Q4 2022 Chesapeake Energy Corp Earnings Call

[music].

Good day, and welcome to the Chesapeake energy fourth quarter and full year 2022 earnings conference call and webcast.

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I would now like to turn the conference over to Chris.

Right.

Investor Relations and Treasurer. Please go ahead.

Thank you Betsy and good morning, everyone and thank you for joining our call today to discuss Chesapeake 's fourth quarter and full year 2022 financial and operating results hopefully you've had a chance to review our press release and the updated presentation that we posted to our website yesterday. During this mornings call we will be making.

Forward looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs goals expectations forecasts projections and future performance and the assumptions underlying such statements. Please note 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 I and in other SEC filings, please recognize that except by required.

Except where required by applicable law, we undertake no duty to update any forward looking statements and you should not place any undue reliance on such statements. We may also refer to some non-GAAP financial measures, which will help facilitate comparisons across periods and with peers for any non-GAAP measure we.

Use a reconciliation to the nearest corresponding GAAP measure can be found on our website.

With me on the call today are Nick del ASO, Mohit scene, 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 and I'll now turn the teleconference over to Nick.

Good morning, and thank you for joining our call.

This morning, we're going to talk about two key announcements we made yesterday.

First we're pleased to highlight our fourth quarter results and 2023 outlook second we announced the next significant step toward exiting our Eagle Ford assets.

The fourth quarter finished off a strong year for Chesapeake.

Production and capital were essentially in line with expectations and EBITDAX was slightly ahead.

Based on those results and adjusted for the October one effective date of the Eagle Ford asset sales, we're delivering a dividend for the quarter of $1 29 per share.

Overall in 2022, we delivered company record free cash flow, resulting in $2 3 billion in cash returned to shareholders in the form of dividends and buybacks.

The second announcement yesterday was the $1 $4 billion sale of our black oil Eagle Ford assets in them at Lasalle and Mcmullen counties to any of synergy.

This is another important step as we solidify our focus on the premium rock returns and runway of our Marcellus and Haynesville assets.

We're pleased with the progress we've made to date and our Eagle Ford exit and look forward to completing the process.

In aggregate from the first two sales we expect to receive approximately $1 7 billion in after tax proceeds at closing with an incremental $450 million to come over the next few years.

The proceeds will be used to drive value for shareholders by reducing debt to maintain our balance sheet strength and support our ongoing buyback program as we work to complete the remaining authorization, which sits at over $900 million.

We are strong believers in the value of cash and liquidity in a soft market and the proceeds from the sales. In addition to the cash we expect to generate from our operations will be a key strategic advantage as we continue to allocate capital in a prudent and value oriented manner with an eye on our ability to be countercyclical.

Pro forma the sale of the Brazos Valley in Black oil areas Chesapeake will have approximately 21000 barrels a day of oil and Ngls and 80000 80 million cubic feet a day of.

Gas production remaining on our Eagle Ford position.

Which is in the rich gas window of the basin. We are actively engaged with several parties regarding these assets which include acreage that is prospective for the attractive and maturing upper Austin chalk play where we've delivered strong.

While results in recent months.

As we planned our initial capital allocation for 2003 for 2023.

Proactively addressing the macro challenges affecting our industry with year over year natural gas prices lowering while service costs remain inflated our.

Our preliminary capital allocation and outlook for the year clearly demonstrate we believe the prudent step is to show capital discipline and reduce our activity levels in the Marcellus and Haynesville well.

While we never wish for low prices Chesapeake is built for the volatility we are experiencing today.

We have the assets balance sheet cost structure, and hedges to allocate capital prudently, allowing modest production declines and saving capex for better investments, including repurchasing our shares.

Overall, we're dropping two rigs in the Haynesville and one rig in the Marcellus as we move through the year. In addition, we're reducing our completion activity in the near term as the market is currently oversupplied with the warm winter we are experiencing in North America year.

Year over year, despite the inflationary environment, our annual drilling and completion capex will be modestly lower but we expect to see only a slight production decline of approximately 2% in the Marcellus and haynesville, allowing us to maintain our cash flow resiliency and continue our leading shareholder return profile.

We find ourselves in this position today, thanks to several important strategic actions taken over the last two years, including our well timed haynesville and Marcellus acquisitions, which bolstered the depth of our high return low cost inventory as well as our decision to exit the Eagle Ford.

