Q3 2021 Antero Resources Corp Earnings Call
Greetings and welcome to the Antero resources third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Brendon Kruger Vice President of Finance.
Thank you for joining us franchise third quarter 2021 Investor Conference call.
Few minutes going through the financial and operational highlights and then we'll open it up for Q&A.
I would also like to direct you to the homepage of our website at Www Dot Antero resources Dot Com, where we have provided a separate earnings call presentation that will be reviewed during today's call.
Before we start our comments I would like to first remind you that during this call Antero management will make forward looking statements.
Such statements are based on our current judgments regarding factors that will impact the future performance of Antero and are subject to a number of risks and uncertainties many of which are beyond <unk> control.
Actual outcomes and results could materially differ from what is expressed implied or forecast in such statements.
Today's call May also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures.
Joining me on the call today are already chairman, President and CEO, Michael Kennedy, CFO, and David <unk>, Vice President of liquids marketing and transportation I will now turn the call over to Paul.
Thank you Brandon.
Let's begin with slide number three titled Antero strategy evolution.
Antero has business strategy has evolved over the last decade 10 years ago, Gary what we would call quote unquote shale one point, though our focus was on increasing scale to acreage acquisition.
Building out the necessary midstream infrastructure through long term commitments and delineating our resource base.
As we entered quote unquote shale to point out we focused on growing production to achieve scale and become a leading U S natural gas and NGL producer.
During this time, we proactively hedged our production into a strong contango forward terror.
Harder to lock in attractive returns and to ensure that we delivered on our growth targets.
We also consolidated our acreage position through land acquisitions and swaps to secure the contiguous position we have today.
Lastly, through technology and innovation, we optimized our drilling and completion techniques to.
To maximize recoveries and reduce well costs.
Today Antero is in the shale three point O phase our focus is on maintenance capital programs that hold production flat and maximizes free cash flow.
The results of this program the results of this program have been dramatic.
We reduced debt by $1 $4 billion in less than two years and lowered our leverage from three eight times to just one six times at the end of the third quarter.
Our strong balance sheet and low leverage combined with low maintenance capital allows for less hedging than was previously targeted.
We are currently the least hedged in our company history on the natural gas side as we enter 2022.
We also have very little Ngls hedged and no grade propane as of October one the beginning of this month 2021 <unk>.
Slide number four titled.
Peter hedging comparison.
Shows our 2022 hedged portfolio relative to our peer group.
We have not added any natural gas hedges in over 18 months, a testament to our management and our natural gas and liquids commodity fundamentals teams.
It has remained bullish on the outlook for both natural gas and Ngls heading into next year.
We are only 50% hedged on natural gas in 2022 and have no liquids hedges.
We are essentially unhedged in 2023 on all commodities and going forward.
Now, let's discuss drilling inventory in the Appalachian Basin.
Slide number five titled Pure leading premium core inventory.
Provides a summary of the core inventory remaining in the Appalachian basin as we see it.
We regularly perform a technical review of peer acreage positions on drilled acreage and location potential. We also analyze btu well performance and <unk>.
Based on these results we've subdivided the core of the southwest Marcellus and Ohio, Utica into premium and tier two sub areas.
<unk> identified approximately 5200 premium locations premium undeveloped locations for the industry.
In the southwest Marcellus.
Which is shown with the red outlined on the map.
Of that we estimate Antero holds approximately 1800 65 of those premium locations or 36% of the total.
Which includes more than 1000 liquids rich locations.
Is the Ohio, Utica, we estimate roughly 1100 premium undeveloped locations for the industry of which Antero holds 210 or 19% of the total.
Beyond that we estimate that there are 1600 tier two locations remaining which you can see located within the blue lines.
You can see that much of the acreage.
Is covered up with existing Marcellus and Utica <unk>.
Productive horizontal wells, which are the red lines on the map.
Ultimately we believe.
