Q1 2022 Chesapeake Energy Corp Earnings Call
[music].
Good morning, and welcome to the Chesapeake Energy Corporation first quarter 2022 earnings Conference call.
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I'd now like to turn the conference over to Brad Sylvester. Please go ahead.
Thank you Andrea good morning, everyone. Thank you for joining our call today to discuss Chesapeake 's first quarter 2022 financial and operating results.
You've had a chance to review our press release and the updated investor presentation that we posted to our website yesterday. During this mornings call we will be making forward looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs goals expectations forecasts projections.
And future performance and the assumptions underlying such statements. Please note that there are a number of factors that will cause actual results to differ materially from our forward looking statements, including the factors identified and discussed in our press release yesterday and in other SEC filings.
Please recognize that except as required by applicable law, we undertake no duty to update any forward looking statements and you should not place undue reliance on such statements.
We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers for any non-GAAP measure we use a reconciliation to the nearest corresponding GAAP measure can be found on our website.
With me on the call. This morning are Nick the lasso months' scene and Josh beats.
Nick will give a brief overview of our results and then we will open the teleconference for Q&A. So with that thank you again and I will now turn the teleconference over to Nick.
Thanks, Brad and good morning, everybody. Thanks for joining the call.
We'll get to Q&A, shortly but first I want to spend a couple of minutes talking about where the industry sits today and how we're seeing the year unfold.
We're off to a really strong start in the Marcellus we closed on cheap and we're busy integrating these great assets.
Team is excited to unlock the value we saw in the acquisition and we're encouraged about the early opportunities we see for further upside.
In the Haynesville, we're through most of the significant elements of the integration and the results are strong.
The expertise on the buying team with ours, we just drilled the fastest intermediate section in our history in the basin.
In the Eagle Ford, we restarted our program.
And we continue to see outstanding returns and significant free cash flow.
Additionally, we also continued to lower our emissions profile, having completed over half of our pneumatic retrofit program.
We're well on our way to having our Marcellus assets joined the Haynesville is independently certified responsibly sourced gas.
The first quarter marks the first full period, we've owned the buying assets.
We delivered $532 million and adjusted free cash flow in the quarter setting a new quarterly record for Chesapeake.
As a result of this increase and further uplift we expect following the close of Chief in March we've increased the 2022 free cash flow outlook by $700 million raising the midpoint of our range to $2 7 billion.
We believe these transactions are great examples of how.
Consolidation yields improved cost structures capital efficiency, and most importantly accretive free cash flow.
Given the depth of our inventory and its resiliency through commodity cycles, we expect to maintain this robust free cash flow profile for a very long time.
Today, our free cash flow per share and free cash flow per debt adjusted share lead the peer group by a significant margin.
With $10 billion of free cash flow anticipated over the next five years, a robust dividend combined with a large buyback program.
To execute what we believe to be one of the most powerful cash return frameworks in the industry.
Given these facts and the view that our stock remains significantly undervalued, we initiated our $1 billion share buyback program in the first quarter and expect to accelerate the pace of our buybacks as we filed our final disclosures related to the chief transaction. This month.
Given the current valuation of our stock is certainly possible, we will exhaust our $1 billion buyback authorization early and would then expect to seek board approval to increase the authorization and continue retiring our shares which will further enhance our already leading free cash flow and cash dividend metrics per share.
In addition to our initial progress on our repurchase program, our first quarter dividend payment reached $2 34 per common share and our dividend yield currently sits around 10% for the full year 2022.
If you include the share repurchase program reached 14%.
In total at today's strip, we expect to pay over $7 billion in dividends over the next five years.
I'd now like to switch gears and talk about the macro environment.
The war in Ukraine is horrible on every level and we're eager to see an end to the invasion.
We're also eager to help ensure the citizens of Europe and by extension the rest of the world are not left without adequate energy resources should Russian supply to continue to revert either even further interruptions.
The natural question for U S. Producers is will you grow solve the problem.
We consider our capital allocation strategy on an almost daily basis and are committed to maintaining our strong capital discipline.
When we see opportunities to grow production and deliver supply to a market where it is needed and where we believe the demand is resilient not temporary we will consider growing into that demand.
