Good afternoon, welcome to our eighth annual JP Morgan Energy Conference. I'm Zach Parham from the E&P research team here at JP Morgan. Up next, we have Chesapeake Energy, an E&P focused on developing assets in the Marcellus and Haynesville. We're thrilled to have Chesapeake's President and CEO, Nick Dell'Osso, with us today. Nick was appointed CEO in 2021 and previously served for over 10 years as Chesapeake's CFO. Nick, thanks for joining us today. Maybe we could start off with your macro views on the natural gas market. We've seen quite a bit of volatility. We've started to see some rig drops come through in the data over the last few months. You know, really, what are your thoughts on the gas macro going forward? Yeah. We feel a lot better about the gas macro than we did, I would say, even 90 days ago. That's really based on the fact that we've seen the rig drops actually show up. We knew that we were dropping some activity. We knew there was a lot of discussion about dropping activity. When I talk about activity drops, we're primarily focused on the Haynesville, because that was the significant source of growth throughout the second half of 2022. You know, a lot of people talk about it, but we've now seen the drop show up in the data. We're also seeing production, we believe, begin to plateau. That's very encouraging that it happened as efficiently, as quickly as it did, and we're starting to see plateauing of production. That plateauing, we want to see that play out a little bit more. Want to make sure it's not a head fake. The drop in rig count from mid-70s to around 50 is real. We can confirm that not just through the very, you know, trustworthy data sources of Baker Hughes and Enverus around rig count, but also through just channel checks and conversations we're having with our service providers. They're all confirming that indeed, those rigs are dropping. We've gotten a lot of questions over the last couple of days about, does that mean those rigs are just going to the Permian? Most of them, not really. Maybe a few have, and we think those that have gone to the Permian are probably displacing other rigs in the Permian, as opposed to being true adds. We think overall, the dynamics of rig counts dropping to moderate supply is happening, and that's really encouraging to see. The other thing that I would say, or two other things I would say continue to happen, is power burns are fine. We're not seeing coal show up to displace. That could be still partly a function of very low gas prices, but coal inventories are building, and we're not seeing any of that push into the stack in a material way. Lastly, the export facilities that are due to come online throughout 2024, towards the end of the year, continue to look like they are on time. The setup for 2024, we think is pretty decent. We think in a market that would be rationalizing supply-demand mismatch of today, it's, you know, somewhere between 1 to 2 BCF a day. You know, for the curve to recover to, we think of it, you know, right now, call it a $3.50, 2024 number. That feels fine. All that said, you could still be totally wrong, right? You could still have. The supply encouragement that we see could be a head fake. You could see supply still show up later this year in a surprising way. You could see demand be soft this summer, weather-related, and you certainly have a big, important winter. It's always a big, important winter, but a big, important winter in between now and the start of 2024. We think flexibility in your business plan, we think having cash and a strong balance sheet are all really important tools and things to focus on, to try and be well-positioned for 2024. The inflection will happen, and it should happen, during 2024. We share that view, as you get that incremental demand online. You know, as far as when in 2024 and what kind of magnitude of the downturn we sustain within now and then, there's a lot of unknowns there. We really like our position of having a great balance sheet, having cash on hand, having assets at the low end of the cost curve to be ready for all of that. Thanks, Nick. On the 1 Q call, you mentioned you'd started to see a pullback in non-op well proposals in the Haynesville. Has that continued? You know, we've seen a lot of rigs come off. Do you expect incremental rig drops from here in the Haynesville? We do expect that there could be a few more. We have, you know, anecdotal evidence that there's, probably, I'd call it, a rough handful of additional rigs that will come off. We have not seen any change in that non-op activity, meaning that we are seeing, you know, kind of the same lower number of proposals that we mentioned on the Q1 call. That all feels consistent with the idea that the Haynesville has definitely slowed down. Thanks. Just shifting gears to capital allocation. Can you talk about your capital allocation strategy, how you balance cash return with investing in the business and also portfolio renewal? Yeah, absolutely. Our cash return program to shareholders has been very robust and something we're very proud of. We think it's worked really well for investors. I had a big variable dividend payout throughout last year, through