Q2 2023 CNX Resources Corporation Earnings Call
For a conference call we have in the room today, Nick Julius our President and CEO , Alan Shepard, Our Chief Financial Officer, <unk>, Our Chief operating officer, and Ravi <unk> President of our New technologies group.
Today, we will be discussing our second quarter results.
This morning, we posted an updated slide presentation to our website also detailed second quarter earnings released data such as quarterly E. M. P data financial statements and non-GAAP reconciliations are posted to our website and a document titled two Q2023 earnings results in supplemental information of C. N X Ray.
Sources.
As a reminder, any forward looking statements, we make comments about future expectations are subject of business risks, which we have laid out for you and our press release today as well as our previous Securities and Exchange Commission filings.
We will begin our call today with prepared remarks by Nick and have followed by island and then we will open a call for Q&A, where Robbie will participate as well with that let me turn the call for your neck.
Thanks Tyler.
Good morning, everybody second quarter of 2023 that marks our 14th consecutive quarter of free cash flow generation and a continued execution of our longterm strategy.
It also represents the halfway point on the seven year plan that we presented to the market back in 2020.
So three and a half years into the plan. We've now generated approximately 1.8 billion in free cash flow Uhm, we reduced outstanding debt by almost $450 million and we repurchased 30 per cent of our outstanding shares.
Now there are certainly been twists and turns from the original plan as time has passed and macro events have unfolded, we are on pace to exceed our goals and we'd been unwavering in the core principles of our sustainable business model.
It has and it's gonna continue to generate significant longterm for sure value for our owners.
And additionally, despite some near term cyclical challenges at the industry is currently experiencing.
Longterm outlook for C N X and for the natural gas industry as being the cornerstones of our collective energy and economic future.
At the longterm outlook has never been brighter.
During the quarter, we continued to focus on what I references are three key areas of longterm per share value creation, but first we've got efficient execution in a development of our extensive asset base.
Second we've got that continued progress in the growth of our new technologies business unit and.
And then last but not least clinically allocating that free cash flow to acquire significant amount of our shares.
At the prices that we believe represent a substantial discount to their intrinsic value <unk>.
Operationally the team is build some serious and impressive momentum across effectively all friends in 2023, uhm drilling and completions, they're firing on all cylinders, that's true for both of them ourselves and the Utica Horizons and that of course establishes a new efficiency level.
It's gonna impact everything from till timing two capital intensity, but instead of me talking about this let's have now our leader of the operations. After tell you directly so I'll turn it over for a few minutes to nap.
<unk> and good morning, everyone as Nick mentioned, a team has been able to establish a new level of operational efficiency.
This is important because it drives are foundational free cash flow generation that supports are sustainable business model.
The team had several operational accomplishments in the quarter one of the key achievements was that we were able to compress cycle times and get seven world pad toned online 24 days ahead of schedule.
We also accelerated the timing of four additional <unk> that will come online later in the year.
Still exploration was mainly driven by efficiency improvements and completion activities.
We achieved a 34 per cent increase in completed <unk> fee per day compared to last quarter. We also decreased completion cost per foot by five per cent shortly.
Shortly after the quarter ended the drilling team successfully T D. It's deepest and longest Eureka Bell with a total vertical depth of 13765 feet and a lateral length off over 15000 feet <unk> and the C. P. M. M aren't area is a great accomplishment and supports the development of this.
Prolific acreage across our longterm plan.
We have continued to apply these lessons to our other you regarding operations in southwest P. It very successfully drilled completed and are currently flowing back to <unk>.
<unk> area, we also drilled too long Marcellus wells with a lateral length of 19500 feet each.
As we progress through our one and a half brick one <unk> will you plan.
Will be well positioned to grow volumes in 2024.
During the quarter, we continued to run the second <unk>, which was released recently.
<unk> the remainder of this year's activity will primarily be one rake and one <unk> in the capital spend cadence will decline accordingly.
Moving into 2024 and beyond we expect capital intensity to lower the significant investments we are making this year and growing volumes puts us in a position to maintain our target production levels with lower overall activity moving forward.
Then we'll go into more detail on the full year guidance, shortly but I want to make one important note on our operations I want to reiterate that we are well positioned to adjust our activity said to respond to any material changes and gas pricing that may unfold in the second half of the year. This flexibility is one of the key advantages of B.
The low cost producer and owning are extreme assets.
