Good morning and welcome to the CNX Resources Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everybody. Welcome to CNX's Fourth Quarter Conference Call. We have in the room today Nick DeIuliis, our President and CEO; Don Rush, our Chief Financial Officer; Chad Griffith, our Chief Operating Officer; and Olayemi Akinkugbe, our Chief Excellence Officer. Today, we will be discussing our fourth quarter results. This morning we posted an updated slide presentation to our website. Also detailed fourth quarter earnings release data such as quarterly E&P data, financial statements, and non-GAAP reconciliations are posted to our website in a document titled 4Q 2021 earnings results and supplemental Information of CNX Corporation. As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we have laid out for you in our press release today as well as in our previous Securities and Exchange Commission filings. We will begin our call today with prepared remarks by Nick followed by Don and then we will open the call up for Q&A where Chad and Olayemi will participate as well. With that, let me turn the call over to you, Nick.

Tyler thanks. Good morning. Like a string of recent quarters, the past couple of years, we had a yet another clean, easy to understand quarter. And just allow me to spend a couple of minutes on a few highlights. In the fourth quarter of '21, approximately 80% of our free cash flow was returned to shareholders. And that was in the form of buybacks at very discounted prices. And while taking advantage of bringing in shares at those attractive free cash flow yields, we also put the remaining 20% of free cash flow to debt management, which in the fourth quarter meant really three things. First, we pay call premiums and fees for a positive rate of return bond deal where we issued $400 million of 4.75% notes that are due in 2030. And we use those proceeds to retire $400 million of 6.5% notes that were due in 2025. The second thing we did is that we pay the fees to extend both of our upstream and midstream RBLs to October of '26. And then third and finally we reduced our net debt. In fact, we paid down I think over half $0.5 billion, $508 million of debt over the last eight quarters of two years. Now all three balance sheet strengthening moves that we saw in the fourth quarter when you couple those with the cumulative free cash flow allocations or debt reduction, and that was recognized by another upgrade in our credit rating by Fitch and places one notch below investment grade. This year, we expect the market improvement in free cash flow generation relative to what was effectively a stellar 2021. And we issued 2022 guidance of approximately $600 million in free cash flow. That's about $3 a share. And at the similar course the current…

Thanks Nick and good morning, everyone. I'm going to start on slide 3. This chart highlights our steady execution and continuing commitment to our free cash flow plan. The fourth quarter of 2021 marks the eighth consecutive quarter of generating significant free cash flow, with the expectation of adding four more strong quarters in 2020. Slide 4 and 5; highlight our significant undrawn revolver capacity and our extended maturity runway that provide us considerable flexibility and allocation of our free cash flow. As you can see, our focus has been on balancing shareholder returns, and improving our balance sheet by reducing net debt, extending our RBLS to October of 2026. And by refinancing near term debt with longer term debt and lower interest rates. This quarter, we allocated more of our free cash flow towards share buybacks as we repurchase 8.6 million shares and then an additional 1.3 million shares after the close of quarter. On the debt side for this quarter, call premiums and transaction fees associated with the two major balance sheet enhancing transactions executed late in the third quarter were cash settled early in the fourth quarter. And the remaining free cash flow for the period reduced to modest amount of debt. Looking at the bigger picture, though, across all of 2020 and 2021, we have generated approximately $860 million of free cash flow of which we use $540 million for debt management, and $320 million for shareholder returns. This shows a prudent risk adjusted blend over an extended time period. And as we have previously stated, we remain committed to reducing our net debt to get our leverage ratio down to 1.5x. And as you can see, on slide 2, achieving that target is not a difficult task as one year of our free cash flow…

And operator if you can open the lines for Q&A at this time, please.

Our first question is from a Neal Dingmann with Truist.

Good morning, all. I think my first question for you, Don, just a question on hedging. You guys now continue to have one of the better just look at the balance sheet, you guys have very strong, obviously with a great free cash flow behind that. So my question is it just more into the strategy you guys continue to hedge quite a ways out? Could you just talk about sort of what drives that is as I mentioned, is the balance sheet now free cash flow obviously have tremendously improved.