The idea of quote unquote inventory fatigue, and the limited number of premium drilling locations, which will be critical a critical distinction between the haves and have nots across Appalachian producers base.
Based on our maintenance level development plan, which assumes 60% to 65 wells per year Antero has at least 15 years of premium liquids drilling locations remaining with many years of dry gas locations on top of that.
This analysis leaves us optimistic about antero has competitive advantages as we look towards the future.
Yes.
Turning to slide number six titled right sizing of firm takeaway commitments, we highlight our declining commitments over the years.
On October one, we released 200 million a day of capacity, reducing our annual transportation fees by $45 million.
This firm transportation was originally intended to be filled with Utica volumes. However, given our development focus now on the liquids rich Marcellus acreage. It was prudent to release this unutilized or underutilized capacity.
Year to date, we have released a total of 400 million cubic feet a day of firm transportation commitments, reducing annual transportation fees by just over $60 million.
A year, we will continue to optimize our firm transportation portfolio to best match, our current maintenance capital program and our development focus.
Now, let's turn to slide number seven titled.
Diversity of product and destination.
This slide illustrates the benefits of Antero has unique business strategy.
<unk> focus is on liquids rich development and maximizing out of basin product sales starting with the chart on the top left side of the page as you can see antero has the largest liquids producer in the Appalachian Basin.
Moving to the chart on the bottom left we are not only the largest liquids producer, but with our ability to export half of our <unk> III plus Ngls, we capture the highest liquids pricing in the basin.
Now, let's look at the natural gas side of the business.
The chart on the top right highlights our industry, leading firm transportation portfolio that allows us to sell 100% of our natural gas out of basin.
The direct result of this is best in class natural gas realizations as.
Traded on the chart on the bottom right, we realized a 30 cent per mcf premium to Nymex during the third quarter.
Looked at another way this competitive advantage resulted in price realizations that were $1 seven better than in basin, Appalachia pricing, which averaged 77 back of Nymex.
Combination of our ft portfolio with significant exposure to export markets and our low hedge profile makes antero the most efficient way to gain direct exposure to Nymex and Mont Belvieu prices.
With that I'm going to turn it over to our vice president of liquids marketing and transportation, Dave can long ago for his comments.
Thanks, Paul.
The bullish backdrop for liquids pricing has manifest.
C III.
Having increased $20 to 25% ethane prices up 35% and oil prices up over 15% during that time.
For Antero, we're currently realizing our highest pricing for <unk> plus Ngls since the polar vortex in February 2014, and are on track at current strip pricing for our highest quarterly C III plus price in company history.
Current <unk> plus NGL pricing is over $60 per barrel more than double the year ago period.
Focusing on the propane market I'll refer you to slide number eight titled propane market fundamentals.
Previously we have predicted that wed see U S propane inventories peak around 75 to 80 million barrels this fall Ulta.
Ultimately we ended up at the low end of this range as illustrated on the slide.
The lower than expected year end inventories were a result of strong LPG export volumes out of the U S throughout the summer and into the fall.
Despite the sharp increase in pricing at Mont Belvieu. The export Arb has remained open.
Where the U S will end withdrawal season remains to be seen but with inventory levels. Currently 23 million barrels below last year, we anticipate it will be a dynamic where for propane with the risk for pricing skewed heavily to the upside.
Turning to LPG demand, we've talked in the past about the nearly 550000 barrel a day increase and pet Chem demand in China from 2021 to 2023 and over 110000 barrels a day of European and North American PTH growth during that same time period.
But many did not anticipate was the global pressure for hydrocarbons. This fall and winter that resulted in elevated LNG prices in Europe and Asia.
This is driving additional demand for LPG in these markets through its use of industrial heating and power applications in lieu of today's high cost of natural gas.
On a btu equivalent basis LPG is nearly half the price of LNG delivered into the far east markets.
The impact from this incremental demand for LPG as a widening export arb.
