Good day everyone, welcome to the Chesapeake Energy Corporation Q2 2013 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Mobley, senior vice president, investor relations and research.

Good morning, and thank you for joining our call today to discuss Chesapeake's financial and operational results for the 2013 second quarter. Hopefully, you've had a chance to review our press release and updated investor presentation that we have posted to our website. During the course of this call, our commentary will include forward-looking statements regarding our beliefs, goals, expectations, forecasts, projections, and future performance and the assumptions underlying such statements. Please note that there are a number of factors that could cause our actual results to differ materially from such forward-looking statements. Additional information concerning these factors is available in our earnings release and the Company’s SEC filings. We also refer to certain non-GAAP financial measures and we encourage you to read the full disclosure and GAAP reconciliations located on our website in this morning’s press release. I would next like to introduce the members of management who are here on the call with me today; Doug Lawler, our chief executive officer; Steve Dixon, our chief operating officer; Nick Dell’Osso, our chief financial officer; Jeff Fisher, our executive vice president of production; Jim Webb, our general counsel; and Gary Clark, our vice president of investor relations and research. We will next turn to prepared commentary from Doug, and then we will move to Q&A. Doug?

Thanks, Jeff, and good morning. As most of you have seen by now, Chesapeake has delivered a strong quarter, both operationally and financially. We are pleased with these results, which are a testament to the dedication and focus that has been demonstrated by the entire employee base during a period of transition. Once I’ve discussed our performance on this call, I will spend some time briefly outlining some fundamental tenets underlying our approach to achieving key financial and strategic priorities for Chesapeake, as well as some specific goals for us going forward, but first let’s look at the quarter. Chesapeake reported adjusted earnings per share of $0.51, which compares to $0.06 in the year ago quarter. Adjusted EBITDA for the quarter was $1.42 billion, up 26% sequentially and 77% year over year. Total production growth was also strong, up 2% sequentially and 7% year over year. Oil production was the primary driver of our growth this quarter. It was up more than 35,000 barrels per day, or 44% year over year, to approximately 116,000 barrels per day. This growth was once again led by the Eagle Ford Shale play, where oil production grew 8,200 barrels per day sequentially and 32,700 barrels per day year over year to 57,000 barrels per day. I’d also like to highlight that our percentage of production from liquids plays increased again this quarter to 25%, and also accounts for 60% of our realized oil and gas revenue. Given the better than expected results we are seeing primarily in the Eagle Ford, from both well performance and improved cycle times on both drilling and completions, we are raising the midpoint of our 2013 full year oil production guidance by 1 million barrels. Importantly, during the second quarter, Chesapeake generated this strong production growth through greater capital…

[Operator instructions.] We’ll take our first question from Dave Kistler with Simmons & Company. Dave Kistler - Simmons & Company : Real quickly, Doug, you’d mentioned, I believe I heard this correctly, that on the financial discipline commitment, that it would be supported by trying to live within cash flow. Did I hear that correctly?

Yes, you did. Dave Kistler - Simmons & Company : Okay, and so just thinking about that, obviously that rate count reduction that you guys put in place is driving down the [E&D] capex spending, production growth, higher and pretty impressive from that perspective. Can you share what that means for ’14? I would just roughly guess that production would be coming down, i.e. bringing cash flows down a little bit. And then just trying to think for modeling, trying to tie capex to whatever we’re projecting for cash flow as analysts.

It’s a good question. First, I’d like to note that in 2013 we’ve demonstrated the ability to grow production while reducing the capital. We’re not at this point providing any guidance towards 2014, but what I would ask you to do is to look at the quality of the assets. As I highlighted, and the team’s highlighted in the past, the core of the core has tremendous growth potential. And so if you look at our capital efficiency, how we can reduce our costs, as we’re already seeing efficiencies result in more wells being drilled despite a lower rig count, living within our cash flow and targeting that financial discipline is a key priority to me and the team. And you know, we’ll be providing information on 2014 later this year. Dave Kistler - Simmons & Company : And then just thinking about the impressive production growth on the quarter, yet seeing a slight slippage in the initial production rates for the Eagle Ford, Utica, and Anadarko Basin, could you guys change maybe the well design, or are you more aggressively managing initial production rates to kind of manage declines? Just trying to think about what the impact of that is going forward.

