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spk01: Good morning and welcome to the Chesapeake Energy Corporation first quarter 2022 earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Brad Sylvester. Please go ahead.
spk06: Thank you, Andrea, and good morning, everyone. Thank you for joining our call today to discuss Chesapeake's first quarter 2022 financial and operating results. Hopefully, you've had a chance to review our press release and the updated investor presentation that we posted to our website yesterday. During this morning's call, we will be making forward-looking statements which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections, and future performance, and the assumptions underlying such statements. Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our press release yesterday and in other SEC filings. Please recognize that except as required by applicable law, we undertake no duty to update any forward-looking statements. 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 we use, a reconciliation to the nearest corresponding GAAP measure can be found on our website. With me on the call this morning are Nick Delosso, Mohit Singh, and Josh Beetz. Nick will give a brief overview of our results, and then we will open the teleconference up for Q&A. So with that, thank you again, and I will now turn the teleconference over to Nick.
spk12: Thanks, Brad, and good morning, everybody. Thanks for joining the call. We'll get to Q&A shortly, but first I want to spend a couple minutes talking about where the industry sits today and how we're seeing the year unfold. We're off to a really strong start. and the Marcellus have closed on cheap and we're busy integrating these great assets. Our team is excited to unlock the value we saw in the acquisition, and we're encouraged about the early opportunities we see for further upside. In Hainesville, we're through most of the significant elements of the integration, and the results are strong. Combining the expertise on the Vine team with ours, we just drilled the fastest intermediate section in our history in the basin. In the Eagleford, we restarted our program, and we continue to see outstanding returns and significant free cash flow. Additionally, we also continued to lower our emissions profile, having completed over half of our pneumatic retrofit program, and we're well on our way to having our Marcellus assets join the Haynesville as independently certified responsibly sourced gas. The first quarter marks the first full period we've owned the Vine assets. We delivered $532 million in adjusted free cash flow in the quarter, setting a new quarterly record for Chesapeake. As a result of this increase and the further uplift we expect following the close of CHIEF in March, we've increased the 2022 free cash flow outlook by $700 million, raising the midpoint of our range to $2.7 billion. We believe these transactions are great examples of how consolidation yields improved cost structures, capital efficiency, and most importantly, accretive free cash flow. Given the depth of our inventory and its resiliency through commodity cycles, we expect to maintain this robust free cash flow profile for a very long time. Today, our free cash flow per share and free cash flow per debt-adjusted share lead the peer group by a significant margin. With $10 billion of free cash flow anticipated over the next five years, a robust dividend combined with a large buyback program, we're poised to execute what we believe to be one of the most powerful cash return frameworks in the industry – Given these facts and the view that our stock remains significantly undervalued, we initiated our $1 billion share buyback program in the first quarter and expect to accelerate the pace of our buybacks as we file the final disclosures related to the chief transaction this month. Given the current valuation of our stock, it's certainly possible we will exhaust our $1 billion buyback authorization early and would then expect to seek Board approval to increase the authorization and continue retiring our shares. which will further enhance our already leading free cash flow and cash dividend metrics per share. In addition to our initial progress on our repurchase program, our first quarter dividend payment reached $2.34 per common share, and our dividend yield currently sits around 10% for the full year 2022. If you include the share repurchase program, it reaches 14%. In total, at today's trip, we expect to pay over $7 billion in dividends over the next five years. I'd now like to switch gears and talk about the macro environment. The war in Ukraine is horrible on every level, and we're eager to see an end to the invasion. We're also eager to help ensure the citizens of Europe, and by extension, the rest of the world, are not left without adequate energy resources should Russian supply see continued or even further interruptions. The natural question for U.S. producers is, will you grow to solve the problems? We consider our capital allocation strategy on an almost daily basis and are committed to maintaining our strong capital discipline. When we see opportunities to grow production and deliver supply to a market where it is needed and where we believe that demand is resilient and not temporary, we will consider growing into that demand. We continue to believe energy should be reliable, low carbon, and affordable. We also believe that we have the inventory to deliver what is so desperately needed and have updated our inventory data and our slide deck for each of our basins to