Q3 2022 Chesapeake Energy Corp Earnings Call
[music].
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Chris <unk>, Vice President Investor Relations and Treasurer at Chesapeake Energy. Please go ahead.
Thank you Andrew Good morning, everyone and thank you for joining our call today to discuss Chesapeake Energy's third quarter 2022 financial and operating results.
Hopefully 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.
<unk> 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 and can be found on our website with me on the call today are Nick they'll also seeing and Josh Viets, Nick will give a brief overview of our results and then we will open up the teleconference to Q&A so with that thank you again.
Now turn it over to Nick.
Good morning, and thank you all for joining our call before we get to Q&A. This morning, I want to cover three topics that we believe are most important to our shareholders.
First is our strong third quarter execution.
Second is our industry, leading cash returns and the third is our strategy to continue our momentum into 2023 and be LNG ready.
So to start off we had another strong quarter operationally.
We delivered on our production in the Haynesville and Marcellus and had some great well results in the Eagle Ford we.
We did experience a few delays in Eagle Ford production due to facility delays that pushed some volumes into Q4 I believe those will be temporary.
We're reaffirming our annual production and Capex guidance ranges for 2022, reflecting our confidence in our delivery as we finish out the year.
In the Haynesville, we've made significant strides with midstream capacity.
We've increased our gathering and treating capacity by 25% for this year and up to 60% in out years.
We are also committed 700 million cubic feet, a day to a new pipeline to be built by momentum from the heart of the Haynesville play down to give us.
This project also has an associated carbon capture and sequestration program with it and we're really excited to be a part of this we think unique in transformational project.
We have an opportunity to participate in up to 35% of the equity of the project and we expect to take that option.
This gives us greater than a bcf, a day or more than 50% of 2024 and beyond Haynesville volumes that are contracted for Gulf coast delivery and pricing with both the momentum pipe and our Golden pass transaction.
Yeah.
In the Marcellus our synergies from the Chief acquisition continue to come to fruition.
As we've discussed before we're maximizing the capacity of the combined gathering systems and were looking forward to 2023, where our well design improvements of longer lateral length and enhanced completions should show up with improved productivity per well.
We've also been able to add a little bit of leasehold in the lower Marcellus core of the play, which we're really pleased to do.
Looking forward in the Marcellus, we're moving to a co development of the upper Marcellus and the core of the basin to optimize development of all zones of inventory.
We expect the 2023 program to be about 50% upper Marcellus and lower Marcellus.
This will bring the average well performance down marginally.
It does maximize overall inventory returns and combine the lower and upper Marcellus remain the top natural gas return opportunity in the U S.
On the Eagle Ford I'm sure you all have questions about the process.
We have no new news to report this morning other than the process is moving along very well and it's too early for any results. We've been very pleased and the breadth of the interest in the assets and we will report results when available.
Turning to our cash returns our model continues to lead the industry in delivering returns to shareholders.
We generated $773 million of adjusted free cash flow in the third quarter.
And this yielded $3 16 per share of total dividends to be paid this quarter.
Additionally, we recently.
Purchased $400 million of shares from former creditors.
This brings buybacks on the years to one one.
$1 billion, 80% of which have come from <unk>.
Directly from former creditors.
Our total returns to date, including buybacks and dividends.
<unk> totaled $1 $9 billion this year.
We're really proud of the Chesapeake stands alone and directing its free cash flow to meaningful actual cash returns.
During the quarter, we also were able to simplify our capital structure with the warrant exchange.
That resulted in eliminating two thirds of the outstanding warrants.
And it also resulted in a reduction of our short interest by 55%.
We're pleased that when you combine this with our repurchase efforts.
We're still able to lower our fully diluted share count.
Separately, we continue to work with the rating agencies in recognition of our investment grade quality balance sheet, and we're pleased that S&P upgraded us to double B. This month.
So to wrap up I want to talk about how we're positioned for 2023.
Our Marcellus program will remain steady and continue to highlight leading capital efficiency in the very best returns of all gas opportunities in North America.
