S as future and the investment opportunities. It presents first one is we do the right thing and we define doing the right thing is making capital allocation decisions to optimize the longterm intrinsic value for sure if C N N.
For our owners second name, it's just math our decision, making an investment thesis comes down to simple arithmetic.
I want to go over to side two in the deck that we are made available. This morning, and I think slide two highlights the four crucial metrics that sets us apart from peers I'm gonna start at the top left of that side with inventory the inventory charge that you see their highlights how C. N ex has the deepest and longest lived inventory under a two dollar and 50 cents.
[noise] price, that's an inventory more than doubled appear average and when you look at our total inventory we're sitting at 49 years, which is more than three and a half times appear average this independent analysis from embarrassed as a ground up technical assessment from a very well respected third party and the study confirms exactly what we've been saying for some time and she.
Put the rest any concerns when it comes to see annex having best in class and the deepest inventory of future locations. The works at a two dollar and 50 cent gas price or lower more importantly, the steep inventory that's the feedstock for the free cash flow generated factory it extends way beyond our seven year outwork.
You also see on the slide there are other metrics that we think are crucial three in particular as we discussed before C. N. S has the lowest cash operating costs in the basin are all in cash costs, which were approaching a buck in the fourth quarter and for 2021 are gonna drop even lower and start to approach 90 cents and 20 twenty-two that's gonna make us the lowest all in cash cost player.
To base in which is an awesome thing.
We also offer the highest free cash flow yield when compared to our peers, we talked about that in the recent past and lastly, we got one of the best balance sheets, the balance she's only getting stronger as time goes on and has that level was reduced [laughter]. So and all we think these for matrix. They clearly set us apart they illustrate a significant potential upside we are a free cash flow.
Oh for sure factory that offers derisk returns for our owners.
If you go to the next slide side three.
See a graph. They are also from the embarrassed study and a report that I referenced on the last slide and this one goes into more detail on what that economic inventory for each pier at different gas prices looks like and you can see we've got the best inventory, although gas price levels. We've got the best inventory the strip pricing and we've got the best inventory at high gas price let.
We've got over a decade of inventory of the two dollar Nymex Pricetag over 20 years of today is $2.45 strip and 50 years or three dollar gas.
Now our industry. It is always full of chatter about the metric or strategy a choice for the quarter. The are sort of what's the caller of the flavor does your but Indiana and over the long haul there's really three things to truly get excited about our industry. That's inventory. The works at a two dollar and 50 cents or lower gas price, that's being a low cost manufacturing.
Gas and that's posting consistent significant levels of free cash flow for sure we hit the Mark on every single one of those.
As mentioned, we've got multiple decades worth of core inventory, that's economically advantageous at that 250, pricey level or $2.25. We've got an asset basis delineated and we built an industry, leading low cost structure, coupled with a multi year hedge book all those things generate substantial free cashflow for sure through all phases of the commodity site.
Oh.
A low cost structure.
Made possible by several competitive advantages of creates a moat and which are peers can easily replicate one of the most important and unravel a couple of those is that we own our midstream assets when you're a commodity manufacturer being a low cost most reliable manufacturer that commodity corn crucial we're fast approaching all in fully Barton cache call.
A dollar when the peer averages somewhere around $1.70 cents.
We expect to generate consistent quarter on quarter year on year free cash flow for the next seven years somewhere to the tune of 3.4 plus billion dollars on a cumulative basis, that's genuine substantial free cash flow. This nearly one and a half times are current market cat.
Our business model should quickly drive or that leverage ratio lower and our competitive advantages they should lead to our free cashflow pershare outperforming peers and staying shrunk for years to come. This has been many years in the making to create the simple, but compelling story and it's a straightforward. One again. This is just math and doing the right thing under proven capital allocation methodology.
Our free cashflow yield is not only industry, leading but more importantly market index, leading across a wide spectrum of different industries and sectors, that's where shifting our messaging and our focus to appeal to a broader investor group beyond the traditional E&P investors.
Now, let's talk a little bit about the state of the world. There's a topic you could spend in a northern amount of time on today and how it impacts are thinking.
Clearly right, we all know that the world is faced with challenges and uncertainty and we think there's a significant risk that those are going to escalate over the next 90 days. So if you reflect on what's happened. So far in 2020. This year of course has proven to be completely unpredictable. We've had covid, we've had oil prices collapsing.
Economic volatility all kinds of calamities.
And what gas prices are gonna do next year, that's partly a function of all those things we've already dealt with this year, but we recognized the sun predictability and we built our company not just to withstand volatility but to thrive under it and it the potential challenges that come with it. We think the next 90 days present elevated risk given the recent rise in Covid cases, the election, it's looming.
Uncertainty on how winter weather shapes up or whether it does strongly or weekly and the economy as well as how frankly, the producers of oil and natural gas are gonna respond to all of that however.
However, despite this unstable world, we've got a stable platform to continue to execute our plan and adjusted the new realities, we expect to produce a significant amount of free cash flow regardless of what happens in the next 90 days and given all the uncertainty that exists currently planned to use that free cash flow over the next 90 to further reduce debt.
It's the prudent thing to do in the near term give any uncertainty that we face and as we enter into 2021 and beyond our main priority is still gonna be the delever and and rough math, we expect to pay down approximately $1 billion of debt through 2023, you assume the adjusted EBITDA stays around $1 billion a year, that's gets us to about 1.5 times that leverage ratio.
If you look at those next three years that I just talked about I think those next three years are a great illustration of how our Derisked cashflow for sure factory is poised to allocate capital into very intrinsic value for sure creative ways.
Great thing about generating approximately half a billion dollars in free cash flow per year is it gives you some flexibility without sacrificing the debt reduction goal that I laid out.
And if our free cashflow yield station around 20%, we're going to have the wherewithal to return capital along the way through share buybacks, while still achieving art that leverage target of one and a half times.
We kept around a billion dollars a pre payable dead on our revolvers that are doing 2024, and we expect to generate approximately one and a half billion in free cash flow before they expire. So you can see that we got the ability for opportunistic capital returns via share buybacks, along the way if we so choose and if we continue to have around a share price that reflects a 20% free cash.
I shall yield I suspect will use some of that one and a half billion in free cash flow over the next three years and between now and the one and a half times leverage ratio to do just that.
