Chesapeake maintains course amid market adjustments By Investing.com

Chesapeake Energy Corporation (NYSE:), in its First Quarter 2024 Earnings Conference Call, reported steadfast execution of its financial and operating plan, which resulted in the generation of free cash flow. Despite deferring 22 turn-in lines and building 24 drilled but uncompleted wells, the company’s production guidance remains unchanged. Chesapeake has begun to curtail base production due to market oversupply and weak demand, expecting to curtail approximately 400 million cubic feet per day in the second quarter. However, they anticipate a flattening of production decline in the second half of the year as conditions improve. Chesapeake remains committed to its merger with Southwestern, focusing on integration and delivering on the merger’s potential while maintaining a strong capital structure, evidenced by a reaffirmed and increased credit facility of $2.5 billion.

Key Takeaways

• Chesapeake generated free cash flow in Q1 while executing its 2024 plan.
• The company has deferred 22 turn-in lines and built 24 drilled but uncompleted wells.
• Curtailment of approximately 400 million cubic feet per day is expected in Q2.
• Chesapeake is optimistic about meeting long-term demand.
• The credit facility has been reaffirmed and increased to $2.5 billion.
• The company emphasizes the importance of a low cost structure and efficient supply delivery.
• Chesapeake’s production guide remains unchanged, with Q1 overproduction offset by Q2 curtailment.
• Flexibility in adjusting production based on market conditions is highlighted.
• The company is engaged with the FTC regarding the Southwestern merger, aiming to close the deal in the second half of the year.
• Plans to reduce drilling rigs and frac crews in the Marcellus region are announced.

Company Outlook

• Chesapeake is well positioned to meet the long-term trajectory for natural gas demand.
• The company is focused on integration planning and delivering on the Southwestern merger promise.
• They anticipate a gradual return of volumes in the second half of the year.

Bearish Highlights

• Curtailments are being made due to oversupply and weak demand in the market.
• A decline in production is expected in the second quarter.
• Unfavorable pricing in the Haynesville region has led to curtailed volumes.

Bullish Highlights

• The company’s strong capital structure is supported by a reaffirmed credit facility.
• Chesapeake maintains flexibility to adjust production to market conditions.
• Optimism about improving gas market conditions leading up to 2025.

Misses

• Despite an unchanged production guide, Q2 volumes will be lower due to curtailment.

Q&A Highlights

• Chesapeake is working to answer all FTC questions regarding the merger.
• The company discussed the potential impact of global LNG markets on long-term gas prices.
• They plan a linear timing and cadence for bringing DUCs and TILs online throughout the year.

Chesapeake Energy Corporation remains committed to its strategic plans despite facing market headwinds. The company’s ability to generate free cash flow while maintaining its production guide showcases its resilience. Chesapeake’s focus on efficiency, cost structure, and strategic flexibility positions it to navigate the fluctuating market and capitalize on long-term opportunities in the natural gas sector. As Chesapeake continues its integration with Southwestern, it also prepares to adapt its operations in the Marcellus region, balancing current market challenges with future growth prospects.

InvestingPro Insights

Chesapeake Energy Corporation’s (CHK) strategic maneuvers in the first quarter of 2024, as highlighted in the article, reflect a company adapting to market conditions while maintaining its focus on long-term goals. The InvestingPro data provides a deeper financial perspective into the company’s performance and market valuation.

InvestingPro Data:

• The company’s Market Cap stands at 11.78 billion USD, indicating its significant size within the energy sector.

• Chesapeake’s P/E Ratio (Adjusted) as of the last twelve months leading to Q1 2024 is 21.87, suggesting a valuation that investors might see as expecting future earnings growth.

• A notable Revenue Growth decline of -63.98% in the last twelve months as of Q1 2024, paired with a -57.2% quarterly revenue decline, could be reflective of the market challenges and curtailments mentioned in the article.

InvestingPro Tips:

• Investors should consider the PEG Ratio of -0.13, which may suggest the company’s earnings decline is not fully reflected in the current stock price.

