Q2 2022 Chesapeake Energy Corp Earnings Call

[music].

Good morning, and welcome to the Chesapeake Energy second quarter 2022 earnings teleconference.

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I would now like to turn the conference over to Brad Sylvester. Please go ahead.

Hi, Good morning, Thank you Joe and thank you everyone for joining us on the call. Today. This is Chesapeake second quarter 2020 financial and operating results call hopefully you've had a chance to review our press release and the updated investor presentation that we posted to our website yesterday.

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.

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 uptake to abbe.

Forward looking statements and you should not place any undue reliance on such statements. We also may refer to certain non-GAAP financial measures, which help facilitate comparisons across periods and with peers for any non-GAAP measures. We use a reconciliation to the nearest corresponding GAAP measure.

Can be found on our website.

With me on the call today are Nick the ASO Mohit thing Josh needs, Nick will give a brief overview of our results and then we will open up the teleconference for Q&A. So with that thank you so much and I will now turn the teleconference over to Nate.

Good morning, and thank you for joining our call we had another great quarter, and we've announced another important step in improving our business and solidifying our portfolio around our outstanding natural gas assets.

We continue to execute our business in the second quarter generated very strong cash flows through our capital efficient development.

The integration of <unk> into our portfolio has been a success and contributed to the company delivering strong cash flows and returning meaningful capital to our shareholders in the form of dividends and buybacks.

In fact year to date, we have repurchased shares of our common stock equal to approximately 75% of the shares we issued in the chief transaction.

The consistency of our quarterly execution as a result of continuing to take steps to make our business better not just bigger since emerging from restructuring.

We believe today's decision to reallocate capital from the Eagle Ford to the Haynesville, leading to the Eagle Ford, becoming non core to our future capital allocation strategy is the next step.

Our focus on making Chesapeake better underpinned our strategy to acquire the buying and chief assets and has served as the foundation for our strategic pillars, which we believe maximize shareholder value.

Those are to generate superior capital returns maintain a deep and attractive inventory.

Premier balance sheet and pursue excellence from an environmental and overall ESG standpoint.

As the macro environment has evolved and we continue.

When we conclude the successful integration of the vine and chief assets into our portfolio.

We believe more strongly than ever that we have the premier natural gas portfolio in the U S. Our Marcellus and Haynesville positions clearly possesses the characteristics defining the best assets.

We have industry, leading capital efficiency deep runways of low breakeven inventory situated next to the premier demand centers strong operating margins and advantaged emissions profiles.

Additionally, as you will see in slide five in our presentation on our website today, our relative position with capital efficiency operating efficiency and well performance as peer leading in both basins.

Each of these strengths when combined with our balance sheet deliver a truly differentiated capital returns profile, which is unmatched among the gas names in the space.

While the Eagle Ford is a strong asset as we look to the future. It simply does not compete today with the exceptional returns rock and runway of our gas assets.

The Eagle Ford has become non core to our future capital allocation strategy and we believe that we will be a better company. If we focus all of our resources, both capital and human on the Marcellus and Haynesville.

By doing so investors will have a clear path to investing in our great gas assets and we believe will ultimately value Chesapeake more appropriately relative to the quality of our asset strength of our balance sheet and magnitude of our capital returns profile.

With respect to the Eagle Ford, we will now turn our attention to accelerating value for our shareholders through a strategic exit from the basin.

This is a large and across a wide geography with several subsets of asset characteristics.

Therefore in order to maximize shareholder value during an exit we expect to process may take some time and could even require multiple transactions.

Our approach will be guided by two principles first anything we do must be accretive to our strategy.

Our strong financial position and balance sheet and the exceptional cash flow.

<unk> out of these assets allow us to be prudent in our approach. So this just will not be a fire sale.

And second the proceeds will go to enhancing our capital returns program as you'll see in our slide deck. Our capital returns framework already leads the gas names by a significant margin.

This will allow us to make it even better.