Well economics remain attractive and lower pricing environments, and we are not beholden to high fixed cost midstream arrangements that can lead to an economic decisions.
One note on our <unk> initiative, we are on target with production equipment modifications to reduce emissions by 70000 metric tons of C. O two equal and for December 20th twenty-three compared to December 2022.
In summary, the operations teams focus on continuous improvement is driving outstanding results and I'm proud of our teams diligence and continued hard work and positioning C. N X as an operational leader in the basin.
Now, let me turn it over to Nick.
Nah, that's it's exciting.
So if I may let me pivot now to new technologies and as I mentioned on last quarter's call you were expecting the business unit to be free cash flow positive in a year and that is started in the second quarter Allen is going to touch on this more in his remarks, but suffice it to say that this is a very exciting part of our business and it's going to likely material.
<unk> are free cash flow outlook moving into 2024 and beyond.
Most importantly, we're just getting started here and that's due to our one of a kind asset base that underpins our Appalachia first vision and we've got a wealth of opportunity to drive even more per share value creation through these efforts in the years ahead.
One effort in our new Tech unit that we are very excited about is the Appalachian regional clean hydrogen hub.
What's called arch too. This is an initiative that we've been working on for some time and we've touched on it on past calls, but just as a refresher our contribution to the arts to hide that bird is the Adams for clean ammonia project.
That's gonna be located in Mingo County, West, Virginia, and is expected to be one of the largest if not the largest and cleanest ammonia plant in the world. It's also the anchor project of the arch two applications to the U S D O a and.
And you might be asking why get involved in something of this size and scope in southern West Virginia of all places.
Well first of all this project and its location. It's a living breathing example of our Appalachia for our strategic vision, which is produced adhere use it here first and in doing so we cannot ban the status quo and we can provide vast economic opportunity and one of the hardest hit regions from an energy transition standpoint.
Second this region, both some of the most abundant lowest cost and is now just put it out lowest emissions natural gas feedstock found anywhere in the world. So there's no better place to build such a project and that's exactly why we're so focused on working with our partners to help bring it online.
Where are you currently a waiting guidance out of D. C related to the inflation reduction Acari R. A on the hydrogen production tax credit, which makes this project viable. In addition to final decisions from the D O a on the hydrogen hop awards.
The intent of the hydrogen production provision to the I R. A was to incentivize the creation of low carbon intensity hydrogen.
And to reduce emissions.
And to create jobs and economic activity and energy communities and that's exactly what this project does and it does it in a big way.
And we've seen the chilling effect chatter out of the nation's capital and what that can do two investment decisions. A recent example, Wisconsin elation to pause the 1 billion dollar clean hydrogen project investment ending I R implementation guidance. So we're monitoring this very closely.
Of course, we're hopeful that Washington is gonna follow the intent of the law and help us make this important west Virginia project a reality.
Regarding share purchases, let's talk about that for a minute.
We continued our industry leadership on his front during the quarter, we repurchased an additional 2% of our outstanding shares.
And since the start of our recent share buyback program back in the third quarter of 2020 <unk>.
We've repurchase over $1 billion in shares or 30 per cent of the company.
That equates to approximately 75 per cent of our current authorization.
And that pace and magnitude and most importantly, the percent depletion of our current share repurchase authorization that far exceeds anything you'll see with respect appears.
<unk> actions speak louder than words, and I think our track record of consistently returning capital to shareholders that speaks for itself.
And even though we've been executing the strategy for several years, we're still when you look at it from a big picture perspective in the early innings and we continue to believe that our shares are undervalued. So as a result, we are announcing an additional 1 billion share repurchase authorization with no exploration, which reflects our continued confidence in the outlook for our.
Business over time.
This increase brings our total authorization to 1.28 billion. When you include the 280 million that's remaining on the previous authorization.
And we believe the 1 billion, increasing our share repurchase program.
That just provides another opportunity to trade incredible value over the long term or likeminded shareholders, who will benefit as our ownership continues to grow meaningfully over the coming years.
I'd also like to take a minute to briefly highlight the Nana asset sale during the quarter.
<unk> speaking I'll.
All asset sales, we said this before they are evaluated under very strict criteria and we consider the bar to be quite high.
Everyone's something makes economic sense.
We're going to capture that value in this case, we still at various nonoperated, producing oil and gas assets consisting of royalty and working interest primarily located in the Appalachian basin. They were producing approximately 33 million cubic feet per day, roughly $4000 per flowing M. C. S.
