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spk14: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Southwest Energy's second quarter 2021 earnings call. Management will open up the call for questions with a question and answer session following the prepared remarks. In the interest of time, please admit yourself to two questions and re-queue for additional questions. This call is being recorded. I will now turn the call over to Brittany Rayford, Southwest Energy's Director of Investor Relations. You may begin.
spk01: Thank you, Keith. Good morning, and welcome to Southwestern Energy's second quarter 2021 earnings call. Joining me today are Bill Way, President and Chief Executive Officer, Clay Carroll, Chief Operating Officer, Carl Giesler, Chief Financial Officer, Michael Hancock, Vice President, Finance and Treasurer, and Jason Kurtz, Head of Marketing and Transportation. Before we get started, I'd like to point out that many of the comments we make during this call are forward-looking statements. that involve risk and uncertainties affecting outcomes. Many of these are beyond our control and are discussed in more detail in the risk factors and the forward-looking statement sections of our annual report, our quarterly reports, and our definitive proxy statements for the special meeting regarding the Indigo transaction, all as filed with the Securities and Exchange Commission. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results on development may differ materially, and we are under no obligation to update them. We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers. For any non-GAAP measures we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release available on our website. I will now turn the call over to Bill Way.
spk02: Thank you, Brittany. Good morning, everyone. We appreciate you joining us today, and I hope that you're all safe and well. I'm delighted that so many of our employees have been able to join the call this morning as well. My thanks go out to each of you for all that you do for the company each and every day. Before we get started, I'd like to welcome Carl Giesler to Southwestern Energy as our Executive Vice President and Chief Financial Officer. His strategic perspective and disciplined approach really complement our existing strategy and our management team. I would also like to thank Michael Hancock and the entire finance and accounting organization for your exceptional work, especially over the last six months, as we worked to fill the CFO role left behind by the loss of Julian Bott. I look forward to working with both of these talented leaders as we continue to execute our strategy to enhance sustainable value for our shareholders. Southwestern Energy's returns-driven strategy focuses on creating sustainable value, protecting financial strength, consistently delivering leading operational and financial results, and pursuing opportunities to capture the benefits of increasing scale. At the core of our strategy and value proposition is a commitment to the right people doing the right things. Our success depends on the alignment and commitment of a fully engaged, diverse, and inclusive workforce nurtured by our high-performing, innovative, and value-driven culture. In the second quarter, we took additional steps to deliver further value enhancements from our strategy and action. The highlight of the quarter was the announced acquisition of Indigo Natural Resources. The integration planning process is going well and ahead of schedule. The shareholder vote is set for August the 27th and we expect to close shortly thereafter. This transaction expands the scope and scale of our company by combining core positions across the country's two premier natural gas basins and accelerates the delivery of key financial and strategic objectives. Because of Indigo's low-cost structure and strong balance sheet, we expect to see immediate accretion to key financial metrics, including improvement in corporate returns, an increase in free cash flow, and the accelerated delivery of our deleveraging goal later this year. Indigo furthers our sustainable value creation strategy by expanding our overall opportunity set and moderating risks to our business. The expansion into Haynesville adds Tier 1 dry gas inventory locations, that complement our existing Appalachia inventory. These locations are adjacent to premium gas markets, including LNG and other growing demand centers. Notably, the firm sales agreements and fixed basis differentials will expand the company's margins and dampen its overall basis volatility. Twin is well positioned to capture the many tangible benefits of scale that this transaction brings, including cost economies, expanded inventory, and further capital allocation optionality. The benefits improve the sustainability of our free cash flow generation, particularly as commodity prices continue to improve. We are on track to deliver the promised synergies at closing, and furthermore, we see the potential for additional value enhancements once the transaction closes from operational and commercial improvements, a strengthened credit profile, and a lower cost of capital. We are proven integrators, and I'm confident that our new combined Hainesville team will We'll find ways to deliver additional value from our newly integrated business. TWIN's commitment to sustainability goes beyond the economics of a scale-enhancing transaction like Indigo. It is the ultimate objective of our ESG strategy as well. Responsibly sourced gas is one of our key initiatives. This quarter, we implemented a basin-wide program to certify and continuously monitor all of our Appalachia Basin unconventional wells through an agreement with Project Canary. We have a long history with the firm, as we've been marketing responsibly sourced gas for several years to end users in the eastern United States. We specifically selected a certification provider that utilizes a rigorous and comprehensive process. The basin-wide well certification process and site monitoring has begun, and we have already installed continuous monitors at several operating sites across our Pennsylvania acreage, enabling our operating teams to immediately address potential emissions should they occur. Southwestern is a leading natural gas producer that is well positioned for a low carbon future. We have a unique combination of a strong balance sheet, large scale tier one operated assets, proven execution and ESG performance providing the means to deliver sustainable value creation. We continue to believe disciplined consolidation and the benefits of scale are core to our strategy for driving shareholder value. We remain committed to holding capital investment at maintenance capital levels and discipline in our risk management strategy, including hedging. Over the next few quarters, we will further refine our capital allocation strategy, including additional debt reduction and the potential return of capital to shareholders. Now I'd like to turn the call over to Clay to discuss the quarter's operational results.
