Chesapeake Energy Corporation

Good morning and welcome to the Chesapeake Energy Third Quarter 2022 Earnings Teleconference. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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 Chris Ayers, Vice President, Investor Relations, and Treasurer at Chesapeake Energy. Please go ahead.

Thank you, Andrew. Good morning, everyone, and thank you for joining our call today to discuss Chesapeake Energy's third 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 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, we use a reconciliation to the nearest corresponding GAAP measure and can be found on our website. With me on the call today are Nick DeLasso, Mohit Singh, and Josh Vietz. 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. I now turn over to Nick.

Good morning, and thank you all for joining our call. Before we get to Q&A this morning, I want to cover three topics that we believe are most important to our shareholders. The first is our strong third quarter execution. Second is our industry-leading cash returns. And the third is our strategy to continue our momentum into 2023 and be LNG ready. So to start off, we had another strong quarter operationally. We delivered on our production in the Hainesville and Marcellus and had some great well results in the Eagleford. We did experience a few delays in Eagleford production due to facility delays that pushed some volumes into Q4, but believe those will be temporary. We're reaffirming our annual production and CapEx guidance ranges for 2022, reflecting our confidence in our delivery as we finish out the year. In the Hainesville, we've made significant strides with midstream capacity. We've increased our gathering and treating capacity by 25% for this year and up to 60% in out years. We've also committed 700 million cubic feet a day to a new pipeline to be built by Momentum from the heart of the Hainesville play down to Gillis. This project also has an associated carbon capture and sequestration program with it, and we're really excited to be a part of this, we think, unique and transformational project. We have an opportunity to participate in up to 35% of the equity of the project, and we expect to take that option. This gives us greater than a BCF day or more than 50% of 2024 and beyond Haynesville volumes that are contracted for Gulf Coast delivery and pricing with both the Momentum pipe and our Golden Pass transaction. In the Marcellus, our synergies from the chief acquisition continue to come to fruition. As we've discussed before, we're maximizing the capacity of the combined gathering systems, and we're looking forward to 2023 where our well design improvements of longer lateral length and enhanced completions should show up with improved productivity per well. We've also been able to add a little bit of leasehold in the lower Marcellus core of the play, which we're really pleased to do. Looking forward in the Marcellus, we're moving to a co-development of the upper Marcellus and the core of the basin to optimize development of all zones of inventory. We expect the 2023 program to be about 50 percent upper Marcellus and lower Marcellus. This will bring the average well performance down marginally, but does maximize overall inventory returns. And combined, the lower and upper Marcellus remain the top natural gas return opportunity in the U.S. On the Eagleford, I'm sure you all have questions about the process. We have no new news to report this morning other than the process is moving along very well and it's too early for any results. We've been very pleased in the breadth of the interest in the assets and we'll report results when available. Turning to our cash returns, our model continues to lead the industry in delivering returns to shareholders. We generated $773 million of adjusted free cash flow in the third quarter, and this yielded $3.16 per share of total dividends to be paid this quarter. Additionally, we recently purchased $400 million of shares from former creditors. This brings buybacks on the years to $1.1 billion, 80 percent of which have come directly from former creditors. Our total returns to date, including buybacks and dividends, total $1.9 billion this year. We're really proud that Chesapeake stands alone at directing its free cash flow to meaningful actual cash returns. During the quarter, we also were able to simplify our capital structure with the warrant exchange. That resulted in eliminating two-thirds of the outstanding warrants, and it also resulted in a reduction of our short interest by 55%. We're pleased that when you combine this with our repurchase efforts, we're still able to lower our fully diluted share count. Separately, we continue to work with the rating agencies in recognition of our investment grade quality balance sheet, and we're pleased that S&P upgraded us to BB this month. So to wrap up, I want to talk about how we're positioned for 2023. Our Marcellus program will remain steady and continue to highlight leading capital efficiency and the very best returns of all gas opportunities in North America. In the new slides we posted today, we added some slides that lay out our Haynesville market strategy. We expect to leverage our capital efficiency leadership, our growth flexibility, and our midstream partnerships to participate Chesapeake to be LNG ready, as the macro tailwinds from the significant increase in demand due to export capacity expansions arrive in the second half of the decade. We've been consistent in our message to grow when capacity additions are available to meet incremental demand. As export capacity doesn't begin to increase until at least 2024, we're setting up our near-term volumes to be relatively flat and begin to ramp slowly as we approach 2024. We're truly excited about what this setup means for our shareholders, as we're uniquely positioned to deliver differential shareholder value over the next several years due to our superior capital returns, deep, attractive inventory in the best places, and a premier balance sheet, all while doing things with a focus on sustainability. Andrew, we'll open it up for questions now.