Really it’s just that quarter’s well set. We have not seen any back off in the performance of our wells in any of the areas. So I think that will just come and flow with the well set that’s being turned online. In some areas, the older wells are just getting hooked up. So I think it’s more of a function of the well set and not an overall decay in any of our areas. Dave Kistler - Simmons & Company : And one last one. Just looking at the transport costs, they look like they crept up a little bit for your forward guidance. Can you talk about what the main driver of that is? Nick Dell’Osso : A couple of key drivers there. The biggest is the basis differential widening in the Marcellus. So I think you’ve seen, with other producers in the market [unintelligible] well where there’s a lot of infrastructure being constructed there this summer, and some things have been offline, and there’s been some backup in the basin. So that’s a big driver of it. We’ve been pretty conservative in projecting that out through the rest of the year. And then in the Anadarko Basin, we’ve seen some [basis] as well. On the oil side, I’ll add that we’ve also taken into account the consolidation of WTI and [LLS].

Our next question comes from Brian Singer with Goldman Sachs.

Just following up on the point on balancing capex and cash flow, I think you mentioned some of the metrics you expect to be in the top quartile on, and that you didn’t really have a time period for when you’d achieve that. But in terms of when you balance capex and cash flow is something that you can control. When do you see that happening? Is that something that you expect would be immediate? Is that something we should look for for 2014? And as maybe a follow up to the earlier question, are there one or two key levers you think you can pull to get the bulk of the way there from where Chesapeake’s been historically?

It is our target in 2014 to achieve that. So directionally, just so you know, we look at the different metrics and how we proceed forward. Establishing criteria and goals to achieve those top-quartile metrics to live within that cash flow is all targeted towards 2014 performance. Just a few of the primary factors that will help contribute to that is that when you look at the company’s history and how we have grown to this point in time, and basically all the production growth is taking place from single-well pads. And as we focus and concentrate on our capital efficiencies, synergies that can be achieved, learning from the land capture to the [held-by] production drilling program and concentrating on the best areas, those efficiencies and that production growth we believe will come from those primary areas that we’ll be investing in. So part of that capital allocation process that I described and how projects compete will give us that ability to optimize our cash flow growth, our production growth, and with that target of being within the cash flow from operations.

And then as a follow up, as we look at your plans to reduce rig count in some of these areas, and then given the efficiency points that you’ve mentioned, should we expect that your well count will fall, rise, or stay flat in these areas? And I assume there’s a big difference, but how are you thinking about core of core in the Eagle Ford and Marcellus and other areas versus the rest of your positions?

That’s a good question. I think what you’ll see is that it should be relatively flat in balance, because of the efficiency we expect to achieve. Seeing reduced cycle times not only on the drilling side, on the completion side, also compressing with the more focused tension in the core areas that infrastructure costs and getting the overall cycle times reduced is a primary target of ours. So I believe that without giving guidance for 2014 yet, that it will be fairly balanced, and the way that we’re going to get there is through efficiencies and the concentration in those core of core assets.

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

Just want to be clear that you’re balancing cash flow and capex, versus cash flow from operations and your balance sheet improvement comes from non-core asset affiliate sales?

That is what we’re targeting, yes.

And can you talk about what you would consider noncore affiliates?

Well, this is part of the process. We’re in this comprehensive review. We’re looking at all of the assets. We’re looking at all of the affiliates that the company has ownership in, and determining what is the return that we’re generating from those assets and affiliates and going forward, what is the best strategic positioning for us to be more competitive, should we be continuing to own and invest in. So at this point, I’m not going to share with you on it, but that’s something that we’re really focused on, because if it’s not adding value and not return-centric, that adds to our competitive position, we’ll look to divest of it.

And then to get into detail on defining top-quartile, who are the peers that you’re going to be measuring yourself against?

