Q1 2025 Expand Energy Corp Earnings Call
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Speaker Change: Good day and welcome to the expand energy 2025 first quarter earnings teleconference. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if your question has been answered.
Speaker Change: I'd like to remove yourself from the queue simply press Star. One again. Please note that this event is being recorded I would now like to turn the conference over to Chris <unk>, Vice President Investor Relations and special projects. Please go ahead.
Speaker Change: Thank you Jonathan Good morning, everyone and thank you for joining our call today to discuss expand energy is 2025 first quarter financial and operating results hopefully you've had a chance to review the press release, an updated presentation, we posted to our website yesterday.
Speaker Change: During this morning's call, we'll be making forward looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs goals expectations forecasts projections and future performance and the assumptions underlying such statements. Please note that there are also a number of factors that will cause actual result.
Speaker Change: To differ materially from our forward looking statements, including factors identified and discussed in our press release yesterday and in other SEC filings. Please recognize that except as required by 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.
Nick: non-GAAP financial measures, which will help facilitate comparison across periods with peers for any non-GAAP measures. There's a reconciliation that can be found on our website with me on the call today are Nick del ASO Moats thing, Josh beats and Dan Turco, Nick will give a brief overview of our results and then we'll open up the teleconference for Q&A so with that thank you again.
Speaker Change: And now I'll turn the conference over to Nick.
Nick: Good morning.
Nick: Thank you all for joining our call today.
Nick: Recent market volatility has reinforced the importance of our strategy.
Nick: The steps we took over the last year to build scale in the best gas assets lower our costs through merger synergies strengthen our capital structure and invest in our marketing business has successfully reduced the impact of market volatility in our company.
Nick: Overcoming market volatility requires a resilient financial foundation, a deep market connected portfolio and low cost efficient operations, all hallmarks of our company and strategy.
Nick: In addition, we plan for an allocated capital around a mid cycle gas price of $3 50 to $4.
Nick: While markets have been volatile this pricing is still consistent with the forward strip in our view has not changed.
Nick: While spot prices, maybe lower today, the macro fundamentals for natural gas remains very constructive with growing LNG and data center demand setting up the market for a strong 2026 and steady rig count for lower 48 activity, implying a stable not growing production.
Nick: Against today's macro backdrop, we've continued to safely and efficiently execute our business. Our integration efforts remain on track and we expect to achieve approximately $400 million in synergies in 2025.
Nick: 500 million by year end 2026.
Nick: Since close we've eliminated approximately 1 billion in gross debt, including approximately $440 million in the first quarter.
Nick: In March we joined the S&P 500 index and we were recently upgraded to investment grade by Moody's, which means we have now achieved investment grade ratings by all of the agencies.
Nick: These important milestones further demonstrate the strength of our company and the value of combining Chesapeake in southwestern to create expand energy.
Nick: While both companies have achieved these results individually I'm confident we greatly accelerated the timing through our combination.
Nick: I am proud of the way our team has come together and embraced the role we play in answering the call to deliver affordable reliable lower carbon energy to markets in need.
Nick: We also continue to benefit from the tailwind of our productive capacity strategy has provided our business.
Nick: Building productive capacity allowed us to efficiently increase volumes as demand group.
Nick: To put our strategy in context over the first 12 months volumes from our productive capacity wells will generate approximately 225 million more in free cash flow compared to if we had elected to turn the wells in line last year.
Nick: We expect to exit 2025 at approximately 7.2 Bcf per day, turning in line substantially all productive capacity built in 2024.
Nick: As we look towards 2026, we are well positioned to deliver returns for our shareholders.
Nick: We expect to see a significant inflection in our free cash flow next year on top of the very strong year, we're having in 2025.
Nick: While growing our production to seven five Bcf a day.
Nick: This will allow us to return a significant amount of capital to shareholders.
Nick: Sound capital allocation and prudent hedging will reduce risk and underpin our free cash flow.
Nick: We look forward to continuing to update you on our progress and operator, we will now turn the call over for questions.
Speaker Change: Certainly and our first question for today comes from the line of Neil Mehta from Goldman Sachs. Your question. Please.
Neil Mehta: Yeah, Good morning, Nick Brian and team.
Tal's comments here today I'd love your updated thoughts around hedging you guys did layer in a lot of.
Neil Mehta: Have those hedges for 2026 just talked about.
Neil Mehta: And the way Youre thinking about the plan going forward and why you are likely to do that.
Mohit: Hey, good morning, Neil This is mohit I'll take that question.
Mohit: As you've seen us in the past, we will continue our disciplined approach towards hedging and we view that as just our way of managing the commodity price that risk that's embedded in there it allows us to utilize.
Mohit: And capitalize on the volatility that we see in the commodity prices and to increase the downside protection at attractive levels, while retaining some of the upside participation.
Mohit: One stat that I will mention to you is since the start of the year. We have added about 740 Bcf of new hedges of various tenders.
Mohit: Q1, 2027, with the average floor price of $303.75.
Mohit: On an average ceiling of $5.10.
Mohit: This has worked really well for us in the past.
Mohit: As another testament to the strength of the program.
Mohit: Last year, we recognized $1 $6 billion of hedging gains in a soft price environment. So we know the program works so going forward. It remains unchanged and you'll continue to see us be disciplined about.
Mohit: Layering in more hedges as we see prices strengthen both in the near term and at the back end of the curve.
