Q2 2022 Coterra Energy Inc Earnings Call
Thank you for standing by my name is Cheryl and I will be your conference operator today.
At this time I would like to welcome everyone. The Terra energy second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number.
One on your telephone keypad, if you would like to withdraw your question again press Star one. Thank you Dan Guffey, Vice President of Finance planning and analysis and Investor Relations you May begin your conference.
Thank you Cheryl and good morning. Thank you for joining <unk> Energy's second quarter 2022 earnings Conference call. Today's prepared remarks will include an overview from Tom Jorden, CEO , and President and Scott Schroeder Executive Vice President and CFO also on the call, we have Blake Serco and Todd Roemer.
Following our prepared remarks, we will take your questions. During the Q&A session. As a reminder, on today's call will make forward looking statements based on current expectations. Additionally, some of our comments will reference non-GAAP financial measures.
We're looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures were provided in our earnings release and updated investor presentation, both of which can be found on our website with that I'll turn the call over there Tom.
Thank you Dan and thank all of you who are joining us today for our Q2 2020 to recap.
As you read from our earnings release, we had an excellent second quarter. If I were asked to write the news headline describing our release there would be co Terra hits its stride with these quarterly results, which are third since forming co chair, we have affirmed our commitment to capital discipline and prudent capital allocation and written.
Turning free cash to our owners.
We beat on all three product streams oil gas and natural gas liquids. This was a result of outstanding organizational execution during the quarter as well as having some great rock.
Let me give a big shout out to our organization, particularly our field staff, who worked relentlessly during the quarter and brought wells online ahead of their planned first production date.
Our solid execution was turbocharged by excellent reservoir performance, we continued to see positive results from our spacing configurations landing zone selection and completion designs.
You will also note that we increased our capital guidance for the year. This was a combination of two factors inflation and a modest increase in activity I will discuss these individually.
Inflation continues to be a headwind. This includes cost increases for rigs and frac fleets as our term commitments expire and we moved to prevailing rates prices for diesel fuel steel and sand continues to climb during the quarter.
It's hard to point to any significant item that has not seen some level of price increase.
We are adding a modest amount of incremental activity in the second half of 2022. This includes keeping a third rig running in the Marcellus where our prior plans called for us to drop back to two rigs in the final analysis, we decided against releasing a high performing drilling rig and in the environment.
We had doubts that we could have replaced it with one of comparable quality and performance. This decision will provide operational momentum and increase optionality as we enter 2023.
We are achieving outstanding economic returns from our capital investments in each of our three basins.
One measure of the quality of returns as project payout time. It has been many years since payout was a meaningful descriptor of our program.
Our industry has been fooled many times by a strip price file that has ultimately been a mirage and which has at times resulted in returns that are lower than pre drill models.
In an environment, where we are cautious about future commodity prices and possible global recession short payout times add a safety backstop to our capital program.
In 2022, our Permian and Marcellus drilling projects are achieving full project pay out in a range between two and six months.
Looking ahead into 2023 culture is well positioned for success. Although we are not prepared to discuss specific plans for 2023, we are positioned to deliver on all of our commitments significant free cash flow generation. The return of at least 30% of cash flow from.
<unk> in the form of dividends supplemental share repurchases and debt reduction and an investment program that generates mid single digit growth and co chair of fashion, we intend to under promise and over deliver.
We're also pleased to report that we have not relaxed on our mission to significantly reduce our emissions footprint. We are on track to hit our greenhouse gas intensity goals methane intensity goals and flaring reduction.
As of fall of 2021 we have eliminated all routine flaring. We also continue to make great progress on our multiyear electrification goals fully two thirds of our Permian wells drilled in 2022 will be drilled by rigs running directly on grid.
How're we.
We took delivery of a fully electric Frac fleet during the second quarter, which we are powering directly off our electrical distribution grid.
We have begun to pivot to electric compression within our Permian midstream assets and are seeing excellent operational performance. These initiatives are smart timely and result in significant efficiencies in fuel savings hats off to our operational staff and vendor partners for championing. These key.
Creative and impactful technologies.
And finally on the macro front, we have not lost sight of the fact that we are in the midst of a growing global energy crisis long term underinvestment in our sector combined with the rebound in demand has created a shortage of oil and natural gas and the impacts of which have ricocheted around the world.