And the new slides, we posted today, we added some slides that lay out our haynesville market strategy.
We expect to leverage our capital efficiency leadership, our growth flexibility and our midstream partnerships to participate Chesapeake to be LNG ready as the macro tailwind from the significant increase in demand due to export capacity expansions arrive in the second half of the decade.
We've been consistent in our message to grow in capacity additions are available to meet incremental demand.
As export as export capacity doesn't begin to increase until at least 2024, we're setting up our near term volumes to be relatively flat and begin to ramp slowly as we approach 2024.
We're truly excited about what this setup means for our shareholders as we are uniquely positioned to deliver differential shareholder value over the next several years due to our superior capital returns deep attractive inventory and the best places and a premier balance sheet, all while doing things with a focus on sustainability.
Andrew well open it up for questions now.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad if.
If you are using a speaker phone please pick up your handset before pressing the key to.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Scott Hanold with RBC capital markets.
Please go ahead.
Thanks, and good morning all.
Hi, Good morning, I was just wondering.
Obviously, the Haynesville you all are.
Preparing to do more there but.
I guess the last couple of quarters, there had been some I guess constraints.
And there were a couple different constraints can you just provide a little bit of color on that and then to slide 23. It looks like you've got some solutions, but just give us a sense of like timing and level of confidence.
That you have in this plan and strategy because it does seem like the haynesville from an LNG perspective, and just from a volume perspective. It can be important to you all going forward.
Yes, Great question, Scott at Super important I'll talk a bit about this and others may have something to add in here, but.
We have seen constraints, we've been talking about that for a number of quarters and we've been active in contracting for incremental capacity both on the gathering side as well as the trading side.
We are also now.
Contracted for incremental takeaway with the momentum pipe and so we are positioning for what we do think is an opportunity to grow over the next few years, but in the near term, we really don't see any need for growth.
So 2023 is probably setting up to be about flat on a year over year basis, but we will have as we talked about last quarter, we will have an exit to exit growth rate.
So when you think about.
What we've done in the Haynesville the beginning of last year as we were integrating the <unk> assets and recognizing some of the constraints that existed we dropped to five rigs.
Lag effect on the reduction in rig count like that and we're seeing lower turn in lines.
As a result of that reduction in rig count show up now in the fourth quarter.
As well as into the first quarter of 2023.
That's really all exactly as expected and the capacity additions that we've contracted for.
And you can see on that map on slide 23 that you referenced.
Do begin to show up as we move through 2023 and get into 2024. So we're.
Right in line with.
Aligning our volumes to capacity additions as we've been talking about so volumes ticked down a little bit in the first quarter of 'twenty three and then as we.
Build our activity moving through the year, we'll see an exit to exit growth.
And again, we think this is all very well timed with where we think the longer term supply demand dynamics will.
We will head.
Pretty pleased with the setup.
Got it and just just to clarify that so you've got your guidepost over <unk>, which is don't take and then 'twenty three is another downtick before it goes up.
Wanted to first of all that.
First quarter of 'twenty, three should be a little bit of a downtick from area.
Got it got it Okay and then my follow up is on that momentum pipeline.
Can you just discuss.
Couple of things one.
The pricing dynamics around that for you all in the gas and then number two.
Ccs options you talk about it sounds like youre going to commit to the 35%.
Participation, what kind of capital and timing around that capital would that result in.
Sure. So the pipe itself will deliver gas to <unk> and so we will pay a rate which isn't disclosed.
<unk>.
We can't disclose it.
In terms of the contract, but if you look at the market out there for FTE in the basin. We think this is right in line with what other pipes are.
Charging.
Ran a pretty competitive RFP to determine which pipe we would participate in and ultimately selected this one so we felt it was a really attractive overall.
On the pipe as well as market delivery solution and then the carbon capture piece was quite helpful. As well momentum is also going to build a bit of gathering for us in the field. There was a couple of sections.
On the buying acreage that had yet to be contracted for wellhead gathering.
So we've been able to tie that end to this entire contract and get that done at a very attractive rate as well the carbon capture element of it is going to take longer to be built out than just the delivery to give us but the way. This will work is that.
