Q2 2021 Southwestern Energy Co Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by.
From the southwestern Energy's second quarter 2021 earnings call.
John will open up the call for questions.
With a question and answer session following the prepared remarks.
In the interest of time presuming yourself to 2 questions on re queue for additional questions. This call is being recorded.
And I'll turn the call over to Brittany way FERC southwestern Energy's director of Investor Relations you may begin.
Thank you Keith good morning, and welcome to South.
Also certain energy second quarter 2021 earnings call. Joining me today are Bill way, President and Chief Executive Officer.
Clay Carroll, Chief operating officer, Carl Giesler.
<unk> Financial Officer, Michael Hancock, Vice President Finance, and Treasurer, and Jason Kurtz head of marketing and transportation.
Before we get started I'd like to point out that many of the comments we make during this call are forward looking statements that involve risks and uncertainties affecting outcomes.
Many of these are beyond our control and are discussed in more detail in the risk factors and the forward looking statements sections of our annual report quarterly reports and our definitive proxy statements for the special <unk>.
Meeting regarding the Indigo transaction, all as filed with the Securities and Exchange Commission.
Although we believe the expectations expressed are based on reasonable assumptions. They are not guarantees of future performance and actual results on developments may differ materially and we are under no obligation to update them we.
We refer to some non-GAAP financial measures, which helped facilitate comparisons across periods and with peers.
For any non-GAAP measures, we use a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release available on our website I will now turn the call over to Bill way.
Thank you Britney and good morning, everyone. We appreciate you joining us today and I hope that you're all safe and well from.
I'm delighted that so many of our employees have been able to join the call. This morning as well my Thanks go out to each of you for.
For all that you do for the company each and every day.
Before we get started I would like to welcome Carl Giesler to.
I'll touch on energy as our executive Vice President and Chief Financial Officer.
His strategic perspective, and disciplined approach really complement our existing strategy and our management team I.
I would also like to thank Michael Hancock, and the entire finance and accounting organization for your exceptional work, especially over the last 6 months.
As we work to fill the CFO role left behind by the loss of Julian Bott.
I look forward to working with both of these talented leaders as we continue to execute our strategy to enhance sustainable value for our shareholders.
Okay.
Southwestern energy is returns driven strategy focuses on creating sustainable value protecting financial.
<unk> consistently.
Delivering leading operational and financial results and pursuing opportunities to capture the benefits of increasing scale.
At the core of our strategy and value proposition as a commitment to the right people doing the right things.
Our success depends on the alignment and commitment of our fully engaged diverse and inclusive workforce.
Nurtured by our high performing innovative and value driven culture.
In the second quarter, we took additional steps to deliver further value enhancements from our strategy in action.
The highlight of the quarter was the announced acquisition of Indigo natural resources.
The integration planning process is going well and ahead of schedule the.
Shareholder.
Stress set for August 27, and we expect to close shortly thereafter.
This transaction expands the scope and scale of our company by combining core positions across the countries to premier natural gas basin and accelerates the delivery of key financial and strategic objectives.
Because of India goes low cost structure.
<unk> and strong balance sheet, we expect to see immediate accretion to key financial metrics, including improvement in corporate returns and increase in free cash flow and the accelerated delivery of our deleveraging goal later this year.
Indigo furthers, our sustainable value creation strategy by expanding our overall opportunity set.
A moderating risks to our business the expansion into the Haynesville adds tier 1 dry gas inventory locations that complement our existing Appalachia inventory.
These locations are adjacent to premium gas markets, including LNG and other growing demand centers.
Notably the firm sales agreements and fixed basis differentials.
Expand the Companys margins and dampen its overall basis volatility.
<unk> is well positioned to capture the many tangible benefits of scale that this transaction brings including cost economies expanded inventory and further capital allocation optionality.
The benefits improved the sustainability of our free cash.
<unk> duration, particularly as commodity prices continued to improve.
We are on track to deliver the promised synergies at closing and Furthermore, we see the potential for additional value enhancements once the transaction closes from operational and commercial improvements are strengthened credit profile and a lower cost of capital.
Capital were proven integrators, and I'm confident that our new combined haynesville team.
We will find ways to deliver additional value from our newly integrated business.
<unk> commitment to sustainability goes beyond the economics of scale enhancing transaction like indigo.
It is the ultimate objective of our ESG strat.
Flow John as well.