And through this transaction were able to monetize non-core assets and in fact that we pull forward value to be redeployed in an accretive manner.
The last I'd like to highlight our corporate sustainability report that came out during the quarter. This is a product we're very proud of not only does it showcase our transparency and a wide array of information and investors in various stakeholders can use to evaluate our value proposition, but we hope that it shows.
This is how our unique approach to yeah, she and or Appalachia first strategic vision.
Prioritize is actions and decisions that are tangible and impactful and local.
Let's take a minute to highlight just one example of this that we discussed a bit in the past that is D. C N X Mentorship Academy.
Which focuses on local high school students, who desire a family sustaining well compensated career. It doesn't require a four year College degree and the Mentorship Academy uniquely connects the region's premier employers in the building trades in the nonprofit community with local young emerging talent.
Tangible local effort. It's just concluded wrapped up its second full year and its continued success and it's scaling it underpins our longterm human capital strategy and drives us toward achieving our diversity goals as well as expanding inclusion in our regional economy in other words, our goal is to ensure.
Sure that the vast benefits of the energy and manufacturing economy within Appalachia.
Available to the young men and women and some of the region's most disadvantaged communities.
That'd be a win for C. N X as a company that would be a win for our collective industries and of course that would be a win for the region at large and it's a Prime example of how we believe effective corporate D. S. G initiatives should be modelled and how they should be executed and in a week or so we kick off the program year for our third class.
Which would be the largest to date or to believe what's happened the past three years there.
So with that let me turn things over to Alan.
<unk> good morning to everyone.
Mentioned this quarter represents the 14th consecutive quarter of free cash flow generation through the execution of our sustainable business model and longterm strategic plan <unk>.
During the quarter, we generated approximately 135 million a free cash flow, including the proceeds from the previously announced Lonoff Sir.
Since we initially laid out our free cash flow putting it in the first quarter of 2020. This brings our T mobile free cash flow to approximately 1.8 billion.
Roughly 60 per cent of our current market.
We are well on our way and continue to execute our longterm free cash flow generation plan and would you believe that we remained well positioned to take advantage of any deepening valuation disconnects it might occur in either the debtor equity markets. We also continue to believe that our share straight at a significant discount to their intrinsic value and we will continue to take advantage of this opportunity moving forward to drive our share account.
Sure and free cash flow for sure higher or on that shortly.
On the balance sheet side, we have constructed our debt maturities and leverage profile to reduce risk and enabled maximum flexibility when making chapel allocation decisions are overall objective of maintaining a low risk balance sheet through active maturity management and lowering overall absolute does is unchanged.
Significant maturity runway and robust hedge book provide the visibility into the future that underpins our capital allocation flexibility.
Moreover, we have consistently demonstrated R capital allocation plan is intended to be fluid and will address is the underlying variables addressed the most important variable currently being our equity valuation, while we have been consistent and signalling our desire to achieve lower absolute that levels. The timing of that Delevering is an output of running the clinical capital allocation ma'am.
As we've seen over the last few quarters, we expect leverage ratios to pick up and down his underlying even to address with commodity prices.
Either absolute dot levels May also fluctuating for short term based on the timing of free cash flow deployment. However, any such fluctuations are merely short term noise.
Or turning to be updated guidance for turning 23, I want to touch on three <unk>, we see unfolding moving at a 20th 24 M beyond that drive our confidence in our ability to materially grow longterm free cash flow for sure.
First we expect Matt gas realisations to increase in 2024 and beyond a forward and I'm extra prices are increasing over the same period.
The macro backdrop of strong longterm fundamentals for natural gas demand natural gas serving as the cornerstone of our world's energy mix will provide a material boost your cash flows as we move beyond the near term pricing environment.
Second as we've previously got it too we expect higher levels of production of 2024 capital levels to decline materially moving forward in 2024 and beyond as.
As a result of the current operational successes, we're experiencing beginning of 2024 and beyond we're expecting to grow volumes over 2023 levels to approximately 500 <unk>.
Holding production at that level beyond 2024, then provides us clear line of sight to driving capital intensive materially lower in 2024 and below $500 million annually by 2025.
This assumes no change in current service cost pricing, but it is driven instead by the lower capital I'm transferring you needed to maintain our projected 20th 24 production levels moving forward.
