Q4 2024 Expand Energy Corp Earnings Call
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Speaker Change: Cause actual results to materially differ from our forward looking statements, including factors identified and discussed in our press release yesterday and now they're S. T. SEC filings. Please also recognize that as except required by law. We undertake no duty to update any forward looking statements and you should not place undue reliance reliance on such statements.
I also refer to some non-GAAP measures, which will help.
Speaker Change: Facilitate comparisons across periods and with peers for any non-GAAP measure there's a reconciliation on our website with me on the call today are Nick that we're also seeing Josh suites, and Dan Turco, our new EVP of marketing and commercial Nick will give a brief overview of our results and then we will open up the teleconference.
Speaker Change: So with that thank you again, and I will now turn the teleconference over to Nick.
Nick: Good morning, and thank you for joining our call today.
Nick: The world's need for energy continues to grow with our attractive market connected portfolio resilient financial Foundation and pure leading returns expand energy was created specifically to better respond to this growing demand and yield stronger returns for shareholders in times of volatility.
Nick: Our productive capacity strategy uniquely positions us to not simply react but to capitalize on the dynamic market we see today.
Nick: As our 2025 capital and operating plan demonstrates this is exactly what we are doing.
Nick: Benefiting from a powerful combination of premium rock returns and runway across our portfolio access to advantaged markets and some of the most capital efficient operations in the industry, we've enhanced our outlook for 2025.
Nick: We continue to benefit from the tailwind of 2020 for productive capacity strategy.
Nick: Now expect to produce approximately 7.1 Bcf per day for a capital investment of approximately $2 $7 billion.
Nick: As market fundamentals continue to improve the outlook for natural gas, we are electing to invest an incremental $300 million to build approximately 300 million cubic feet per day of additional productive capacity.
Nick: This will allow us to efficiently deliver seven five Bcf per day in 2026 should market conditions warrant.
Nick: We believe this level of production Optimizes free cash flow at mid cycle prices.
Nick: Since we won't pull the trigger on this incremental capacity until midyear, we have time to watch the market and we'll have the flexibility to adjust as necessary.
Nick: Successful integration has further strengthened our outlook, we continue to capture significant capital and operating efficiencies rapidly accelerating the achievement of our annual synergies.
Nick: We now expect to achieve approximately $400 million of our annual synergy target in 2025 and to capture the entire $500 million target by year end 2026.
Nick: I'm, especially encouraged to see the 20% plus improvement.
Nick: We are delivering in our haynesville drilling performance and the <unk>.
Nick: Fourth quarter alone, we cut nearly nine days in one and a half million dollars in cost per well from southwestern as legacy drilling performance.
Nick: The definition of synergy success is clear achieving capital and operating efficiencies that result in spending loss, while producing more which is exactly what we're doing.
Nick: A resilient financial foundation and peer leading returns program are two areas, which also further differentiate our company.
Nick: At today's prices, we expect to end 2025 with less than $4 $5 billion in net debt.
Nick: Our debut $750 million investment grade issuance set a record spread for an energy rising star at 132 basis points over 10 year treasuries and cleared all near term maturities through 2029.
Nick: Our enhanced capital return framework is designed to efficiently return cash to shareholders and reduced net debt.
Nick: After paying our $2 30 per share dividend, we expect to allocate $500 million to debt reduction in 2025.
Nick: Given our strong free cash flow outlook, we expect to have additional cash available to allocate to a combination of variable dividends share repurchases and the balance sheet.
Nick: Turning to our marketing program, we see great opportunity to capitalize on our position as the nations largest natural gas producer.
Nick: There is greater than 11 Bcf per day of LNG capacity under construction.
Nick: And the domestic power market continues to grow in support of data centers and rising consumer demand.
Nick: We have the assets balance sheet and capital efficient operations to help meet this new demand.
Speaker Change: Im pleased to welcome Dan Turco to our team to lead this effort.
Speaker Change: Dan has extensive experience, creating value for marketing and trading programs.
Speaker Change: And will help us realize the benefit of our advantaged position.
Speaker Change: The marketing program is already seeing the value of our combined portfolio. Our team worked extremely hard from the date of close to fully integrate our marketing and transportation portfolio by January one of this year, allowing us to optimize the flow of volumes across pipes, increasing value for our gas and reducing costs.
Speaker Change: Looking forward to 2026 once the <unk> III pipe is online approximately 75% of our marketed volumes are expected to reach strategic markets, including two five Bcf per day directly.
Speaker Change: To the growing LNG corridor.
Speaker Change: Expand the powerful combination of an attractive connected portfolio pure leading returns program.
Speaker Change: And resilient financial Foundation is distinct among natural gas producers today's market provides a unique opportunity for our company and we look forward to expanding opportunity for our shareholders in the year ahead, operator, we'll now take questions.
Thank you.
Speaker Change: If you would like to ask a question. Please press star one on your telephone you will then hear an automated message.
Speaker Change: Okay.
Speaker Change: We also ask that you. Please wait for your name and company should be announced before you proceed with your question.
Speaker Change: And one moment for the first question.
Speaker Change: Our first question will come from the line.
Matt: As Matt 40 out of.
Speaker Change: J P. H your line is open.
Nick: Good morning, Nick and team.
Matt: Hey, Matt.
Matt: Just a quick question slide nine very helpful laying out your thoughts on maximizing free cash flow at mid cycle pricing.
Matt: I'm just curious maybe if you could speak to that slide and specifically if we're in kind of about $3 50 to $4 world should we be thinking about.
Matt: Kind of your productive capacity once you get to the seven five Bcf a day in 2026 to hold around seven five BS or do you think you could continue to see growth from that point forward.
Matt: Yeah, I'm really glad you asked about the slide to start off with Matt. This is.
Matt: An important way for us to communicate how we think about.
Matt: Our capital allocation for this year.
Matt: And over time.
Matt: We all talk a lot about the right way to set up our business and we thought this slide did a good job of laying out our thought process.
Matt: We believe that it starts with a view of the macro and so we'll continue to have a view of the fundamentals and let that underpin how we think about allocating our capital and for us that means that we're going to always have a rolling forward two to three year assessment of where the market is and what that means for mid cycle prices and you are right to point out.