As I stated at the beginning of this call will begin reallocating capital away from the Eagle Ford today and so.

Since Devine transaction, we've been consistent with our six rig program.

The aimed at keeping the haynesville production relatively flat.

We've also shared that we have some short term constraints, primarily from gathering and treating facilities in the basin.

As you'll see in slide 12 of our deck, we've identified a clear path to increasing haynesville capacity by the second half of 2023 and intend to increase our rig count from five where we stood last week to seven by the end of the year, allowing us to match our production growth to the capacity expansions.

Ultimately, we plan to deliver 5% to 7% growth from year end 'twenty two to year end 'twenty three.

In closing we believe Chesapeake is the only gas weighted company, who can definitively say it has the returns profile assets balance sheet access to markets in LNG and ESG performance to deliver across each of these critical areas.

We're excited about our sharpen our strategic direction and the opportunity to demonstrate that we are the premier gas up investment opportunity in this sector.

Operator, we'll now open the call for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Please limit yourself to one question and one follow up.

At this time, we will pause momentarily to assemble our roster.

Our first question will come from Scott Hanold with RBC capital markets. Please go ahead.

Thanks, Good morning all.

Looking at the Eagle Ford.

Looking at the Eagle Ford, It's a pretty big asset I mean, obviously you guys arent forever you can put a marker on it but were talking into the billions and when you think about like that kind of cash coming in the door to questions with that one.

What are the tax implications generally speaking on it and number two.

Like how do you think about distributing that are utilizing that cash.

You talked about within your shareholder framework, but like when you talked about getting.

Multiple billions of dollars.

The right direction or does it make sense to use some of that to look at strategic bolt ons and other things in your core areas yes.

Yes, great Great question, Scott So on the tax side I'll answer that first.

It's a little early for us to start talking about what the tax implications could be we'll probably stay away from those details today theres a lot for us to explore with.

The buyer universe here and thinking about exactly how and exit here will work as I noted I think it's likely to be more than one transaction and so it's probably just a little early to give that kind of guidance on the proceeds.

We've talked a lot about how we're valued today and we've talked a lot about.

What that means to us and how we think about capital allocation and so pretty clearly we have devoted a significant amount of our free cash flow to returning cash to shareholders go through an attractive yield as well as through a very sizable buyback.

Back.

We increased our buyback to $2 billion in June and we've continued to execute on that.

We're up to $670 million total.

Which is nearly $200 million higher than our last update to the market on that point and so we're continuing to press that.

Given where we're valued today.

Capital allocation analysis that would come from a bunch of proceeds from an asset sale is going to lean in pretty hard towards buybacks.

You asked about what do we buy something.

We've talked a lot about in the past that we think scale matters, but we just achieved pretty great scale in our Haynesville and Marcellus assets. So we feel no pressure need obligation to run out and buy something.

We've also been really clear that if we do consider acquisitions, we have a non negotiable is that are.

Designed to be very protective over accrued.

Accretion and shareholder value creation, and they create a really high bar and when you have a stock price that you think is.

Undervalued or attractively valued if youre a buyer.

That raises the bar even higher so look we'll continue to run our business. The way we have been running at the capital allocation model at Chesapeake is getting simpler with this so now you have the opportunity to return capital to shareholders or reinvest in the Haynesville and the Marcellus.

As of your three choices.

That's a pretty straightforward analysis, when you think about.

How we are in a position of modestly growing the haynesville.

And maintaining our fantastic position in market share in the Marcellus, which is capacity constrained.

So that again that analysis is pretty straightforward.

We think we can maximize shareholder value by folks staying focused on that pretty tight capital allocation model and that's what we'll do.

Alright, great great color.

As my follow up is as you look on your I guess focused on the Marcellus and the Haynesville.

You have a pass.

With the Haynesville through 2023, when you started thinking about like beyond that I think the Marcellus.

There's not a ton of growth opportunities. So like when you look at the Haynesville longer term is the idea post 2023 to maintain relatively flat production or yield like that modest growth trajectory in that basin and is there a capacity to do so beyond 2023.