Responsibly sourced gas is 1 of our key initiatives. This quarter, we implemented a basin wide program to certify and continuously monitor all of our Appalachia basin unconventional wells through an agreement with project Canary.
We have a long history with the firm as we've been marketing responsibly sourced gas for several years.
Years to end users in the eastern United States.
We specifically selected a certification provider that utilizes a rigorous and comprehensive process.
The basin wide well certification process and site monitoring has begun and we have already installed continuous monitors at several operating sites across RPM.
Pennsylvania acreage, enabling our operating teams to immediately address potential emissions should they occur.
Southwestern is a leading natural gas producer that is well positioned for a low carbon future.
We have a unique combination of a strong balance sheet.
<unk> scaled tier 1 operated assets.
Moving exit.
<unk> and ESG performance, providing the means to deliver sustainable value creation we.
We continue to believe disciplined consolidation and the benefits of scale are core to our strategy for driving shareholder value, we remain committed to holding capital investment at maintenance capital levels and disciplined in our risk management strategy, including hedging.
Over the next few quarters, we will further refine our capital allocation strategy, including additional debt reduction and the potential return of capital to shareholders.
Now I'd like to turn the call over to clay to discuss the quarters operational results.
Thanks, Bill and good morning.
Operationally <unk> was another active quarter in our teams continued.
To deliver results within our guidance ranges, while ensuring the continued protection of our people and our operations from the ongoing challenges presented by COVID-19.
Our 2021 plan is on track and we look forward to operating in the Haynesville.
I'll start with some highlights from the quarter.
Total.
Total production was 276 Bcf, a day or 3 Bcf per day.
This included 2.4 Bcf per day of gas representing 79% of total production.
And approximately 104000 barrels per day of oil and Ngls flat to the first quarter and consistent with our maintenance capital.
Program.
During the quarter, we averaged 5 drilling rigs 2 in Pennsylvania, 2 in West, Virginia, and 1 in Ohio with 2 Frac crews.
As planned we invested $259 million of capital in the quarter and expect Q3 to trend lower with a further decrease in Q4.
The shaping of our maintenance capital investment in 2021 is consistent with our well established approach of front end loading and tapering in the second half of the year.
We brought 31 wells to sales in the quarter drilled 23 and COVID-19.
Costs on wells to sales were in.
With the first quarter at $626 per foot with an average lateral length of approximately 14000 feet.
While we are starting to see some inflationary impacts mainly related to diesel steel and labor.
Due to our vertical integration proactive procurement strategy and operations.
Operational efficiency gains, we continue to expect low single digit deflation in 2021.
In southwest Appalachia, we brought online our first Ohio, Utica dry gas pad and achieved our $100 per foot cost reduction goal with an average well cost of 720.
Hours per foot.
This 3 well pad had an average lateral length of approximately 13700 feet.
On an average 30 day rate of 25 million cubic feet per day, all performing in line with expectations.
In northeast Appalachia, we continue to drive operational efficiency.
8 to reduce cost and enhance the capital program returns.
We placed 11 wells to sales in the quarter with an average well cost of $531 per foot.
And an average lateral length of approximately 11600 feet.
These wells had an average 30 day rate of 14 million cubic feet per day.
Sees as Bill mentioned, we are excited to join with our newest colleagues from indigo and hit the ground running in the Haynesville.
We are currently doing our operational technical and HFC planning and we will have a great operating team in place that represents a combination of employees from both indigo am swim.
Initially we will be focused on incorporating current haynesville best practices, and then look to combine that knowledge with our own operational expertise.
I'll now turn it over to Carl to discuss the financial highlights.
Thank you Clive and good morning, everyone I'm excited to join the team and to help build on the momentum.
Net and swim is generated through its base business and acquisition progress.
As Bill mentioned earlier this quarter the company accelerated delivery of its financial goals it.
It generated a free cash flow for the third consecutive quarter. We're on track with that 2021 plan to generate.
Meaningful annual free cash flow expecting free cash flow generation to accelerate in the second half of this year.
Once the transaction closes we will provide updated guidance to account for the addition of indigo.
The solid quarterly financial results further improved our.
Our leverage ratio by almost a half turn to 2.6 times.
Quiddity remains in good shape with.
With just under $570 million in borrowings and $1.2 billion of capacity on our credit facility.
With the accretive acquisition of Indigo in current robust commodity price outlook.
