Q1 2024 National Fuel Gas Co Earnings Call
Our call today.
During the presentation you can register to ask a question by pressing star followed by one on your telephone keypad.
I'll now hand over to your host Natalie Fisher Director of Investor Relations. Please go ahead.
Thank you Bruno and good morning, we appreciate you joining us on today's conference call for a discussion of last evening's earnings release.
With us on the call from National fuel gas company are Dave Bauer, President and Chief Executive Officer, Tim Silverstein, Treasurer, and principal financial Officer, and Justin Lewis President of Seneca resources and National fuel midstream.
Hello, everyone and welcome to the National fuel gas company first quarter fiscal 2024 earnings conference call.
At the end of prepared remarks, we will open the discussion for questions. The first quarter of fiscal 2024 earnings release in February Investor presentation have been posted on our Investor Relations website, we may refer to these materials during today's call.
Bruno: My name is Bruno and it'll be operating your call today.
Bruno: During the presentation you can register to ask a question by pressing star followed by one on your telephone keypad.
I'll now hand over to your host Natalie Fisher Director of Investor Relations. Please go ahead.
We would like to remind you that today's teleconference will contain forward looking statements while.
Natalie Fisher: Thank you Bruno and good morning, we appreciate you joining us on today's conference call for a discussion of last evening's earnings release with us on the call from National fuel gas company are Dave Bauer, President and Chief Executive Officer, Tim Silverstein, Treasurer, and principal financial Officer, and Justin Lewis President of Seneca resources.
While national Fuel's expectations beliefs, and projections are made in good faith and are believed to have a reasonable basis actual results may differ materially. These.
These statements speak only as of the date on which they are made and you may refer to last evening's earnings release for a listing of certain specific risk factors.
National fuel midstream.
With that I'll turn it over to Dave Bauer, Thank you Natalie and good morning, everyone.
At the end of the prepared remarks, we will open the discussion to questions. The first quarter of fiscal 2024 earnings release in February Investor presentation have been posted on our Investor Relations website.
Before starting I would like to take a moment to welcome Natalie as our new director of Investor Relations.
She's new to the company she isn't new to the industry, having worked in Pwc's power and utilities practice early in her career.
They refer to these materials during today's call.
Bruno: We would like to remind you that today's teleconference will contain forward looking statements.
I'd also like to thank Brandon for his hard work over the past three years and wish him well in his new role within our finance organization.
Bruno: While national Fuel's expectations beliefs, and projections are made in good faith and are believed to have a reasonable basis actual results may differ materially.
Turning to the quarter last night, we reported adjusted operating results of $1 46 per share.
Bruno: Statements speak only as of the date on which they are made and you may refer to last evening's earnings release for a listing of certain specific risk factors.
It was a fairly routine quarter, one in which we continued to see strong execution across our operations.
In our upstream and gathering businesses production and throughput were up 11% and 15% respectively compared to last year on the strength of several great new wells in the EDA.
With that I'll turn it over to Dave Bauer, Thank you Natalie and good morning, everyone.
David P. Bauer: Before starting I would like to take a moment to welcome Natalie as our new director of Investor Relations.
In addition, the benefit of our disciplined approach to hedging was evident this quarter with our strong book swaps collars and firm sales, helping to mitigate the impact of lower natural gas prices on earnings and cash flows.
David P. Bauer: She's new to the company she isn't new to the industry, having worked in Pwc's power and utilities practice early in her career.
David P. Bauer: I'd also like to thank Brandon for his hard work over the past three years and wish him well in his new role within our finance organization.
At the regulated businesses, we started to see the impact of new delivery rates, and our utilities, Pennsylvania jurisdiction, which helped contribute to the 12% increase in year over year utility earnings.
David P. Bauer: Turning to the quarter last night, we reported adjusted operating results of $1 46 per share.
David P. Bauer: It was a fairly routine quarter, one in which we continued to see strong execution across our operations.
Looking forward our plans remain on track in each of our businesses.
In our upstream and gathering businesses production and throughput were up 11% and 15% respectively compared to last year on the strength of several great new wells in the EDA.
In the upstream business Seneca has transitioned to the EDA is going smoothly.
Results in Tioga County continue to exceed expectations and were the primary reason for the increase in our production guidance range for fiscal 'twenty four.