spk09: Thanks, Bill, and good morning. Operationally, 2Q was another active quarter, and our teams continued to deliver results within our guidance ranges while ensuring the continued protection of our people and our operations from the ongoing challenges presented by COVID-19. Our 2021 plan is on track, and we look forward to operating in the Hainesville. I'll start with some highlights from the quarter. Total production was 276 BCFE, or 3 BCFE per day. This included 2.4 BCF per day of gas, representing 79% of total production. and approximately 104,000 barrels per day of oil and NGLs flat to the first quarter and consistent with our maintenance capital program. During the quarter, we averaged five drilling rigs, two in Pennsylvania, two in West Virginia, and one in Ohio with two frack crews. As planned, we invested $259 million of capital in the quarter and expect Q3 to trend lower with a further decrease in Q4. The shaping of our maintenance capital investment in 2021 is consistent with our well-established approach of front-end loading and tapering in the second half of the year. We brought 31 wells to sales in the quarter, drilled 23, and completed 19. Costs on wells to sales were in line with the first quarter at $626 per foot, with an average lateral length of approximately 14,000 feet. While we are starting to see some inflationary impacts, mainly related to diesel, steel, and labor, due to our vertical integration, proactive procurement strategy, and operational efficiency gains, we continue to expect low single-digit deflation in 2021. In Southwest Appalachia, we brought online our first Ohio Utica dry gas pad and achieved our $100 per foot cost reduction goal with an average well cost of $728 per foot. This three-well pad had an average lateral length of approximately 13,700 feet and an average 30-day rate of 25 million cubic feet per day, all performing in line with expectations. In Northeast Appalachia, we continue to drive operational efficiencies to reduce costs and enhance the capital program returns. We placed 11 wells to sales in the quarter with an average well cost of $531 per foot and an average lateral length of approximately 11,600 feet. These wells had an average 30-day rate of 14 million cubic feet per day. As Bill mentioned, we are excited to join with our newest colleagues from Indigo and hit the ground running in the Hainesville. We are currently doing our operational, technical, and HSE planning and we'll have a great operating team in place that represents a combination of employees from both Indigo and Swin. Initially, we will be focused on incorporating current Haynesville best practices and then look to combine that knowledge with our own operational expertise. I'll now turn it over to Carl to discuss the financial highlights.
spk10: Thank you, Clyde, and good morning, everyone. I'm excited to join the team and to help build on the momentum SWIN has generated through its base business and acquisition progress. As Bill mentioned earlier, this quarter the company accelerated delivery on its financial goals. It generated a free cash flow for the third consecutive quarter. We're on track with a 2021 plan to generate meaningful annual free cash flow. Expecting free cash flow generation to accelerate in the second half of this year. Once the transaction closes, we'll provide updated guidance to account for the addition of Indigo. The solid quarterly financial results further improved our leverage ratio by almost a half turn to 2.6 times. Liquidity remains in good shape, with just under $570 million in borrowings and $1.2 billion of capacity on our credit facility. With the accretive acquisition of Indigo and current robust commodity price outlook, we expect to achieve our two-time sustainable leverage goal by late 2021. A key part of achieving this financial strength has been SWIN's commodity and basis hedging strategy, which is directly linked to the company's enterprise risk management strategy. The company incorporates balance sheet strengths leverage, commodity and basis fundamentals, and the benefits to the company's financial strength resulting from acquisitions, among other aspects, in determining the level and instruments of hedging that will be employed. As a result of our basis hedging strategy, the company maintains its full-year guidance despite widening bases in Appalachia. As we integrate Indigo and update our capital allocation strategy in the coming months, We continue to ensure that our commodity and risk management strategy and practice remains aligned with the company's risk profile and our long-term value creation objectives. That concludes our prepared remarks. Keith, if you don't mind, please open the line for questions.