highlight the staying power of our portfolio, which spans decades at very low prices. In the near term, while prices in Europe are extremely high, they're also much higher than they need to be in the U.S. We do respond to these economic signals and have done so in our 2022 capital program. We're growing our Haynesville volumes approximately 10% year over year, adjusted for the vine acquisition. And as the market reliably expands, we will be ready to respond accordingly. We're investing in Eagleford again in 2022 after pausing through the pandemic, restarting our program at a logical pace as we redefine the appropriate development plan for this asset to maximize capital efficiency. We're continuing to press for max volumes out of our Marcellus asset every day. As has been discussed at length by us and others, we're constrained by lack of pipeline access to underserved markets, particularly New England. Additionally, we continue to hold discussions with counterparties in the LNG export market, and we hope to increase our exposure as the market continues to develop around these very important projects. We market greater than 4.5 BCF of production every day, more than 2 BCF of which is immediately adjacent to the LNG complex in the Gulf Coast and is already independently certified as responsibly sourced gas. We've also proactively reached out to partners in midstream and downstream markets, as well as our government contacts, to discuss the best ways to see supply increase in the U.S., While we have not and will not ask the government for any financial support, we would like to see the legal and regulatory environment embrace the need for infrastructure to ensure we can provide reliable, affordable, lower-carbon energy to limit energy poverty and bluntly impact our allies' face when access to energy is used as a weapon. We're actively engaged in these discussions and hope to see a solution to the war and, by extension, the challenge of high energy prices soon. While no company can tackle this challenge alone, we recognize the policy changes will unquestionably be an important part of the equation, given the high prices in Europe was experiencing prior to the Russian invasion. Our employees are united in the belief that together we can play a critical role in helping solve these challenges. Importantly, with the quality of our assets, our people, and our balance sheet, we are able to achieve all the critical elements of reliable, low-carbon, and affordable energy. in a disciplined, returns-focused way to create a truly sustainable business. Operator will now turn it over for Q&A.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Doug Legate of Bank of America. Please go ahead.
spk11: Thanks. Good morning, everyone. Good morning, Nick. Good morning, Doug. Thanks for taking my question. Nick, you'll be delighted to know I'm not going to ask you about variable dividends this time. So I would like to ask you to maybe elaborate on your comments around U.S. gas prices. We're all kind of trying to figure out how sustainable the long end of the curve is. The dislocation between Europe and the US is pretty obvious, but $8 gas is pretty surprising as well. I'd love to get your perspective on that because you sound like you're basically, forgive me, talking that down some. That's my first question. My second question, if I may, is I guess we can't ignore what happened yesterday with Kenridge. Presumably, you've had some discussions. I'm just curious where you think the gap is between what you've done as a strategy so far, I guess asset sales, Eagle Ford is probably part of the discussion, and just offer any perspective that you can at this point, to the extent that you can, and I'll leave it there. Thank you.
spk12: Sure. Let's talk about gas prices first, was your first question. You know, you said we've talked them down a little bit. I think all we've pointed to with gas prices is that the prompt month prices are so far above break-evens for supply in the U.S. that we just don't expect that to be a persistent price environment. You know, the long end of the curve now has come up quite a bit. And for a couple of years, we'll be above $4 on the curve. There's ample resources in this country to drive prices below $4 on the long end of the curve. And we think if you have really adequate infrastructure to deliver gas to all of the markets where it's needed, it should be back around $3 or maybe a little over $3 in this environment, which means that the volatility on top of that weather demand and things like that, it'll go below $3, sometimes above $3. other times and maybe bounce as high as four and see some lower prices too. But in general, we just see that the adequacy of supply with break-evens that are around that level should drive prices lower over time. Now, right now, we have all sorts of constraints in the market. And so it does make sense that prices are higher. But we all need to be thoughtful about how we manage our production in the face of those constraints. And so what we don't want to do is force production higher directly into those constraints where production can't get to the markets that is needed. And so, you know, for example, if we increase production significantly in the Marcellus, it's not going anywhere. So it's not going to lower anybody's prices. And so that's not helpful. That won't create value for our shareholders, and we're not going to pursue that path. And those kinds of constraints we think probably, particularly in the Marcellus, we think those will be sticky for a long time. But those constraints