Matt: But right now we're.
Matt: Were pegging that at $3 50 to $4 per Mcf Henry hub.
Matt: And so the table below simply lays out a a look at the heat map is designed around cash flow generation free cash flow.
Matt: And looking at at various levels of production relative to various levels of price, whereas your business optimized.
Matt: It's pretty easy for any of us to think about in a stronger market growing volumes that always feels good but there is certainly an optimal level of production for our business given the underlying macro and I think this helps to highlight how we view that there can be levels of production that are too high for a given price and there can be.
Matt: Levels of production that are too and so at $3 50 to four you can see that we sit in a pretty good place at seven five Bcf a day.
Matt: But we also like about this slide is that we're giving you some parameters around which we would have to underwrite a longer term view of the macro in order to raise that level of targeted production.
Matt: And I say targeted and we say mid cycle and all of those things because there is plenty of volatility that could show up in the short term that would continue to cause us to do things like we did in 2024 curtailed volumes curtail activity there might be times, where you want to accelerate.
Matt: Capacity, that's otherwise on the sideline given a short term event, but when we think about mid cycle activity.
Matt: We think about this level of production relative to this price that we're underwriting so right now $3 50 to $4 seven five Bcf a day of production.
Matt:
Matt: I think it's pretty interesting to note that.
Matt: From an overall market standpoint, we are underwriting a level of price that is below where the 25 and 26 strip is today.
Matt: We do that with the recognition that one we don't mind being just a bit on the conservative side and underwriting price too we do we do.
Matt: I think a lot about how this will evolve over time, and we know that when prices as they are today are above the.
Matt: Marginal break evens are the industry supply will ultimately show up.
Matt: And compete in that competing supply as we go out into 2728 29 is increasingly going to be not just domestic supply of an international supply.
Matt: <unk> talked for a while about how in the second half of this decade. There was there will be more LNG capacity that comes online around the world that will compete directly with us Gulf coast capacity and so we think it's appropriate to take this multi year view of the market and again, we see $3 50 to $4 is a pretty reasonable price to underwrite.
Matt: So all of that informs how we think about our business today thinks about.
Matt: Just to think about what the optimal level of production and Capex is.
Matt: That then drives the optimal level of cash flow I would also just point out that.
Matt: We're giving you a lot of information on this slide including the right hand column of the matrix, which tells you the amount of maintenance capital that would be required for each of these levels of production, obviously theres a lot of assumptions embedded into a chart like this and those assumptions would have to be revisited at overtime, we are using our curve.
Matt: Assumptions of well costs, we're using our current assumptions of well productivity. Our team is pretty focused on improving our capital efficiency around both halves of that equation everyday and so we'll continue to refresh our thoughts around this.
Matt: But we think this is a pretty good framework.
Speaker Change: Perfect and then maybe just a follow up you mentioned LNG I was just curious if you could maybe touch on your updated thoughts on the marketing strategy I know, it's a diversification for you all.
Speaker Change: And there is obviously, some puts and takes and views on global incremental supply versus demand over the next year. So just curious how you guys are thinking about the LNG market and your strategy moving forward.
Speaker Change: Yes. Another great question. So again, we're excited about what's happening with the incremental LNG export capacity on the Gulf Coast, and how we're positioned relative to that.
Speaker Change: We think we are uniquely positioned to that one just given the scale of production that we have proximate to those assets in.
Speaker Change: The Haynesville, but then also we have a really nice transportation portfolio that allows us to move to five Bcf a day by the end of this year to go as we moved another two Bcf a day over towards parity, though which then can flow south.
Speaker Change: Towards the eastern.
Speaker Change: Facilities like Black Womens and we have a lot of connectivity to these projects we have a great relationship with a lot of the <unk>.
Speaker Change: Liquefied themselves as well as the off takers and we have regular communication with all of them about what their needs are and how we should think about being prepared to supply gas.
Speaker Change: So we really like our position.
Speaker Change: As you know, we have announced one supply agreement.
Speaker Change: Going through the Delfin facility.
And we think there's more that we can do around LNG in the future, but I would say.
Speaker Change: We're really focused on ensuring that as we take on.
Speaker Change: Any incremental LNG projects, we're thinking hard about how we can do a couple of things one ensure that it provides a diversified revenue source for us connecting us to markets that we wouldn't otherwise be connected to.
Speaker Change: That have <unk>.
Speaker Change: <unk> diverse and different characteristics than Henry hub.
Speaker Change: We think thats important.
Speaker Change: And then exposing us to revenue opportunities that.
Speaker Change: Again help too.
Speaker Change: To generate higher levels of cash flow through cycles for our business I think as we think about our business today.
Speaker Change: We are in the Haynesville, which is a really important geographic diversity for us.
Speaker Change: Being proximate to markets and being able to grow and we need to show higher revenue to prove out the value of that geographic diversification.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for the next question.
Speaker Change: And our next question will be coming from the line of Doug Leggate of Wolfe Research. Your line is open.
Doug Leggate: Hi, good morning, everyone.
Doug Leggate: Thanks for taking my questions, Nick Kevin I've got two if I may.
Doug Leggate: I guess the synergy number we're all kind of watching not.
Doug Leggate: All are a little quicker than you had originally planned but if I go back to when you announced deal back in January of last year.
Doug Leggate: You would put a kind of a two year timeline.
Doug Leggate: Building, a marketing business and you obviously made a very high profile higher here recently.
Doug Leggate: So I just wonder if you could give us a quick refresh on what you think the timing looks like now.
Doug Leggate: To achieve what you think is possible and maybe quantify what that number looks like again, two five tcf a year more or less.
Doug Leggate: Is that Tencent numbers 27 number what's the ambition because obviously I don't think asking a lot of People's numbers at this point. That's my first one I've got a quick follow up please.
Speaker Change: Yes, Thanks, Doug we're really excited about what is in front of us from a marketing perspective, and you are right. We have made a really important hire for our team.
Doug Leggate: And we're looking forward to building out our business in a way that.