David P. Bauer: In addition, the benefit of our disciplined approach to hedging was evident this quarter with our strong book swaps collars and firm sales, helping to mitigate the impact of lower natural gas prices on earnings and cash flows.
We're very excited about the long term opportunity in this area at.
At a point in time when many of our peers are moving down the acreage quality spectrum or pursuing M&A to manage depleting inventory. We are in the fortunate position of having many years well over a decade of inventory in the EDA that is highly economic.
David P. Bauer: At the regulated businesses, we started to see the impact of new delivery rates, and our utilities, Pennsylvania jurisdiction, which helped contribute to the 12% increase in year over year utility earnings.
We expect that the ongoing transition to Toyota will be the driver of improving capital efficiency and strong returns for many years to come.
David P. Bauer: Looking forward our plans remain on track in each of our businesses.
David P. Bauer: In the upstream business Seneca has transitioned to the EDA is going smoothly.
Additionally, we have a great hedge book in fiscal 'twenty, four and 25%, but with downside protection well above the forward curve and collars that retain a good portion of the upside.
David P. Bauer: <unk> County continue to exceed expectations and were the primary reason for the increase in our production guidance range for fiscal 'twenty four.
Given the inherent volatility in natural gas prices. We think this is the right approach.
David P. Bauer: We're very excited about the long term opportunity in this area at a point in time when many of our peers are moving down the acreage quality spectrum.
Turning to the regulated businesses settlement discussions and our supply Corp rate case are ongoing.
David P. Bauer: We're pursuing M&A to manage depleting inventory, we are in the fortunate position of having many years well over a decade of inventory in the EDA that is highly economic.
I hope to have more to say on that process next quarter.
At the utility last fall, we filed a rate case in our New York jurisdiction requesting new rates effective October one of this year.
David P. Bauer: We expect that the ongoing transition to Toyota will be the driver of improving capital efficiency and strong returns for many years to come.
Testimony from Commission staff and other parties is due next month once that's on file I expect settlement discussions will ensue over the course of the spring and into the summer.
David P. Bauer: Additionally, we have a great hedge book.
David P. Bauer: Fiscal 'twenty, four and 'twenty, five, but with downside protection well above the forward curve and collars that retain a good portion of the upside.
Before leaving the utility a quick word on new York's energy policy.
David P. Bauer: Given the inherent volatility in natural gas prices. We think this is the right approach.
As you all know downstate politicians and environmental activist groups continued to push an agenda as it seeks to electrify everything as soon as possible including space heating.
David P. Bauer: Turning to the regulated businesses settlement discussions and our supply Corp rate case are ongoing and I hope to have more to say on that process next quarter.
And they want to do it solely with new renewable generation, despite the high cost and inherent intermittency of wind and solar.
David P. Bauer: At the utility last fall, we filed a rate case in our New York jurisdiction requesting new rates effective October one of this year.
Putting the partisan rhetoric to the side at.
At least starting to see a more reasonable approach to the energy transition from some of the policymakers in Albany.
David P. Bauer: Testimony from Commission staff and other parties is due next month once that on file I expect settlement discussions one sue over the course of the spring and into the summer.
In December the New York Commission issued an order on the plan we submitted in their long term planning proceeding.
David P. Bauer: Before leaving the utility a quick word on new York's energy policy.
Our proposal advocates and all of the above approach to energy that employees enhanced weatherization hybrid heating solutions and the use of low and no carbon fuels like hydrogen and RMG.
David P. Bauer: As you all know downstate politicians and environmental activist groups continue to push an agenda that seeks to electrify everything as soon as possible including space heating.
Planned balances affordability reliability resiliency and emission reductions.
David P. Bauer: And they want to do it solely with new renewable generation, despite the high cost and inherent intermittency of wind and solar.
Clearly demonstrates that our standalone gas utility to meet the goals of the climate Act.
David P. Bauer: Putting the partisan rhetoric to decide.
As we expected given the political environment in Albany, The commission stopped short of approving the plan unfolds.
David P. Bauer: At least starting to see a more reasonable approach to the energy transition from some of the policymakers in Albany.