The war in Europe , and growing inflation has exacerbated the problem and impacted those who can least afford it thus.
Thus far the response from our policymakers in Washington has been underwhelmed.
Although we are encouraged by some elements of the recently announced inflation reduction Act.
We are cautiously studying it's many provisions our industry and our nation has the capacity to produce clean reliable affordable energy that provides energy energy security to the free world.
We not only have the ability to accelerate delivery of LNG to the world. We have the responsibility to do so we need strong leadership and energy policy, we need more pipeline infrastructure and we need it now many of these projects will take years from design to completion, which means.
We should get started today on leashes to watch what we can do.
With that I will turn the call over to Scott, who will walk us through a more detailed rundown of our Q2 results.
Thanks, Tom today, I will briefly touch on second quarter results shareholder returns and then finish with updated.
During the second quarter Terra generated discretionary cash flow of $1 $49 billion in the quarter, which was up 21% quarter over quarter, driven by strong operational execution and robust commodity prices.
Accrued second quarter capital expenditures totaled $472 million with drilling and completion, making up 93% of that total cash capital expenditures totaled $474 million.
<unk> free cash flow totaled one point O $2 billion for the quarter, which included severance costs of $14 million. Additionally, the free cash flow figure included cash hedge losses totaling $297 million.
Second quarter total production volumes averaged 632 Boe per day with oil volumes, averaging 88.2, mbo per day, and natural gas volumes, averaging $2 seven nine Bcf per day as Tom indicated all three streams were at the high end of our guidance range the strong <unk>.
Quarter performance was driven by a combination of operational efficiencies, which accelerated cycle times positive well productivity and an increase in non operated production.
Second quarter turn in lines totaled 32, net wells, which was in line with the high end of our guidance range.
Of note during the quarter, we were primarily an ethane recovery in the Permian basin, whereas we are primarily in rejection over the prior year. This caused natural gas volumes to be slightly lower NGL NGL volumes to be slightly higher and NGL realization as a percent of W. Ti to fall slightly.
We expect to see a blend of rejection and recovery for the remainder of the year.
The company exited the quarter with approximately $1 $1 billion of cash down from $1 4 billion in the first quarter during the second quarter the company had a stronger than usual.
Excuse me a larger than usual change in its current assets liabilities account on the cash flow statement due primarily to large changes, which were driven by strong commodity prices.
These combined net debt to trailing 12 months EBITDAX leverage ratio at quarter end was four times liquidity stood at just over $2 5 billion when combining our cash position with our Undrawn $1 5 billion revolver.
Turning to return of capital, we announced shareholder returns totaling 80% of second quarter free cash flow or 92% of cash flow from operations.
Return of capital is being delivered through three methods first we maintained our <unk> 15 per share common dividend, which remains one of our largest common dividend yields in the industry second we announced a variable dividend of <unk> 50 per share combined our base plus variable dividends totals 65 per share up from our 50.
<unk> per share dividend paid in the first quarter and our <unk> 60 per share dividend paid in the second quarter, our total cash dividends for the quarter is equal to 50% of free cash flow.
Third during the second quarter, we repurchased $303 million of common stock or 11 million shares at an average price of $28 60.
Buyback amounted to 838 cents per share number or 30% of free cash flow just over four months since our $1 $25 billion buyback authorization, we have repurchased $18 9 million shares for $487 million utilizing 39% of our original.
<unk>.
We have previously discussed our intention to execute the full authorization within a year and remain on track to do so entering the third quarter. The company added <unk> five one plan in place and we will provide details of its third quarter share repurchase activity with next quarters update. In addition, we announced the conversion of 38.
Our preferred stock and a retirement of $124 million in principle of long term debt, which had a weighted average interest rate of approximately 6%.
We remain committed to returning 50% of free cash flow.
Through the base dividend and variable dividends and incremental returns come in the form of share buybacks and enhanced variable dividend or possible future debt reduction.
Lastly, I will discuss our guidance in our release yesterday afternoon, we updated full year production capital and unit cost guidance.
Following another strong quarter of execution and performance, we are raising our full year 'twenty two production guidance, our annual guidance at the midpoint for <unk> is up 1% to $6 15 to $6 35 natural gas is up 1% to $2 75 to 2.83 Bcf per day and oil is up 4% to $85 five.
$2 87, five mbo per day, we have no change to our 22 turn in line guidance, but could be toward the high end of the range.