exist on a micro level in a lot of other places, whether they're access to services equipment, access to pipelines. And so we think they're persistent, at least in the near term. And so prices are going to stay up for a bit, but ultimately they should supply and demand forces will win out and they'll come back down to a more reasonable level. So that's really all that we're expressing there is that we're not going to change our strategy to a view that says, you know, six or seven or eight where we are on the prompt is a more permanent price. That's just not consistent with how we see the world. And then, Doug, you asked about the story yesterday that was out in the press around discussions with Kimmeridge. And I'll just note that we have a lot of discussions with shareholders, including ChemRidge. We always welcome feedback from shareholders, and I don't think there's a big gap in how we all see the world. I think we share ChemRidge's view that our stock is undervalued. We've talked a lot about our Eagleford asset, and we have a great asset in Eagleford. We currently produce 52,000 barrels of oil a day out of Eagleford, We generate a lot of free cash flow out of that asset. Just in 2022 alone, we'll generate $1.2 billion of free cash flow out of the Eagleford before hedges, about $600 million after the effect of hedges. And so we shut down the Eagleford program completely during the pandemic oil price collapse, and we just restarted it at the end of 2021. And what we're doing in the field today we think is going to add significant value to the asset for our shareholders. We talked at the beginning of the year what we were trying to accomplish with that asset. We talked about how we want to prove up the wider spacing in the Brazos Valley area, which will demonstrate the full cycle value of that asset. And we also talked about delineating the upper Austin Chalk in our legacy South Texas position. We're pretty encouraged by both of those things. And we want to have our heads down and execute on that because we think we're adding some good value here in the near term. But ultimately, we're going to let the results of those programs, just as we've been saying, inform us on whether we think we can maximize the value of this asset through our development or if we should maximize the value of the asset by selling it to someone else. That's the way we think about all of our assets all the time, and so we're going to have our heads down executing on this program in the near term, and we think we'll have results certainly in the second half of the year to talk about, and we're looking forward to that.
spk11: I appreciate the answers, Nick. Thanks so much.
spk01: The next question comes from Matt Portillo of TPH. Please go ahead.
spk03: Good morning, all. Thanks for taking my questions. Nick, maybe just to touch on a comment you made to start the call, given the discounted value you see in your share price and the strong free cash flow guide this year. Just curious, I guess, as we look at the guidance number at call it 2.7 of free cash flow, plus the dividends, it still leaves about a billion and a half dollars of free cash for you to deploy. I'm curious if you might be able to comment a bit on how you think about debt reduction versus accelerating the buyback program in light of the improved outlook.
spk12: Sure. It's a great question, Matt. So we do have a lot of incremental free cash flow, as you've noted. We're pretty eager to get going on the buyback. We've been constrained with our disclosure requirements around the chief asset. We haven't been clear to the MNPI. We will be very soon. And once we are, we expect to get going and get going in earnest. We've been able to do a little bit during the quarter with some privately negotiated transactions, and that's been helpful. But we're, like I said, eager to do quite a bit more. On the debt reduction side, we have a little bit outstanding on our revolver today following the chief transaction. We'll probably let that go back to zero. That'll happen in the normal course as we go through the year. But we don't really have a priority for debt reduction beyond that. And I would call that, you know, it'll just happen as it happens. There's no urgency necessarily to achieving that by any certain date.
spk03: Perfect. And then as my follow-up question, just curious if you might be able to provide a little context and color on how you're thinking about marketing your gas in the Haynesville. We've seen a little bit of congestion causing bases to widen out a bit. There's a lot of projects in the queue. that might ultimately evacuate gas further south and opening up the door for stronger realizations as well as possibly tying in more volumes down the road into LNG opportunities. So just at a higher level, curious on your marketing strategy around the Hainesville moving forward and what we might expect from a news flow perspective over the next 12 months or so.
spk12: Yeah, great question. So one of the things we're happy about today is there's all these projects that are being proposed, and there's all of the new LNG facilities that will be built over the next several years. And at the moment, we're a bit of a free agent when it comes to where we deliver our gas. We have very little FT in Haynesville, and so we have a lot of flexibility about how we think about where we're going to send that gas and what we're going to commit to. So we talk about this a lot. I'll actually let Mohit talk to you a bit more about how we're thinking about it, but we're excited about what this represents.
