CHK - Earnings call transcript Q3 2019 | Expand Energy Corporation

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Operator

Good morning, and welcome to the Chesapeake Energy Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Brad Sylvester. Please go ahead.

Brad Sylvester

you and our XXXX operational thank discuss today third and financial Chesapeake's results morning for call joining to quarter. Good for the release presentation had the our you've a to morning. our Hopefully, chance website this updated we that press investor posted to review and

statements assumptions existing expectations, morning's of the information, performance such regarding beliefs, we goals, including projections, which call, confirmed and and be this be making statements cannot During statements statements. by forecasts, future forward-looking underlying will consist that reference to our

Please duty recognize note except a the and statements, applicable filings. our are forward-looking materially forward-looking there will in required cause number place today SEC including that and you that Please other from should of actual in undue statements. that factors statements, update differ such to reliance not discussed on release factors identified any and results undertake as to no any by earnings law, we our

We periods measures, may also reference facilitate and peers. without comparisons financial help which with to some non-GAAP across

For we on corresponding found reconciliation measure a in GAAP measures use, to be nearest website earnings the release. can and our our non-GAAP any

Frank With call Nick and are this Patterson. Doug me Dell'Osso, Lawler, morning the on

and review for then Doug financial teleconference will and our the will Q&A. open up operational we results up

So, to with turn Doug. now that, over thank you, the teleconference and I'll

Doug Lawler

range capital year guidance Energy's regarding our today Thank guidance performance you, XXXX Brad, well program. and production highlights our good as pleased expenditures, to third as quarter Chesapeake full directional to morning, with you and I'm XXXX share share everyone. and capital affirm for

free improvement balance deliver to higher while Chesapeake and significant Despite volatility, generation. commodity positioning sustainable for flow price sheet cash continues margins

to Brazos production continued compared and on lower and notable by basis record achieved an recognized Valley as as shorter G&A, quarter. efficiency absolute CapEx. cycle third milestones improvements productivity, the in quarter, we cost the GP&T Cash were greater second by demonstrated several reductions across asset, times, In capital highlighted LOE, the

timing the full our our remain second in year production of quarter, a in challenges our guidance balance to full strength raised portfolio. we recall, and within production due delivering in capital guidance oil range and year the we despite third expenditures and operational quarter, you'll As the and -- production confident few

assets, rig more in of Brazos Valley, of in than Turning October barrels progress monthly day a approximately equivalent barrels our in production our program. XX,XXX XXXX new to per despite set the continues of including day which oil one XX,XXX oil less running per record

to a continued of XXX Our peak day deliver at impressive wells peak The this year third the capital day XX above quarter. results. improvements with X,XXX rate has per of oil efficiency while sales to in barrels barrels averaging turned team rates per oil

cost also acquisition. lateral per since reduced We foot approximately have XX% our by

base through workover the significant Additionally, to we decline program. well have and made optimization field's improvement our

Importantly, as evolves, further understanding high-margin expand black growing window our the field our to future inventory oil oil subsurface locations. commercial continues of deep of the

the in third South of development Texas drill completions continued of latter the our in deliver turned in new the quarter. legacy our we as majority The program to part line asset

of As the in quarter a the since in approximately result, averaging has our barrels day October. oil beginning the production grown per steadily of basin XX,XXX fourth

the to field, wells quarter. drilling and XXXX even continued cycle X% roughly improve, this improvement times importantly, time cycle Further recognized after in in we an