the first quarter of this year. Our free cash flow for the second half of this year will lead us to, you know, really no variable dividends. That said, we have a very large share repurchase program that's been authorized. We have cash, we can continue to return capital to shareholders in a way that we think is prudent. Right now, we like having cash. We like the ability that we've been able to look at our business and say, with relatively weak pricing in 2023, probably carries into the beginning of 2024. We wanted to pull back on activity as part of our capital allocation. Gives us flexibility with how we manage our cash flows for the year. That's all worked really well. We like that we have the authorization for the buyback. We've been progressing that at what we think is a prudent pace. That allowed by being prudent with our pace, we are managing our cash position in a way that we think is really favorable. As we think about how we're positioned going into next year, we have the ability to continue buybacks, which we expect to do. As prices come back up, the variable dividend will grow back into a nice, steady pace again, and we'll be in a position that when the market really pulls on the Haynesville, in particular, to grow, we have the assets and the capital structure and the liquidity to go and grow that asset in a constructive way. Now, when I say that, I think it's important to note that we want to be pulled towards something that changes our trajectory of production, and I would not expect us to be a, you know, big double-digit grower in any way. You know, this year, our production will soften and go slightly down, exit of 2022 to exit of 2023. We wanna turn that back around and get it back on a nice, steady trajectory that would be a low single-digit growth rate. Thanks, Nick. Earlier in the year, you made some changes to the activity program. You dropped 2 crews, or in the process of dropping 3 rigs. You know, I think the drivers there were really on the macro side, but, you know, any thoughts on your current activity levels? Do you plan to drop more? Do you plan to add any activity back later this year? Right now, because we are constructive on 2024, at least we think the strip feels about right. We do not intend to drop any more. We're very flexible on that point. If things change for us, we can still drop more, but we feel good about our capital allocation for the second half of the year. I also similarly don't expect that we'll add any before the end of the year. When we originally dropped the activity that or announced the drops to the activity, we announced at the beginning of this year, we penciled in that it would come back, at the beginning of 2024. That's still our base case, but we have plenty of flexibility to defer that if we don't like the setup for next year as it gets closer. Thanks. Just a couple more on cash return. We've seen some of your peers shift away from variable dividends. Can you talk about why you still believe variable dividend's the right strategy for Chesapeake Energy, and maybe elaborate on what you've heard from your shareholders on the variable dividend versus buybacks? Yeah. Our variable structure allows us to continue to deliver cash back to shareholders, in a modeled, predictable way. When prices are robust and we're generating a lot of free cash flow, we have a buyback authorization. We can dial the usage of the buyback up or down, so that we are in a place where we're still returning capital to shareholders in an attractive way in an upmarket, and it's there to support our return program in a downmarket as well. We like the idea that your dividend can encourage a procyclical return of capital, and your buyback can be there for returns during downmarkets. We, we like the structure. We hear from our shareholders quite a bit that the dividend approach that we have is very welcome. There definitely have been some of our peers that have turned away from as much variable dividend, more towards buybacks. We've had that conversation with a handful of holders who favor that, and we've had that conversation with probably more holders that like the dividend. At the end of the day, we're gonna continue to do what we think makes the most sense for returning capital to shareholders over time. We think a mix of returns makes sense. We've said from day one that this was relatively new for this industry to go down the path of variable returns, and so we wanted to watch how that played out and see how it's being valued by the market. I think right now we feel okay about it. If we ever get to a point where we think it's not valued appropriately by the market, then we would make an adjustment. We think it's allowing us to return capital to shareholders in a constructive way. Thanks. Just following up on the buyback there, you know, I think you had around $850 million remaining on your $2 billion buyback authorization as of early May. You also had over $1 billion in cash on the balance sheet from the Eagle Ford sales. Could you just give us your thoughts on, you know, how aggressive you'll be with the buyback? Do you still plan to finish the buyback authorization this year? Well, again, I think