Yes, Neal, this is Nick. I think our programmatic hedging approach does not change moving forward, it's really premised on being able to derisk the top line and create a better level of certainty with the free cash flow generation and basically lock in those rates of returns that are quite attractive when you couple it with our cost structure. So I think during the different twists and turns that the commodity cycles inevitably going to take, we continue to programmatically hedge on out into the future. So I think that's a safe assumption to keep that in place, if you're looking to model us out into '22 and beyond.

Okay, and then maybe question for you or Chad, you might want to take this again, Nick, is just again, looking you guys continue to have to say ample is an understatement of locations out there. And so my question is given you all and most other of the better gas players continue to have run a very disciplined strategy. So I'm just wondering given that, and given the big inventory you have do you think you're getting credit for that full inventory? Or is there something else? I don't know if I'm suggesting monetizing some of that, or something like that. But I'm just wondering for guys, like yourselves that are running such a disciplined program, but have obviously, ample inventory? Do you think you're getting full credit for that in your stock price out there?

Yes, I'll maybe approach that from sort of three sub answers; I don't think we're getting proper credit for our free cash flow generation and the sort of the runway of it. So thinking through the question, right, I think I've been break it down into three sections, one, no, absolutely zero inventory concerns from my perspective, to continually efficiently right operate at these rate of returns and generate free cash flow into the far distant future. Two, the monetization effort of non core assets and sometimes a lot of that right will be in acreage pockets that aren't tree or core to what we want to do over the coming 10 or 20 years. That's a regular course of business. It's been in our guidance numbers for years now. And there is a certain degree or extent of that in the $600 million free cash flow number that we just issued today for '22. So that's normal course. I think last year, just to put in perspective; I want to say we transacted over 300 individual type monetization efforts. So this is something that we've got a team to do regularly, they're not all acreage positions, right, they can be surface, they can be different types of assets. But that will be just normal course for us. And we follow the math there, just like we do everywhere else. And then the third piece of this is I think of sort of the company looking to the future. And what we should be getting credit for what we should be focusing upon is really the free cash flow generation level, particularly free cash flow per share. And then the annuitization of that. And this gets into the ability to efficiently operate year in and year out, decade in decade out and generate that type of a trajectory of free cash flow and a growing trajectory of free cash flow per share, right, depending on our capital allocation, that gets warranted and properly valued in the market. So that's where our attention is. That's how we think of something like our deep inventory depth, and how we approach our business.

The next question is from Leo Mariani with KeyBanc.

Hey, guys, a couple things for you. So, again maybe talk little about the kind of trajectory of production here in 2022. So obviously up sharply over the last few quarters in 3Q and 4Q, looking at the guide for the full year and '22 it has volumes coming lower off of fourth quarter '21. So do we expect kind of volumes to tick down a fair bit in the first half and maybe stabilize? What can you tell us about kind of the trajectory of production?

Yes, so just generally, I'll start and then maybe we'll kick it over to Chad here for a quick follow up on just the pace over the year, I don't think much, frankly, about the quarter-to-quarter production variations or exit rates. To me, I'm looking more at the free cash flow and free cash flow generation over a longer period of time. But with respect to 2020 and 2021, Leo, I think that was a good those two years were great examples of how we sort of approach our decision making within the philosophy that we embrace. So right 2020, we basically made conscious decisions to curtail production because we were following the math of what before were curves and rate of returns were telling us. 2021, we made a decision to accelerate some of that production, we're able to do so because of our efficiencies, once again, because of the math, and what the rate of returns and the curves were telling us. I expect the same in 2022 and beyond what I don't know is what those curves what those metrics and assumptions are going to tell us, right? I don't have that crystal ball. But I do know we've got the operational flexibility with the right sort of philosophy in terms of how we make our decisions to take advantage of it. But those things aside, right, that's flexibility, that surge and pullback aside to optimize for free cash flow and free cash flow per share. I think in terms of just overall production, looking at our one frac crews sort of activity pace that Don outlined, low modest production growth over time, low modest being like single digit, low single digit, but nevertheless, some material level of production growth in that zone. Beyond that, I really can't say at this time, but Chad, maybe just a little comment on what we see on '22 quarter-to-quarter.