Slide number nine highlights the propane export arb, reaching six and a quarter cents per gallon. This week the highest level in 2021.
As we enter the winter we expect the export Arb to remain open are result of strong demand and reliance globally for U S export volumes.
Looking forward and Taro has been fully unhedged on propane since October one and our remaining butane and pentane plus hedges are expiring at the end of this quarter, resulting in antero being completely unhedged on all NGL and oil volumes beginning on January one 2022, or an approximately just 60 days.
This positions <unk> with tremendous exposure to NGL prices and free cash flow generation, given both the near and longer term fundamentals that we see for these markets.
With that I will turn it over to Mike.
Thanks, Dave I'd like to start on slide number 10, highlighting antero financial strength.
During the third quarter quarter, we generated $91 million of free cash flow.
Which we used to reduce net debt.
Our net debt of $2 3 billion at the end of the third quarter represents a $660 million decrease from year end 2020.
The top right quadrant of the slide illustrates the LTM EBITDAX improvement from just over $1 billion at year end to over $1 5 billion at the end of the third quarter.
Total debt reduction combined with an improvement in LTM EBITDAX.
Decreased leverage to one six times at the end of the third quarter down from three one times at year end 2020.
As we look ahead to the coming quarters, we will continue to maximize free cash flow and reduce debt.
Which is expected to result in leverage below one times in the first quarter of 2022.
As we approach our absolute debt target of below $2 billion. We can begin to use expected free cash flow to return capital to shareholders.
Lastly on slide number 10, the bottom right quadrant highlights the dramatic improvement in our EBIT margin, which more than tripled from the fourth quarter of 2020.
This commodity exposure as highlighted on slide number 11, titled enhanced free cash flow profile.
The increase in natural gas and NGL strip pricing results and the substantial free cash flow outlook at Antero.
We forecast over $900 million of free cash flow in 2021 with substantially higher free cash flow expected in 2022.
Further looking out through 2025, we are now targeting over $6 billion in free cash flow signifying significant annual free cash flow through that time period, despite the backward dated commodity strip.
To put the in excess of $6 billion in context.
Our current market cap is approximately $6 billion.
And our enterprise value is approximately $8 5 billion.
Turning to slide number 12, titled recent credit enhancements, you see the benefits of our improved financial strength.
In early October we received ratings upgrades from both Moody's and S&P.
This week, we extended our credit facility to 2026 with a borrowing base increase of 23% to $3 5 billion.
Despite this increase we elected to reduce our commitments from given our balance sheet strength with an essentially undrawn balance and our substantial free cash flow outlook over the coming years.
As a result of these upgrades are letters of credit were reduced by $107 million.
The release of the firm transportation commitments have Paul discussed earlier resulted in a further $20 million reduction in our letters of credit and lastly, we were able to replace another $80 million of letters of credit with surety bonds.
Further enhancing our liquidity profile.
Next let's turn to slide number 13.
This chart provides a look at which Appalachian producer is best positioned to return capital at.
At the bottom of the chart is a period in which each company is expected to achieve one times leverage.
The left hand side indicates a cumulative free cash flow as a percentage of enterprise value through 2023.
Both of these estimates are based on Factset consensus estimates.
As you can clearly see not only us and hero projected to achieve one times leverage the earliest.
But antero also has the most attractive free cash flow outlook.
Said another way, we will be the first Appalachian company to have the balance sheet and the appropriate position to return capital to shareholders.
And as we look at the world today share buybacks, certainly look to be an attractive option.
We're also excited about our ESG momentum during the third quarter as outlined on slide number 14.
In July we announced our pilot program with project Canaries trustworthy certification process.
Are you using a third party to review the process and procedures, we aim to validate the high environmental standards by which we produce our natural gas.
In August we received a ratings upgrade from MSCI to Triple B.
And we are also committed to the World Bank zero routine flaring initiative beginning this year.
And in early October we published our 2020, ESG report, which we expect to drive further ratings upside in the coming months.
