Q1 2024 Chesapeake Energy Corp Earnings Call
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Operator: Good day, and welcome to the Chesapeake Energy Corporation First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. And to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Chris Ayers, Vice President of Investor Relations and Treasurer. Please go ahead, sir.
Good day and welcome to the Chesapeake Energy Corporation first quarter 2024 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Chris <unk>, Vice President of Investor Relations and Treasurer. Please go ahead Sir.
Chris Ayres: Thank you. Good morning, everyone, and thank you for joining our call today to discuss Chesapeake's first quarter 2024 financial and operating results. Hopefully, you've had a chance to review our press release and the updated investor presentation that we posted to our website yesterday. During this morning's 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.
Chris: Thank you good morning, everyone and thank you for joining our call today to discuss Chesapeake for first quarter 'twenty 'twenty four financial and operating results hopefully you've had a chance to review our press release and the updated investor presentation that we posted to our website yesterday. During this mornings call, we will be making forward looking statements which consist of state.
Chris Ayres: Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our press release yesterday and in other SEC filings. Please also recognize that acceptance is required by applicable law.
Chris Ayres: We undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements. We may also refer to some non-GAAP financial measures, which will help facilitate comparisons across periods and with peers. For any non-GAAP measure, there is a reconciliation to the nearest corresponding GAAP measure on our website. With me on the call today are Nick Delosso, Mohit Singh, and Josh V. Nick will give a brief overview of our results, and then we will open up the teleconference Q&A. So with that, thank you again, and I'll turn the time over to Nick.
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 that there are a number of factors that will cause actual results to differ materially from our forward looking statements, including the factors Ida.
Unified and discussed in our press released yesterday and then the other S. T. SEC filings. Please also recognize that except as required by applicable law. We undertake no duty to update any forward looking statements and you should not place undue reliance on such statements. We may also refer to some non-GAAP financial measures, which will help facilitate <unk>.
Chris: Pearsons across periods and with peers for any non-GAAP measure there is a reconciliation to the nearest corresponding GAAP measure on her website with me on the call today are Nick del also seeing and Josh suites.
Chris: Nick will give a brief overview of our results and then we will open up the teleconference. Q&A. So with that thank you again and now I'll turn the time over to Nick.
Nick Delosso: Good morning, and thank you for joining us today. We continue to execute on our 2024 financial and operating plan, and our first quarter results further demonstrate that we are a company built to efficiently meet consumer demand and deliver sustainable value to shareholders through the cycle. Today, the natural gas market is clearly oversupplied. Our 2024 plan is focused on discipline, operational efficiency, and free cash flow generation while building the productive capacity needed to deliver for consumers when demand recovers. Through the first quarter, we have deferred 22 turn-in lines and built 24 drilled but uncompleted wells.
Nick: Good morning, and thank you for joining us today.
Nick: We continue to execute on our 2024 financial and operating plan and our first quarter results. Further demonstrate that we are a company built to efficiently meet consumer demand and deliver sustainable value to shareholders through cycles.
Nick: Today, the natural gas market is clearly oversupplied.
Nick: Our 2024 plan is focused on disciplined operating operational efficiency and free cash flow generation, while building the productive capacity needed to deliver for consumers when demand recovers.
Nick: Through the first quarter, we have deferred 22 turn in lines and built 24 drilled but uncompleted wells.
Nick Delosso: In addition, we began curtailing base production in February, averaging approximately 200 million cubic feet of curtailment per day in the first quarter. As we continue building productive capacity, we expect to curtail approximately 400 million cubic feet of daily in the second quarter. We believe this strategy will leave us well positioned to meet demand for natural gas when the market recovers. In the meantime, our base business continues to deliver. We generated free cash flow in the first quarter, allowing us to maintain our commitment to return cash to shareholders through our base and variable dividend programs. Our capital structure remains strong. Our lending partners recently reaffirmed our credit facility and increased the aggregate commitments to $2.5 billion.
Nick: In addition, we began curtailing based production in February averaging approximately 200 million cubic feet a day of curtailment in the first quarter.
Nick: As we continue building productive capacity, we expect to curtail approximately 400 million cubic feet a day in the second quarter.
Nick: We believe this strategy will leave us well positioned to meet demand for natural gas when the market recovers.
Nick: In the meantime, our base business continues to deliver we generated free cash flow in the first quarter, allowing us to maintain our commitment to return cash to shareholders through our base and variable dividend program.
Nick: Our capital structure remains strong our lending partners recently reaffirmed our credit facility and increase the aggregate commitments to two and a half million dollars.
Nick Delosso: As we continue to deliver on our sustainability commitments, as demonstrated by the company meeting our interim GHG and methane intensity goals, a full two years ahead of schedule. Importantly, we remain encouraged about the long-term trajectory for natural gas, the affordable, reliable, lower-carbon energy the world needs. Over the next few years, we will see significant increases in demand for U.S. natural gas from LNG exports, as well as power generation and industrial activity.
Nick: As we continue to deliver on our sustainability commitments as demonstrated by the company meeting our interim G. H G and methane intensity goes it cool two years ahead of schedule.
Nick: Importantly, we remain encouraged about the long term trajectory for natural gas the affordable reliable lower carbon energy the world needs.
Nick: Over the next few years, we will see significant increases in demand for U S natural gas for LNG exports as well as power generation and industrial activity.
Nick Delosso: Additionally, the current clear trajectory of supply in the U.S. is falling. We believe this sets up a much more constructive market backdrop for natural gas in future periods and believe our portfolio is well positioned to deliver gas supply where and when needed. Consumers demand that energy is reliable and efficient, both economically and environmentally. Simply put, natural gas will play a critical role in the energy future, both domestically and abroad, and Chesapeake and our pro-forma merged company with Southwestern are poised to ensure that natural gas delivers on its promise.
Nick: Additionally, the current clear trajectory of supply in the U S is falling.
Nick: We believe this sets up a much more constructive market backdrop for natural gas in future periods and believe our portfolio is well positioned to deliver gas supply where and when needed.
Nick: Consumers demand that energy is reliable and efficient both economically and environmentally Sim.
Nick: Simply put natural gas will play a critical role in the energy future both domestically and abroad.
Nick: And Chesapeake and our pro forma merged company with it with southwestern.
Nick: Poised to insure natural gas delivers on its promise.
Nick Delosso: We remain very focused in our integration planning efforts on delivering the cost synergies identified at the announcement of the merger to ensure our supply meets the demand of energy consumers at the most efficient price. We will be LNG ready and in an advantaged position as LNG capacity continues to come online. With our well-positioned portfolio, investment-grade quality balance sheet, and disciplined strategy, Chesapeake is built to not only weather the current market but to thrive when the market rebalances.
Nick: We remain very focused in our integration planning efforts on delivering the cost synergies identified at the announcement of the merger to ensure our supply meets the demand of energy consumers at the most efficient price.
Nick: We will be LNG ready and in an advantaged position as LNG capacity continues to come online.
Nick: With our well positioned portfolio investment grade quality balance sheet and disciplined strategy Chesapeake is built to not only weather the current market, but to thrive when the market rebalancing.
Nick Delosso: I look forward to updating you on our progress throughout the year. We're now pleased to address your questions. Operator, could you start the queue? Yes, sir. We will now begin the question and answer session.
Speaker Change: I look forward to updating you on our progress throughout the year. We're now pleased to address your questions.
Speaker Change: Operator, if you could.