All of this positions our company to provide consistent results and cash returns to shareholders as we move through this cycle and prepare for the increase in natural gas demand in the coming years from the growth in LNG export capacity.

<unk> activity today helps to ensure Chesapeake remains LNG ready to capture the value of strong growth in demand for gas in the coming years and preserves cash for us to allocate capital in a countercyclical manner. Many in our industry have not achieved historically.

We look forward to updating you on our continued progress and I'm now happy to address your questions.

Yeah.

We will now begin the question and answer session.

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

The first question today comes from Zacks Parham.

J P. Morgan. Please go ahead.

Hey, guys. Thanks for taking my question I.

Yes exactly.

Just on the buyback you talked about being counter cyclical with the buyback you're going to have a significant amount of proceeds coming in shortly when the brasow sitting there the oil windows sale close can you give us some color about how you plan to utilize those proceeds kind of in the first half of 'twenty three and then into the back half of the year.

Via the buyback debt reduction and other potential uses.

Well, we don't even have the cash yet so we don't.

Plan to announce very specific actions around the buyback other than just to note that we will have a lot of liquidity to pursue the buyback.

We expect market conditions to offer us some attractive opportunities to do it and we want to be opportunistic with it. So we will be patient we will let the market come to us we think there's ample opportunity in the coming year.

To put this cash to work.

Got it thanks for that and then my follow up just on well productivity within the industry. There's been a lot of talk about degradation of well productivity looking at some state that it does seem like youre well productivity has trended a bit lower in both the Marcellus and Haynesville in 'twenty two.

The slide deck, you did highlight a lower drawdown in the Haynesville. So maybe that's one of the drivers, but could you give us just some color on well productivity in general and how you expect productivity to trend in 2023 and in future years.

Good morning, Zach this is Josh.

We've looked at this data as well and of course, we recognize that the trends into 2022 did show a drop off in to address maybe the Haynesville first.

We are looking at incremental drawdown strategies that will have an impact on early time rates.

And really that starts to show up in the first three to six months of production history, but really we start to see something that looks like an incremental gain as you get out beyond 12 months. The other thing just to remind you all that impacted.

Our position within the Haynesville this past year and I suspect since some others is the increased volume pressures and so with increased volume pressures that does lead to lower Ips.

That ultimately flatter declines through the first 12 months of the year.

In the Marcellus I think the thing that we need to remember is that we've been operating in the Marcellus for well over a decade, we've drilled over 700 wells within our lower Marcellus core and these are unbelievable wells you know really the best shale gas basin in the world.

The other thing I think to point out is you can look back at historical trends in 2000, 22021 really across the industry. We were having two high grade locations and this is no different for Chesapeake and so we absolutely drilled the very best wells with a relatively modest program in the heart of our core and so I think if you were to look back.

And compare our 2022 well results into something into 2018 in 2019 timeframe Youll actually see productivity that's on par and in fact on an absolute basis when you adjust for lateral links.

You'll see a slight advantage on productivity and so really thats going to be our focus going forward is extending laterals. We've done so by increasing the lateral links by 65% in the Marcellus over the last five years and we're going to continue to do that.

Got it thanks, Josh Thats great color.

The next question comes from Kumar with Mizuho. Please go ahead.

Hi, Good morning, guys and thanks for taking our question.

Nick I'm going to start with the.

Kind of the elephant in the room gas. This morning breached $2 what is your macro outlook for gas.

Now that you are transforming into a more pure play gas company curious how youre looking at both near term and the medium term.

Yeah, Hey, good morning.

Our macro outlook for gas hasn't changed we are very bullish long term natural gas fundamentals and we've been cautious for 2023 setup for quite some time and we've referenced that throughout last year. We noted that the supply demand dynamics were trending in a manner that suggests.

Supply was going to outpace demand that has clearly happened and then has been exacerbated by what's been a pretty low demand winter weather setup.

In terms of near term I think we're at a pretty interesting point.

We're making some changes to our program we've seen a handful of others make changes to their program hard to really know what the rest of the industry will do you have variables like the associated gas from the Permian that as pipeline capacity comes on that gas is going to show up to market and you don't really have any structural demand growth.

For at least a year and really in that in the end of 'twenty four and into 'twenty five is where you start to expect LNG.

LNG export capacity to expand.

So that's how we're going to think about what our production profile should do we should be flat to down a little bit because the market is currently oversupplied until that structural demand growth shows up will never be perfect timing that.