October. record our X,XXX of day a in drilling set Additionally, footage during feet team one single-well field

recognized year-over-year continues approximately in eliminate development In the to times by XX% operating or have per-well the River XX% Year-to-date, company and we Powder reduced $XXX,XXX. of savings Basin, cycle Turner program. the costs

completed XX averaged $X.X approximately per Turner per for to efficiency well. million have being Our in approximately Turner recent last million enhancements The the sales a pad have turned well. and wells resulted in $X drilled

below efficiency the Turner acreage, our operational and a our the capital our third of due improve group edge reservoir lower-than-expected of which volumes quarter to Chesapeake lesser other wells. compared in wells were continue expectations northern isolated the in located production encountered we While quality to in performance to in Powder, resulting

was Additionally, outages that takeaway. field electrical our adversely by interrupted affected have midstream third-party production

and actively to are working We mitigate constraints. our with third-party power midstream utility partners recent

pay As discussed Niobrara achieving our have excited placed about the at we remain record we length, since River recently on of production XXXX, Basin. the Powder results. stacked first potential We well

in With the modern peak XXX,XXX barrels of XX of its the days. per in well oil a become XX-hour of best-performing Niobrara completion the a design, has lateral rate XXXX basin more while and oil longer barrels quickly the initial than reaching day producing well

to We will Niobrara River program be formation. anticipate of quarter Niobrara the directed approximately our XX% expect additional and turning Powder fourth capital towards Basin wells four sales the in XXXX

and Marcellus million efficiencies shale, required. peak efficiency relatively to the prolific to by performance, Chesapeake continue capture in day. maintaining cubic investment reaching congestion flow capital XX between operational our operated to acreage of strategy The seasonal XX to production value well the result from pricing gains nine flat rates quality wells per feet Marcellus of minimal highlighted In with positions of gas basin continue XX-hour recent million our and

to cost our cash improve structure continue across We company. the

reducing to cash In expenses XXXX. by $XXX quarter categories, of the progress total reductions quarter-over-quarter compared third our million of all addition we GP&T and also to made a in cost in meaningful G&A

we and future gathering The quarter. this several downstream made is transportation improving and agreements midstream restructured progress significant. during in the quarter commitments also our We

cost able gas agreements a fee restructure to in from gathering South and were a fixed treating structure. we Texas to our of service First,

award premium gathering business. currently markets. which the provides Valley Second, we to RFP we in process Valley crude wellhead crude additional new negotiated Brazos are via to Brazos a Coast And finally, agreement transportation Gulf pipeline, access

of value resulting June to approximately On $XX.X we’ve reduced debt sheet, $X.X in debt shares and shares, in approximately billion million to XX. decreasing $XXX preferred approximately face balance total XXX the of billion for compared million common exchange at

under and levels other next measures our reduce efficiency We believe expenditures debt our year ratios our these improve planned transactions capital reduction revolver. the along with will in and

borrowing reaffirm facility credit for and Additionally, later retermination change, with base Brazos the the facility Chesapeake Valley our this we will happen no year.

divestitures, further funding can options. multiple our deleveraging evaluate to including capital sheet, improve balance that and continue opportunities acquisitions, We

Finally, and billion $X.XX we hedged XXX cubic XXXX our barrels XX hedged gas, $XX.XX at mcf million portion per of significant per barrel oil feet of production volumes have oil. with a of approximately of

have reduction full We to XX% and forecast oil forward Due currently across have $X.X and in at a our date. proven track total to commodity the we expenditures. We capital utilizing a to in completion record further and guidance later provide XX year while billion reflect prices, rigs capital cash leadership between an while look will to cost we improvements XXXX $X.X XX of efficiency business, our delivering ahead. detailed flat our we billion approximate updated project lower drilling and production, activity, in anticipate to

by our will assets be determined We directing continue majority XXXX. spend ultimately prices highest-margin our the be and capital our oil will in of capital commodity to

expect leadership. and our Additionally, reduce continuing cash G&A track approximately of production we to by cost our record related expenses XX%

resources capital continue XXXX. and our for us believe greater to our drive and finish efficiency this talented and program in we'll to to improvements confident strategy, returns. will projected remain cash our along strong flow our in and asset to position free shareholder with We portfolio We all XXXX target of employees, value utilize capital continued

our Our our net free delevering sustainable times. of sheet delivering on aligned higher cash strategic plan Board, margins, priorities management to and of ratio focused and employees are achieve and two debt-to-EBITDA further balance flow fully a

our and pressured The to improve commodity the of make volatile timing environment progress continue has we will these incremental and profitability. accomplishing competitiveness price speed goals, but and

I'd to for the a over now like questions. turn call few

Operator

[Operator session. from Instructions] comes begin Devin Stanley. We Our question-and-answer will first with now Morgan McDermott the question

Devin McDermott

morning. Good

Doug Lawler

Good morning, Devin.