Speaker Change: Start to Q, yes, Sir we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Operator: Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster, and the first question will come from Nidhi Kumar with Mizzouho. Please go ahead.
Operator: If youre using a speakerphone please pick up your handset before pressing the keys.
Operator: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Operator: And at this time, we'll pause momentarily to assemble our roster.
Operator: And the first question will come from Nitty Kumar with Mizuho. Please go ahead.
Nitin Kumar: Hey, good morning, guys, and thanks for taking my question. I want to start on CapEx. That came in quite a bit below what your guidance was for the quarter, and you're a little bit ahead of schedule in terms of building the deferred tails and docks. So I just want to get a sense of what were the drivers of the CapEx number and how does that shape for the rest of the year?
Nitty Kumar: Hey, good morning, guys and thanks for taking my question.
Nitty Kumar: Start on Capex.
Nitty Kumar: That came in quite a bit below what your guidance was for the quarter.
Nitty Kumar: And you were a little bit ahead of schedule in terms of building the Fort Hills and <unk>. So just wanted to get a sense of what were the drivers of that Capex number and how does that shape for the rest of the year.
Josh: Yeah, good morning. This is Josh.
Nitty Kumar: Yes. Good morning. This is Josh Yeah, we had a really good quarter to start off the year. We we ended up around 16% under our guide for capital.
Josh: About half of that is just purely related to timing.
Josh: And a lot of the timing was on the non D&C side and so just as we're getting.
Josh: Some of our leasing ramped up and infrastructure projects ongoing that will just occur later in the year.
Nitty Kumar: But the other half of that was really just related to lower realized cost.
Josh: Yeah, we had a really good quarter to start off the year. We ended up around 16% under our guide for capital. About half of that is just, you know, purely related to timing.
Nitty Kumar: We had a really good quarter on the drilling and completion side.
Josh: A lot of the timing was on the non-DNC side, and so just as we're getting some of our leasing ramped up and infrastructure projects ongoing, that will just occur later in the year. But the other half of that was really just related to lower realized costs. We had a really good quarter on the drilling to completion side. We saw lower costs in plan as a result of being able to accelerate the use of the lower cost casing that we procured late in the year.
Nitty Kumar: We saw lower costs than planned as a result of being able to accelerate the use of the lower cost casing that we procured late in the year.
Josh: We were also able to realize some savings associated with lower service contracts. And then also, we had several wells up in the northeast that we had planned that are drilled in a pretty challenging part of the field that typically require contingency casing strings. The team was able to do some work with the mud company and identify a way in which we can mitigate the wellbore stability issues that we have there.
Nitty Kumar: We were also able to realize some savings associated with lower service contracts.
Nitty Kumar: And then also we had several wells up in the North East that we had planned that are drilled in a pretty challenging part of the field that typically require a contingency casing strings. The team was able to do some work with the mud company.
Nitty Kumar: And then a phy away at which we can mitigate the wellbore stability issues that we have there. So that's real structural cost changes in.
Josh: So that's real, you know, structural cost changes. And that really sets us up now for the full year to where we're, you know, tracking towards the lower end of our capital guide. And so we'll continue to monitor the service markets and see how that plays out.
Nitty Kumar: That really sets us up now for the full year to where where you know tracking towards the lower end of our capital guide and so we'll continue to monitor the service markets and see how that plays out but again got off to a pretty good start this year.
Josh: But again, we got off to a pretty good start this year. On the second part of your question, we are just a little bit ahead of schedule with the ducks. That's just, you know, how activity was kind of falling, you know, between the quarters. But as far as, you know, how we think about the full year set up with our total duck build, I would say we still see ourselves on track for the full year.
Nitty Kumar: On the second part of your question. We are just a little bit ahead of schedule with the docs.
Nitty Kumar: That's just you know how activity was kind of fall in between the quarters.
Nitty Kumar: But as far as you know how we think about the full year set up with our total DUC build I would say, we still see ourselves self on track for the full year.
Nitin: Great. Thanks for the detail, Josh. And Nick, I have to say I was a little bit disappointed that there wasn't an obligatory slide on AI demand for and PowerGen demand for gas in your decks last night. Just want to get a sense of where you guys see that evolving. And what are the early thoughts at Chesapeake about the growth of PowerGen in the U.S.?
Speaker Change: Great. Thanks for the detail Josh.
Nitty Kumar: Nick I have to say I was a little bit disappointed that there wasn't.
Nick: Obligatory slide on AI demand for power Gen demand for gas in your in your deck last night.
Nick: Just wanted to get a sense of where you guys see that are evolving and what are the odor taught at Chesapeake about the growth for power Gen in the U S.
Nick Delosso: Yeah, that's a good question, Nitin, and, you know, we've been a little puzzled by the forecasts that have had power generation demand, or demand for power, flat in the U.S. We know that over the last several summers, we've seen a pretty real increase in power demand, and particularly natural gas-fired power demand. We do think the utilities have struggled to voice the need for incremental generation capacity given a number of the challenges that they have within their own stakeholder base, and that gets changed.
Speaker Change: Yeah. It's a good question and you know we.
Speaker Change: For years, we've been a little puzzled by the forecasts that have had power generation.
Speaker Change: Demand or demand for power flat in the U S and we know that over the last several summers, we've seen pretty real increase in power demand and particularly natural gas fired power demand.
Speaker Change: We do think that utilities have struggled to voice the need for incremental generation capacity.
Speaker Change: Given a number of the challenges that they have within their own stakeholder base and but he gets changed and so we're really encouraged to hear the market talk about the growing demand for power.
Nick Delosso: And so we're really encouraged to hear the market talk about the growing demand for power. And one of the reasons we're really encouraged by that is that it's evidence of a very healthy economy. We have investment in the U.S. economy that's driving growing demand for power from consumers and industrial sectors, which is really the continuation of the impact of all of the stimulus money that's come through the economy over the last several years, and then of course, the IRA as well. So that's showing up.
Speaker Change: And one of the reasons, we're really encouraged by that as its evidence of a very healthy economy, we have investment in the U S economy, that's driving growing demand for power from consumer and industrial side, which is really the continuation of the impact of all of the stimulus money that's come through the economy over the last several years and then end of <unk>.
Nick Delosso: But what has really taken hold in the last couple of months is that there is a recognition that the massive growth in demand for data centers, significantly driven by the growth in demand for AI tools, is going to put a big draw on power grids. And we think that's all very real and very interesting. There's a lot to unpack to understand exactly how and when and where that demand will show up. And what we're excited about in this backdrop, Nitin, is that we as a standalone company have a really large production base and, as a pro forma combined company, have the largest production base in both Appalachia and Haynesville with which to be ready to respond.
Speaker Change: Course, the IRI as well, so that's showing up but what has really taken hold in the last couple of months is that there's a recognition that the massive growth in demand for data centers.
Speaker Change: Significantly driven by the growth in demand around AI tools is going to put a big draw on power grids, and we think that's all very real and very interesting.
Speaker Change: There's a lot to unpack to understand exactly how and when and where that demand will show up and what we're excited about in this backdrop and at news that we are a Standalone company you have a really large production base and as a pro forma combined company have the largest production base in both the Appalachia and Hain.
Speaker Change: So with which to be ready to respond and having the geographic geographic advantage of two locations do you think about where we sit in northeast, Pennsylvania, then we'll be in southwest Appalachia in West Virginia, and then also in the Haynesville.