Yes, '22 quarter-to-quarter, as we currently view it based on the one rig one frac crews schedule is roughly flat quarter-over-quarter, I mean, there's a little bit of variance, plus or minus one or two Bcf a quarter, it's relatively flat over the course of the year. But the next point, though, and highly volatile, commodity business, such as natural gas, where we're constantly evaluating opportunities to either accelerate or time production to take advantage of the price curve, obviously, the price isn't flat for the course of the calendar year. And so timing your Til and timing and timing your production to maximize the value from your assets are always in our best interest. So it's something that we'll continually assess and pivot in a real time basis. And, look, we acknowledge that it makes us incredibly difficult to model and certainly apologize for that. But at the end of the day, we're solving for maximize value creation. And I know that does make it challenging at times for you guys. But that at the end of the day, it's that's how we truly create shareholder value.

Yes, and just sort of the just a quick add to the back end of this. Like, it's, our new pads are so productive, like the production we get from a new pad is phenomenal. So if it ends up coming on a month, earlier, month later, it doesn't matter for seven years, but it can really shift some things entirely in one quarter the other, it balances out.

Got it. Maybe just to kind of approach it a little different way. So I mean it looks like you guys accelerated a pad from early '22 into the fourth quarter of '21 so maybe just as you look at the schedule, as it sits today. Are your Tils that you got planned in '22, maybe coming on a little later in the year? I am just trying to get a sense of maybe that acceleration of activity cause your first quarter '22 activity to maybe go down a little bit here on Tils.

This is Nick, Leo. We can follow up maybe on this after the call, but just generally speaking, right, the way I look at it, we are basically at a new base production level of about a 590 Bcf rate. And that when you look at this one frac crew spread activity pace over time without any sort of major disconnects and commodity curve that we would want to take advantage of like we did in '20 and '21. You should expect like I said, sort of modest but nevertheless, some level of single digit production growth moving forward. And in the end, like all this matters in my mind, to equating to about a $600 million a year average free cash flow generation per year. That's what I'm predominantly looking at.

Yes, and just adding into follow up from I think commentary I made last quarter around this. So if a pad gets in online the first week of January versus the last week in December, it doesn't matter sort of for the business, but it matters for which bucket year the Tils fall in and it's sort of similar this year, I think you'll see there's no -- it's a consistent program. It's just going to be a week here a week there can flip some Tils from one quarter to the other, which was just hard for the quarter.

Okay, no, I totally get that and I know you guys clearly are raising your kind of multiyear phase production forecasts from 560 to 590 as you've discussed. Just looking at that the capitalists say without when I looked at your old plan I think you guys had $300 million in capital kind of per annum over that multiyear plan and just looking at '22 looks like you're around $485 million, kind of at the midpoint. So, presumably, is there some higher level of CapEx you're seeing associated with that long term plan is $485 million in '22 a good number going forward after that? Or does that start to come down after '22? What can you tell us about that?

So again, going back to like the script and what we're saying in the context of '22 guidance, the old sort of multiyear plan that we issued back in 2020 envision, as you said, that $300 million CapEx to 560 production level, give or take, that's obsolete, as Don said, there's been a new normal that's been set within the company because of our operational efficiencies, you put that toward a one frac crew program. As you said, we're starting at a 590 base production level, the CapEx that you see guided in '22 does include capital in the non DNC bucket for some water and pipe infrastructure that will set us up nicely for this new sort of operational efficiency level that Chad's team has hit. And when that all washes out, whether it's for '22, or beyond the average sort of free cash flow generation, after deducting for CapEx that will result in is in the $600 million a year neighborhood. So I'm really not in a position now that sort of talk about '23 CapEx or '24 CapEx, but net-net when you take in all the cash coming in less cash out, including CapEx were around a $600 million bogey for free cash flow. And again, this year's CapEx number for '22, it does contemplate an incremental bump in sort of water and midstream infrastructure, correct?