Mohit: Yes. Thank you.
Mohit: Follow up is just on your perspective.
Mohit: On the gas commodity we have had a pretty dramatic move in the front back had been pretty well bid still but in the front do you think that supply or demand.
Mohit: Just talk about.
Mohit: Your perspective on balance of the year and how we move how we progress from here.
Mohit: Yeah, absolutely the front has been volatile.
Mohit: Interesting to watch.
Mohit: We've seen supply be robust through the first part of the year and.
Mohit: Yes.
Mohit: I think a function of the fact that we and some others had some deferred activity that we brought online into the cold winter that we had this year, creating some flush production the incremental demand allows all of that deferred activity flow. It at full rate and so I think you had a pretty strong.
Mohit: Production start to the year in addition to that.
Mohit: It was very cold.
Mohit: <unk> in January and then February and March were a bit more normal April than has been pretty under.
Mohit: Historic demand levels.
Mohit: I think you've seen a combination of supply strong demand be be light I want to just remind you, though that the way we think about it as the near term volatility is something that we plan to absorb within the way that we think about capital allocation. So we were.
Mohit: We spent a lot of time on the last call.
Mohit: Talking about capital allocation utilizing a two to three year forward look up mid cycle prices.
Mohit: Knowing that in the near term cycle cycles will.
Mohit: Drive prices higher and lower than that that mid cycle price.
Mohit: I think that's exactly what we've seen and we feel really good about all of the fundamentals that drive our mid cycle price expectations and our price expectations broadly for 'twenty five 'twenty six 'twenty seven.
Mohit: That still support exactly the same way, we've set up our business.
Speaker Change: It makes a lot of sense. Thanks, Nick.
Mohit: Thank you.
Speaker Change: Next question comes from the line of Doug Leggate from Wolfe Research Your question. Please.
Nick: Thanks, Good morning, everyone, Nick I Wonder if I could follow up on not.
Speaker Change: Just looking at the hedge range.
Speaker Change: Thank you and I have talked in the past and I'm sure others about the volatile the increased volatility of this market and you've got like a 50% spread on these hedges just as a matter of record. My question is navigating not you've talked about lowering your breakeven for the portfolio.
Speaker Change: Where is that today, where do you think it can get so during this period and obviously theres a lot goes into not the synergies the incrementals leviable synergies.
Speaker Change: The marketing uplift in margins and so on I'm. Just wondering if you could talk to us about the trajectory for your breakeven as you pay down debt.
Speaker Change: Yes, it's a great question, Doug and it's absolutely what we think about every day around here are.
Speaker Change: Our breakeven today as we begin to realize the synergies of the merger.
Speaker Change: Move.
Speaker Change: A little bit below three bucks.
Speaker Change: We think theyre going to continue to drive lower and we're focused every day on driving them lower through.
Speaker Change: The remainder of realizing the synergies of the transaction as well as.
Speaker Change: Further efficiencies that we're going to drive through our business.
Speaker Change: Just to just for clarity Nick is that the current spending level or is that maintenance capital spending level.
Speaker Change: They're pretty close to the same number right I mean, our current spending level is where we expect to hold production. So that they are the same thing.
Speaker Change: Okay, Great. So my follow up is it's a marketing question I'm afraid I tried this last quarter, but you recently had a trip to Asia I know.
Speaker Change: Youre looking at outlets and all over the place I guess for your gas as the biggest gas producer now in the U S. But I am curious if you are ready to offer any kind of insight as to what what.
Speaker Change: What impact that can have on on realized prices for you guys and to the extent you can share.
Speaker Change: What the LNG potential.
Speaker Change: Supply might look like for expand going forward into U S LNG facilities.
Speaker Change: Hey, Good morning, Doug This is Dan I'll take that question. So on the LNG side as you would expect a company of our size now after the merger and scale that we have been a lot of conversations about potentially entering the LNG business and you referenced we've been out in a peso lately talking too.
Speaker Change: <unk> opportunities I think where we currently situated in especially in the Haynesville, we're well positioned to grow that value chain and where numerous conversations at the moment at various stages of the projects.
Speaker Change: Im not going to comment on anything that's commercially sensitive, but I think there is value there for us to either sell into those projects or even go further downstream to expand our value chain and look for more upside to the key in this is do you have the right risk reward balance.
Speaker Change: Getting to that and make sure that intrinsically were in the money on what we're doing and try to capture that extrinsic upside.
Speaker Change: After but again early conversations in various stages at the moment.
Speaker Change: To comment on that.
Speaker Change: Alright, good to hear you on the call and thanks, so much thank.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of Zack <unk> from Jpmorgan. Your question. Please.
Speaker Change: Hey, Thanks for taking my question.
Speaker Change: And to ask on the cash return program.
Speaker Change: First six month period of the new framework Youre going to have some free cash flow that falls into tranche. Three can you just give some detail on how you're thinking about cash return from that bucket do you plan to be active buying back the stock or will you lean more towards a variable dividend or maybe a combination of both.
Speaker Change: Yes, thanks, Zack so.
Speaker Change: We're really pleased with our return framework with a good set up well for this year.
Speaker Change: Just getting into the point at which will start to determine now how that tranche three will be applied.
Speaker Change: And we'll be thinking about that over the coming weeks I think Mike may have some more to add here.
Speaker Change: Yes.