Outlook, we expect to achieve our 2 times sustainable leverage goal by late 2021.
The key part of achieving this financial strength has been swings commodity and basis hedging strategy, which is directly linked to the company's enterprise risk management.
<unk> strategy.
The company incorporates balance sheet strength.
Leverage commodity and basis fundamentals and the benefits to the company's financial strength, resulting from acquisitions among other aspects and determining the level and the instruments hedging that will be employed.
As a result.
From a basis hedging strategy the company maintained its full year guidance, despite widening basis in Appalachia.
As we integrate indigo and update our capital allocation strategy in the coming months.
We continue to ensure that our commodity and risk.
Mandarin.
<unk> strategy in practice remains aligned with the company's risk profile and our long term value creation objectives.
That concludes our prepared remarks, Keith if you don't mind. Please open the line for questions.
Yes. Thank you.
We will now begin the question and answer session to ask a question you May press.
All of our then 1 on your Touchtone phone.
Speakerphone. Please pick up your handset then sure Greg Some quality press Star then 2 to withdraw your question. Please hold while we assemble our roster.
And the first question comes from Charles Meade with Johnson Rice.
Good morning Bill.
Bill to you and clay and welcome to Carl.
Good morning.
Bill I wanted to go back to up to a theme I think I will explore with you before but.
A couple of years ago, when you guys were.
It has to do with capital allocation with respect to hedges from so a couple of years ago, you guys had some in the money hedges.
Standard of explored whether you guys were.
We're <unk>.
Ranking in selecting your projects based on the strip or do your hedge price in your answer Dan when you had.
When you had in the money hedges was no.
So the hedges that we evaluate on the strip and I'm curious.
And look now where you guys have.
22, where the strip is above where you guys have hedged it's a symmetrical on the other side as well in other words are you going to rank in select based on.
The strip of call it $3.43 gas even though.
Youre hedged at something closer to the high twos.
Yeah. Thanks, Charles for the question, our practice of using strip pricing too.
2 to determine capital allocation remains I think.
The choice of yes, or no I think it's a bit broader than that yes, we will we allocate against strip.
In addition, we're going to take a look at okay.
Okay. What are what does the hedge book look like where are we actually going to <unk>.
Land on on pricing and that will be that will be blended into our thinking as we as we look at projects and allocation, but the economics.
Yes, that's right non stop.
Okay.
So it would it be a fair inference that debt.
The company's overall cash flows as as you know is affected by hedges its going to its going to set up is set the capital budget, but with inside the inside that that that budget. The ranking is really more strip is that yes.
The capital budget will be maintenance capital.
However, all of that plays out to get there.
We're going to be holding production flat year end 'twenty 1 to year end 'twenty 2 so get on there and then and then yes as we look at.
The.
The mix of projects and where we invest first clue is we'll probably invest across all.
And so the places where we operate because we've got complementary projects across multiple multiple parts of our business and then second yes.
You'll run a sensitivity at least then look at okay. What strip look like what are the what through the project economics look like with the hedges in place and then make decisions based.
Just on that.
Got it and then and then a quick follow up picking up on that thread those 3 Ohio, Utica wells coming on at 25 million a day.
It looks like a pretty attractive rate, but.
And if you hit your your well cost target, there, but where would those where would those slot in.
Differently with those.
Our feeling and the like the top quartile top half of your of your projects for next year.
I think the key.
Issue. There is you got to look at gas and liquids prices, you've got like a basis, you've got to look at all of the dynamics that are at play well cost et cetera, and we typically do that as.
Slot move into the latter part of the year in anticipation of our budget release in February and so we'll we'll run those we have we already look at the business on 2 year basis anyway, but we will run those more specifically as we get closer to the capital budget.
Thank you Bill.
Yes.
To comment on.
How much you made $25 million was as expected the strong economics.
And again I think when you look across our portfolio.
At the opportunities we have for investing.
They are very complementary from an economic perspective, 1 to the other and where there is.
On the other kind of opportunity to look at that mix.
As we get closer to the budget I think youll see that we will we will largely be investing in each part of our business because of the quality of investments we have to play with.
Got it thanks for the added detail.
Sure.
Thank you and the.
Income from Holly Stewart with Scotia, Howard Weil.
Good morning, gentlemen, Britney good morning, Halloween wells.
Welcome Carl.
Thank you.