But it was supportive of many of the most important pillars to our approach, including Weatherization and the continued evaluation of hybrid heating and alternative fuels.
David P. Bauer: In December the New York Commission issued an order on the plan we submitted in their long term planning proceeding.
David P. Bauer: Our proposal advocates and all of the above approach to energy that employees enhanced weatherization hybrid heating solutions and the use of low and no carbon fuels like hydrogen.
While it wasn't exactly what we wanted the level of support we received from the very agency that oversees utility reliability and affordability lends credence to the notion that of policymakers are rational and consider the facts national natural gas utilities can very much be part of a permanent solution that achieves the state's emission reduction goal.
Yes.
Bringing you back to the quarter in conclusion, while near term commodity prices are somewhat of a headwind for longer term outlook for our business remains strong.
We have a deep drilling inventory and one of the most prolific areas in Appalachia, and our marketing and hedging portfolio that supports our ability to generate sustained free cash flow.
In our regulated businesses, we have line of sight to increasing earnings and the ability to deploy ongoing growth capital.
On top of that we have a strong balance sheet that allows us to be opportunistic in allocating capital.
Taking these altogether I believe the outlook for national fuel is outstanding.
With that I'll turn the call over to Justin.
Thanks, Dave and good morning, everyone.
<unk> energy midstream both had an excellent start to the fiscal year driven by strong operational results record production of 101, Bcf and 8% sequential increase exceeded our estimates.
We turned in line 27 wells during the COVID-19 of which were in the EDA and all of which came online ahead of schedule and collectively they are productivity exceeded expectations.
The operational successes that drove <unk> as increased production.
When combined with growing third party volumes led to record throughput at <unk> midstream as well.
In light of this solid performance in the first quarter, we are increasing our production guidance range to $3 95 to 410 Bcf.
For the remainder of the year, we expect to turn in line 11, more wells, including a five well titled the Utica pad that is just beginning to flow back into WD Utica pads scheduled to flow back towards the end of the fiscal year likely August or September.
Given the majority of turned in line activity will occur in the first half of the year average daily production is expected to peak in Q2 before declining in each of the last two quarters.
Prior to the next wave of pads coming online this fall and into the winter.
Turning to natural gas pricing, our robust marketing and hedging portfolio is well positioned to dampen the impact of lower near term pricing.
For the remainder of fiscal 2024, we have downside pricing protection covering more than 70% of our expected production through a combination of swaps costless callers and fixed price firm sales.
With a weighted average floor price of $3 34 per btu for Nymex swaps and collars, we are well positioned relative to current forward prices over the balance of the year.
Additionally, we have firm transportation and firm sales in place for over 90% of our expected production, we've been less than 10% of.
Of our gas exposed to in basin pricing, we continue to focus our marketing and hedging efforts on mitigating downside risk optimizing the price received for our production and generating free cash flow throughout the commodity price cycle.
Moving to capital for fiscal 2024, while first quarter capital came in slightly below our expectations, we are maintaining senecas capital guidance range of $525 to $575 million.
As I previously mentioned our turned in line and development activity is front end loaded and we expect to drop to one rig this spring a level, which we plan to maintain for at least a couple of quarters. So capital will moderate over the remainder of the year.
Overall, we see more tailwind than headwinds on capital for the year.
And once we have another quarter under our belt, we will look to tighten our capital guidance range.
<unk> term <unk> development plans remain unchanged, we are moderating our activity levels and continuing our transition to the capital efficient EBITDA, where we have more than a decade of highly prolific inventory.
Our fiscal 2004 capital is decreasing over last year and this downward toward capital trend is expected to continue into fiscal 2025.
Putting it altogether, we are right on track to meet our long term capital reduction targets.
Regarding our sustainability initiatives Seneca and <unk> midstream continued to demonstrate its leadership in this area through our proactive emissions reduction efforts and best practices.
Last month <unk> was recognized as best in class with the independent re verification of a 100% of our assets under the EUR 100 standards for responsible energy development.
We are the first and only public operator to have attained an a grade demonstrating scores of 98% or higher across all five principles of the standard.
Conclusion, we are off to a great start to the fiscal year.
Our integrated upstream and midstream model remains core to our success, allowing us to pursue according data development plan focused on enhancing returns and optimizing our cost structure further our ongoing transition to the EDA solid operational execution and robust hedging market portfolio sets us up for enhanced capital efficiency and grow.