We will deliver the gas to gel us inclusive of Sidoti So it won't be <unk> treated in the field. The Sidoti will all be removed at the delivery point, so youll have scale and the removal of the Cotwo before it goes further downstream to market and that with that scale.
You can afford to sequester the carbon so we think it's a really innovative project, we're excited to be a part of it.
And it's not done yet we still have to finish the.
Contracts in the <unk>.
The documentation around the equity participation, but we do intend to do that.
The cost I mean, just yes, okay, yes.
Cost to participate in the equity of course is.
It's a projection not completely known but.
We would estimate probably around $350 million over over a couple year period.
And again the return on that investment to us should be quite attractive.
Thank you.
The next question comes from <unk> <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, and thank you for taking my questions.
Good morning.
Good morning.
Todd said on the macro environment, given price gas prices have been so volatile and weak recently and their concerns around supply outpacing demand next year.
And also would love to get your thoughts around what price to have this really look to reduce activity in the haynesville.
If you say that went up by winter weather.
Mobile more than expected.
Okay, great questions. Among we spend a lot of time talking about the macro lately. It has certainly been volatile as you suggest and it has been headed a bit lower.
The great thing about the gas market today as well it has been volatile and allowance been head at a bit lower we're still talking about gas prices at which our company makes a really attractive profit.
And we generate great cash flows for shareholders. So we think we're really well prepared for either a weaker gas price environment or if it does turn cold in gas prices.
Go back to being more robust we are obviously prepared for that as well.
I would tell you that based on the setup of growing supply that we see across the market today.
And demand that is really going to rely on whether in the short term.
We certainly have our.
We're very well prepared for a weaker gas market here as we move into 2023.
And you can't predict it don't know if that will actually happen, but if it does.
We'll be we'll be ready for that at what price would we reduce activity in the Haynesville is a great question.
And Theres, no real hard and fast answer to that demand.
It depends on a handful of things one it depends on how the curve reacts relative to just the nearest term months on the curve and it depends on how we see the dynamics that affect that.
Or what's the drivers really look like they are.
We do remain super bullish on the longer term supply demand fundamentals, particularly for the haynesville, but really for the U S. As a whole and so we will pay very close attention to the 2023 and 2024 setup as to really how that supply demand is going to play out and the timing.
But that that growth in demand should show up there is plenty of uncertainty around the precise timing of when export capacity will come online.
We subscribe to all the same research that everybody else does.
We know that even the very best efforts that Pat estimations, there could be off by several months in an environment, where supply chains are still challenged in labor markets are tight.
We're very prepared to be responsive to this kind of market and I think if you saw prices fall.
A sustained price or a price throughout the curve fall down into the mid to low threes, we'd probably pull back a bit I think we still make a good bit of money at that level, but it would be an indication to us that the supply demand fundamentals are weaker than we'd probably expect as we sit here today.
And that would give us a reason to step back and think about whether or not activity should come down.
Really really hard to predict exactly what that looks like because it depends on the facts at the time, but that is certainly.
A point at which we would evaluate whether or not we have our capital allocation, where we want it.
That's great color. Thank you.
And my next question was on the.
Capital spending outlook for next year is a good figure budgeting process.
Any early read across in terms of how youre thinking about cost inflation.
The impact on your spending next year, and then any you've talked about enhanced completions in shifting to longer lateral this any any benefits from that as you will.
Add more of those.
Yeah program next year.
Yes. Good morning, among this is Josh.
Far as inflation goes for next year year over year, I think we're thinking it's going to be in the 10% to 15% range and so if you think about the activity that we've been talking about.
Kind of carrying forward five rigs in Marcellus.
In the process of adding a seventh rig in the Haynesville, which again is Nick's talked about we'll continue to monitor the markets.
And be flexible with that program and then relatively steady two to three rig program in the Eagle Ford is the activity that we're outlining.
So that's kind of how we see the year shaping up from a from a capital standpoint.
And then you asked about the enhanced completions.
Ahead and address that.