So in the near term.
Of 2021 budgeting a portion of our free cashflow towards share repurchases. If our stock continues to yield 20 per cent on a cash basis and it gives us off to a really good start where we actually land is gonna depend on all the facts and circumstances and it comes down to that time again, the math, but you can see the optionality and the value creation potential that are presented.
By doing the right thing under sound capital allocation and following the math.
I'd like to talk a minute about M&A, we always remain open minded to considering M&A that makes sense for our owners for C. N X to acquire something it's gonna have to have a risk adjusted ready to return to beats, our other capital allocation options with our socket, a 20% cash yield acquisitions are going to have a really tough time competing.
Larger M&A as emerging with bass and peers into like you're gonna need to find someone who's not gonna dilute or weaken our best in class attribute that harken back to slide too that I covered a couple of minutes ago. So emanated dilutes, our best and based in inventory that wouldn't be attractive as we've established we don't need inventory and since we lead the base it on.
[noise] inventory that works at $2.50 gas prices are lower lives in terms of locations in years at maintenance activity levels.
There's really a compelling case there that the inventory we've got is fully within the grasp of what we own and control emanated increases cash cost that wouldn't be attractive. So I said, we've got the lowest cost in the basin. Those costs are guiding even lower so any merger that would increase our go forward costs would be difficult to rationalize will learn a commodity manufacturing business.
[noise] emanated to lose our free cashflow for sure that can be a problem avoiding dilution of free cash flow for sure and having a clear path longterm growth and free cash flow for sure those are essential for the creation of long term shareholder value.
And M&A that would harm balance sheet through high that and or off balance sheet commitments like unused S. T. That's probably the wrong direction balance sheet strength and the ability to delever organically and avoiding burdensome longterm gathering processing and transportation contracts a G. P. N T contracts, there's a critical factors to future success in our industry. So does.
Some of these points again always open to considering moves it improves shareholder value well, we're not interested in value eroding M&A that takes our industry, leading metrics and balance sheet and degrades them to improve someone else's metrics and balance sheet at the expense of our shareholders and employees pretty simple approach.
So in summary.
Consistent with our long term multiyear plan, we intend to invest our free cash flow in the right places to optimize the longterm intrinsic value for sure. The company, we expect our sustained and competitive advantages to create enhance value for our shareholders. We remain committed to our strategy. He was never been more excited about the opportunity. We've got in front of us I'm Gonna end, where I started.
We do the right thing under sound capital allocation theory, and it's just math with that now my turn things over to Dawn rush. Thanks, Nick [noise].
And good morning, everyone I would like to start on slide for which highlights our quarterly results in a much simpler concise format.
As you can see in the quarter, we continued to generate strong cash operating margins driving $121 million a free cash flow. We also expect to generate a significant amount of free cash flow in queue for and in 2021.
Which results in our industry, leading free cashflow yields.
Are trailing 12 months leverage ratio was 2.6 times and we continue to expect this to improve to approximately two times by year end 2021.
As we move closer to our 1.5 times leverage ratio target.
Year to date, we are fully retired approximately $900 million of our 20 twenty-two senior notes through a combination of that refinancings organically generated free cash flow.
We were able to accomplish this all shutting and one third of her volumes to take advantage of seasonal price contango, while simultaneously, increasing our projected 2020 and 2021 free cash flow throughout the course of the year.
Slide five shows or strategic planning action.
Plan that is delivering substantial free cashflow.
Year to date the company is generated over $270 million in free cash flow and we expect this positive trend to continue in queue for ambulance.
With the projected with a projected annual average of approximately $515 million and the 20th 22 through 2026 time period, which assumes an average nymex commodity price of approximately $2.50.
Our ability to generate substantial consistent free cash flow at low commodity price levels is a testament to a competitive advantages.
One final point to note is that our current free cash flow calculation takes into consideration working capital changes, whereas many of our peers exclude these and other items. We believe this all in approach more accurately reflects the current funds available for potential debt repayment and shareholder returns.
As we transition into 2021 and beyond we plan to provide additional discussion around these working capital changes to help investors more clearly compare the free cash flow generation potential of our company relative to our industry peers reported numbers as well as those in other industries.
And for reference or 2020th free cash flow would be well over $400 million. If we excluded working capital changes like appears to for a more apples to apples look.
Slide six shows how we have not been satisfied simply with good results.
Since we started discussing our 2020 and beyond guidance and the second quarter of 2019, we have been steadily increasing our free cash flow estimates for 2020 and 2020 or more.
We believe we have built the seven year plan with conservative assumptions and will work to continuously improve the plant.
Slide seven shows how our costs have come down in Q3, despite the shut ins and how we see them continuing to decrease in Q4 and beyond with all of our volumes back online.
Also the operating margins shown in on the slide include non-cash D. D N a.
And as we have said Empire calls are go for capital intensity is much lower so moving forward. We expected these numbers will be even better with cash margins over 50%.
Slide eight illustrates our new capital structure, which is ample liquidity with a R. B L. Recently reaffirmed at $2.5 billion between our two facilities. It's also important to note that we have significant runway as it pertains to or maturity scheduled with their first unsecured bonds not coming due until 2026.
All of this is even more impressive when you consider we expect to produce over $500 million in free cash flow per year, which gives us the ability to control our own destiny.
Liquidity position, coupled with our assets low cost and heading strategy are all working towards Ah Ah Ah balance sheets that are strong and strengthening.
And gives us leeway to navigate periods of uncertainty and any macro environment.
Slide nine is our guidance slot for.
For 2020, we are tightening up the guidance ranges for production and capital with one quarter to go.
And we expect our EBITDA to be around $900 million the high end of our previous guidance.
For 2021, we have increased our 2021 EBITDA to approximately $960 million unimproved pricing.
And we are currently leaving our capital and free Cashflow God. It's the same for now.
As we have indicated in the past.
We always try to shape our activity set to better match the price curve. If there are material differences to take advantage of so depending on how the winter and 2021 gas price stripped shapes up we could move some completion activity up into 2021. However, we do not plan on adding incremental activity to our <unk>.
And year plan, just optimizing the shape of our production profile to match short term pricing events.
And as we have demonstrated we can do this while increasing both near term free cash flow and long term value of.