For cash flow generation in the years to come with.
With that I'll turn the call over to Tim.
Thanks, Justin and good morning National Fuel's first quarter adjusted operating results were $1 46 per share David on the high points, but I did want to touch on a few other drivers starting at the utility we are seeing the benefit of a $23 million annual rate increase in Pennsylvania that went into effect last August the bulk of this increase.
It's in the winter months when consumption is the highest.
Partially offsetting this was the impact of warmer weather relative to last year.
With weather normalization mechanisms in both of our utility jurisdictions, we will be largely insulated from weather driven volatility in the future.
So in the utility as a result of the long awaited IRS guidance last year, we saw the benefit of the expanded treatment of certain maintenance capital expenditures related to natural gas transmission and distribution property.
With the ability to deduct a larger share of our capital in the year. It's placed in service, we had a nice tailwind on both cash taxes and our effective tax rate.
Switching to our nonregulated businesses as Justin mentioned from an operational perspective, Seneca and <unk> midstream are firing on all cylinders cash operating cost trended lower than expected during the first quarter and despite modest price related curtailments in October our production guidance for the full year is moving higher.
There was one atypical items during the quarter, we accrued $3 $5 million in expense related to estimated plugging costs for certain California, wells, which we no longer own. These.
These wells were divested in 2004 and are unrelated to our recent exit from the region.
The operator of the abandoned wells is no longer in business. So the liability will likely revert to Seneca.
Turning to guidance for the year, we are revising our earnings range, which is now expected to be between $4 90 and.
$5 20 per share.
Our outlook for lower LOE and higher production were more than offset by the near term drop in natural gas prices, which we now assume will average $2 40 per M and btu for the remainder of the fiscal year.
Since last quarter, we added a tranche of $3 swaps to our hedge book.
Which further improved our downside protection at.
At the midpoint of guidance, we now are 72% hedged for the remainder of the year.
As Justin mentioned, we were also active on the marketing front and have reduced our spot exposure to approximately 30 Bcf and we expect to further chip away at this in the coming months.
Given the volatility in pricing for reference a 25 cent change in Nymex prices for the balance of the year will impact earnings by approximately <unk> 17 per share.
As it relates to capital for fiscal 'twenty, four we've increased our spending guidance for the utility while maintaining the prior outlook for our other segments the.
The change relates to a new prevailing wage requirement for utility contractors in New York State that was enacted late last summer.
New rule requires contractors to pay per veiling wages to nonunion employees for any project that requires a permit to operate in the public right of way.
This encompasses a large portion of our utility monetization activity.
We're still assessing the final impact, but as of now we expect to increase our utility capital by 20% to $25 million this year.
While this will have a near term effect on cash flows. It has the benefit of increasing rate base and longer term earnings growth.
We've updated our pending New York rate case proceeding to account for this and we expect to obtain recovery of these costs when new rates go into effect at the start of fiscal 'twenty five.
Bringing this all together the impact of higher utility capital spending and lower natural gas prices are driving our expected fiscal 'twenty four free cash flow to be $70 million lower than we previously projected.
Despite this our ability to generate free cash flow in the future remains strong we are growing regulated earnings and cash flows in the near term. This is driven by ongoing rate, making activity and longer term as a result of the continued need for modernization and the potential for further interstate pipeline expansions such as our Tioga pathway project.
Adding this to the outlook for higher prices and further expected capital reductions in our upstream and gathering businesses, we remain confident in our ability to generate durable free cash flow generation over the long term.
In addition, our balance sheet remains in great shape.
Both S&P and Moody's recently reaffirmed our investment grade rating and upgrade thresholds. We are very close to reaching these thresholds. However, the broader natural gas macro likely push out any potential rating improvements into the future.
In the meantime, we have significant financial flexibility, which positions us well to make prudent capital allocation decisions as we move through the coming quarters and years.
In conclusion, the combination of meaningful growth in our regulated businesses and the improving capital efficiency of our nonregulated assets should drive mid to high single digit compound earnings growth over the next three to five years.
Assuming the long term outlook for natural gas prices.