We continue to believe energy should be reliable low carbon and affordable. We also believe that we have the inventory to deliver what is so desperately needed and have updated our inventory data in our slide deck for each of our basins to highlight the staying power of our portfolio, which spans decades at very low prices.
In the near term while prices in Europe are extremely high they're also much higher than they need to be in the U S. We do respond to these economic signals and have done so in our 2022 capital program.
We're growing our haynesville volumes, approximately 10% year over year adjusted for the <unk> acquisition and as the market reliably expands we will be ready to respond accordingly.
We're investing in the Eagle Ford again in 2022 after pausing through the pandemic restarting our program in a logical pace as we redefine the appropriate development plan for this asset to maximize capital efficiency.
We're continuing to press for Max volumes out of our Marcellus asset every day.
As has been discussed at length by us and others were constrained by lack of pipeline access to underserved markets, particularly in new England.
Additionally, we continue to hold discussions with Counterparties in the LNG export market and we hope to increase our exposure as the market continues to develop around these very important projects, we market greater than four five Bcf of production every day more than two Bcf, a which is immediately adjacent to the LNG complex in the Gulf Coast.
And as already independently certified as responsibly sourced gas.
We've also proactively reached out to partners in midstream and downstream markets as well as our government contacts to discuss the best ways to see supply increase in the U S.
While we have not and will not ask the government for any financial support we would like to see the legal and regulatory environment and embrace the need for infrastructure to ensure we can provide reliable affordable lower carbon energy to limit energy poverty and blunt the impact our alloy space when access to energy is used as a weapon.
We're actively engaged in these discussions and hope to see a solution to the war and by extension the challenge of high energy prices soon while no company can tackle. This challenge alone we recognize the policy changes will unquestionably be an important part of the equation given the high prices in Europe was experiencing prior to the Russian invasion.
Our employees are United in the belief that together, we can play a critical role in helping solve these challenges.
Importantly, with the quality of our assets our people and our balance sheet, we are able to achieve all the critical elements of reliable low carbon and affordable energy and a disciplined returns focused way to create a truly sustainable business.
Operator, we'll now turn it over for Q&A.
We will now begin the question and answer session.
I asked a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
And our first question will come from Doug Leggate of Bank of America. Please go ahead.
Thanks, Good morning, everyone. Good morning, Nick Good morning.
Thanks for taking my questions. Thank you would be delighted to know I'm not going to ask you about variable dividends.
I would I would like to ask you.
So maybe elaborate.
Sure.
The U S gas prices.
Figure out.
Hi, this is sustainable in the long end of the curve.
The dislocation between Europe , and the U S is pretty obvious, but $8 gas is pretty surprising as well.
Love to get your perspective on that because you sounded like you're basically forgive me talking about that in the stock.
That's my first question on the second question if I may.
I guess, we can't ignore what happened yesterday was Cambridge, presumably you've got some discussions I'm just curious where you think the gap is between.
What you've done so far I guess asset sales Eagle Ford is probably part of the discussion.
And with respect to China at this point to the extent that you can.
And I'll leave it there thank you.
Sure.
Let's talk about.
Gas prices first with your first question.
Yeah.
You said, we've talked them down a little bit I think all we've pointed to with gas prices at the prompt month prices are so far above breakeven.
For supply in the U S. But we just don't expect that to be a persistent.
Price environment.
Given the long end of the curve now has come up quite a bit and for a couple of years will be above four box on the curve.
Ample resources in this country to drive prices below $4 on the long end of the curve and we think if you have.
Adequate infrastructure to deliver gas to all of the markets, where it's needed.
It should be background, three or maybe a little over three in this environment.
And which means that you know.
The volatility on top of that weather demand and things like that it'll go below three sometimes above three other times and maybe bounces highs born and see some lower prices too but in.
In general.
We just see that the.
The adequacy of supply with breakeven sooner.
Around that level should drive prices lower overtime now right now we have all sorts of constraints in the market and so it does it makes sense that prices are higher but.
But we all need to be thoughtful about how we manage our production in the face of those constraints.
So what we don't want to do is forced production higher directly into those constraints, where production can't get to the markets.
Is needed.
So for example, if we increase production.