Devin McDermott

My bit is more year-over-year us could was I reductions detail XXXX in spending. a on wondering first the if some guidance. of question you bridge in directional indicative help just the

think activity? there So what are to as key items where flex in the spending of about to you are you billion then flex detail? billion back might the cutting reduction? extent that can that how some $X.X drivers that provide Where $X.X range, those And are we of

Doug Lawler

portfolio Devin, the quality you, Thank place activity and Sure. assets the of the across taking a the of strength see because the in of actually assets. Yeah. We most reduction of question. the for

next rig $X.X be will do not the $X.X to billion higher-margin where are that finalized we we billion will know oil While across is not directed the -- exactly be have what year, assets. count

be So so two competitive and past. to our Texas, [ph] you'll adjustments, see quality direct in reductions see in asset. to two three we That the expect to on three that program the in three but assets that us rigs of that the capital, across flexibility in in two Valley of each high in of South the due two those attention the to to will to based we Powder, we have can pricing and the that proven Brazos to to has capital where the Marcellus and we make vary assets the helpful in three grading

Devin McDermott

you to what's we as that's Got at it. realized over sense. run I versus average my should next lower? costs rate those second, some side And year Similar elsewhere, on it's enter reductions of line what's full are year G&A the How point costs we driving the some That to the in coming cost operating for that on overall your about the but XX% makes and just announced cadence? guess, the of from going being the year. that to or transport XX% restructuring similar is think reduction average a then a time XX% and how reductions? much

Doug Lawler

look as continue comments the my think you trying are that the at we that to -- was I make quarter-over-quarter I I best way can there expect is improvements, year. we to highlight in see to so continue across think to

in Specific project basis synergies G&A we business. the the We to and compared to all across more reduction through absolute efficiencies a and to targets year technology either do and parts or of as We our attack on really LOE. LOE through cost G&A for more and efficient XXXX. an see continued be ways that structure

to to continued areas of to company ways to reduction the to in look past The efficient the that several operating make reflection is is a those really just find that and things better ways, years. had I continued and find better historically that over more improvements way the we've that operate, at has philosophy do

Devin McDermott

very sense. Got you much. it, Thank makes

Doug Lawler

Doug. Thanks

Operator

Our next Guggenheim. question Subash from comes with Chandra

Subash Chandra

do which would to GP&T shed a hi It achieved is legacy of like costs. Yes, Doug. E&Ps seems what you've like lot

give I your correctly you if the past. most curious contract and I if us GP&T think in of expensive this Ford magnitude the Just Eagle recall was reduction

there? more any color So,

Nick Dell'Osso

Hey Yes. its Subash Nick.

it a So, going in what structure. Ford to from on this went cost-of-service The the the structure program is us fee of clarity the forward. contract fixed primary doing benefit our Eagle gives we did we is development

forward going rate immediate we see a we rate won't the program an about as actually what over in better again in long-term Year-over-year, is of embedded decrease return service we clarity get cost that think cost the and of paid. the the development time. And of

potential markets here. But we we for clarity across benefit the for We partners contract. a field, us of Gulf to have the of Gulf what almost asset that have immediate the access Texas Valley that we South Board. midstream a able long-term for Coast we takeaway great it's to higher to the transportation side the work for with when then ago greater win pay were you years oil much of out to of Coast lot better the Brazos economic our now long-haul future utilize understand to new economics So, the and we on impact marry have big do to cost-of-service uncertainty and of to for that access not is our able volumes, transportation, XX clarity. The out with were think gosh, there's where delivery And markets. took the that get

Subash Chandra

assets a Got it follow-up, assets? in that you. whether you royalty portfolio of Nick. non-traditional water sort can the or Thanks And the monetize assets any be