Coupling significant growth and strong returns with our investment grade balance sheet and outlook for increasing free cash flow. We are positioned to extend our track record of returning a growing amount of capital to investors, while continuing to prudently invest in growth opportunities.
Taken together, we believe this will drive long term value for our shareholders.
With that I'll ask the operator to open the line for questions.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Thats Star one.
On your telephone keypad.
To withdraw your question Star two.
And please also remember too and mutual microphone when is your turn to speak.
Okay. We do have our first question comes from Neil Mehta from Goldman Sachs. Neil Your line is now open.
Yes, good morning team and thanks for taking the time.
Good morning.
Great.
Question is just on the New York.
Gas base rate increase request is can you refresh us in terms of the timeline around when you expect to hear from staff.
And potential Commission decision.
Yes.
You're framing what the ask is for as well.
As you go to the commission.
Neil It's Tim.
So from a timing perspective, we will expect to get testimony from staff early next months early in March from there.
We will have the opportunity to respond to their testimony, but unlikely in parallel.
We will at least.
Start to have settlement discussions with staff and other parties involved in the case.
Still working towards.
New rates going into effect at the beginning of our fiscal year. So October one in advance of next years heating season.
Okay, that's great color and my follow up is on slide six.
With the.
Uplift that you anticipate in free cash flow starting in 'twenty, five, but this year being a little bit lower.
Couple of questions. One is in a scenario where natural gas prices are lower than what you show here on the slide.
How do you think about your ability to.
Pay the dividend from the balance sheet.
Or is there any risk around.
Are there any risks around external financing and just.
Talk a little bit about the uplift that you anticipate post 24, what are some of the drivers that will allow us to grow grow that free cash flow off the current base. Thank you.
Yeah, Thanks, Neil I'll start and I'll also have Justin and Dave have anything to add.
So the increase from <unk>.
24% to 25, it was really driven by a couple of factors. One is the ongoing reduction that we would expect in our nonregulated capital spending.
Combined with at least today the outlook for higher prices plus the increasing value of our hedge book as we move from 24 to 25.
Capital in the other business is expected to be relatively consistent year over year.
And then take on top of that the impact of the.
The rate case and supply that we have ongoing this year, which will drive a full year of incremental revenues next year as well as the potential impact from the New York rate case.
So that certainly positions us well for increasing cash flows obviously, we do still have exposure to lower gas prices that being said our balance sheets in really good shape as I mentioned, both Moody's and S&P reaffirmed.
<unk> reaffirmed our credit ratings and our both our upgrade and downgrade thresholds. So we certainly have substantial ability to fund our growing dividend over time and the reality is the way we look at that is through the cycle.
We've been able to look at the long term earnings growth of the regulated businesses. The gathering cash flows that really drive our ability to deploy that cash flow in the form of a dividend over time.
Look at ways to optimize that going forward.
Now I'm going to say the Jared if you guys have anything else.
Okay perfect.
So I think you got it there Tim.
Did you have a follow up there.
Just to clarify there is no need for external financing from an equity perspective, it sounds like given given that given the balance sheet capacity.
No not from an equity perspective.
Okay.
Our next question comes from Zach <unk> from JP Morgan.
Your line is now open.
Good morning.
First just a question on on the E&P business your guidance assumes a $1 70 per M on local pricing.
We've recently seen some of the local basis points trade below a $1 50, and I think there are some worries that those could move lower in the near term can you just give us some color on how you think about potential shut ins or delaying turned in lines I know you've got the large majority of your volumes hedged in 'twenty four but is there a specific price where it does it make sense to <unk>.
Flow some of those marginal volumes.
Sure Yeah happy to get into that a little bit. So as you said, yes. There is.
Some of the in basin pricing is challenged and here we are still in winter its challenge so.
Tim mentioned this on the call I did as well, we Fortunately have really minimize that exposure. So let's start by highlighting that we're down to only about round numbers 30 bps for the remainder of the fiscal year that would be exposed to to counter that in basin pricing.
And.
Sure.
I'm hesitant to give you an exact number but what I will tell you is with <unk>.
Mrs get very low, let's just let's start with like say silver dollar I mean, you can rest assured we're not really going to be flowing but exactly where that brand.
Okay.
Hey.
So the Dol.