This would return has tomato strap at a level similar to those initially contemplated as part of our seven year plan with the exception of the higher current service costs about 20 days a year more production compared to the original plan.
<unk> is that a new technologies group is now cash flow positive as we've discussed on protocols. There are three main categories at the New Tech group has been pursuing.
One expanding <unk> alternate fuel market, such a C. N G LNG hydrogen to developing oilfield services technologies that lower costs and reduce emissions and three obtaining value recognition for the environmental attributes tied to our waste messana payment operations.
Ladder of these three being the most progress in terms of impact in free cash flow in the near term.
For the quarter, we recorded approximately 8 million of revenue associated with environmental attribute.
You're still in the very early stages of developing these opportunities but to provide some color on the near term magnitude of their impact. We believe we have line of sight on the new technologies group contributing approximately 75 million and free cash flow annually, starting in 2024 with the potential of achieving up to 100 million audit.
Additionally, we expect this annual free cash flow from the new Tech group to grow meaningfully higher in the years beyond 2024.
Potential is truly exciting we look forward to providing more updates in detail on these projections in the coming quarters.
When you consider these three factors together it is easy to see the free cash flow for sure potential of the company in the coming years.
It also make for a very easy capital allocation decision to continue reducing our sure count.
The overall trend is clear unless our share price materially Rerates, we expect our outstanding shares will continue to shrink dramatically over the next several years contributing to further growth in our free cash flow for sure.
Now, let's shift you are updated twenty-three three outlook on slide six to clarify how we see the remainder of your unfolding.
We have updated each of the major gardens components for the impact of an autopsy all that occurred during the quarter and I've adjusted EBITDA in free cash flow outlook for the year to reflect that transaction as well and to reflect the decline in near term commodity prices that occurred during the quarter.
Starting with production.
Can you take away with Nick at Night, I've mentioned is that our operational progress for 2023 has been excellent and auto wellhead basis, we remain on track with the initial plan for 2000 twenty-three after adjusting for the <unk>.
The adjustments were making to narrow our production range to between 545, and 555 G cfe or being driven by three factors first we've removed approximately nine B C. F E. A volume associated with the <unk> as a reminder, the effective date of that Phil was April 1st and yes. It was producing approximately 33 million cubic feet equivalent per day.
The second adjustment is related to lower expected effient recovers for the year one of our key downstream Counterparties has been unable to take the same volumes initially forecast due to their plant startup challenges and as such that I think it has remained overdraft dream had been full for heat value.
The bottom line is that due to penalty provisions in our contract with this customer or overall free cash flow for the year has not been impacted by this however, we expect our reported production equivalent volumes for 2023 to be approximately nine <unk> lower than they would've been have you <unk> been recovered of plan.
Lastly, do of the operational efficiencies, we expect to offset approximately three b C. I V a banana up enough pain adjustments and.
In summary, despite the noise associated with the two downward adjustments, but can you take away is that the operations are successfully on track with our plan and as such and as stated earlier were also reaffirming our production outlook for 2024, which is now approximately 500 <unk> after updating our prior guidance of approximately 590 PTFE to reflect an estimated 10 b.
Impact of Banana upsell on next year's volume.
<unk> turning the capital the second quarter included spend associated with running two rigs weren't completions crew for the entirety of the quarter second horizontal drilling second horizontal drilling rig has been recently released which will result in the cadence of capital spend moving sequentially lower through the remainder of the year.
The service costs side, while we have seen some modest downward movements in certain categories. There has not been enough downward movement to materially impact projected for me probably three capital levels.
Such where we're moving the lower end of our capital ranges up to reflect this moving forward. We are optimistic we may see further reductions on the service cost side as we head into 2024, we provide we will provide keller on that in future calls is that outlook becomes clearer.
One last point on capital as we touched on earlier are 2023 activity set and corresponding capital expenditures represent more than a maintenance or production plan.
This level of capital spend allows us to keep an efficient operational appears that results in production volume growth.
2023 to 2024. Additionally, despite no changes to the current plan at this time should forward gas purchases declined further throughout the year, we will not hesitate to adjust our capital activity set in accordance with our focus on achieving the best long term economic resolved.
Lastly on guidance. We've also increased our free casual outlook for 2023 to approximately 325 million. This.
This update includes the onetime proceeds from the non <unk> upset by roughly 12 million free cash flow decreased due to the same <unk>.