• The Price / Book ratio of 1.06 signals that the stock is trading near its book value, which could be of interest to value-oriented investors.

For readers looking to delve deeper into Chesapeake Energy Corporation’s financials and for additional insights that could inform investment decisions, InvestingPro offers more tips on the platform. Currently, there are 15 additional InvestingPro Tips available for CHK. Interested users can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript – Chesapeake Ener (CHK) Q1 2024:

Operator: Good day and welcome to the Chesapeake Energy Corporation’s First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Chris Ayres, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Chris Ayres: Thank you. Good morning, everyone and thank you for joining our call today to discuss Chesapeake’s first quarter 2024 financial and operating results. Hopefully, you’ve had a chance to review our press release and the updated investor presentation that we posted to our website yesterday. During this morning’s call, we will be making forward-looking statements, which consists 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 there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our press release yesterday and in other SEC filings. Please also recognize that except as required by applicable law, we undertake no duty to update any forward-looking statements and you should not place undue reliance on such statements. We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers. For any non-GAAP measure, there is a reconciliation to the nearest corresponding GAAP measure on our website. With me today on the call today are Nick Dell (NYSE:)’Osso, Mohit Singh, and Josh Viets. Nick will give a brief overview of our results, and then we will open up the teleconference to Q&A. So with that, thank you again and I’ll now turn the time over to Nick.

Nick Dell’Osso: Good morning and thank you for joining us today. We continue to execute on our 2024 financial and operating plan and our first quarter results further demonstrate that we are a company built to efficiently meet consumer demand and deliver sustainable value to shareholders through cycles. Today, the natural gas market is clearly oversupplied. 2024 plan is focused on discipline, operational efficiency and free cash flow generation while building the productive capacity needed to deliver for consumers when demand recovers. Through the first quarter, we have deferred 22 turn in lines and built 24 drilled but uncompleted wells. In addition, we began curtailing base production in February, averaging approximately 200 million cubic feet a day of curtailment in the first quarter. As we continue building productive capacity, we expect to curtail approximately 400 million cubic feet a day in the second quarter. We believe this strategy will leave us well positioned to meet demand for natural gas when the market recovers. In the meantime, our base business continues to deliver. We generated free cash flow in the first quarter, allowing us to maintain our commitment to return cash to shareholders through our base and variable dividend program. Our capital structure remained strong. Our lending partners recently reaffirmed our credit facility and increased the aggregate commitments to $2.5 billion. As we continue to deliver on our sustainability commitments as demonstrated by the company meeting our interim GHG and methane intensity goals a full two years ahead of schedule. Importantly, we remain encouraged about the long term trajectory for natural gas, the affordable, reliable, lower carbon energy the world needs. Over the next few years, we will see significant increases in demand for U.S. natural gas from LNG exports as well as power generation and industrial activity. Additionally, the current clear trajectory of supply in the U.S. is falling. We believe this sets up a much more constructive market backdrop for natural gas in future periods and believe our portfolio is well positioned to deliver gas supply where and when needed. Consumers demand that energy is reliable and efficient, both economically and environmentally. Simply put, natural gas will play a critical role in the energy future, both domestically and abroad, and Chesapeake and our pro forma merge company with Southwestern is poised to ensure natural gas delivers on its promise. We remain very focused in our integration planning efforts on delivering the cost synergies identified at the announcement of the merger to ensure our supply meets the demand of energy consumers at a most efficient price. We will be LNG ready and in an advantaged position as LNG capacity continues to come online. With our well positioned portfolio, investment grade quality, balance sheet and disciplined strategy Chesapeake is built to not only weather the current market, but to thrive when the market rebalances. I look forward to updating you on our progress throughout the year. We’re now pleased to address your questions. Operator, if you could start the queue.

Q – Nitin Kumar: Hey, good morning, guys and thanks for taking my question. I want to start on CapEx. That came in quite a bit below what your guidance was for the quarter, and you’re a little bit ahead of schedule in terms of building the deferred TILs and DUCs. So I just want to get a sense of what were the drivers of that CapEx number and how does that shape for the rest of the year?