Nick Delosso: And having the geographic advantage of two locations, if you think about where we sit in Northeast Pennsylvania, then we'll be in Southwest Appalachia and West Virginia, and then also in Haynesville. Keep in mind that we talk a lot about growth and demand for Haynesville gas flowing to the LNG corridor, but we deliver a lot of gas to Perryville every day, which is directly east of our field and from there connects into a series of pipeline networks that feed the southeast.
Speaker Change: Keep in mind that we we talked a lot about growth in demand.
Speaker Change: Our haynesville gas flowing to the LNG corridor, but we deliver a lot of gas to Perry Bill.
Speaker Change: Every day, which is directly east of our field and from there connects into a series of pipeline networks that feed the south east and so the opportunity to increase flow to the east is also very real.
Nick Delosso: And so the opportunity to increase flow to the east is also very real and something that we stand ready to do, and we'll continue to work with our midstream counterparties as well as the utility counterparties to understand where that demand is needed, or where that gas is going to be needed, and how we may get it there. It's incumbent upon us as an industry to make sure that we continue to supply those markets at a really efficient cost, and that's something that we think the Proforma Combined Company is set to do.
Speaker Change: And something that we stand ready to do and we will continue to work with our midstream counterparties as well as the utility counterparties.
Speaker Change: To understand where that demand is needed in or where that gas is going to be needed and how we may get it there. It's incumbent upon us as an industry to make sure that we continue to supply those markets at a really efficient cost.
Speaker Change: And that's something that we think the pro forma combined company is set to do.
Nick Delosso: Great. Thanks, Dr. Koronek.
Speaker Change: Okay. Thanks for the color Nick.
Operator: The next question will come from Bert Donis with Truist. Please go ahead.
Speaker Change: Yeah.
Speaker Change: The next question will come from Bert Donuts with Truest. Please go ahead.
Bertrand William Donnes: Hey, good morning guys. It didn't look like you had any incremental agreements on your LNG portfolio. I assume you're still looking for those, but does the data center, you know, growing demand hypothesis kind of slow that down, or maybe do you want to lower the mix internationally? Maybe you're more focused on the US or just what you're thinking is there.
Bert Donuts: Hey, Good morning, guys are it didn't look like you had any incremental agreements on your LNG portfolio I assume you're still looking for those but does the data center.
Bert Donuts: Demand hypothesis kind of.
Bert Donuts: Slow that down or maybe do you want a lower mix internationally. Maybe you are more focused on U S or just what your thinking is there.
Nick Delosso: Yeah, good question Bert. No, we're still actively engaged in a number of different LNG discussions. As you know, those discussions take a lot of time. As far as whether the data center concept would slow us down, no, it wouldn't necessarily slow us down. Competition is great, and we do think there will be competition for supply, so we'll pay attention to that, but we're moving forward with our strategies, and we think we'll have ample gas to supply all of the markets where there will be demand and, frankly, look forward to there being some competition around that, but we're not changing anything.
Speaker Change: Yeah. Good question Bert.
Speaker Change: We're still actively engaged in a number of different LNG discussions as you know those discussions take a lot of time.
Speaker Change: As far as whether the data center concept that slow us down no. It wouldn't necessarily slow us down competition is great and we do think there will be competition for supply.
Speaker Change: So we'll pay attention to that.
Speaker Change: But.
Speaker Change: We're moving forward with our strategies and we think we'll have ample gas to supply all of the markets that where there will be demand and frankly look forward to there being some competition around that but where.
Speaker Change: We're not changing anything.
Nick Delosso: That makes sense. And then, you know, hypothetically, assuming everything goes well with Southwestern and you're able to gain the synergies that you've outlined, are there more synergies from getting even larger at that point? Or do you focus more on midstream? Or maybe once you have that scale, it's when you just switch to more of a buyback program and drive more, you know, organic. Yeah, I think at this point...
Speaker Change: That makes sense and then you know.
Speaker Change: Hypothetically, if assuming everything goes well with southwestern and you're able to gain the synergies that you've outlined.
Speaker Change: Are there more synergies from getting even larger at that point or do you focus more on on midstream or maybe once you have that scale is when you just switch to more of a buyback program and driving more.
Speaker Change: Organic.
Nick Delosso: Yeah, I think at this point, you know, you'd have to say any time you're going to talk about what's next in your strategy, you go back and talk about the things that we think are important, which are being able to supply these markets with the most efficient molecule possible to meet growing demands for energy. That means having a really low cost structure. That means having a really deep inventory. It means having great execution.
Speaker Change: Yeah, I think at this point you know you'd have to say anytime youre going to talk about what's next in your strategy. You go back and talk about the things that we think are important which are being able to supply these markets with the most efficient.
Speaker Change: Molecule as possible to meet growing demands for energy.
Speaker Change: That means having a really low cost structure that means having a really deep inventory that.
Speaker Change: That means having great execution.
Nick Delosso: We're going to continue to stay focused on all of those things first and foremost. We did feel like the merger with Southwestern allowed us to advance on those fronts and have real synergies, real industrial logic that helps to improve our ability to meet those goals over time. As far as you need something else, it would have to meet our non-negotiables that drive towards those goals. And that's really hard to predict whether or not there will be something in the future that would meet those non-negotiables. We're going to stay focused for a while here on what's a big job of integration and delivering on the promise of this merger, which is pretty tremendous for our shareholders.
Speaker Change: We're going to continue to stay focused on all of those things first and foremost we did feel like the merger with southwestern allowed us to advance on those fronts and have real synergies real industrial logic that helps to improve our ability to meet those goals over time.
Speaker Change: As far as do you need something else it would have to meet our non negotiable that drive towards those goals.
Speaker Change: And that's really hard to predict whether or not.
Speaker Change: There will be something in the future that would meet those non negotiable is we're going to stay focused.
Speaker Change: For a while here on whats the big job of integration and delivering on the promise of this merger, which is pretty tremendous for our shareholders.
Speaker Change: I appreciate it thanks guys.
Operator: Your next question will come from Zach Parham with J.P. Morgan. Please go ahead.
Speaker Change: The next question will come from Zach Par Ham with J P. Morgan. Please go ahead.
Benjamin Zachary Parham: Hey guys, thanks for taking my question. I just wanted to get a little more detail on the curtailment. You highlighted that you'd be curtailing $400 million a day in 2Q and that you curtailed $200 million a day in 1Q. Could you give us a little more color on the curtailment strategy and maybe detail how much of the curtailments were built into the four-year guidance and when you expect those curtailed volumes to come back to the market?
Speaker Change: Hey, guys. Thanks for taking my question.
Speaker Change: I just wanted to get a little more detail on the curtailment you highlighted you'd be curtailing 400 million a day in <unk> and the two curtailed 200 million a day and once you could you give us a little more color on the curtailment strategy, maybe detail how much. It curtailments were built into the full year guidance and when do you expect those curtailed volumes to come back to the market.
Nick Delosso: Yeah, I'll start this and then I'll probably pass it to Josh. So, as we think about what we're trying to accomplish this year, remember we've talked about doing a lot of activity deferrals, and those activity deferrals are focused on the fact that the market is pretty clearly oversupplied and we don't want to bring on wells in an environment where the initial production of these wells, the significant part of the return, comes to market in an oversupplied market and receives a lower than break-even price.
Speaker Change: Yeah I'll start this and then I'll probably pass it to Josh so as.
Josh: As we think about what we're trying to accomplish the share I remember we've talked about doing a lot of activity deferrals and those activity deferrals are focused on the fact that the market is pretty clearly oversupplied and.