Where we're looking at that is going to be in the Marcellus specifically.
And one of the things that we're attempting to do there is it's not only increased lateral lengths, but we're also looking at adding additional wells per pad and thats one of the advantages we find with the co development. The completion optimization. There is really about our fluid loading and we think there are some areas that benefit actually from less fluid and so those are the things that will look.
At which not only drives potential cost.
<unk> enhances our capital efficiency, but we also think theres opportunities there to increase productivity as well so that comment was really specific to the Marcellus.
Great. That's very helpful. Thank you so much for all the color.
Yes.
The next question comes from Doug Leggate with Bank of America. Please.
Please go ahead.
Hi, Good morning, guys. Thank you for taking my questions.
So Nick clearly, losing the volume erosion debate on the variable dividend so.
Flogged to death, but I do have a question on use of proceeds if and when you eventually sell the Eagle Ford.
What should we think in terms of how you deploy.
Those proceeds whether it be to <unk>.
Incremental acquisitions to the balance sheet or indeed to share buybacks given that.
I guess you on those continued to see your share price undervalued.
Great question Doug.
So we've talked about with the proceeds from the Eagle Ford that we have a return model. We would think about applying these proceeds through that return model. We've said that the dividend's really are about operating cash flow. This is not operating cash flow. So we would lean more heavily to buybacks when we think about.
The proceeds here.
But importantly, I think especially as we recognize that we could have a softer gas market here at least for a year.
Little bit more and again I think the soft.
Requires a little bit of emphasis there because we don't really anticipate it to be a negative market for us as a company just maybe not quite as robust as 2022 has been.
We will pay down some debt with the proceeds we will make sure that as we sell off an asset that has a lot of EBITDA, we make sure our balance sheet stays in great shape.
So we expect to.
Look at the proceeds that come in.
Think about what the right balance sheet impact is to reduce leverage and then think about the best way to.
Pursue.
A return of some of that capital to shareholders through a buyback but.
We'll have to wait and see when the proceeds come in and the magnitude of the proceeds and exactly how it all plays out to have specific answers for you Doug.
Great. Thank you realize is that.
Good enough answer. Thank you. Thanks I appreciate it.
The rational color.
I guess my follow up is I hate to be predictable and ask about inflation, but one of your peers reported last night, not the right tiers, perhaps but.
Pointing to.
Perhaps higher than consensus expectations for capital.
Guys haven't really given US 23 look yet, but your 'twenty your fourth quarter run rate.
Seem to be seeing a lot of cost pressure, so upward cost pressure. So I wonder if you could just give us a steer as to what you think in your two core basins.
Additionally, capital inputs could look like for 2023 budget flush production profile you talked about.
I'll leave it there thanks.
Yes. Good morning. This is Josh so first on the Q4 burn rate, we do see some activity pulled back in the fourth quarter because of course he dropped some rigs in the Eagle Ford. So that's pulling back our Eagle Ford spend and then also we see a little bit lighter completion quarter in the Haynesville. So that's why our burn rate in Q4 will look a little bit different than maybe what we saw.
In the preceding quarter.
About 2023, and again ill kind of reference year over year inflation.
We would expect to see the most.
Inflationary pressures in the Haynesville and so I think youre going to be looking at 15% plus they're potentially assuming we see rig counts stay relatively flat to where we are this year.
The Marcellus and we expect that to be a little bit more moderated that based on just tends to be more stable in nature and so the inflation that we're anticipating there is really going to be in the mid single digits.
And Doug I would really help add Glenn.
Yes, I'll just add that while we haven't given.
Full capex guidance, yet we did put.
<unk> per foot.
Expectations for 2023 for both the Haynesville and the Marcellus in our slides today.
So and that's inclusive yes that's.
Inclusive of our expectations for emulation.
Got it thank you.
The next question comes from Zach <unk> with Jpmorgan.
Please go ahead.
Hey, guys. Thanks for taking my question I guess just.
Another follow up on Doug's question there.
You've talked about this 10%, 10% to 15% inflation in 'twenty three.