spk14: Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset to ensure good sound quality. Press star then two to withdraw your question. Please hold while we assemble our roster. And the first question comes from Charles Mead with Johnson Rice.
spk11: Good morning, Bill, to you and Clay, and welcome to Carl. Bill, I want to go back to a theme I think I've explored with you before, but you know a couple years ago when you guys were arm it has to do with capital allocation with respect to head just so couple years ago you guys had some in the money pages and kind of explored whether you guys were I'm were ranking and selecting your projects based on the stripper or your hedge pricing in your answer then when you had I'm we had in the money edges was nowhere we you know the hedges are the hedges and we evaluate on the strip I'm curious If we look now where you guys have 22 where the strip is above where you guys have hedged, is it symmetrical on the other side as well? In other words, are you going to rank and select based on the strip of 343 gas, even though your hedge is something closer to the high twos?
spk02: Yeah, thanks, Charles, for the question. Our practice of using strip pricing to determine capital allocation I think the choice of yes or no, I think it's a bit broader than that. Yes, we allocate against strip. In addition, we're going to take a look at, okay, what does the hedge book look like? Where are we actually going to land on pricing? And that will be blended into our thinking as we look at projects and allocation. But the economics... Yeah, that's right. I'll stop.
spk11: Okay, so would it be a fair inference that the company's overall cash flows as affected by hedges is going to set the capital budget, but inside that budget, the ranking is really more stripped?
spk02: Yeah, the capital budget will be maintenance capital budget, and so however all that plays out to get there, we're going to be holding production costs flat year end 21 to year end 22. So get that on there. And then, yes, as we look at the mix of projects and where we invest, first clue is we'll probably invest across all of the places where we operate because we've got complementary projects across multiple parts of our business. And then second, yeah, you'll run a sensitivity at least and look at, okay, what strip look like, what do the project economics look like with the hedges in place, and then make decisions based off that.
spk11: Got it. And then a quick follow-up, picking up on that thread, those three Ohio Utica wells coming out at $25 million a day, that looks like a pretty attractive rate, and you hit your well cost target there, but where would those slot in? or maybe differently, would those slot in in the top quartile, top half of your projects for next year?
spk02: I think the key issue there is you've got to look at gas and liquids prices. You've got to look at basis. You've got to look at all of the dynamics that are at play, mail costs, et cetera. And we typically do that as we move into the latter part of the year in anticipation of our budget release in February. And so we'll run those We already look at the business on a two-year basis anyway, but we'll run those more specifically as we get closer to the capital budget.
spk11: Thank you, Bill.
spk02: But to comment on the other comments you made, $25 million was as expected. They're strong economics. And again, I think when you look across our portfolio at the opportunities we have for investing, they are very complementary from an economic perspective one to the other. and where there's an opportunity to look at that mix as we get closer to the budget, I think you'll see that we will largely be investing in each part of our business because of the quality of investments we have to play with.
spk11: Got it. Thanks for the added detail.
spk14: Sure. Thank you. And the next question comes from Holly Stewart with Scouser Howard Wheel.
spk08: Good morning, gentlemen. Brittany. Good morning, Holly. Good morning. Welcome, Carl.
spk00: Thank you.
spk08: Maybe, Clay, can I start off with you just on a due diligence question? I know that's probably been ongoing over the last few months, but maybe just bigger picture. What have you seen so far with the Indigo asset base that maybe you were not aware of kind of coming in two months ago?