Josh Viets: Yes, good morning, this is Josh. Yes, we had a really good quarter to start off the year. We ended up around 16% under our guide for capital. About half of that is just purely related to timing, and a lot of the timing was on the non-D&C side. And so just as we’re getting some of our leasing ramped up and infrastructure projects ongoing, that will just occur later in the year. But the other half of that was really just related to lower realized cost. We had a really good quarter on the drilling and completion side. We saw lower cost than planned as a result of being able to accelerate the use of the lower cost casing that we procured late in the year. We were also able to realize some savings associated with lower service contracts. And then also we had several wells up in the northeast that we had planned that are drilled in a pretty challenging part of the field that typically require contingency casing strings. The team was able to do some work with the mud company and identify a way at which we can mitigate the wellbore stability issues that we have there. So that’s real structural cost changes, and that really sets us up now for the full year to where we’re tracking towards the lower end of our capital guide. And so we’ll continue to monitor the service markets and see how that plays out, but again, got off to a pretty good start this year. On the second part of your question, we are just a little bit ahead of schedule with the DUCs. That’s just how activity was kind of falling between the quarters. But as far as how we think about the full year setup with our total DUC billed, I would say we still see ourselves on track for the full year.

Nitin Kumar: Thanks for the detail, Josh. And Nick I have to say I was a little bit disappointed that there wasn’t obligatory slide on AI demand and power gen demand for gas in your decks last night. I just wanted to get a sense of where you guys see that evolving and what are the early thoughts at Chesapeake about the growth for power gen in the U.S.

Nick Dell’Osso: Yes, that’s a good question. And for years we’ve been a little puzzled by the forecasts that have had power generation or demand for power flat in the U.S. We know that over the last several summers we’ve seen pretty real increase in power demand, and particularly natural gas fired power demand. We do think the utilities have struggled to voice the need for incremental generation capacity, given a number of the challenges that they have within their own stakeholder base. And that’s got to change and so we’re really encouraged to hear the market talk about the growing demand for power. And one of the reasons we’re really encouraged by that is it’s evidence of a very healthy economy. We have investment in the U.S. economy that’s driving growing demand for power from consumer and industrial side, which is really the continuation of the impact of all of the stimulus money that’s come through the economy over the last several years and then, of course, the IRA as well. So that’s showing up. But what has really taken hold in the last couple of months is that there is a recognition that the massive growth in demand for data centers, significantly driven by the growth in demand around AI tools, is going to put a big draw on power grids and we think that’s all very real and very interesting. There’s a lot to unpack to understand exactly how and when and where that demand will show up. And what we’re excited about in this backdrop, Nitin is that, we as a standalone company, have a really large production base and as a pro forma combined company have the largest production base in both the Appalachia and Haynesville, with which to be ready to respond. And having the geographic advantage of two locations if you think about where we sit in Northeast Pennsylvania, then we’ll be in Southwest Appalachia and West Virginia, and then also in the Haynesville. Keep in mind that we talked a lot about growth and demand for Haynesville gas flowing to the LNG corridor, but we deliver a lot of gas to Perryville every day, which is directly east of our field and from there connects into a series of pipeline networks that feed the Southeast. And so the opportunity to increase flow to the east is also very real and something that we stand ready to do and we’ll continue to work with our midstream counterparties as well as the utility counterparties to understand where that demand is needed or where that gas is going to be needed and how we may get it there. It’s incumbent upon us as an industry to make sure that we continue to supply those markets at a really efficient cost and that’s something that we think the pro forma combined company is set to do.

Nitin Kumar: Great. Thanks for the color Nick.

Operator: Your next question will come from Burt Donnes with Truist Securities. Please go ahead.

Bertrand William Donnes III: Hey, good morning, guys. It didn’t look like you had any incremental agreements on your LNG portfolio. I assume you’re still looking for those. But does the data center growing demand hypothesis kind of slow that down or maybe do you want to lower mix internationally? Maybe you’re more focused on U.S. or just what you’re thinking is there?