But we do think that there are some long term trends here that we can plan for.

And then I would just note that while this morning's gas price dipped below $2 and that is a low level.

Nobody likes that.

We're really not bothered by this short term dip in gas prices, because we do expect it to be short term, we are very bullish long term fundamentals.

We think that the projects that are coming online will represent true incremental demand the demand for natural gas internationally with the competitive economics of shale gas in the U S is strong we expect it to remain strong.

We get a lot of questions about whether or not.

Warren Ukraine could could end in what might happen with that we actually think the demand for gas remains resilient regardless.

Plenty of demand for natural gas.

Growth around the world, but we don't actually think that.

Would have meaningful.

Meaningful negative impact to this long term trend that we see so we remain bullish.

Beyond 2024.

And we think we can manage through a flat ish period until then and we can do so in a way where we are optimizing cash flows and creating great returns for shareholders along the way.

Great. Thanks, Thanks for that detail. My other question is around the momentum spending it was a little bit higher than we expected for 2023.

Sounds like it's just an aspiration, but could you maybe talk a little bit about what drove that exploration in any specific milestones we should be looking for as that project starts ramping up and in terms of getting gas to that pipeline.

The pipeline is on schedule as originally contemplated to come online in the fourth quarter of 2024 project has gone really really well so far.

Very pleased with our partnership with momentum here.

And all that has happened is just the timing of the cash calls has changed a bit the total budget hasnt changed at all so we're thrilled with this investment.

Great. Thanks, guys.

Yes.

Yeah.

The next question comes from <unk> <unk>.

<unk> with Goldman Sachs. Please go ahead.

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

Thanks for sharing your thoughts on the macro.

You highlighted being disciplined to the changing natural gas conditions.

Focusing on free cash flow and conserving our undeveloped inventory for better pricing.

What flexibility do you have enough service contracts to respond to changes in gas prices.

And maybe you can touch on what Youre hearing from non operated Bakken wells in the Haynesville to recent gas base shifts.

Good morning.

On the service side, we are absolutely exercising flexibility in the first half of the year with dropping three rigs throughout the first six months of 2023 calendar year, we have a lot of flexibility on the Frac crew side.

We're going to be flexing between two and four frac crews throughout the course of the year only one of those is actually under a longer term contract.

And thats less than 12 months remaining on that we.

We do have some longer term rig contracts, but we.

We do think that we're in a pretty well positioned to manage those as we work through the course of the year and to.

To date, we're not really going to incur any incremental <unk>.

Please on the rigs that were dropping and it's a pretty modest amount, but that's something that we'll continue to work as we go through the year as far as non operated rigs we are starting to see some signs of operators pulling back activity spin.

Specifically in the Haynesville, it's been primarily showing up on the outlet the privates to date.

<unk> are continuing to see.

New ballots come in the door from some of our non op partners and so we're going to continue to monitor that activity, but we are expecting operators to start pulling back with the weakness in the gas pricing we see today.

Got it that's really helpful.

Maybe a quick follow up I mean, if you look at EIA data they showed that more than 600, hain sort of drilled and uncompleted wells currently.

At what price levels do you expect these drilled and uncompleted wells.

That is still to be done.

Into sales.

Both for you as well as from the industry.

Hey, good morning, it's Nick I'll take that when we look at that we don't believe that that DUC build as anything more than the working inventory duct build associated with the rig count growth over the last couple of years.

And there's always a little bit of inefficiency for the industry. When a bunch of rigs are thrown in so with cycle times, probably slowed down a little bit.

But when we take the.

Total docs, we move off the docs that are <unk>.

Probably more mature the ducks that are aged and so theyre not likely to get turned in line and then we think about how many rigs had been running and what the cycle time is and how there's probably been some slippage in that cycle time with increased activity. We think this is really probably the working inventory so it'll be interesting to see as producers drop rigs do they attempt to.

Maintain their cycle times and turn those wells in line.

In other words, reducing that DUC count or do they hold back on completion crews.

And allow those ducks to sit for a little bit longer it'll be a mix. It is our assumption.

And so we expect that DUC count to come a little bit lower through the year you can think about it is.

Producers choosing to bring those wells online or you can think about it is not adding new docs as the ducks that are that are there continue to just get wound down.

Yeah.

I would say that.