Roughly $35 million decrease due to the continued decline in commodity prices experienced during the quarter.
However, despite the near term commodity headwinds on a per share basis due to the continued reduction in shares that occurred during the quarter increased overall total free cash flow. We are now projecting 2023 free cash flow per share to increased by 33% to approximately $2 per share before any future sure count reductions that may occur during the remainder of the year.
To conclude we are confident that the sustainable business model that we have created will continue to deliver value to our shareholders throughout the entire cycle or focus for the remainder of 2023 will remain on safely apply and execution to develop our extensive natural gas asset base accelerating free cash flow growth from our new technologies business on consistent and clinical.
Capital allocation to grow our longterm free cash flow for sure and most importantly, I've always on insurance all of our decisions continue to reflect a longterm <unk> mindset.
That I will turn it back over to Tyler for to you and thanks, Alan operating if you could open the line up for questions at this time.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
<unk> <unk>.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Jack Paar.
<unk> with J P. Morgan. Please go ahead.
Yeah. Thanks for taking my question first just on the longer term guide you mentioned the line of sight to getting the less than 500 million of annual Capex in 25, plus the whole production flat. It that's five eight D. B C at the <unk>.
650, this year on Capex at the mid point, how should I think about 2024 should I just assume kind of the midpoint of those two numbers I'm just really looking out some for some color on what 24 spending could look like.
Yeah, we're not gonna provide a formal guidance range of this time, but the way to think about it is ultimately you're able to step down from a one and a half brick program, maybe one and a quarter of one in a month or two program next year at the same time you have to run fewer completions. So you don't have a full completions crew by the time you get to 25, you're basically just a one red program and kind of.
Spot completions crew, so that's really what drives it.
[noise] got it thanks for that color and then just done that the new technologies business, you talked about 75 million and free Cashflow expecting next next year from that business. You know could you give us a little more color on the different projects that are gonna generate that free cash flow and maybe some color on the expected Capex you your plan.
To spend on that business.
Yeah, I think in the near term was related to in the comments, what's most material right. Now is the recognition of the environmental attribute associated with the the waste mind capture projects. We run you should see that moving sequentially higher this quarter, we broke the Amelia and then that'll move sequentially higher but that'll be the bulk of the driver in the near term put in 24.
Got it thank you out.
The next question comes from Leo <unk> with Roth M. K M. Please.
Please go ahead.
Hey, guys wanted to just delve into the production a little bit more here in 2023, just kind of looking at you know second quarter production was down kind of a couple of percent versus one too I think you guys had 13 turning line. This quarter, so kind of turn lines were up in.
And production was down obviously, a detailed some of the reasons why you kind of lowered the guide here a little bit, but you've got a pretty big Grandpa and production and in 24 from kind of where it is today. So could you give us a little bit of color on kind of how the the second half of twenty-three you know breaks down do we see <unk>.
Significant growth in and <unk> to get the kind of a higher exit right that kind of gives you more of that maintenance level and sort of 24 can you just kind of help us bridge. The gap here on the the production between kind of second quarter, which was you know moving lower and have a big jump next year.
Yeah, so what what some reporting to remember on the second quarter is because of the April 1st effective date on the non upscale your missing about three bees were otherwise would've been so if you had that back sequentially higher and as we talked about going into the year started the year at the low point, we're moving up to kind of run right. We want to be in Q3, and then you should see that kind of exit through Q4 to hit that 580.
For next year.
Okay. So just to clarify it sounds like you're gonna get through this this is much higher one right in Q3, and then I guess, you're kind of saying that it's sort of.
Flattish from there into the run rate for next year or do you see kind of continued growth and to kind of year and and then more flat as you get into 24, I'm just trying to understand the <unk> with the rest of the year.
You'll see you'll see a pickup in Q3, and then by the time, we get to queue for it should be around the run rate that you would extrapolate for the rest of the 24th.
Okay, so up a little bit more here than in queue for Sir okay.
Hello to all sorts of Bill Uhm.
Okay.
And I guess just for you know the the asset sale I mean, I saw that you're <unk>. You know it was kind of down this quarter you know per M. C. F. E. D. Just trying to get a <unk> was that part of it due to the asset sale here could you see some kind of cost benefit maybe these were some kind of older higher costs, well that you kind of <unk>.
And it's kind of second quarter <unk> kind of the right run ready to think about going forward I know it'll fluctuate a little bit on quarterly basis.