Well, I think it’s the standard group that you’d expect, that have similar footprints as Chesapeake. I can name them, but you know who they are. Basically we’re looking at the strong competitors in North America and those that have achieved good performance, and we’re going to be focused on elevating our performance to be more competitive.

And then just one very detailed question. Can you talk about back half of the year, your completion plans for third quarter in your 4PS at Eagle Ford, Utica, Anadarko, and Marcellus? We can get to drilling plans, but want to just get some details on completion plans and activity.

It will be down slightly. We did quite a bit of catch up here in the first half of the year, and so our pace of bringing those on will be slow in the second half. And part of that will be a little less drilling activity, but most of it was kind of acceleration more in the first half, on catching up on excess inventory.

Maybe another way to ask the question is, with your planned exit rate for activity level, what’s the normal backlog of wells waiting on pipeline and completions, just to establish a baseline. Say, with a 10-rig program in the Eagle Ford you’d normally have 120 wells, or whatever the number would be. That would be helpful.

You’re right. You do have a working inventory that will always be there. So yeah, I think of it more as excess inventory and working inventory. We made big strides in reducing that excess here in the first half. And part of that is always moving with pipeline and compression and processing, also, by play to play. So we have rightsized the second half of the year to match up with infrastructure availability.

So no specific numbers?

That’s correct, David.

Our next question comes from Doug Leggate with Bank of America Merrill Lynch.

You mentioned in your prepared remarks about balancing cash flow, but you also mentioned about addressing the complexity of the organization. Can you elaborate on what you’re talking about there? Because I’m guessing you’re relating to things like your [unintelligible] structure, the myriad of joint ventures that you have, and if you could just elaborate as to what you’re really getting at there.

I think you nailed it. Part of this procedure is looking at all the different affiliates, all the different structures that we have. Are they adding the proper returns to Chesapeake? Are they getting us competitive advantage? And without getting into exact detail on it, at this point in time, and really I can’t because the process is underway, and we’re evaluating it. But I think that as you know well, the company is involved in many different activities. Vertical integration has proven to be efficient and enable some very distinct competitive advantages for us in the past. And as we look at all the different affiliates, we want to make sure that we’re getting the long term value creation and the focus we need to be as competitive as we can with our peers. So I guess the best way to answer it is that it’s a comprehensive review, and each of those will be evaluated.

The joint ventures, I’m guessing their kind of set in stone, and the [preference] shares similarly. I’m just curious as to how would you, if you decided they weren’t appropriate, what kind of steps would you envision taking to address those?

Well, I think some of those JVs, some of those commitments, are we getting the best returns out of them? And looking for ways to improve, either with our capital program in those JVs, how we can demonstrate better performance. Or just simply looking at all the different options that exist. It’s early in that process, and so I think it’s important to note that you can expect that our goal - and I’d ask you to look more at the goal - is to reduce the complexity and to provide better clarity on where we’re getting our best returns from.

Two quick followups if I may. One operationally: the Utica volume is still pretty low. Are you guys still thinking in the low 330s for an exit rate?

Yes, as more processing and compression come online, we should be able to get to that.

And finally on [unintelligible] cash flow, are you talking about drilling and completion costs matching operating cash flow? Or are you also including the other spending, unit lease hold and I guess the other oil service capex and so on? And just on that last one, if you could maybe talk to guidance on the 2014 non-E&P capex, that would be great.

We are targeting the drilling and completion, and will be looking at the other capital expenditures as well as we follow up. So the focus is on all of our capital expenditures with specific focus in the near term on the drilling and completion. And it’s just early for us to provide anything else on 2014. Nick Dell’Osso : I’d just add that on the other capex, remember that in the first half of this year we still had some midstream assets that we just completed the sale of today, that we were spending some money on, and we’re taking delivery of some rigs [unintelligible] that have been ordered in some cases more than 12 months in advance. And so we do expect that that other capex line will be materially lower in 2014.

Our next question comes from Scott Hanold with RBC.