Josh: We don't want to bring on wells and are in an environment, where the initial production of these wells the significant part of the return.
Josh: It comes to market and.
Josh: In an oversupplied market and receives a lower than breakeven price. So.
Nick Delosso: We've had the activity deferral schedule in front of us, but we recognize that that activity deferral results in a decline that occurs over a period of time. The curtailments that we saw occur at the end of Q1 and into Q2 are really about accelerating that decline. We don't need to keep that base volume curtailed throughout the year as the activity deferrals show up in what I would call actual decline. But we have a lot of flexibility in what we choose to deliver to market, and we're going to pay a lot of attention to the supply-demand characteristics.
Josh: We've had the activity deferral schedule in front of us, but but recognize that that activity deferral resulted in decline that occurs over a period of time. The curtailments that we saw occur in the end of Q1 and into Q2 are really about accelerating that decline.
Josh: We don't need to keep that base volume curtailed throughout the year as the activity deferral show up in more in in what I would call actual decline.
Josh: But we have a lot of flexibility in what we choose to deliver to market and we're going to pay a lot of attention about the supply demand characteristics.
Josh: Yeah, Zach, this is Josh. I mean, it is customary that we would see, you know, demand weakness in certain markets in the shoulder seasons, and so, you know, as we, you know, issued the 2.7 BCF a day guide back in February, you know, we had accounted for those volumes in there, but, you know, really to Nick's point, you know, kind of how do you then set up a production curve to best, you know, mimic what the market needs, that's effectively what we've done, you know, to where, you know, you model in and execute on curtailments, you know, in the Q2, and then you allow those volumes to flow back in over the next, you know, subsequent quarters in the second half of the year.
Josh: Yes, exactly this is Josh I mean, it is customary that we would see demand weakness in certain markets in the shoulder seasons, and so you know as.
Josh: We issued the $2 seven.
Josh: DCF a day guide back in February we had accounted for those volumes in there, but you know really to Nicks point kind of how do you then set up the production curve to best mimic what the market needs. That's effectively what we've done to where you know you model in and execute on curtailments in the Q2 and.
Josh: And then you allow those volumes to flow back in over the next subsequent quarters in the second half of the year. So and in fact, you do see a sharper decline you know coming into the second quarter with it flattening out into Q3, and Q4, where we would anticipate you know market conditions to be a little bit better for us but.
Josh: So, in effect, you do see a sharper decline coming into the second quarter, with it flattening out into Q3 and Q4, where we would anticipate market conditions to be, you know, a little bit better for us. But I'd also just stress, you know, we have demonstrated a willingness to be disciplined with how we deliver production, and, you know, we'll maintain that discipline as we move through the course of the year.
Josh: So just stressed we I think we've demonstrated a willingness to be disciplined with how we deliver production.
Josh: And you know, we'll maintain that discipline as we move through the course of the year.
Benjamin Zachary Parham: Got it. Thanks for that color.
Speaker Change: Got it thanks for that color.
Speaker Change: And then maybe just one on your your latest macro thoughts we'd seen lower 48 production declined pretty rapidly over the last couple of months now sub 100 Bcf today has over his overall production trended in line with your expectations really just looking for your updated thoughts on Canada, the macro environment in general.
Nick Delosso: And then, Nick, maybe just one on your latest macro thoughts. We've seen lower 48 production decline pretty rapidly over the last couple of months. Now, it's sub-100 BCF a day. Has overall production trended in line with your expectations? Really just looking for your updated thoughts on kind of the macro environment in general.
Nick Delosso: Yeah, great question, Zach. I would say actually to see production get below 100 as quickly as we did is maybe a little bit surprising to us. We weren't expecting that, but what we've also seen at the same time is that demand fell off pretty quickly. So, starting with the supply side.
Speaker Change: Yeah, Great question, Zach you know I would say actually to see production get below 100 as quickly as we did as maybe a little bit surprising to us.
Speaker Change: We weren't expecting that but what we've also seen at the same time is that demand fell off pretty quickly so starting with the supply side.
Nick Delosso: We think curtailments took a bigger role, it wasn't just activity deferrals, so people didn't wait for decline, similar to what I just described within our own decision-making process. But, so volumes came off probably a little faster than we would have thought through the year. However, what we also saw at the same time is that there were a lot of LNG capacity that was offline through March and April, and we probably had two to three BCF a day off through a good portion of March and April that represented pretty weak demand, and you're seeing a lot of that demand come back now, but it's a reminder that demand is going to be volatile when we have exposure to LNG the way that we do, and you need a flexible business plan and one that's strong enough financially to handle that, and you probably ought to have a hedging policy that protects how you think about your capital program that you have at risk at any point in time.
Speaker Change: We think curtailments took a bigger role it wasn't just activity deferrals. So people didn't wait for decline similar to what I just described within our own decision making process.
Speaker Change: But so volumes came off probably a little faster than we would've thought through the year. However, what we also saw at the same time is that there were a lot of LNG capacity that was offline through March and April and we probably had two to three Bcf a day off through a.
Speaker Change: A good portion of March and April that represented pretty weak demand and you're seeing a lot of that demand come back now, but you know it's a reminder, that demand is going to be volatile when we have exposure to LNG. The way that we do and you need a flexible business plan and one that's strong enough financially to handle that and you probably ought to have a hedging policy that protect.
Speaker Change: How you think about.
Speaker Change: Your capital program that you have at risk at any point in time, so when we think about.
Nick Delosso: So, when we think about the macro trends here more broadly, I do think that that decline that you are seeing is ultimately real. I think it has been accelerated with curtailments, but I think, you know, given the fact that we have a rig count today in Haynesville that is half of what it was that led to the peak production that we saw in the fall of 2023. We know that decline will show up, and we think Haynesville production settles in at a much lower level than it has been and stays there until you see a pretty significant change in rig count going the other way.
Speaker Change: The macro trends here more broadly I do think that that decline that you are seeing is ultimately real I think it has been accelerated with curtailments, but I think you know given.
Speaker Change: The fact that we have a rig count today in the Haynesville that is half of what it was.
Speaker Change: That led to the peak production that we saw in the fall of 2023, and we know that decline will show up and we think haynesville production settles in at a much lower level than it has been and stays there until you see a pretty significant change in rig count going the other direction. So I think all of them.
Nick Delosso: So I think all of that is quite encouraging, and we're also still very encouraged by what we see in the way of demand growth, certainly through LNG exports, which we all talk about quite a bit, but also through consumer and industrial as well as power generation.
Speaker Change: That is quite encouraging.
Speaker Change: And we're also still very encouraged by what we see in the way of demand growth.
Speaker Change: Certainly through LNG exports, which we all talk about quite a bit, but also through consumer and industrial as well as well as power Gen.
Jeff: Hey, Jeff.
Operator: The next question will come from Charles Meade with Johnson and Rice. Please go ahead.
Jeff: The next question will come from Charles Meade with Johnson Rice. Please go ahead.
Charles Arthur Meade: Good morning, Nick and Josh and the rest of the team there. Nick, I'm wondering if you could, if you'd, what your engagement with the FTC has been like so far.
Charles Meade: Good morning, Nick and Josh and the rest of the team there.
Charles Meade: Good morning, Charles Nick I'm wondering if you can.
Charles Meade: If you'd offer some thoughts that maybe characterize what's your.
Charles Meade: What's your engagement with the FTC has been like so far.