If we think about that in the context of the 22 budget should we just add 10% to 15% on top of that.
And if so does that include the impact.
700 rig in the Haynesville and also any spending associated with the momentum project.
Well anything that we were I guess, maybe on the momentum question, specifically I think anything that we've done in 22 of course, that's going to be an incremental capital expenditure that we would need to layer in so that would be one clear addition, if youre trying to come up with a 2023 estimate.
But generally we know we've guided you on.
On an activity so the five rigs in the Marcellus.
You need to account for the 700 rig in the in the Haynesville and again, we've given you some guidance here on cost per foot and then again about two to three rig range and the.
In the Eagle Ford.
We will continue to look at other opportunities one of the things we highlighted in the presentation.
Today as we were successful in picking up some acreage in the Marcellus we will continue to look for opportunities such as that and if theres more good opportunities such as that that could also push up capital just a little bit heading into next year.
Got it thanks for that color and then one just on the operational side.
I think Nick mentioned that the average well performance would come down marginally in the Marcellus as you do more co development can you just compare the upper and lower Marcellus well productivity.
Still clearly have very strong returns whats the step down at EUR, you expect on the upper versus lower.
Yes, maybe I'll just stick to what we've disclosed in our presentation, but what we provided you in the deck is an estimate on a 12 month <unk> per foot and what you see there is just over 20% reduction.
A reduction on a per foot basis, but what I'll remind you of though is we do have the ability to drill longer laterals in the upper and so that on an absolute well basis that starts to offset some of that productivity loss and we can drill longer laterals, just simply because there's fewer wells to be navigating around and Thats why we see.
Such.
The opportunity here and drilling wells that really really competitive returns.
Addition to that I'll, just add something that's not necessarily layered in here explicitly which is what the upper and co developing it with the lower we can put more wells on a pad and that creates additional capital efficiencies, which we think can only further enhance the returns that we've specified in the debt today.
Got it thanks guys.
Again, if you have a question. Please press Star then one.
The next question comes from Charles Meade.
With Johnson Rice.
Please go ahead.
Good morning, Nick you and your team.
Can you hear me, yes, yes, good morning, Charles how are you.
I'm fine thank you.
I wanted to pick up on the on that upper versus lower.
But maybe in a slightly different direction.
This is the first time at least I can recall.
You guys.
Comparing the productivity that's really helpful. But you put on that slide but I'm curious.
My baseline really the only the only other one other operator that has.
<unk> talked about the upper versus lower in northeast.
And there are a number was more like the upper being 78% as productive and my understanding was that was primarily a function of.
Less thickness and the upper but I'm wondering if you could talk about.
If youre a number I think works out to 77%.
If that is if that number has changed over time or if it changes.
Wi plane over your geography, or just give us a little low.
Youre kind of history and outlook on that upper versus lower.
Well, maybe just one thing Charles this is Josh that maybe to consider is the productivity of the decline that you see from the lower to the up or it will be dependent upon the spacing at which the lower was developed and so you do expect to encounter some depletion and that depletion will vary on a number of things obviously youre.
Overall thickness, but also the thickness of the Cherry Valley limestone, which is a barrier between the Q.
But really how that lower was developed the spacing at which was developed that could lead you to a lower productivity and we do know there are some operators to the east of us as they step into the to the upper that they develop the asset a little bit tighter spacing, we've been a little bit wider throughout our history developing the lower and so that.
Why we have a look maybe a little bit advantage expectation with the upper performance going forward.
Got it that is helpful. Josh. Thank you and then and then shifting onto to the Haynesville, maybe kind of about this.
Just maybe more for Nick Nick if I think back to our last the last quarterly call.
You were talking about the possibility of an eighth rig in 'twenty, three and if I'm understanding your commentary right.
That remains a possibility, but it seems like it's more of a distant possibility or maybe second half 'twenty three possibility at this point do I have the right sense.
I think you do Charles I mean, I think I would just call it an option and what are the things that we wanted to communicate around that is that we wanted to make sure we had midstream capacity takeaway capacity.