Yeah, I would say the non off sale had little to no impact on trying to <unk>. The majority of those were really interested and kind of lower cost working interest well, what we did seed aren't you too you know I'm talking about the operational success that team has done a great job controlling all are we.
Moving forward.
That trend to continue.
And then there were there were some things on the marketing side with some some great settlement cases that impacted the the quarter as one of us as well.
Okay.
Alright, thanks, yes.
The next question comes from <unk> <unk> <unk> excuse me <unk>. Please go ahead.
Alright, thanks, guys. It looks like your operational efficiencies may allow you to have you know.
Kind of a faster pace of activity than your previously expecting and I just wanted to understand the capex range for this year on the prepared remarks, it sounded like maybe the low and was just raise due to the current state of service cost, but I just wasn't sure. If maybe there was some sort of allowance for maybe some activity being cold.
From 24 into twenty-three or could you just talk about maybe the optionality that you could do that later in the year.
The bulk of the reason for pulling up the low end was because the service costs haven't materialized <unk>.
We've seen some green shoots as we discuss with that kind of a low M cases off the table as cough haven't come down as quickly as they have in other parts of the cycle, but you are right on with the kind of the completions efficiency. Other stuff, we have been able to pull in a couple of shows this year, which will push capital up incrementally but.
It's not as material is kind of the the service cost adjustment pulling up the bottom end.
I I assume minimal production impact from those late your tales.
We're just talking about flying those in a couple of weeks.
Oh, Great and then the second question on on the buyback strategy. I mean, you guys continue to execute on that and I I think a lotta people probably appreciate that you know even non-core sales count towards your your free cash flow.
And that <unk> that trickles into repurchases I guess just on the percentage base. You know one Q was probably an anomaly where you you repurchased almost your entire free cash flow of balance.
<unk> you did around half of that is there a percentage that you guys are looking to target on an annual basis or is it opportunistic or you know what what's the strategy there.
It's opportunistic right. We we always talk about we continually run the clinical out allocation math, and depending where the share prices kind of dictates our pace and right now we see it well below intrinsic value, but we do try to optimize around the edges. When we're picking up chairs.
And will say too that you're when you're running the math currently on the share repurchases versus other options for that free cash flow allocation.
Share repurchases are extremely difficult to beat.
For the reasons, we talked about their three she seems we see come install.
Mmm makes sense, so don't think about it as a percentage of your free cash flow more just hey, you're gonna make sure repurchases cause the shares look attractive and you'll just do that when when you feel best.
Yeah, Yeah, exactly we got a lot of flexibility with the way the balance sheet structured so we don't necessarily need to tie exactly the free cash flow at any given period.
Makes sense thanks, guys.
The next question comes from Michael Schiavo with Stevens. Please go ahead.
Yeah. Thank you. Good morning wanted to ask again about the 2025 maintenance capital, giving below 500 million I think you mentioned that you would go down to one Reagan lesson, one fulltime frat crew.
Just kind of wanted to try to understand a little bit better what's driving that is at the.
Decline rate continuing to shallow or better efficiencies and if you do go down to guess less than a fulltime <unk> worried about losing some of those efficiencies.
Yeah, I would say, it's a combination of factors brightest you decline rate, we've kinda reset the maintenance of production level here at 580, you know we have some.
Bumped last year, and we're now we're back to where we need to be on them efficiency ready. So it's really you just don't need as many pads each year right and this is the kind of what we set out to do in 2020 was to be able to continue to push that capital efficiency down by just picking a level and holding it until the market center call for more gas in this region.
And on the Bill performance Ah side, all the all the bills are performing at or above what our expectations are.
Okay, and any any concern about losing efficiencies if you're.
Not gonna run fulltime crew and <unk>, even though I guess worried about losing the crew altogether.
Yeah, No I mean, we certainly consider that but that's you know the operation screams <unk>.
<unk> to make sure they're running a suspicious possible obviously, it's easiest with the continuous operations, but you know.
That would result in continued growth you're on your right and that's not the model would run it right now.
And as far as efficiency is concerned we kind of like look at efficiency from three different buckets right. One is what our operational procedures are so no matter like when we pick pick up a cruise we know exactly what to do how to how to run those operational procedures and then second two is like.