spk09: Yeah, we're pleased. We're pleased with what we see as we've been doing all the diligence across all the different categories. We've always been very excited about the inventory opportunity. Operationally, they've done a good job. One of the things that was probably something we were pleased to see was all the way down into thinking about some of the ESG components and the methane intensity, which was in line with what Swin Legacy has been. So that was another positive of the overall diligence that we've been doing on the asset.
spk02: And we've met some incredibly strong and talented people who will be joining our team as well. So the business looks like it's performing at or above what we thought.
spk08: Okay, great. Good color. And maybe, Bill, just kind of bigger picture information. you know, the southwest area has kind of been your growth driver for a while now while you've been more in sort of that maintenance activity mode in northeast PA. So with the closing of the Indigo deal, does this cause you to kind of revisit the northeast PA asset base? Maybe meaning, you know, is this the right mix of assets going forward?
spk02: Yeah. Our view on asset mix and the scale of each of those assets are We've got core assets in Pennsylvania, Ohio, West Virginia, and soon to be Louisiana. They all fit into the strategy and all fit into the plan. Enhancements are being made across the piece and not just associated with price, but well-performance, capability, well-cost, yields, you name it. And so as we take the pricing and other assumptions into account and build our 22 and beyond plans, we see a place for investment in all of those areas.
spk08: Okay, great. Thank you, guys.
spk02: Sure.
spk14: Thank you. And the next question comes from Neil Dingham with Truist Securities.
spk06: Good morning, all, and congrats, Carl. My first question kind of maybe tied both the two couple questions you had in earlier together. With sort of the hedge strategies you have now, I'm just wondering kind of, You look at hedge strategy and, you know, shareholder return going forward. Does that give you the confidence that, you know, I guess sort of two questions around that shareholder return. One, that you'll reach that kind of shareholder or I should say leverage goal at a certain period. And once you hit that, is that when you all decide kind of what is the best course for shareholder return at that point?
spk02: If you're referring to capital allocation strategy and return of capital to shareholders, as we work through and fully integrate the Indigo asset and get it closed, we'll take another look at our capital allocation strategy, mindful of a number of key aspects of that discussion around fundamentals, outlook, equity performance, strategic opportunities, bonds, and a number of those things. And all of that decision criteria will be put on maximizing sustainable value for the shareholders. And does that mean return of capital to shareholders? Of course, we have to look at that. Does it mean in its multiple forms, does it mean further investment? That'll probably be a piece. If you go back to when we sold Fayetteville, it's kind of a proof point We stepped back from the whole thing, looked at where we were as a company and where we were headed, allocated some of those proceeds to further debt reduction, and debt reduction is obviously part of this equation, return of capital, which we did, to shareholders, and then further investment. So it's imperative for us to look at that on a balanced basis, linked to all of those things I talked about.
spk06: Very well said. And just to follow up, look at Indigo. Just can you remind me, I forget the amount that you assumed as far as FT and the hedges and how you sort of blended that. I'm sure that's part of the integration, but how you'll blend that into sort of the current portfolio.
spk02: Yeah, I think what I need to do is we need to close Indigo, and then we can put together our proforma. Any of the data that we're able to put out so far is in the proxy that we've issued, but I'm advised that we've got to wait until closing to kind of lay all that out, and then we will.
spk06: Understood. Look forward to all that. I think it'll go great.
spk14: No problem. Thank you. Thank you. And the next question comes from Manchadri with Goldman Sachs.
spk07: Hi. Good morning, and thank you for taking my questions.
spk14: Good morning.
spk07: I Kind of wanted to follow up on the question around activity levels and hedging. As you meet your two-turn sustainable leverage target by late 2021, do you see or do you expect to kind of hedge less going forward because your balance sheet will be in the right place? And then also in the activity levels, if you look at the outlook for NGLs, natural gas, and basis here, Is there any kind of tilt towards drilling more liquids area within Southwest PA versus dry gas area? And then how does Hainesville kind of factor in there?