spk07: Yeah, Matt, that's a good question. Good morning. This is Mohit. What I would say in addition to what Nick said is obviously this is a rapidly evolving space, something that we're closely monitoring. The thing that gets us most excited is that if you look at the demand growth for natural gas in the U.S., roughly three-fourths of that is going to come from the Gulf Coast market. And our competitive positioning, because of the proximity to the Gulf Coast and to the LNG complex that resides therein, is a competitive advantage that differentiates us. The other thing that we are very excited about, Nick referenced this earlier, is 100% of our gas that's coming from the Hainesville is RSG certified. And at some point, we think that will be another differentiator because as you think of end users and off-takers that are looking to secure LNG supplies, having it be responsibly sourced will, again, also be a competitive advantage. So we are very happy about where we sit. We are actively engaged in several different conversations. Don't want to front-run that, but more news to come on that front, hopefully.
spk04: Thank you.
spk01: Next question comes from Nicholas Pope of Seaport Research. Please go ahead.
spk10: Morning, everyone.
spk12: Morning, Nick.
spk10: So I was hoping you guys could go into a little depth. This is obviously the first quarter we've seen with the chief acquisitions and trying to understand a little bit of the guidance. I think y'all said it was 800, 900 million required production. It doesn't seem like the guide for 2Q kind of fully reflects that volume uptick. I'm hoping you could explain what the goal is right now with Marcellus in terms of maintaining production, where you think the maintenance level is with the new assets, and where things are post-acquisition on those volumes relative to where acquisition volumes initially were expected.
spk02: Good morning, Nick. This is Josh. Let me just add a little bit of color to that. I think with the chief acquisition You know, we're, of course, just in the very beginnings of integrating that asset. And I really feel like we're off to, you know, a great start with that. You know, we are, if we look at our till schedule, we're a little bit back and loaded in the quarter. So, you know, for our gas assets, I think we'll have, you know, 40 to 45 tills. But 20 of those come in June. So, you know, definitely you will see a little bit of lumpiness to the production there. So that may be something just to be thinking about in the model. Maybe just a couple other things I'd point out. You know, we do have some planned third-party maintenance occurring within the corridor as well, so that's going to bring down volumes just a little bit. And then maybe one of the more material movers, and this really, you know, occurred right as we brought the assets into the portfolio. There was a pad that produces about 80 million cubic feet a day, so, you know, roughly 13,000 barrels a day of net oil equivalent. We shut that pad in for time-ops reasons, and really it was just centered around We didn't feel like we could manage the risk safely on the site with drilling and producing, and so that was a choice that we made, but that's all volume that's going to come back into the system.
spk10: Got it. So it sounds like this is fairly transient, because I think you guys were growing production in Marcellus, and it just does not, it's not 800 plus fourth quarter, which is just where my math, the simple math was on kind of Marcellus, but it sounds like this is more transient in terms of where production levels are.
spk02: Yeah, that's what we're going to expect for the year. I mean, you know, growing the asset obviously is challenging to do just with the lack of export out of the basin. But we do expect to see a little bit of lumpiness between quarters, you know, as we move through the year. Got it.
spk10: That's all I had. I'll hop off for now. Thanks for the clarification.
spk01: The next question comes from Scott Hanold of RBC. Please go ahead.
spk08: Yeah, thanks all. Hey, just sort of on the back of kind of the conversation around the gas macro, and I know you've all talked about your hedging program in the past underpinning your capital program, but if you do have a view that some of these prompt months and some of the forward months may be a little bit ahead of themselves, does that incentivize you to hedge a little bit more? Would you be opportunistic with hedging at all, or do you still just plan being a little bit more pragmatic with it?
spk12: I'll start this one, and then Mohit may have something else to add. You know, we're pretty well hedged for 2022, so we haven't been motivated to add a lot more here. We've been happy to see the bit that we have unhedged rise, and it's been obviously a big tailwind to our cash flows. For 2023, you can see the way we lay it out on our slide now, we put a bullet on there that tells you what we've added since the last disclosure, and what we're doing now is a bunch of very wide collars. And so, you know, we really feel good about those collars. Some of the collars that we've done have been as wide for the full year of four by 10, which is, you know, pretty awesome spread to have access to a floor of four and a ceiling of 10. So, go ahead, Mike.