Proceeding those those you know gaps in our we have like pre planning processes and we are really integrated with all our service providers. So we we do really deep comprehensive pre planning off of operational execution before restock right. So coupled with those two and then when we are executing we kind of like take into account.
Our design and engineering efficiencies in place, we we optimize on those and then second we optimize on scheduling is what is the best time for us to scheduling. So with all these five different you know parameters to for us to optimize on I think we'll be able to stay at what about efficiency level is <unk>.
<unk>, you know improve and beat it.
Great appreciate the teller, there and Nicky mentioned the ammonia manufacturing facility work know what that is <unk> energy. If you get the support you expect from Washington, There can you just talk about what the timing of that project might look like and.
Would C O two sequestration their require classics drilling permit just trying to frame up how that project might unfold.
Hey, this is Robbie so we expect the guidance to come out later part of this year from from tragedy in I R. S. On on 45 B.
Drive the the investment decisions on on when when the construction starts on this vicinity.
If everything checks out with respecting the constructive to start maybe mid of next year or two to three or construction project.
Set it up and running and we're also waiting on those Gonna C. C. S side of things a lot of work is happening to figure it out with the sequestration is gonna happen. We have all the control a lot of assets that make it successful in that region.
But the classics you I see well that you were talking about that is west Virginia privacy issues, whether west Virginia to have privacy or not whether it'd be have to petition to the E. P. A to do that and that's what I'm trying to get the primacy for for the view I see well. So <unk>, there's a lot of stuff in that arena that we're waiting to see how it all.
Shapes up to see what our next steps are gonna be but in the meantime.
Based on the guidance from tragedy and I would ask the construction for the project is expected to start <unk> 2024.
Great. Thank you.
The next question comes from Noel Parks with Chewy Brothers. Please go ahead.
Hi, good morning.
Alright.
Wanted to <unk>.
Just ask for a bit of an update and I understand what you're saying about just still waiting for guidance around the I R. A.
Uhm.
In in General has there been any progress on the the specific terms of Adam's pork I think.
A quarter ago, there was still still quite a lot to be determined <unk> anything you can tell us on that would be great.
Some of that is still at the flex a little bit I think like you know based on the treasury guidance, depending on when the investment as soon as they're gonna be I think some of the things that are set is that we're going to provide the C. C. S services, we're going to provide the feedstock I mentioned that and and the call last quarter.
B B have all the assets that that that are required to make this project successful we have the lowest carbon intensity feedstock that's available that's going to be required to produce the hydrogen subsequently ammonia.
Have the surface and the the the poor spaces do sequester. The C. O. Two we have the the right of pipeline right of ways to move the C. O two window in the feedstock around we have the technical expertise to drill the deep you I see well that's mcgwire to sequester the C O two.
We have the the the gas processing and handling expertise to move the the feedstock and the C. O two molecules around so we control a lot of that stuff, but I think the investment decisions on the project is still depending on a lot of external factors such as the treasury guidance out of such as the the hydrogen hub disc.
<unk> from the D E. So stay.
Stay tuned for more updates, but I think <unk> <unk> for relying on some external factors to make some of these concrete decisions and in the coming months yeah. The good news is that big picture. The the intent of Congress is very clear of how this project would sit right smack in the middle of what was intended with the I R.
<unk>. Please we seen in numerous different industries and with different situations, how the administrative state ends up interpreting that we need to make sure that the <unk>.
Reputation is consistent with the intention of the law and that's that's what we mean by you know waiting on guidance from from Washington.
Great. Thanks for the clarification.
Uhm.
You know I was.
Wondering a bit about.
As far as the cost environment. It seems to I guess, maybe be on the way to be unanimous that 2023, maybe an apple H is not really looking like the year that there's there's gonna be much give back from from service providers.
And and you express some optimism well, we'll cautious optimism about 2024 Uhm is this sort of a cycle different as far as I mean, I guess between the industry capital discipline that's.
Kind of been reflected on it on the service providers part as well <unk> and some other <unk>, we have heard a little bit more optimism about you know frat cost coming down and so forth. So I'm, just wondering which doctors you think might be you know based on specific.
Yeah, I mean, if you think of our basin, we've all kind of been on the maintenance of production level give or take for awhile. So there wasn't as much activity to drop off in this space to somebody other basin, but we still do see things on the commodity side, improving and like I said some of the service categories with some of the kind of marginal players make it a private guys dropping activity and the sort of <unk>.