Nick Delosso: Look, I mean, we've been engaged with the FTC. Obviously, we're in the second request phase of this process. It will take some time, as you would expect, to reply. We're eager to work with the FTC and get all of their questions answered. We feel good about the underlying merits of the transaction and look forward to getting through this process and getting it closed, but it's really hard to predict exactly how long that will take. And so that's why we gave a forecast for just the second half of the year.
Speaker Change: Look I mean, we've.
Charles Meade: <unk> been engaged with the FTC, obviously were in the second request a phase of this process. It will take some time as you would expect to reply, we're eager to work with the FTC and get all of their questions answered and we feel good about the underlying merits of the transaction and look forward to getting through this process in getting it closed, but really hard to predict exactly how long.
Charles Meade: That will take and so that's why we gave a forecast of just second half of the year.
Nick Delosso: Got it. Thank you for that.
Speaker Change: Got it that's thank you for that and and Josh I Wonder if I could ask about the about the your tills and docs and I Wonder if you could.
Charles Arthur Meade: And Josh, I wonder if I could ask about your tills and ducts. I wonder if you could kind of characterize for us the What's different that you're doing now, maybe setting up these wells to be off? Three months, four months, maybe six months, maybe longer. Are you doing something different? to kind of, you know, put these wells in cold storage, so to speak, versus what you would do regularly, and have you learned anything so far from this, from this effort that you wouldn't have expected at the beginning?
Josh: I Wonder if you could kind of characterize for us the.
Josh: What's different that Youre doing now maybe setting up these wells to be off for.
Josh: Three months four months, maybe six months, maybe longer are you doing something different to.
Josh: To kind of put these wells on cold storage, so to speak versus what you would do regularly and have you learned anything so far.
Josh: This from this effort that that you wouldn't have expected at the beginning.
Josh: Yeah. Good morning, Charles.
Speaker Change: Yeah, Yeah. Good morning, Charles Thanks for the question as far as the Ducks go I would say, there's really not anything different that we do this is a pretty common practice.
Josh: Thanks for the question. As far as the ducks go, I would say there's really not anything different that we do. This is, you know, a pretty common practice. You know, the wellbore is in a state that it could sit there for an extended period of time. So I would say that's just pretty typical run-of-the-mill business.
Speaker Change: Well bores in a state that it could sit there for an extended period of time. So I would say that's just pretty typical run of the mill business with the deferred pills.
Josh: With the deferred tills, you know, we do have to be a little bit more thoughtful about how we manage those in terms of our wellbore preparation and preservation, primarily from a corrosion standpoint. But probably most importantly, you know, we do have to stay on top of them, and specifically it's around just monitoring the pressure. So we do have pressure transducers that we install in the wells, and we have them, you know, tied back into our remote operating center here in Oklahoma City, where we can monitor any potential production decline.
Speaker Change: You have to be a little bit more thoughtful about how we manage those in terms of our wellbore preparation and preservation, primarily from our corrosion standpoint.
Speaker Change: But probably most importantly, you know we we do have to stay on top of him and specifically its around just monitoring the pressure. So we do have a pressure transducers that we install in the wells and we have a tie back into our remote operating center here in Oklahoma City, where we can monitor any potential production.
Josh: And that production decline would be as a result of, you know, offset wells that could come online and start, you know, potentially, you know, pulling on those reserves. And those are the instances that we want to protect against. And, of course, when they're our own wells, we're managing that by keeping wells shut in. But if they're other operators, we want to be on top of that. You know, that's not something we've dealt with yet, but we do recognize it's a threat, and we actively manage that to ensure we're not impacting the investments that we've made in those particular wells.
Josh: <unk> decline.
Josh: And that production decline would be as a result of you know offsetting wells.
Josh: That that could come online and start you know potentially pulling on those reserves and those are the those are the instances that we want to protect against and of course, when they're our own wells, where we're managing that by keeping wells shut in but there are other operators, we want to be on top of that you know that's not something we've dealt with yet, but we do right.
Josh: And is this a it's a threat and we actively manage that to ensure we're not impact.
Josh: Impacting the.
Josh: The investments that we've made on those particular wells.
Charles Arthur Meade: Got it. Josh, so you mean you're monitoring the shutting pressure to see if there's offset depletion? Shutting pressure.
Speaker Change: Got it Josh. So you you mean, you're you're managing or monitoring to shut in pressure to see if there's any other pressure.
Josh: Yeah, that's correct. Got it. Thank you. I appreciate it.
Josh: Yeah, that's correct.
Speaker Change: Got it thank you I appreciate it.
Operator: The next question will come from Josh Silverstein with UBS. Please go ahead.
Josh: The next question will come from Josh Silverstein with UBS. Please go ahead.
Joshua Ian Silverstein: Yeah, thanks. Good morning guys.
Josh Silverstein: Yeah. Thanks. Good morning, guys. So just wanted to follow up on on the production outlook for the year, just based on where wonky volumes were at the <unk> guide and in the outlook.
Josh: So just wanted to follow up on the production outlook for the year, just based on where 1Q volumes were, the 2Q guide, and the outlook. It suggests that Chesapeake may not get down to that 2.1, 2.2 BCF a day range in the fourth quarter, but you'll still have the 1 BCF a day of capacity. So I want to see if that was right and just kind of see what the cadence would be for the back half of the year. Thanks.
Joshua Ian Silverstein: Just that Chesapeake may not get down to that 2122 Bcf a day range in the fourth quarter, but youll see youll still have the one Bcf a day of capacity. So I wanted to see if that was right in and just kind of see what the cadence would be for the back half of the year. Thanks.
Josh: Yeah, Josh, you know, we are managing production to the level of around 2.7 BCF a day. So, again, just to reaffirm that, you know, the guide is unchanged at this point.
Speaker Change: Yeah Josh.
Speaker Change: We are managing production to the level of around two seven Bcf a day. So again just to reaffirm that the guide is unchanged at this point, we did have some overproduction in the first quarter of the year. Some of that was attributed to a non operated accounting adjustment that rolled through and into the <unk>.
Josh: We did have some overproduction in the first quarter of the year, but some of that was attributed to a non-operated accounting adjustment that rolled through into the quarter, so that did push those volumes just a little bit higher. But we are still on track, even, you know, as we talked earlier about the curtailment, which is pulling down the Q2 number. But that $400 million that we take out of Q2 starts to settle in the Q3 and Q4 numbers.
Josh: So that did push those volumes just a little bit higher.
Josh: But we are still on track or even you know as we talked earlier about the curtailment, which is pulling down the the Q2 number but that that 400 million that we you know take out of Q2 starts to settle in and to the Q3 and Q4 numbers. So and in fact, we are flattening.
Josh: So, in effect, we are flattening the back half of the production curve. So, we still feel really good about delivering the number that we offered back in February. But, again, just to remind everybody, we are absolutely flexible and will continue to monitor market conditions and adjust production according to what the market needs.
Josh: The back half of the production curve. So we still feel really good about delivering the number that we offered back in February.
Josh: But again just to remind everybody we are absolutely flexible and we'll continue to monitor market conditions and adjust our production.
Josh: A link to what the market needs.
Nick Delosso: Got it. Thanks for that. Let me just reiterate on that point.
Speaker Change: Got it thanks for that and maybe let.
Speaker Change: Let me just reiterate on that point I mean, I think it's really important as you think about that question, it's really important to note that.