Mike: Things I will add is we view our strong balance sheet as a competitive advantage and that's something that we will continue to focus on.
Mike: We remain very pleased with the progress we have made so far in terms of paying down.
Mike: Around $1 billion of gross debt. So that's very close to the target we had set for ourselves of $1 $1 billion by.
Mike: End of 2025.
Mike: The last thing I'll say to you is if you look at our historical track record. We have returned about $3 $7 billion to our investors through a combination of base dividends variable dividends and buybacks.
Mike: So that should demonstrate our unwavering commitment to return cash back to the shareholders and as tranche three gets.
Mike: Waterfall into at current prices, you should expect us to be active in the market.
Mike: If the stock is trading and the right levels.
Mike: Thanks.
Mike: A follow up wanted to ask on on Haynesville activity levels in the slides you show your up to four Frac crews there that compares to the prior disclosure that had indicated you'd averaged three crews from the year or for the year.
Mike: Can you talk about what's changed from an operational perspective have you pulled forward a little bit of activity just given some higher pricing just just curious what.
Mike: What's changed in the operational plans there.
Mike: Yes, really exactly let's say we're on track with the plan that we laid out back in February we knew coming into the year carrying a higher level of ducks than maybe we had historically that there'd be an opportunity to work down that inventory and so really the expectation is across this quarter and maybe carry a month or so.
Mike: So into.
Mike: Q3 that we will run a fourth frac crew and so that is going to average between three and a three and a half for the full year.
Mike: But again, that's really in line with how we sell the setup for the full year, where we saw the earlier part of the year really focused on the deferred till activation.
Mike: As we've worked through that backlog of inventory, we're really now turning our attention to the docs.
Josh: Thanks, Josh.
Speaker Change: Thank you and our next question comes from the line of Devin Mcdermott from Morgan Stanley. Your question. Please.
Devin Mcdermott: Hey, good morning, Thanks for taking my questions.
Devin Mcdermott: So you had a slide in the deck I believe it's slide eight just highlighting some of the trends youre seeing on well costs.
Devin Mcdermott: There is no material impact from tariffs I was wonder if you just talk through in a bit more detail some of the different buckets, there the trends youre seeing and how the overall number that zero to 2% deflation that compares versus your expectations going into this year.
Devin Mcdermott: Yeah, Hey, good morning. This is Josh yes, we've obviously seen some weakness coming into the year in terms of the oil patch market and just in conjunction with the merger, creating more scale within the basins that we operate operate and we've been successful at renegotiating some key contracts and that's given a little bit of a tailwind and of course.
Devin Mcdermott: That was something we were well aware of when we issued guidance in February so.
Devin Mcdermott: That all is embedded in the plan and so as we look forward and look out to the rest of the year and specifically around tariffs.
Devin Mcdermott: Are they going to be a little bit of pressure that shows up associated with tariffs and in our business.
Devin Mcdermott: That is going to show up within our casing cost now I think a couple of things that are important to note. One is roughly 80% of our casing is sourced domestically.
Devin Mcdermott: So there is some some level of installation, but we know as imports cost rise that will likely.
Devin Mcdermott: Bleed into some of the domestic cost as well.
Devin Mcdermott: But another important point is as the simple fact that the majority of our casing is contracted through the third quarter.
Devin Mcdermott: And so the exposure to those tariff related impacts are somewhat muted and so really when you add all those things together that has led us to a spot to where we would expect.
Devin Mcdermott: Cost from 24% to 25 to be flat to slightly down.
Devin Mcdermott: We will continue to work with our service providers, we have some really great relationships that we manage so that's going to be a focus for us going forward and of course, I think spot that maybe creates a little bit of a tailwind for us as well as just really I think the outlook in the oily basin Smith, specifically within the Permian, if we see any material pull.
Devin Mcdermott: Back in activity there I think you could expect some additional deflation showing up across our business.
Speaker Change: Got it Okay. That's really helpful and then I wanted to step back and.
Devin Mcdermott: Nick ask you at a higher level strategy question, one of your peers recently announced a bolt on transaction in Appalachia and you.
Devin Mcdermott: You highlighted the success of the Chesapeake southwestern merger and some of your prepared remarks, that's very evident in the operating results over the last few quarters as well I'd imagine that given the quality of the portfolio that you have it's a fairly high bar for further deals or further M&A, but I wanted to get your high level views on further industry consolidation kind of overall you see expand playing in that.
And what kind of key financial or strategic metrics, you would look at and evaluate any potential opportunities going forward.
Devin Mcdermott: Yeah, Hey, Devin. So you are right. We just completed a really big merger, we have our hands full realizing the remainder of the synergies there it's going great, but it takes a ton of work and we're very very focused on that.
Devin Mcdermott: Going forward, we will continue to pay attention to things that are out there. That's part of our job we're going to remain grounded on our non negotiable is when we think about additional deals.
Devin Mcdermott: So there.
Devin Mcdermott: Probably things that we'll look attractive to us at some point in the future I can't predict when and I can't predict exactly what but I can predict that they will meet our non negotiable.
Devin Mcdermott: Understood. Thank you.
Speaker Change: Thank you and our next question comes from the line of Nitin Kumar from Mizuho. Your question. Please.
Nitin Kumar: Hey, good morning, guys.
Speaker Change: Nick I wanted to maybe touch on there has been some discussion from the president about the Constitution pipeline.