spk07: Yeah, I think the only thing I would add is, you know, traditionally a lot of these hedges that we had locked in at emergence, they were done through swaps, but The skews on these collars have been so attractive that almost, I would say, on an exclusive basis, going forward, what we are doing is trying to prefer these collars. And as you can quickly figure out, I mean, it still gives you an exposure to the upside, but still protecting your downside, which is what we are trying to do. But pretty happy with what we've been tactically able to layer in with regards to the hedges.
spk08: Got it. I appreciate that. And my follow-up, you mentioned in – Regards to the buybacks that some of those were privately negotiated. And, you know, obviously there's, you know, a, you know, some, I guess, you know, overhang in some of the ownership, you know, in Chesapeake. Do you all see that as a opportunity to continue to utilize the buybacks, you know, to, you know, potentially do some more private negotiated deals? Can you just give us a little bit of color behind, you know, that and what you know and can say?
spk12: Sure, we won't comment on who we've negotiated with directly, but we intended when we put the buyback in place to be ready if any of those large holders wanted to sell to make sure that there was no disruption in the trading dynamics of our stock in the market if there's a large chunk that wanted to sell. One of the things that's been really interesting about the perceived overhang of the shareholders in our stock is shareholders from what we hear from them and patient. And so we're generating great returns. The cash return element, the pending buyback that can be accelerated now, all of these things point to a tremendous amount of upside in the stock. I call it a perceived overhang because I think a number of these shareholders could be there for a while, but we're totally ready when any of them want to sell to be prepared to be a buyer. So we're, you know, I think your sentiment is directionally correct. We're just not seeing demand for that today in any big size.
spk08: Yeah. So just out of curiosity, I mean, you obviously said they're happy shareholders, see a lot of upside optionality in the stock. And, you know, I think a lot of people think that too. But like, what do you think then is hanging up, you know, Chesapeake stock relative to its peers? Like, what do you think of the management team is something you need to address to get Chesapeake stock to move further higher?
spk12: Well, it's something that we talk about almost every day, Scott. I mean, I do think that perceived overhang is a challenge for some investors. I think if we had a little bit more turnover in the shareholder base, that would probably help. But again, I think of it as a perceived problem. And when I say our shareholders are happy, I think I'm sure that they would all share our view that the stock is undervalued today. So, you know, we're all focused on how to drive this stock price higher and have it better represent the underlying value of the assets that we own. We think the buyback is going to go a long way towards that. We will be actively buying our stock. And if some of them want to sell, then great. They can sell it to us. And if they want to hold, then we'll buy from others in the market. So we're eager to execute on that because at this point, that cash can go a long way towards retiring the share count, which is going to make all of our per share metrics that we talked about earlier that much better and should really continue to highlight the value in the stock that should drive the share price higher. So we're... You know, we're going to continue to execute on our plan. We're going to continue to push for the buyback. And we're pretty optimistic about what that will do for our share price.
spk08: Thank you.
spk01: The next question comes from Charles Meade of Johnson Rice. Please go ahead.
spk13: Good morning, Nick and Mohit and the rest of the Chesapeake crew up there. Morning, Charles. I think I just have one question. It's about the chief assets up in the Marcellus. When I look at that map of what chief brings to the table next to your map, that moves your center of gravity or extends you kind of northwest into more, I guess, central Bradford County. So as you've spent some time with these assets, are you seeing anything different than what you expected as you move northwest, kind of away from where your historic core has been?
spk02: Yeah, good morning, Charles. This is Josh. Let me answer that for you. No, I don't think so. The rocks will vary a little bit, but this is extremely strong reservoirs with unbelievable deliverability, which results in great returns. We do think there's some opportunities to make the asset better. And a couple things that we're specifically looking at that I'll maybe point to is we think there's some room to improve completion designs simply by cutting back a little bit on the amount of water. We think there's some opportunities to potentially widen spacing a little bit and specifically around existing producers. Those are things that we've proven within our own assets and are transferable. And even, you know, a little bit more tactically than that, it's just simply, you know, how we choose to steer a well and land it within a particular zone. And really it's about maximizing the contact at reservoir within that lateral. And, you know, as we've looked at, you know, some of the wells in the chief data set relative to how we operate, you know, we're convinced we'll improve performance there.