That's right. There's two -- there's really two main drivers in '22 capital that's putting our '22 capital number where it is, look, there's a certain component of inflation that's year-over-year baked into the DNC capital, predominantly the DNC capital. And then there's some incremental activity on the non DNC side, Nick pointed to there's some water and pipe infrastructure that sort of, look, the water and pipe -- the infrastructure projects are lumpy from a capital perspective. So that's not necessarily going to be smooth over any long term plan. And it's just the way that the timings fallen, we've got a little bit of chunkiness right now in '22 on that infrastructure side.

The only thing I'll just out on top of that just for clarity, we put out the initial plan that there was an average over '22 to '26. And we were very clear that is our base decline rate happens in lowers in those outer years, you do sort of need less capital. So the relative nature is still similar. So the point being it will spend significantly less by the time we're out in 2026 when we were in sort of 2022, but it'll be lumpy along the way.

Alright, it's a very thorough answer. And I guess could you just tell us roughly with that extra water and pipe CapEx here in '22?

There's no new stuff. It's just when it gets done, like it's not a new project, it's just years to follow them. So we were under capital.

You basically need the midstream and water to catch up to the frac crew and drill rig. So you're moving projects forward that were normally in outer years.

Yes, no, I get that. I was just hoping you could maybe roughly quantify that number in '22.

So as sort of long term plans, we generally think, I don't know, call it 20% to 25% of your total capital costs are going to fall into that non DNC bucket. I'd say as we look in the end of '22, that percentage is probably closer to 30% of the total capital. So that should give you a general magnitude of what the swing is.

The next question is from Nitin Kumar with Wells Fargo.

Hi, good morning, guys. Maybe I'll take a step back. And one thing you've been very persistent in following the buyback route. So two questions on that, one, almost $3 of free cash flow per share, why not introduce dividend? It seems to be kind of where industry is headed. And then in two, we know we couldn't help but notice that a lot more money was spent on buybacks and debt management this quarter. That leaves you're on a one times net debt to EBITDA. I'm just curious, is this right level of debt given your hedging given your plans as you're seeing them today? Or should we expect more debt reduction from you?

So, great questions. This is the big capital allocation of the free cash flow issue which we spend just in an ordinate amount of time looking upon and to certain extent obsessing on not just the management team, but also our board. So it's important, right, if it's front and center to sort of one of the two key components of our strategy and what we think makes us special. When you look at what we are sort of faced with here, when it comes to free cash flow allocation into '22. We've got to two issues here. One, we've got a definite desire to continue to strengthen the balance sheet and predominantly right, that correlates to reducing the absolute level of debt. But that also includes and Q4 was a good example of this. This also includes some opportunistic moves, to either reduce our interest expense with a debt that's still in place via refis, right, or to extend out maturities or both. And we did both of those types of things in '22, Q4, I'm sorry, '21, Q4. 7So we'll continue to look for those types of opportunities as well. But really, our primary focus, at least from my perspective, on the balance sheet side is to continue as we said in the past, to methodically reduce the absolute amount of debt through some portion of free cash flow allocation, and we think if nothing else, not only that it reduce interest expense, right and it sort of boost free cash flow into the future, it creates for more optionality to be able to take advantage of volatile spaces, like E&P is and like public markets are. But then two, right, the other thing we're faced with is these, the shares that are basically offering up and we…

Got it. Nick, I would just say dividends are also a way to make the market recognize your cash flow generation, it looks good on paper, but that could be one way. I do have a very quick follow up for Don, you talked about inflation, maybe Chad wants to opine as well. Could you talk a little bit more about where you're seeing that inflation? Is it in your CapEx lines only? Is it in supplies? Is it in rig rates? Just a little bit more color on the inflation commentary please.