In the full cycle economics of the Haynesville, but we certainly see that it's prudent to pull back capital and we think we're seeing others do the same thing.

We're making money on the capital that we are investing but the margins are not nearly on a full cycle basis, what they were historically and they do rely on.

Some of that contango in the strip playing out obviously if.

Prices were to stay where they are this morning, and all of that contango were to roll down to the prompt you to have a very different economic outlook for the Haynesville and I think a lot of activity with shut in.

But I don't expect that to happen I think the contango is there for a reason and so I expect.

There will be some conversion of those ducks I just don't expect that there will be as much activation of new wells to maintain that same cadence.

That's great very helpful. Thank you.

The next question comes from Doug Leggate with Bank of America. Please go ahead.

Thank you good morning, everyone Hey, Nick.

Yes.

Nick can you walk us through the thoughts on the remaining sale and the Eagle Ford line of sight. If you can to the extent you can.

The implications of what you showed us what looks like some pretty strong wells out of the cotton Valley, what does that say about your.

Youre thinking on the value of that asset relative to the sales that you've achieved so far.

Yeah, Hey, Doug I'll chime in here and the others may have some things to say as well first just to.

Make sure it's clear, it's the upper Austin chalk not the cotton Valley.

Yeah, Brian Thanks, Michael It is nowhere so we have drilled some good wells there and we knew last year as we engaged with buyers that that would be a pretty interesting component of how people thought about valuation and thought about the value of the PDP relative to the value of the upside available.

I think the chalk wells that we drilled are.

Pretty attractive and confirmatory of the upside value associated with the asset.

We're still in an A&D market overall.

Doesn't end up putting a ton of value on drilled locations.

So we've been willing to be a little bit patient here and let those wells come online.

We really just released these well results to the public now and so we'll be staying engaged with the interested parties and there are quite a few.

Interested in this asset to understand what those chalk wells look what I can understand if it fits for them as an investment, but we don't need to be in a rush, we got plenty of proceeds coming in we're making progress on the exit strategically.

We'll be thoughtful about achieving a good result here but.

But we are actively engaged still with several interested parties and getting great feedback on.

What this asset looks like and what these incremental results mean.

Thanks, Yes, I don't want to start a rumor that youre selling the haynesville. So my ability speaking.

Yes.

My follow up is really a housekeeping question. So I apologize for this it might be for Boeing.

The transport costs are there.

The NPC.

Or other type of midstream obligations.

Some kind of ramifications from that.

The decline in production managed decline admittedly, but.

It just looked to us that your transport costs were ticking up a bit I wonder if the two related.

My follow up thanks.

Good morning, this is mohit.

None that we are concerned about at this point I mean, the MVC is historically that we have discussed have been in the Eagle Ford and.

As yesterday's announcement to Ineos. So the buyer is stepping into those obligations for that package. There are some NBC and the rich package also but production is way ahead of those minimum volume commitments. So any and then when you start looking at.

Haynesville there is quite a bit of uncommitted volumes that we had and we have proactively been looking to try and get flow assurance through transport contracts and firm sales switch.

You start building up towards the overall projection of the volume that you are forecasting and trying to get flow assurance for all of those molecules, but overall when you look across the portfolio, Doug nothing that bothers us at this point from an overall obligation perspective.

Thanks, guys I appreciate it.

Thank you.

The next question comes from Matt Portillo with <unk>.

Please go ahead.

Good morning, all.

Good morning.

Maybe just a question starting out with the hedge book Great to see you guys added quite a bit in.

In 2024, just curious how you're feeling about your hedge position now it looks like relative to your public peers.

Position of strength given your coverage in 'twenty, three and in 'twenty four but.

I'm just curious how you guys are thinking about the 24 curve today.

Yes, thanks for that question Matt.

No.

It's interesting when things were when prices were going up we heard a lot of pushback from our investors that we should not hedge as much now what we did do is we stayed consistent.

Our plan is to hedge the wedge as we've described before Matt.

When we're making capital investment decisions now that production comes on nine to 12 months later on we want some certainty on the cash flow from that production and Thats why we hedge so what <unk> seen in the disclosure that came out yesterday.

We've added about 360 Bcf of new hedges since our last disclosure.

We've done that both for 2023 and into 2020 forward. So we feel pretty good about our exposure there and our coverage what it does do is provide us downside protection.

Which underpins the commitment that we have towards shareholder returns.