Primary focus will continue to be increasing our free cash flow for sure over the seven year plan.
We believe that our cash flow projections are low risk and to provide a sensitivity even if nymex gas prices were to average $2.25 from now until the end of 2026, we project that the business would still generate approximately $2.9 billion in free cash flow, even when holding our costs.
The same.
Which in a world like that they would likely come down.
And improve that number.
This is primarily due to a best in class heads book, leading inventory position and low cost structure that is extremely impressive report $2.25, an IMAX downside sensitivity case.
And like we have said many times before if gas prices get too and stay at $3 for the long term, there's a massive amount of additional free cash flow and by the creation for C. N X.
Everybody looks good higher gas prices, though not many do it little ones.
Slide 10 simply reiterate how strong are 2021 numbers are not just within the M P space, but against the market in general for.
For instance are free cashflow yield an operating margins are within the 93rd and 88% house when compared to the SMP 1500 index.
Not only do our 2021 metrics look strong, but our 2022 and beyond look even better even with commodity prices currently below $2.50 for the long term.
To repeat these leading metrics indicate see next is exceptional results versus the SMP 500 index will persist at age sub $2.50 Nymex gas price.
To sum it up.
We are excited about our future we have ample inventory to produce for decades, and our plan will create substantial value for our shareholders no matter, what gas prices do and without the need to go to the capital where that markets or resort to M&A for it to work with that I will turn it back over to Tyler for Q&A.
Exxon operator, if you can open the lineup for Q&A at this time please.
We will now begin the question and answer session to ask a question you May Trust Fathom why not get catch Stunk phone, if you're using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too at this time, we were pause momentarily to.
December I roster.
Our first question is from <unk>.
Mariani from Keybanc go ahead.
Hey, guys just wanted to follow up a little bit on the 2020 production guidance looking at the range for the full year I'm doing the math right. It's still implies maybe 100 million a day range in queue for I look at the the full year range, just kind of wanted to get a sense.
Of what's going on there obviously seen much wider Appalachian gas price desk of late is there any wiggle room for potential shut ins or is this more just to allow for shifting activity. They do some keyboard Q1 in winter. It is it 100% cooperate just trying to get a sense of the Ranger.
Yeah, Hey, this is Chad I'll I'll I'll I'll start off and then maybe a dog at at and on the back and if if he if he wants to add anything but.
And also we sort of move into you know we talked previously about the shut ins over the course of the summer Ah, we're moving towards having basically offer production online now.
We're in the process of of flowing back really our last pad that we had shut in or I'm, sorry, opening up the last well last power that we had shut in and we should be up to full rate basically within a couple of days.
So we're going we're going into the winter season, with our production going strong we have one more pass a pill for the end of the season or before the end of the year and things should be good I think the range on the on the production number was yeah, there's probably going to be a little bit.
To give us a little bit of flexibility to optimize on the revenue on but I think I think the biggest biggest thing we need to focus on here is that it in the end of the day.
A little bit of shift and timing are a little bit of shifting production from from month to month or quarter to quarter are a little bit of shift within this range is really you know it's really you know I was called noise, but it's sort of you know what we need to focus on I think is our free cashflow that we continue to generate a year over year with a seven year plan.
A little bit of production here, a little bit of production there, we're going to optimize that every day as the market conditions change and we're going to continue to try to.
Pull out every little bit of value of a camera molecules, but but even with conservative assumptions, assuming we don't squeeze that extra last penny or have a sent out of each our molecules. This this company continues to generate phenomenal amount of free cash flow over that seven year plan.
Okay. That's that's helpful for sure.
And just wanted to ask a question on the inventory chart that you guys showed here. When you guys look at the inventory kind of below 250 talking about 22 years does that assume you know I'm, assuming maybe a fixed number of wells you know per year kind of over that whole period is that largely just <unk>.
Tries to Marcel as to the Utica also competitive and to get to your last any comments you can provide around that.
Yeah. So the the <unk> report, you know, which encourage folks to get we've we've talked about our inventory for awhile now and it's good to see third parties verifying. We've we've seen for for a long time. So the the the basic mechanics and like I said, the the reports out there to get as as they take kind of what your run rate is over the 22 23 timeframe and they.
Just use that as the proportionate amount of well as you would need to draw year and going through on a high level, it's roughly three quarters on the Marcellus out as far as how they're all they're thinking about itself 250.
Okay do you get that's helpful. And then just lastly, when the date see if you guys could clarify was stopped by Mac commentary, obviously, you've got some really nice debt reduction targets over the next couple of years, but certainly two point you know if we don't see I guess commensurate stock appreciation you guys would look at the buyback pretty hard here.
Is that something that realistically could show up in in 21 or do you kind of want to get the get down before we could look at that buyback more seriously.
I think leos, we discuss the the primary focus will continue to be to reduce that but when you look at the 2021. There has the wherewithal and when you look at the next three years of the the one $5 billion a free cashflow generation 500 million a year. There has the wherewithal to redo share count and it's 25% free cashflow yield if that remains right I would be shocked to get through 21 and.
See some reduction in sure count as to how much as to what we budget between that free cash flow on debt reduction versus share repurchases that it won't be driven by the facts and circumstances at those moments in time, so that's a quarter by quarter on 40 story, but we've got the wherewithal and with the rate of returns we see on sure count reduction, we see the ability to get the one five times.
Over the next three years on debt reduction, coupled with the reduction and share count as well yeah.
Yeah, and then when you look at the just the magnitude of free cashflow that the businesses produces a quarter right over $100 million a quarter. So if you if you allocate $100 million a share conscious hypothetical it moves your leverage ratio target date by a quarter. So net net with the cash flow that this business produces an uncertainty behind those cashflows like I mentioned, even and Ah.
225, Nymex, our seven year Cashflow clan would would generate 2.9 billion. There's a lot of wherewithal to to allocate that cash along the way, but rest assured that that that that paydown is important and we recognize that you know.
The the industry in the ecosystem, it's more difficult to have you know that that and access to capital markets and access to the bank facilities. The way the world used to be Fortunately for us like like we've said many times I mean, we got two point.
6 billion in debt roughly $3.4 billion is way more than that we carry so you know we have the wherewithal to.