Nitin Kumar: As one of the larger producers in the northeast Marcellus you are positioned to be better.
Speaker Change: Benefiting from that so.
Speaker Change: Could you maybe talk a little bit about what you think the chances are of that pipeline being built what might the timeline or the commitment required look like and then maybe just generally like are you seeing other opportunities for expanded demand for gas within the Appalachia.
Speaker Change: Hey, Matt This is Dan I'll take that question as you said, it's good to see infrastructure being discussed to build out whether it be pipeline compression storage power of these data centers and more broadly I'd just add that it's good to see active discussions around permitting regular process in certain jurisdictions to try to streamline some of that.
Speaker Change: In Appalachia has its clear need for takeaway and we're supportive of these discussions and I know Williams is currently working hard at the specifics and we're going to take a hard look at it when we have more more details, but as it stands here, it's still early days, but could be beneficial to our portfolio, but we will look at the cost benefit of getting in that pipeline and you mentioned in the <unk>.
Speaker Change: Sure demand, we've seen a lot of that and again, we are in active discussions in Appalachia with many power demand.
Speaker Change: <unk> and data centers as well various stages again I won't get into any specific commercial discussions there, but in general good to see the build out and the discussions have been and we're going to look hard at these opportunities.
Speaker Change: Okay, great. Thanks for the color then and then my follow up is just on the cadence of spending.
Speaker Change: First quarter came in.
Just a little bit below your expectation, but good to see that momentum.
Speaker Change: You talked about deflation here you've maintained your full year target. So maybe this one might be for Josh, but what is the cadence of the deferred pills. The ducks and then at what point do you expect to start seeing the spending on the productive capacity for 2026.
Speaker Change: Yes, so first of all I mean, I think it was a really good quarter for US operationally there is a ton of activity for us, bringing on just just under 90 wells in the quarter.
Speaker Change: I would also just note that.
Speaker Change: From a drilling execution standpoint, we continue to perform at a really high level.
Speaker Change: We had record quarters from a footage per day perspective in both the Haynesville.
Speaker Change: In northeast Appalachia, while drilling the longest lateral.
Speaker Change: However, in our southwest Appalachia asset.
Speaker Change: Over 25000 feet. So really pleased with the way the operations are going in the Q1 number there is definitely an impact of seasonality operations within there.
Speaker Change: Tend to do a little bit less planned maintenance work or work overspend, it's always going to be a little bit last which is impacting us both in terms of the production expense and capital side as well so you'll start to see some of that expense in capital rolling into the second quarter, and then as I mentioned earlier.
Speaker Change: In a prior question. We're also adding a fourth frac crew and Haynesville for a short period of time, which again is allowing us to start to draw down the DUC inventory that we built up last year as.
Speaker Change: As we look forward into the second half of the year, that's really where you start to see the productive capacity Capex show up so we've talked about the incremental three $300 million there.
Speaker Change: And that will really be kicked off with the addition of an eighth rig in the July timeframe with expectations, we'll be adding rigs in both the northeast Appalachia and southwest Appalachia.
Speaker Change: Kind of the fall timeframe, and so that will get us on plane to exit the year.
Speaker Change: At around seven two Bcf, a day and spending roughly $3 billion a year.
Speaker Change: In total for 2025.
Speaker Change: Great. Thanks for the color guys.
Speaker Change: Thank you and our next question comes from the line of John Freeman from Raymond James Your question. Please.
John Freeman: Thanks, Good morning.
John Freeman: Just a question of the Haynesville gets ramped over the next few years.
John Freeman: Are there any.
John Freeman: Additionally, their infrastructure or just sort of non D&C.
John Freeman: Spending that we should be aware of or does that sort of percentage of total capital in the haynesville for non D&C stater.
John Freeman: All of our sort of rate.
John Freeman: So there is nothing planned right now for non D&C infrastructure in the Haynesville John.
John Freeman: <unk>.
John Freeman: We had an opportunity couple of years ago to participate in the <unk> III pipe that capital is really all been spent now the pipes come online at the end of this year, it's a great project.
John Freeman: We're really happy to be in that.
John Freeman: There's nothing else that's in front of us today, but I think we loved that opportunity and if something else like that came along that offered us.
John Freeman: Great access to an attractive market, we could choose to do something like that again, but there's nothing in front of us today that represents.
John Freeman: <unk> represents that.
John Freeman: Got it and then.
John Freeman: Just the follow up for me.
Speaker Change: You've obviously done a really good job of making progress on the synergy capture.
John Freeman: And just sort of looking at the slide that you've got in your deck and five six.
John Freeman: Is it fair to say that it looks like everything that you all kind of needed to achieve on a run rate basis is kind of there with <unk>.
John Freeman: Company owned sand mine.
John Freeman: Financing costs for completion design all of that stuff that we're not additional synergy bucket sort of basically in place in our system out of just continuing that run rate to achieve the 500 by.
John Freeman: By year end 'twenty.
John Freeman: But I'm guessing, it's yet to be yet to be in place.
John Freeman: No really John I'd say, we're on track we feel really good about how the integration has gone the teams are performing at a really high level we've.
John Freeman: <unk> had another really great quarter of drilling in the Haynesville, which has just given us even more confidence on our ability to deliver the.
John Freeman: The synergy there so yeah I would say at this point we are on track.