Nick Dell’Osso: Yes, good question, Burt. Now, we’re still actively engaged in a number of different LNG discussions. As you know, those discussions take a lot of time. As far as whether the data center concept would slow us down, no it wouldn’t necessarily slow us down. Competition is great, and we do think there will be competition for supply, so we’ll pay attention to that. But we’re moving forward with our strategies, and we think we’ll have ample gas to supply all of the markets where there will be demand and frankly look forward to there being some competition around that. But we’re not changing anything.

Bertrand William Donnes III: That makes sense. And then hypothetically, assuming everything goes well with Southwestern and you’re able to gain the synergies that you’ve outlined, are there more synergies from getting even larger at that point or do you focus more on midstream or maybe once you have that scale is when you just switch to more of a buyback program and driving more organic?

Nick Dell’Osso: Yes, I think at this point you’d have to say anytime you’re going to talk about what’s next in your strategy, you go back and talk about the things that we think are important, which are being able to supply these markets with the most efficient molecules possible to meet growing demands for energy. That means having a really low cost structure. That means having a really deep inventory. That means having great execution. We’re going to continue to stay focused on all of those things first and foremost. We did feel like the merger with Southwestern allowed us to advance on those fronts and have real synergies, real industrial logic that helps to improve our ability to meet those goals over time. As far as do you need something else? It would have to meet our non-negotiables that drive towards those goals, and that’s really hard to predict whether or not there will be something in the future that would meet those non-negotiables. We’re going to stay focused for a while here on what’s a big job of integration and delivering on the promise of this merger, which is pretty tremendous for our shareholders.

Bertrand William Donnes III: I appreciate it. Thanks, guys.

Operator: Your next question will come from Zach Parham with JPMorgan. Please go ahead.

Zach Parham: Hey, guys, thanks for taking my question. I just wanted to get a little more detail on the curtailments. You highlighted you’d be curtailing 400 million a day in 2Q and that you curtailed 200 million a day in 1Q. Could you give us a little more color on the curtailment strategy and maybe detail how much in curtailments were built into the full year guidance and when you expect those curtailed volumes to come back to the market?

Nick Dell’Osso: Yes, I’ll start this and then I’ll probably pass it to Josh. So as we think about what we’re trying to accomplish this year, remember we’ve talked about doing a lot of activity deferrals, and those activity deferrals are focused on the fact that the market is pretty clearly oversupplied and we don’t want to bring on wells in an environment where the initial production of these wells, the significant part of the return, comes to market in an oversupplied market and receives a lower than breakeven price. So we’ve had the activity deferral schedule in front of us, but recognize that that activity deferral results in decline that occurs over a period of time. The curtailments that we saw occur in the end of Q1 and into Q2 are really about accelerating that decline. We don’t need to keep that base volume curtailed throughout the year as the activity deferrals show up in more, in what I would call actual decline. But we have a lot of flexibility in what we choose to deliver to market. We’re going to pay a lot of attention about the supply-demand characteristics.

Josh Viets: Yes. And Zach, this is Josh. I mean, it is customary that we would see demand weakness in certain markets in the shoulder seasons. And so as we issued the 2.7% bcf a day guide back in February we had accounted for those volumes in there. But really, to Nick’s point, kind of how do you then set up a production curve to best mimic what the market needs? That’s effectively what we’ve done to where you model in and execute on curtailments in the Q2, and then you allow those volumes to flow back in over the next subsequent quarters in the second half of the year. So, in effect, you do see a sharper decline coming into the second quarter, with it flattening out into Q3 and in Q4, where we would anticipate market conditions to be a little bit better for us. But I’d also just stress, I think we’ve demonstrated a willingness to be disciplined with how we deliver production, and we’ll maintain that discipline as we move through the course of the year.