To summarize the impressive operating and financial momentum continues for Antero Slide number 15 highlight titled key investment highlights summarizes the position of strength. We are in today. Following this execution.
We have significant scale as the fourth largest natural gas producer and second largest NGL producer in the U S.
Providing best in class exposure to relatively unhedged strengthening commodity prices.
We have extensive core inventory with more than a thousand premium liquids locations remaining.
Since the beginning of our deleveraging program, we've reduced debt by approximately $1 4 billion.
And we expect to have leverage below one times in the first quarter of 'twenty two.
Lastly, assuming today's strip prices, which includes a backward dated NGL and natural gas strip we.
We are forecasting substantial free cash flow generation of over $6 billion through 2025. These.
These operational financial and ESG metrics place Antero, among a small elite group of E&ps with.
With significant scale.
Low leverage sustained free cash flow generation and leading ESG performance.
With that I will now turn the call over to the operator for questions.
Thank you at.
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One moment, please while we poll for questions.
The first question today is from Neal Dingmann of <unk> Securities. Please proceed with your question.
Good morning, all.
Mike and team on the line.
Sure.
My question is you guys, obviously fantastic.
We call on.
Yes, good evening.
I assume what we've been seeing on the Brian asked my questions.
Now we continue to see not even get back horse gasses in backwardation.
12 months is Phil now climbing quite high and I was just thinking youll hotspot.
Coming off next year.
Im Michael given the returns you all Amit.
Pliers.
Were you tempted to put at least some collars.
Something on that on at least Brian gas side.
Points.
Hi, Neal it's Paul.
Good question.
We're looking forward to being completely unhedged to take advantage, obviously of the high prices and that will accelerate our de levering, we're quite aware of.
Collars that are out there highly skewed to the upside as you know.
But no we feel we're in pretty good position and have pretty good understanding of the fundamentals of the gas market really feel that there is a.
Shortage across the world and as you are aware more and more exports. So.
So even though we're aware of things like collars to get some of the upside.
The way we're looking at it right now is just not hedging natgas at all.
Okay, Okay fair enough makes sense, especially with the lower balance sheet going forward and then Paul just a follow up.
Really it looks good.
It continues to be improved but my question is more on.
When you look at capacity fall upon the liquids in the dry gas side and any sort of issues you see out there in your crystal ball I mean listen Universal louder.
Given the plan to smaller pointed out there is there any.
Anything like that but that gives you any concern.
Yes, good question, but no we don't see any any reason for concern at all we have plenty of liquids takeaway.
We have plenty of natural gas takeaway to the premium markets and so even though we have let go some FTE recently as we talked about.
Of course, we analyze it before we let it go.
We feel that we still have.
Quite enough to get it to the premium markets, primarily Gulf Coast, Chicago, Midwest and Cove point, which is Nymex based market there for us so feel good about where we stand with the FTE and also with liquids takeaway.
Alright, guys. Thanks for the time.
Thank you Neil.
The next question is from Iran. Jairam of Jpmorgan. Please proceed with your question.
Yes, good morning, gentlemen.
Maybe for Mike <unk>.
I was wondering if you could give us.
Kind of the path forward in terms of when do you think the management team would be comfortable perhaps unveiling your.
Your capital return framework and maybe the path towards when do you think you could be in the market.
Lying back stock if the strip holds and I do it.
Does appear that you are going to try to pay down some additional debt next year beyond the $2 billion.
<unk>.
Yes.
All of that occurs in the first quarter of 'twenty to Arun.
With the strip, where it is today will be below that $2 billion target sometime in the first quarter and then that's when we would.
To put in place some form of return on capital and like you mentioned in addition to continuing to pay down debt.
Fair enough fair enough.
In the slide deck, you guys have.
Highlighted how you're your production.
Cost trend down call from.
The range is $2 33 to $2 40, this year and then longer term.