spk02: Well, I think, first of all, our hedging strategy is directly linked to our enterprise risk management strategy. And so as we look across the forward 36 months, which is kind of our rolling program, we take into account the various enterprise opportunities, whether that's balance sheet strength or cash flow or debt targets or any of those, and enterprise risks, which are commodity and basis, for sure, and any other risks that are there. Certainly, the scale of adding an indigo to the corporation and bringing all that together is another variable and factor that we look at. We have quite a bit of flexibility in our programs, and we use that, whether that's tenor of hedging or whether that's in each of the 36-month or the four-quarter period using collars or swaps or whatever. So we will always maintain the linkage and continue to do so between our program, all of those macro factors in the company, and our financial state. So as we build out our program and our long-range plan, and we look at our capital, whether it's return of capital or investing capital or other uses, and we look at the overall state of the company in terms of leverage, balance sheet strength, all of that, that will certainly, as it does today, inform how we shape the hedging profile over that rolling period going forward. And one must understand that as you go further and further out at this 10 seconds, because of just how far out you go, that rolling concept means that you're less hedged further out, more hedged today, and we continue to balance that as well as the use of tools. So it's all incorporated. It's quite a comprehensive view and a strategic view at the same time, and I think I'm very comfortable with how we work that.
spk09: The other piece about the dry gas and liquid split, we're very happy with the improvement in all the commodity prices, and the 2021 program is roughly a 50-50 split between dry gas and liquids. The dry gas is both Northeast and Ohio dry gas that we touched on a little bit earlier, and so that mix has somewhat been a consistent mix for us as we've moved forward, and sometimes we'll opportunistically make some adjustments there, but we're close to that 50-50 split as we think about 2021.
spk02: And a standout example of just managing all of this together is our basis hedging position, where the teams have done a great job in protecting the company from a very strongly widening basis in the Our basis hedging, which means we don't have to change our guidance on basis for the year. And then you combine that with the combination between SWIN and Indigo and the natural benefits of a blend of Gulf Coast basis and Appalachia basis. You get the economic advantages and you get the de-risking of that particular aspect. So it all goes together.
spk07: That's really helpful. Thank you so much. If I can squeeze one more in, with respect to cost inflation pressures, you talked about seeing higher cost inflation pressures from diesel, labor, and steel, but you also talked about efficiency gains and expect costs to go down. As you look towards next year or more like based on your conversations with service providers, specifically in the Hainesville where you compete with some of the services from oily basins, what do you expect cost trends to be there?
spk09: As you mentioned, our procurement strategy that we've been using through the years has protected us well. The fact that we own our own drilling rigs has been a key protection item for us from inflation. And we do still expect the low to mid single digit deflation in 2021. We are seeing some signs there. It's pretty early for 2022. Right now, we do expect to see some continued inflation pressure as we move into 2022. An early preliminary look, you know, is maybe a low single-digit inflationary view, but we're still working that and we're going to use our same procurement strategies and benefit from the broader scale that we'll have on the other side of Indigo.
spk02: And while there may be as you put it, competitive pricing pressures from the Permian. We've been very successful in using the fact that we are vertically integrated, that we do have rigs that we'll bring to bear. We do have a FLAC fleet and a number of other items that we'll bring to bear in helping maintain and contain cost increases. So I think, as Clay said, we're in a solid position. There is a bit of pressure, but we'll manage through that.
spk07: Thank you so much.
spk14: Thank you. And the next question comes from Scott Hanna with RBC.
spk03: Hi, Scott. Good morning. Hey, how are you all doing? You know, my first question is, you know, when you step back and, you know, think about, you know, how you define sustainable leverage ratios and obviously when, you know, it's a starting point of getting there to, you know, get your shareholder returns. But how do you think about the mid-cycle gas price, you know, with respect to that? And, you know, can you give us a sense of, you know, where that fits into it and if you've got a view on where that might land?
spk10: When we think about leverage, I think we look at it predominantly on what we expect it to be with the strip as opposed to sort of a multi-year strip as opposed to, you know, an arbitrary mid-cycle. And When we say sustainable leverage, just add or under two times, we're trying to balance having a cost-efficient capital structure, but yet still maintaining a margin of safety, to use that term from a financial perspective.
spk02: And on putting a... Like today, of course, with elevated prices, we've been running... are looking at a $2.75 to $3 range in sort of a mid-cycle price look. And there's today positive pressure on that, but we want to be sure that we're not taking a transient increase and putting it into strategic decisions. So we'll run both.