we're moving at a prudent pace. We are active with the buyback program. We will remain active with the buyback program. We like having cash, staring down a, you know, a really important catalyst of this winter from a demand standpoint. We will look to, you know, maintain the right financial flexibility for next year, and we'll, you know, continue to buy back stock. I think regardless of how quickly we complete this current authorization, which, like you said, had about $850 million on it at our last update, we'll probably always have a buyback authorized out there. If we finish it, we'll probably renew. If it takes a little bit longer, we'll continue to buy back stock. We like where we sit. We like that we have the cash and the flexibility to move at a pace that we think is the best way to return capital to shareholders over time. Right now, we have a lot of flexibility with that. Sorry if I missed this, do you still plan to finish the buyback this year, or? Yeah. Okay. We've said it ends this year, so we'll continue to focus on finishing it this year. Look, at the end of the day, that's a deadline we set last year. We could finish it early. It could take a little bit longer. Those deadlines are, you know, I mean, we wanna deliver on how we've said we'll do it. We will finish this authorization. We'll do it in a way that we think is in the best interest of shareholders. Thanks. Shifting topics just to the cost side. You know, we've heard about cost deflation from a number of your peers today. You know, what are you seeing on cost deflation? Are you starting to see signs of cost plateauing? Have they moved lower at all? We see costs are definitely changing a bit as we work through contracts and discussions about how to position our service equipment for the second half of this year and into next year. It's definitely softening. It's different line item by line item. You know, we see rigs are softening a bit. We see pressure pumping's changing, getting a little bit better. You know, I think we're seeing very similar things to what our peers are seeing. We'd like to think that, you know, regardless of where the overall industry inflation is, we'll be at the better end of that curve, given our scale in each of the basins in which we operate, as well as the efficiency we gain from having good partnerships with our key vendors for both rigs and completion crews. We're seeing that play out. We feel really good about it. We're seeing the terms under which we can contract for equipment as it comes up, be attractive. It, you know, will fluctuate a bit. One of the things Josh has pointed out, you know, you have things like OCTG, sand and logistics, some elements of labor that you can point to all of those that are soft, that's in addition to rigs and completion crew. You have things like cement, which, as you compete with more infrastructure projects, probably is going the other direction. You know, there's a bit of puts and takes here. Overall, we do see some attractive declines coming. Just to follow up on that, can you remind us how contracted you are on your rigs and completion crews? Just trying to get a sense of. Yeah when we could start to see that deflation flow through your CapEx numbers. Well, it'll show up as we approach the end of the year, and more so next year. We stagger our contracts. Completions are generally much shorter contracts. Rigs are staggered. You know, anywhere from very short term remaining on a, on a rig, all the way out to probably the longest is, I don't know, a little less than two years, somewhere around there. If you're seeing cost deflation in the back half of the year, would you be more likely to spend at the lower end of your CapEx budget or maybe pull forward some moderate activity and, you know, set 2024 up a little bit better? I don't think a change in the cost related to deflation is gonna cause us to change our capital allocation. Yeah. We're more focused on managing through the supply-demand dynamics of gas. Fair enough. Shifting to well productivity, which has really been a focus for many investors. You know, if you look at the state data, Chesapeake's well productivity looks like it ticked a little lower in the Marcellus and in the Haynesville, in 2022. Can you just talk about the drivers of that lower productivity and maybe how you expect productivity to trend in 2023 and beyond? Absolutely. Starting with the Haynesville, we talked quite a bit last year about how we had some infrastructure constraints in the field that were causing us to have lower IPs. We've seen that alleviate this year. We see 23 relative to 22, some improvements in our IPs. That's beginning to show up. You can see it in the first quarter numbers. It's continuing in the second quarter numbers. We feel really good about that. And then when you look at the Marcellus, on the other hand, what you really see happening there is a different mix of assets. As we develop more of the upper Marcellus, on the same pace as the lower Marcellus, you will see productivity begin to moderate more towards the midpoint of the upper and lower Marcellus. Upper Marcellus are great wells. They're very, very good. They are not as good as our core