Significantly in the Marcellus is not going anywhere, it's just not going to lower anybody's prices and so that's not helpful that won't create value for our shareholders and we're not going to pursue that path and those kinds of constraints, we think probably particularly in the Marcellus. We think those will be sticky for a long time, but those constraints exist on a micro level in a lot of other places whether their access.
Services equipment access to pipelines and so we think there are persistent at least in the near term.
So prices are going to stay up for a bit.
Ultimately they should.
Supply and demand forces will went out and don't come back down to a more reasonable level. So that's really all that we're expressing there is that we're not going to change our strategy to a view that says six or seven or eight where we are on the prompt is.
It is a more permanent price thats, just not consistent with how we see the world.
And then Doug you asked about the.
Store yesterday that was not in the press.
Around discussions with Cambridge, and I'll just note that we.
We have a lot of discussions with shareholders, including hemorrhage.
We always welcome feedback from shareholders and I don't think Theres, a big gap and how we all see the world I think we share <unk> view that our stock is undervalued.
We've talked a lot about our Eagle Ford asset and we have a great asset in the Eagle Ford.
Currently produce 52000 barrels of oil a day and Eagle Ford.
We generate a lot of free cash flow out of that asset just in 2022 alone will generate $1 2 billion of free cash flow out of the Eagle Ford before hedges about $600 million after the effective hedges.
And so we shut down the Eagle Ford program completely during the pandemic oil price collapse.
And we just restarted at the end of 2021 and what we're doing in the field. Today, we think is going to add significant value to the asset for our shareholders.
We talked at the beginning of the year, what we were trying to accomplish with that asset we talked about how we want to prove up the wider spacing.
The Brazos Valley area, which will demonstrate the full cycle value of that asset and we also talked about delineating the upper Austin chalk and our legacy South Texas position, we're pretty encouraged by both of those things and we want to have our heads down and execute on that because we think we're adding some good value here in the near term.
But ultimately we're going to let the results of those programs just just as we've been saying.
Inform us on whether we think we can maximize the value of this asset there are development or if we should maximize the value of the asset by selling it to someone else.
That's the way, we think about all of our assets all the time and so we're going to have our.
Heads down executing on this program in the near term and we think we'll have results certainly in second half of the year to talk about.
And we're looking forward to that.
I appreciate the answers thanks, so much.
The next question comes from Matt Portillo of Tpa's. Please go ahead.
Good morning, all thanks for taking my questions.
Nick maybe touch on a comment you made to start the call given.
Given the discounted value of share price.
<unk> free cash flow guide this year, just curious I guess as we look at the guidance number at call it $2 7 million free cash flow.
The dividend is still leaves about $1 billion $5.
Free cash for you to deploy I was curious if you might be able to comment a bit on how you think about debt reduction versus accelerating the buyback program in light of the improved outlook.
Sure. It's a great question, Matt so.
We do have a lot of incremental free cash flow as you've noted.
We're pretty eager to get going on the buyback we've been constrained with our disclosure requirements around the chief asset we havent been cleared of MPI, we will be very soon and once we are we expect to get going and get going in earnest, we've been able to do a little bit during the quarter with some privately negotiated transactions and thats been helpful.
But we're like I said eager to do quite a bit more on.
On the debt reduction side, we have a little bit outstanding on our revolver today. Following the chief transaction will probably let that go back to zero that will happen in the normal course, as we go through the year.
But we don't really have a priority for debt reduction beyond that.
And I would call that just it'll just happen as it happens there is no.
Urgency necessarily to achieving that by any certain date.
Perfect and then as my follow up question. Just curious if you might be able to provide a little context and color on how youre thinking about marketing your gas.
The haynesville, we've seen a little bit of congestion, causing basis to widen out a bit but there is a lot of projects in the queue.
Ultimately evacuate gas further south and opening up the door for sharing our realizations as well as.
Possibly tying in more volumes down the road into LNG opportunities. So just.
At a higher level curious on your marketing strategy around the Haynesville moving forward and what we might expect from a news flow perspective over the next 12 months or so.
Yeah, Great question. So one of the things we're happy about today is there's all of these projects that are being proposed and there is all of the new LNG facilities that'll be built over the next several years and at the moment, we're a bit of a free agent when it comes to where we deliver our gas we have very little left in the Haynesville and so we have a lot of flexibility about how we think.