We are increasing our full year capital investment guidance, 10% above high end of our previous range to $1 6 billion to $1 7 billion. The increase is driven by incremental inflation and a modest uptick to second half 'twenty two activity.
We now expect 20 to inflation to drive capital up 'twenty to.
25% year over year from the estimate of 15% to 20% back in May while we have the majority of our big ticket items locked in for the second half of 2000 22022. The majority of our 23 program remains subject to market rates based on preliminary estimates, we expect inflation to increase dollars per foot and incremental.
10% in 2023.
Activity increase Tom already noted the third rig in the Marcellus in the second half of 2022. Additionally, we are increasing our facilities capital to minimize execution risk and the impact of <unk> service and materials markets.
While we are continuing to see inflationary pressure relating to operating cost we are maintaining our low E. G. PMT and G&A unit cost guidance, we are increasing our taxes other than income guidance and lowering our expectations for the deferred tax ratio with operational efficiencies pulling volumes forward into the second quarter, we now expect.
Production volumes for the second half to be relatively flat.
In summary, we expect capital discipline continued execution and our unrelenting focus on maximizing return on capital to drive a differentiated value proposition.
As always maintaining one of the best balance sheets in the industry remains foundational for our future success with that I will turn it back over to the operator for Q&A.
To ask a question. Please press star one please limit yourself to one question and one follow up. Your first question is from Jeanine Wai of Barclays. Please go ahead. Your line is open.
Hi, good morning, everyone. Thanks for taking our questions.
Good morning Jeanine.
Our first question is on good morning. My first question is on cash returns.
<unk> and <unk>.
80% of free cash flow this quarter.
9% last quarter.
The official framework calls for 50% or more payout.
Thanks very much.
All dividend and then you have the buybacks as a sweetener.
You already have a sound balance sheet, you don't have much debt coming due and our question is if prices remain around where they are.
Currently is that 70% to 80% range a good ballpark going forward.
Jeanine This is Scott Schroeder.
Our framework is the 50 plus percent if you listened to the comments, we made and how we're leaning in and our goal of getting most of the buyback done I think it's a safe assumption that we will be higher than the 50%, but at the end of the day. Our main commitment is the 50 plus percent.
Okay understood. Thank you.
Second question is on <unk>.
Asia.
Some folks are a little surprised that the Marcellus is seeing as much inflation as it has been so can you discuss the dynamics between the relative inflation between the Marcellus and the Permian and any implications for 'twenty two 'twenty three and your prepared remarks on slide eight.
We're just looking for maybe any additional commentary thank you.
Hey, Jeanine this is Blake I'll take that one.
When we look at inflation across the basins.
It's really kind of amazing how closely track casings.
Casey Casey, we feel that everywhere and ive, even with rigs and crews.
They are in hot demand all over the U S and so there the service providers have pressure to bring those to wherever they can whatever base and they can get the best pricing is so it's been interesting to watch those costs really tracked closely.
What's differentiating the Permian. This year is one just some more operational efficiencies.
Specifically, the three mile lateral projects and the E. Frac is offsetting some of the inflation.
But also in the Marcellus just with contract timing.
So as contracts rolled off earlier in the year. So we went to new contracts at higher rates. So it kind of took their lumps earlier in the year, whereas in the Permian and that'll be a little later.
As far as inflation going forward.
We've built in everything that we know today and so that's that's what we're guiding to.
Great. Thank you.
Okay.
The next question operator.
Your next question is from Matt Portillo of Tudor Pickering and Holt. Please go ahead. Your line is open.
Good morning, all.
Hey, Matt.
Just a quick one I guess on the operational front.
I know that part of the production uplift in Q2 was related to the timing of the sales but.
A couple of quarters, now, where we're seeing positive performance that looks to be driven by some of the changes you've made to.
The spacing design in the Permian and Tom maybe just a question around what you've learned so far and maybe any learnings that you are seeing in terms of the outperformance on well results as we move forward there.
Well, Matt we've learned kind of what we've talked about in the past. We believe we can recover the same amount of oil volumes and much if.
Much of our Permian asset by drilling fewer wells and so we're seeing a cigna.
A significant increase in capital efficiency as we widened our spacing and they're in some areas we've increased our completion energy.
And what we're finding is that as we compare our projects to some offsets we're tracking right on line with recovery per drilling spacing unit with a lower capital investment.
