Q1 2022 CNX Resources Corp Earnings Call
Good day and welcome to the <unk> resources first quarter 2022 earnings Conference call.
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Thank you and good morning to everybody welcome to <unk> first quarter conference call.
In the room today, Nick <unk>, our president and CEO , Don Rush, our Chief Financial Officer, Chad Griffith, Our Chief operating officer, and Yummy I can't Cube, our Chief Excellence Officer.
Today, we will be discussing our first quarter results.
This morning, we posted an updated slide presentation to our website also detailed first quarter earnings release data such as quarterly E&P data financial statements and non-GAAP reconciliations are posted to our website in a document titled <unk> 2022 earnings results and supplemental information are seeing extra resources.
As a reminder, any forward looking statements, we make or comments about future expectations are subject to business stress, which we have laid out for you in our press release today as well as in our previous Securities and Exchange Commission filings.
We will begin our call today with prepared remarks by Nick and then we will open the call up for Q&A, where Don chat and Yummy will participate as well with that let me turn the call over to you Nick.
Hey, Thanks, Tyler Hi, everybody I'm going to handle the commentary today is Tyler just said I'm going to break it into two parts.
First let's have a review of our results for the first quarter and talk about some updated guidance looking forward and then I'll wrap with a couple of comments and maybe observations is actually a better term about our industry the nation and the world today.
Starting first with our quarter and our outlook into the future CMS I think has been sounding like a broken record for at least two years and eight plus quarters running and today that broken rapid repeats itself, yet again, Fortunately repetitive music sounds great for ownership.
Because like the string of recent quarters. The past few years, we had yet another clean and easy to understand quarter I'm going to review the quarter by running down the key components of the CNS sustainable business model or the SPM as we refer to it and you can read more about our sustainable business model and our proxy and our soon to be released corporate responsibility report.
I encourage you of course to do so.
These sustainable business model it starts with having a compelling why what motivates us to do we do see them exit our employees, we bring quality of life and security to society without us everything stops and realization of our purpose or that why it's grown tremendously in the past year and the world sees what happen.
So things like domestic natural gas is taken for granted or worse, yet if it's marginalized.
More to say on this in a couple of minutes when I get to those observations that I spoke about the.
The next step of that sustainable business model is building, a non replicable and a resilient competitively advantaged business to deliver on that why and in the first quarter, we delivered another quarter of smooth safe and compliant operational execution across what is basically our stack pay our upstream midstream integrated and our low cost.
Lowest cost footprint and what's become the most prolific natural gas basin.
So you take these attributes and you couple them with our programmatic hedge book he see CNS was able to land our production cost margins right, where we wanted them in the first quarter.
That third step of the sustainable business model is to generate steady and substantial free cash flow first quarter thoughts post over $234 million and free cash flow more importantly, we produced $1 20 of free cash flow per share in the first quarter using the quarter end share count just over 195 million shares.
And then the next steps of the sustainable business model. They start to look to astutely allocate our free cash flow to the right places and at the right times to generate this value trading rates of return and long term per share value so as to capital allocation and perpetuates, our why we start with investing in our most important asset which of course is our team.
I'm happy to report that CNS.
Which was the public company regional leader when you look at all in average employee comp in 2020, it achieved even higher all in compensation for our employees in 2021 and over $180000 per team member.
<unk> got some exciting efforts into works when it comes to human capital in 2022. So please stay tuned as the year unfolds, we'll have much more to say about that.
Now the next free cash flow allocation Avenue that we consider is investing in our regional communities.
<unk> was very active during the first quarter on this front the CNS Foundation is up and running with its governance. It's already committed millions of dollars to what I think are going to be hugely impactful investments across communities in need of our Appalachian footprint and the CNS Mentorship Academy, it's rounding the bend to conclude its first inaugural class year in early June .
I believe and I'm beyond excited about what that.
He is all about and how it is ready to welcome these young men and women into the local workforce in particularly at the CNS workforce.