Nick Delosso: I mean, I think you know it's really important as you think about that question. It's really important to note that there's a forecast with eight months left to go in the year, and we've been pretty clear that we're going to stay really focused on the economics of our underlying business and do what makes sense. So if market conditions don't play out the way we expect them to, we'll adjust, whether that means producing more or producing less. I think the setup feels pretty good today, but we have a lot of flexibility in how we respond.
Speaker Change: There's a forecast from <unk> with a eight.
Eight months left to go in the year.
Speaker Change: And we've been pretty clear that we're going to stay really focused on the economics of our underlying business and do what makes sense. So.
Speaker Change: If market conditions don't play out the way, we expect them to we'll adjust whether that means producing more producing less setup feels pretty good today, but we have a lot of flexibility in how we respond.
Nick Delosso: Yeah, thanks Nick. Well, the follow-up was kind of along those lines, you know, we're six to eight months away from winter pricing and gas going back over to back over three dollars. How do you think about bringing the capacity back on?
Speaker Change: Yeah. Thanks, Nick will the fog was kind of along those lines you know, where we're six to eight months away from winter pricing in gas going back over to backup their over $3.
Speaker Change: How do you think about bringing the capacity back on what's the process of it as it tells an ducks than net new rigs or what what's the timeline for that.
Nick Delosso: What's the process of it? Is it tills and ducks the new rigs, or what's the timeline for that? Sure.
Nick Delosso: Sure. So, you know, first of all, let's talk about what's going to trigger this for us. We get asked a lot about what price you are going to bring volumes back online. And, of course, that's an easy way to think about it and an easy way to model it, but it's not the right way for us to make that decision.
Speaker Change: Sure So first.
Speaker Change: First of all let's talk about what's going to trigger this for us.
Nick Delosso: We get asked a lot about what price are you going to bring volumes back online and of course, that's an easy way to think about it in an easy way to model it but it's not the right way for us to make that decision. When we think about price we think about it as an indicator of what's going on in the underlying market, but the trajectory of what's going on in the underlying market matters a lot.
Nick Delosso: When we think about price, we think about it as an indicator of what's going on in the underlying market. But the trajectory of what's going on in the underlying market matters a lot more to us than what the price is at the moment. And so we will continue to monitor the current production levels and the trajectory of that production, the storage levels, the activity levels across each of the basins and think hard about what we really believe the market needs before we make any changes.
Nick Delosso: More to us than what the prices at the moment and so we will continue to monitor.
Nick Delosso: The current production levels and the trajectory of that production the storage levels the activity level.
Nick Delosso: Levels across each of the basins and think hard about what we really believe the market needs before we make any changes and then once we determine that the market does need more gas. It would just follow the logic of of what we have available to us. So the fastest thing for us to respond with are the wells that have been drilled.
Nick Delosso: And then once we determine that the market does need more gas, it would just follow the logic of what we have available to us. So the fastest thing for us to respond with are the wells that have been drilled and completed but are just waiting to be turned on. Following that, we would begin to work on completing the additional wells that have been drilled but are uncompleted.
Nick Delosso: And completed but are just waiting to be turned in line.
Nick Delosso: Following that we would begin to work on completing the additional wells that have been drilled but uncompleted.
Nick Delosso: And certainly, I guess, along that time, we will be bringing back volumes that have been curtailed from the bays. So I think there's a lot of flexibility in how we respond to this. I would imagine that this will come about in a rather slow manner. I don't believe it's likely that we will wake up one day and see that the market needs all of the gas and that we will be racing to bring it all back at once. It's possible.
Nick Delosso: And certainly I guess, along that time, we will be bringing back volumes that are curtailed out of the base. So I think there's yeah theres a lot of flexibility in how we respond to this I would imagine that this will come about in a rather slow manner I I don't believe it's like.
Nick Delosso: That we will wake up one day and see that the market needs all of the gas and that we will be racing to bring it all back at once it's possible and if that happens we will move through it and the way I just described as efficiently as possible.
Nick Delosso: And if that happens, we will move through it in the way I just described as efficiently as possible. But I think it's more likely that we will be bringing volumes back to match a growing demand that will be pretty well predicted by the activity levels that are out there in the market around LNG, around the increase in power generation and industrial demand when it's needed. Now, you can have a cold spike, and cold spikes show up with a need for incremental demand.
Nick Delosso: But I think it's more likely that we will be bringing volumes back to match a pay growing demand that will be.
Nick Delosso: Pretty well, a pretty well previewed by the activity levels that are out there in the market around LNG around the increase in.
Nick Delosso: Power Gen and industrial demand when it is needed now you can have a cold spike in cold spikes show up with a need for incremental demand.
Nick Delosso: We would always try to respond to those needs as quickly as we can, but we know that those are not necessarily sustainable. And so that would probably be a short-term event, and we would incorporate that into our decision-making.
Nick Delosso: We would always try to respond to those needs as quickly as we can but know that those are not necessarily sustained and so that would probably be a short term event.
Nick Delosso: That would we would incorporate that into our decision making.
Nick Delosso: Yeah.
Speaker Change: Great color thanks, Nick.
Operator: The next question will come from Neil Mehta with Goldman Sachs. Please go ahead.
Nick Delosso: The next question will come from Neil Mehta with Goldman Sachs. Please go ahead.
Neil Singhvi Mehta: Yeah, good morning, Nick and team. Thanks for all the color. I want you to spend some time on your hedging framework, specifically the hedge-the-wedge concept. So can you just talk about the way that you approach hedging and the advantages of having a rolling program, especially on a contango curve, and then I have a follow-up.
Neil Singhvi Mehta: Yeah, good morning, Nick and team and.
Speaker Change: Thanks for all the color I.
Neil Singhvi Mehta: I wanted to just spend some time on your hedging framework is specifically the hedge the wedge concept. So can you just talk about the way that you approach hedging and the advantages of having a rolling program, especially in the contango curve.
Mohit: Yeah, Neil, good morning. This is Mohit.
Neil Singhvi Mehta: Yes, Neal good morning. This is mohit thanks for that question.
Mohit: Thanks for that question. You referenced the Hedge the Wedge program; that's been our way of hedging over the last several years. The way we philosophically think about it is, you know, you have a billion, billion and a half dollar capital program, so you're investing dollars into the ground. You want some certainty on when you start getting production back. So think of that as nine, 12 months after making the kind of initial investment decision when you're spotting the well.
Mohit: You referenced the hedge the wedge program that's been our our way that we have been hedging over the last several years.
Mohit: The way, we philosophy really think about it is you know you have a billion billion and a half dollar capital program, So you're investing dollars into into the ground.
Mohit: You want some certainty on when you start getting the production back. So that's think of that as 912 months after making the kind of the initial investment decision when you're putting the well.
Mohit: And you just fundamentally don't know what prices will be at that point, so you want to lock in some of the returns on the investments that you're making, which are fairly substantial, right? I mean, when you look at the market cap of the company versus that kind of a capital program, you might be investing 10 to 15 percent of your market cap into the ground. So, for us, it's a prudent way of just taking the risk.
Mohit: And you just fundamentally don't know what prices would be at that point. So you want to lock in some of that that returns on the investments that you're making which are fairly substantial right. When you look at the market cap of the company versus that kind of a capital program you might be investing 10% to 15% of your of your market cap into the ground.
Mohit: So it's for US it's a prudent way of just taking taking that risk off.
Mohit: One thing that we have done structurally, which we are pretty excited about, given the contango that you referenced in the curve, is we, instead of doing swaps, we've been doing callers, which allows us to monetize the volatility, so kind of bringing up the floors that we are getting from the puts. We're still retaining some of the upside through the calls that we are selling. Overall, the program is working, especially when you're in a low-priced environment like that, like we are right now.