Doug Leggate: It takes better advantage of the scale of production that we have as well as the transportation portfolio we have today.
Speaker Change: Traditionally the Chesapeake and southwestern.
Speaker Change: Marketed gas in a relatively close to wellhead fashion, we do have a lot of transportation, but we are for the most part selling gas to the nearest purchaser at determinants of that transportation, whether that's off the gathering system, where if it's further downstream.
Speaker Change: And we haven't engaged in a lot of optimization, which generally larger companies do we.
Speaker Change: We think theres quite a bit of value in the domestic optimization of how we sell our gas.
Speaker Change: And we're looking forward to building out the processes and the capabilities to do that.
Speaker Change: We know how to do it.
Speaker Change: We have the talent to do it.
Speaker Change: We need to build systems processes.
Speaker Change: And certainly need to build a risk framework to ensure that we do it properly.
Speaker Change: But but in doing that we think we can add pretty meaningful value to our business and increase our net backs to our equity production.
Speaker Change: Certainly by a few pennies on that domestic optimization alone and then the longer term value opportunity is of course around new commercial relationships there could be more interesting and those could be in the form of power deals industrial deals LNG deals.
Speaker Change: Long term buyers gas that seek certainty of supply.
Speaker Change: And potentially seek some certainty of cost and we think theres quite a bit of opportunity in a market that looks like it will increasingly have challenges of getting the right amount of gas to the right markets at the right time, and we think we're well positioned to help solve those challenges.
Speaker Change: So just to be clear is this a $400 million of annual business or is that stretching that.
Speaker Change: I didn't hear the number you said that market anymore.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: Then.
Speaker Change: Yeah.
Yes, I think alright.
Speaker Change: Giving you an exact number today Doug.
Speaker Change: We were going to continue to build out this business plan, we're going hold off on giving you exact number today, but we think it's certainly meaningful and we're pretty excited about what's in front of us.
Speaker Change: Got it.
Speaker Change: So my follow up is you've kind of subtly.
Speaker Change: Let's turn to the presentation 20 years plus of inventory and I think you used to have the southwest from the Chesapeake Standalone, saying, we've got a 15 year backlog.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: When you think about.
Speaker Change: We're telling you that you can hold this.
Speaker Change: $3 billion of capital seven Bcf a day it seems youre, making like pretty simple for everybody is going to lay out what the value proposition is my question as.
Speaker Change: Commingling Borgia Haynesville upper lower Marcellus.
Speaker Change: Whats the extending the inventory what is the.
Relative economics look like of the portfolio today versus what you were seeing before and because I was obviously an impression that bullish on haynesville had very different returns, but now they are both part of the story. So if you could help us understand that a little bit about 20 years as have apples for apples comparison that'd be great.
Speaker Change: Yes look it's essentially.
Speaker Change: The productive life around the assets that we generate today, so yes vouchers in their upper Marcellus is in there and we continue to Derisk all aspects of those players that have less producing wells then.
Speaker Change: Maybe the more traditional haynesville zone or the lower Marcellus zone.
Speaker Change: Our team has done some really really good work over the last couple of years to add value to all of those locations and every time, we add value to those locations more of those locations can turn green so to speak in our in our inventory counts and in our skyline charts.
Speaker Change: One of the things that's happening here, though is that.
Speaker Change: As we brought these two companies together, we think that we are ultimately going to be most efficient and most effective.
Speaker Change: And leaning on the capital efficiency of our business will run less rigs than each company was running on a standalone basis, and so the wife expense.
Speaker Change: Number of years of development extends partially just because of that.
Speaker Change: But we're definitely very focused on continuing to turn more and more sticks within our acreage green, which allows us to add more adjacent acreage around our place.
Speaker Change: Yes.
Speaker Change: Alright, Thanks, a lot for the Astros.
Speaker Change: Thank you Mr <unk>.
Speaker Change: Next question.
Speaker Change: And our next question will be coming from the line of Scott Hanold of RBC. Your line is open.
Scott Hanold: Yeah, Hey, thanks, good morning.
Speaker Change: Yes.
Speaker Change: Stick on that same topic, if we could and specifically with the upper Marcellus and Bossier can you talk about how what percentage of.
Speaker Change: That is in the activity over the next couple of years and.
Speaker Change: Just give us a sense of the relative economics of those zones comparatively and are you seeing the ability to kind of what things are you seeing that can maybe improve those economics and you get closer to sort of the haynesville slash.
Speaker Change: Lower Marcellus.
Josh Suites: Yeah, Hey, good morning, Scott This is Josh.
Scott Hanold: First on the on the split we do provide a slide in the deck on slide 35 that provides the breakdown for the number of pills, but.
Josh Suites: Youll notice.
Josh Suites: And the in the Haynesville, we are going to be slightly heavier weighted towards the haynesville wells.
Josh Suites: So, it's probably closer to 60% to 65% and in the in the northeast with the upper and lower its probably closer to.
Josh Suites: Maybe 45% lower than the rest will be upper.
Josh Suites: And so you're on the competitive economics, one of the things I would just say and I'll, maybe start with the Haynesville specifically, both reservoirs offer tremendous potential from a return standpoint, and we like the productivity that we see in each the bossier tends to be just a little bit more expensive on the completion side, but also.
Josh Suites: Recognize that shallower so drilling cost are a little bit less.
Josh Suites: We find productivity to be fantastic across both I would say somewhat equitable.
Josh Suites: The upper and the lower we've talked about for some time, the fact that we do see.
Josh Suites: Lower productivity on a per foot basis than the upper.
Josh Suites: But the ways we fine.
Josh Suites: To enhance the economics of that which is really the ultimate goal is by extending lateral lengths and because it's less developed we have opportunities to drill longer laterals, which we've been doing year over year. We are also really been investing in analytics and looking opportunities to enhance the way in which we complete these wells.
Josh Suites: Yes.
Josh Suites: So the combination of longer laterals. The enhanced completion designs, we've talked about hybrid wells in the past is another mechanism at which we could really boost up the profitability at the upper wells, where we combine let's say a 10000 foot section of upper with 5000 feet of lower reservoir.