So the answer the second question is yes, we think there will be capacity to continue to grow beyond 2023.

Will we grow is something we will determine over time.

We will grow.

But it's really important to have the ability to grow.

You referenced and I referenced that the Marcellus is generally constrained, but I would also point out that over the last couple of years, we have managed to grow in the Marcellus and we think that growth is a function of how competitive our assets are.

What that basically came from was at during the Covid pandemic shutdown. There was capacity that softly opened up in the basin and we were able to take advantage of that and we grew production and so when we have opportunities to grow in the Marcellus we will do that.

It's really hard to predict those opportunities in an environment, where gas prices are high there should be less of those and when gas prices were low that sir.

<unk>.

Always pay attention to that opportunity and then having the ability to grow in the Haynesville is a great lever.

<unk> will be really disciplined and prudent about how we approach that over time in the current moment, we've been able to.

Wine out how we're going to expand takeaway capacity.

Our gathering and treating facilities and that gives us confidence to step into from a low single digit growth rate to a higher single digit growth rate.

On an exit basis.

'twenty 'twenty into 'twenty three.

How well positioned 24 and beyond is something that we'll look at as we go through 2023.

I appreciate it thanks.

Our next question will come from Doug Leggate with Bank of America. Please go ahead.

Thanks, Good morning, everyone.

Got it.

Two questions I guess on.

I guess I would scream a consistency of strategy.

I think it's kind of important.

For us to solve some view as to what Thats going to look like and obviously with it.

Five year plan you laid out is probably not.

The best guide today, given these changes so I guess my first question on the Eagle Ford.

Whats changed here.

Our reactions.

Last quarter, you talked about.

Standing returns and significant free cash flow.

Just wondering what the figure was for this.

The unsolicited approach was it.

Was it something else with the program that wasn't as successful as your thoughts on maybe if you could frame your expectations to where you think value would be housing.

Pushes back against yourself, but.

Inventory that will be pretty important I guess.

That discussion as well, so so what changed and.

What are you what are your expectations in terms of volume.

Sure. Good morning, Doug I'll do my best to answer what I think you asked your pretty.

And your voice there.

Sure.

I had.

We came out with a presentation in June which.

So I think pretty successfully highlighted a lot of the individual characteristics of each of our assets Haynesville Marcellus and Eagle Ford and that was intentional.

We wanted to start highlighting the asset level quality a bit more on its own as we knew that this decision was potentially coming soon and.

I think that did a good job I think investors haven't been a bit of better clarity as to what the Eagle Ford generates on its own and.

You asked about the results of this year were actually pretty pleased with what we're seeing so far this year.

The turn in lines for the Eagle Ford that are coming out of our capital program are pretty heavily weighted to the fourth quarter.

And so that's going to give us quite a bit of volume momentum going into 2023.

It's a nice time to be thinking about a decision like this.

And so really what has changed is the super high quality of the mine and cheap assets as we complete the integration of those assets and think about how it all fits in our long term capital allocation model, Yes, we can show a capital allocation model that looks quite attractive with the Eagle Ford Theres No question.

About that.

We have shown that and we know the Eagle Ford is in a position to generate a tremendous amount of free cash flow, but we think we can make it better over time.

By being focused on just the Haynesville and the Marcellus. So this is really about the strength of those two assets and how the capital allocation model comes together and how we continue to make it better.

So.

<unk>.

Not a lot has changed other than us clarify that strategy and beginning to talk about if we're good with the Eagle Ford, we're going to be great in a more refined capital allocation model going forward.

So it's a question that can I apologize for my line, but <unk> had unsolicited approaches for this.

We get calls about all kinds of things all the time, Doug So.

Well, we'll just leave that comment with that.

Some of those some of those calls don't know if they are valuable and some of them probably are.

My follow up Nick I mean, again I hope you can give me a date.

We've obviously you and I.