Mohit: One thing that we have done structurally which we're pretty excited about given the contango that you referenced in.
Mohit: The curve as we instead of doing swaps, we've been doing callers, which.
Mohit: That allows us to monetize the volatility so kind of bringing up the floors that we're getting from the ports.
Mohit: But still regaining some of the upside by the calls that we are selling or all the program is working especially when you're in a low price environment like that.
Mohit: Like we are in right now.
Mohit: Every month, we are getting receipts of hedge settlements, which help support the base business and the cash flows and again underpins the return to shareholders and the base and the variable dividends that we are making. So overall, we think it works. It works well, reduces volatility of the returns, and allows us to be more consistent with shareholder returns.
Mohit: Three months, we are getting receipts of hedge settlements, which helped support the base business and the cash flows and again underpins the return to shareholders in the base on the radio to dividends there'll be we're making so.
Mohit: We think it works it works well reduces volatility of the returns and allows us to be more consistent with shareholder returns.
Neil Singhvi Mehta: Thanks a lot. And the follow-up is just on the global LNG markets. You talk in the slides about the 12 B's of incremental supply coming out of the United States, and cutters coming through with Northfield expansion in 2026 and beyond. And so, Nick and team, how do you think about the global LNG price being a potential governor on long-term gas prices?
Speaker Change: Okay. Thanks, but then as a follow up is just on the global LNG markets you've talked in the slides about the 12 piece of incremental supply coming out of the United States cutters coming through with the North field expansion in 2026 and beyond and so it Nick and team how do you think about.
Neil Singhvi Mehta: Global LNG price being a potential governor on it.
Neil Singhvi Mehta: Long term gas prices.
Neil Singhvi Mehta: Okay.
Nick Delosso: Yeah, you know, Neil, it's a great question, and it's something we think about a lot. And as we think about LNG growth, I mean, the market is clearly eager to have more LNG supplies. There are a number of different projects out there that are eager to take part in the growth in LNG. But it's also, you know, pretty obvious that at some point there will be oversupply, and that market will have volatility in the same way that domestic markets do.
Nick Delosso: Yeah, you know Neal it's a great question and it's something we think about a lot and as we think about LNG growth I mean, the market is clearly eager to have more LNG supplies. There's a number of different projects out there that are eager to accept in the growth in LNG, but it's also.
Nick Delosso: You know pretty obvious that at some point there will be oversupply in that market will have volatility in the same way that.
Nick Delosso: The domestic markets do and we're prepared for that and understand that one of the things I think we've seen that's really interesting is that there's clearly a some elasticity to demand for LNG prices, all I'll say in the nine to $12 range.
Nick Delosso: And we're prepared for that and understand that. One of the things I think we've seen that's really interesting is that there's clearly some elasticity in demand for LNG prices, I'll say, in the $9 to $12 range. And that range is probably debatable. It might be down to $8. It might be a little higher than that.
Nick Delosso: That range is probably debatable it might be down to eight it might be a little higher than that.
Nick Delosso: But you've seen that demand clearly goes up when you get into the single digits, but it can be fleeting as it gets into the mid-double digits, certainly over the longer term. And what that tells us is that this market requires you to remain really, really efficient in your cost structure and how you deliver supplies. And so that's something that we'll stay focused on, and we'll work with all of the different providers through the value chain, both domestically and internationally, to make sure that we can do that. But it's a real thing and something that we have our eyes wide open about.
Nick Delosso: But you've seen that demand clearly goes up when you get into the single digits and you've seen that demand can be can be fleeting as it gets into the mid double digits.
Nick Delosso: Certainly over the longer term.
Nick Delosso: That tells US is that this market requires that you remain really really efficient in your cost structure and how you deliver supplies and so that's something that we will stay focused on and we will work with all of the different providers through the value chain.
Nick Delosso: Both domestically and internationally to make sure that we can do that but.
Nick Delosso: But it's a real thing and something that we have our eyes wide open about at the end of the day, we still think natural gas is the most efficient and effective way to supply markets that are in demand for greater energy.
Nick Delosso: At the end of the day, we still think natural gas is the most efficient and effective way to supply markets that are in demand for more energy. It is affordable, reliable, and has lower carbon. And I don't know that we can say that enough, but the tradeoffs are not as good. And it's important that we remember that, and it's important that, as an industry, we deliver on a product that meets that expectation, that it is the most efficient solution for cost and affordability, reliability, and being lower carbon relative to the alternatives.
Nick Delosso: It is affordable reliable and lower carbon and I don't know that we can say that enough, but the trade offs are not as good.
Nick Delosso: And it's important that we remember that and it's important that as an industry. We deliver on on a product that meets that expectation that it is the most efficient solution to cost and affordability to reliability and to being lower carbon relative to the alternatives the alternatives of course.
Nick Delosso: The alternatives, of course, being in a lot of markets coal, which is certainly not lower carbon, although at times it can be lower cost. And it definitely can be reliable because it is easily stored on site. But then you also have renewables, which will maintain a competitive tension, especially with policies that drive people towards renewables that really struggle from both a cost and reliability perspective at full cost. And they have some of their own challenges from a sustainability standpoint that are just different than the product that we produce.
Nick Delosso: And a lot of markets coal, which is certainly not lower carbon at times it can be lower cost.
Nick Delosso: And it definitely can be reliable because it is a it is easily stored on site.
Nick Delosso: But then you also have renewables, which will maintain a competitive tension, especially with policies that drive people towards renewables that really struggled from both a cost and reliability perspective and in full cost.
Nick Delosso: And you now have some of their own challenges from a sustainability standpoint that are just different than the product that we produce so we still feel very strongly that what we produce is the best solution and it's incumbent upon us to make sure that we.
Nick Delosso: So we still feel very strongly that what we produce is the best solution, and it's incumbent upon us to make sure that we deliver on it. The only thing I would add to that is, you know, we are signing up for 20-year LNG transactions, and we are going in with eyes wide open that there will be periods of time when that transaction will be out of the money. It's diversification and connecting us to the eventual end-users, as Nick was describing. That's the strategic mandate for us. But again, we are fully aware that there will be periods of time when we'll be out of the money.
Nick Delosso: We deliver on that.
Nick Delosso: Thanks.
Nick Delosso: The only thing I would add to that is a.
Nick Delosso: We are signing up 20 year LNG transactions and we are going in eyes wide open that.
Nick Delosso: There will be periods of time, when that transaction will be out of the money. So.
Nick Delosso: It's a diversification and connect connecting us to the eventual end users as Nick was describing that as the strategic mandate for us and.
Nick Delosso: But again being fully aware that there'll be periods of time, when we'll be out of the money.
Nick Delosso: Makes sense. A long-term view. Thanks, guys.
Speaker Change: It makes sense long term view thanks, guys.
Operator: The next question will come from Paul Diamond with Citi. Please go ahead.
Nick Delosso: The next question will come from Paul Diamond with Citi. Please go ahead.
Paul Michael Diamond: Thank you. Good morning. I appreciate you taking my call.
Paul Michael Diamond: Thank you and good morning, Thanks for taking my call just a quick one on the kind of the timing and the cadence of the ducks and the pills and should we be thinking about that more many early at this point forward through the year or is there kind of a point.