We continue to explore landing zones, we've done a lot of science over the years now we're seeing I think good recovery from our section of rock, but as I said in my prepared remarks of all that and great rocks and you have formula for success. So we're very pleased with.
Changes we've made over the last couple of years.
Great and then maybe shifting a bit towards the Marcellus I know part of the strategic combination with the diversification.
The commodity between gas and some of the Permian assets that also.
There's quite a bit of potential to unlock value in the upper Marcellus in that you have.
The wells are still online and more to come in the back half of the year. Just curious if you could give us any insight into what you've learned so far on the upper Marcellus and how that might continue to extend the fairway on the development program for that asset moving forward.
Our learning curve in the upper Marcellus right now, Steve and it's kind of fun, it's nice to have a new landing zone with that kind of potential and kind of.
Our race, which you've known that doesn't apply and apply which you've known that directly applies we're doing some science right now in the Marcellus we have got a fiber optic project with some downhole pressure sensors kind of exploring the fracture efficacy of our completions.
We're very encouraged by what we're seeing in the air for Marcellus and we look forward to bringing those results to the fore as soon as we get a little more production behind us. So we wanted to be conservative and watch multi pad developments before we start high fiving ourselves, but the upper Marcellus as wide open territory.
We're very encouraged and look forward to discussing it in the future.
Thanks, so much.
Your next question is from Arun <unk> of Jpmorgan. Please go ahead. Your line is open.
Good morning, Tom how are you.
Well Arun how are you doing.
I hope to Houston is treating you well my hometown.
Couple of questions regarding.
Your initial thoughts on 2023 really appreciate those.
You mentioned, maybe Scott mentioned.
Preliminarily, maybe dollar per foot up about 10%.
And.
You could deliver a call it mid single digits growth kind of preliminarily.
I wanted to get your sense on kind of footage you guys give us a lot of great details on the amount of footage if you run at a six rig program.
The Permian and three rigs in the Marcellus what kind of year over year increases would you anticipate and just overall footage.
Yeah, well, we're not prepared to give that specific guidance for 2023, we've got a lot of what if thing going on right now we really haven't.
Mr Lives final plans.
And I'll just leave it at that I hope that answer doesn't surprise you.
No no just you gave a lot of great detail so.
Trying to lead the witness.
The.
Just maybe my follow up you know we continue to be intrigued by your delineation activity and the harkey shale.
It sounds like you've got a couple of wells online and in the fact that Youre doing more suggests that youre liking what you see but can you maybe put this.
The zone into context, Tom what could this do for your inventory in and maybe.
You characterize what youre seeing in terms of some of the early results.
We've talked in the past when we first discuss the harkey last quarter that we think adds about five years with top tier to our inventory Park is terrific. We're seeing outstanding results from it.
It's just a very prolific member of a very prolific hydrocarbon section.
You know as you worked the Delaware Basin.
It's been described to me as a very forgiving basin, but it's also just wonderful in terms of the target rich environment. So harkey stands shoulder to shoulder with the best of our landing zones, and we think we've got a lot to do in the upcoming years.
Great. Thanks, a lot Tom.
Your next question is from Neal Dingmann of <unk> Securities. Please go ahead. Your line is open.
Good morning, guys. Thanks for the time.
First question is just wondering a little bit on a broader scale overall fleet cash flow strategy I'm. Just wondering if you all believe the maximum shareholder returns will remain your most prudent use of free cash flow or <unk>.
Maybe down the line I'm thinking more next year or so is there a chance you would entertain potentially more growth often like you did at Cimarex.
Well I'll tee it up unless Scott, bringing home on this one of the things I've said is flexibilities. According to the realm and one of the nice things Cartera is we have an absolutely pristine balance sheet fantastic assets, great return on investment and that gives us almost an embarrassment of riches on.
Options.
We also live in a very uncertain world and that flexibility is going to be really important I can't tell you when and where but they.
Band of my career tells me that.
The best laid plans tend to not come through you know I was thinking last night of Mike Tyson's famous quote that everybody has a plan to get hit in the face.
We haven't had our last hit in the face of this industry.
Scott Yes.
Interesting.
Neil I think Tom hit it well, but.
The other thing I would add to what he said is in terms of the flexibility. We have we've got to maintain that flexibility. We've got a phenomenal balance sheet, we kind of leaned into no comments in here you know the mid single digits. So we're kind of all.