Third with debates about variables versus buybacks youre share price I was just looking at was about the same levels that wasn't lost coal.

But now you are talking about the value of your stock and the redeployment of proceeds for share buybacks why would that not apply to organic.

Yes.

The words are we not seeing an end to the debate over variable versus buybacks that you can pivot harder into the buybacks in favor over the variables.

And I'll leave it there thanks.

Sure. Thanks, Doug so.

All right.

<unk> discussed this quite a bit and I'm sure we'll continue to discuss it.

We have an approach here that is all of the above we've continued to talk about that we know that quite a few of our investors appreciate that approach.

We're going to maintain an open mind about what's the best way is to return capital to shareholders and obviously with an announcement like this today.

Where we're talking about leaning towards buybacks with proceeds.

<unk>.

Given what we see in the evaluation of the company today.

We think our stock is undervalued and we think that incremental cash beyond what we've designed in our returns profile should go to buybacks, but.

We like the approach we have we like the.

All of the above approach and so.

And we're going to keep doing that for a moment I think the dividends, we're paying off this quarter fantastic.

There is great opportunity to see those grow overtime, obviously commodity price dependent that's the nature of a variable.

We think it's a pretty attractive stream of cash for investors.

Thanks, Mike I appreciate it.

Sure.

Our next question will come from Zach <unk> with Jpmorgan. Please go ahead.

Hey, guys. Thanks for taking my question I guess first off maybe just a follow up on the buyback.

Yes.

Although to buy back shares this quarter.

<unk> been very aggressive with the buybacks. Thus far do you plan to continue to draw on the buyback draw on the revolver to buy back shares in the near term clearly you've got some proceeds plant and they come in with the Eagle Ford sale. So just just thoughts on kind of the near term outlook for the buyback.

Yes, good question Zack.

You're expecting a pretty significant amount of free cash flow for the company. So.

No it is.

It's a free cash flow driven.

Return strategy.

Got it.

Just.

Follow up on the Haynesville, you talked about constraints there in the near term and working with some of your midstream partners to alleviate those can you give us a little more color on what's going on there and maybe a timeline for when you could start.

To grow your Haynesville asset just looking at the <unk> at its pretty flat quarter over quarter.

It is flat quarter over quarter and so what we've detailed on the slide in our presentation.

The Haynesville is some you can follow us a few steps.

Capacity additions will come on a lot of these things are small projects as we noted the last time. These are constraints at the gathering and treating level and so.

Have either new off take agreement to use treating capacity.

With a neighboring system or you have an expansion of existing treating capacity or you have a new off take line for takeaway that will.

Allow you to bypass some treating theres a number of different things embedded in this several different projects and we've modeled it out for you. So you can see the steps at which it will we expect it will come online next year.

Thanks, guys. That's all for me.

Exactly.

Our next question will come from Matt Portillo with Tpa. Please go ahead.

Good morning, all.

A.

A follow up question on the balance sheet.

<unk>.

Expectations were to possibly start to pay down the revolver kind of heading into 2023 and beyond I guess with where the stock is trading today and obviously.

Ability to continue to redeploy our free cash flow towards the buyback is that view still one that we should be thinking about or are you comfortable with the leverage profile and continuing to recycle more and more excess free cash flow towards the buyback moving forward.

We've clearly been willing to deploy a lot of free cash flow towards the buyback here in the recent past and we had an opportunity in the second quarter to do a lot.

So you saw US do that and then you saw us increase the buyback authorization as a result.

Well, we always work at that pace that kind of depends on what happens in the market and.

Our ability to access sellers in stock in larger chunks.

We may or may not we can be opportunistic about that we have the financial flexibility to do it.

I would not expect that to be a straight line trend.

We when we're not buying back at that pace than free cash flow will be applied to the revolver. So this is not a signal that our balance sheet is going to blow it up here.

Four.

For buybacks. In addition, I would just point out that.