spk03: I get it. Okay. Okay. So there's a little bit of – it's a little bit dynamic, but it sounds like you've got a framed view there. Okay, and my follow-up question is, it's a couple things. First, just to clarify, you know, Clay, you mentioned, you know, the CapEx trends are, you know, down in the down again in fourth quarter. And just to confirm, you know, that obviously doesn't have any impact from Indigo. So it wouldn't be surprising to see that a little bit more sequentially flat when that comes, you know, online. Does that make sense?
spk09: Yeah, as we indicated, when we close Indigo, we'll put out a new guide that will include the capital associated with the ongoing capital program on those assets that will then be additive to the tapered-off design that we have in the third and fourth quarter.
spk03: Okay. And then the other point I was going to ask is on the NGL market, it looks like your guidance for NGL prices remains fairly strong, and the realizations are very robust, especially for the quarter. I know, obviously, pricing is very solid right now, but can you give us a little bit more insight into what you all are seeing real-time on the NGL market?
spk05: Yeah, Scott, this is Jason. So, I think if we think about the NGL market, think about propane first. There's probably a Several factors that are driving propane, just the limited propane supply due to oil-related capex reductions and then just definitely increased plastics demand and exports to Asia. I think that the other thing that's driving propane hires, just the exports, probably roughly 1.2 million barrels per day on average, and this is just due to increasing global demand and the additional export facilities out of the Gulf Coast. And then the other big thing on propane from a pricing perspective is just that inventory for propane is at the low end of the five-year range. We're likely to enter winter pretty tight unless something changes here. So, you know, just as propane demand – the market continues to grow, I mean, there's even less days of supply potentially available this winter, which is another factor that's putting pressure on prices. When we think about ethane, there's probably several factors. Natural gas acts as a floor for ethane from a pricing perspective. So obviously natural gas prices are higher. You've got increased exports as well. And then also the other thing from an ethane perspective is just the return and stable ethane cracker facilities in the Gulf Coast. The crackers just are running around 1.8 million barrels per day, which is probably up you know, a couple hundred thousand barrels per day from what they've been over the past couple of years. So there's just a lot of strong demand for those products out there.
spk03: Appreciate the call, Eric. Thank you much.
spk14: Thank you. And the next question comes from Jeffrey Langevin on Tudor Pickering Holt.
spk13: Good morning. Thanks for taking my questions. First, just wanted to ask on the Utica well cost reductions, if there's anything more to add there on the moving pieces and what the near-term running room could be and also how applicable it might be across your position.
spk09: Yeah, I think the more at-bats we get under our belt there, we're going to continue to look for efficiency gains just like we've done on the SWIN legacy assets. We were very pleased with seeing that $100 a foot reduction on the very first three-well pad. And there's some good learnings there. Some of the things that we thought we were going to benefit from right off the bat, we did. And we think there's still room for cycle time improvements in the different sections of the hole. And we'll continue to look at ways to continue to optimize the completion design as we move through time, but all consistent with the way we've been doing our well costs across the company.
spk13: Great. And then just shifting gears a little bit, my second one is a follow-up to one of the questions earlier on return of capital. And I know you mentioned this a bit in the prepared remarks and then expanded on it earlier in the Q&A, but just Wanted to revisit that specifically in isolation if there's a way to maybe speak to the different options that you might have that you might be more inclined to pursue as you kind of refine your thoughts on that.
spk10: I think several factors come into play. I think it's no secret a core or primary focus for strategy is to continue building scale and we'll continue to try to be active in M&A to do that. And so with that variable, that could obviously impact how we use free cash flow. I think another bookmark, if you want, and how we think about our allocation of capital, as you heard Bill say, we're committed to maintenance capital, at least at the enterprise level. I think that will be the case going forward as we bring Indigo into the fold. And so once you take those two things to the side, I think it becomes clear a function of how comfortable we are, whether with mid-cycle prices, strip prices, or whatnot, of being able to make a sustainable basis, as we've said many times, keeping that leverage at around two times, and then after that, view the most expedient way to potentially return capital to shareholders. So I think that's how we're framing that discussion.
spk12: All right, thank you.
spk14: Thank you. And the next question comes from John Navitt with Bank of America.