Yes, I'll start it off. This is Nick and then I'll kick it over to Chad and Don. Inflation, everybody in the country is experiencing it across a whole bunch of different fronts, we're no different. And that was contemplated baked into the '22 guidance that we issued specifically to things like CapEx, with respect to '23 and beyond really don't have a view, we don't have a view on future gas prices beyond the script, we don't have the view on interest rates right beyond where they're at now, same with inflation. Interestingly, all three are probably tied or correlated to one another. But with respect to the specific components, right, we're experiencing the most; I'll sort of refer over to Chad. But I will conclude by saying, one of the things that's special, I think about this concentrated footprint, and the integrated footprint that we've got, with this one sort of fractal array, we're able to much like our revenue side, we're able to basically contract services in a way where we, again, programmatically can take a lot of the volatility of inflation off the table. With that insight, I would turn it over to Chad.

Yes. Thanks, Nicole. That's correct. On the service side, on the rig and the frac crew side, because the way that we've contracted those services we've been somewhat isolated so far, in any kind of cost inflation along those lines, where we've seen the bulk of the inflation so far in our business has been really materials, particularly with respect to steel related material. Probably half of the inflation that were -- that we baked into the '22 forecast is almost entirely in either steel or tubular. The rest of it, would it be spread across the multitude of materials that we use in our business. So I would say that the bulk of its in steel and the rest of it be sprinkled across the many other buckets of materials that we rely on.

Great. Would you care to share what percentage inflation you baked in for DNC?

Yes. So it's roughly 5% to 10% year-over-year.

Similar to what we broadcast that kind of earlier near, so it's in that zip code.

The next question is from Holly Stewart with Scotia Howard Weil.

Good morning, gentlemen. Chad, maybe we could start out, just talking a little bit about basis 4Q was hopefully an anomaly in terms of this divergence that we saw between bid week and spot, any comments on what you guys saw during the quarter? Your basis of $1 was a bit wider than the expectations. And then maybe what you're seeing so far in '22, and how you expect this to play out? I know that you do have stripe in your guidance, but just any kind of color you can give us on the quarter and, and your thoughts around '22?

Yes, so a couple, I guess a couple things to seize out there. So the way that we look at sort of spot exposure versus first month's exposure, and certainly the volatility that we see in the gas price so that's something that we assess each month, as we're going into bid week, we look at where's the index at relative to what we think the weather may be for the given month, what the volatility could be in that given month, and what our existing hedged position is for that given month, and we look at all those variables, and we make a guess, so we make -- we either lean in or lean out of call index versus basis, or index versus daily spot price. And so that's something that we're doing to manage production flow, expected production flows, production risk. Like I said, our financial hedge position and what we think the weather and the volatility might be in a given month. What sort of seeing so far is, look, I think the weather's been wildly volatile. I wish I had a crystal ball that predicted weather more accurately than what anyone else has. We all sort of use the same weather reports. It's the single biggest factor, I think, like you go from December, that's one of the warmest December's on record to now we're in the January, that's almost one of the most frigid January so that I can remember, that's just going to lead to wild volatility between not only index but spot prices as well. So we're continuing to monitor it; we continue to rely heavily on our financial hedge position. And we're going to continue to make those assessments on a month to month basis.

Yes, and just add to that to remind everybody, one thing like our in- basin, like production profiles predominantly hedged through '25, which Chad has mentioned in previous calls, and then sort of to the lean inn or lean and out on first a month versus index, it's on the margins. It's not a -- we're not like we said we can't predict gas prices, it's the -- it's more like plus or minus or it about 10%. So anyways, that's, we're going to see it fluctuate, we're protecting our cash flows from potential fluctuations via our basis hedges and trying to do our best to just squeeze out any extra little bit here or there.

Okay, that's helpful, Don, and then it looks like you did some just minimal hedge additions and in '23, and beyond any updated dots there to provide? I know, we just talked about basis, but maybe you could incorporate that into your comments.

Holly, I'm sorry, you asking more about hedging philosophy moving forward or more about macro view?

Yes, well, maybe both but hedging philosophies as you look out at a longer term profile.