And employees across the company Theyre catching the fever to identify and personally participate in and drive a portfolio of investments that we're making across Appalachia CNS has broken the mould and set a new standard when it comes to ESG performance and things like stakeholder capitalism and what it truly means the focus local.
The company's success in the local regions success, Hey, they've always been linked and that's a responsibility that we continue to lead on and embrace.
Next we look to pay down debt under our sustainable business model and in the first quarter, we paid down $74 million and net debt our balance sheet I would describe it as stellar at this point, it's going to be getting even better as 2022 unfolds and the optionality that this strength rates. It can be a really powerful thing in an industry such as ours.
Which I'm also going to expand upon when I talk about those observations.
And then the last step of the sustainable business model, but not the least right is calling for returning capital to our owners and we got two ways of doing that through dividends or share repurchases, which one we pick it's going to follow the clinical map of risk adjusted rate of returns in the context of long term per share value and that approach dictated that.
We continue to repurchase shares in the first quarter, we invested over $150 million of free cash flow and share repurchases buying in over 9 million shares or just under 5% of the company in the quarter at an average price of $16 55.
We are thrilled with that result, so that's the CNS sustainable business model in action, yeah. It tends to be repetitive, but we love that kind of repetition and before I forget today. We also raised 2022 guidance to approximately $700 million in free cash flow or $3 59 per share using the updated shares outstanding as of <unk>.
20th.
Okay now to cover the quarter and our guidance outlook, let me.
<unk> and offer up a few observations.
Our great industry nation in the state of the World.
These observations goes to the heart of that why that I spoke about.
And the impact not just CNS in Appalachia in profound ways, but they also dissolve I think far more discussion than a limited time, we've got today, but with the time, we've got let's let's say on a couple of these observations.
2022 is turning out to be quite the proving ground, it's verifying certain realities and exposing certain flawed beliefs and first let's talk about natural gas supply and.
And how that might be able to grow to respond to increasing energy demand needs both domestically as well as in places like Europe . There's been a lot of talk about LNG and how U S. Natural gas can save the EU by replacing Russian natural gas and providing much needed energy security during a time of crisis and at the same time, we cannot lose sight of.
Energy supply challenges that we still have to overcome domestically and certainly I think the industry is doing what it can to increase supply.
<unk> is a great example, where we expect production and capital expenditures for the year to be toward the higher end of our guidance range every little bit of this is going to help but there are also some harsh realities that are quite ironic. Unfortunately the domestic.
Natural gas oil and pipeline industries in the nation, you can't ramp up production anything close to the levels of the U S and EU is clamoring for anytime soon.
And that's not because of industry unwillingness.
We are an industry or industries of doers after all and it's not because of corporate greed are profiteering is on my leg no. Instead, it's simply an starkly because of policy has consciously and methodically look this triangle infrastructure investments in the pipes and in the processing power generation and yes in the LNG infrastructure.
<unk> all of which are needed to meet the world's energy demand they're everywhere. These policies I'm talking about the one looks today global policies via things like the Paris accord and the U N IPCC climate Road map.
See them in national policies via weaponized regulatory regime and the administrative state.
See it in regional policies like Richie and some of these dysfunctional regional transmission organizations that are manipulating energy and electricity markets, leading to really bad outcomes and consequences like those that we've seen in Texas and California.
You also see them in state and local policies such as the fact, though natural gas development of our transmission or end use spans in places like New York and Boston.
And Unfortunately these policies had been extremely effective in achieving exactly what they were designed to do which is to create energy scarcity on our prices and not allow the most sensible supplies of natural gas and oil to reach the obvious demand centers. That's why Boston has to import LNG from thousands of miles of far including Russia.
Instead of taking molecules from Pennsylvania, 400 miles away the pipeline.
Why U S politicians.
At the end of pleading with dictators in Venezuela, and OPEC to increase output and most tragically, that's why the EU energy dependent on Russia.
Now for our industry to solve problems and provide solutions. It Unfortunately is going to take years.