Maybe clay can I can I start off with you just on them on a on a due diligence question I know, that's probably been ongoing Oh.
First a few months, but maybe just bigger picture what have you seen so far with the indigo asset base that maybe you are not aware of kind of coming in 2 months ago.
Yes.
We're pleased with.
What we see as we've been.
To allow all the diligence across all the different categories, we've always been.
Very excited about the inventory opportunity.
Operationally they've done a good job.
1 of the things that was probably.
Something we were pleased to see was all the way down.
Doing or thinking about some of the ESG components and.
And methane intensity, which was in line with what's when legacy has been so that was another positive.
The overall diligence that we've been doing on the asset.
And we've met some incredibly strong and talented people, who will be joining our team as well and so.
The business is it looks like it's performing at or above what we thought.
Hey, great good color.
Maybe bill just kind of bigger picture.
Yeah. The southwest area has kind of been ear growth driver for awhile now, while you've been more on sort of that maintenance activity in north east.
So with the closing of the Indigo deal does this cause you to kind of revisit the northeast.
Beth maybe meaning.
Is this the right mix of assets going forward.
Yes.
Our view on asset mix and the scale of each of those assets are.
We've got core assets in Pennsylvania, Ohio, West, Virginia, and soon to be Louisiana, They all fit into the strategy in all fit into the plan enhancements are being made across the piece and not just associated with price, but well performance capability well cost.
Yields you name it and so as we.
We take the <unk>.
Pricing and other assumptions into account and build our 'twenty, 1 or excuse me 22 and beyond plans.
We see it.
Place for investment and all of those areas.
Okay, great. Thank you guys.
Sure.
Thank you and the next question.
And the all day long of a trust securities.
Good morning, all and congrats Carl.
My first question kind of maybe tie both the the the 2 couple of questions. You had in early together with with sort of the hedge strategies. You have now I'm just wanted to kind of look at hedge strategy and shareholder return going forward.
Non cost does that give you the confidence that I guess sort of 2 questions around that shareholder turned 1 that you'll reach that.
Shareholder or I should say leverage goal at a certain period and once you hit that is that when you all decide kind of what does the best course for shareholder return at that point.
If if you're if.
If you're referring to capital allocation strategy and return of capital to shareholders.
As we.
Work through.
And I can fully integrate the.
The indigo asset and get it closed we'll take another look at our capital allocation strategy.
Mindful of a number of <unk>.
Key.
Aspects of that discussion around fundamentals outlook equity performance.
Strategic opportunities bonds.
A number of those things.
And all of those that decision criteria will be put on.
<unk>.
Maximizing sustainable value for the shareholders and does that mean return of capital to shareholders of course, we have to look at that does it mean.
In its multiple forms as I mean further investment that will probably be a piece. If you go back to when we sold Fayetteville.
Kind of a proof point.
Back from the whole thing looked at where we were as a company and where we're headed.
Allocated some of those proceeds to further debt reduction and debt reduction is obviously a part of this equation.
Return of capital, which we did not to shareholders and then further investments so.
It's imperative for us.
To look at that on a balanced basis.
Linked to all of those things I talked about.
Very well said and just to follow up.
Moving to Indigo just can you remind me I forget the amount that you assumed as far as FTE in the hedges and how you sort of blended that I am sure.
Sure that's part of the integration, but how youll blend that into sort of the current portfolio.
Yes, I think what.
What I would need to do is we need to close indigo and then we can put together our pro forma.
Any of the data that we're able to put out so far is in the proxy that we've issued.
But I am advised that we've got to wait till closing to kind of lay all that out.
Then we will.
Understood look forward all of that I think it will go great. Thanks, Dan.
No problem. Thank you.
Thank you and the next question comes from John <unk> with Goldman Sachs.
Hi, good morning.
Taking my questions good morning.
I kind of wanted to follow up on the question around activity levels and hedging as if heat as you meet your.
Total non sustainable leverage target in late 2021.
What is the do you see or do you expect to kind of hedge less going.
Forward.
Because your.
Your your balance sheet have been the right place and then also the activity levels. If you look at the outlook for Ngls and natural gas and basis here is there any kind of tilted towards drilling more liquids ADR within southwest VA with a dry gas area and then how does the haynesville kind of factor index.
Well I think first of all our hedging.
Strategy is directly linked to our our.
Enterprise risk management strategy and so as we look across the forward 36 months, which is our kind of a rolling program.