So Holly, this is Nick. I think, again, the hedging the programmatic hedging approach that we've used in the last number of years, I think that continues on no matter what the commodity curve twists or turns will end up being. So what I mean by that is, if you're entering a calendar year, expect that 80 percent-ish of the front year production coming up will be hedged also in-basin, right, with not just the NYMEX with the in-basin, and then that laddering, stepping down into the second, third, fourth years. And we continue to methodically programmatically build that book over the course of a calendar year so that by the time we get to the following year, once again at 80%, and following sort of stair stepping down, I don't see that going away, again, is driven by cost structure that we coupled with it. It's driven by wanting some certainty with respect to revenues to be able to steadily and methodically manufacture free cash flow, to be able to count on it to allocate it in the right ways has a lot of ancillary benefits when you're solving for long term for share value. And that doesn't change much with respect to strong gas price environments versus weaker.

Yes, just the last nuance that on top of that, Nick. I mean we use the forward strip to make our decisions. And you can really derisk your return that you're achieving on these pads by following it this way; I like to say you can't unspend the capital once you spend it. So it's spent it and hope or spends it and derisks the returns you're getting for, number one. And then number two, if the forward strip doesn't support it. We don't do it. So it's, we follow the forward strip, we lock in returns and follow that.

That's great. Thank you, Don. And then maybe last question for Nick. Nick you had a lot of your peers come out and talk about RSG whether its goals or achievements, I don't think CNX is put much out so any comments on RSG specifically.

Look, Olayemi, take this one.

Okay.

Yes, we are -- one of our primary focus is when it comes to that front is more so methane monitoring, especially the autonomous methane monitoring. So we are starting to work with some of these entities. And we also are setting up some of our own infrastructure for methane monitoring. Now, some of this will come along with some certification, we are looking into that as well, as it relates to where the opportunity presents itself for us to actually get return on that investment. But the primary focus for the company is methane monitoring pretty much updating on methane across our field.

The only thing else I would add on top of, Olayemi, if it makes sense to get certified, we will because it's a money positive transaction, but as Olayemi said we're going to do it anyways. It's a cool company in a skill set that energy companies are going to need over the next decade. And we don't want to completely outsource it. So we want to blend it. We want to understand it. We want to be best in class at it. And then we'll flip to the Chad and the marketing team, a stamp gets us more money or not.

The next question is from Michael Scialla with Stifel.

Hey, good morning. Sounds like a big 5% to 10% inflation into your '22 plan. I'm just wondering if you also built in some additional efficiency, or if there's some potential upside to offset some of that inflation with further efficiency gains.

So, Michael, the views when you're looking at '22, a couple thoughts there. One as you said, right, inflation isn't included in things like CapEx and the other assumptions, b, the new sort of normal as we're calling it with respect to operational efficiencies that is also contemplated within our '22 activity set. And then third, and finally, all this right, inflation, CapEx, operational efficiencies, production, in my mind, that all will manifest culminate in free cash flow. And we're basically going from a $500 million to a $600 million free cash flow level. So that's all good when you net out all these different factors and metrics.

Yes. And the only thing I'd add on top of, Nick, like, the demand, the team we have at this company is absolutely phenomenal. And we ask we try to beat everything. So we're always trying to get better each and every day and every aspect of our business. So it's always our goal to get better. And we have a fantastic team that is achieving it every quarter.

Okay, so if I read that, right, you have built in some efficiency, but hopefully you can, if history repeats.

Yes, we've built efficiencies and keep the date. I'd be shocked if not any operation team doesn't find new stuff over the next year. I don't know what it is. But yes, stuff we know to dates in there.

Makes sense, okay. Notice, looks like you had $13 million of expiration expense in the fourth quarter a bit higher than what you've had in prior quarters. Can see what that was directed to?

So they're -- I mean, that was there. So a portion of that was related to basically an abandonment of a well, that we had drilled a number of years ago, and ultimately decided not to complete that well for a number of issues. And so that was a big thing that was a significant part of the write off for the quarter.

Yes, and just like Chad said, a number of issues and we take safety and compliance very seriously. And that some of the casing stuff wasn't the way we wanted it.