Doug Lawler

divest Subash assets as acreage opportunities look or the a number we to current asset. whether have a be it portfolio, opportunities the country opportunities and we whether across that in non-core evaluate market to Yes. areas larger the of be across non-traditional our like of it for

watch. So, to I a think continue that's to that space

principal different interest non-traditional, further the and We some primary in things, of and on way are as we'll continue in to seeing some the in delevering. focus non-core, that a

Subash Chandra

total hazard ask Got if ratio the I it. on in to please. be final what for guess And XXXX oil way Any could one might a volumes? one

Doug Lawler

Sure.

the As the reduced will the side ratio and capital next oil on XX% exit maintaining XX% spend that likely as on we of because the we to forecasted gas it production year XXXX. maintain

Subash Chandra

Thank you. Great.

Doug Lawler

Yes, thanks Subash.

Operator

Our Arun question with next from comes JPMorgan. Jayaram

Arun Jayaram

and leverage There's covenant. XX-Q in staying you XXXX compliant your thoughts some start revised around Nick morning. confidence covenant ratio you. of with with the wanted language comment if good Yes, facilities, on in wondering I in the credit your to could on the that

Nick Dell'Osso

way Sure. Absolutely facility. covenants comes about think ability XX the disclosure Arun, over the with based may familiar of you next the and so the our be most it's this with I to up in on projections and the credit keep months

remind you in debt-to-EBITDA I'll decreasing a credit we facility, around throughout XXXX. that our have covenant

much a was of ago progressing higher put we in the it reduction. structure business place underlying our a over much reflection how as So, that it's at prices debt are covenant than is and with our year

aware great about keenly at length and we've debt talked reduction focused on you're and made as been As we've absolute we've strides.

capital business; rise; do asset same markets have; continue regular and levers basis. bank hedging to a that closely discipline we with of all as our working aspects course, in transactions; prices which all expect our using on strides they group we of sales; very cost We to the make

could go that any a out -- at moment in from seek permanent focused continue result reduction. be our group. and time debt We at strategic But levers the we're waiver on the to bank

Arun Jayaram

a some year? implications if production outlook natural could shifting about What would from if gears the to bit oil gas wanted see stays talk you macro imply that relatively it. it. I little initial for XXXX. next Got flat Got maybe your on And volumes gas your comments to

Nick Dell'Osso

the relatively In asset if we is just running as Marcellus Arun of rock be outstanding. two efficiency for we're there. And see the Marcellus, a and rigs Well, production gas our capital, to have the up investing you'd you'll year three expect that flat to we quality the capital amount significant of not anticipate decline. the in the the

like a greater portfolio I Because You indication as and macro gas comment. the good should company when I strength the quality of made should where directionally our Chesapeake see about a reducing activity you think be reducing with an environment and a interesting think that's it of others comment be capital well. that

our We lever in portfolio. that gas are we -- have us to available

a others others company you'll present, higher oil reduce inventory, is macro pull from or back to can get if our be with we greater that assets. invest a that other ought shouldn't spending And like it be indicator I level At see want from because don't the Chesapeake of quality because to either. the investing an our returns think of we margin there

Arun Jayaram

Great. Thanks a lot, Doug.

Doug Lawler

you. Thank

Operator

comes next Singer Brian from Our Goldman Sachs. question with

Brian Singer

morning. Good you. Thank

Doug Lawler

Brian. Hey,

Brian Singer

would slower how year-on-year, of the see in you then XXXX implications growth on get to With rate you if flat on the you the And at as just end next the could the to the particularly the path path for well of a of you year result oil touch the XXXX? decline can production on just about And slower helpful? at impact year? that be see end oil, talk how trajectory as