We take into account.
The various enterprise opportunities, whether that's balance sheet strength of our cash flow our debt targets or any of those and enterprise risks, which are commodity and basis for sure and any other risks that are there certainly the scale of adding and indigo to the corporation and bringing all that together.
Is another variable in.
Factors.
We look at.
We have quite a bit of flexibility in our programs and we use that whether that's tenor of.
But.
Hedging or whether that's in each each of the 36 month are the 4 quarter period.
Using collars or swaps or whatever so.
We will always maintain a linkage and continue to do so between our program all of those macro factors in the company and.
In our financial.
State and so as we as we build out our program and are in our long range plan.
And we look at our capital whether its return.
So capital or investing capital or other.
Users and we'd look at the overall state of the company in terms of leverage balance sheet strength all of that.
That will.
Certainly as it does today inform how we shape the hedging profile over that rolling period going forward.
And 1 must understand that as you go further and further out at this 10 seconds because of just how far out you go.
Is that rolling concept means that less hedge further out more hedged today.
And we continue to balance that as well as the use of tools. So it's all incorporated.
It's quite a.
A comprehensive view and a strategic view at the same time and I think I'm very comfortable with how we work that.
The other piece about the dry gas and liquids split we're very happy with the improvement in all the commodity prices and the.
2021 program is roughly a 50.50 split between dry gas and liquids.
The dry gas as both northeast and Ohio dry gas that we touched on a little bit earlier and so.
That mix has somewhat been a consistent mix for us.
Forward and.
Sometimes we'll opportune opportunistically make some adjustments there but.
We're close to that 50.50 split as we think about 2021 and a standout example of just managing all of this together is our basis hedging position.
The teams have done a great job.
Me and protecting.
The company from <unk>.
Very strongly widening basis in the Appalachian basin, and so we attack that challenge by a basis hedging, which means we're not going to we don't have to change our guidance on basis for the year.
And then you combine that with the combination between.
Green swim and indigo and the natural benefits of <unk>.
Blend.
Gulf Coast basis in Appalachia basis.
You get the economic advantages and you get a de risking of that particular aspect. So it all goes together.
That's really helpful. Thank you so much.
And if I can squeeze on motor and with.
With respect to cost inflation pressure as you talked about seeing higher cost inflation pressures from diesel labor and steel.
But he also talked about efficiency gains and expect costs to go down.
As you look towards next year.
More like based on your conversations with.
The weighted specific specifically in the Haynesville, where you compete with some of the services from oily basins.
What do you expect cost tends to be that.
Yeah as you mentioned.
Our procurement strategy that we've been using through the years has protected us well the fact that we own our drill on drilling.
Rigs has been a key protection item for us from inflation and we do still expect the low to mid single digit deflation in 2021.
We are seeing some signs there it's pretty early for 2022 right now we do expect to see some continued.
Tenured inflation pressure as we move into 2022.
Early.
Preliminary look.
As maybe a low single digit inflationary.
View, but we're still working on that and we're going to use our same procurement strategies and benefit from the broader.
Scale that will have on the other side of indigo.
And while there may be.
As you put it competitive pricing pressures from the Permian.
We've been very successful in using.
Using the fact that we are vertically integrated that we do have rigs that will bring to bear we do have a flat frac fleet.
Broader sand a number of other items that will bring to bear in helping maintain and contain cost increases so.
I think as Clay said, we are in a solid position there is a bit of pressure, but we'll manage through that.
Alright, thank you so much.
Thank you and the next question comes from Scott Hanold with RBC.
Hi, Scott good morning.
Hey, how are you all doing.
My first question is is when.
When you step back and.
Think about.
How you define <unk>.
Sustainable leverage ratios and obviously when it's a starting point of getting there too.
Gage your shareholder returns, but how do you think about the mid cycle gas price with respect to that and can.
Can you give us a sense of.
Where that fits into it and if you've got a view on where that might land.
When we think about leverage I think we look at it.
Predominantly in what we expect it to be with the strip as opposed.
Multiyear strip as opposed to.
Arbitrary mid cycle.
And we say sustainable leverage.
At or under 2 times, we're trying to balance.
Having a cost efficient capital.
Structure.
Uh huh.
But yet still maintaining a margin of safety to use that term.
Our financial perspective.
And on and on putting putting a.
Like today of course, but with elevated prices, we've been running or looking at it.