Josh Suites: That all helps to normalize our returns across across the Marcellus play.
Josh Suites: I appreciate the context, thanks, and as my follow up.
Josh Suites: Just talking about the.
Speaker Change: Productive capacity increase that you have planned into 2026.
Speaker Change: To me it was interesting I guess youre, calling up productive capacity versus quote unquote just regular growth.
Speaker Change: Correct me, if I'm wrong tail indicate to us that there is some optionality if the market's not there but can you can you give us some sense of as you get into the back half, but 25, obviously, it's a very sensitive time coming into the winter every year with the gas market. If you start building this productive capacity in these wells to bring.
Speaker Change: And let's say the winter doesn't pan out what happens in 2026 now that you've already spent those $300 million of.
Speaker Change: Extra capital what do you do.
Speaker Change: Sorry, you didn't come off I'm going to start over.
Speaker Change: Really pleased with the flexibility we exhibited in our business in 2024, and we think it would set up really similarly, so we're going to build this productive capacity coming into the end of this year. It will be ready to be turned in line in 2026, and if the market is not there then.
Speaker Change: It would we would likely have a response to that that would be some combination of either.
Speaker Change: <unk> back the turned in lines or.
Curtailing volumes to alleviate pressure on the market, but that would back up even further than that and let's say that we see that as we come through this year, the macro conditions change and some unforeseen way.
Speaker Change: And the market doesn't look as strong in 26 or 'twenty seven.
Speaker Change: Then we'll change our capital allocation as well we've proven.
Speaker Change: Right.
Speaker Change: Several times over the flexibility, we have there and the willingness to try and be responsive and in front of market conditions to.
Speaker Change: Be efficient with our capital relative to where we are in the cycle. So we maintain a ton of flexibility in our business.
Speaker Change: And this is what we think is the right planning step for today.
Speaker Change: And.
Speaker Change: We're very prepared for both increasing capital a decrease in capital as conditions warrant.
Speaker Change: Thank you for that.
Speaker Change: Thank you one moment for the next question.
Speaker Change: And our next question will be coming from the line of Kevin Mcdermott.
Speaker Change: Morgan Stanley Your line is open.
Speaker Change: Hey, good morning, Thanks for taking my questions.
Speaker Change: So I wanted to dive in first on the 2025 activity and a little bit more detail definitely agree with the constructive outlook for gas prices. This year looking back about a month ago, we were flirting with $2 on Henry hub. So I wonder if you could talk a bit more about the decision process to pull forward the deferred tails and then also.
Speaker Change: Give a little bit more color on the cadence of that productive capacity throughout this year I know you have the <unk> guide and the full year number but how are you thinking about the volume trajectory as we move through 2025 for the business.
Speaker Change: Yes, good questions Devin so.
Speaker Change: Again, I want to go back to talking about how do we think about the macro and thinking about a two to three year look of underwriting.
Speaker Change: Rice range here and we've landed at $3 50 to four there is a lot that goes into that.
Speaker Change: And ultimately you're thinking about the trajectory of supply and demand and all of the the.
Speaker Change: <unk>.
Speaker Change: Features of the market that will impact supply and demand over the next couple of years and so on the supply side Youre certainly thinking about how many rigs are running how many wells are being completed the productivity of those wells, how many pipes are coming online including from associated gas areas like the Permian and building out a pretty good view of what the supply to the market looks like.
Speaker Change: On the demand side, we're going to pay a lot of attention to the trends of power generation and what fuels power generation growth is relying on.
Speaker Change: Trends of industrial demand and then certainly what we see now is the big driver.
Speaker Change: As the increase in LNG export capacity, which requires a view not just of what.
Speaker Change: Of the aggregate capacity, but also our view of the.
Speaker Change: The likely utilization of that capacity, which.
Speaker Change: Again, we've talked about initially we think is going to be very very high and then over the next few years would would potentially begin to.
Speaker Change: Run at less than 100% capacity as more and more it comes online. So all of that informs this longer term view.
Speaker Change: One of the things that you do pay attention to as a part of all of this analysis is where storage is so we've had this constructive view on the longer term and then as we got through this winter you see that it's been very cold of course.
Speaker Change: And storage is drawn down a good bit, which just accelerates the timing at which the market is seeking incremental supply so that storage doesn't run too low.
Speaker Change: I think the multiyear look hasnt really changed much for us and all that has changed is that the starting point at which the market is looking for more supply.
Speaker Change: Has come to us a little bit sooner as a result of there being a cold winter.
Speaker Change: We think it's really important to maintain this view that is multi year multi season.
Speaker Change: So that we don't end up chasing a near term event of price in the market and then again to make sure we have the flexibility in our business to continue to review those assumptions over time.
Josh Suites: I'll ask Josh to comment just on the trajectory of production this year and going into next because we gave a lot of thought about that as.
Josh Suites: As we have the flexibility with our deferred till strategy.
Speaker Change: Yeah, Hey, Kevin Yeah, we absolutely starting to see some strengthening fundamentals as we were exiting the year and so we did start to bring online some of the deferred hills at the back end of December and in fact across the fourth quarter. We brought on about 40 wells and roughly 25 of those were technically deferred tails.
Speaker Change: And what you have to just to remember and this is what we've been able to accomplish with just let's just say those 25 wells those wells could have come online and a $2 gas price environment, but instead, we were able to bring them on into a very strong environment with roughly $4 gas. So we feel really good about that decision and as we come into the.
Speaker Change: First quarter and again fundamentals remain strong.
Speaker Change: We talked about whether we've seen relatively strong LNG feed gas pools, as well, which again, we think is helping to tightened storage and so across the first quarter.
Speaker Change: We're anticipating bringing on roughly 90 wells.
Speaker Change: The markets.
Speaker Change: And just to give you a little bit of perspective on what that means from a trajectory standpoint of course, we have guided a 675% number for Q1.
Speaker Change: But we expect to grow from the end of December.
Speaker Change: Where our production was just over six four Bcf a day.
Speaker Change: We expect to exit March around seven Bcf, a day and so when you talk about kind of short cycle.