The energy industry has been under attack and in for over a decade by these policies and now we will take nearly as long to correct that and that's assuming policymakers wake up to the reality, which is a big assumption as crazy as it sounds considering times like these.
Common sense tells us domestic energy never been more vital.
And the policies that are designed to stein, yet they've never been more harmful.
Now these policy concerns they lead to my second observation, despite the clear validation of domestic energy as an attractive and a deserving investment option. We believe access to the capital markets for our industry is going to continue to be more restrictive now.
Now it could be something like ESG investing gone awry, where it could be the federal reserve climate stress tests on banks, where it could be SEC climate disclosures, but to manage this risk we believe the prudent course under our sustainable business model.
It's to maintain a debt level and a maturity schedule and liquidity level, whereby we never need to access the debt markets. Unfortunately, we reached that point, our guidance and future free cash flow generation. When you couple it with our balance sheet metrics. It means we've got the optionality to organically delever to be independent of the debt capital markets for our industries.
CNS way needs to become the norm until policymakers in capital markets allow themselves to be masked by the facts.
I'll wrap with my third and final observation.
Topic is one of sadness I've been around this industry and company for 32 years, now and I've seen a lot of free market driven innovative and entrepreneurial movement.
Throughout the world with the shale Revolution I see in the establishment of an energy powerhouse with the United States and energy independence, if we want it seems.
Seen vastly improved quality of life and revival of the middle class and an improved environment.
Lower carbon intensity for my lifelong all of Appalachia as a retooled itself to take advantage of the shale Revolution and I've been with the company to completely transform from exclusively coal to know best in breed natural gas and midstream.
And working with people of course, who care, who excel in who achieve and who are compensated at the very best levels to be found in any industry. So C&I today, a strong vibrant secure when you look at its future path. The opportunities are mindboggling from our developing exciting emerging technologies to what we should deliver on.
<unk> per share value.
My emotion in 2022.
Italia as I said, it's not a sadness because much of what ails This nation and the world did not have to be.
Prudent did not have to be enabled Ukraine did not need to be destroyed Americans didnt meet their households to be Rob at beef known as inflation in.
In our energy security and our grid reliability, whether it's Texas, California, Europe , none of them needed to be compromised at all of this happened and it continues to run rampant and it's going to get worse potentially much worse.
Why because the full potential of the American energy industry to unleash prosperity domestically and abroad. It's been deliberately handcuff energy scarcity has been manufactured by policy design. These.
These industries, we're not allow basically to become victims of their own success by providing more supply of our widgets, so they're not only infrastructure and demand grew.
The supply and demand will balance so the prices can moderate so the dictators don't hold a free world hostage.
Current state of our energy industry and economy, and our geopolitical standing they are not healthy and until the health of those improve we're all going to pay the price. It's just a question as to what extent is didn't have to be how long should we continue to tolerate it.
The good news is the Appalachia region has the resources and the Knowhow and the work ethic to be the fountainhead or the catalyst of the modern energy and manufacturing industries. We can be a center for skilled labor job creation to help pave a path to middle class access for the region's underserved rural and urban communities, the only thing preventing that from happening.
Collective willingness to embrace data and facts of our politics and ideology, we shouldn't break the assets and the workforce and the energy in the Appalachian region utilized first in this region and far beyond it can make western Pennsylvania, or Western Virginia, or West, Virginia, a true energy capitals of the world by developing and utilizing homegrown.
Resources to go to a local energy ecosystem, it will cultivate and sustain the middle class for the next generation.
These natural gas based products.
Theyre more environmentally friendly lower costs and will be sourced locally in the Appalachian region, instead of faraway lands and have extensive supply chain carbon footprints. This.
This is a realistic actionable solution for the Appalachian region runs counter to other such efforts championed by establishment organizations, whereby those with ideological goals.
Final thoughts of ties back to where we started.
Despite the challenges noted my observations, we're going to continue to embrace our tangible impactful and local approach to ESG, which is going to help us execute our sustainable business model and deliver long term per share value all advocating for our industry and region. The opportunity is now to reframe and redefine the region's energy utilization and economic strategy.