Is that a long term average of the $2 14 to 2019 and I was wondering if maybe you could help us over.
Over the next couple of years, how that stair steps down.
Yes. It comes off as it is kind of tracking the backward dated strip pricing.
On the costs the only real variable there is the.
The taxes AD valorem and severance taxes, and Thats, just the commodity price coming off over that time.
Got it but the but the implication is the longer term average there is $2 14 to $2 19 per Mcf.
Alright, Yes, yes, and then also like that chart shows on the FERC transport. The Unutilized firm transport continues to decline on an annual basis.
Great I'll turn it over thanks.
Thank you.
The next question is from <unk> <unk> of Goldman Sachs. Please proceed with your question.
Hi, good morning, and thank you for taking my questions.
Sure.
Wanted to get your thoughts around spending and also on cost inflation next year.
Any initial read on inflation pressures youre seeing on your on the Appalachia drilling and completion activities.
And also as we think about next year and Youre drilling Jamie with quantum.
On the election side on that.
Should we assume that you will probably elect to go towards the lower end of the range, 15% to 20% range given the strength in commodity prices.
Yes. Good question the maintenance capital is around $600 million.
For this year Theres, obviously been some inflationary pressures.
We're kind of determining and that right. Now we also have some efficiencies that come online in the fourth quarter, mainly our local sand sourcing, which will offset some of that but.
But it's kind of look at the $600 million plus.
From a maintenance capital perspective in 'twenty, two and then like you mentioned, we do have the election of.
Having quantum if they choose to participate either at a 15% or 20% level.
2021, it was at a 20% at today's commodity prices you can imagine what kind of returns we're generating so we would most likely elect.
To have them be up to 15%, so that would add a little bit of capital as well, but.
600 million plus still going to determinant and we'll have to assess the inflationary.
Pressures over the next couple of months for our final budget coming out at beginning of the year.
Great. Thank you.
Thank you.
Okay.
The next question is from David <unk> of Cowen. Please proceed with your question.
Good afternoon, guys. Thanks for taking my questions today.
Yes.
Sure Yes.
Good to hear from you and David.
Likewise.
Mike I actually just wanted to follow up on the in basin Sands.
Just the impact on 'twenty two.
Is this all locally sourced sand from your Beaver projects, and then I guess is it going to be covering the totality of all of your your Frac jobs next year.
Yes.
This is Paul David.
Yes. It is.
Local sand, we've been developing it for a while have been talking about it for probably the last year and.
Yes, it will cover.
Virtually the totality of our program there may be some supplemental northern white on a as needed basis, but.
Most likely it's going to be our local sand and how much can that save.
Yes, the math really comes out how we're going to be around $20 a ton.
With this local sand versus $55. Prior so it's about a $35 a ton say.
Savings and we do 2000 tons of wells, So it's about six to $700000 of well so.
A lot of savings that come from it and that's why we think we can offset some of those inflationary pressures going into 'twenty two.
Yes.
That's pretty clear that certainly with all set on that.
My next question is just on the propane markets.
And just to Antero is based program go forward. Obviously, you can highlight a compelling case for being in maintenance mode.
But it seems like with the fractionation capacity built out so far, particularly in the Marcellus and Sherwood facilities et cetera.
I guess is there a.
How do you think about just growing propane volumes over time or any C. III plus volumes over time with the way that some of the agreements are with fractionation capacity coming online.
Okay.
Okay.
We have plenty of fractionation capacity processing capacity as well David so.
Between share Ware, Sherwood and Smith Berry, which is our latest plant in that complex, we have room for more processing.
We fractionate those that generally at hope day off we can also frac at majors Vail or Houston, but I think there is plenty of capacity at <unk>. So I don't think we have any physical constraints.
And we do have the inventory to continue developing high btu gas that would have plenty of propane in it but it's just.
Maintaining our discipline.
Overall, keeping the damper on growth.
But certainly like the economics quite a bit but no plan to accelerate.