Okay, so kind of a holdover from prior activity.

Yes.

Yes.

And just one last one. You talked about bases and all the factors that go into that. One of the things that . It looks like from everything we see all the public's are really holding the line on capital discipline, any change on private activity? I know the MVP pipeline looks like has been further delayed. Any worry about Appalachia becoming constrained here, again with potential production coming from privates, just want to get your read on privacy in the supply demand situation inside Appalachia.

Yes, we watched, this is Nick. We watched the takeaway capacity closely, MVP is a key piece of that, as you stated, whether or not it gets built, we'll watch and see, obviously, our plans are built looking and contemplating the current state of takeaway capacity to get demand set within basin demand set outside of basin. But what you've got right now, not just within Appalachia, but nationally as you've got policy that is designed basically to not have a natural sort of investment occur to match something like the supply of natural gas to the demand centers. I don't know if that last I think we're starting to see some problems manifest with respect to that type of a policy. And you see those typically during the peak demand periods with periods of winter and summer. But yes, I think with respect to our plan and what we put forward not just for '22 guidance, but our view beyond it contemplates the current state of take away capacity in basin.

The only thing that I'd add is we're always obsessed with trying to derisk the business and trying to grow the cash flows of the business. So yes, we're always looking at this very thoughtfully.

The next question is from Kashy Harrison with Piper Sandler.

Good morning, everybody. And thank you for taking my question. So just one for me, maybe moving beyond just the regional market. And really wanted to ask your thoughts on the broader US natural gas market, and how you're thinking about 2022 and 2023. I know you're not interested in forecasting prices, and you base all your capital decisions on the scrip. I totally get that. But just curious how you're thinking about supply and demand trends over the next few years. Yes, sort of any color that would be great.

Yes, I appreciate the question. So on the supply side as we moved into December, we started, US supply started trending up towards basically setting all time highs. And then as we rolled into January 1, we basically lost four or five Bcf a day of that supply. And I think there are a lot of folks in the market right now that are scratching their head at that. And they're trying to figure out there's a lot of thoughts that's related to freeze offs and other weather related curtailments. And there are some thoughts that maybe some folks were trying to hit counter targets, and as a result, we're shaping some of their production strong towards the end of the year. So there's a little bit of a, lot of question out there in the broad market really about where did that 4 Bcf a day a gas go? And is it going to come back online as we come out a winner. On the new supply side, you see rig counts continuing to trend up if you frac crew counts continuing trend up, it's clearly industries responding to the price signal that it sees. And I think that we will continue to see supply response as we move into 2022. On the demand side, LNG has been continuing to run strong, it's the single biggest driver of sort of the growth in demand and domestic related demand as we keep those LNG terminals full. As you see the prices overseas, we certainly expect those LNG terminals remain full. And there's a handful of LNG trains are expected to come online during '23, which will continue to grow the demand for that LNG export.

Yes, and also, Kashi, just, this is Nick. I'll throw in maybe even broader view of what's going on. I think from a demand perspective, the demand for natural gas nationally globally is going to have to grow. So I guess that bullish, the reason I say that in the long term is that, a, renewables are going to be limited with the scale that they can be deployed. Windsor, Pennsylvania is a great example of that today. I mean, it's zero degrees this morning, the winds not blowing and the sun isn't shining. Unfortunately, the sun doesn't often shine in Pennsylvania, you're going to need something else besides those beyond the scale that can be deployed at and if you're retiring or shuttering coal or nuke, that basically by default leads you to natural gas. So there's a power grid demand growth story across the nation and world. I think there's a transportation story, whether it's CNG, or whether it's EVs that are largely going to be powered by the grid. So from a transportation perspective, you're already seen, right? A lot of movements of basically displacing of oil in the transportation network with something like natural gas over the long haul. And then you're seeing it I think with just good old fashioned geopolitics, it never went away. And energy security is national security, energy security is geopolitics. If you suddenly sort of jettison your supply of energy and you depend on others who may not be sort of ideologically aligned with you. You end up with situations like we're seeing with Ukraine and Germany, and in that whole mess and all the costs and inflations and security issues that go with it. So I think people are starting to wake up to the reality of energy security today. And when you look at that over the long term, there's three factors, right, the grid electricity side and renewables inherent sort of limitations, transportation displacement, oil, and then this whole geopolitical reality, long term, the demand for natural gas has to grow nationally and internationally. Okay. So think of things through like MVP that we talked about on the prior question. It's just inevitable, but the question is, how much pain and painful learnings we are going to have to go through to get to that long term reality of physics and math and science that might take some time. So there's going to be I think the long term story is very positive. But I think it's going to be quite volatile, figuring all this out and learning all this in the shorter term.