To control our own destiny and pay down all of our that if we choose and still have plenty of money leftover for for interesting things like share repurchases. So.
Where are we said with inventory and cost structure and a balance sheet and casually generation. Just just opens up the ability to to do things along the way, but as mentioned will will be smart debt paydowns prudent we don't have much to do and feel very good about being able to b b b thoughtful while still accomplishing the one and a half leverage ratio without.
Creating any rest of it.
Very helpful. Thank you guys.
Our next question is something we have big men from Sampras go ahead.
Morning, Nick and like I, just Wanna come from that you're all in the team. So that the new reported for about I think it looks really good but first question is around your second slide you all clearly mentioned and definitely I'm prepared remarks talked about your strong inventory lights, just one or do you. All believe you know your be your that you are being adequately rewarded for this and if not.
Not.
Is there things you would consider to unlock some of these significant upstream assets or even you mentioned that you know give it a solid midstream acids as well anything you can do on on those side too maybe <unk> realize some of that.
Yeah, I know a couple a couple of answers that I'm I'm glad you asked the question. So so on one I mean, we've heard a lot about you know our inventory and maybe not being what what other peers have so far.
First off I hope this puts that issued a bad C in excess inventory as as best in class purely eating and you know if you look back over the last five years I mean, we're really the only appear that has sold substantial amounts of an undeveloped locations. There's been some people that you know so royalty interest there's been people. It's so pdp's, but if you look purely it undeveloped achy.
<unk>, we've sold more than any of the various I mean, most of them are buying stuff, which I think tells you where the inventory positions really sit who's selling acres and who's buying acres. So historically, we still a lot acres and going forward. I mean this is something is mix that we fall of math I mean, if there's an opportunity to to cash in some some some acres for money for acres that we're not gonna.
Joe for Awhile will do it more investors dollars into places that are that are more appropriate so.
No I don't think we're getting credit for our inventory as it sits today, but I think we have a track record of being thoughtful and smart around where where we choose to kind of sell sell acres. If it's something that we're not gonna get too for awhile.
No great Great details and then just one follow up you'll have done a great job on the free casually three quarters more now in a row.
And make you a stress you know you guys have done a great job of highlighting the debt repayment I guess my question is you know with gas prices remain high and you know given you are so highly heads with some some nice hedges I'm just wondering in order to take advantage of continued higher prices. You know you guys have mentioned further debt pay down where it was.
Aston on and I know you guys had talked about by Sir buybacks, but would you consider even potentially further grow given how just a fish that you've been on the operations in order to maybe get some more volumes beyond what you have heads next year if prices remain high.
Yeah. So the the two pieces and like I said I think one of its the inverse of what we did this year, we shut in some production and low gas prices for you know a couple of quarters to take advantage of the arbitrage for the high gas prices seasonality. So you can see potentially how how the price strep unfolds, the opposite occurring we could pull up a little bit of completion to take advantage.
<unk> have a high 21, if it doesn't flow through 22 and beyond so but the one side of this is just call. It a near term gas price increase which will just optimise production Cashflow go up at night, but capital over you know one or two year period, no no new activity shows up for new activity to come in to the equation, which again the inventory chart shows.
We have a tremendous amount to we can get online in an efficient efficient manner, we'd need to see the Ford stripped change not just a one year anomaly I mean, there's a lot of bookcases out there that think you know a lot of a lot of consensus and folks have gas prices beyond 21, being $3 or 350 that that's great we'd love.
But we're not we're not gonna bet on it we've fallen math is Nick said, so it's a ford script changes materially and get to that level. We'll do we've done historically, which is take some of the risk off the table via hedges and then go ahead and add activity. Once you have that kind of price locked in the rate of return for incremental activity is warranted in locked in so.
We watch it but we're gonna use this trip and fall the strip as opposed to call it drilling and hoping that the gas prices in the future turn out good and Neil just to sort of you can take a further step back from dawn showing you how the process and the math works will.
We we talked about new referenced side too right you got the inventory pole position you got the cost pole position at those great things for your free cash flow for sure and your balance sheet.
And if we just follow the math to do sound capital allocation, if we do not add activity and the seven year plan you can look at the next three years you can look at the seven years in total pick whatever time cut you one of that but if we do not add activity from that seven year plan than say three years out that will be materially lower sure cow.
It's going to be material lower and free cash flow for sure is going to be significantly higher we're gonna be insulated from the capital markets and all the twists and turns it takes and we're gonna be insulated from gas price volatility. That's a really really good base case. So for me just looking at the bigger picture.
The math that we follow I think incremental activity outside of like Don set a multiyear change that change in Nymex forward is gonna have a really tough hurdle to meet when you compare it to these other things that we are able to do with the base case.
Yeah, I agree that it takes to protect them.
Our next question is from Michael Scalia.
Scala from Stifel go ahead.
Yeah, good morning, everybody.
First question, just a clarification Chad based on your comments around timing it sounds like.
Some of the.
Capital that was maybe originally intended for third quarter went in the fourth quarter that was that was a conscious decision upon.
Based upon where guests price are on management's part or was there something operational that.
Contribute to that as well.
Yeah, I'll I'll start then Chad can kind of add to it so.
Part is I mean, you got the non DNC saw it in one of the one of the the land type situations. It was forecast. It for Q3 is gonna hit queue for which yeah. It's a good thing anytime you can keep your cash for.
Another month or two without having an impact that's a good thing and the other which we've we've talked a lot about and just to kind of emphasize again, it's it's hard getting quarter to quarter, you know annual cut offs like perfect. Like there's there's you know call. It a that's why we try to look at things as a project and then Chad's team has more of a project management approach and the way we run the business is more.
Or on you know each one of these pads or a project so developing them that way and tracking that we've been very successful in our execution and plan, but you get a little bit of wiggle between between quarters, but you know nothing materially on on slowdown on operation. So just just kind of happens that way sometimes.
Okay I got it in on the 21 EBITDA guidance you increase up by 40 million was that strictly due to the improvement in the 21 strip or is there anything else that contributed to the.
Yeah, No. We just kind of you know again not a not a hit it perfectly every time I mean, I think I want to.