Can you guys just answer one thing? I’m looking at the piece where you’re reducing complexity. You’re looking at your assets, the various structures. What kind of timing do you have? Is this something that we should hear about in the coming quarter? By year end? Can you give us a flavor of when you’re going to have that wrapped up, and the plan to go forward?

I think it’s going to be an ongoing process. As you know, some of those arrangements have fairly long terms and commitments associated with them. So I think what you’ll see is that it’s not necessarily a one day we’re going to make an announcement on how we deal with it, but over time, improvements we’ll be announcing and sharing that with you as we progress. Nick Dell’Osso : I think that’s exactly right. We have cash flow and liquidity freed up from the improved capital programs, improved cash flow from our business, as well as noncore asset sales. We’re determining the best places to put that capital to work, and that’s a process that will yield different results based on the opportunities that are in front of us at the time.

So no specific time [unintelligible] progress on that. Is that right? Nick Dell’Osso : You’ll see continual progress over a period of time. There’s no one day.

And then relative to your current plan of reducing the rig count in the second half of the year, can you remind me what the plan had been in terms of rig count and well counts compared to what you’d planned at this point?

I’m trying to think back to the first of the year. I’m guessing it was around the low 80s, and now we’re down to 64. So a pretty significant reduction. And as you can see from the cycle times that we released, significant improvements in our cycle times to be able to do that.

From a well count perspective, it has not decreased nearly as much as the rig count, is the point there.

And then one last question, in the Utica, can you give a sense of what you’re seeing on the well performance in terms of the oil and gas splits out there? Has it trended a little bit more gassy relative to some of the initial expectations. I guess that’s been our sense. Can you give us a little color and elaborate on that?

I would say from when we entered the play it certainly had been gassier, but not quarter over quarter this year. The well set is performing well. We’re very pleased with the results and anxious to get more of it on this year as we get compression and processing in place.

Okay. And specifically what I was referring to is if you look in your little Utica write-up, it gives some of the gas production in Mcfe per day, where I think BOE per day was something you spoke [unintelligible] before. So I didn’t know if that was sort of a signal we should think about.

No, I don’t think so. I think it’s still early until we get a bigger well set on, which, again, is going to happen here in the second half of this year. So more to come.

Our next question comes from Arun Jayaram with Credit Suisse.

Doug, I just wanted to talk to you a little bit about, you’re thinking about putting in a new blueprint for Chesapeake. You know, one of the recent challenges given the pullback in gas has been the balance sheet and the funding gap. The shares have done really well year to date. And I was just wondering what your thoughts would be on doing potentially a significant equity raise so you can get away from needing to do the asset sales and things like that and perhaps give you some flexibility as you look towards a newer strategy. Thoughts on that, Doug?

Those options are out there, and could always be a possibility that we would consider. I will tell you, though, that the focus right now is on being the most efficient with our capital as we possibly can, and targeting that capital toward the very best projects that we have, which, compared to our peers and compared to some other operators, we just have some outstanding assets. And so prior to looking to do something like that, we need to really focus on our operations and focus very, very intently on how we can improve our capital efficiency. And right now we’re just basically going to be looking at asset sales to get the portfolio right. And the focus with the capital and the asset sales is not to solve for a funding gap, it’s to get the discipline in our program, get the best projects, get the multiple wells per pad, and some of the best assets in the country. And so raising equity at this time is not a primary driver. I think it always exists as an option, but that’s not something we’re focused on.

And my final one is just trying to think about the Utica and the overall macro potential regarding gas. What are your thoughts, Doug? You have a couple hundred wells that you plan to put on later this year, early next year. Does this change the way you think about the gas market, where you have potentially a resource which has a lot of potential similar to the Marcellus?

First let me say that I really am encouraged by what I’ve seen in the Utica. As Steve noted, we’ve got a lot of wells that we’re getting ready to bring online. And I think the options there, we have a ton of options available to us. And focusing on the best areas there, and getting our capital in line, is part of the program, as we see the Utica to be a very strong asset going forward. So as it compares to Marcellus, I hate to get into some of those comparisons at this point, because we still have several wells to bring online to evaluate and determine the right amount of capital to be investing in that program in the years to come. But I will tell you that I’m very encouraged by it, and with my experience in all the other shale plays, I think it’s an exciting area for the company.