This environment have tried it a little bit of an uplift certainly not to the magnitude we'd hope to being a year, but you know some of these contracts come up during the two three in Q4, we'll see how that reset one of them 24.
<unk>, so I wanted to add some some color to it how we got to see your next look at cost. So in cost we divide cost into five different categories right. One is our design and engineering Redfin, our engineers really hone on optimizing and continuously improving and driving down costs from from an engineering standpoint, the second <unk>.
<unk> operational and execution efficiency. So we are always optimizing that and trying to increase our efficiency as you have seen we've done in the last two quarters. The third part of this is our.
And our supply chain team, where we are always negotiating and trying to work with our partners to increase efficiency and drive down costs per unit basis, Alright, and then thought Oh, sorry, the fourth part of it is art.
Our our commodity pricing right, so where we see Steele prize and diesel prices are changing and so we are tracking that and trying to drive down the cost and then fifth part of that is scheduling. So we are continuously trying to improve on on which locations to go do so we can affect our our per unit price cost two alright, so with all of those.
<unk> things in concentration what we have seen are we are seeing or what what are the next door like you asked for a completions completions, we divide all of that into <unk> <unk> the pricing, where we are driving up efficiency. So I'll put a unit cost is decreasing and then you'll sign cost and in our supply chain team has.
Done a fantastic job of working with our service providers and we have been able to drive that cost I'll sign down on.
On a unit basis, and then the third part of it is like water. So our water team has done a fantastic job on optimizing and optimizing a gathering systems and how we acquired and get water to location to reduce that cost. The overall, we think a completion costs are gonna be you know driving downwards for for the next two quarters.
Sure.
Great. Thanks for the details bye bye.
The next question comes from John Abbott with Bank of America. Please go ahead.
Good morning, and thank you for taking our questions I appreciate the color on the new technology business in 2025 potential spending.
Just starting with 2025, just wanted to make sure that I sort of understand that so the that cat backs that you're suggesting around $500 million.
Does that include other discretionary spending does that include spending on like technology business. What is how do I think about other capex dot yeah.
Yeah. So that number is primarily on the legacy kind of E&P business right. There, there's no near term major capital expenditures, but doesn't materially impact on the new technology side like we talked about the the nearest term real positive uplift on that side of the businesses with the environmental attributes.
So you'll have limited capex and the next year or two with that.
Yeah, and just like we have done in the past, but we're gonna go through the clinical matched to decide with a capital allocations cannot currently once once we have a better a view of what projects were gonna pursue but will update the the humidity with about how much cap recently were to go out on the new tech side of things.
Alright I appreciate it then for the <unk> for my for a follow up question.
So now it's been awhile, but if given guidance on the password how just how you're thinking about the trajectory of cash taxes. At this point in time, you know given the lower potential spending and the moving parts how <unk>. How do you think about your future cash taxes.
It's basically the same as when we went into the kind of a seven year plan you kind of get to that 3 billion Mark a free cash flow generation is where you start becoming kind of a cash taxpayer again. So we're we're still a few years out you're still out in that 26 27 timeframe before you've seen anything material on the cashback site.
I appreciate it thank you for taking our questions.
The next question comes from Jacob Roberts with T. P. H and company. Please go ahead.
Good morning.
Good morning.
The curious if you could provide some background on how the recent deal came about what the opportunities set for similar or larger deals may be and and perhaps if the proceeds are earmarked for anything in particular.
You're referring to the non <unk>.
Correct.
Yeah, I mean, we're always going through kind of a an exercise when determining you know.
Are we getting the best value in terms of non core assets is there some way to raise proceeds to reinvest at a more <unk> accretive manner. Uhm. This is an asset that that you know.
Because it's all not up so it's definitely non-core and you know we we ran a kind of internal process and we've got a lot of strong feedback from it and we're able to monetize it out of the flowing out a number.
But relative to our public valuation if you reinvested all the proceeds into to share prices are gonna come out ahead.
That's how we think about that.
So is it is it fair to assume the proceeds will be heading to share buybacks in their entirety.
Alright, I think we got it too you know we're we're flexible you know if the software to run up will change our capital allocation strategy, but.
Great appreciate the time goes.
This concludes our question and answer session I would like to turn the conference back over to Tyler Lewis for any closing remarks.
Great. Thank you everyone for joining this morning, please feel free to reach out if you might have any additional questions. Otherwise we look forward to speaking with everyone again next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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