Called the pros and cons, we're one of the only companies that are given guidance out there in 21 and beyond and you know we tried to do it to help folks understand what our business looks like and give some transparency on that stuff, but it's it's hard to keep it continually you know a little bit moving here and there. So we kind of tried to market to market. It with gas prices moved that kind of gave you were were sit.
And there for like I said in my remarks on the D. N C. The capital side and on the you know the the free cashflow side would kind of left it alone for now you can see those move moving a bit and as we transition into the year, we'll try to help bracketed a bit will ranges. So we were given these is kind of insight to what the business looks like as a helpful tool but.
Things changed daily and weekly is gas prices change slight timing differences change.
Understood and the last one for me you know you look at your you slide six and he is.
Been focused on it for for quite some time now but.
Look at that free cash flow projection.
For the seven year plan I guess as you think about it outside of gas prices, what do you see as the biggest risk to achieving was those targets.
I think there's the obvious need to execute on a consistent quarter and quarter out basis, which we've been able to do to date and we get more and more confident.
Forward, a programmatic hedging tried to address one of the biggest risk out there which is at least the front couple of years commodity exposure risk.
The capital allocation methodology, derisk doing something silly or bad with the proceeds free casually, we do generate right. If we're following the math and using sound capital allocation methodology, we should protect against that.
And then I think last but not least the the ability to control the flexibility on your capital allocation decisions, because you own and control your midstream that's something else that we work hard and 22 address and resolve so from my perspective, the big drivers of risk and the ability to mitigate that risk have largely been address or race as a whole.
Lots of your approach within the company our expectations to generate a three four plus billion over the seven years and to use that math and that methodology to put it in the right places at the right time.
Our next question is from Kashi Harrison from Simmons Energy go ahead.
[noise] good morning, everyone thinks it thank you for taking my questions.
So so I appreciate you know definitely appreciate that you're trying to transition away from industry industry jargon towards simple financial metrics and definitely appreciate the emphasis on operating margins, but you know I I was just wondering if you maybe provide an update on where leading edge Marcellus and deep Utica well cost or trendy.
Given that you know that has implications towards DD&A, which eventually impacts operating margins.
Yeah, No for sure now I'm glad you asked this question and you know I'll flip it over to Chad to give you some more details, but I'll I'll I'll take it off at first so the way we look at this and you know they're called there's been an overemphasis in my opinion on just the D N C for foot metric.
On the ultimate how good as well and whether it what's the breakeven and what's the inventory there's a whole bunch that goes into that equation and then I think on the DNC side, we end up seeing as I mean, we all use the same vendors. We always use use the same service provider. So you see a convergent convergence on it you don't see a sustainable advantage from one of the other case in point.
We moved to an evolution for actually two years ago and that was an advantage for us, but now a lot of our peers are kind of fallen suit and and getting into that same zone and and work on that same thing so.
Plan, we've laid out the D N C for foot as we've mentioned before were already beating it we expect to beat it but when you look in the Grand scheme of things it's.
It's not just D C for Ford, it's what what are you getting out of the ground per foot. So what's your you offer foot. So how much of the dollars are you spending does it actually translate into production coming back up and go what cheap welder Oh, well you don't do a big completion job on so it's it's easy to do cheap well. So whenever you look at what the production is for the dollar.
You are spending for the well and then triangulate that on the cost that it takes to get the production from the well to the sales point is really the called the economic return to you get from that that pad that well. So we look at this we look at at that those altogether and in dollars per foot something we manage and Chad like I said in teams have been ahead of the curve on on where these <unk>.
And season and dollar for floods have gone, but that that when you look at it just to put it in context like Ah 10, $10 a foot on a DNC changed for you know a similar you are well equates to less than a penny of F&B cost or like the charge of the first five years worth of production from that well. So it's important but whenever you look at 60 cents.
Cost advantage on Opex.
$10 a foot is like a penny whenever you apply it over the production of the wall, but she I wanted to go ahead and walk through some of the.
Things were doing and stuff stuff, we're heading and then like I said, we're happy to share more stuff off line with Tyler. So we're not trying to change. It. We're just trying to emphasize what's the big middle movers of the casual way. So the so just just to give you two examples.
Where we're at our to our two most recent Marshalls pass that that that we brought online this quarter or.
One power's at 713, a foot and then the second pavlis below $700 a foot and these are right and of course, what gomarsall field. So I mean that lateral that plays a big role in this focusing on MPT focus on quality control focus on queue mass I'll I'll play into this.
And frankly, there's a lot of innovation that's going on in our teams as well when when you have a very defined footprint activity level. The teams can stay focused on that they can plan for that they can see what's coming and they can focus all their energy on optimizing that activity set optimizing that opportunity.
In deriving pulling out as much value inefficiencies they can on that on that opportunities that this.
This has led to a lot of leading edge things that we've done.
Not only in D&C, but also on facilities in midstream as well.
No idle thoughts already mentioned are moving to evolution.
Really we've made a lot of learnings with evolution over the last two years.
Led to a lot of efficiencies that we've seen on the on the seat side of D&C.
But there's also a number of technological advances we've made on the drilling site that frankly, I don't I don't want to disclose publicly because it's hard it's so hard to maintain as competitive advantages because it's dancette eventually there's convergence because we're all using the same service provider can cruise so sort of keep those in our back pocket as much as we can.
Another Great example of innovation from our team is is where we combined upstream in midstream.
And our midstream guys got together with the upstream said.
Why are you handling Pat separation the way that you guys are wired Gpus why are your gas processing units on each wellhead. The same that they have been for the last 20 years, we here's how we've been handling separation on the midstream side, let's let's take a look if there's something we can do there and what we've developed is is something that we've called the Super Sept.
Later.
Got to work with the marketing team a little bit maybe on a little bit better brand, but we've we've received a provisional patent for it we have we have IP protection for this.
It's basically a step change in the way that on Pat separation is going to be conducted and it's.
No we're still working through the exact numbers, but it's gonna be materials savings on what you're on on Pat facilities will end up looking like and what the wind up costing.
Potentially change the way that we go about flown by her wealth. So these are the example, these are real examples of innovation that our teams are doing and how we're driving sort of cutting edge cost per foot and all in capital efficiency that our teams are being able to deliver.