Perfect and then a follow up question, just maybe a bit of a longer term view on the market Nicki talked about being well positioned in the haynesville davita to meet a surge in demand from LNG takeaway coming on the <unk>.

Taken as a whole I think the industry doesn't have as good of an acreage position as you and maybe one or two of your public peers have in terms of inventory depth and quality. Just curious how you view that cost curve in the haynesville over time, even in your portfolio. There are wells that need something closer to $3 to $4 in Mcf.

To make our returns so I'm curious if you think that cost curve in the haynesville over time, it's going to.

Take higher inventory depletes from maybe some of your smaller peers that are running a lot of activity in the basin.

Yeah.

Well I think as the Haynesville goes in the way of cost curve.

Will the U S market go in the way of cost curve, because the haynesville is going to be the leading asset to deliver the volume growth into LNG. So youre spot on Matt the growth required for LNG is not going to be met by the very best acreage in the Haynesville alone now.

A couple of others do own that very best acreage and so the relative advantages those with the best cost structure, the best full cycle.

Return.

Investment points for that gas, we're going to win and we think this is setting up for exactly that and we think that youre going to have to have.

Some higher cost areas of the Haynesville developed we think you are probably going to have to have some higher cost areas away from the haynesville developed as well one thing that we do point to as a as an important trend there is that we think that.

One of the reasons you will continue to have some of these higher cost areas developed readily.

It's been a rising price environment, and you probably will have less exploration or new play development than you've seen in past cycles. Like this is that the build out of infrastructure is a massive challenge in the United States today, We would love to see more infrastructure built in northeast U S where there is.

Vast resources of gas that we'll wait for room and infrastructure to be delivered to market.

We saw more pipe built throughout all of Appalachia, including the area that we operate in northeast, Pennsylvania, as well as southwest Appalachia I think it would change the game on how the dynamics of the cost curve for U S gas works, but we don't see that as a likely outcome in the near term aside from maybe mountain Valley, which is pretty.

Close we'd really like to see that come online.

I think that there is still a reasonable chance that it will.

Given how close it is and how much the country needs the gas.

But new projects are going to be hard until there is a fundamental change in the social and political views of infrastructure in this country not just for natural gas, but for really all forms of energy.

And all forms of infrastructure and that needs to happen because it until it does we're not going to deliver to consumers. The most efficient form of energy product that they can have.

And we think that's an important trend that will play out but until it does.

We see that our company sits in a great position being.

Overall, the lowest on the cost structure for full cycle investment to activate natural gas.

Thank you.

The next question comes from <unk> Chandra with benchmark. Please go ahead.

Thank you Nick I think you might have references that you don't think curtailment conditions are likely based on the shape of the curve is that a fair comment in the Marcellus and Haynesville or do you think there could be some near term physical constraints.

That are imminent.

Whether it's physical constraints or producers just deciding to pull back volumes.

We curtailed gas almost every shoulder season.

And given the price setup, that's in front of US now we're going to expect to curtail some gas in the shoulder season.

I had no idea of what other producers will do but theyre going to be staring at similar economics to us so.

It wouldn't surprise me if they did the same but that's a that's a common occurrence for us.

We get full pipes, we get an economic flow on certain days and we have the processes set up internally to day by day hour by hour decide what gas to flow and whatnot.

We manage that this year just like we do every year.

Okay. Okay. Thank you that's helpful and then I guess secondly, so.

The investment Marcellus versus Haynesville Haynesville is sort of the inverse of the economics of the toothpaste Marcellus things appear.

Yes.

And I suppose that's part of your LNG.

<unk> strategy.

Is there a point, though where that may be the carrying cost of those.

The relative economics is too great and well.

We see additional changes too.

Capex.

I'm not sure exactly.

Actually what you are asking me to box do you think are you asking me if we pull back more capital in the Haynesville in favor of more capital in the Marcellus.

Yes, I think so the Marcellus being with superior economics, I think it's guiding youre guiding for declining volumes, there, but flat volumes in the Haynesville is that fair.

And if that's the case the Marcellus economics are superior, which might argue that you keep volumes are flat allow haynesville participate.

But you are probably not because of the LNG ready strategy and if at some point you reconsider those.

Yes, I don't think Thats actually right we're looking at.

Pretty.

It's closer to flat in the Marcellus with a little bit of a decline in the Haynesville. So maybe we can walk you through that math.

After the call, but directionally we're.

