Chesapeake Energy Corporation

And welcome to the Chesapeake Energy Second Quarter 2023 Conference Call. All participants will be in listen-only mode. Should 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 a touchtone phone. 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. Please, go ahead.

Thank you, Marlies. Good morning, everyone, and thank you for joining our call today to discuss Chesapeake's second quarter 2023 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 there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including factors identified and discussed in our press release yesterday and 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 may also refer to certain non-GAAP financial measures which help facilitate comparisons across periods 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 today on the call are Nick Delosso, 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, and now turn the teleconference over to Nick.

Morning everyone. Thank you for joining our call. I'll give a quick highlight of some recent accomplishments and then we'll jump to Q&A. We had an outstanding operating results this quarter. We continue to execute on our strategy and deliver sustainable value to shareholders through cycles. Our performance at the field level remains strong and I'm pleased that our team continues to find innovative ways to enhance our basin leading operating performance. We often get asked if the industry has rung all of the efficiency opportunities out of the equation. We've highlighted some things today that I think show we have several innings to go. To start, we've rapidly improved our drilling operations this year behind a combination of data analytics, machine learning, the high grading of our rig fleet, and equipment. These advancements allowed us to drill three of the five fastest Marcellus wells in our history during the second quarter. This included a team best 10,000 foot lateral which reached a total depth of 17,000 feet in under eight days. We saw equally strong results on the completion side as well. We deployed new equipment and technologies to yield recent company records in both the Marcellus and Haynesville, leading to a greater than 20% increase in efficiencies relative to previous zipper frac operations. In addition to our strong drilling and completion performance, the team continues to push the boundary of our development strategy. Our hybrid well design in the Marcellus combines stranded lower Marcellus acreage with a creative upper Marcellus footage into a single extended wellbore, eliminating the need for multiple vertical sections and reducing surface impact. The design yields a much more efficient capital spend and greater than $3 million incremental NPV per well. I'm also pleased to see extended laterals in the upper Marcellus deliver similar per well productivity to the prolific lower, while decreasing our drilling cost per foot. Overall, across our entire Marcellus program, our average lateral length in the basin has increased by 70% over the last five years. Moving to the Haynesville, our effort to optimize our acreage position through acreage trades and growth leasing has converted nearly 105,000 foot lateral locations to 10,000 feet, resulting in an incremental NPV uplift of between three to six million per location. A combination of all of our leasing efforts has increased our working interest on near-term projects by approximately 4%. Our ongoing effort to de-bottleneck our midstream systems in the Haynesville is also paying dividends through lower line pressures and higher production. And we have recognized a 70% increase to offload capacity over the last year through expansions and additional offloads. As we continue to optimize our operations in the Haynesville, we're also importantly progressing with our path to be LNG ready. Our recent agreement with Lake Charles for liquefaction advances our previously announced agreement with Gunvor to deliver gas for LNG on a JKM-linked price exposure. In addition to the impactful innovations, I'm really pleased we can lean on our financial strength this year and allocate capital in a prudent and value-oriented way for shareholders, given the low prices in the current market. This flexibility is a competitive advantage and enables us to focus on smarter decisions for value creation through cycles. In today's market, that means voluntarily reducing activity levels and deferring tills in production into periods of stronger pricing. While our second quarter production reached the high end of our quarterly guidance at approximately 3.7 BCF per day, our second half 2023 activity will be approximately one-third lower than our first half as measured by rigs, spuds, completions, and capex. As we reduce our spend on development activities, we continue to buy back shares and have increased our base dividend. In addition to our return program, we are using our strong position to strategically lease acreage. Year-to-date, we have added approximately 10,000 acres in our Marcellus and Haynesville footprint at an average cost of $2,400 per acre and expect more opportunities to add valuable acreage in the second half of the year, focused on improving and adding to our inventory length. We're doing all of this as we continue on our path to reaching an investment grade credit rating. Today, our net debt to total cap is about 10%, and we received two recent upgrades from our credit rating agencies. We expect that our balance sheet will be further strengthened through the completion of our Eagleford exit, which continues to progress. Our capital allocation strategy prioritizes shareholder returns and has resulted in more than $500 million being returned to shareholders so far this year, while gas prices have fallen significantly. Our approach includes a stable and growing base dividend, which has returned $150 million year-to-date and which we raised 4.5% this quarter. Our pro-cyclical variable dividend, which has returned $185 million year-to-date and and our countercyclical buyback program, which has returned $185 million in share repurchases, including $125 million during the second quarter. We remain the only large-cap gas company consistently paying a dividend and repurchasing shares in today's market. Turning our attention to the rest of the year, our approach will not waver. The underlying strength of our company allows us to remain patient and prudent, and that's exactly what we will be. We'll continue to make decisions focused on long-term value, which means we will execute on our strategic pillars, maintain our capital discipline, and further adjust activity levels should conditions warrant. And lastly, we'll remain steadfast in our commitment to maximizing value for shareholders.