That's awful things and we will look into the queue for a call for the Super separated details and then [laughter] and then on you know I was looking through one of the one of the releases and you know it looks like maybe there was a sepia Utica well that was turned on line I was just wondering if you know.
Maybe you could discuss how that wells doing relative to the other <unk> other projects in there in the area or is it just you know maybe too early to comment.
It's too it's too early to comment we brought that well on line right at the beginning of the quarter. We were we were basically in the area performing some general sort of well service well maintenance and while we have the snubbing unit in the area. We went ahead and drove that well out brought online.
We've had we've sent shut that well back in line because we are now fracking adjacent wells to that well so we only had.
Several weeks of production so it's really.
Update I really do gotta speak to how that welfare.
Got it got it and then if I could just sneak one more in you know there there.
Some earlier commentary on potentially you know shifting projects within the seven year plan I just I just want to make sure I understand this can you maybe just go into some detail on how we should be thinking about the shift specifically.
You know what what would need what would you need to see on the strip before you started you know reallocating capital projects and and you know wood wood. This shift be more related to say you know Marcellus wells, Utica wells or or is it too early to tell which which projects you.
It'd be shifting.
Yeah no. It's it's it's it's more along the lines of just whether you want a little bit of lag and you're in you're drilling to completion cycle or you could shrinks them up so we do have the ability.
Easiest example was potentially there's a pad it would come online and.
December January December 21, or January of 22 and for whatever reason the 20th to strip comes down with the 21 strips stays high we have some flexibility in our system that instead of trying to get that pad done in December will get it done in April. So so net net your capital over you know the 2021 time frame are 21 22.
Doesn't change, but some of that completions capital. They might've ended up falling into twenty-two falls into 21, but not in that you are way better off from a free cashflow perspective for the same capital because you've got that well online and a better price environment. Soon so that that's sort of the way to think about it. It's just if there's a little bit of slack to get a Pat on a couple of months.
Or do you take it or not.
And just to sort out again take a bigger step backpass. The way, we think of the seven year plan in total.
We keep referencing this is sort of the free cash flow for Cher factory right and that requires effectively of Reagan a frat crew to set up across his seven years in our core areas with the those great sort of inventory metrics at different gas price tax that generates the free cash flow, we certainly want to either optimize that to grow it within that activities had already.
And what what Dan is talking about to your question is to do one of those two things I can either derisk. It and you increase the likelihood of the free cash flow coming home to roost or you create some upside because of some pricing arbitrage within a year or two year period, but the overall activity accumulate does not change and the reason we don't anticipate that cheating right. Now is when you look at what we do with them.
Free cash flow generation, there are some pretty awesome opportunities out there in the form of debt reduction and share count reduction so again until something changes.
On the macro input assumptions that would change the math that we're following E multiyear gas price change our share price change or something like that.
Our view is we keep that activity pace as is over the seven years, we optimize it had bad quarter to quarter as we see opportunities either derisk at or slightly improve it incrementally and then we deploy that free cash flow as best we can see today sitting here into that and share count.
Super helpful. Thanks goes.
Our next question is from Tim Kumar from Fargo Go ahead.
Hi, Good morning, It's Nydam Kumar from Wells Fargo make I appreciate the comments around cat you know having to their little to good use both didn't share count.
You haven't talk about dividends and I'm curious, how you prioritize and potential return of cashflow between dividends and bad I should focus loading buybacks I'm, just really curious why not talk about a dividend.
I think dividends are obviously, that's an option for enhanced.
Enhancing the intrinsic for sure value of the company and shareholder returns so.
We're not against that as a as a vehicle to consider I will say when we're looking at our seven year plan dividends are probably something that's worth considering on the second half of the seven year plan. The reason I say that is that right now when you look at the rate of return tie basically the risk adjusted ready to return tied to a share buyback. It is it is significant and.
You also have sort of the the other sort of competing advantages of share buybacks, where you give the individual owner the the choice of whether they want to sell hold.
With that rate of return I think that's a very difficult hurdle to overcome.
Now again things change right. So not only will gas prices changed at some point share price changes et cetera, and we still got this free cash flow factory right free cash flow for sure machine and we built.
Dividends as I said down the road probably on the back half of the seven year plan, It's something I think we keep an eye on it we see where these different metrics and input assumptions go and it's definitely a tool in the toolbox that we should always be open minded and willing to consider right now I don't see that front center being able to compete with debt reduction anti-war share count reduction.
Great I appreciate that color then.
Uhm I want to thank you you're hoping remarks, you had mentioned Jose volatile mix 90 days any specific team it shouldn't.
The election.
Could you help us understand.
Civic to C N X and maybe the Appalachia base and what are the risks that you see from the upcoming election, and just maybe the regulatory.
Man.
Yeah, I think again this is maybe somewhat opinion I don't know if anybody really knows the answers to these things, but if you just look at what's going on with the equity markets. The last week or so and probably what's going to be happening for the company makes a lot of it's attributed the covid certainly covid in Covid incident rate and an infection rate is certainly a driver of all that and it's taking.
Right, but you've also got a lot of election on certainly I think it's very within this volatility and election uncertainty just with respect to even the process itself and what happens on November 3rd or the night of November 3rd versus weeks down the road.
So I think that's spooky and trading volatility across a lot of these capital markets I don't think it's necessarily unfounded, but I think we need to be ready for it and I think we physician the company to be able to be ready for just about anything. So if you look at Q for as an example, the one right front center to US basically no matter what happens in queue for with respect of Covid election.
<unk> gas prices global GDP, all those things, we're going to generate free cash flow and when you look at 2021 same story. So we positioned the company not just to navigate through these things, but as I said in the comments really thrive in those situations, where disconnects may occur and just sensitive when you're not everything out. The next 90 days 20.
20 has already been an unbelievably interesting year, sometimes that interest has been on the past side of things I think the next 90 or just going to be as interesting as of 2020 today.
Okay. So just to clarify there's no specific regular V changes that you're you're aware of you know they put it back in new Mexico, It's about federal land or something like that you're not looking at anything for the Appalachia.
No no what happens with respect to the regulatory environment Longterm, that's more of a 2021 as we see what happens in November and then what shapes off of 2021, agendas et cetera, but I will tell them that.
Okay. Thank you the answers.
Our next question is from Jeffrey Campbell, Some Toohey brothers go ahead.