Speaker Change: Market response of production, that's really what we've created here and so with the deployment of our deferred sales, which we expect to be extinguished effectively by the first half of this year.
Speaker Change: We expect to be kind of up on plane between phase 771 Bcf a day heading into the second quarter and we'd expect to maintain that type of project production.
Speaker Change: As we exit the year, which then of course positions us.
Speaker Change: To be able to benefit from the productive capacity that we'll now build on this up cycle as we look to exit 2025.
Speaker Change: Got it thanks.
Speaker Change: Helpful and my follow up is on that productive capacity slide eight has the building blocks of capital and also some breakdown of where that incremental $300 million of spending will go and I think it's notable that it's actually split across Appalachia and the Haynesville, yes, I'm going to each of your core assets. So I was wondering if you can.
Speaker Change: Just talk a bit more about how you think about allocating growth capital.
Speaker Change: Cross the different assets in your portfolio and maybe as part of that if you could just address the takeaway situation in northeast, Pennsylvania, and how much room, there actually is to boost volumes there.
Speaker Change: Yes, so we think about allocating capital across these assets just as you as you alluded to in your question.
Speaker Change: Our ability to grow is primarily in the haynesville in Appalachia.
Speaker Change: The capital that's coming in there is really in recognition of what the existing capacity is.
Speaker Change: Bringing production up to those capacity levels.
Speaker Change: We know where we've been able to produce successfully in the past and we're not going to attempt to go beyond that.
Speaker Change: So the growth capital that you really see it.
Speaker Change: Is <unk>.
Speaker Change: More about the Haynesville I just want to remind everybody that we do set.
Speaker Change: Right adjacent to the LNG growth corridor and have two and a half a bcf a day by the end of this year of capacity to deliver to us.
Speaker Change: So as you think about where that LNG gas is going to come from it's going to primarily be sourced from <unk>.
The leap pipeline in the <unk> pipeline and in aggregate, that's two <unk> Bcf a day that gets delivered right to the source of growing demand and.
Speaker Change: So the incremental volumes that we really think about here as we increase our volume profile into 2026 are focused on meeting that growing demand. This is not delivering volumes into a static environment.
Speaker Change: Makes sense. Thanks, so much.
Speaker Change: Thank you one moment for the next questions.
Speaker Change: And our next question will be coming from the line of Neil Mehta of Jefferies. Your line is open.
Speaker Change: Hi, Neil Mehta here can you guys hear me okay.
Speaker Change: Yes, Sir.
Speaker Change: Alright.
Speaker Change: Hey, just wanted to spend some time, just talking about return of capital and capital allocation and those three tranches that you outlined in the deck and your objective here.
Speaker Change: In 2025, as you transition from Delevering to focusing potentially on shrinking your share count.
Speaker Change: Sure.
Speaker Change: We're pretty happy with the cash flow profile, that's in front of us for the next couple of years.
Speaker Change: One we've prioritized debt pay down and you can see that really clearly in that waterfall.
Speaker Change: We've we've put in place a $500 million debt paydown goal for the year. That's on top of the fact that we retired.
Speaker Change: The outstanding revolving credit facility that was southwest earns at the close we paid down $389 million of bonds that.
Speaker Change: Yes.
Speaker Change: Maturing in January.
Speaker Change: And then we've done another refinancing of course with our first investment grade issuance that allowed us to push out some maturity. So we have a really good runway in front of us to retire debt and a lot of cash flow to do it.
Speaker Change: So that $500 million.
Speaker Change: Out of our free cash flow will flow towards debt paydown as well as we have a little bit of incremental proceeds from.
Speaker Change: The Eagle Ford sales that will come to us and and deferred proceeds in 2025 that will go towards debt pay down as well so.
Speaker Change: We're taking a pretty good swipe at the balance sheet and we're going to end the year with less than $4 $5 billion of net debt based on recent strip. So we feel pretty good about that that'll obviously be well under one times EBITDA with prices around where they are.
Speaker Change: I would also remind you that that $500 million as a target that we'll set each year. So next year, we will have another debt paydown target and what we've attempted to do with this framework is allow for a good balance of ensuring that our balance sheet stays very very strong.
Speaker Change: As you know with the history of our company.
Speaker Change: And the way we've been able to.
Speaker Change: Bring assets into the portfolio that have been very accretive to our overall returns profile.
Speaker Change: We believe you need to have a very strong balance sheet to do that so we're going to continue to have a really strong balance sheet you need a strong balance sheet to allocate your capital efficiency and maintain the flexibility to allow production to decrease and increase as we've done over the last year.
Speaker Change: That balance sheet.
Strength is such an important part of how we think about our competitive position in the market that it will stay.
Speaker Change: Front of mind for us and be protected.
Speaker Change: And then beyond that though we're going to generate a lot of excess free cash flow and we think that that needs to be.
Speaker Change: Be returned to shareholders in a pretty significant proportion so.
Speaker Change: Remaining tranche, then we have the flexibility to return to shareholders.
Speaker Change: 75% of it either in the form of buybacks or.
Speaker Change: Variable dividends, we will use that flexibility to be thoughtful about the most efficient way to do that for shareholders over the last couple of years, you've seen us use both.
Speaker Change: And I wouldn't be surprised if we continue to use both.
Speaker Change: Yeah, Thanks, Nick and that kind of brings us to the follow up with you. If you guys have done a great job hedging.
Speaker Change: Hedging the wedge or taking advantage of the constructive forward gas curve can you just talk about.
Speaker Change: How youre thinking about the hedging strategy on a go forward.
Speaker Change: The way it still makes sense began at an optimal level.
Speaker Change: At this point.
Speaker Change: Just how youre thinking about that part.
Speaker Change: Risk management.
Speaker Change: Yes, you know our hedging strategy, we feel like has worked really well for us.
Speaker Change: We had a really nice offset to the low prices last year that supported our our cash flow and despite the fact that gas averaged for the year about $2 26.
Speaker Change: We ended the year with a nearly neutral free cash flow position, that's really largely supported by our hedges.