And I think some of the notes. This morning highlighted we did have a working capital draw. This quarter that is purely a function of the timing of hedge settlements relative to when revenue comes in hedges settle first in revenue comes a month later.

That should normalize in the third quarter that pulled a bit more on our free cash flow this quarter and it is purely a short term timing issue. So.

Our balance sheet commitments remain as rock solid as they could be we that is something that you will not see us deviate from.

Perfect and then I guess, a follow up question with the divestiture of the Eagle Ford, obviously have kind of pure dry gas exposure here just.

Curious, how youre thinking about your hedge strategy moving forward, particularly kind of late 'twenty three heading into 2024 balances might start to loosen a bit obviously a bit of a long road between now and then but.

As we get into 'twenty five and beyond.

Latest LNG the market looks quite strong. So just curious how you guys are thinking about protecting some of those cash flows, especially given the strength in the curve and how you might approach kind of hedging as you lose some of the oil revenues and become more of a dry gas carefully.

Hey, Matt Good morning, this is mohit I'll take that.

The hedge strategy.

Stays consistent through the cycles, our view is that on a rolling eight quarter basis, you want to keep looking at.

Hedging we've done lately is just be more opportunistic as prices firmed up in.

We were seeing.

Significant volatility and especially to the upside that's the time to monetize that volatility and Thats. What we did through some very attractive costless callers that we were able to lock in and we'll keep looking forward was kind of windows, where we can opportunistically going in layer more hedges, but the view remains because <unk>.

After that we will look at it on a rolling eight quarter basis.

Some of the legacy hedges that we have are beginning to roll off and.

I would say what we have going forward is our more of hedges that we have tactically put in place. So we feel pretty good about that.

Perfect. Thank you.

Thank you.

Our next question will come from among children with Goldman Sachs. Please go ahead.

Hi, good morning, and thank you for taking my questions.

My first question was on Eagle Ford I believe one of the Adas, which youre evaluating two disk.

The future capital location in the basin with on the Austin Chalk program.

Any update on that program and how is that influencing your plans for sale.

Yeah, Hi, good morning. This is Josh at this point, it's still really early we've only brought on seven wells in total.

In the first half of the year. So we're still early in the program.

Our first Austin chalk well just came on just in the last last couple of weeks. So still that will still cleaning up so we still have quite a bit to learn as we get into the second half of the year from that program specifically.

Great way to have.

And then on the second question can you walk us a little bit about your hedge strategy and specifically your basis hedges in the Haynesville.

It looks like because of the gathering and treating facilities and with potential for more growth in the basin there could be some.

Basis concerns for the Haynesville in the back half noticed that you are 50% hedged already.

We plan to add more hedges.

To protect that differential.

Yes, Martin this is mohit.

Take that the short answer is yes, we are always looking for.

Opportunities to pair our Nymex hedges with the basis hedges as well, it's not quite where we'd like to be on a one to one basis, but we're trying to let them go to market is there and.

We are trying to layer those in.

Thank you.

Our next question will come from Sebastian genre with benchmark. Please go ahead.

Yeah. Thanks. Good morning first question is.

You sort of.

Shift capital from Eagle Ford to the Haynesville.

In advance of the sale.

What do you think about capital efficiency.

I think on the one hand, I sort of see the Eagle Ford Wells are cheaper.

The margins are better because of oil, but on the other hand.

Your.

Gas wells is so much more prolific.

But how do you think that.

Balances out here in the near to intermediate term.

Well.

When we when we look at our returns and that's how we choose to allocate capital the returns today, even at the commodity prices you see the margins you might expect in the oil assets.

The returns are still far superior in the Haynesville and the Marcellus and Thats really whats ultimate.

Ultimate guiding this decision so we feel really good about this shifting capital and we think it's going to only enhance our capital efficiency.

In the near term in addition to as we look out into the horizon.

Okay.

Slide in the deck today, Suraj that shows capital efficiency as measured by.

The amount of capital you spend relative to 36 months of production from new wells that you bring on.