Good morning.
Well the first question you're first to slide three I just wanted all my reading it correctly that C.
<unk> no inventory above.
$3 per million a million b.
To you.
That's correct business illustrate.
Any P a utica inventory outside of southwest P. A.
I think the the just the the above $3 doesn't have a color code to it. So once you get above $3. I mean, you can put all of our C. V. M locations in there to 70 dated you did just yeah that that this was just a highlight near medium term up to three bucks for like I said that that and various reports out there.
A good read encourage her job [laughter] courage, you to get it but now we've got plenty of inventory up up above that too.
Okay.
And thinking about future capital allocation I think you've said in the past that central Utica.
And actually be competitive with the Marcellus with significant infrastructure investment.
I was just wondering is there a variable within the seven year plan to begin that that sort of investment or is that something that's going to happen. After the seven year plan.
No I mean I think.
It it it is competitive when you look at the DNC and you look at the you are and you look at the cost like again to the three the three legged stool here some folks get hung up on DNC per foot, but the zebra foot ER per foot and it actually costs to get the wall get the gas from the well to sales point and you put all three together G. P. A you know it looks it looks great, yes, we would need more infrastructure.
To do a meaningful growth in that region, so and as we said in a in a in a call a product and some of the questions we need to see the Ford gas strip justified so that that if you look we did a tremendous spilled out in southwest P. A hedged a bunch to make sure that we got the returns justify it from the infrastructure.
Your bill it out and the cost position and you know a lot of the seven year free casually you're seeing seeing here today is because of the investments that we put into the business over the course of several years prior to today. So I think you could see something similar there, but you know now that scale wise.
We built out all the infrastructure, we need it in in southwest P. A you know for $300 million or so for the midstream side. So whenever you're producing three 4 billion. If you want to do an investment in midstream infrastructure to unlock the next cashflow manufacturing.
Factory, which which could be up there we got it well within our wherewithal to do in any number of different ways and that's you know it could be partner in with with another midstream service provider could be doing ourselves I mean, the flexibility that that we have just opens up a ton of opportunities and we've been able to partner with some of our our midstream kind of counterparts. Since we got half peers that are midstream and half P.
That are upstream so we've we've cooperated with midstream peers and will continue to do that going forward and well, we got a lot of interesting opportunities housecat midstream extreme as a part of our business, which others done yeah. So we've got the seven year plan that generate three three and a half million dollars. So free cash flow over seven years and it does so primarily utilize.
Saying southwest VA Marcellus acreage as a sprinkling of some Utica in there, but but bye bye bye majority it is swept marshalls that doesn't.
<unk> point, there's there's some infrastructure investment that will have to happen to unlock SEPA Utica, but that tpa Utica is just sitting there waiting to either be accelerated it's justified by gas prices and our capital allocation decisions or sitting there to tack onto the tail to seven years and continue generating significant free cash flow year over year beyond the seven year seven.
A year window, we've already provided so provides a lot of optionality a lot of flexibility.
It's sitting there is one of our options on our capital allocation decisions.
Okay. Thanks for that color and my last question is.
Combine the presentation slides and mixed commentary sounds.
Sounds like a C N actually I'm in Appalachia is fairly unlikely with the the hurdles that.
I have to be jobs I was just wandering.
You guys cast you're not outside of the base in your investigations or has that already been eliminated by due diligence.
Yeah I think.
He got too much M&A within a company to get through right now and.
Like you say I think you summed up the invasion do pretty well in and out of outside a basin, even riskier right, even even more subject to to unknown. So we don't give much thought beyond beyond the base and and beyond what we're doing within our seven year plan.
Okay, great. Thank you.
Our next question is from Holly store from Scotia, Howard fail go ahead.
Marine giving me maybe just a couple of follow up first.
<unk> you made some comments about M&A I couldn't tell her those comments.
Really directed at being the consolidate or or the consolidated it sounded like.
You were addressing your thoughts on inventory and cost structure as a consolidated or but I just wanted to to ask if it was applied to.
To being a consolidate E as well.
I think there were two sort of components of the comments Ali one was with respect to us acquiring more what I would call assets within base in those acquisition opportunities right now we don't see them competing.
With the risk adjusted rate of return or something like a share count reduction opportunity or let alone debt reduction so on the sort of putting free cash flow to work or liquidity to work to acquire assets.
With what we've got in front of us and the seven year plan and our opportunity set don't see that competing right now on the second sort of grouping of the metrics, we laid out as with respect a combination I don't you can call us the acquire Orange inquiries basically a combination thought and under any combination.
Theory right. The inventory you don't want to dilute the cost structure, you don't want to dilute by raising it your balance sheet, you don't want to weaken because of unused FTE anti-war leverage or negative free cash flows and you're free cash flow for sure and you're free cash flow yields you don't want to damage that those are the those are the drivers that put us at the pole position, Yeah and you know.
That said definitely like our our main goal is to create long term value for our shareholders and we have a base seven year plan that is.
Setup to do just that so anything that you would look at to put yourself in a better position than your current one so our ultimate goals create long term value for our shareholders and for the next shareholders. We've got a lot of work to do to do that on our seven year plan and you wouldn't want to put TNX shareholders in a in a place that is not as good as the place you're already.
You have.
Yeah, yeah, Okay that makes sense.
Maybe just one follow up really on kind of the macro supply dynamics. He's seen can obviously changes happening given.
Given the consolidation so no more shall right no more no more chevron southwest you're consolidating montage you know how do you see sort of the supply dynamics in the basin changing just given all that consolidation and all that but the consolidation that we've seen thus far.
Oh, that's a good question.
So I think I think some of these.
Back to some of their comments about sort of inventory and acquisitions and what motivates some of our peers to acquire.
Factors involved.
Thank you for going out and paying a premium or you're you're especially the looting of your existing shareholders in order to pick up more inventory, you're going to need to derive value from that from that pick up in order to.
Keep keep your existing shareholders for neutral so I know, there's a lot of talk about remaining disciplined and picking up inventory debated rationalize supply, but I think there's going to be pressure from some of these folks to be able to show value for what it is that they have acquired so what that means long term I think that I think with the price of the local prices were seeing an IMAX pre.