In the gathering and treating space should we get to a place where we want the eighth rig.
Look over time as LNG export capacity grows and there is incremental demand out of the Haynesville I'd love to see us today and I'd love to see is more than that as we get into the second half a decade, we certainly have the inventory and theyre great assets to justify acceleration when there is demand thats not being met.
But as we sit looking at the market today.
We don't really anticipate that an eighth rig would be needed. During 2023 now if it turns out that it is needed then great we'll be ready and we can add a rig and we have the full set up to do it.
But right now we're not expecting to go to eight and 2023.
That makes sense, Nick Thanks, a lot.
The next question comes from two bus sounds wrong with benchmark.
Please go ahead.
Thank you Hey, Nick I appreciate the Eagle Ford sale proceeds.
But.
You don't want to ask on the debt reduction.
To keep sort of calibrate.
The debt ratio there.
You have a very healthy working capital surplus. If you include that in in that debt calculation.
And if you can sort of give us.
Maybe a rough number of what the debt reduction piece might be and maybe you can't really do that because it's too hypothetical, but secondly, I guess on a return of capital.
Related to the Eagle Ford sale.
Have you considered.
Special dividend.
Might accompany the sale or is that.
Hypothetical as well.
Well so Raj this is mohit thanks for those questions on the first one as Nick said before the intent is to lead the process. The sales process play out and see what kind of proceeds we get from them.
And I'll, maybe let me go back to what we said earlier at a very high level. The intent is to pay down some debt.
At this point, we would not get into the specifics of how much that would be overall I would say we are very very happy with the shape. The balance sheet is and as you can see from the materials we are seeing.
Net debt to EBITDA is four turns we are very comfortable with that.
The intent behind it is when we are selling are producing property.
The loss of EBITDA has been mirrored the overall pro forma debt level. So we will pay down some of it but the specifics of that will come at a different point of time.
On your second part of your question about a special dividend.
At the same logic applies I think.
Once the bids are in and then once we recognize which path. We are taking then we'd be happy to share more details around that.
Yes fair enough.
One just obvious connection Sebastian I would make is that as we talk about the fact that we don't see structural the supply demand growth for the gas market until at the earliest 2024 that could mean soft gas prices soft gas prices can lead to weaker equity prices just as a gut reaction.
Should that happen, we think our stock would be even more undervalued than it is today. So we certainly don't mind the dynamics that we would receive a bunch of cash from this transaction and be poised to.
Acquire our stock if you will if it's falling due to macro which we which we would at that point believe it's short term in nature with growth in demand counting so we like the setup of thinking about the fact that.
There is volatility in the near term of natural gas prices that volatility can obviously lead to volatility in equities and we should have a lot of cash.
Yes, they will get a good place to be.
A follow up is on could you just remind us about your bid week versus spot.
For fourth quarter, I guess, we got October November but weekend already.
So how much of your <unk> is locked in at this point.
Yes, So October and November are pretty well locked in so when we give our basis expectations. The biggest floating piece there is going to be December .
We did lean a little bit heavier on first of month four in November than we typically do we see the forecast for warmer weather in the east coast through at least the first half of the month. This week Theres. The first reports of the potential of cold fronts, showing up and it's pretty early and supply is plenty robust.
We leaned a little bit harder on first amount of pricing for the month of November .
Excellent. Thank you.
The next question comes from Nicholas Pope with Seaport Research. Please go ahead.
Good morning, everyone.
Morning, Nick.
I had a question on kind of the post quarter share repurchases I think the way to comment the <unk> repurchased 400 million shares in October .
Just looking at kind of the math it seems like.
With the dividend and with kind of the cash flows where they are that you probably use.
We used some.
Some debt to repurchase those shares. So I was curious if that was kind of a choice.
Because it was a creditor that had some availability there is a block trade.
Or if that just kind of the timing of kind of when the dividend is going to be paid out in December versus kind of where everything is just kind of curious about that.
That big share repurchase that you commented on.
Yes. So Nick this is Mohit you are right. The trade was done after the quarter close.