For the $400 million synergy deliver delivery by year end 2025, and 500 by the end of next year.
Thanks I appreciate it.
Speaker Change: Thank you and our next question comes from the line of Kelly <unk> from.
Speaker Change: Bank of America. Your question please.
Kelly: Hey, good morning, guys.
Speaker Change: I wanted to ask you about the Haynesville guidance can you kind of give us a sense, where haynesville gas production is in real time I E.
Kelly: Today or perhaps at the end of March.
Kelly: Messages that youre getting to 295 Bcf a day in Q, <unk> and holding flat I guess the nuance there is that the haynesville, it's largest producers and growing very much for the rest of the year and that's constructive for a second half 'twenty five balances, but you also mentioned that the <unk> III pipe is coming on at the end of the year and you have capacity on it so I'm kind of wondering how that gets filled.
Kelly: Yes.
Kelly: So good question Thats exactly right that we're going to reach that level of production.
Kelly: During the second quarter, and then it will flatten out for the rest of the year without any incremental growth until we get into 2026.
Kelly: That said, we are planning a redirect volumes into the <unk> III pipe.
Kelly: We have a lot of production around the basin a lot of it flows through.
Kelly: Today, Internet and transport today are interruptible transport today and so.
Kelly: We have a lot of flexibility in where we deliver our volumes.
Kelly: We actually look forward to.
Kelly: Optimizing that flexibility through the work of Dan's team going forward too.
Kelly: Realized prices.
Kelly: Got it I appreciate that next I'd like to go to operating expenses versus our estimate that's where the beat was in this quarter, we were kind of expecting a certain cadence per unit costs that start high and trend lower as you grow volumes, but in <unk> you are already at the low end, so kind of wondering how that trends from here.
Kelly: Yes. This is Josh we do expect spend to on an absolute basis to increase as we get into the later spring and summer months and as I mentioned earlier, we just really Peel back some of our planned maintenance activities and Workover expenses in the first quarter and so as production will pick up.
Kelly: Into the second quarter relative to Q1.
Kelly: Just a simple fact that our absolute spend is moving up in concert with that.
Kelly: Clearly some things that we see that are going well within our production expense, but it's still really early in the year end.
Kelly: And we want to kind of get another quarter under our belt and but at this point, we feel pretty good about the guide that we've offered.
Speaker Change: Thanks for taking my questions guys.
Speaker Change: The queue and our next question comes from the line of Phillip Jungwirth from BMO. Your question. Please.
Phillip Jungwirth: Thanks, Good morning.
Phillip Jungwirth: When you think about your $3 50 to $4 mid cycle view.
Phillip Jungwirth: Just with the lower crude price I was wondering Hal associated gas plays into your outlook.
Phillip Jungwirth: Generally what type of what level of oil production does that assume for the lower 48, and and if we undershoot that over the next couple of years, how would you think about upside in terms of incremental call in the Haynesville.
Phillip Jungwirth: Associated gas is pretty complicated model as you guys know because you have from the Permian you have had growing volumes. But then you also have an increasing GR our approach to modeling Permian gas over the last couple of years has been really simple.
Phillip Jungwirth: Model the pipeline capacity, that's coming online and it will be filled and thats held true and I think thats still going to be true for a bit.
Phillip Jungwirth: We're going to continue to see increasing GR.
Phillip Jungwirth: We saw how quickly matterhorn field, even though it didn't appear that there were a lot of docs in the basin leading into that.
Phillip Jungwirth: And so I think Theres just the basin continues to prove that associated gas is available when pipeline capacity is available that said, if we see a material pullback in rig count in the Permian and that will change and that could be it.
Phillip Jungwirth: Really interesting development for the dynamics of lower 48 supply.
Phillip Jungwirth: But we're just going to have to watch that theres a lot of predictions out there right now of cuts to rigs in the Permian.
Phillip Jungwirth: <unk> seen anything from 20% to 50, but we haven't seen a lot of specific plans just yet so we're going to be watching that really closely.
Speaker Change: Great, Thanks, and and yet you had really strong realizations across the board, but just wanted to ask about the Haynesville, specifically and just your medium term outlook there for differentials.
Phillip Jungwirth: Net backs.
Phillip Jungwirth: Just with several new pipe starting up in the play, including your <unk> III pipe.
Phillip Jungwirth: LNG ramping supply being slow to respond and maybe any update on the gas marketing and trading efforts that you've established over the last year.
Phillip Jungwirth: Yes, I think really what you're touching on there Phil is just the dynamics of the overall market the bigger.
Phillip Jungwirth: Fundamental trends, which is that demand is growing and growing pretty rapidly, particularly along the Gulf coast is all this LNG capacity comes online and we love. The fact that we have two five Bcf a day of capacity thats going to be available to deliver gas to go as we also like the fact that we still maintain quite a bit of capacity in parallel.
Phillip Jungwirth: And so the opportunities there to think about how we most effectively supply the markets that need the gas.
Phillip Jungwirth: It's pretty interesting and I think theres going to be a lock that plays out there with the haynesville starting off here.
Phillip Jungwirth: In a position where it doesn't look like it's growing rapidly into this demand growth I think it does set up for a pretty constructive environment for our business.
Phillip Jungwirth: Great. Thanks, guys.
Phillip Jungwirth: Yes.
Speaker Change: Thank you and our next question comes from the line of Scott Hanold from RBC. Your question. Please.