Speaker Change: In 2025 as prices have run quite a bit our hedge.
Speaker Change: Losses are a fraction of what that gain was last year and that's a function of the fact that we have hedged we think on a rolling basis that has really made sense. So that we have exposure to the right prices in the market that we're setting the appropriate floors.
Speaker Change: And we've been able to use a fair amount of callers as we approached the start of 2025.
Speaker Change: We like the approach, we like having roughly 50% to 60% of the first year hedged and then less in the second year and continuing to leg into those hedges over time.
Speaker Change: We also would acknowledge that in recent weeks as prices have been a lot stronger we're not afraid to shift for near term prices more towards swaps.
Speaker Change: Youre elevating the floor of your <unk>.
Speaker Change: Locked in price and you are also willing to move to the to the higher end of your ranges of targeted levels of hedges.
Speaker Change: We see prices.
Speaker Change: In 2025 that like I noted a few minutes ago are well above the marginal break evens in the industry and when you see that you want to hedge more and you want to go ahead and lock in those prices.
Speaker Change: So that's what we'll continue to do.
Speaker Change: Thanks, Nick.
Speaker Change: Thank you one moment, Sir the next question please.
Speaker Change: And our next question will be coming from the line of John Freeman.
Speaker Change: Raymond James Your line is open.
John Freeman: Good morning. Thanks.
John Freeman: Yes, the first Guy Jonathan Hi.
John Freeman: Hi.
John Freeman: Just following up on an earlier question, Josh when you were kind of going over the accelerated.
John Freeman: Accelerated pull forward on the deferred tails just.
John Freeman: Just to sort of level set kind of the model since I know that the plan is that as you said.
John Freeman: <unk> basically get exhausted the first half of the year and then I believe the plan assumes about 85% of the docs.
John Freeman: Bottom line share as well.
John Freeman: Where does the till then deferred tells him the DUC stand at year end.
John Freeman: Yeah, So because we started bringing on wells in the back end of the quarter.
John Freeman: Which was about 25% that's deferred pills that left us.
John Freeman: With about 55% to 60 deferred sales at year end.
John Freeman: And between 50 and 60 docks at at year end and just one comment I would make on the on the docks is that we have assumed.
John Freeman: Somewhat ratable activation of the docs across the year.
John Freeman: And of course, there is a.
John Freeman: Capital amount that comes along with that one of the things we really like about the plan is just to retain flexibility that we have.
John Freeman: And we have this option to actually accelerate the completion of the ducks that creates more flexibility in the year from a production standpoint, while holding capital flat and so they will have activated over all of our deferred pills.
John Freeman: Still feel like we've retained flexibility with the docks throughout the calendar year.
John Freeman: That's great.
John Freeman: My follow up.
John Freeman: When looking at that slide nine.
John Freeman: It would appear that can range from kind of 75, BS a day to call. It eight plus BS a day it looks like just trying to back into what you've got for the Capex that it doesn't look like there's like a material.
John Freeman: Okay increase that's needed on infrastructure spend it looks like youll can handle that.
John Freeman: Any big step change on that front is that the right way on that.
John Freeman: Yes that is the right read what you need to remember is just where both companies were operating prior to deal announcement at the end of 2023, and so we have adequate offtake the infrastructure both in the field and with the transport.
John Freeman: Capable and so effectively with what we're doing right now we're restoring volumes.
John Freeman: Then the productive capacity that will build will essentially continue down a path to get us to a spot where we were just more fully utilizing the infrastructure that we have access to.
John Freeman: Got it thank you.
Speaker Change: Thank you Mr. The next questions.
Speaker Change: And our next question will be coming from the lineup Paul nine minutes Citi. Your line is open.
Paul: Paul Your line is open.
Paul: Apologies the line cut out there for a second.
Speaker Change: Good morning, Thanks for taking the call.
Speaker Change: Wanted to talk about slide 15, you guys talked about having made some good progress on the.
Speaker Change: Good progress on the drilling activity and just wanted to inquire if there was.
Speaker Change: Any opportunity there or the timing of such like I guess, how much maintenance left down there.
Speaker Change: Yes, we still feel like there's plenty of room to drive improvements and this is the slide on slide 15 of course is focused on the haynesville.
Speaker Change: Say that we've been incredibly pleased with the progress that the team has made.
Speaker Change: Through our diligence process with the transaction, we had pretty clear understanding of what the gap was in terms of days and we utilized the time of our integration planning really to break that down.
Speaker Change: Into both segments.
Speaker Change: And we've used that that time, obviously effectively to allow us to realize more than a 20% improvement in our footage per day.
Speaker Change: And 20% improvement in cost just in the first quarter and so to your question, we're going to continue to improve in this in talking to the teams. We know there is additional opportunities I'm seeing that even just flowing into the first quarter. So we feel really good about the trajectory that we're on and then the thing that would also just mention again, we focus in on the <unk>.
Speaker Change: <unk> for this discussion.
Speaker Change: But we just drilled a five and a half mile laterals.
Speaker Change: <unk> in West, Virginia, and we did so with a single bit Ryan and just over five days and that that type of progress that we see in an asset.
Speaker Change: That clearly has an opportunity to kind of lend itself into the other areas that ultimately translates into incremental synergies. So we definitely think there's meat on the bone and really really excited.
Speaker Change: About what what we have in front of us.
Speaker Change: Understood.
Speaker Change: One quick follow up.
Speaker Change: You bet.
Speaker Change: And he bought the rig adds in the second half how should we think about the timing and cadence or is that purely reactive or is there a plan for July one and October one.
Speaker Change: Just kind of how to think about what's happening there.
Speaker Change: Yeah, Paul I'll take that out for you.
Speaker Change: At our premise across the second half of the year, what we're what we're looking at right now is that we would add a couple of rigs in the third quarter.
Speaker Change: Those would be destined for the Haynesville in northeast App.
Speaker Change: And then in the fourth quarter, we would expect to add a rig in southwest App and then the ninth rig in the Haynesville.
Speaker Change: Understood I appreciate the clarity I'll leave it there.
Speaker Change: Thank you the next question.