Zach Parham: Got it. Thanks for that color. And then Nick maybe just one on your latest macro thoughts. We’ve seen low 48 production decline pretty rapidly over the last couple of months now of some 100 bcf a day. Has overall production trended in line with your expectations? Really just looking for your updated thoughts on kind of the macro environment in general.

Nick Dell’Osso: Yes, great question, Zach. I would say, actually to see production get below 100 as quickly as we did is maybe a little bit surprising to us. We weren’t expecting that. But what we’ve also seen at the same time is that demand fell off pretty quickly. So starting with the supply side, we think curtailments took a bigger role. It wasn’t just activity deferrals. So people didn’t wait for decline similar to what I just described within our own decision making process, but so volumes came off probably a little faster than we would have thought through the year. However, what we also saw at the same time is that there were a lot of LNG capacity that was offline through March and April, and we probably had two to three bcf a day off through a good portion of March and April that represented pretty weak demand. You’re seeing a lot of that demand come back now, but it’s a reminder that demand is going to be volatile when we have exposure to LNG the way that we do. And you need a flexible business plan, and one that’s strong enough financially to handle that. And you probably ought to have a hedging policy that protects how you think about your capital program that you have at risk at any point in time. So when we think about the macro trends here more broadly, I do think that that decline that you are seeing is ultimately real. I think it has been accelerated with curtailments. But I think given the fact that we have a rig count today in Haynesville that is half of what it was that led to the peak production that we saw in the fall of 2023, we know that decline will show up, and we think Haynesville production settles in at a much lower level than it has been and stays there until you see a pretty significant change in rig count going the other direction. So I think all of that is quite encouraging. And we’re also still very encouraged by what we see in the way of demand growth, certainly through LNG exports, which we all talk about quite a bit, but also through consumer and industrial as well as power gen.

Zach Parham: Thank you.

Operator: Your next question will come from Charles Meade with Johnson Rice. Please go ahead.

Charles Meade: Good morning, Nick and Josh and the rest of the team there. Nick, I’m wondering if you can, if you’d offer some thoughts that maybe characterize what your engagement with the FTC has been like so far?

Nick Dell’Osso: Look, I mean, we’ve been engaged with the FTC. Obviously, we’re in the second request phase of this process. It will take some time, as you would expect to reply. We’re eager to work with the FTC and get all of their questions answered. We feel good about the underlying merits of the transaction and look forward to getting through this process and getting it closed, but really hard to predict exactly how long that will take and so that’s why we gave a forecast of just second half of the year.

Charles Meade: Got it. Thank you for that. And, Josh, I wonder if I could ask about your TILs and DUCs, and I wonder if you could kind of characterize for us the, what’s different that you’re doing now, maybe setting up these wells to be off for three months, four months, maybe six months, maybe longer. Are you doing something different to kind of put these wells in cold storage, so to speak, versus what you would do regularly? And have you learned anything so far from this effort that you wouldn’t have expected at the beginning?

Josh Viets: Yes. Good morning, Charles. Thanks for the question. As far as the DUCs go, I would say there’s really not anything different that we do. This is a pretty common practice. The wellbore is in a state that could sit there for an extended period of time. So I would say that’s just pretty typical run of the mill business. With the deferred TILs, we do have to be a little bit more thoughtful about how we manage those in terms of our wellbore preparation and preservation, primarily from a corrosion standpoint. But probably most importantly, we do have to stay on top of them and specifically, it’s around just monitoring the pressure. So we do have pressure transducers that we install in the wells, and we have it tied back into our remote operating center here in Oklahoma City where we can monitor any potential production decline. And that production decline would be as a result of offsetting wells that could come online and start potentially pulling on those reserves. And those are the instances that we want to protect against. And of course, when there are own wells, we’re managing that by keeping wells shut in. But if there are other operators, we want to be on top of that. That’s not something we’ve dealt with yet, but we do recognize it’s a threat and we actively manage that to ensure we’re not impacting the investments that we’ve made on those particular wells.

Charles Meade: Josh, so you mean you’re managing the shutting pressure to see if there’s also…

Josh Viets: Yes, that’s correct.