Phillip Jungwirth: Yes, thanks al.
Speaker Change: You all have a plan.
Speaker Change: Start spending the $300 million of growth capital in the second half of the year.
Speaker Change: Can you give me.
Speaker Change: Given the volatility and just sort of a broad macro environment.
Speaker Change: How do you think about the optionality of doing that or not if the gas market does breakdown would you go ahead and spend that and built that productive capacity or would you defer the spending to next year I guess the third option is do you spend it this year and just build a deferred kind of til backlog just.
Speaker Change: Which one of those options would you kind of evaluate doing if the macro remains uncertain and prices come down a bit.
Speaker Change: Yes, it's a great question, Scott and I'll go back to again the framework that we put out last quarter, which is to really think about how.
Speaker Change: Longer term mid cycle pricing works the decision to spend money is really around that the decision to produce gas is different the decision to produce gas is much more around the immediate market conditions that we see at any given time. So this is really what youre describing is really a repeat of conditions that we saw last year, which would be a weak near term.
Speaker Change: Gas market with decent long term fundamentals in that case, I think we continue to spend capital.
Speaker Change: And potentially pull back on production if it's if there's a weak price.
Speaker Change: We can pull back on production by curtailing flowing volumes today or deferring.
Speaker Change: Turn in lines and.
Speaker Change: We did both last year. So I think we have a track record of being very responsive and not oversupply a market that doesn't need gas.
Speaker Change: That said if the longer term trends change that the fundamentals change in some way then you change your capital program.
Speaker Change: And so we really think about those things.
Speaker Change: Very separate decisions and that flexibility that we built into our business built into our decision, making and that we manage risk around through hedging and through how we allocate our capital we think is a real.
Speaker Change: Positive evolution for the way, we run our business and our strategic advantage that we can manage given our strong balance sheet, our approach to hedging our ability to deliver gas out of several different areas of the country through a lot of different pipes. So we have the flexibility to grow production when we choose to.
Speaker Change: And to pull back and manage that pullback across a lot of areas without incurring.
Speaker Change: Onerous fees.
Speaker Change: That's really going to like the way that that's.
Speaker Change: Play Doh.
Speaker Change: My follow up question is going to go back to one of the earlier questions on <unk>.
Speaker Change: <unk> as you move into that.
Speaker Change: I understand obviously you are not.
Speaker Change: Can you give us exact color on how youre going to return that cash, but can you give me a sense of.
Speaker Change: With your discussion with investors how do they view the variable dividend then we've seen a lot of this sector kind of back away from variables in favor of buybacks.
Speaker Change: Can you give us your general view on the value in the variables and do you think your investors are just broadly investors would.
Speaker Change: We would welcome that.
Speaker Change: Hey, Scott. This is Chris there is I'll I'll take this one so we actually see a pretty solid response to both buybacks and variable dividends the benefit of the variable dividend as it de risks the investor's investment and that's unilateral across the board in terms of receptivity is that embed.
Speaker Change: Added <unk> through a cycle and if you look at our history as a company with the variable dividends that we've paid out.
Speaker Change: It's made up of a solid portion of our <unk>, regardless of how the equity price traded down or up with the gas price now going forward.
Speaker Change: We would expect it to be a combination of both as Nick talked about with the variable dividends and buybacks.
Speaker Change: We see benefit in being able to have that through cycle repurchasing tower that buybacks bring for our business and being able to drive that per share accretion.
Speaker Change: So we do see across our Investor base, though our belief in the support that a variable dividend provides for arc <unk> and part of the reason why we will look to combine both variable dividends and buybacks through a cycle.
Speaker Change: Thank you for that.
Speaker Change: Thank you and our next question comes from the line of Matthew Portillo from T. P. H. Your question. Please.
Speaker Change: Good morning, just one question on my end I was curious if you might be able to talk a little bit about the Utica just your acreage pressed activity I think you guys have.
Speaker Change: Five wells planned to tell there this year and kind of what youre looking for from a resource on Mark perspective.
Speaker Change: Yes, good morning, Matt.
Speaker Change: We remain active in the Utica, we see the prospectively.
Speaker Change: As well as really thinking about extending the limits of the Marcellus as well as you move further west into Ohio, and so we have pretty active leasing programs. There to help sure up additional inventory and that will continue to be a focus for us and the team is moving forward.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you and our next question comes from the line of Jeff J from Daniel Energy Partners. Your question. Please.
Speaker Change: Hi, I guess I was thinking about and I really appreciate the color on the tariff impact on spend and I guess my question is if.
Speaker Change: If these tariffs persistence they kind of they stand today would you expect a step change in costs in 2026 as your contractors.
Speaker Change: Materials rollover.
Speaker Change: Well, if you want to think about the single sector of <unk> I think the there is the potential for those costs to reset into 2026, but just as a reminder, there are just so many other market dynamics that have the potential.
Speaker Change: To impact cost largely activity that we see occurring across the lower 48, and specifically in the Permian.
Speaker Change: In addition to that we continue to invest in our business and things like our company operated sand mine water infrastructure.
Speaker Change: That we have in our back pocket to offset any potential cost increase in the future.
Speaker Change: Hey, Jeff This is Nick one way I think about this is that certain raw materials like steel are going to be pressured up if the tariff situation continues but we're also seeing that thats driving oil prices lower that's going to drive activity lower across the industry. So you have certain raw materials going up and then service costs coming down just kind of summarizing what Josh said, but those two are.