About.
Where we're going to send that gas and what we're going to commit to so we talk about this a lot.
Let mohit talked to you a bit more about how we're thinking about it but we're excited about what this represents.
Yeah, Matt that's a good question. Good morning. This is mohit.
What I would say in addition to what Nick said is obviously this is a rapidly evolving space something that we are closely monitoring the thing that gets us. Most excited is that if you look at the demand growth for natural gas in the U S. Roughly three fourths of that is going to come from the Gulf coast market.
And our competitive positioning because of the proximity to the Gulf coast and to the LNG complex led resides therein.
Bill is a competitive advantage that differentiates us the other thing that we're really excited about Nick referenced. This earlier is 100% of our gas that's coming from the Haynesville is our <unk> certified.
And at some point, we think that will be another differentiator because as you think of end users and off takers that are looking to secure LNG supplies.
Having it be responsibly sourced will again also be a competitive advantage. So we are really happy about where we said we are actively engaged in several different conversations don't want to front run that but more news to come on that front hopefully.
Thank you.
The next question comes from Nicholas Pope of Seaport Research. Please go ahead.
Good morning, everyone.
Good morning, Nick.
So.
I was hoping you guys could go into a little depth. This is obviously the first quarter, we've seen with the with the chief acquisitions and trying to understand a little bit of a guidance.
I think you all said it was 800 and 900 million.
Acquired production it doesn't seem like the guide for Q kind of fully reflects that.
That volume uptick so I'm, hoping you could explain.
I guess, what the goal is right now with Marcellus in terms of kind of maintaining production, where you think the maintenance level is with the new assets and kind of where things are kind of post acquisition on those on those volumes relative to kind of where where acquisition volumes initially were expected.
Yes.
Yes. Good morning. This is Josh I'll, let me just.
Is that a little bit of color to that I think with the cheap acquisition.
We're of course, just in the very beginnings of integrating that asset and I really feel like we're off to a great start with <unk>.
We are as we if we look at our til schedule, we're a little bit back end loaded in the quarter.
So for our gas assets I think we'll have $40 to 45 pills.
But 20 of those come and Jim So definitely you will see a little bit of Lumpiness to the production there that may be something just to be thinking about in the model.
Maybe just a couple of other things I would point out we do have some planned third party maintenance occurring within the quarter as well so that's going to bring down volumes just a little bit.
And then maybe one of the more material movers and this really occurred right as we brought the assets into the portfolio are there was a pad that produces about 80 million cubic feet. A day, so roughly 13000 barrels a day of a net oil equivalent.
Cut that Pat and for his time ops reasons and really it was just centered around.
We didn't feel like we can manage the risk safely on the site with drilling and producing and so that was a choice that we made but thats all volume that's going to come back into the system.
Got it so it sounds like this is fairly <unk>.
Transient.
Because I think you guys were growing production in Marcellus.
It does not.
It's not 800, plus fourth quarter, which.
Whereby my math, the simple math was on kind of ourselves, but it sounds like this is more transient in terms of where production levels are.
Yes, that's what we're going to expect for the year I mean growing the asset obviously is challenging to do.
With the lack of export out of the basin, but we do expect to see a little bit of lumpiness between quarters as we move through the year.
Got it.
That's all I had all the hop off for now thanks for the clarification.
The next question comes from Scott Hanold of RBC. Please go ahead.
Yeah, Thanks, Hey, just sort of on that.
The back of kind of the conversation around the gas macro and I know you've all talked about your hedging program in the past underpinning your capital program, but if you do have a view that some of these prompt months and in some of the forward months, maybe a little bit ahead of themselves does that incentivize you to hedge a little bit more would you be.
Opportunistic with hedging at all or do you still just plan being a little bit more pragmatic with it.
I'll start this one and then.
Do you have something else to add.
We.
We're pretty well hedged for 2022, so we haven't been motivated to add a lot more here, we've been happy to see.
The bit that we have unhedged rise and it's been obviously, a big tailwind to our cash flows for 2023, you can see the way we laid out in our slide now we put a bullet on there that tells you what we've added since the last disc.
Disclosure.