lower Marcellus. That's just a fact. We have quite a lot of upper Marcellus to drill and less core lower Marcellus. The upper Marcellus, when you look at it on a, on a standalone basis, sits at a very attractive spot in the overall supply stack for the U.S. We feel great about that, but if you compare it year-over-year, you will see declining productivity. How do the economics compare between, you know... I know you said the upper is worse than the lower, but the upper compared to your Haynesville asset? It compares pretty favorably from a total return standpoint. We've drilled some great upper wells recently. I mean, the upper is a really attractive asset. The core lower Marcellus sits on another plane. It just is a different animal. Really attractive asset, I would say the upper starts to look a little bit more like some of your better Haynesville, some of your better Southwest Marcellus. It sits very favorably in the overall supply stack. Just another one on the Marcellus. I know you're using an e-fleet in the Marcellus. Can you give us some detail on costs there, maybe how that is contracted, and also on the efficiency side, what the gains have looked like? Sure. On the cost side, it's been fine. You know, you probably could contract for another fleet a little bit lower than we've had the e-fleet recently. We'll work through that and determine what the right answer is for that fleet going forward. On the efficiency side, I would say it's relatively similar. There's, you know, there was a learning curve with that fleet. We've had that fleet operating now for about two years. There was a learning curve initially where we had some downtime associated with it that we had to work through. We've gotten through all of that. It now operates, I would say, pretty consistent with the other fleets in our portfolio. We certainly like the idea that it is an e-fleet, that it has a lower emissions profile, but that's in terms of our overall total emissions profile, that's a very small impact for us. We like it, but it needs to be priced effectively, and we need to continue to see the efficiency out of it. We're gonna continue to work with that fleet and try to have it positioned well for success. Thanks. maybe just shift into the A&D market. You know, any update on your expectations for timing or proceeds for the remaining rich gas Eagle Ford sale in South Texas? We continue to have really good dialogue with a number of interested parties on that asset. It's a tough market to get deals done. I think all of you know, most of the buyers of this asset are either gonna be private or, you know, smaller in nature, which means they need access to financing, which means that's hard in today's market. It's going, you know, as you would expect a deal like that to go, which is not super fast. Great engagement, great interest, people working constructively to get to a good answer. We have the flexibility to be patient here. The asset's throwing off great free cash flow. We'll get something done. It's a little hard to predict when, but we feel fine about it. We don't mind holding it while we're working towards a deal, and we do expect to get something done. If you keep that asset for a little longer, will you keep activity running there? Like, what's the plan there? Yeah, I think you should assume that there will be, you know, on average, one rig running there. It could be less than that for parts of the year, or you might bring a second rig in for parts of the year. I would say, on average, you should expect about one rig to run there. Great wells to drill. Just on the opposite side of M&A, you know, we've seen a lot of deals trade largely in the Permian. You know, what's your appetite for further M&A? You've done two large deals post-restructuring. Just thoughts there. We remain really open to the idea of consolidation, primarily focused on Haynesville and Marcellus, where we have a footprint, where we have a real ability to make a difference and add a lot of value to the assets we would acquire. Deals are hard. We'd like to buy a lot of really high-quality assets for a really attractive price. I'm sure everybody would like to do that. It's really hard to find those deals out there, to find sellers that are motivated to work with you and have a buy-in to the vision of creating a higher value for the combined assets going forward. We were able to do that with both Vine and Chief. If that type of situation comes up again, definitely have an appetite to do it. We'll stick to our non-negotiables and not overpay for assets, and be focused on assets where we have a real ability to add value to them through our operating expertise, through our existing footprint. We hope there's some opportunities like that show up. Thanks. A lot of people in the room, and we've got a few minutes left. Just wanted to open it up for questions. Yeah. Butler. No, go to the mic. I know you had previously been pretty aggressive on the hedge position. I'm just wondering what your 2023 and 2024 is looking like? We're staying consistent with our hedge program, which means that as we look out 8 quarters, we add a little bit of hedges, each of the 8 quarters going out. What that ends up