Activity in our guidance.
Where we'll make that decision.
It's a decision we can make with with really limited to really know.
Two are.
Our wells are our future well productivity or cost so it's something we will.
We will absolutely evaluate flowback with new pads as well.
You might recall, we actually did that in fiscal 'twenty three part of the reason for this this fantastic Q1, we had was a result of having held back some volumes that we would've flown back say in the late summer, but given oriented the shoulder.
I'd say September October, but we kind of deliberately waited to get into.
It's a better pricing over the winter. So that's definitely something we will continue to evaluate we'll look to do and we'll mitigate it both ways through operations and through our marketing.
Portfolio.
Thanks, Justin maybe just one more on the E&P business and you talked a little bit about this in your prepared remarks, but could you give us a little more color on the production trajectory through the year.
You took up the full year guidance at the midpoint by about two five Bcf.
But you had previously talked about <unk> production to be relatively flat and you were up seven bcf quarter over quarter. So just curious kind of how we should think about shaping the production through the rest of the year. It may be at this point. If you. If you would expect to be maybe towards the higher end of that range.
Sure so.
At this point.
The rationale the reasoning on why Q1 did so well was really a combination of really outstanding work from our operations team in terms of.
Setting gpus getting all the wells drilled out and getting those slid back a little faster during the quarter than we had.
Actually envision being possible, so really great job by the team in making that possible.
And then quite frankly, we just we had.
A lot of wells that we brought on in <unk>.
<unk> 27 in total.
In aggregate they just beat our expected performance.
Online and cleaned up faster and hit rates in excess of what we initially anticipated. So that was a great story, a little so a little earlier and strong well productivity.
I'll note 19 of the 27 were in our eastern development area as well.
But really across the board good performance right now in Q2 were at our peak production. So we've got all of that production slowing we are still in many respects on a lot of those wells in various loss period.
I mentioned, we're just beginning to flow back a titled a Utica pad right now.
And so were Q2.
As expected to be the high point in our production volumes for the fiscal year and then we really have nothing happening through Q3 and in the next pad online Datas late Q4 August September is kind of what we're targeting.
And that's a good example of another one where we will really evaluate pricing at that time, and how we've been able to shape, our marketing book and make some decisions around the right timing to flow. It back so feel really good about our current guidance range.
I think that's the right range.
Exactly where we are relative to the midpoint of that is probably a little TBD.
Just depending upon everything I, just outlined and the other I'll just highlight again is.
Our guidance does not incorporate a pricing curtailment so to the extent some of those.
That 30 bps pricing is really challenged at different times, it's possible some of that will come out and we will just hold that back for future time, but the number I'm, giving you is a clean on the clean number assuming we flow.
Exactly as I just outlined to you.
Got it thanks, Josh I appreciate the color.
Sure thing.
Our next question comes from travelers Lamar from Raymond James Your line is now open.
Thanks, guys and congrats on a great quarter, just got one quick one focusing on the equitable origin, a grade love to get your thoughts on the near term, our ESG market and maybe what premium to Nymex.
Could see possibly in the next two to three years.
Sure.
You said the like responsibly sourced gas in premiums I, just want make sure I heard that correctly.
Yeah, Yeah, Yeah, that's correct.
Grant on 100%.
Absolutely yes.
I'd say theres different standards for all of these Echo origin is is more of an international standard and so we found particular success selling our certified responsibly sourced gas largely in the Canadian markets. Unfortunately, we're piped through national fuel supply and Empire into some of those markets.
We will continue to pursue those sales.
The premiums you get are you at all.
Telling me the exact number.
It's more in the order of magnitude pennies not not dimes or quarters that you can you can enjoy.
But it's it's a great it's a great opportunity.
I think a lot of things, we're doing frankly position us very well relative to the regulatory environment.
And just the way, we like to do business and so it's nice to be recognized by third parties and if we're able to attract.
Certain utilities and end user customers that are able to see that and pay a premium it's a great great opportunity for us and so we have been able to achieve some premiums for that again, I'd say, it's pennies not dimes and quarters and I think we'll continue to tap that success.
Okay.
Great I appreciate the color Justin.
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Our next question comes from John <unk> from Bank of America John.
John Your line is now open.
Good morning, and thank you for taking our questions.