Little bit of a lean in towards your question already at the same time the other dynamic that's happening in because Tom's reference to great rock, we are able to invest less and less money to get better outcomes than we have historically, so I think where you end up as youre going to have the ability unless quite honestly, if it goes to 40%.
<unk>, that's a different dynamic, but youre going to have the ability to deliver both and continue to manage through this.
Ken.
Tyson Com second.
Second question again, and on shareholder return allocation or maybe dividends versus buybacks and I'm. Just wondering specifically you all had mentioned our internet and opportunistic buybacks I'm just trying to get a sense of your peer.
Period expenses.
Late <unk> early to late June when Youre sure like others.
Maybe around 30% is that qualifies such an opportunity.
If you saw the cadence of the slide that we put in front of our board of directors. The answer to that question is yes.
Great. Thank you can say that Scott thanks, so much.
Your next question is from Michael <unk> of Stifel. Please go ahead. Your line is open.
Yeah.
Hey, Good morning, everybody. Tom You said you were encouraged by some aspects of the inflation reduction Act.
You also mentioned you're on target to hit methane emission goals. So if that bill becomes law would you anticipate any impact on <unk> from the methane fee and I guess, what can you say about the other aspects of the bill that have encouraged.
Well, we're still studying it Mike.
I know there's been some really good commentary there is some good commentary this morning in the Wall Street Journal.
I'll say this I will be surprised if a lot of its current form ultimately survives with respect to the methane fee. There are some concerning provisions in there.
<unk> for us to conform to EPA requirements that aren't yet published and it calls for us to conform in the timeline that looks like it will predate the effect of the new EPA regulations. So that's a bit baffling as to how we're going to comply with that there is also a provision and therefore a methane.
Intensity to be measured by direct measurement.
And we are we've tried every technology and we're evaluating a lot of.
Continuous monitoring technologies currently we haven't found one that we think is scalable to address that requirement and so you know how that one ultimately gets implemented.
We'll wait and see we do like the provision that let's be a corporate methane intensity is.
Post a basin by basin.
As far as the alternative minimum tax there is a lot of provisions of that that are concerning and I know others have commented on that.
And then I'll finish with the addressing of infrastructure Bill.
Thank you.
Credit to <unk>.
Senator mentioned that there's a pretty strong statement on infrastructure for some confusing elements to that and we wait to see how that bill survives final passage. So you know I know that's wandering in we're studying it carefully.
You know I will say this there is no substitute for sound energy leadership.
We really need an energy policy that is.
Parent focused and resolute.
And.
I'd like to see that'd be a whole of government approach and not just the Senate Bill I'd like to see a little more leadership from the rest of our government on this subject but.
We will see you soon.
Ball is still in the air on that one.
For sure.
You also mentioned.
The market in a bit.
The potential for a recession the market does seem to be.
Beginning baking in a fairly high probability of a recession at least us equities seemed to reflect that kind of become disconnected from the commodity prices and I think that's caused a lot of E&P companies to start buying back shares I guess as you look at the risks to the global economy, how does that affect your hedging policy going forward and as you look at the.
Cash balance heading into next year as it have any impact on what do you think the appropriate cash balances.
Yes, Michael this is Scott Schroeder AAM.
Continuing our hedging discussions internally.
<unk> was formed obviously the big dynamic was and the balance sheet that we have we don't have to lean in heavily on hedging.
But we do like to have some of our cash flows covered in the event of some disconnects and when we see opportunities. We'll take advantage of that we've done that so far you can see that in our in our 10-Q filing that will be made today and we'll continue to address that in the end it's much like buying insurance, we don't have to have.
But it's prudent to add some protection to the overall profile.
Very good thanks, Scott Thanks, Tom.
Your next question is from Doug Leggate of Bank of America. Please go ahead. Your line is open.
Thank you everyone. Good morning, Tom Thanks for getting me on.
Guys I Wonder if you could touch on the sustaining capital breakeven that you put in the deck.
What's the run rate comparable increase on higher cash taxes, how do you expect that to evolve in 2023.
Scott do you want to take that one.
Okay.
Yeah, Doug I don't know if you have the page number on here, but it's page seven in the deck free cash flow breakeven is it.
Still at $40 and $2 25, so I don't.
Stress testing it down to that level, we're very confident that we have a sustainable program without having to.
