Chesapeake Energy Corporation

Thank you for standing by and welcome to the Expand Energy Corporation's third quarter 2024 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Christopher Ayers, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Jonathan. Good morning, everyone, and thank you for joining our call to discuss Expand Energy's third quarter 2024 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. T. During this morning's call we will be making forward looking statements which consists of statements that can neither be confirmed by reference to existing information, including statements regarding our. T. goals beliefs expectations forecasts projections and future performance and the assumption underlying such statements. T. Please also note, 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 also recognize that except as required by 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 today on the call are Nick Delosso, Mohit Singh, and Josh Vietz. Nick will give a brief overview of our results, and then we'll open up the teleconference Q&A. So with that, thank you again and turn the time over to Nick.

Good morning, and thank you for joining Expand Energy's first earnings call. This is an exciting time for our company, and I look forward to briefly highlighting our third quarter results and providing our preliminary outlook for 2025. The integration of our two companies is off to a great start. Through the first month, we've seen plenty of accomplishments and are ahead of schedule with our integration plans. Our early success is a testament to the quality of our employees and their commitment to making Xpand Energy a leading energy producer. For the two standalone companies, we see significant momentum heading into 2025 with solid third quarter results, delivering impressive operational gains which will enhance future margins and profitability. A few notable achievements from the quarter include The combined company produced 6.75 BCFE per day while continuing to build productive capacity through our deferred completions and turn in lines. Legacy Chesapeake Drilling Operations delivered record quarterly feed per day in the Hainesville and Northeast Appalachia, while the company also set monthly and quarterly completion records for total hours pumped in Northeast Appalachia. Not to be outdone, Legacy Southwestern drilled a 25,191-foot lateral in southwest Appalachia, a record lateral length for a lower 48 onshore well. Now I'd like to talk about why we are so excited about what this company will deliver for our shareholders and energy consumers alike, starting with 2025. Our preliminary capital and operational plans illustrate the powerful combination of Xpand Energy and our outlook for enhanced operational efficiencies. We are truly better together with a portfolio that will be more competitive and resilient in all price cycles. Our preliminary outlook for 2025 includes approximately $2.7 billion of total capital to deliver an average of seven VCFE per day. Compared to Chesapeake's standalone maintenance level, this represents a 120% increase in production with only an 80% increase in capital. Our strong outlook will be driven by the achievement of our synergies and capturing significant capital and operating efficiencies. I recognize many companies promise synergies. For us, the definition of success is clear. It's all about capital and operating efficiencies resulting in spending less while producing more. In 2025, our capital efficiency should benefit from the deferred activity we built during 2024. Importantly, however, we expect this capital efficiency ratio to hold as our synergy realization builds and operating efficiencies continue to deliver higher value for every dollar spent. This ensures we deliver better financial performance during down cycles and more free cash flow during periods of higher prices. Our confidence in our preliminary plan is based on our early integration wins, which have positioned us to raise our expected annual synergies target by 25% to $500 million. The extended period between deal announcement and close allowed us to hit the ground running. In the initial weeks of Expand Energy, we have already successfully drilled telemetry data from all drilling rigs, successfully streamed drilling telemetry data from all drilling rigs to our Drilling Ops Center, allowing real-time optimization, redirected Legacy Southwestern produced water to owned water disposal assets, saving $1 per barrel, and implemented a new org structure to ensure Expand Energy is comprised of the best talent while capturing the best work processes from both organizations. Given our strong start, we expect to achieve approximately $225 million in synergies, which is more than 50% of our original synergy target, next year and are well on our way to achieving the full $500 million annual target by year end 2027. Our strategy to build productive capacity will also provide a strong tailwind into 2025. We're on track to build approximately 80 deferred tills and up to one VCF per day of short cycle capacity by year end. We will be prudent in turning production online and ready to rapidly respond to market conditions when pricing improves. Ultimately, while we don't know exactly how prices will respond, we do expect market volatility to continue. Expand Energy was built to deliver through cycles, and our Hedge the Wedge strategy provides great confidence in our financial outlook as we benefit from attractive collars and ceilings that are priced well into the $4 per MMBTU range. Simply put, we have effectively protected our 2025 program from a prolonged down cycle while ensuring we can still capture significant upside value in periods of higher prices. While our powerful portfolio and efficient operations are keys to our sustainable success, So too is our resilient balance sheet and capital returns program. We achieved an investment grade credit rating upon close, allowing us to transition our RBL to unsecured, eliminate financing costs, and ultimately access capital at more attractive rates. Our investment grade rating strengthens our position with counterparties as we continue to execute our LNG ready strategy and supply power to domestic markets in need. We understand the importance of a strong balance sheet and peer-leading shareholder returns, both hallmarks of legacy Chesapeake since our restructuring. To ensure financial strength remains a pillar of Expand Energy, we are enhancing our capital return framework to reduce net debt while maintaining an attractive capital return to shareholders. Our new framework prioritizes the base dividend and debt reduction while including a $1 billion share repurchase authorization and the opportunity for future variable dividends when market conditions warrant. I have said before, the world is short energy. As the largest domestic producer of natural gas with an advantage portfolio, resilient financial foundation, and geographically diverse assets, we are built to answer the call of increased domestic and international demand, as well as thrive in the volatility that will naturally follow this rapidly evolving market. In doing so, we are primed to expand opportunity for all stakeholders. I look forward to updating you on our progress, and we're now pleased to address your questions.