And what we're doing now is a bunch of very wide collars and so we really feel good about those callers some of the callers that we have done in Venezuela for the full year.
Four by 10, which is pretty awesome spread to have access to a floor of four and a ceiling of 10. So.
Go ahead, Mike Yeah, No I think the only thing I would add is.
Traditionally a lot of these hedges that we had locked in at emergence they were done through swaps, but.
The skus on these colors has been so attractive.
Most I would say on an exclusive basis going forward. What we are doing is trying to preferred these colors and.
As you can quickly figure out I mean, it still gives you an exposure to the upside but still protecting your downside.
Which is what we are trying to do but pretty happy with what we've been actively able to layer in with regards to the hedges.
Got it I appreciate that and my follow up.
And in regards to the buybacks at some of those were privately negotiated.
Obviously, there is you know.
Some I guess, an overhang and in some of the ownership in Chesapeake do you all see that as is the opportunity to continue to utilize our buybacks.
To potentially do some more private negotiated deals can you just give us a little bit of color behind that and what you know and can say.
Sure, we wont comment on who we've negotiated with directly.
But.
We intended when we put the buyback in place to be ready if any of those large holders wanted to sell to make sure that there was no disruption in the trading dynamics of our stock in the market. If there is a large chunk that wanted to sell.
One of the things that's been really interesting about the perceived overhang of the shareholders in our stock is that they are reasonably happy shareholders.
From from what we hear from them and patient.
And so we're generating great returns.
Cash return elements, depending buyback that can be accelerated now all of these things point to a tremendous amount of upside in the stock and so.
I call it a perceived overhang because I think a number of these shareholders could be there for a while but we are totally ready when any of them want to sell to be prepared to be a buyer.
So we're.
I think your sentiment is directionally correct, we're just not seeing demand for that today in any.
Big size.
So just trying to curious Amy obviously, you said, they're happy shareholders see a lot of upside optionality in the stock and.
A lot of people think that too, but like where do you think that is hanging up Chesapeake stock relative to its peers like what do you think as a management team.
You need to address to get Chesapeake stock to move further higher.
Well, it's something that we talk about it almost every day Scott I mean, the I do think that perceived overhang is a challenge for some investors I think there.
If we had a little bit more turnover in the shareholder base that would probably help but again I think of it as a perceived problem.
When I say, our shareholders or our happy.
I think.
I'm sure that they would all share our view that the stock is undervalued today. So.
We're all focused on how to drive the stock price higher and have it better represents the underlying value of the assets that we own.
We think the buyback is going to go a long way towards that we will be actively buying our stock and if some of them want to sell then great. They can sell it to us and if they want to hold then we'll buy from others in the market. So we're eager to execute on that because at this point that cash can go a long way towards them.
Retiring the share count, which is going to make all of our per share metrics.
We talked about earlier that much better and should really continue to highlight the value in the stock that should drive the share price higher.
So.
We're going to continue to execute on our plan, we're going to continue to push for the buyback.
We're pretty optimistic about what that will do for our share price.
Thank you.
Our next question comes from Charles Meade of Johnson Rice. Please go ahead.
Good morning, Nick and my weight and the rest of the Chesapeake grew up there.
Good morning Charles.
I think I just have one question.
And it's about the chief assets up in the Marcellus.
When when I look at that map of.
What chief.
What she brings to the table next to your map.
That moves your center grab your extends you kind of northwest.
Into more.
I guess central Bradford County, so.
As you know.
I spent some time with these assets are you seeing anything.
And what you expected as you as you move north West.
But you know kind of away from where you are your are your historic core has been.
Okay.
Yes, good morning, Charles This is Josh.
Answer that for you.
No I don't think so.
<unk> will vary a little bit but.
This is extremely.
Strong reservoirs with unbelievable deliverability, which resulted in great returns.
We do think there's some opportunities.
To make the asset better.
And a couple of things that we're specifically looking at that would maybe point to is we think theres some room to improve completion designs simply by cutting back a little bit on the amount of water.
We think there's some opportunities to potentially widen spacing, a little bit and specifically around existing producers those are things that we've proven how within our own assets and are transferable and even a little bit more tactical than that it's just simply how we choose to steer a well.