It will directly intangibly benefit local citizens political environment and the entire region.
When the why of what we do so compelling our path forward is always clear, let me turn it back over to Tyler now for Q&A. Thanks, Nick Operator, if you can please open the call for Q&A at this time.
We will now begin the question and answer session.
You May press Star then one on your telephone keypad.
A speakerphone please pick up your handset before pressing.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our offering.
Our first question comes from Michael <unk>.
Please go ahead.
Yeah. Good morning, everybody Nick I appreciate those observations on the industry.
I guess are there any.
Killer.
Things you'd be looking for in terms of policy change.
That would cause you to.
Rethink.
The strategy of <unk>.
Essentially no growth.
And then maybe if you could extrapolate that to Appalachia.
As well when do you think.
If.
Tomorrow, the administration's started to move in the direction you think it should.
Is there any.
And so what the timeframe for when the Appalachia over.
And that's in particular, if you could go back to a growth mode.
I think from an industry perspective, it's a great question. The most immediate issue is the policies with respect to what Theyre doing that deters investment.
With more of the infrastructure transportation infrastructure.
Basically as I said equilibrate move supply to logical demand centers and settle that out in a way where it basically allows.
Producers to figure out what those rate of returns will be and make capital investment decisions that will span decades.
It's probably the biggest impact right now with respect to base and wider industry wide supply responses need basically need the plumbing to be able to move the supply the widgets to the demand centers, whether they are global regional or local and the biggest I think example of that our pipes in Appalachia and we've also got some oil pipe examples as well the Keystone and <unk>.
Those two immediate examples front and center would be great proxies to figure out how serious.
Entities are about reversing sort of analyzing policies to get some of this infrastructure bill.
Got it.
I guess now with the stock over 'twenty, you've talked a lot in every call you've been asked about.
Your philosophy on returning.
Capital shareholders and your choice has been primarily a.
Buybacks.
Complemented by debt reduction with the stock over 20 now has that philosophy changed at all to where you would slow down on the buybacks or.
Consider a dividend or if it's still picking up buybacks the best.
Former return on capital for you at this point.
Because to your point REIT stock prices, one of those important metrics and variables. When we're calculating the best per share value creation avenues. The philosophy doesn't change the equations don't change as some of the variables and when you update share price gas forward strips the free cash flows that basically would be.
Produced from that under our activity set that we've laid out.
Then you look at things like free cash flow yields a free cash flow per share what those risk. Adjusted returns are I think at this stage. We are still comfortable following that math that share repurchases are the best Avenue for shareholder returns that can change to your point over time, we're not adverse or against dividends philosophically, we think again looking at the math.
And the risk adjusted returns clearly the best path continues to be share repurchases versus dividends.
Very good thank you.
Our next question comes from Leo Mariani of Keybanc. Please go ahead.
Hey, guys wanted to delve a little bit more into one of those really that first question. So I know historically <unk> spoken over time then.
The multiyear plan was to just stay in maintenance mode until there was really a shift upwards.
And in the natural gas futures curve clearly we're at the point in time, where the tire gas curve as you look out a handful years has shifted higher.
Could that potentially pave the way for a little bit of growth in 2023, or do you think that there's just too many kind of infrastructure and policy challenges even make that a possibility at this point.
This is Chad I'll take a shot at that.
So I guess first of all to make sure. It's clear that we could grow for wanted to right and I think we've demonstrated that by growing roughly 20% of our production by about 20% since 2020.
But that's not necessarily the only variable we're solving for right and certainly the change in commodity prices changes the variables that are going into that optimization problem, but there are many other variables that are in the optimization problems and we solve that.
Continuing to.
As a result of it spits out continues to point us in the direction of sticking to the plan that we've articulated over the last several quarters frankly for the last couple of years at this point.
<unk>.
Loved the plan that we're on and there's a number of reasons why we love that plan.
It provides predictability and a line of sight on.
Future operations provide their teams.
<unk> repair and conduct quality control.
The steady work provides continuity of crews and equipment.