275 million to $3 range.
Sort of a mid cycle price look.
And to.
Good day positive pressure on that but.
We want to be sure that we're not taking it transient.
Increase in putting it into strategic decisions.
We will run above.
Okay. Okay. So so theres a little bit of it's a little bit dynamic, but it sounds like you've got a a frame view there.
Okay and my follow up question is it's a couple of things first just to clarify you know clay you mentioned the capex trends are down.
Down in the down again in the fourth quarter and just to confirm.
That obviously doesn't have any impact from indigo. So it wouldn't be surprising to see that a little bit more sequentially flat when that comes online does that makes sense.
Yes, as we indicated when we close indigo will put out a new guide that will include the capital.
Capital associated with the ongoing.
Capital program on those assets that will then be additive to the tapered off design that we have in the third and fourth quarter.
Okay, and then on the the other point I was going to ask because on the NGL market. It sounds like it looks like your guidance for NGL prices.
<unk> remains fairly strong in the realizations are very robust, especially for the quarter. I know obviously pricing is as you know very solid right now, but can you give us a little bit more insight into what you all are seeing real time on the NGL market.
Yeah. Scott This is Jason So I think you know if we.
The NGL market.
About think about propane first theres probably.
Several factors that are driving driving propane.
The limited propane supply due to oil related Capex reductions and then just definitely increased plastics demand in exports to Asia.
Think that up.
Think of the other thing that's driving.
Propane hires just the exports probably roughly 1.2 million barrels per day on an average and this is just due to increasing global demand.
And the additional export facilities out of the out of the Gulf Coast and then the other big thing on propane from the from a pricing perspective is just that inventory.
For propane is at the low end of the 5 year range will likely enter winter pretty pretty tight unless something something changes here.
<unk>.
The propane demand continued the market continues to grow I mean, there's even less days of supply potentially available. This winter, which is another factor thats, putting putting pressure on prices when.
When we think about ethane theres probably.
Probably several several factors natural gas acts as a floor for ethane from a pricing perspective. So obviously natural gas prices are higher you've got you've got increased and increased exports as well and then <unk>.
Also the other thing from an ethane perspective is just the.
The return.
Stable ethane cracker facilities in the Gulf Coast Crackers, just running around $1.8 million barrels per day, which is probably up a couple hundred thousand barrels per day from what they've been over the past couple of years. So theres just a lot of strong demand for our for the for those products out there.
I appreciate the color. Thank you much.
Thank you and the next question comes from Jeffrey language I want to turn John Pickering Holt.
Good morning, Thanks for taking my questions first just wanted to ask on the Utica well cost reductions if there's anything more to add there on the moving pieces in the near term running 1 room could be and also how applicable it might be across your position.
Yes, I think the more.
At <unk>, we get under our belt there we're going to continue to look for efficiency gains just like we've done on the swing legacy assets. We were very pleased with seeing that $100 a foot reduction on the very first 3 well pad and.
There are some good learnings there some of the things that we thought we were going to benefit from right off the bat, we did and we think there's still room for cycle time improvements in the different sections of the whole and we will continue to look at.
Ways to continue to optimize the complete.
And design as we move through time, but all consistent with the way we've been doing our well costs across the company.
Great and then just shifting gears a little bit in my second 1 is a follow up to 1 of the questions earlier on return of capital and I know you mentioned this a bit in the prepared remarks, and then expanded on it earlier in the Q&A.
Q&A, but just wanted to revisit that specifically in isolation, if theres a way to maybe speak to the different options that you might have.
That you might be more inclined to pursue as you kind of refine your thoughts on that.
I think several factors come into play.
Yes, I think it's no secret.
Grid at core.
Our primary focus of our strategy is to continue building scale and we will continue to try to be active in M&A to do that.
And so with that variable that could obviously impact how we use our free.
Free cash flow I think another another book Mark if you want.
About <unk>.
Our allocation of capital as you heard Bill say, we're committed to maintenance capital at least at the enterprise level I think that will be the case going forward as we.
Bring into go into default.
And so once you take those 2 things aside I think it becomes a function of how comfortable we are.
Whether mid cycle price strip prices or whatnot.
Being able to make on a sustainable basis as we've said many times keeping net leverage at around 2 times and then after that.
View, the most expedient way potentially returning capital to shareholders. So I think that's how we're framing.
We think discussion.
Alright, thank you.