Sure.
Just a last one from me you guys highlighted at the beginning of certainly remember you being five years hedged back in 2000 thirteen's way above the strip.
And obviously today that business is different there isn't that requirement, but as you think about C III, plus especially propane and given the fact that there's so much international demands coming online.
And the macro case that you lay out certainly.
Lays out a shortage in the coming years, especially with some of the D High plans coming online.
Are you getting inbounds or is there is there an interest on your side of signing either offtake agreements with demand contracts that would sort of have a floor in place where you would be providing supply surety.
Yes, we're not tempted.
We learned a lesson last spring we were.
Told this story before but we stepped in and hedge some propane butane last spring we felt good about the fundamentals of propane butane LPG across the world, but we just had a little bit of.
Is this just a wonderful dream and we're going to wake up and it's all going to go away. So we did hedge.
LPG propane butane and that for the second and third quarters and it was into a backward dated curve and sure enough. It.
We ended up what we projected which was a lower price because of the backwardation from last spring and so today fast forward curve is still backward dated and so we believe pretty strongly that it's best to live on the front of the curve. There are there is a lot of appetite for <unk>.
<unk> out there I think Dave kind of long ago, we'd say there is not a cargo that we've lifted that we've exported.
There is.
They're receiving priorities haven't asked if they can have more or have it sooner. So we're quite aware that there is a strong appetite, but we're happy with the situation we have for export at that at Marcus Hook at the dock that we get paid lock in our.
Right, then and there and just keep selling on the front physically and really no temptation to step back into the hedging market and hedge into that degradation.
Thank you guys I appreciate the answers.
Thanks.
The next question is from Jeffrey <unk> of Tudor Pickering Holt. Please proceed with your question.
Good morning, Thanks for taking my questions first I just wanted to follow up on the return of capital discussion as you guys know quickly approach your balance sheet objectives.
Lighted things holds here as far as strip goes in free cash flow is not too far off from $2 billion next year the debt targets for each and you can still delever further wall buying into free cash flow at a nice discount to intrinsic value I just I wanted to get your thoughts on it would be reasonable to think about something in the 50% range as a possible mix of free cash that could go to buy.
Back next year.
Yeah, we haven't done the math on that yet.
Just looking at our debt our ability to pay down debt you can identify probably about $800 million right now of the two three that you could actually control and buy in.
Either through calling it or issuing equity clause or from a credit facility standpoint.
So anything outside of that is probably going to be open market repurchases, which is.
Difficult from a liquidity ability to get any sort of size and.
From that so once you get to the $1 billion $5 level of debt.
The slow going on reducing that much further after that.
So when you do get below that I think there'd, probably be a little bit more allocated to share buybacks or some form of return of capital.
And then prior to that when we can absolutely calling all of that debt.
Great. That's very helpful. And then secondly, just wanted to get how you're thinking about.
The GPT and production and AD Val taxes with higher commodity prices and maybe what some of the offsetting benefits might be on <unk>, specifically as you think about the firm transport optimization.
Yes, the increase is solely because of that the taxes I think around four 7% or four 8%. So every time commodity prices go up the realized price we have.
And your models have four 8%.
It's a tax portion of that.
Actual gathering processing transport should be relatively flat. So there shouldn't be any increase from that it's really just taxes.
We're in full optimizing all of our gas is going to the Gulf coast, right now or the Midwest or out of the basin. So we're already utilizing the higher cost transport right now that's resulting in that 30% premium to Nymex pricing we're getting.
So that won't go up any further.
So <unk> will be flat just taxes will be the swing whether commodity prices go up or down is how that will affect us.
<unk> expense items.
Alright, great. Thank you.
Thank you.
The next question is from Sebastiano of the Benchmark Company. Please proceed with your question.
Hey, Paul.
How are you thinking about.
Hi, Good morning, how are you thinking about the Utica These days.
So thats a nice detailed there on premium locations in the Utica.