Charles Meade: Got it. Thank you. I appreciate it.

Operator: Your next question will come from Josh Silverstein with UBS. Please go ahead.

Josh Silverstein: Yes, thanks. Good morning, guys. So I just wanted to follow-up on the production outlook for the year just based on where 1Q volumes were, the 2Q guide and the outlook. It suggests that Chesapeake may not get down to that 2122 bcf day range in the fourth quarter, but you’ll still have the 1 bcf a day of capacity. So I want to see if that was right and just kind of see what the cadence would be for the back half of the year. Thanks.

Josh Viets: Yes, Josh we are managing production to the level of around the 2.7 bcf a day. So again, just to reaffirm that, the guide is unchanged at this point. We did have some overproduction in the first quarter of the year. Some of that was attributed to a non-operated accounting adjustment that rolled through into the quarter, so that did push those volumes just a little bit higher. But we are still on track, even as we talked earlier about the curtailment, which is pulling down the Q2 number, but that 400 million that we take out of Q2 starts to settle in into the Q3 and Q4 numbers. So, in effect, we are flattening the back half of the production curve. So we still feel really good about delivering the number that we offered back in February. But again, just to remind everybody, we are absolutely flexible, and we’ll continue to monitor market conditions and adjust production according to what the market needs.

Josh Silverstein: Got it. Thanks for that.

Nick Dell’Osso: Let me just reiterate on that point. I mean, I think it’s really important, as you think about that question, it’s really important to note that there’s a forecast from, with eight months left to go in the year, and we’ve been pretty clear that we’re going to stay really focused on the economics of our underlying business and do what makes sense. So if market conditions don’t play out the way we expect them to, we’ll adjust, whether that means producing more or producing less. I think the setup feels pretty good today, but we have a lot of flexibility in how we respond.

Josh Silverstein: Yes. Thanks Nick. Well, the follow-up was kind of along those lines we’re six to eight months away from winter pricing and gas going back over $3. How do you think about bringing the capacity back on? What’s the process of it? Is it TILs and DUCs, the new rigs, or what’s the timeline for that? Thanks.

Nick Dell’Osso: Sure. So, first of all, let’s talk about what’s going to trigger this for us. We get asked a lot about what price are you going to bring volumes back online? And of course, that’s an easy way to think about it and an easy way to model it, but it’s not the right way for us to make that decision. When we think about price, we think about it as an indicator of what’s going on in the underlying market. But the trajectory of what’s going on in the underlying market matters a lot more to us than what the price is at the moment. And so, we will continue to monitor the current production levels and the trajectory of that production, the storage levels, the activity levels across each of the basins and think hard about what we really believe the market needs before we make any changes. And then once we determine that the market does need more gas, it would just follow the logic of what we have available to us. So the fastest thing for us to respond with are the wells that have been drilled and completed, but are just waiting to be turned in line. Following that, we would begin to work on completing the additional wells that have been drilled but are uncompleted. And certainly, I guess, along that time, we will be bringing back volumes that are curtailed out of the base. So I think there’s a lot of flexibility in how we respond to this. I would imagine that this will come about in a rather slow manner. I don’t believe it’s likely that we will wake up one day and see that the market needs all of the gas and that we will be racing to bring it all back at once it’s possible. And if that happens, we will move through it in the way I just described, as efficiently as possible. But I think it’s more likely that we will be bringing volumes back to match a growing demand that will be pretty well, pretty well previewed by the activity levels that are out there in the market around LNG, around the increase in power-gen and industrial demand when it’s needed. Now you can have a cold spike, and cold spikes show up with a need for incremental demand. We would always try to respond to those needs as quickly as we can, but know that those are not necessarily sustained. And so that would probably be a short-term event, and we would incorporate that into our decision making.

Josh Silverstein: Great color. Thanks Nick.

Operator: The next question will come from Neil Mehta with Goldman Sachs. Please go ahead.

