Chesapeake Energy Corporation

Good morning and welcome to the Chesapeake Energy Corporation's second quarter 2024 earnings 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 your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Ayers, VP of Investor Relations and Treasurer. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our call to discuss Chesapeake's second quarter 2024 financial and operating results. Hopefully, you've had a chance to review our press release and the updated investor presentation 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. statements regarding our beliefs, goals, expectations, forecast 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 in other SEC filings. Please also recognize that, as 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 measures, which will help facilitate comparisons across periods and with peers. For any non-GAAP measure, we use a reconciliation to the nearest GAAP measure, which can be found on our website. With me on the call today are Nick Delosso, Mohit Singh, and Josh Veek. Nick will give a brief overview of our results, and then we'll open up the teleconference to Q&A. So with that, thank you again, and now turn the time over to Nick.

Good morning, and thank you for joining us today. We are pleased with our quarterly results, which further demonstrate that our strategy designed to provide the greatest level of flexibility to manage unpredictable market conditions is working. And we are achieving meaningful improvements in capital efficiency and reductions in operating costs, which we believe will be durable when prices recover. Today, we are primarily focused on three key elements of our business. First, reducing costs and improving breakevens. We have recognized a 50% improvement in Marcellus drilling performance since 2022. We have achieved this by steadily increasing our feet drilled per day over the last two years by approximately 50%, as well as by growing the average lateral length of our wells by nearly 3,000 feet in the second quarter. The increase in drilling pace, lateral length, and deflation all combined to recognize a 20% decrease in drilling costs over the last two years. In the Haynesville, efforts to lower production expense continue to pay dividends, as evident by a 25% decrease in saltwater disposal costs per barrel since the third quarter of last year. This improvement is due to the team optimizing routes, increasing utilization of owned assets, strategic partnerships with vendors, and deflation. Combined, these operational improvements allowed us to lower our full-year capital and production expense guidance by $50 million and approximately 8% respectively. Lowering break-even costs is critical to delivering sustainable value to our shareholders and ensuring the market remains well-supplied with affordable natural gas. We expect the majority of savings recognized will be durable through cycles, which will only continue to improve the strength and competitiveness of our Marcellus and Haynesville positions. Second, maintaining production flexibility to match market conditions. Through the first half of the year, we have deferred 46 tills and built 29 ducts. By year end, we expect to have up to one BCF a day of productive capacity available to meet demand when conditions warrant. In addition to the deferral of tills and completions, we proactively curtailed volumes during the weaker spring shoulder pricing months and are prepared to do so again as necessary in the fall. We will be disciplined in activating the deferred capacity with market conditions dictating the pace and timing of our approach. We are confident this strategy will provide a distinct competitive advantage when natural gas demand recovers, given the inherent flexibility it provides and the speed and limited capital needed to bring volumes to market. Finally, we are focused on our pending merger with Southwestern, and our confidence in our ability to deliver the planned synergies is only growing. We are using the extended time between signing and closing to focus on our integration planning efforts and on delivering the synergies identified at the announcement of the merger, which we expect to close in the back half of the year. I have been extremely impressed with the openness and creativity of both organizations as we seek to establish a business that has more talent, better assets, and greater overall strength than either could have achieved as a standalone company. We look forward to seeing what we can achieve together once the deal closes, and we can fully unlock the power of our two organizations for the benefit of consumers and our shareholders. Our long-term outlook for natural gas, the affordable, reliable, lower carbon energy the world needs, remains strong, and we are working diligently to ensure our pro forma merged company with Southwestern is poised to meet consumer demand at the most efficient price. I look forward to continuing to update you on our progress as we move through the year. We're now pleased to answer your questions. Operator, if you'd like to assemble the queue.