Our next question comes from Bob Morris with Citigroup.

One operating question on the increase in the oil guidance for the year. You mentioned part of that was the timing of asset sales. Can you tell me what proportion of that increase in the midpoint guidance was, the timing of asset sales?

It was roughly two-thirds created by the delays in the asset sales. And one third of that is just performance increase.

You talked about matching capex with cash flow and allocation, and focusing on the best projects. Does this mean that you’re contemplating a lot of expiration of leases or acreage? I know you’d rather sell acreage. But in this market, it’s tough to sell nonproducing acreage. So do you anticipate that in this program, in this new strategy, that there will be materially significant lease expirations that will occur here?

There might be. And you know, our focus in the past has been to not let any lease hold expire. As a result, of that, and as a result of the aggressive land capture strategy, we’ve got a tremendous opportunity to high grade within that. And as you look at where we start investing and where we start improving our efficiencies, we’re not going to ramp up the rigs to hold leases. And our rig count, while we haven’t given any particular guidance, and one area may increase and in another area it might decrease, but it’s all centered on how we can drive the greatest capital discipline and the greatest returns for our shareholders. And so as a result of that, we may lose a little bit of acreage. We obviously will look at opportunities to monetize that acreage. We don’t see us focusing in the near term on it, so we don’t have stranded capital that has been invested, but the company’s just tremendously blessed with a huge land resource base. And obviously as we go forward, we’re not going to be able to develop all of it. But what we are going to develop is going to be very competitive, and we’ll be looking for continuous improvement and capturing the growth metrics for it to be more competitive.

Our next question comes from Neal Dingmann with SunTrust.

Just looking at the Eagle Ford, obviously tremendous continued results, especially on those spud to spud cycle times. So I’m just wondering, is this going from the 15 to 10 rigs just because of the efficiency? I’m just wondering if you had decided to stay with the same amount of rigs if you had been able to take production up just that much more.

A little bit more. We have some constraints there that are continuing to be improved. But yeah, we would have been restricted, couldn’t have stayed at that same pace. Part of it was, though, we had to have that pace to HBP all of our lease hold first half of this year. We’re basically done there now in the Eagle Ford, so you haven’t seen all that we can do once we’re now in a pure pad drilling mode going forward the second half of the year and into ’14. So we’re going to get a lot done with those 10 rigs.

And to add to what Steve said, when you think about some of the strengths that reside in Chesapeake, one of those is the speed at which we can ramp up our operations and ramp down those operations. So as we are pursuing value, and our competitiveness, and how we improve that, that rig number, we may go from 10 to 12 to 15, and maybe more than that. But we may pull it back based on efficiencies and how we develop our portfolio to be more competitive. So I think it’s important to not note our focus too intently on the rig count, but to focus on the efficiency, the cycle times, the capital discipline, that we’re building into the program.

And then maybe Steve, back to your HBP comment, where do you sit now with that in the Utica? You guys have, like you did in the Eagle Ford in the first half, is most of that held as well?

Oh, no. The Utica is a long ways from being HBP. But we’ve got long term leases there, so we have done some pad drilling and tried to be in a more focused area in the Utica to get started along pipelines. But no, we’ll have a lot of work to do in ’14 and ’15 to HBP our excellent lease hold position in the Utica.

And just lastly, I noticed on the guidance for the oil field services net margin just was taken down slightly. Is that just a result of less rigs running? What should we attribute that to?

That’s a result of less rigs running and it’s also a result of just general pricing pressure across the oil field services segment. Our services are market priced, and they follow the market. So margins in that industry have been tight all year. That’s a good thing for us from a cost perspective at the end of the day, and it ends up just coming out in that margin number.

Our next question comes from Matt Portillo with Tudor, Pickering, and Holt.