And landed within a particular zone and really its about maximizing the contacted reservoir within that lateral and as we've looked at some of the wells and the chief dataset relative to how we operate we're convinced we'll we'll improved performance there.
Got it so Josh just just so I understand this is this is a.
This is how Chesapeake would do things differently from cheap or is this is this how you do things differently just as you as you move to the northwest kind of on your existing.
Yes. Thank designs, yes, I mean really it's about us using the history and I think a technical expertise that we have to expand it into that acreage rather than it's something unique about the rock that we're developing there.
Great. Thank you.
The next question comes from John Silverstein of Wolfe Research. Please go ahead.
Yeah, Hey, good morning, guys.
Curious just talking about the ability for you guys to try to contracts on the LNG side. It's obviously been a growing focus and you guys do have a lot of capacity down in <unk>.
And your Haynesville play to be able to supply directly to some of these facilities.
And update us.
Europe potential to assign some off take agreements and whether you might be able to or thinking about potentially taking an equity stake in one of these facilities.
Yeah I'll start this one and then Mohit will probably have something out here to again, but.
We're really excited about the opportunity to do something like that Josh exactly where we land on that spectrum of signing off take agreements taking a position in facilities that there is a lot of work for us to do to determine.
Which which facilities, we want to partner with and how we want to gain that exposure. What we're really focused on is creating diversification of price at the end of the day.
These prices or anything you do in the LNG, where it's going to be a very long term contract and so while there is a big delta between U S gas prices in European or Asian gas prices today over the tenor of that contract you would expect there to be plenty of volatility in that spread.
Time's good sometimes less good sometimes maybe not good and so it's really about our diversification strategy.
And we'll continue to think about the right way to approach that.
And we're we're seeing a lot of opportunities to do it with a number of different counterparties and we're going to take our time to work through it but we're excited about that potential.
Hey, Josh Good morning, the only thing I would add is that from a diversification angle.
If the deal is linked to Henry hub that is not as attractive to us I mean, what we are trying to diversify away into is <unk>.
Some sort of a LNG index deals whether it's DTF.
And the argument or the discussions we're having internally what's the right amount so.
As you know we sell it sell out production into different basis.
And the way we view the LNG complex is that some other basis that we want exposure to so from a diversification point of view.
Encourage you to think of maybe 10 to 15% to 20% of our production if we can link it to.
Or do some sort of an LNG index price, whether it's through through some of these agreements or whether it's synthetic kind of a dent bank deal then.
That's what we're driving towards.
Great that's helpful and then.
There's been a lot of portfolio management.
Re emerging you know a little bit over over a year ago, you still have the east, Texas asset in the portfolio and just wanted to see what activity you're doing there. This year and are you looking for something to kind of figure out whether or not it remains in the portfolio.
Yeah.
Yes, Josh we don't have anything material in east, Texas, sometimes there's some Reits that show up on an acreage map depending on what you are looking at but we don't have anything material that we maintain in east Texas.
Okay.
Okay.
The next question comes from Noel Parks of Tuohy Brothers. Please go ahead.
Hi, good morning.
Okay.
Good morning.
I had a couple of questions one.
I was just curious that based on some of what <unk>.
I've been hearing from other producers.
Wonder if you would comment on as far as the services quality.
And what Youre seeing in the field.
How things have been as far as the quality of the equipment.
It's maintenance reliability and so forth.
I'm just trying to think back to the last time, we had up room on the service side and I just had a few anecdotes here and there of.
Our problems or slowness with.
Maintenance.
Repairs, and so forth and of course, what we'd expect from a supply chain and part. So if you could just talk about that and if there are any.
Particular basins, where that are more on the table that'd be great.
Yeah.
Yes. Good morning, this is Josh.
I don't know if I would say there is any particular basin that Mrs.
Bigger problem than others, I mean, I think just much like the broader economy I think labor.
Is tight.
And.
In an industry like ours, where we've seen growth with rigs being added over the last the last year.
Clearly that that's stretching that service organization.
You see rigs coming out of stack potentially and being restarted and so generally across the industry, that's going to lead to some inefficiencies as that equipment gets warmed up so to speak and crews to get to get some experience operating at.
I wouldn't say.