spk13: Got it. So Josh, just so I understand, this is how Chesapeake would do things differently from Chief, or is this how you do things differently just as you move to the northwest, kind of on your existing designs?
spk02: Yeah, I mean, really it's about us using the history and I think the technical expertise that we have to expand it into that acreage rather than it's something unique about the rock that we're developing there.
spk13: Great, thank you.
spk01: The next question comes from John Silverstein of Wolf Research. Please go ahead.
spk09: Hey, good morning, guys. I was curious, just talking about the ability for you guys to try to contract on the LNG side. It's obviously been a growing focus, and you guys do have a lot of capacity down in your Hainesville play to be able to supply directly to some of these facilities. Can you just give us an update as to your potential to sign some offtake agreements and whether you might be able to or thinking about potentially taking an equity stake in one of these facilities?
spk12: Yeah, I'll start this one and then Mohit will probably have something to add here too again. But we're really excited about the opportunity to do something like that, Josh. Exactly where we land on that spectrum of signing offtake agreements, taking a position in facilities. There's a lot of work for us to do to determine which facilities we want to partner with and how we want to gain that exposure. What we're really focused on is creating diversification of price. At the end of the day, these prices, anything you do in the LNG world is going to be a very long-term contract. And so while there is a big delta between U.S. gas prices and European or Asian gas prices today, over the tenor of that contract, you'd expect there to be plenty of volatility in that spread. sometimes good, sometimes less good, sometimes maybe not good. And so it's really about a diversification strategy. And we'll continue to think about the right way to approach that. And we're seeing a lot of opportunities to do it with a number of different counterparties, and we're going to take our time to work through it, but we're excited about that potential.
spk07: Hey, Josh. Good morning. The only thing I would add is From a diversification angle, if the deal is linked to Henry Hub, that's not as attractive to us. I mean, what we're trying to diversify away into is some sort of a LNG index deal, so whether it's TTF and the arguments or the discussions we are having internally is what's the right amount. As you know, we sell our production into different bases. And the way we view the LNG complex is that that's another basis that we want exposure to. So from a diversification point of view, I would encourage you to think of maybe 10%, 15%, 20% of our production. If we can link it to some sort of an LNG index price, whether it's through some of these agreements or whether it's synthetic kind of a dent bag deal, then that's what we are driving towards.
spk09: Great, that's helpful. And then you guys have done a lot of portfolio management since re-emerging a little bit over a year ago. You still have the East Texas asset in the portfolio and just wanted to see what activity you're doing there this year and are you looking for something to kind of figure out whether or not it remains in the portfolio?
spk12: Yeah, Josh, we don't have anything material in East Texas. Sometimes there's some rights that show up on an acreage map depending on what you're looking at, but We don't have anything material that we maintain in East Texas.
spk01: The next question comes from Noel Parks of Tuohy Brothers. Please go ahead.
spk04: Hi, good morning. Good morning, Noel. I had a couple questions. I was just curious, based on some of what I've been hearing from other producers, I wonder if you would comment on, as far as services quality and what you're seeing in this field, how things have been as far as the quality of the equipment, its maintenance, reliability, and so forth. I'm just trying to think back to the last time we had a boom on the service side. And I just have heard a few anecdotes here and there of problems or slowness with maintenance, repairs and so forth, and of course what we'd expect from our supply chain and parts. So if you could just talk about that and if there are any particular basins where that's more on the table, that'd be great.
spk02: Yeah, good morning. This is Josh. You know, I don't know if I would say there's any particular base in that this is, you know, a bigger problem than others. I mean, I think, you know, just much like, you know, the broader economy, you know, I think labor is tight. And, you know, in an industry like ours where, you know, we've seen growth with rigs being added, you know, over the last year, you know, clearly that's stretching that service organization. You know, you see rigs coming out of stack, you know, potentially and being restarted. And so, you know, generally across the industry, that's going to lead to some inefficiencies as that equipment gets warmed up, so to speak, and crews get some experience operating it. I wouldn't say, you know, we're seeing any more or less of that. I think it's just a general industry trend. that we have kind of carrying throughout the industry. And I think any time you're in a constructive commodity price environment that we're in with activities ramping up, those struggles are going to persist. So it's really, I think I would say it's present everywhere. As an operator, of course, what we do is we try to manage our strategic partnerships very closely, such that we're constantly on top of our service quality You know, safety obviously is a huge focus and a concern of ours. And then, of course, that, you know, ultimately all translates into overall cost performance. So we think some of our longer-term strategic partnerships are shielding us from some of that. But, you know, generally it is, you know, just an industry challenge as a result of the tight labor markets that we find ourselves in.