I'd say following the economics right now the one rig pullback in the Marcellus is it's as much about optimizing how we spend and managing the.

The logistics of development.

And then pressures in the gathering system as it is anything else. So we expect a very modest change in flow there.

Okay that makes a ton more spec and just finally is there a cash on hand.

Sort of number that.

We could be we should be looking at.

Yes, I mean the minimum.

Since we have ample liquidity, which is available through our revolving credit facility I mean, the minimum cash balance that we'd like to keep on hand is de minimus. So much.

Okay. Thank you.

The next question comes from Noel Parks with Tuohy Brothers. Please go ahead.

Hi, good morning.

Good morning, all.

Just a couple of things I wonder with the heme.

The Eagle Ford divestitures.

Happening.

As we go through the year I, just wonder do you.

You have any thoughts on just what the pacing might be like with G&A.

I don't know if their transaction costs it'll be embedded there.

It might be in the mix for a while but maybe if you have a rough idea of what quarter, we might get to serve up a pretty normalized.

G&A after the divestments are taken into account.

Okay.

No we will have a handful of changes to our business as a result of a sale of the size. We do have a very long transition services agreement with any of us that will be in place they.

They do not have a material upstream business in the U S and so we will be aiding them as they create that organization.

So it will take a while for us to sort through.

All of that but we will have some underlying changes to our business as a result.

You'll see that play through.

Yes.

Great and.

With your discussion in the release about.

Making some adjustments to the rig count and you also mentioned you saw in other operators.

Some signs of slowing.

I'm just curious.

Have you I guess two things have you gotten any any fresh body language from your your vendors.

Around.

How they're sounding around pricing and I'm just curious.

Maybe when when is your next test case is going to be as far as.

Having services.

Comcast close to expiring you might be going out for bid and they have a chance to sugar.

Test the market on pricing.

Yeah.

Yes, good morning, so on the inflation question specifically.

At this point, just with the oil commodity markets remaining somewhat constructive.

Simply not seeing much softening in service cost to date there are some areas that we expect to pull back as we get into the second part of the year one of those is OTT G.

But right now as we look at our inflationary estimates, we do expect to see some year over year inflation in the Haynesville.

Probably something pushing 10% on a cost per foot basis, we would expect the Marcellus to really be less than five in the low single digits.

But one of the things I would point out to you.

That as we look at our inflation and we look at year over year inflation. It's important to think about it on a net basis I E. What are those things that were doing too.

Extract cost out of our business and one of those is we will drill longer laterals. This year, where our lateral length is going to be up 6% to 7% year over year and then the other thing thats going to impact. It again, if you think about on a net inflation basis is just a well mix. So for example in the in the Haynesville last year, we killed.

70% of our wells, where the Haynesville haynesville, 30% in the Bossier. This year, it's going to be much more weighted towards the haynesville and less so towards the bullish or it's about 90 10. So that also will impact our inflation. So when we look at things at a corporate level.

That net inflation is somewhere in the low single digit.

Now as far as flexibility with our contracts to go out and re bid work, we have a lot of flexibility probably more so on the frac side, but again I think until we start seeing any softening in the oil markets. We're not sure at least we're not baking any material cost inflation as we work into the back half of this year.

Great. Thanks, a lot.

The next question comes from Phillips Johnston with capital one. Please go ahead.

Hey, guys. Thank you first just a clarification on your plans to reduce rig and frac activity for modeling purposes.

In the release, you mentioned plans to drop three rigs in total, but maintaining your existing number of frac crews.

But in the slide deck, you referenced dropping two rigs and two frac crews.

It sounds like from your earlier comments that it is three rigs in total but.

What's the plan on the Frac crew side.

So between Haynesville and Marcellus, we run we would intend to run around four crews. If we were at our current activity levels, but as we as we're dropping rigs. So we do have plans to reduce the frac activity. So currently we're at one Frac crew in the March.

Ellis again normally we'd be running two so we've dropped that frac crew. It will come back later in the year in the second half of the year for a period of time as we build up some inventory with the rigs that we're running today.

In the Haynesville today, we're running two frac crews, we do expect.

As we work through the course of the year that will drop the Frac crew later.

In the second quarter, and then that Frac crew would come back.

Late in the third quarter and so in aggregate.

Do we see ourselves flexing between two and four frac crews in the gas basins throughout the course of the year.