Really jeopardize what we wanted to accomplish.
I guess I'll take it offline Mcdonough and see if we can get a number but I'm guessing it's risked higher at this point with full cash tax and well maybe the way to ask it Scott is what are you assuming for cash taxes, and not 40 million that would it.
It could be 15% to 25%.
Deferred taxes. So you are a cash taxpayer between 75 and 85%.
Got it.
On your question there it is going to trend higher.
Not just for you on sort of the whole sector, but thanks Scott.
I guess my second question, Tom is on relative capital allocation.
I guess, you've talked often about Marcellus inventory depths, but with gas where it is today. How do you think about where you put capital because you've got a lot of gas weighted options in your portfolio. How does that play into your thinking for over the next maybe six to 12 months or even longer.
Well your observations quite thought.
But on Doug we do have a lot of gas in our portfolio generally as you know the Delaware basin is very prolific from a gas standpoint.
I really as I've said over and over really looked at capital allocation in terms of return on invested capital in the Marcellus is absolutely second to none I mean, it's really an outstanding economic fairway.
We do have the opportunity to grow a little bit in the Marcellus shale I said in my opening remarks, we do need some additional pipelines but.
But.
From a capital allocation standpoint based on returns.
The Marcellus and the Permian are neck and neck, we've done some interesting analysis on how that changes with differing oil and gas price swings.
Okay.
Multiple wet gas to oil.
You could do with a blind fold on you could really pick observation and really fine.
Very comparable returns so we like the revenue balance we like the geographical balance and we like our capital allocation as it currently stands.
I appreciate the answers Tom Thank you.
Yes.
Your next question is from Paul Cheng of Scotia Bank. Please go ahead. Your line is open.
Thank you good morning, guys.
Can we talk about Anadarko.
And what's that offset in the long long time, the ROE to your portfolio.
Not doing much over there so what extend the existing plan.
That's the first question.
Yes.
We've talked at length about the Anadarko and the fact that it's kind of in a rebuilding phase we've got a couple of projects coming online. This year, one of which is flowing back now.
We're too early in that to really be definitive, but I will tell you that we're very encouraged.
Anadarko has an excellent inventory and quite.
Quite frankly, we've been in the Anadarko, a long time and we're pretty good at it. So are very pleased with what I see and I think over time.
Owner of <unk> is going to benefit quite nicely for having that asset portfolio.
Alright the.
The second one hopefully is pretty short looking at your production guidance for natural gas in the third quarter.
Actually it's sequentially, but you're going to have more wells.
<unk> online and <unk>.
Second quarter I assume.
So is there anything on that.
That is driven forward.
But what sequential production the timing of the well coming on stream or other reasons that we should be away. Thank you.
It's all a timing issue when you bring a well on the second half of the year.
Typically in a room.
Depending on timing where you.
Little impact on that calendar year and that's.
It's just purely a timing issue now one thing we've talked in the past is because we start the Marcellus a little bit for activity.
We're doing a little catch up in the Marcellus. So we look forward to seeing some growth out of the Marcellus.
And that will be reflected primarily.
In 'twenty, three and even 'twenty four as we currently model it but.
It's all timing.
Thank you.
Your next question is from Leo Mariani of km partners. Please go ahead. Your line is open.
Hey, guys just wanted to just follow up on a few of the prepared comments here.
So you just talked about.
Growing the Marcellus, maybe a little bit here in 'twenty three 'twenty, four you kind of citing timing, but I'm assuming that there may be.
Some macro factors at play as well, obviously you guys, let the Marcellus production decline.
For the better part of the last handful of quarters.
Is there just some thinking that just gas macro over the next couple of years looks a lot better I know there was an original goal to get a more balanced mix, but maybe just any comments around gas macro and some of that kind of presumably modest production growth youre expecting.
Well, we're very constructive on gas.
Most washers are with.
With growing LNG exports storage, where it is.
Increased power demand from gas.
I think also a reawaken conversation around the critical raw gas has to play in addressing the climate.
Particularly when it comes to power generation.
I think we're quite bullish on natural gas Marcellus is a great asset it's in a great part of the world.
To answer your question is.
As we look ahead in the next couple of years I would say we are more constructive on gas than we've probably been in a long long time.
