Chesapeake Energy Corporation

Good morning, and welcome to the Chesapeake Energy Second Quarter 2022 Earnings Teleconference. All participants will be in a listen-only mode. Should you need any 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 a touchtone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Brad Sylvester. Please go ahead.

Good morning. Thank you, Joe, and thank you, everyone, for joining us on the call today. This is Chesapeake's second quarter 2022 financial and operating results call. 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, and you should not place any undue reliance on such statements. We also may refer to some non-gap financial measures, which help facilitate comparisons across periods and with peers. For any non-gap measures, we use a reconciliation to the nearest corresponding gap measure can be found on our website. With me on the call today are Nick DeLosso, Mohit Singh, and Josh Beetz. Nick will give a brief overview of our results, and then we will open up the teleconference for Q&A. So with that, thank you so much, and I will now turn the teleconference over to Nick. Good morning, and thank you for joining our call.

We had another great quarter, and we've announced another important step in improving our business and solidifying our portfolio around our outstanding natural gas assets. We continue to execute our business in the second quarter, generating very strong cash flows through our capital-efficient development. The integration of Vine and Chief into our portfolio has been a success, and contributed to the company delivering strong cash flows and returning meaningful capital to our shareholders in the form of dividends and buybacks. In fact, year-to-date, we have repurchased shares of our common stock equal to approximately 75% of the shares we issued in the chief transaction. The consistency of our quarterly execution is a result of continuing to take steps to make our business better, not just bigger, since emerging from restructuring. We believe today's decision to reallocate capital from the Eagleford to the Haynesville, leading to the Eagleford becoming non-core to our future capital allocation strategy, is the next step. Our focus on making Chesapeake better underpinned our strategy to acquire the buying and chief assets and has served as the foundation for our strategic pillars, which we believe maximize shareholder value. Those are to generate superior capital returns, maintain a deep and attractive inventory, a premier balance sheet, and pursue excellence from an environmental and overall ESG standpoint. As the macro environment has evolved and we conclude the successful integration of the Vine and Chief assets into our portfolio, we believe more strongly than ever that we have the premier natural gas portfolio in the U.S. Our Marcellus and Haynesville positions clearly possess the characteristics defining the best assets. We have industry-leading capital efficiency, deep runways of low break-even inventory situated next to the premier demand centers, strong operating margins, and advantaged emissions profiles. Additionally, as you will see in slide five in our presentation on our website today, our relative position with capital efficiency, operating efficiency, and well performance is peer-leading in both basins. Each of these strengths, when combined with our balance sheet, deliver a truly differentiated capital returns profile, which is unmet among the gas names in the space. While the Eagleford is a strong asset, as we look to the future, it simply does not compete today with the exceptional returns, rock, and runway of our gas assets. The Eagleford has become non-core to our future capital allocation strategy, and we believe that we will be a better company if we focus all of our resources, both capital and human, on the Marcellus and Haynesville. By doing so, investors will have a clearer path to investing in our great gas assets, and we believe we'll ultimately value Chesapeake more appropriately relative to the quality of our assets, strength of our balance sheet, and magnitude of our capital returns profile. With respect to the Eagleford, we will now turn our attention to accelerating value for our shareholders through a strategic exit from the basin. This is a large asset across a wide geography with several subsets of asset characteristics. Therefore, in order to maximize shareholder value during an exit, we expect the process to take some time and could even require multiple transactions. Our approach will be guided by two principles. First, anything we do must be accretive to our strategy. Our strong financial position and balance sheet and the exceptional cash flow generated out of these assets allow us to be prudent in our approach. So this just will not be a fire sale. And second, the proceeds will go to enhancing our capital returns program. As you'll see in our slide deck, our capital returns framework already leads the gas names by a significant margin. This will allow us to make it even better. As I stated at the beginning of this call, we'll begin reallocating capital away from the Eagleford to the Haynesville. Since the Vine transaction, we've been consistent with our six-rig program aimed at keeping the Haynesville production relatively flat. We've also shared that we have some short-term constraints, primarily from gathering and treating facilities in the basin. As you'll see in slide 12 of our deck, we've identified a clear path to increasing Hainesville capacity by the second half of 2023 and intend to increase our rig count from five where we stood last week to seven by the end of the year, allowing us to match our production growth to the capacity expansions. Ultimately, we plan to deliver 5% to 7% growth from year-end 2022 to year-end 2023. In closing, we believe Chesapeake is the only gas-weighted company who can definitively say it has the returns profile, assets, balance sheet, access to markets and LNG, and ESG performance to deliver across each of these critical areas. We're excited about our sharpened strategic direction and the opportunity to demonstrate that we are the premier gas investment opportunity in the sector. Operator will now open the call for questions.