Speaker Change: And the next question will be coming from the line of Charles Meade.
Speaker Change: Of Johnson Rice your line is open.
Charles Meade: Good morning, Nick to you and Josh and the rest of the expanded team there.
Charles: Hey, Charles.
Charles Meade: Nick I wanted to ask a question about <unk>.
Charles Meade: Page 10 is really the this graph on the left side of the page and my first reaction when I see that.
Charles Meade: It reminds me of my son's high school trigonometry homework.
It makes me think maybe whoever came up with this slide is looking at something similar recently, but but I think what this is is this is the this is trying to describe the dynamics around the baseline kind of scenario that you outlined on page nine and if thats. The right interpretation I look at this and I think the message.
Charles Meade: What you're trying to send is that.
Charles Meade: Is that you will be increasing capex.
Charles Meade: When when you're under producing presumably when when prices are low and that youll be kind of maximizing capex is starting to draw down win.
Charles Meade: When prices are higher but I wonder if you could.
Charles Meade: Our interpretation of that.
Charles Meade: This dynamic.
Charles Meade: NAMIC picture that you've laid out here.
Charles Meade: Yes.
Charles Meade: You are talking about our attempt to be countercyclical.
Charles Meade: Generally I would agree with you I would say that it's not going to be quite as simple as you just described but generally this is ed.
Charles Meade: Sure.
Charles Meade: Look at how we would attempt to be.
Charles Meade: Responsive to market conditions in a way that is faster than the cycles of capital capital will typically allow you to be in this industry. If we can put capital to work in this industry today. It takes us a couple of years to bring production online and then earn a return on that production.
Charles Meade: From the point of what you make the decision until the time at which you have the return.
Charles Meade: Of capital in the bank from that decision, it's a couple of years.
Charles Meade: So what you really want is a business that's much more flexible in a market that has conditions to change much faster than that cycle of capital and this is really meant to describe how we would achieve that we are very willing to allow production to fall in the near term and then as you bring production back to move above a targeted.
Charles Meade: Mid point.
Charles Meade: When prices are there to support that and so what you should think about as you accelerate and decelerate capital. If you want to move that middle Dash line, but you move above and below that dash line based on the near term.
Charles Meade: Conditions in the market.
Charles Meade: That is helpful.
Charles Meade: Right.
That.
Charles Meade: It adds to my understanding.
Speaker Change: And then one other thing next is a follow up you twice now I think you've mentioned marginal breakeven for the industry can you.
Speaker Change: Sure sure what do you think that is and where expand sits vis vis the industry on that marginal breakeven.
Speaker Change: Sure I mean, I think we can all calculate like a specific number in our supply model on a marginal breakeven is of course, everybody is going to look at it a little bit differently. So we think that number is it I'm going to just call. It loosely in the mid threes.
Speaker Change: And so we think we said probably on the lower end of that as a business because we have a huge amount of of inventory at very very low cost in the Marcellus and then we have.
Speaker Change: A lower cost inventory in the haynesville than some of our peers lower cost because we still have a lot of development in the core of the Haynesville.
Speaker Change: And also because we have the best capital efficiency in the Haynesville and we have a slide in the deck that details that.
Speaker Change: So we think we sit in a really attractive position relative to the industries marginal breakeven and that's super important because if you are going to be a company that responds to supply and demand signals you really need to know where you set and if you're at the tail end of that marginal breakeven you shouldnt be.
Speaker Change: The first company to respond we don't think Thats, where we are we are most proximate to the growing demand and.
Speaker Change: In that area proximity we have the most capital efficient assets and so we really like our competitive position.
Nick: Thanks, Nick.
Speaker Change: Thanks Charles.
Nick: Thank you one moment second.
Nick: The next question please.
Speaker Change: And our next question will be coming from the line of Zach Param of Jpmorgan. Your line is open.
Zach Param: Thanks for taking my questions.
Speaker Change: First Josh you mentioned some meat on the bone left on driving D&C costs lower have.
Speaker Change: Have you built any of those incremental D&C declines into the Capex budget I mean yadkin.
Speaker Change: Consistently coming in at the low end or below our capex over the last several quarters. So just trying to get a sense on if that trend good could be set to continue.
Speaker Change: Okay.
Speaker Change: Yes, so what I would say is that.
Speaker Change: Further $400 million of synergy that does account for additional improvements.
Speaker Change: But I do believe.
Speaker Change: Have an expectation that we continue to find opportunities to enhance efficiencies through the year.
Speaker Change: And if realized will create upside to the capital needed to execute our 2025 program.
Speaker Change: Hey, Zach one thing I would add to that is just as we think about our synergies over time.
Speaker Change: And this goes back to a little bit of a question.
Speaker Change: Doug was asking at the beginning of the call.
Speaker Change: We've identified $500 million in synergies that we think are very clearly tied to this merger.
Speaker Change: Now.
Speaker Change: Ongoing one of the reasons you put together businesses like this and the reasons Youre excited about it or that there is any.
Speaker Change: Creasing opportunities each and every day to improve upon your business.
Speaker Change: So where we see the line between synergies that are directly tied to the.
Speaker Change: To the merging of the two entities versus ongoing improvements in our business will become more and more gray everyday post close so we're going to be really accountable for this first $500 million and then we're just going to continue to improve our business every day.
Speaker Change: Okay. That's helpful color.
Speaker Change: And then just wanted to follow up on a couple of the earlier question do you currently talked about anchoring to that seven five Bcf a day level in 2026.
Speaker Change: In the slide in the deck Thats based on a mid cycle price of $3 50.
Speaker Change: Strips above that level over the next couple of years do you see any scenarios, where you would move production higher from that seven five Bcf a day level in 2026, just trying to get a sense.
Speaker Change: Of how flexible you can be their boat going higher and lower.
Speaker Change: You certainly could go higher Zach I think it would take underwriting a price above $4. If you look at that heat map chart, you can see that for us to be comfortable targeting a price above or targeting a level of production of about seven five Bcf a day, you probably want to be underwriting a price, meaning you have confidence.
Speaker Change: In a forward look for two to three years, thats $4 or higher not quite where we are today.