We've been we've been clear all along that the intent of having a $2 billion share buyback share and warrant buyback plan is to have availability that in case one of our.
Creditors at emergence if they wanted to sell down and then we are ready to provide a bid and.
As I said earlier on the call more than 80% of the buybacks, we have done our former creditors.
It helps to remove the overhang of the perceived overhang from these former creditors.
And we've been very pleased with our ability to be able to do about $1 1 billion of buybacks and well ahead of schedule and we still have about $900 million and till the end of 2023 to prosecute the rest of the program.
Got it I appreciate that and then as you look at that credit facility.
If youre going to kind of add on to that it looked like.
I think youll commented that something 6% six 6% kind of average interest rate and the credit facility in the third quarter.
What's the timing of that.
It's obviously.
Coming out of the bankruptcy is a little higher.
And then kind of where your peers are even where your debt metrics would kind of.
Say, you could kind of get that too. So what is the timing and the ability to kind of move around the credit facility kind of go to a more traditional.
<unk> facility in the next in the near term.
Yes. So thanks for that question also the <unk>.
<unk> rate that you referenced obviously goes off of a pricing grid, depending on how much utilization that we have of the credit facility.
We carefully monitor the conditions and we.
Intent would be to try and refinance the credit facility before it becomes current it matures.
It'll become current next year. So we are looking into ways of trying to refinance the credit facility prior to it becoming current and so depending on what happens in the macro conditions that fed is obviously increasing rates as you know.
But given the shape that the company is in our engagement with different lenders, we feel pretty optimistic about being able to do it in a timely manner.
Got it.
Really all I had.
Thank you everything else has been asked I appreciate the time everyone. Thank you. Thanks.
Thanks, Nick.
The next question comes from Phillips Johnston with capital one please.
Please go ahead.
Hey, guys. Thanks, just one more on the cost inflation front.
Nick you referenced slide 12, which is really helpful looks like.
You guys are anticipating haynesville well costs can move up to a little over 600 per foot on a blended basis next year.
What are the factors that can sort of move that number either higher or lower.
Can you maybe give us a sense of what percentage of that is essentially locked in pricing.
Pricing perspective.
Yes, good morning folks this is Josh.
I think some of the some of the risks that we see to inflation is diesel is one of them.
We're seeing shortages really across the country right now.
We'll need to continue to monitor that and see that how it plays out that affects our mud cost on the drilling side.
As an implication on our transportation costs for things such as proppant. So that's one that we'll continue to monitor closely.
The demand for rigs pumping services, obviously remains quite high with most high spec rigs at.
That.
Being utilized today, so if that demand will remain high through the course of the year.
Obviously that may enable those providers to continue to push on pricing.
We've been very active in the second half of the year and specifically in the third and early parts of the fourth quarter, where we have been working with our existing suppliers and it may it may look like us taking on a little bit higher cost today.
But.
Providing some pricing certainty and protection from additional inflation in 2023.
And so that's something that we think is a good indicator of how we can preserve it as far as an absolute.
Percentage I'm not really in a position to go down that path with you today, but the bulk of our primary services being on the Frac on the drilling side have been locked in for next year.
Okay, Great I appreciate the color.
I also wanted to ask just about potential timing of ultimately achieving investment grade and just how important that is to the company.
And that's something that you can control control directly.
You clearly have the financial metrics already so based on your conversations with the agencies.
Is the limiting factor, mainly just a function of scale and.
Also just whats the overall past that date.
Wanted to see and.
How important is investment grade rating to management and the board.
Yes Phillips.
Investment grade is important to us.
You start thinking about the LNG strategy that we have in play being investment grade would be extremely valuable index scenario.
We are actively engaged with all three rating agencies theirs.
As you referenced the credit metrics are obviously investment grade quality already.
There is an element of seasoning and showing a track record of performance, which we clearly are demonstrating so the tone of that conversation is great. The engagement is there and as we referenced F&B just last month upgraded us to <unk>.
So we are seeing green shoots of that.
Notch upgrade that we are seeing and we are a couple of notches away from getting to investment grade, but we feel confident that we are on the right trajectory and it's kind of a.