Because we're seeing in some of the schools peace consolidation news I think there's gonna be some real pressure on some of our peers to data to to sort of grow some some supply and whether or not they have the cash or the capital to be able to do so if those sort of to be determined yet and I think ultimately folks seem to be on the.
Capital of discipline supply of discipline.
We hope, that's where everybody kind of stays in sorta sticks too that has kind of been something kind of kicked about before that it hasn't always actually resulted in and capital disciplined and supply of discipline.
We hope this this time, it's different and you know the cashflow regenerate if that's true just just goes up materially but.
As we've found out and everyone's found out it is really hard to predict with you know what hundreds of companies are gonna do and that's what kind of creates the supplies back if you look across the United States and couple that with the recent 21 gas. Both thesis was mostly drive by and OPEC fight in a in a COVID-19 global pandemic, So I mean.
Things are just really really hard to predict so we try to you know.
Next point keep it simple we know if we're by far the lowest cost and best inventory and got a strong balance sheet will do very very well at at the strip at 240 to 50 gas will do very very well to twenty-five Nymex and if if the world gets better three bucks great. We're all for it we hope that folks stay disciplined and and gas prices.
Go up.
Yeah.
Thank you guys.
Our next question is from David Hang can then from high energy advice is go ahead.
Good morning, and Hollywood ask a good question, but.
The question on your commentary of the political environment in Pennsylvania that sounded contrary to some of the perspective, we've heard from other public and private operators as they're considering really the political risks that Pennsylvania assets could be the next <unk>.
<unk> target behind Colorado, and having more Ohio, and West Virginia might be better.
Do you have any thoughts around that or is that so reading too much into your comments on the political environment.
Hope I didn't give you the inference through what I said that there is a concern with respect to Pennsylvania, losing the natural gas industry. That's certainly not the case if anything if you look at what's trained no not that being a target I mean, losing as an extreme but being a target is a risk that you would try to mitigate.
So please don't go down the losing path.
Yeah, I'm still not understand the question from a Pennsylvania regulatory perspective, we don't see any material change that's been bantered about are coming down the pike.
If you look at the last 510 years, what's happened within the Commonwealth and the natural gas industry. It has grown exponentially and that Grove.
More importantly, correlated to alive inclusion across different fastest with the economy and the state with respect to that grows itself. So initially right everybody focused on landowners in and multi generational farms and things like that they've got a benefit via the landgrab phase, but when you look at the employment side.
Side of things the employment has become much more organic within the state used to have not long ago, a lot of sort of the expertise and disciplines coming from Oklahoma, and Texas et cetera. That's now basically taken root in state and what you're seeing with respect to jobs kids, either coming out of high schools or people already in the workforce right the older workforce.
Getting into the industry, you've seen all the downstream service economies sort of feeding off of this you've seen a resurgence of manufacturing in Pennsylvania is feeding off the feedstocks and the low cost side of of.
Of the energy side of the equation, which is big for manufacturers and you've seen basically the local governments and the state government benefiting from this through the impact fee, so and that's up to billions of dollars since it's been.
Been created so I think Pennsylvania is sort of been an example of a well integrated gross story with respect to natural gas and how it's a fundamental building block of an economy.
Okay, So west, Virginia, equals, Pennsylvania equals, Ohio from a risk assessment.
Or maybe it's even better yeah.
Northern Appalachia.
Pretty much.
Eastern Ohio, Western P, a northern West Virginia context.
Can you help on simple math or just reconciling what the market must be factoring into your $2.9 billion, a true free cash flow over seven years versus your.
Your market cap N E V. I think he tried to hit that with the Inverness inventory assessment.
But I'm just trying to see if there's anything other than inventory that you hear that that makes people question that gap between.
$2.9 billion 4.3 billion dollar E V.
You hopefully.
All all the all star Nick away and so I think.
Ironically, the folks that actually spend time on us and study as well asked me. It's over that same question. All the time and I think two things the ecosystem hasn't caught up to us on what how much we have changed over the last several years and in regards to costs and casual generation inventory you name. It I mean, it's it hasn't caught up to us. So part of it is if you look at just.
But we don't or one of the least coverage from research analysts you know out there, which is absolutely crazy since we've been a standalone A&P. We're number one performer like we built the model that everybody in the ecosystems like clamor and if they want to see built but ecosystem hasn't caught up this yet a lot of the major research shops haven't even started covering us for example.
When you get into this the ecosystem hasn't started value in companies offer free casual you still see even multiples, which in high capital intensity business that you've got to spend capitalist day of the same EBIT multiples are just not an efficient way to look at companies, but if you look historically there wasn't free casually being generated by by companies. So that was the only metric.
Folks could use the compare compare separate companies I think as we move into the next phase if the ecosystem catches up to the phase that they're trying to say that we're going to move into which is free cash flow generation and return to shareholders are free casually yields gonna get attention I mean, you're free casually yoda, Ironically can only be high training bad [laughter].
Yeah, that's kind of what we're saying is there was a market guy.
Contributor at the opportunity right now is is tremendous for a new investor NSC. An accident is Nick said, if if folks take a little longer to catch up to it will will invest in ourselves I mean, it's it's there the numbers are there the ecosystem hasn't caught up and you know, we'll keep her in quarters and do good things with the money and hopefully the ecosystem catches up to us and.
At the end.
Broader picture over seven years 3.4 billion of legitimate free cash flow.
I look at it this way if the yield unchanged as we talked about this I think on an earlier question. If you project out three years of the front seven or that is going to be material lower our share count will be substantially lower and our free cash flow for sure is going to be significantly higher and we're going to be insulated from the various nuance twists and turns of the commodity.
Space in the capital markets.
That's a base case that one way or another.
Rectify what we're talking about here.
It is the fixed variable dividend year, three plus it could be something you might included in your plan just for from the Peanut Gallery I do think that is resonating, particularly in the larger and larger gaps space. So yeah. Thank you for answering my questions and your your protector.
This concludes that question and answer session I would now like to turn the conference back over to Thailand Lewis for clothing Vermox.
Great. Thank you ma'am, we appreciate everyone. Joining us. This morning, if you have any follow on questions. Please feel free to reach out otherwise we look forward to speaking with everyone. Again next one thank you.
The conference has now concluded. Thank you for attending today's presentation you may know this.