We are seeing any any more or less of that I think it's just a general industry trend.
We have kind of carrying throughout the industry and I think anytime you're in a construct as a constructive commodity price environment that we're in with activities ramping up.
Struggles are going to kind of persist.
It's really I think I would say its present everywhere.
As an operator of course, what we do is we try to manage our strategic partnerships very closely.
Such that we're constantly on top of our service quality.
Safety, obviously is a huge focus and a concern of ours and then of course that ultimately all translates into overall cost performance.
So we think some of our longer term strategic partnerships are.
Shielding us from some of that but.
Generally it is just an industry challenge as a result of the tight labor markets that we find ourselves in.
Great and just drilling down a little bit on on that could you talk about.
Helping stand with and availability.
Across the basins for you what that is.
Mike.
Sand ads.
As a commodity for us is not really an issue.
We feel really good about.
Are the sources, which we supply the basins that we operate in and of course, we're advantaged in Texas, we own our own mine at the Burleson behind just outside of the college station. So that provides us with some security there.
The biggest issue that we fight not to the point that it's created any problems for us, but it's just an ongoing challenge that we face day in and day out it's just sand logistics.
It is probably the bigger issue.
That varies by basin.
It's just the distance from the mine to location interesting in the Marcellus it's been with railcars, we've had union strikes there, which created some problems for us something we maybe wouldn't have expected.
Out of our control, but glad to say it didn't necessarily disrupt any operations materially.
You know in places like the Haynesville and.
And our assets in Texas, It's just about availability of truck drivers.
And so really it's just about partnering with those logistic managers to ensure that we're attracting and retaining drivers.
Sure they can service our operations.
Okay. Thanks, a lot.
The next question comes from John Daniel of Daniel Energy Partners. Please go ahead.
Hey, guys. Thanks for putting me in.
Just a couple of operations questions first can you update us on the experience you guys are having with the new generation electric Frac fleet.
So today with and this is Josh.
Today within our Frac fleets. So we're running roughly five frac fleets, one of which is <unk>.
Eric Frac fleet up in the Marcellus.
That's definitely there has been some learning curves there we were one of the first adopters of that up in the Marcellus.
Really I felt like we've kind of hit our stride, there and seeing some efficiencies.
Theoretically those electric frac pumps should be more efficient, but youre of course reliant upon the quality of the gas and the generation that is being used on site.
Manage it but definitely I would say at the learning curve, we definitely see opportunities to expand that into the future.
But just like most equipment within the service sector equipments tight and.
For more E fleets to enter the market they have to be built which requires capital to be deployed so we're in constant communications with our suppliers.
And talking about additional opportunities to expand that segment of the business.
Josh do you ever see a scenario where you could be.
100% electric further operational reasons why that doesn't make sense.
It is definitely possible I would never rule that out.
Of course, we constantly monitor that market and we need the capacity to be developed.
So I think the simple answer is yes, it could be at some point in time.
Okay. Just one final quick one for me.
Assuming no one in the world.
One anymore.
And you decided you wanted to ramp activity from here how quickly could you do that.
Yes, I'll take that one John .
Big assumption.
And we are.
We're in a world where people do care a lot about capital discipline, and we think that's right and appropriate but.
I think if you said you wanted to get a new rig and start.
Going after a growth wedge I think youre at least six months from that rig showing up at least so.
It could take a while.
Got it. Thank you guys very much for letting me in and congrats on a great outlook.
Thanks, John .
This concludes our question and answer session.
I'd now like to turn the conference back over to Nick.
Any closing remarks.
Okay.
Well, thanks again for joining our call.
Behind our exceptional employees I believe Chesapeake continues to deliver what the market demands today for a premium valuation.
We're focused on our portfolio of high return assets with scale to matter.
Generating significant free cash flow and have one of the industry's strongest frameworks to return cash to shareholders and we're committed to ESG excellence into answering the call for reliable affordable and lower carbon energy the world desperately needs today.
We're eager to provide a deeper dive into the depth of our portfolio and what we believe it will deliver for our shareholders at our analyst day, which we intend to host later this year and in the meantime, we look forward to continuing to update you on our progress. Thanks, again and have a great day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
[music].
Yeah.
Yes.
Yeah.