spk04: Good morning. Good morning, and thank you for taking our questions here. Just wanted to ask a question here on the Ohio Utica. I mean, just given the strength in liquids pricing that we're seeing here for NGLs and also for oil, What would you have to see in order to bring in activity into the liquids window of the Ohio Utica? And where does sort of the decline rate look like with that asset?
spk09: Yeah, I think the initial focus that we had as a company when we were looking at Montage was we recognized a high-quality dry gas Utica and the high-quality Rich Marcellus on that acreage position. One of the things that helped us lean towards starting in the dry gas window was the added benefit that that was going to have for us around the SWIN legacy existing Utica inventories. and the ability to get the wells drilled with our rigs and with our team and get that knowledge and prove that we can bring the cost down. And then that was going to help us as we think through the resource to reserves effort on the existing Utica. So that was the main reason for the Utica dry gas initially. We will definitely be incorporating over time the liquids-rich Marcellus assets there. But like I commented in the beginning, all the commodities have seen nice improvement, and we've got strong economics across all the different play types in our areas. And so it'll be part of the go-forward plans, but we're liking what we're seeing right now in the Utica and hopefully can continue to improve that performance.
spk04: Appreciate that answer. And you've already answered this in part from your explanation there. But when you think about the Indigo assets, bringing those in, how do – I mean, you've talked about in the past possibly looking up at Flatcastle. How does that sort of opportunity rank for you at this point in time if you bring in the Indigo assets?
spk09: Yeah, Indigo has way more focus with the high-quality proven inventory that already exists there. and an active program that will be ongoing when we take over at closing. We like the opportunity, the upside opportunity tied to Flatcastle, and we're doing a lot of the subsurface technical work on that right now. But clearly the proven aspect of what's going on in the Haynesville with the Indigo inventory is our main focus between those two.
spk02: And economics, like always, will drive all of those decisions. And as we build that plan out, we could communicate a bit more about that.
spk04: Okay. Thank you very much for taking our questions. Sure. Thank you.
spk14: Thank you. And the next question comes from Noel Parks with TUI Brothers.
spk12: Good morning. Good morning. How are you? Just a couple things. I wanted to head back to the Utica issue. So 30-day IPs of $25 million a day across the three wells. Is there choke management on those?
spk09: Yeah, we're making sure we're doing the right flow back to maximize the economics of the well and the performance of the well. And there's a flat portion in those Utica well profiles for exactly reason that you mentioned to make sure that we're watching the drawdown and that, that you'll produce those in an optimal way. So we're in the flat portion of the wells right now.
spk12: Great. And, um, uh, just as a follow up on that, if you, if you'd, um, I'll ask something else too, if you care to, uh, give some insight into what the 24 hour, uh, peak rate was on that, because the 30 day, 25 million a day, um, Reed is pretty impressive. But my main other thing was I'm just curious, what were the most sort of recently drilled offsets to where you are up there? I was just trying to get a feel for whether there's been a lot of activity or sort of how neglected the area's been by other operators.
spk09: The highest rate we saw was upper 20s in the area, but the intention all along was to bring them to a level and then they would be at a flat production profile, which is why that average of 25. When you look at public data, the data we have from offset operators, and then in particular Montage, because Montage was – is who the most active operator was in the area before we took over immediately adjacent and on these assets. The well performance was probably on average closer to around 20 million a day in that flat portion, maybe 21 million a day. And so we've continued to utilize our practices as we've brought these assets in and we were comfortable with our subsurface understanding and reservoir engineering, and that's why we're producing those at about 25 million a day.
spk12: Great. Thanks a lot.
spk14: Thank you. And as that does conclude the question and answer session, I would like to return the floor to Bill Way for any closing comments.
spk02: Well, thank you all for your questions and dialogue. We really appreciate it, and we also thank you for joining us on the call today. Your interest in the company and your support as we progress our strategy, bring Indigo into the fold, and then take a much stronger company forward really is an exciting time for us. So with that, I'll tell you, have a great weekend. Take care. We look forward to sharing more about SWIN as we close Indigo and certainly on the next conference call. Thanks again.
spk14: Thank you. That concludes today's teleconference. Thank you for dialing into today's presentation. May not as country lines.
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