A little bit of a matter of time.
Sure.
To see that but we remain confident that we'll get there eventually.
Okay, great. Thanks, so much.
Thank you.
And the last question today will come from Matt Portillo with <unk>. Please go ahead.
Good morning, all just a question in the Haynesville I appreciate the color on slide 12 around the cost difference between the Haynesville and the closure I assume a little bit of that might be apples and oranges as you've got some shallower targets in the haynesville.
Further north in the basin, but could you talk a bit about the cost difference between the two horizons and then if we head into a lower commodity price environment in 'twenty. Three 'twenty. Four is there is a potential to cut back on the <unk> development or should we consider that necessary from a co development perspective moving forward.
Those are just in general is a more challenging formation for us I mean, it is shallower, but the lithology of the rock tight there it does make it a little more difficult from a drilling and completion standpoint, and so that's ultimately what ends up driving some of your cost differences.
At this point I.
I don't think we would put it.
From that we think that's a really important interval for us to continue to develop.
Obviously it represents a relatively modest part of the program, but we think it's important to continue to.
Work down our learning curve within that particular zone continue to.
Extend the limits of it of what we see it just simply as we think about the long term optimization of the asset. So we do think there is some opportunities to get better it's probably one that we benefited the most through the learnings with with buying they were more active in that interval and we just think there is a lot of efficiencies still to be gained and so thats.
Sorry, we're talking about next year.
Perfect and then as my second question on gas marketing just curious the momentum pipeline brings a unique opportunity here with Ccs.
Obviously seeing some industry participants talk about net zero or carbon neutral oil.
And going forward and potentially achieving a premium just curious on the gas side I know you talked a bit about RFP getting a very small premium at the moment, but if you guys are able to tie kind of your gas marketing opportunities with Ccs and then obviously working towards LNG contract do you think we could see a more meaningful uplift to your.
Gas pricing as we step forward with with all of these projects in the queue.
Matt That's a great question and there is no question in my mind that we should see that I think it's going to take a bit of time for it to evolve what we are seeing in our early discussions with LNG off takers in Europe and Asia is that they are extremely interested in the carbon footprint of the gas that they are buying they are asking a lot of question.
About it they are wanting to understand what being responsibly sourced gas means they're wanting to understand the overall footprint. When we flashed stats like the fact that we have a point zero to methane intensity from our gas production. It certainly gets the attention of international gas buyers, we think it will increasingly.
Get the attention of domestic gas fires as well.
I'd remind you that today there.
There is no.
Tax or structural incentive for buyers of gas to pay more for.
A lower emissions footprint gas molecule.
That may come.
We think it should probably comment some point there is the talk of course in the IRI about the methane tax and what that will look like over time and how that will be.
How that will show up in the way that producers develop their assets is something that we're going to be keenly interested and we think with the footprint that we have we are very well positioned relative to that potential tax. So we think this is an area that will evolve pretty significantly as the <unk>.
World recognizes the huge need for growing natural gas production and the.
Big demand that really does exist out there today and should continue to grow as the world seeks to have more of the affordable reliable and lower carbon energy that solves some of the biggest challenges facing the economy today.
Thank you.
Alright, I think Thats. The last question. We had this morning, so I want to thank everybody.
For the time just to reiterate we are extremely excited about the setup we see.
We've worked hard to position this company our portfolio and our execution for the market conditions that we see today, we know there will be plenty of volatility in these market conditions and we think we are uniquely positioned to take advantage regardless of.
Where that volatility heads in the near term and then certainly with the structural.
Tailwind that we see to supply demand for natural gas in the second half of this decade.
And then just as I said a minute ago, we think that the production we're delivering to market goes a long way to solving the biggest challenges facing the economy today.
And every employee at this company is proud to produce the energy that delivers reliable affordable and lower carbon.
Solutions for energy generation around the world.
The demand for what we do only grows from here and the best operators seek to benefit the most.
Look forward to continuing the conversation with you all as we move to the end of the year. Thanks very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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