Neil Mehta: Yes. Good morning Nick and team. Thanks for all the color. I wanted you to spend some time on your hedging framework, specifically the hedge-the-wedge concept. So can you just talk about the way that you approach hedging and the advantages of having a rolling program, especially in a contango curve? And then I have a follow-up.

Mohit Singh: Yes. Neil, good morning. This is Mohit. Thanks for that question. You referenced the hedge-the-wedge program. That’s been our way that we have been hedging over the last several years. The way we philosophically think about it is, you have a $1 billion, $1.5 billion capital program so you’re investing dollars into the ground. You want some certainty on when you start getting the production back. So let’s think of that as nine, 12 months after making the kind of the initial investment decision when you’re spotting the well and you just fundamentally don’t know what prices would be at that point. So you want to lock in some of that returns that on the investments that you’re making, which are fairly substantial. Right? I mean, you look at the market cap of the company versus that kind of a capital program, you might be investing 10% to 15% of your market cap into the ground. So for us it’s a prudent way of just taking the risk off. One thing that we have done structurally, which we are pretty excited about given the contango that you referenced out in the curve is instead of doing swaps we’ve been doing callers, which allows us to monetize the volatility, so kind of bringing up the floors that we are getting from the puts, but still retaining some of the upside by the calls that we are selling. Overall the program is working, especially when you’re in low price environment like that, like we are in right now. Every month we are getting receipts of hedge settlements, which help support the base business and the cash flows and again underpins the return to shareholders and the base and the variable dividends that we are making. So overall we think it works. It works well, reduces volatility of the returns and allows us to be more consistent with shareholder returns.

Neil Mehta: Thanks. Mohit. And the follow-up is just on the global LNG markets. You talked in the slides about the 12b’s [ph] of incremental supply coming out of the United States, cutters coming through with Northfield expansion in 2026 and beyond. And so Nick and team, how do you think about global LNG price being a potential governor on long-term gas prices?

Nick Dell’Osso: Yes, Neil, it’s a great question and it’s something we think about a lot. And as we think about LNG growth, I mean, the market is clearly eager to have more LNG supplies. There are a number of different projects out there that are eager to accept in the growth in LNG. But it’s also pretty obvious that at some point there will be oversupply and that market will have volatility in the same way that domestic markets do and we’re prepared for that and understand that. One of the things I think we’ve seen that’s really interesting is that there’s clearly some elasticity to demand for LNG prices I’ll say in the $9 to $12 range, and that range is probably debatable. It might be down to $8, it might be a little higher than that. But you’ve seen that demand clearly goes up when you get into the single digits and you’ve seen that demand can be fleeting as it gets into the mid double digits, certainly over the longer term. And what that tells us is that this market requires that you remain really, really efficient in your cost structure and how you deliver supplies. And so that’s something that we’ll stay focused on and we’ll work with all of the different providers through the value chain, both domestically and internationally, to make sure that we can do that. But it’s a real thing and something that we have our eyes wide open about. At the end of the day, we still think natural gas is the most efficient and effective way to supply markets that are in demand for greater energy. It is affordable, reliable and lower carbon. And I don’t know that we can say that enough, but the trade-offs are not as good and it’s important that we remember that. And it’s important that as an industry, we deliver on a product that meets that expectation, that it is the most efficient solution to cost and affordability to reliability, and to being lower carbon relative to the alternatives. The alternatives, of course, being in a lot of markets, coal, which is certainly not lower carbon at times, it can be lower cost and it definitely can be reliable because it is easily stored on site. But then you also have renewables, which will maintain a competitive tension, especially with policies that drive people towards renewables that really struggle from both a cost and reliability perspective in full cost, and have some of their own challenges from a sustainability standpoint that are just different than the product that we produce. So we still feel very strongly that what we produce is the best solution and it’s incumbent upon us to make sure that we deliver on that.

Mohit Singh: Thanks and Neil this is Mohit. The only thing I would add to that is, we are signing up 20-year LNG transactions, and we are going in eyes wide open that there will be periods of time when that transaction will be out of the money. So it’s a diversification and connecting us to the eventual end users, as Nick was describing, that’s the strategic mandate for us. But again, being fully aware that there’ll be periods of time when we’ll be out of the money.