Just a few quick questions for me. In terms of the Eagle Ford backlog, can you give us an idea of where that stands today? And specifically, I guess with the 10 rigs that you have running in the play, how many wells do you roughly think you could drill next year? Just looking at the second quarter it looks like you completed about 140 wells, which was up quite a bit. So just trying to understand kind of the rate of change.

Well, as Doug had just mentioned, we can ramp up and down pretty quickly. So 2014, we really have no guidance for you there yet on that, because it could be a pretty big spread. You saw the numbers that we turned on in the second quarter. We did a lot of catch up in the Eagle Ford. So I guess your question was more what our kind of excess inventory is left in the Eagle Ford. It’s not a great number. We’re trying to get those wells completed and online here in the second half. So I don’t think we will exit with a big excess inventory in the Eagle Ford.

I think just adding to what Steve said, we’re not going to park capital on the ground that’s not going to give us a return. And so if the infrastructure and the ability to get the wells online, there’s some limit to it, we’ll direct that capital elsewhere, direct the rig activity elsewhere, so that we can optimize our efficiencies and our returns. So I think it’s still just a little bit early to say. I would expect that that inventory, with our rig activity, will fluctuate, and fluctuate for a couple of reasons. With the dependency of the infrastructure, and also with the efficiencies that we expect to achieve there. And so I’m excited about it. I think it’s a great time to focus on this backlog with oil at $107 a barrel, and we’ll be doing as much as we can to bring it on as quickly as possible, and as efficiently as possible.

And just on the back of that, looking at your full year oil guidance, if you look at the first half of the year you’ve done about 20 million barrels. It would imply kind of the midpoint of the range, I guess post-asset sales, that oil growth is slowing or maybe decelerating a little bit in the back half. Is that a fair assumption, just given the completions that you guys are looking at? How should we think about the trajectory of growth going forward from here?

We’ll slow a little bit, because of that inventory we worked off during the first half, and then we just sold some oil in these asset sales. So that was all pretty much in full second quarter or first half, and it’s just come out now.

And just last question for me, on the NGL front, it looks like on a run rate basis there’s going to be a huge uplift in the back half of the year to get to guidance. I was hoping we could get a little more color on the plan going forward in terms of ramping your NGL volumes to meet the guidance range. And then a second follow up question, just in regards to the Utica, as you bring on additional NGL capacity, how do you guys think about dealing with ethane in that market and moving those volumes in terms of the liquids component?

Well, in terms of the NGL production, we have the Kensington plant that just started in the Utica. We have additional plant coming online later this year. So that ramp is significantly driven by that infrastructure in the Utica, as well as in [unintelligible] and some other plays as well. And so that’s really the driver there. As far as ethane, the Apex Pipeline is scheduled to come online around the beginning of 2014, and that’s a significant assistance to us in moving ethane out of the basin. We’re an anchor shipper in that line, and we think that’s a good advantage to us.

Just a follow up there. So in regards to ethane for the back half of this year, is the guidance assuming a rejection out of the Utica? Or should we basically model in ethane rejection until Apex comes on?

We’re able to do some blending with our ethane in the Utica. What we’ve modeled in the way of rejection is rejection for July and August. Beyond that, we have not modeled any rejection, but as you know, it’s possible. We’ve had some rejections this year as well. So hard to predict. The pricing has been right around breakeven on a lot of our contracts for several months now, one month ahead, one month below. And we monitor that very closely, and make the most economic decision each month.

Our next question comes from Bob Brackett with Bernstein Research.

Quick question around the divestment of noncore affiliate. Could you just give us a list of your affiliates, just for our information?

I think most of that information is available if you will look at our 10-Q and public information we have, rather than going into that at this point in time. Key focus there is that we’re looking to drive the greatest returns from any affiliate that we’re associated with. And that’s what I would just ask you to know and that strategically it’s an important part of our program going forward.

Okay, I’ll try a different… This competitive capital allocation procedure, could you contrast that to what Chesapeake had been doing?