Okay.
Yes.
Thank you and the next question comes from John <unk> with Bank of America.
Good morning.
Good morning, and thank you for taking a quick questions here.
Just wanted to ask a question here on the.
Ohio Utica.
I mean, just given the strength in liquids pricing that we're seeing here for Ngls and also for oil.
What would you have to see in order to bring in activity into the liquids window of the Ohio, Utica and where does it sort of the decline rate look like in that with that asset.
Yeah.
Yes.
Yes.
I think the.
Initial focus that we had as a company when we were looking at montage was we recognized a high quality.
Dry gas Utica.
The high quality rich Marcellus on that acreage position 1 of the things that.
Helped us lean towards starting in the dry gas window was.
The added benefit that that was going to have for us around the swim legacy existing Utica inventory and the ability to get the.
Wells drilled with our rigs and with.
Team and get that knowledge improve that we can bring the cost down and then that was going to help us as we think through the resource to reserves effort on the existing Utica. So so that was.
The main reason for the Utica dry gas initially we will definitely.
Currently be incorporating over time, the liquids rich Marcellus assets there but.
Like I commented in the beginning.
All the commodities have seen nice improvement and we've got strong economics across all the different play types in our areas.
With Oracle it'll be part of the go forward plans.
But we're liking what we're seeing right now in the Utica and hopefully can continue to improve that performance.
I appreciate that answer in your hand, you've already answered this in part from your explanation there, but when you when you think about the indigo assets.
And so bringing those in.
How do I mean, you've talked about in the past are possibly looking at that flat castle, how does that sort of opportunity ranked view at this point in time that you bring it needed to go assets.
Yes, Indigo has way more focus.
The high quality proven inventory that already exist there and enacted.
Active program that will be ongoing when we take over at closing.
We like the opportunity the upside opportunity tied to flat castle and we're doing a lot of the subsurface technical work on that right now, but clearly the proven aspect.
Assets of what's going on in the Haynesville with the indigo inventory as our main focus between those 2 and economics like like always will drive all of those decisions and as we build that plan out.
If we could communicate a bit more about that.
Thank you very much for taking our questions.
Keith.
Thank you and the net.
Next question comes from Noel Parks with Tuohy brothers.
Good morning.
Are you.
Just a couple of things I wanted to head back to the Utica.
30 day IP of 25 million a day across the 3 wells.
Is there a choke management.
On those.
Yes, we're making sure we're doing the right.
Flow back to maximize the economics of the well and the performance of the well and there is a flat portion.
In those Utica well profiles for exact.
Reason that you mentioned to make sure that we're watching the drawdown and then.
Produce those in an optimal way so we're in the <unk> portion of the wells right now.
Great and.
Just as a follow up but I think if you have them all.
Or has something else changed if you care to.
It gives us an insight into what the 24 hour.
Peak rate was on that because the 30 day 25 million a day.
Read into that.
It's pretty impressive but maybe another thing was just curious what were the most sort of recently drilled offsets to to where.
You are up there I was just trying to get a feel for.
There's been a lot of activity or sort of how neglected the area of spend by by other operators.
Yes.
The highest rate we saw was was upper twenty's in the area, but the intention.
<unk> all along was to bring them to a level and then they would be at a flat production profile, which is why that average of 25. When you when you look at the.
At public data the data, we have from offset operators and in particular montage because montage.
<unk>.
Is who the most active operator was in the area before we took over immediately adjacent and on these assets.
The well performance was probably on average closer to around 20 million a day and that flat portion, maybe 'twenty 1 million a day.
<unk>. So we've continued to utilize our practices as we brought these assets in and we were comfortable with.
Our subsurface understanding and reservoir engineering and Thats why were producing those at about 25 million a day.
Great. Thanks, a lot.
Day.
Thank you and that does conclude the question and answer session I would like to return the Florida Bill way for any closing comments.
Well. Thank you all for your questions and the dialogue, we really appreciate it and we also thank you for joining us on the call today.
Your interest in our in the company and your support as we progress our strategy.
Bring into go into the fold.
And then and take a much stronger compass.
Company forward.
Really is an exciting time for us so with that I'll tell you have a great weekend take care and we look forward to sharing more about swim.
As we as we close in to go and certainly on the next conference call. Thanks again.
Thank you that concludes today's teleconference. Thank you for dialing into today's presentation. You may now disconnect your lines.