Speaker Change: The dynamics for the gas market are super constructive.
Speaker Change: And we feel really good about the near term here, but we also know that like I mentioned earlier.
Speaker Change: Yeah.
Speaker Change: These prices will elicit a supply response and so we want to make sure we're not getting in front of that and we're thinking through that and prepared for how that dynamic will.
Speaker Change: We will evolve over time our market.
Speaker Change: Never responds perfectly and as always overreacting to one side or the other but given the lack of rig count increase that we've seen as we've gone through this winter. We do think that the supply response should be a bit more muted. This time than what we've seen in some past cycles and we think that's a really encouraging sign for the health.
Speaker Change: The market longer term now if any of those dynamics change and you see that the.
Speaker Change: Look out into 'twenty six 'twenty 728 maintains a more constructive.
Speaker Change: The.
Speaker Change: Dynamic of supply and demand then yeah, we could underwrite a higher price I think the most likely thing that would drive that would be if we felt that the utilization of LNG on the Gulf coast would remain at or near 100%, meaning that demand for LNG around the globe maintained a strong pull on <unk>.
Speaker Change: <unk> supply through that entire period.
Speaker Change: To see that evolve we're not quite there today.
Speaker Change: The power growth demand story in the U S is another angle that could.
Speaker Change: Could surprise to the upside you would have to see a real acceleration and how those plants are built were built.
Speaker Change: And our ability to supply gas to them and we really like our position for the power demand growth story in the U S. Because we are regionally diversified because we have access to infrastructure that can allow us to grow. So there is a good news story around all of those things, but we want to see that play out before we would underwrite a higher price and I'm using the word underwrite very intentionally.
Speaker Change: Right, we think about making a multi year investment decision and we think about it as an underwriting decision that should have an appropriate level of conservatism to it and be prepared to capture upside when it's available to us.
Speaker Change: Thanks, Nick that makes a lot of them.
Speaker Change: Thank you and our last question.
Speaker Change: We will be coming from Bloom Burton.
Speaker Change: Baird.
Speaker Change: <unk>.
Speaker Change: Your line is open.
Speaker Change: Hey, good morning, guys. Thanks for getting me on the on potential data center agreements, maybe what are your thoughts on how involved do you need to be in the project I guess, where on the spectrum do you fall if maybe all the way on one side as you need to be a part of the upfront spend or maybe all the way on the other side, where you just provide the gas and get a fix.
Speaker Change: Price or a premium.
Speaker Change: And do you think theres room for a.
Speaker Change: <unk> of names to provide the gas supply or should it be more siloed with each producer having kind of their own individual agreement.
Speaker Change: Those are good questions Bert and I don't think they are completely known yet we're open to all commercial structures associated with.
Speaker Change: The creation in support of long term demand for our industry, what we like about those projects is that they do represent long term structural demand.
Speaker Change: Really sticky.
Speaker Change: Not weather driven short term events.
Speaker Change: So we're open to supporting that in a number of different ways, but we are also very cognizant of our cost of capital and what would be efficient for our shareholders for us to invest so I.
Speaker Change: I don't know that we need to invest.
Speaker Change: Capital in the infrastructure, but under the right economic scenarios would we sure.
Speaker Change: We do definitely focus on what it means from a bottom line standpoint for the gas that we sell and the opportunity that we have to create a total return on our activities.
Speaker Change: As to whether or not we can do supply agreements like that on our own or you need a consortium.
Speaker Change: Given our scale of supply investment grade balance sheet, our ability to deliver gas to a number of different places.
Speaker Change: We think it's perfect we're perfectly capable of doing things like that on our own.
Speaker Change: Maybe even uniquely so.
Speaker Change: And at.
Speaker Change: At the same time.
Speaker Change: If there is a series of plants or a series of customers then.
Speaker Change: Want to have gas from multiple locations or want some diversity of supply we can work with others on that as well, but we do think we're well situated to be a sole supplier for certain projects.
Speaker Change: Got it very clear and then just shifting gears a little bit you outlined most of the potential growth in the productive capacity scenario would come from the Haynesville, but a.
Speaker Change: I assume maybe some growth happens in Appalachia at higher prices and a few of your peers outlined growth plans in Appalachia that I think assume in basin demand is going to materialize, but could you maybe talk about if youre seeing availability.
Speaker Change: Availability of transportation pickups, I mean is it are there roll offs of other operators that aren't growing or just maybe how you think about it there is appalachian growth, where where do those incremental volumes had thanks.
Speaker Change: Another good question, Brian I think theres, a little bit of all of that not maybe in huge size. So there is always a little bit of roll off from others as the basins mature when that happens, we're really well positioned.
Speaker Change: Should we want it to take advantage there is definitely some in basin demand growth and like I said, we're in the middle of a lot of those conversations to try to help encourage that theres discussion of new infrastructure and you've seen some of that in the press lately and we're going to pay really close attention to that and if those projects make sense and it will be a part of that as well the assets that we.
Speaker Change: Have in Appalachia, particularly our northeast, Pennsylvania position is the most economic gas in the United States.
Speaker Change: And any opportunity that we have to deliver more of that into a constructive market with <unk>.
Durable demand you should expect we will seek and achieve so those.
Speaker Change: Those things are hard to make happen or they would have happened several times over.
Speaker Change: There's probably a better opportunity to see those things happened today than there has been in quite a long time.
Speaker Change: Alright, thanks, guys.
Nick: Thank you and that does conclude today's Q&A session I would like to turn the call over to Nick for closing remarks. Please go ahead.
Nick: Thanks, everybody for joining the call today, we're really excited about what 2025 and 2026 has in store for US the market has been volatile.
Nick: And we are better prepared for that volatility, we think than just about anybody else out there. We look forward to using that preparation and flexibility in our business to create incremental on attractive return for shareholders.
Nick: I'll be on the road quite a bit over the next few weeks and so probably see several of you out on the conference circuit and look forward to engaging with everybody talk to you soon thanks.
Speaker Change: This does conclude today's teleconference. Thank you so much for joining you may all disconnect.
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