Speaker Change: Obviously connected to each other and work opposite of each other.
Speaker Change: Yes that makes sense alright. Thank you.
Michael Shah: Thank you and our next question comes from the line of Michael Shah from Stephens. Your question. Please.
Michael Shah: Good morning, everybody. Nick you mentioned, you expect free cash flow collection next year, which is interesting given how capital efficient 2025 is with the return of the deferred till then and the Ducks can you talk about the drivers for that inflection next year is that primarily due to <unk>.
Michael Shah: The way the strip prices or how much of that depends on further efficiency gains.
Michael Shah: Yes no.
Michael Shah: Patiency gains will come from the final realization of our synergy so there definitely is.
Michael Shah: And we're excited about that but the biggest drivers that we'll be getting up to the production levels of seven five Bcf a day that we're targeting and that's a pretty good gearing factor as you go into a higher priced environment and of course, we are hedging that higher price environment. Every day you saw how much we hedged in the first quarter when prices were robust and we'll continue to look for those opportunities.
Michael Shah: Got it.
Speaker Change: You've talked about the tariffs from a cost perspective, I'm wondering if you could talk more broadly just from a high level how are you.
Michael Shah: You think about that potentially impacting LNG markets and is that having any.
Speaker Change: Any impact on your discussions on your gas marketing efforts.
Dan Turco: Hey, Mike This is Dan.
Dan Turco: LNG front, if youre talking about online capacity today, we don't really see any issue coming from their tariffs China implemented tariffs I think in February and you see re optimization of cargoes around the world is to place all of those cargoes in the market and we've seen no slowdown in the construction of facilities is currently online and we've seen no slowdown in the conversations we've had.
Dan Turco: With potential new LNG capacity online. So we're really in the near mid term, we don't really see the challenge, yes, there might be less Nick said on the upstream side, there might be a cost challenge coming to some of these projects, but really no slowdown we've seen.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you and our next question comes from the line of Leo Mariani from Ross Your question. Please.
Speaker Change: Yes.
Speaker Change: I'll follow up a little bit on sort of price synergies. So you guys talked a lot about this when the Chesapeake southwestern merger was announced.
Speaker Change: You certainly.
Speaker Change: And that you are engaged in a lot of discussions you hit your investment grade ratings quarterly production.
Speaker Change: I know you can't comment on specific projects, but maybe just talk about your kind of level of confidence on getting some of these gas price related synergies today versus when you announced the Chesapeake southwestern merger.
Speaker Change: Hey, Larry I'll take that question as well I am quite excited about this opportunity that we had to create something unique for this company in terms of optimizing our portfolio.
Speaker Change: Early days with this new MSC organization, but the team has actually done quite a bit so far I mean, bringing the two portfolios together and 90 days was a pretty impressive feat.
Speaker Change: We had some early wins by connecting the portfolio across the ft, and getting some optimization value. So going forward, we're going to try to do more of this at scale.
Speaker Change: To optimize our portfolio was up there Nick talked about in the Haynesville, where we have the <unk> III pipeline coming on it gives us a lot of daily Optionality and I'm really excited by what we can do and you've had some recent hires come on board to increase our capacity to do so and also our capabilities. So going forward I'm quite confident about our ability to make more money and more margin through this.
Speaker Change: The organization, we're creating.
Speaker Change: Okay. Appreciate that and then just on the operational side. Obviously, you guys had really good success here in the first quarter.
Speaker Change: Its certainly got kind of more than than kind of a quarter of the tails done here in the quarter. It sounds like youre, bringing on another frac crew as well in the Haynesville and QQ. So it feels like the answer a little bit ahead of schedule I just wanted to kind of take your temperature on the upside here so to the extent that you continue to.
Speaker Change: To execute well operationally could we see a few more tails that you've guided to here in 2025 or would you guys likely maybe choose to kind of save some capex towards the back end of the year.
Speaker Change: For quote unquote budget exhaustion.
Speaker Change: Yes, well first of all we have had a good start to the year and really pleased with the overall operational performance, but right now we really remain focused on creating.
Speaker Change: Fishing business as we can and as we talked about on the last call. It is really about getting our business up to that seven five Bcf a day, mark and if we're able to achieve that to less activity less.
Less drilling rigs because we're drilling faster that's likely the path that we would end up taking so we feel good about the plan that we've laid out.
Speaker Change: And we remain on track to deliver that guidance.
Speaker Change: Okay. Thanks.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from the line of Betty Jiang from Barclays. Your question. Please.
Betty Jiang: Good morning, I just have one clarification question on <unk>.
Speaker Change: On the return framework.
Speaker Change: How do you think about determining the available cash flow for cash return for the rest of the year.
Speaker Change: Your target provided last quarter was 500 million broken into two $250 million tranches per each fiscal half year with the $168 million and one Q do you see that meeting your first half requirement that's effectively completing the.
Speaker Change: Most of your requirement for the year.
Speaker Change: Betty This is mohit so the way if you go back to the when we unveiled the program we set it up as do evaluation Peters. The first evaluation period is the first half of the year. So you really need to look at the first quarter in the second quarter together and that's the way we had been viewing it and as Nick previously signalled at current commodity prices.