We're really proud of our track record there did that just for our gas asset at this time you can look at it across.

Our whole portfolio as well.

While our Eagle Ford asset has attractive capital efficiency, our gas asset capital efficiency is just off the charts good.

Yes.

<unk> impressive I might come back on that in <unk>.

But.

The other question I wanted to ask with as you sort of looking for these.

Sales type agreements for LNG.

You are a huge player then in the Haynesville.

How much competition is there for the LNG fairway.

Do you think is it sort of a zero sum game.

And how does some of these privates that are for sale, a thorn in rocklin sort of fit into that.

I don't know if theres a place.

For someone to consolidate those to enhance their market position for <unk>.

Future LNG exports.

Yes, those are all good questions. So.

So really excited about the LNG opportunity you saw we announced our first significant contract and the LNG World with this release, we've done a deal.

Saw some gas to Golden pass what's unique about that contract is that.

It does give credit for us producing responsibly sourced gas.

So we think this is a good step towards recognition of what responsibly sourced gas means to the LNG buyer.

Buyer universe.

We can't go into the details of pricing you received there other than just to point out that it's a domestic price we didn't do a deal on TTM for something here.

And we're pleased with the price. We think this is a better price than we would get just from putting gas in a pipe and sending it out.

So it's a great transaction for us it gives you.

Charity flow. It gives you surety of differential.

We think we've made a good deal on both of those points.

We'll continue to stay focused on LNG from the standpoint of how do you get the best pricing contracts, we've talked a lot about how if youre going to pursue LNG on an internationally priced basis, you need to think about it as a diversification strategy and we still very much think about it that way.

And so what's the best way to get that you do need to be large you need to be responsible with you need to be a great operator.

I need to have a depth of inventory and the quality of inventory that buyers understand that if they are buying something from you over a 510 15 year contract will be there to deliver.

So you need to be resilient from a quality of inventory standpoint, but also from an environmental standpoint, and when you stack all of that together. We think we are a preferred seller of gas into the LNG World. We're right. There on the doorstep of the facilities, we have a tremendous amount of gas we have good connectivity to market, there's a lot of projects.

That are in the works to increase the connectivity to market and increase the connectivity directly to certain facilities. So you can imagine that today it is competitive.

And those strengths of depth and quality of inventory.

ESG position that we have.

Our overall operating efficiency play all his strengths into that discussion.

Okay. Thanks, guys ill jump back in the queue. Thanks.

Thanks, Josh.

Our next question comes from Nicholas Pope with Seaport Research. Please go ahead.

Good morning, everyone.

Alright.

I was hoping you guys could talk a little bit I mean, now that we're one of a three or four months I guess more than that into the chief.

<unk> acquisition.

Can you talk a little bit about the integration and kind of how that's progressing relative to your plan kind of where you're seeing kind of some of the benefits of that of that larger footprint on operating cost to transport costs, just kind of curious how things are progressing there on that acquisition.

Yes. Good morning, this is Josh.

I'll answer that.

We're really excited about what we've seen we're only.

Four months into it but really pleased with how the teams have come together and identifying.

A number of opportunities in a couple.

A couple of things maybe to highlight for you.

One of them is we're really just seeing the benefits of seeing a common owner within the gathering system of course, our acreage with cheese was really entertain going with one another.

To date, we've already added about 80 million cubic feet a day of gross gas that we're able to float incremental to what the two companies could have done before.

That's just simply being able to have a complete view of that gathering system and then working with the midstream provider to ensure that we're directing gas flows to where there is available capacity.

So that's already really starting to realize itself and then also I mean I look at what we've done on the on the drilling side and just since we've taken over operations as we utilize our remote optimizations here center here in Oklahoma City.

We've already realized about a 7% improvement in our footage per day on the drilling side just by sharing common drilling practices. So just a couple of things to highlight but again, it's gone really really well the integration I would say is essentially complete we still have a few of the Bakken.

Financial systems to tie together, but.

Things about royalty will have really well so far.