Certainly it can be valuable to someone else.
As much or more than.
For your portfolio and your five year activity levels.
I think you do have some activity coming back in that five year scenario, but.
How do you think about that.
Yes, we think about it.
Moved a rig over to the Utica.
This year and it's the first time since 2018 and.
We because we've come a long way on our drilling techniques in general it's gone well over in the Utica.
So we still have some ahead of us, but the economics are just that much better.
Both geologically and in drilling the drilling is just a little more expensive over in the Utica. So the priority is going to be out in the Marcellus that more than 90% of our capital will be pointed in that direction into the Marcellus rich so so.
As is the Utica as near and Dear to our Hearts is the Marcellus no. It's certainly.
A good project, but not as good as the Marcellus and so that's where we'll.
Be focusing our capital.
Okay.
This question might have been asked a million different ways, you, partly answered a million different ways.
Just going to try it again so.
Only because one of your peers competitors yesterday sort of suggested that.
Post 'twenty two.
Mike step in to grow in.
In order to replace fading inventory in the basin right and.
Of course, you are probably equally or better position with regards to inventory.
So.
What are the conditions for growth for you.
Yeah.
No.
You are right we are.
Are fortunate to have quite good inventory for quite a quite a long time so.
So we feel good about that conditions for growth.
No, we really just stick to our knitting and.
Really are quite determined after what we and really the rest of industry has gone through but especially independents with.
Too much debt, we just before we can really lay any plans for growth, we just want to reduce the debt get down to the.
We will pass through that $2.1 billion of absolute debt and debt in the first quarter as Mike elaborated on we will see where we go after there, but it just feels really good to delever. So dramatically. So I think youll see that more will try and be creative with the different ways that we can.
[noise] buyback debt or whatever to reduce leverage that much more.
Really we're staying away from growing we're happy with where we are right now.
Just focusing on that free cash flow, so havent been tempted and just wanted to see.
Delevering and getting the balance sheet in pristine shape.
Excellent guys. Thank you. Thank you.
King.
The next question is from Gregg Brody of Bank of America. Please proceed with your question.
Hey, guys.
I appreciate all the commentary about paying or not paying down debt.
The animals.
You haven't actually used the word investment grade.
Just curious.
I noticed that the new credit facility has a covenant in there that security falls away.
Due to an investment grade does that was that intentional or was that something that you wanted in there because there is a target.
Greg.
I don't know if its target, but it wasn't intentional Greg our conversations with the rating agencies do stress, how we do map to investment grade currently.
<unk> already upgraded us three times this year and I would say that's unprecedented how fast they've gone in.
Sponsors as always it doesn't matter when we I mean, you got to look at where we are you should radar based on where we are and we do map investment grade today.
I would expect further improvements in the ratings going forward. If this free cash flow generation occurs from the strip prices and we pay down the debt.
We'll definitely be thinking we should be investment grade and Thats why we designed the credit facility that way.
And they usually want to hear that that you want to be investment grade.
There.
If you could comment how much earlier.
Express that quite often good.
Yeah.
Quite frequently.
Responds as it just takes time.
That's helpful.
Then.
Last question for you is that 6 billion.
Free cash flow number you had out there.
Is there an expectation for taxes in there.
So.
How are you thinking about that.
I mean, it's actually over the next four years and Thats inside our tax horizon, we have significant Nols in with our our development program our capital right now generating further.
Production, we don't we're not a cash taxpayer in that four year timeframe. So.
That's $6 billion gets you probably to the point, where you start paying some tax but prior to that we're not a taxpayer.
Alright.
You just have to say what a difference in your mix.
Yeah I agree there is no true yes.
There are no additional questions at this time I'd like to turn the call back over to Brendan Gruber for closing remarks.
Great. Thanks, Yes. Thank you for joining us on today's call and please reach out with any further questions we're available.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Yeah.
[music].
Yes.
Yeah.
[music].