Speaker Change: We see in our free cash flow to be able to service tranche, one which is the base dividend and then we've made good progress on tranche, two which is a net debt reduction. So we do expect some cash flow to free cash flow to go into <unk>, III, which is where we will have some discretion on how much to put towards variable versus buyback 75.
Speaker Change: <unk> allocated to it.
Speaker Change: No.
Speaker Change: Hopefully that helps but.
Speaker Change: The.
Speaker Change: The way you should think about it is in terms of the evaluation periods.
Speaker Change: If it adds to the paid Betty I would just note that we had a piece of debt that matured in January and so that that drove the pace there for the first part of the year.
Speaker Change: Got it the second half will still get re evaluated separately.
Speaker Change: That's right.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you and our next question comes from the line of Paul Diamond from Citi. Your question. Please.
Paul Diamond: Thank you and good morning, all thanks for taking my call just a quick one talking about the kind of a synergy outlooks. So you've done a pretty good job of both the opex and capital side of kind of progressing towards that 400 million per annum by year end it seems to be a bit more chunky I just wanted to get an idea if we should think about that more.
Speaker Change: Like step changes along the way or should it be more thought of it as linear.
Paul Diamond: Going forward.
Paul Diamond: Yeah, Hey, Paul it's Nick.
Paul Diamond: The way I think about that is we're really pleased with what we've accomplished so far if you think about like the drilling and completion synergies. We're seeing the full element of synergies achieved with the individual wells that we're drilling today, but in order for us to achieve the aggregate dollar amount of synergies projected for the year where to drill all the wells in the program for the year.
So I would say we are.
Paul Diamond: Complete in terms of our ability to capture the synergies and now we just have to execute our plan to complete capturing them does that does that answer your question.
Speaker Change: No it makes perfect sense.
Paul Diamond: Appreciate the time and I'll leave it there.
Speaker Change: Thank you. Our next question comes from the line of Kevin Mccarthy from Pickering Energy Partners. Your question. Please.
Kevin Mccarthy: Hey, good morning, I have another question on the marketing side Slide 13 of your deck details youre marketing contracts and <unk>.
Kevin Mccarthy: Talks about a bcf a day are going to give us an <unk> 25.
Kevin Mccarthy: Do you have any color or expectations for how that market. It gives us is shaping up and how that could impact your margins.
Dan Turco: Hi, Kevin Thanks for the question this is Dan.
Dan Turco: We're excited about that capacity coming online that Nick talked about that because its down to give us really excited because the growth the real growth, we're seeing down there with the growth in LNG under construction right blackmun's ramping up right in our backyard Goldman.
Dan Turco: Golden pass that we hope to come online in 2026, and then you have just recent announcements from Woodside on Louisiana, LNG Thats going to bring more demand to that market over time. So we are expecting that market to be quite a premium market in basis due to increase there and not only there but across the haynesville is theres going to be a pool across into the haynesville to bring.
Dan Turco: Gas to that that area of demand.
Dan Turco: Great. So it sounds like positive for margins.
Dan Turco: And then maybe for a second question to ask a different way on the Capex trajectory.
Dan Turco: You came in low in the first quarter the guidance points to a step up in <unk> any color that you can share on the expectations for the back half of the year as it compares to Q1 and Q2 for Capex.
Dan Turco: Yes, we would expect the trajectory to the third and fourth quarter to be relatively in line with where our Q2 Capex is.
Speaker Change: Great. Thank you.
Dan Turco: Thank you.
Dan Turco: <unk>.
Speaker Change: Our final question for today comes from the line of Charles Meade from Johnson Rice. Your question. Please.
Speaker Change: Good morning to you and your team. There you guys have really had a murderer's row Q&A line up this morning. So.
Speaker Change: Thanks for taking the time I just have one short question on kills I think there'll be a short question.
Speaker Change: Have you guys seen anything that surprised you either positive or negatively as you brought on these are these deferred sales that.
Speaker Change: Sure.
Speaker Change: We're kind of sitting bottled up for whether two or three or four months it Ed.
Speaker Change: Is there any.
Speaker Change: Is there any kind of difference in that answer variation between what you've seen in the haynesville southwest app or northeast App.
Charles Meade: Yes. Thanks for the question Charles really been incredibly pleased.
Charles Meade: With what we've seen to date I mean first of all if you just think about the amount of activity that we've been managing in fact, if you were to go back to the fourth quarter. We've now brought on 130 wells over the last two quarters. So.
Charles Meade: Teams have just done a phenomenal job.
Charles Meade: Managing a lot of activity in a short amount of time.
Charles Meade: The well performance that we see is it looks undisturbed from anything that we would expect if you were to bring these wells online with normal cadence.
Charles Meade: We're always going to expect to see some level of variability depending on the types of wells, we bring online so upper versus lower or the various parts of the haynesville where productivity can vary as you move from north to south.
Charles Meade: But again, just really pleased with the overall execution of our productive capacity strategy.
Charles Meade: That's great detail thanks, Josh.
Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Nick <unk> for any further remarks.
Charles Meade: Thanks, everybody for your time today.
Charles Meade: Look forward to seeing everybody out on the road as we get out and meet with investors as usual you can reach out to our team with any other questions and we'll look forward to.
Charles Meade: Seeing you guys around the first week of August for next quarter's results.
Charles Meade: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Charles Meade: Okay.
Charles Meade: Okay.
Charles Meade: [music].
Charles Meade: Okay.