Okay Perfect makes sense and then slide 19, you highlighted investment grade achievement as a near term value catalysts.

Obviously, you can't directly control the timing there, but could you maybe touch on your recent conversations with the rating agencies.

What they still need to see before upgrading your ratings.

So this is mohit.

We remain actively engaged with the rating agencies.

Yes.

The influx of cash that we will expect the closing of these divestitures that's considered positive from the rating agency perspective.

Overall.

They need to see is just some more seasoning in time and financial policy and financial discipline, which we continue to demonstrate the like all of that.

It's just more a matter of time and continued engagement and we remain confident it's a matter of time.

Can we get to investment grade.

Sounds good guys. Thank you thank.

Thank you.

Yeah.

Your final question today comes from Nicholas Pope with Seaport Research. Please go ahead.

Good morning, everyone.

Good morning, Nick.

I was hoping you guys could talk a little bit about.

Potential for.

For M&A opportunities.

In Haynesville, Marcellus, obviously, you're going to have at.

With these two deals close a fair amount of cash on hand gas prices are low.

I'm just curious what the landscape looks like and.

Both those areas, if that's something like that.

That you are targeting you could target.

And also on the Marcellus side is there any limitation because of the structure of the ownership that 50% stake limits.

You being able to go out and add additional or is that not a factor.

Okay.

Second question first that's not a factor.

First question bigger question.

What does the M&A landscape look like to us.

Interesting I guess.

When prices are low.

People think hard about their strategy going forward and how they participate in the upside as prices inevitably rebound.

I'm sure that the industry will have plenty of chatter around M&A as it has had for the last couple of years. We think consolidation is a trend in the industry that matters, we've been vocal about that.

I think the opportunity to.

Allocate capital across a bigger set of assets. Therefore constantly high grading how you allocate capital is important and we think you optimize cost structures. When you do that and we think you generate overall better returns for shareholders, but I would just continue to note something that we've said all along which is that M&A is hard.

And it's really hard to get buyers and sellers to agree on values that we would find would meet our non negotiable and a non negotiable is haven't gone away. We continue to print them in our investor presentation for a reason.

And we know that we're going to have some liquidity this year and we know that there's going to be some volatility in the market. We also expect that volatility to result in some attractive opportunities to buy our own stock.

So we'll weigh our non negotiable will weigh the attractiveness of our own stock will weigh all of those factors around if anybody wants to engage in an M&A discussion is it something that is truly a good answer for our shareholders and if it's not we won't engage if it is.

We'll find out if there is a viable path forward, but M&A is hard.

And it's not something that just because you have some cash round youll go pursue in a different way than you otherwise would because if you're doing the right M&A. It's financeable I've always believed that and so having cash can be a cost of capital advantage at times, but thats it because otherwise your capital is.

The cost.

Cost of capital is reflected in your stock price it's reflected in.

In a way that you trade and it all has to work which is again very much in line with our non negotiable.

Just having cash doesn't make it necessarily more attractive to go do M&A deals have to make sense. They have to be accretive. If you have to buy assets that you can make better by consolidating them into your existing portfolio, thereby creating value for both sets of shareholders.

Isn't able to be created on its own.

Got it I appreciate that.

One thing another item on.

On the modeling.

For one Q for.

For Ngls as a pretty big uptick is that just related to the NGL price.

Relative to gas and an expectation of ethane rejection is there a fair amount of flexibility down there in south Texas.

Or.

Why that we're seeing that jump in the guidance on NGL.

It's probably just a mix we may have to follow up with you on that but obviously, we have our volumes in the rich gas area, which has a fair amount of Ngls that are going up based on the investments we have in the upper Austin chalk last year and so then just the mix of assets and pricing is probably affecting that a little bit.

As we look at 2023 relative to 2022.

Okay. That's all I had I appreciate the time everyone.

Alright, Thanks, a lot.

Okay. Thank you all for joining the call. This morning think that was our last question I. Appreciate everybody's time, we think it's really interesting time in the market, we really like how we're positioned we think that there's an opportunity to create a lot of value for shareholders in a down market. When you have the cash flow the liquidity and the overall strength that we have we think this is.

Time, the companies differentiate themselves and we look forward to doing that for our shareholders. As we look forward to this being a really important and value creating year for Chesapeake.

Look forward to talking to all of you as we see you out at conferences or.

Or over the phone thanks a lot.

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

Yeah.

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