Paul Michael Diamond: Just a quick one on the kind of timing and cadence of the ducks in the tills. Should we think about that more linearly from this point forward through the year? Or is there kind of a point in Q3 where you just stop and kind of revert back to normal? How should we think about the cadence?
Paul Michael Diamond: Q3, where do you stop and kind of revert back to normal how should we think about the cadence.
Josh: Yeah, so really what that ties back to is just the underlying activity cadence of our drilling rigs and frat crews, you know, where today we're running eight rigs and two frat crews. And so, you know, we do anticipate that we'll drop one additional rig in the Marcellus by the middle of the year. But by and large, you should expect those in the fur tills and ducts to build in a linear fashion through the course of the year.
Speaker Change: Yeah, so really the what that ties back to is just the underlying activity cadence of our drilling rigs and frac crews.
Josh: Where today, we you know we're running eight rigs and two frac crews and so you know we do anticipate that you know will drop one additional rig in the Marcellus middle of the year, but by and large you should expect those in the FERC tills and ducks to build you know in a linear fashion through the course of the year.
Paul Michael Diamond: Okay. Just one quick one, or one quick follow-up, if we were to see any kind of increased volatility out of the three levers, I guess, for additional ducts, tills, or further curtailments, is there any preference you guys currently hold? Kind of in what order you'd address any near-term volatility with?
Josh: Understood.
Speaker Change: Quick one.
Paul Michael Diamond: One quick follow up if we were to see any kind of increased.
Paul Michael Diamond: Volatility out of the three levers I guess for additional ducks pills or further curtailments is there any preference you guys currently hold.
Paul Michael Diamond: Or you'd address any near term volatility with it.
Nick Delosso: Well, I think it all depends on what's going on. If you have some sort of short-term spike in demand that we don't think will be sustained, then we have curtailed volumes we can bring to market to help meet that demand. If you think that there's more of a step change in demand and volumes are needed in a longer-term fashion, then you start to bring some of those deferred wells online.
Speaker Change: Well I mean, I think it all depends on.
Paul Michael Diamond: Understood. Thanks for the clarification.
Nick Delosso: What's going on if you have some sort of short term spike in demand that we don't think will be sustained and then we have curtailed volumes, we can bring to market to help meet that demand. If you think that there is more of a step change in demand and volumes are needed in a longer term fashion. Then you start to bring some of those deferred.
Paul Michael Diamond: Deferred wells online.
Paul Michael Diamond: Understood.
Operator: And the final question for today will come from Kevin McCurdy with Pickering Energy Partners. Please go ahead.
Paul Michael Diamond: And the final question for today will come from Kevin Mccurdy with Pickering Energy Partners. Please go ahead.
Kevin McCurdy: Hey, good morning. To dig into the curtailments a little more, the 2Q guide shows that the Hainesville is declining faster than the Marcellus. And just curious, if that's being driven by something you're seeing on local prices that is leading to more constraints, or is that just natural declines in the Hainesville?
Kevin McCurdy: Hey, good morning.
Kevin McCurdy: To dig into the curtailments, a little more the <unk> guide shows that the Haynesville is declining faster than the Marcellus and just curious that if that's being driven by something youre seeing on local prices that is leading to more constraints or is that just natural declines in the haynesville.
Josh: Yeah, that's really just due to local market conditions. You know, we were seeing prices there that, you know, we just really started to question whether or not it makes sense to continue to flow gas into those markets. And so, you know, we selectively look at the well sets and, you know, what the margins are for each well, recognizing that chemical usage and water production will impact a well's margin.
Speaker Change: Yes, that's really just due to local market conditions. You know, we you know where we were seeing pricing. There that you know, we just really start to question, whether or not it makes sense to continue to flow gas into those markets.
Josh: And so you know we selectively look at the well set and you know what margins are for each well recognizing that chemical usage water production will impact our wells you know margin and so you know we just say I think that you know pricing that we're seeing in the second quarter.
Josh: And so, you know, we just think that, you know, the pricing that we're seeing in the second quarter simply doesn't make sense to flow the full allotment of volume there. So when we talk about the 400 million cubic feet a day of planned curtailment in the quarter, roughly half of that is tied to Hainesville. So when you look at the quarter over quarter decline from Q1 to Q2 for the Hainesville asset, a big portion of that is directly tied to the curtailment.
Josh: It simply doesn't make sense to the full flow the full allotment of volume there. So when we talk about the 400 million cubic feet a day of a planned curtailment in the quarter roughly half of that is tied to the haynesville. So when you look at the quarter over quarter decline from Q1 to Q2 for the Haynesville asset a big portion of that is directly tied to the curtailment in.
Josh: And of course, we'll all start to get that back as we get into the second half of the year, and again, that's just why you see, or should anticipate, a flattening of the decline in the second half of this year.
Josh: Course will we all start to get that back as we get into the second half of the year and again. That's just why you see then shouldn't anticipate a flattening of the decline in the second half of this year.
Kevin McCurdy: Great, thank you for that detail. And to follow up on an earlier question about returning production, do you have the capacity to bring back volumes faster in one basin compared to the other, or will it be about the same in Hainesville and Appalachia?
Speaker Change: Great. Thank you for that detail and to follow up on the earlier question about returning production.
Kevin McCurdy: Do you have the capacity to bring back volumes on faster in one basin compared to the other or will it be about the same in the haynesville in the Appalachia.
Kevin McCurdy: Okay.
Josh: Yeah, it should be about the same. I mean, there's a lot of considerations that are going to go into, you know, how we bring production back. I mean, outside of just the macro conditions that Nick spoke to earlier, but it's really just around logistical planning. And so we'll, you know, we have to be thoughtful about where gas gets introduced and when to, you know, manage gas gathering systems and things like water hauling. But really, I wouldn't say one area is advantaged or disadvantaged more than the other.
Kevin McCurdy: Yeah. It should be about the same I mean, there's you know there's a lot of considerations that go into how we bring the production back I mean outside of just the macro conditions that Nick spoke to earlier, but it's really just around logistical planning and so will we have to be thoughtful about where gas gets introduced and when to manage the <unk>.
Kevin McCurdy: Great. I appreciate the answers. Thank you, guys.
Kevin McCurdy: <unk> gathering systems and things like water hauling, but really I wouldn't say you know one area is advantaged or disadvantaged more than the other.
Kevin McCurdy: Great I appreciate the answers thank you guys.
Kevin McCurdy: Yeah.
Speaker Change: This concludes our question and answer session.
Nick Delosso: This concludes our question and answer session. I would like to now turn the conference back over to Mr. Nick Delosso for any closing remarks. Please go ahead.
Kevin McCurdy: I would like to now I'll turn the conference back over to Mr. Nick Yellow so for any closing remarks. Please go ahead.
Nick Delosso: Well, thank you all for your time this morning. We really look forward to progressing through this year, working on planning for the integration of our merger and delivering on what we expect to be improved gas market conditions as we approach 2025. As always, if you have any other follow-up questions, please reach out to our outstanding IR team. They will be ready to take your calls, and we look forward to seeing you guys out on the road. Thanks. The conference is now concluded. Thank you for your
Nick Delosso: Well. Thank you all for your time. This morning, we really look forward to progressing through this year working on planning for the integration of our merger and delivering on what we expect to be improving gas market conditions. As we approach 2025 as always if you have any other follow up questions. Please reach out to our outstanding IR team they will be.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ready to take your calls and we look forward to seeing you guys out on the road. Thanks.
Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: Yeah.
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Music: Okay.
Speaker Change: Uh huh.
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