Neil Mehta: Makes sense. Long-term views. Thanks, guys.

Operator: The next question will come from Paul diamond with Citi. Please go ahead.

Paul diamond: Thank you. Good morning. Thanks for taking my call. Just a quick one on the kind of the timing and the cadence of the DUCs and the TILs. Should we think about that more linearly from this point forward through the year or is there kind of a point in, like, a Q3 where you just stop and kind of revert back to normal? How should we think about the cadence?

Josh Viets: Yes. So, really, what that ties back to is just the underlying activity cadence of our drilling rigs and frac crews. You know, where today we’re running eight rigs and two frac crews and so we do anticipate that we’ll drop one additional rig in the Marcellus middle of the year. But by and large, you should expect those fur TILs and DUCs to build in a linear fashion through the course of the year.

Paul diamond: Understood. Just one quick one or one quick follow-up. If we were to see any kind of increased volatility out of the three levers, I guess, for additional DUCs, TILs or for the curtailments, is there any preference you guys currently hold? Kind of what order you’d address any near-term volatility with?

Nick Dell’Osso: Well, I mean, I think it all depends on what’s going on. If you have some sort of short-term spike in demand that we don’t think will be sustained, then we have curtailed volumes we can bring to market to help meet that demand. If you think that there is more of a step change in demand and volumes are needed in a longer term fashion, then you start to bring some of those deferred wells online.

Paul diamond: Understood. Thanks for the clarity.

Operator: And the final question for today will come from Kevin MacCurdy with Pickering Energy Partners. Please go ahead.

Kevin MacCurdy: Hey, good morning. To dig into the curtailments a little more, the 2Q guide shows that the Haynesville is declining faster than the Marcellus. And just curious if that’s being driven by something you’re seeing on local prices that is leading to more constraints or is that just natural declines in the Haynesville.

Josh Viets: Yes, that’s really just due to local market conditions we were seeing pricing there that we just really start to question whether or not it makes sense to continue to flow gas in those markets. And so we selectively look at the well sets and what margins are for each well, recognizing that chemical usage, water production, will impact wells margin. And so, we just think that pricing that we’re seeing in the second quarter, simply doesn’t make sense to flow the full allotment of volume there. So when we talk about the 400 million cubic feet a day of planned curtailment in the quarter, roughly half of that is tied to the Haynesville. So when you look at the quarter-over-quarter decline from Q1 to Q2 for the Haynesville asset, a big portion of that is directly tied to the curtailment. And of course, we all start to get that back as we get into the second half of the year. And again, that’s just why you see then, or should anticipate a flattening of the decline in the second half of this year.

Kevin MacCurdy: Great. Thank you for that detail. And to follow-up on an earlier question about returning production, do you have the capacity to bring back volumes on faster in one basin compared to the other or will it be about the same in the Haynesville and the Appalachia?

Josh Viets: Yes, it should be about the same. I mean, there’s a lot of considerations that are going to go into how we bring the production back, I mean, outside of just the macro conditions that Nick spoke to earlier. But it’s really just around logistical planning and so we have to be thoughtful about where gas gets introduced and when to manage, the gas gathering systems and things like water hauling. But really, I wouldn’t say one area is advantaged or disadvantaged more than the other.

Kevin MacCurdy: Great. I appreciate the answers. Thank you, guys.

Operator: This concludes our question-and-answer session. I would like to now turn the conference back over to Mr. Nick Dell’Osso for any closing remarks. Please go ahead.

Nick Dell’Osso: Well, thank you all for your time this morning. We really look forward to progressing through this year, working on planning for the integration of our merger and delivering on what we expect to be improving gas market conditions as we approach 2025. As always, if you have any other follow-up questions, please reach out to our outstanding IR team. They will be ready to take your calls and we look forward to see you guys out on the road. Thanks.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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