Thanks I appreciate it.

Moving to the other asset.

In the Haynesville you guys provided this chart showing kind of the split of Bossier and Haynesville kind of.

Curious what the current level of activity split is between those two formations.

And kind of what the expectation is here over the near term in terms of that split and kind of where you think we are in kind.

Kind of understanding kind of the optimal targets there in those two and those who.

Formations.

We're still going to be pretty heavily geared.

Towards the Haynesville and the program, there's about 10 or so wells.

And those are that we'll plan, we do like the Bolger in fact, we brought on earlier in the year at 15000 foot lateral that <unk> drilled in the <unk> over the first three months, we will average about 40 million cubic feet a day and so if you actually were to take that and place. It on the slide five of the best.

Gas wells across North America is going to be right. There at the top as soon as that hits the public data databases. So.

Again, we'll be more geared towards the haynesville.

Just because thats more prominent across a greater portion of the acreage, but it's better.

It looks great and we will continue to assess and incorporate that into our development plans.

Got it I appreciate it that's all I had thank you everyone.

Our next question will come from Noel Parks with Tuohy Brothers. Please go ahead.

Okay.

Hi, good morning.

I just wanted to.

Ask a bit about that.

The service environment and how it maybe.

Plays into your longer term thinking.

And when you are talking about LNG contract.

No.

Few minutes ago.

You mentioned getting.

The.

The LNG operators confidence.

There to deliver.

10, 15 years out so.

As you sort of rationalize the portfolio on the one hand and and.

I think more about <unk>.

LNG pricing.

Just wondering.

Or do you have some embedded assumptions there are some scenarios in there about what the service cost environment looks like in particular.

Thank you.

Reaching.

Sort of peak of cost and then sort of moderating.

Or.

Do you consider the scenario that we might see any sort of an ever intensifying.

Backlog in inflation.

The gassy basins in particular.

Sure I'll take that and others may have things to chime in here.

We pay really close attention to inflation and obviously in places I've been a big theme in 2022.

And I would talk very.

Often in that with our service providers about how do we think about capacity in the industry.

They are making very rational decisions not dissimilar to how the upstream has responded to these higher prices here over the last call. It 18 months.

And so we're being prudent and disciplined about how and when they decided to bring incremental capacity market, but there is incremental capacity is showing up.

It's not showing up at the rate that it has in past cycles, and frankly, thats probably healthier.

We are seeing inflation, but we also are seeing some.

Some additions to capacity, albeit at a slower scale than in past cycles. So I think the cycle continues to play out the way. It always does there is significant margin to be had so therefore people will bring capacity to market and it seems to be working healthier than.

And then it has in the past we think that will continue.

Overall.

We have a great relationship with our service providers, we remain an operator of choice.

We push our suppliers on performance and when we achieve great performance.

Make more money and so it's a very symbiotic and great relationship that's the way we structure our contracts.

That works and works well for us.

Great.

Following up on that.

Your first.

Contract structures ahead.

We're especially with what we're talking about the longer term.

Okay.

If there is some ability to two.

To mitigate or maybe sure.

Risk.

On the production.

The production cost side.

So you don't have sort of like a long term top line scenario for that your pricing scenario for what you're receiving.

Sure.

Hello.

Exposure, maybe on the cost side.

Yes. This is Josh.

We work, obviously pretty closely with our service providers.

Sure.

Regularly talking about what the contracts should look like as we look out into the future and then generally we're not seeing much.

Much appetite at this point for longer term contracts there is still.

Quite a bit of movement potentially to be had in the service side.

Clearly, it's I think pretty well documented that the service market is tight and not seeing a ton of capital.

Being injected into the oilfield service sector.

And so I think generally.

We're looking at month to months to maybe six months out, but given any any further beyond that.

Not really what we're working towards.

Day.

It's just simply too hard to predict and the environment. We're in.

Well, if if I may add toward Josh said.

Referring back to slide five because again in an inflationary environment our firm view is.