Hi, guys question is for Tim.
It's on the roadway excavation quality assurance acts so in your remarks, Tim you said that you were.
Still assessing the impact on that.
Is there a risk that that goes higher is the risk that that goes lower and then just sort of a follow on how do you. When you think about that bump up in capex for the utility business, how do we think about.
What is your latest thoughts around long term capex for the utility business and then the impact because it's free cash flow to the utility business.
Yes, I'll start with the first question on the potential bias higher or lower I would say, we've been pretty active dialogue with our contractors and we think this is reasonable what we based on what we know today I think I wouldn't say, it's biased one way or another at this point it could go up a little bit it could go down a little bit, but I think we'll know a lot more as we get into the.
The meat of the construction season this summer.
To better understand exactly how the contractors will respond.
As it relates to longer term run rate on capital and what that means from a free cash flow perspective.
I think I had mentioned previously that we were in the $125 million to $150 million area.
Long term run rate from a capital perspective, I would bump that up by about $25 million more than a $150 million to $175 million area as a result of this.
So certainly from an immediate perspective that has.
Drag on cash flows in the near term, but I think you need to take a step back and look at the a couple of factors. One is it will drive longer term rate base growth. So you'll have not only earnings but additional cash flows in our rate cases going forward, including the one we have on file right. Now in addition, much of this.
Capital is eligible for.
The repairs deduction that we that I've talked about the last couple of quarters and that has an immediate benefit to free cash flow in the form of lower cash taxes. So I think when you take that altogether, while capital might be up $20 million to $25 million the growth in earnings and the.
Savings from a free cash or from a cash tax perspective world will offset a good chunk of that.
That is very helpful and the next question I think it goes to you just in here. So the plan is.
So for 2025, you could start moderating activity.
And when you sort of think about the 2024 trajectory I mean, we have a bump up here in the first half of the year and a decline in the second half of the year as we started to think about activity. In 2025 granted you know it's kind of early how do you think about on an annual basis, the trajectory of production and of Capex, that's going to be ratable.
More front end loaded how do you think about those factors as we sort of look to 2025 and beyond.
Sure, Yes happy to address that so.
As you may recall.
In fiscal 'twenty three <unk> total capital was approximately $583 million the midpoint of our guidance here in fiscal 'twenty four is 550.
I noted we did come in.
Slightly below our internal estimates in Q1, and we're spending a lot of time as a team looking at our activity over the rest of the year and of course into 25 and <unk>.
Looking for ways to continue to moderate.
I noted we are dropping a rig which will do here later this.
Into the spring.
We'll stay at that activity level at least for a couple of quarters at least that's our current expectation.
And so for fiscal 'twenty for Q1 was our biggest capital quarter and I would expect.
A pronounced decline in capital and even into Q2 and on into Q3, and four generally somewhat flat and at a lower level.
As we look out to 'twenty five.
You should expect that overall level of capital to continue to go down.
I've spoken about on a combined basis, Seneca and <unk> midstream.
If you start at that 'twenty three as we look to 'twenty four is.
As the midpoint, we're already dropping somewhere between kind of $30 million to $40 million.
We're going to keep working on that as we moderate activity right now.
Over the coming months and then as we look to fiscal 'twenty five.
We're targeting to be.
Somewhere between.
$50 million to $150 million.
Bias that towards 75 to 100.
Already should be achieved when we get into fiscal 'twenty five.
We are on a downward trend.
Obviously, we'll keep looking hard at gas prices and our hedge book and everything else and then from a production perspective.
We've got quite a bit of nice growth expected. This year. It's on the back of some of the wells we brought on recently and some of the activity we have underway.
Definitely would expect that growth to moderate into 25 from 24 and a continued moderation.
Beyond there.
Somewhere between flat and 5% per annum growth is probably good round numbers to think about.
But we're definitely in a in a process now of high grading to the EBITDA that will drive capital efficiency that leads to a lot of the lower capital spend while dampening our our overall growth that we've had from a production perspective over the last.
A few years.
Thank you very very helpful.
We currently have no further questions. So I would like to hand, the call back to naturally Fischer for closing remarks. Thank you.
Thank you Bruno.
Like to thank everyone for taking the time to be with us today.
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