Okay, and I guess just to follow up on that are there any concerns on takeaway over the next couple of years I think there is a handful of producers that have talked about maybe trying to feel a bit more up in Appalachia. Just wondering if you think at some point there is that the pinch point there with some wider against in 'twenty three 'twenty four.
Well, yes, I mean, theres always concerns about takeaway, we certainly couldnt support unbridled growth out of the industry. The region has a greater potential to deliver gas in the market. Currently has the capacity to take away, which is why we say we need some new pipelines.
Now.
As we look at it currently we could grow a little you know depending on what our peers do.
Production.
Six county area.
Near our Susquehanna County use kind of a sub region of the Marcellus.
Is down a fair amount and so we do have some capacity to grow but we wanted to be very mindful of that we don't want to cause activity that would.
Lead to basis blowout, but we're not currently high bound, but I would say over the long term Youre question is well taken we need some additional takeaway capacity out of the basin to deliver what where our industry is capacity too.
Okay. That's helpful and just any comments on the integration and similar accident and Cabot in terms of where you stand in that.
Process, maybe with linking stack going forward.
Well I think it's going very well I'll, let Scott comment on that also probably.
Probably the laggard as integration of financial accounting systems, which is the <unk>.
<unk> order to do things because of the critical nature of that and the concerns over.
No.
Dropping the ball on anything as we integrate our financials, but I would say organizationally integration is going extremely well.
And.
I'm, having a lot of fun, but Scott you want to comment on share.
One thing I'd add Leo is again, we're still on track to.
Try to get all the integration done and the new people hiring the old people out by the end of the year. So that 23 is truly a clean bill of health for the <unk> energy going forward that would be the only thing I would add.
Okay. Thanks, guys.
Your next question is from Noel Parks of Tuohy Brothers. Please go ahead. Your line is open.
Hi, good morning.
Good morning, just had a couple questions.
<unk> wanted to ask.
We heard a couple of other Appalachian.
Producers expressed a bit of cautious optimism about additional LNG export capacity on the east coast and just wondered if you had any any thoughts on that and if so.
What were the underpinnings of that.
Yes, Noah this is Blake I'll take that one.
I mean as you can imagine where we're talking to everybody and anybody who is involved in that space and there is some interesting projects out there.
And they just make up a lot of sense I mean, you got the Premier gas basin in North America on the East coast with a straight shot to Europe .
We have an existing LNG deal with Cove point that we safely move 350 million a day through everyday.
And we need more of that so we're talking to all of those parties.
We're trying to help find a way to advance the ball on that and get some more more deals like that done.
Is there any particular.
Part of.
The ecosystem, whether it's public opinion or or.
Financing lending environment.
Do you think Mike, but first to try to help make that a reality.
Well I'll just echo what Tom said, it's about pipelines and infrastructure.
The industry need certainty that those things can get built so that the investments can be made and there is a long list of.
Of blood that has not happened and so that's very front and center in everyone's mind. So.
I think some some help there would really go a long ways towards making those projects happen.
Got it.
And just my second one.
Just curious as.
Given the.
Cost environment and as.
Year moves along and you start thinking about 2023, I'm just curious what components.
Do you think maybe you have.
Better visibility into where they might be headed and which ones. Maybe it's more challenging I'm thinking about you know materials versus services versus labor, just where do you think there is.
Clarity on what what's going to be sort of harder to pin down until the last minute.
Yeah.
Yes, no. This is Blake I'll take that one too.
You know really when we look at our service cost right now.
The thing first and foremost that we focus on is execution.
Paramount that we have premium rigs and crews in order to safely execute our capital program.
And if that requires longer term contracts and then that's what we'll do.
So, but it's not lost on us that each new contract. We signed is at an all time high and when we look at our historical costs and so that that just leads us to take a measured approach and we've we've taken a bite of 23, we've extended some contracts in the 'twenty three.
But most of that we have not and we'll just be watching it close in discussing it more is as we go through the year.
Okay. Good enough. Thanks.
There are no further questions at this time I will now turn the call over to Tom Jorden for closing remarks.
Well thanks, everyone for joining us. This morning, we are pleased to have discussed our quarter was a great quarter hopefully.
Able to reaffirm our commitment to our capital disciplined return of cash to our owners.
And.
Outstanding assets. So we really do look forward to continuing to perform and updating you as quarters go on but.
As I'll finish where I started.
<unk> has hit its stride so thanks everybody.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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Yeah.
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