spk04: Great. And just going down a little bit on that, could you talk about how things stand with sand availability across the basins for you, what that looks like?
spk02: You know, sand as a commodity for us is not really an issue. You know, we feel really good about, you know, the sources at which we supply the basins that we operate in. Of course, we're advantaged in Texas. We own our own mine at the Burleson Mine just outside of College Station, so that provides us with some security there. I think the biggest issue that we fight, not to the point that it's created any problems for us, but it's just an ongoing challenge that we face day in and day out, it's just sand logistics. is probably, you know, the bigger issue. That varies by basin. You know, a lot of it's just the distance from a mine to a location. You know, interesting in the Marcellus, it's been with rail cars. We've had union strikes there, you know, which created some problems for us, you know, something we maybe wouldn't have expected out of our control, but, you know, glad to say it didn't necessarily disrupt any operations materially. You know, in places like the Hainesville and... and our assets in Texas. It's just about availability of truck drivers, and so really it's just about partnering with those logistic managers to ensure that we're attracting and retaining drivers to ensure they can service our operations.
spk04: Okay. Thanks a lot.
spk01: The next question comes from John Daniel of Daniel Energy Partners. Please go ahead.
spk05: Hey guys, thanks for putting me in. Just a couple operations questions. First, can you update us on the experience you guys are having with the new generation electric frac fleet?
spk02: So today, this is Josh, today within our frac fleet, we're running roughly five frac fleets, one of which is an electric frac fleet up in the Marcellus You know, definitely there's been some learning curves there. You know, we were one of the first adopters of that up in the Marcellus. You know, really I felt like we've kind of hit a stride there in seeing some efficiencies. You know, theoretically, you know, those electric frac pumps should be, you know, more efficient, but you're, of course, relying upon the quality of the gas and the generation that's being used on site, you know, to manage it. But definitely I would say it's a learning curve. We definitely see opportunities to expand that into the future and But just like most equipment within the service sector, equipment's tight. And for more E-Fleets to enter the market, they have to be built, which requires capital to be deployed. So we're in constant communications with our suppliers and talking about additional opportunities to expand that segment of the business.
spk05: Josh, do you ever see a scenario where you could be 100% electric, or are there operational reasons why that doesn't make sense?
spk02: It is definitely possible. I would never rule that out. Of course, we constantly monitor that market. We need the capacity to be developed. So I think the simple answer is yes, it could be at some point in time.
spk05: Okay. Just one final quick one for me. Assuming no one in the world cared about capital discipline anymore and you decided you wanted to ramp activity from here, how quickly could you do that?
spk12: I'll take that one, John. That's a big assumption. And we're in a world where people do care a lot about capital discipline, and we think that's right and appropriate. But I think if you said you wanted to get a new rig and start going after a growth wedge, I think you're at least six months from that rig showing up, at least. So it's going to take a while.
spk05: Got it. Thank you guys very much for letting me in, and congrats on a great album.
spk12: Thanks, John.
spk01: This concludes our question and answer session. I would like to turn the conference back over to Nick DiLasso for any closing remarks.
spk12: Well, thanks again for joining our call. Behind our exceptional employees, I believe Chesapeake continues to deliver what the market demands today for a premium valuation. We're focused on our portfolio of high-return assets with scale to matter. We're generating significant free cash flow and have one of the industry's strongest frameworks to return cash to shareholders. And we're committed to ESG excellence and to answering the call for reliable, affordable, and lower-carbon energy the world desperately needs today. We're eager to provide a deeper dive into the depth of our portfolio and what we believe it will deliver for our shareholders at our Analyst Day, which we intend to host later this year. And in the meantime, we look forward to continuing to update you on our progress. Thanks again and have a great day.
spk01: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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