Frank Patterson

to a It's Patterson. we're the Frank as going to best question. all performance. far put is the as this where Brian plan exactly good capital XXXX drive still We're Hey, working the

high been at going a out, XXXX at and decline. year As to a the all. The somewhat out you relatively into enter fleshed go we'll of rate we're have has program probably not figured

the I kind strive to up year. end be decline beginning stays be better moving in XXXX think for. XXXX But price might to that year have and we of it into If and to think we're I relatively drive that inflection the probably an very, around would of the need create we see is, something for would capital outcome to XXXX you going flattish of that than of keep where move the to flat. oil some thinking hard towards be XXXX an work a the guessing. very opportunity from definitely, people We'll

Doug Lawler

to a that to reduce of Chesapeake, cash efficiency the be what I on culmination cost might flat several volatile in production. positions -- period work Brian all pardon able in Really me that's and over oil years the we've just just add that for that recognized there. maintain structure the place that past capital the this improvements, second is the the capital relatively us taking

to those cash are what ever flows program. a future with reduced are impacts capital we mindful So of

the reduced confidence quality But in that our those doesn't because the portfolio, that assets, of the capital of program XX% a capital allocation have of to years. later the compromise efficiency, across of tune we

and Now of to the that range indeed, communicate the need that given and flat in not rate at of that production that going as if type trying the that's be you're Frank efficiency decline capital you're roughly profile, highlighted. a we're But see really nature investing what with shale to level will fight spend is to decline.

Brian Singer

with are the more about were you an assuming price next quarter when example now preliminarily oil second you versus talking what year? And as

Doug Lawler

We've something strip. assuming been market current actually a is what little we're we've -- current modeling prices. than less Actually

I as going we're shape good how forecast So out year. pretty turn in to that's we think the in

Brian Singer

negative results Great. just out to attempt And Basin. whether is of reduction then And an talk limits River that Can some and my XXXX? you costs or fallen in for it then any further of some GP&T you the the think why Powder into you color a the on follow-up on the implications seems area an one-off. Can is field? and add this push you inventory the like just have to reduction represents highlighted

Nick Dell'Osso

Nick. I'll it's answer Brian, the GP&T.

there. happening One, attractive. So a are drives in some economies sheer couple which scale, just field in of volumes the increase things of the

oil a that our rate. oil sales is year, the we've earlier to attractive second a point trucking to from gathering at an very this from The wellhead moved system

to So starting up. show that's

in a be step see of more the going of had the a down continued as on at efficiencies drive scale We future. side. to economies expect point to for here an we near some We the restructuring of step-down at There's reductions once have to achieve gas the future. agreement a in the relatively rate. And certain XXXX. point happen opportunity at end volumes will That gathering there's us in some some gas

expect the GP&T Powder and continue So would the to I decline. to

Frank Patterson

Brian this Frank. is

calling very of underperforming slide the field give you that. we're end some So furthest our position. on to a on the the wells northern of extent kind expectations. the wells deck some in put kind out color our in north of -- our We Those are Turner the at acreage of

and probably saw basin at think also look which bit you think quite at expectations. kind that and If of wells It's congestion We something four is offset there where operator area of sold perform up to out. there's actually a the was drilled an we not wells opportunity had to we answer. per those reservoir What don't an wells lower but join in those quality. our in section they we average, some the is right

is spaced -- drilled wells the to off The the two to three that rock as we not section, we per work is isolated area. right performing south. at those answer from We just wells and our in expected now believe which drilled

look If of remainder by we think our you want the about you that is basin of of what which program, inclusive we're rest at those wells XX% more. the outperforming the can actually the see nine, Turner is good. We

So completions, solutions. for we're better and well spacing design pushing better better

Powder. wanted X,XXX of just represented because it's we So under-delivery that barrels a to important. It in day out the call about

we're have We that quarter, admit but in going up through third the to program. rest make the of to that the

some up have wells any that We So to further. We don't highlight variability. that variability. just drill in there is to understand wanted area

Brian Singer

Thank Great. you.