meaning is that in the nearest quarters, you're kind of a little more than 50% hedged, maybe up to 60% at the most, or around that at the most. That's a declining percentage out for 8 quarters. We wanna be pretty methodical in how we add hedges, and that's really designed around how we make decisions around allocating capital to drill wells. As we allocate capital to drill wells, we want to de-risk the return on that capital, and you should do that as you make the decision to drill those wells. We just try to be methodical about adding capital or adding hedges, around each consecutive eight quarters. Given your expectation of a 2024 price to recover, would you let some roll off and move more toward a spot position? I think we're gonna continue to follow the same program we've been following. Right now, we're in the, you know, 40-ish% hedged for 2024. As we approach the beginning of 2024, we'll continue to add slowly to that position. When I'm encouraged about 2024, I'm encouraged about it based on where the strip is today. I actually don't have an expectation that it should be a lot higher. We do use a lot of collars. We don't just hedge with swaps. We use a lot of collars. Our balance sheet can sustain the flexibility of those collars, which we find attractive when they're priced attractively. The SKU has to be right. It's not always right. Sometimes when they're priced unattractively, we'll lean more towards swaps, but we think it's important to remain hedged. Yeah. The infrastructure constraints that you experienced last year, do they have the potential to creep back into, you know, a problematic situation next year if, you know, activity ramps up again, or have you made kind of proactive, you know, steps to alleviate those issues? Yeah, there's been a lot invested in the infrastructure in the Haynesville broadly. There's gonna be a couple of more large takeaway pipelines brought on throughout next year. I think we're in pretty good shape there. We've put a lot of agreements in place for offtake into different lines, and we have FT coming next year in the form of the NG3 line, which we're an investor in. We feel pretty good about all that. Did you comment on the same on the Marcellus side? Is there opportunity to kind of fill in during this period? Not much. No. Not much. There's just infrastructure in the Marcellus just remains really difficult to expand. Not a lot. As these prices stay low, there's nobody moving away, there's no capacity that could be captured? We are always looking for that, but not anything material. Oops! Hello. It's a tight room. Hi. Is it possible for yourself or for the industry to kind of time turn-in-lines, particularly in the Haynesville, more for the, the good side of the contango in the strip, or? Absolutely. I mean, some of the things we've done this year, which we'll continue to do when it makes sense, is if you have a well that's drilled and ready to turn it in line, and you're in the middle of a really weak tape, you can wait. You don't have to turn that well in line that day. Again, when you have the scale of operations that we have, and we have the financial flexibility that we have, we don't mind doing that. It doesn't take a giant amount of contango for that decision to be pretty valuable. We've looked at this really hard, and we think it makes a lot of sense at times to wait to turn in line a well. Sometimes you might wait two weeks, sometimes you might wait two or three months. We have that flexibility built into our program, and we expect to use that flexibility as we go through this summer and into the fall. Yeah. If I could just follow up then. It wasn't a trick question, but, like is that a potential risk then to the, you know, the positive case in 2024, where you're kind of, it's kind of a head fake. You kind of thought activity had normalized but hadn't really? 2024, I mean, the real bullish part of 2024 going into 2025 is the increase in demand that comes from LNG export capacity. There's nothing that we're gonna do around managing the turn-in-lines of wells, whether it's us or the entire industry, that's gonna put that at risk. I think, you know, it could mess with the inflection point a little bit if it were to happen in size. I'm not sure that it will happen in size, I'm not too worried about that. I'll ask one last question. We've got a few minutes left. You know, can you give us an update on the Momentum Midstream, where y'all are an investor? Is everything progressing as planned there? You know, give us an update on when that's scheduled to enter service. It's scheduled to enter service by Q4 of 2024. Everything is going as planned. It is on time, on budget. Great project. We're really pleased with that. Really pleased to have our partnership with Momentum. We are an equity investor in it, and seems to be going really well, so playing out as expected. We've partnered with Momentum once in the past. We have a lot of confidence in their ability to execute, and that's showing up again with this deal. Got it. If there are no more questions in the audience, we'll cut it off there. Thanks a lot, Nick. Thank you. ... and the Chesapeake team for being here. Yeah. Thank you, guys.