It minimizes the impact that our plan has a impact on our plan of a lot of labor and equipment call. It.
Issues that some of the peers in other industries are experiencing.
I think the third factor is I think as already pointed out.
There's only a certain amount of capacity and only a certain amount of the on demand to consume the gas thats produced right here in Appalachia.
Either.
Demand because the increase or the ability to export more molecule that Appalachian forget to increase.
Who are ready and prepared to be able to increase our production along with it.
The only thing I would add on top of that Chad is we look at this on a per share basis production just like we would free cash flow. So if you look.
5% reduction in our share count in Q1, and equates to a 5% growth in our production per share. So as Chad mentioned, where there's two types of growth in our mind Theres, one sustainable consistent growth year after year for a decade with that and you need line of sight of gas demand being allowed to do what it could do.
And in the meantime volatility is going to be the name of the game, so theres going to be price swings up and down that are <unk>.
Largely completely unpredictable because of the culture, the fragile ness of the supply demand balance in the inventory kind of situation that we have so we'll try to optimize and kind of grow it here in the hedges in the fringes of year by year, I can add and combat decisions and if theres a line of sight to be able to do continuously.
Over long periods of time it needs you need to see line of sight on consistent demand growth to kind of take that approach.
Okay. That's very helpful. And then I guess just wanted to follow up on one of the comments that Nick made I think I had heard correctly that you. All said you kind of maybe pointing towards the high end of Capex and production guide.
In 2022, maybe if you could provide.
A little bit more on that I, just thought I'd assume maybe that the activity set hasnt changed in terms of the plan, but perhaps the wells are continuing to come in strong which is why the production will be towards the upper end and maybe inflation is also pointing to kind of the higher end.
Capex I was just looking for a little bit more.
Color on that and then just anything you had on like cadence of capital spend or turn in lines for the year I saw that there werent any turn in lines in the first quarter do you have more of the second quarter and third quarter weighted kind of turn in line program and spends just anything you can tell us would be helpful.
Yes, so I'll start.
And you kind of said it before like the til cadence quarter to quarter and stuff like that so that's not something I pay much attention to just getting these pads online.
And the rate of returns are phenomenal so really mostly what's happening. This is chad and his team keeps getting better and the efficiencies in line of sight, we have on being able to to go faster you end up that's been most of our growth. If you look at the growth you've talked about before just R. R. R. R factories moving faster now so if you if you.
Get through one bad faster the next pad starts sooner than vice versa. So that's chats I've called it the accordion, but we have the ability to kind of move if we're moving quicker you can kind of get onto the next one faster now that that has like the ripple effect that is.
It's putting us towards the end it Nick Nick talked about here and as Nick said, it's a good thing for the shareholders for the nation for for everybody to kind of get can get some more gas out of the ground here this year.
And maybe just a little bit more color on capital cadence and production cadence.
Look at the numbers, we were if you look at the current guidance and the midpoint of our current guidance and divide that by four you basically exactly where we're at on our Q1 production in Q1 Capex.
Plus or minus maybe what percent.
That's I think that's just illustrates.
How consistent our plan is coming and then there is <unk> the paths or large when you bring a new pad on it does bring us starting to production, but over time over multiple quarters and multiple years I mean, we're really solving for very consistent very predictable derisked sustained sustainable business model.
So I mean, it's.
It's going to be chunky, it's almost impossible to like thoughts had better bracket it quarter to quarter or even year to year, sometimes depending upon exactly when these pads come online, but we really are solving for a very consistent sort of steady state execution plan.
Okay. That's helpful for sure guys I just wanted to also ask on cash taxes.
Just noticed that in 2021 y'all did not pay really anything on the cash tax current tax line, but saw you paid about $8 6 million in the first quarter 'twenty two.
I wanted just to get a sense if that's more of a one off or do you think youre going to start tap to pay.
State or federal cash taxes more material this year or next.
So whatever we are.