Operator

from Energy Heikkinen Heikkinen Advisors. comes question with David Our next

David Heikkinen

Good And one then financial Had and question. for first operating thanks guys. my one taking question morning question.

the up frac? to that you have rigs times about time? side, improved you similar Or Can stable fleets rigs your down the count, just does in of you've region? drilling to your like as by really that frac how think operating you cycle with flex reduction and impact maintain do as On improved a and and rig your ratio

Frank Patterson

frac The a rig busy. Yes. in imperative. one David, frac through do two operational crew That Frank. three most important us. and that. crew, a We're program this is believe to a is is to we'll half very if working We basins keep not efficiency

much And right David. through align now to that's rigs goal what as the going frac crews. will be we're with possible as Our the

We're also going the with negotiating to into possible suppliers vendors, price our get XXXX. contracts best

of So that's drilling we Very we that and between frac burner are crews that get on sure keeping all but work done. much front kind in the making alignment progress crews.

that frac looks the bit of Turner be a we'll exception move If to Right in maybe us we in crew take now and like to to fully crew that expand those more basins into it jobs frac more busy more longer of because allow Powder time will the probably our one able all frac wells. Niobrara quite keep than Powder. with the

David Heikkinen

Okay. That's helpful.

and necessary the as on going -- then guys about you XXXX and the cash transition side move, Just flow in the efficiency the you free which do think the relative free and flow cash cuts your to flow two your in free year. is gas Haynesville Marcellus And to criticality assets about next long-term how and and a think cash covenants of plan?

Doug Lawler

quite critical next to Yes. balance over steel we we meaningful important is good outstanding assets That's the there diversity flow quite The us. us of that the The and years really still simply that profile and significant several a very a that question. give is Marcellus cash projection like. gas our expect and portfolio and and of quality part really, are

And The weighed in seek neutrality been and projected to and we that we covenant and to experience flows we fully all incorporate that our reduced we until that expect decline would how we'll you that Haynesville, activity in direction sustainable and considered that's that cash the model situation free redirecting again. the the deliver and flow there, profile, capital the years. as cash and free start the flow into coming returns cash cash flow

to I'd the of and and So They're to critical the cash and the a and evaluate our is profitability with the look we are very at that financial very and the future program assets gas answer flows lever company. tremendous that Chesapeake. respect way capital question closely performance important the

David Heikkinen

your assume? to have a exit multiples I'd any be at to would covenant premium And

Nick Dell'Osso

I think that's...

David Heikkinen

assumption. simple a That's

Nick Dell'Osso

think be a board. big think a I asset there's way of about exit gas shareholders find price simple we'd that across we that you guide But to isn't I to it. would at that attractive a to to Dave cautious expect think large the something that's a

think driven be that I we by So would don't metric. one just

David Heikkinen

Okay. Thanks, gentlemen.

Operator

This to Lawler question-and-answer closing conference over for Doug remarks. the back turn concludes our any like to session. would I

Doug Lawler

Yes. Thank program just us today. in you high. remains our for strategy execution joining reiterate, to And our of our and confidence very

production Our the track and in months ramp to growing oil to will meet XX% fourth last quarter year the continue capital of over our the the few production on in to and quarter as guidance. third XXXX compared we're

Looking forward our flat flow. to ahead, our we'll approximately and the on reduce by shared oil delivering year maximizing cash XX% production spend I capital as

out improvements the We're to And questions to efficiency continue capital This further any concludes a plan the reach market. XXXX. please is of resilient address to to free we'll target the company you. with proposed to which cash commodity not to questions. our development flow if And the us. in do fluctuation conference build happy positions Our combined have call. hesitate Thank any you business

Operator

conference today's for has Thank you attending now The presentation. concluded.

now may disconnect. You

Brad Sylvester	Vice President, Investor Relations & Communications
Doug Lawler	President & Chief Executive Officer
Nick Dell'Osso	Executive Vice President & Chief Financial Officer
Frank Patterson	Executive Vice President of Exploration & Production
Devin McDermott	Morgan Stanley
Subash Chandra	Guggenheim
Arun Jayaram	JPMorgan
Brian Singer	Goldman Sachs
David Heikkinen	Heikkinen Energy Advisors

Expand Energy (EXE) 5 Nov 192019 Q3 Earnings call transcript