If you have a portfolio that is competitive cost efficient and your operating margins are healthy.

You can absorb the inflationary pressures obviously, we track it very closely as Nick said, but at the same time as the robustness of the portfolio, which allows you to absorb those kind of variability.

Alright. Thanks.

That's all for me.

Our next question is a follow up from <unk> Chandra with benchmark. Please go ahead.

So slide five.

Just wanted to give you guys an opportunity.

Impressive Marcellus results.

What are the drivers here.

<unk>.

If you can do some sort of attribution analysis, possibly between geology and the things that.

You can control.

Well I mean, obviously in our business.

Starts with the rocks and we our advantage that we were early movers in the Marcellus and in the Haynesville and so we really like the acreage positions that we've accumulated in.

We are the only strengthen that with.

With the buying and the chief acquisition, so clearly.

That works to our benefit but at the same time, we consider ourselves to be a premier operator, and what that really comes down to is our ability to manage.

Capital and our experience that we have the technical expertise that we've developed.

Contracts that we put in place and how we partner with service providers also allows us to be able to manage our cost per foot performance in these basins and so you put these two together and you end up with that chart that you see in the upper left hand side of slide five which with us providing.

He is the best capital efficiency across our gas basins.

What about initiatives that drive IP rates in the us.

Looking at the evidence and the right side of this slide.

Yes, so we're not really in the game I would say it's necessarily.

Creating the headline rates. This is just really the nature of having great wells.

<unk>.

And maximizing our return on an investment so clearly we want to be efficient with capital.

And but our goal at the end of the day is too.

Clearly maximize the return that we get not necessarily MIP.

We kind of like the fact that we showed.

First 90 days of production 17 of the top 20 wells or by Chesapeake, But then we also balance that by showing the amount of capital that we have to spend to bring on production over a several year period.

And do we shine in both and so we.

And bring on wells dig in the beginning we don't spend a lot of money relative to others to do it and are holding up well so.

It really.

When you think about what this slide highlights and then also operating efficiency.

Our cost structure is quite competitive.

Have any liquids contribution and yet we're hanging out in.

In a pretty competitive spot from a margin standpoint, and so when you think about <unk>.

All of the pieces here it really is about rock returns and runway.

We can deliver all of these.

Returns today, and we can do it for a very long time, given the depth of inventory, we put together as we continue to make this company better through the acquisitions that we've done with mining chief.

We're achieving the synergies that we thought there were pushing for a lot of incremental synergies beyond what we were able to identify day. One when you have the kind of scale and operating capability. We have in a basin. Like this you are running the rigs we're running.

You have the history you have the data you have the ability to execute and the service provider relationships. You can continue to perform at a high level and that's something that we take a lot of pride in our team works very very hard on every day and delivers a fantastic result, and so this takes.

Every employee at Chesapeake to deliver on this kind of performance.

Very proud of that and we expect to continue to do that.

Over the long haul and know that with the quality of rock as Josh said, but then also the quality of operations, we sit at the top.

Okay. Thanks, guys good flat.

Okay, I think thats, probably the last question.

So in.

In closing.

<unk>.

I just want to comment that we recognize that accelerating value for shareholders.

Through our strategic exit of our Eagle Ford will not happen overnight.

However, I would like to reiterate our key principles for this process.

We will ensure that it's accretive to our strategy and with our balance sheet and the cash flow from these assets, we can be prudent in that approach.

And we're looking forward to applying the proceeds through our capital allocation philosophy, which is going to lean towards our leading capital returns program.

We're very excited about this and I hope you're all concerned that the confidence we have in the strategic direction, we are undertaking.

Is very very high.

Both firmly grounded in our belief that Chesapeake is the strongest assets capital returns and balance sheet of any gas named today and that by focusing on all of our attention on the Marcellus and Haynesville will demonstrate that we are the premier gas investment opportunity in the sector.

Forward to updating you on our progress as we move along and we will talk to everybody soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.