I guess as you recall or maybe recall, we laid out our initial seven year plan back in 2020, we kind of got it to the $3 three plus billion dollar cash flows, it's time and kind of talked about being a material cash taxpayers like after that so fast forward prices have gotten up we'd mentioned in 2021 that hey that that might be.
A little bit sooner since you're making some more money. So generally rule of thumb, it's almost like once we would across that three plus billion threshold. That's when you could be in a in a zone.
Where you could be a material cash taxpayer and obviously it depends on what you do with the free cash flow between now and then as well, but that's you'll see sub here, there, which as you know alignments of the Nols on the federal level state level and the <unk> and how we balance all of those so we're solving for kind of minimizing and across a longer timeframe. So youll see some noise, but until we get past that that.
I just gave you won't see anything material.
Okay. So it sounds like really not much here for the next handful of years. Thanks.
Our next question comes from Neal Dingmann of true. Please go ahead.
Can you hear me guys.
Yeah.
I just wanted to talk about cadence a bit.
Okay.
Neil are you there.
Mr. <unk> your line is live.
And just a quick from go to the next one please.
And just a quick reminder, if you have a question. Please press Star then one.
Next question comes from Noel Parks with Tuohy Brothers. Please go ahead.
Good morning.
Alright, great.
I was interested to.
Hearing your comments about.
Essentially steering clear of debt capital markets for the longer term.
Curious.
Do you or do you not.
Sort of see us with.
Maybe two different windows ahead, where.
Especially now with everything looking positive for Nat gas fundamentals, it's more like the old days.
Where.
Demand is rising.
Yes.
Seeing it in the script.
Against the backdrop of tight supply and so it seems to be a time, especially since interest rates have gone up with ultimately go where it's not necessarily the worst time to be financing with debt.
And in contrast.
When we get to that point when.
Sort of a declining.
<unk>.
<unk> for for gas, what alternatives become cheaper and take up more of the energy pipe.
I think your description is accurate if youre looking at just the math on a spreadsheet.
The objective analysis is accurately represented with what you just said.
Okay.
We're in a world right now where when it comes to capital markets. The objective data are not raining Supreme and our fear or concern is.
That will continue to have less and less prominence with respect to rates access to capital cost et cetera. So that's why from our perspective as a low cost producer in a free cash flow generator, coupled with our balance sheet metrics. We've got pay when I'm talking balance sheet metrics, its not just absolute debt or leverage ratio I'm also.
Looking about maturity schedule and liquidity those types of things.
We've achieved a position where we basically take free cash flow generation and when we're looking at the opportunity to allocate between debt and shareholder returns. We can have very very healthy levels of shareholder returns and also manage our debt in a way, where we never would need to access the debt markets and the capital markets So that as the call.
All at the ideology.
Does reigned supreme over the data the metrics.
Facts, we're in a position where basically that sustainable business model and self funding.
That's a great place to be I hope that your description.
End up being the situation that the entire industry finds itself in moving forward because that would not just be good for the industry that we care about it would be good for our nation and frankly, the global economy, but there are troubling signs as we said that we've seen from a whole bunch of different entities and regulatory authorities that are sort of blinking to us.
Access our cost of capital when it comes to debt markets is going to be incrementally more difficult moving forward.
Great. Thanks for the clarification.
I was also wondering you know.
With the Ukraine.
Ukraine, Russia situation I'm, just shot that's causing the commodity markets.
To my mind, it's sort of muddied the picture as far as where the industry.
Is headed as far as seasonality and consumption and I just wonder.
Now with the benefit of hindsight.
Do you have any sense about what what we've learned about weather.
About how much or how little heating season.
Domestic seasonal factors are going to play in.
And pricing going forward.
So so I think.
The question boils down to how much does export sort of adjust or affect the seasonality of domestic natural gas prices right and so when you look at when you look at exports as a function of total.
Annual consumption Youre looking at roughly 10% to 15% of of U S. Production is subject to that export market. So it has.
Maybe on the margin reduce that seasonality a bit, but it's still wildly wildly subject to the fluctuations with winter weather, whether that wet weather shows up in a lot of the seasonality is ultimately driven by how much storage is available and so over the last several years.