Thanks, Nick, and I hear you on a lot of these factors, I guess. One piece of my question, really, as we think, maybe a little bit more medium term than 10 years out is, are you guys concerned at all that with associated gas rising the Haynesville guys they're starting to grow, you're adding maybe 1%, 2%, are we worried that, like, over a two year time period that supply might overwhelmed demand? And then all of a sudden prices come down.

I mean, yes, by our nature, we're always worried about every, any risks that can happen. And the struggle really with it is -- it's a very kind of knife's edge. So it only takes two or three Bcf a day of supply swing, which these new pads come online. There are tremendously volumes. So you add 20 pads in year, you end up with the kind of -- the monogastric kind of really changed the dynamics, and then you flipped weather into this and sort of how much that can kind of shape it. So, yes, I mean, we're always going to be worried about these things, just because the variables are very tight on what looks good versus bad, and hence why we continue to derisk that scenario through the way we run our programmatic hedging program.

The next question is from John Abbott with Bank of America.

Appreciate you taking our questions here. A lot of good questions have already been asked. Maybe just sort of like a check the box. I mean, what is the -- what are your latest thoughts on acquisitions and M&A in this current environment?

I think, John, this is Nick, I think that the pursuit of those are going to continue across the industry, there's probably a number of different factors for that, from privates trying to monetize their investments to the public's still largely subscribing to things like industrial scale, or looking to just grow under the nature of just sort of how corporations typically, traditionally have behaved. For us, once again, I think looking at it just clinically as a capital allocation option or an avenue right. That's one of the avenues that we've got, we can invest in the asset base, we have to grow, we can return capital to shareholders via buybacks and dividends, we can reduce debt or we can look at M&A. When you look at that game board right now, M&A is a distant, distant number four on our radar, it just does not compete with respect to those this prior three options that I just laid out. So when you run in the risk adjusted returns for us, and factoring in all the different metrics, right now, not a real attractive sort of opportunity set for M&A. But I think largely across the industry, I wouldn't be shocked to see more M&A continuing.

Appreciate it. And then one more in the weight sort of question. A lot of questions have already been asked on CapEx, but when you sort of look forward, how are you thinking about average lateral length going forward? I mean, your original plan was about 12,000 feet for the Marcellus looks like the Marcellus wells this year and SWPA are about 12,700 feet. And how are you thinking about cost per lateral foot for the Marcellus and for the Utica going forward?

Yes, so as far as '22, you are right, that we provide that average lateral footage in the supplemental materials really beyond that. We're not really providing any additional specifics other than what Nick's already commented upon inventory, and we got certainly plenty of inventory and locations that will I think, we're concerned about the quality of the acreage or the opportunities that we have to go to drill that lateral footage on a cost per foot basis in the Marcellus for 2022. I am proud to report that, we average $620 a foot for the wells that we tiled during 2022. I think starting 2021 sorry, during 2021, we average 610

We will be better than that.

Right, that certainly the plan and as Nick said it, we plan to get better next year, or this year. Sorry, we plan to get better this year.

Yes, just to add I mean, all -- the industry all appears like the operations teams continually to set new records. So I think that is a thing that is great for everybody in sort of around the country on this front.

It concludes our question-and-answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Great. Thank you, everyone, for joining us this morning. And please feel free to reach out if anyone has any additional questions. Otherwise, we look forward to speaking with everyone again next quarter. Thank you.

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