The consumption of natural gas has grown by roughly 80%.
There is still the same amount of storage in the same amount of infrastructure available to move the gas around and different different periods of the year. If demand is the demand locations change that there was when half as much natural gas is being used.
So.
LNG is certainly maybe on the margin sort of affected it but the reality is is fundamentally across this nation. We liked that we lack the storage and the infrastructure to be at a moderate out the seasonality caused by winter weather.
Great. Thanks, a lot.
Our next question comes from Neal Dingmann. Please go ahead.
So about that guys. Let's try this again just I was just asking on cadence it looks like to me your plan appears to be pretty steady.
Just on a go forward basis, I mean, even second half versus first half. So I'm just wondering maybe.
Kevin do you have to understand we can comment on that.
Yes.
That's fairly accurate I mean, I don't think we have to I don't think we have any more detail beyond that.
Okay, and then just maybe Don for you on on the marketing mix.
Second would be just on.
Kind of on a go forward do you anticipate much change there or what do you mean, what I'm getting at is picked up to will that continue to be the largest followed by the <unk>.
Teco pool or do we anticipate on the marketing side any sort of changes coming there.
So this is Chad so we really don't expect to see any changes in our market mix over time.
On the margin the marketing team is constantly looking for short term.
<unk> to move gas to different markets to different receipt points that gets access to different pipelines, where there may be.
Changing demand for natural gas.
They are optimizing on a daily basis monthly basis weekly basis, and Theyre doing a phenomenal job down there.
On a go forward basis on a long term longer term basis, just like we've been doing for the last several years, we will look at long term ft opportunities access to other markets.
On an economic basis.
And whether or not you know potential long term commitments to firm transportation that gives us access to other markets justifies may.
Making that long term of a commitment.
To transport option.
Or not that that market premium will be there over the long term.
Great and then one last one if I could I really like that you guys continue to break out net acreage in undeveloped location update just time will tell a little bit on that I'm. Just wondering could you maybe talk or give a little more detail on that again you guys gave some great detail on that I'm just wondering.
The natural question is obviously now the prices.
Taken off so much.
How do those locations what sort of at this level versus where we were back sort of at the.
To handle maybe if you could just talk about not just numbers there but.
Kind of the.
Maybe color around the totals there if you could.
No for sure.
As a clean way to just show folks what we own and you can kind of see a cut both ways right. There's there's development every year and there is also some leasing every year just like we've kind of said is just normal course for for any Appalachian companies. So I think overall our areas like we've talked about the four areas of the southwest PA.
Marcellus and Utica, and what we call CPA for Marcellus and Utica you add it all up there's like 350000 undeveloped acres.
Our consumption rate is 67000 acres a year you've got the leasing the leasing of a few thousand acres here every year. So net net all that together, there's a there's a tremendous amount of.
Acres to be developed at C N acts and like we've talked before.
Our cost structure kind of.
It makes every acre better so if appears next to us.
40, 50 gathering charge and we're drilling <unk> five or <unk> kind of Opex for our midstream systems. It's just kind of gives us a pretty pretty unique and pretty cool vantage and Oliver area. So they all worked really well.
The old strip and kind of $2 <unk> based on price like you said and they were even better all of them at the current strip that we have out there it's pretty it's pretty wild looking at the at the math of like how much how quickly you get your restaurant back from drilling a well or drilling a new pad. So feel very good where we sit we're always looking at trying to you know.
[laughter] figure out ways to create more more more of anything and everything, especially free cash flow. So they'll go where we're at but we're always working every part of our business and you know buying so and swap and trade in.
Yeah.
Great details thanks, so much.
Yes.
This concludes our question and answer session. At this time I would now like to turn it back to Mr. Lewis for any closing remarks.
Thank you everyone for joining this morning, and please feel free to reach out if you have any additional questions. Otherwise, we'll look forward to speaking with everyone again next quarter. Thank you.
Okay.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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Okay.
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