Certainly. The key there is that our previous strategy was focused largely on preserving the lease hold. I’ve been very, very impressed with the geoscientists within Chesapeake, and the team’s ability to rapidly - not only from an external perspective prior to joining the company but also internally now that I’ve been here - I’ve been very impressed with the company’s ability to identify and rapidly move in and acquire significant core positions, simply some of the best rock in the country. And the focus has been to not lose any of that acreage, and the shift in the strategy today, and the capital required to do that previous strategy, had put us in a very difficult position. And as we go forward, that capital and that focus is on driving the greatest value out of that acreage and being the most competitive we can be against our peer group. And so by using that focus and that speed and that technical ability that resides and is very strong inside the company, we’re focusing that speed and that strength on value. And so I’m very excited about it. We have a lot of work to do, but we’re shifting that strategy from preservation of the land to capturing the most value from the land in the core areas that we’ve identified.

Our next question comes from Michael Kelly with Global Hunter Securities.

Obviously there’s a lot of variables to consider as it pertains to 2014 growth, and I’d just like to touch on a couple of specifics there. First, on the midstream takeaway additions that you would potentially be adding here at the end of the year and into 2014, hopefully you can direct our attention there to what’s meaningful. I know you’re constrained in a number of these basins. Obviously the Utica, but also in the Marcellus and Powder River Basin. And just talk about how their coming [slow] to capacity there could also play an important factor in 2014’s growth. And then the other thing I wanted to ask you about is just the baseline decline on your natural gas assets here. How’s it been faring? What’s your model so far in ’13, and what’s a good number to dial in for ’14?

We do have a number of projects coming online in the next 12 months that will help significantly in the Utica, I guess to begin with. We’ve got 200 million in processing coming on now, another 200 million towards the end of the year there, and capacity for another 200 million in probably second quarter of ’14. So lots of ramp up room there in the Utica. In the Marcellus, those pipes, additional takeaway there, come on at the end of the year, November-December timeframe. It will allow more capacity in the Marcellus. The Eagle Ford is kind of a number of things, pipeline, treating, and compression, that will continue to help throughout the year to improve it. Niobrara, that’s probably ’14 on it, before we have any really meaningful, big step rate change there. We’ve got a little bit of incremental, but that’s when that gets relieved. And so again, that’s all factored in our ’13 guidance. And we are not giving any ’14 guidance yet. But we will factor all those in when we provide ’14.

And I just want to make sure I’m characterizing this correctly. Did you say that you think you could have a very similar completion count in ’14 versus’13 while getting capex to come in line with cash flow?

We did not say that, because we have not provided ’14 guidance. What we said was that we are getting more efficient and our completions per capex will be improved, but we have not provided that capex number yet.

Our next question comes from Joe Allman with JPMorgan.

Let me clarify, for 2014, your expectation is that your all-in capex is going to be at or below operating cash flow? Am I understanding that correctly?

Our target is our drilling and completion capex will be within cash flow with the overall target that we continue to pull all the capex within our operating cash flow. So the messaging there, and what I would like for you to focus on, and I want to convey, is that it’s a very strong strategic element in this company going forward to live within our cash flow.

Again, just to clarify, the DNC capex plus other capex, you’re targeted to have it at or below operating cash flow?

We’re going to focus intently on balancing our capex program to be within cash flow, yes.

And what are the dynamics that allow you to do that now? Because Chesapeake in the past has been in a very tight situation and probably wanted to spend less, but was precluded from doing so. So obviously one of the things you mentioned in the call was Eagle Ford Shale is largely HBP at this point, but what are some other dynamics that enable Chesapeake to live within cash flow?

Well, there’s two or three central elements to accomplish that. And the first, you highlighted, in that we’re not going to preserve every acre. And we are going to focus on the very best areas. And inside those best areas, you can expect to see greater efficiencies from our drilling and completion program. As I mentioned, the production growth that’s been realized by the company is from single well pads. And as you look at our percentages of multi-well pads, we’ll be significantly improving as we focus on those key areas. And as a result from that, we’ll see likely fewer rigs, greater capital efficiency, and continued growth. So that’s a huge element as a part of it. And then as we also look to reduce the complexity in the program, the things that are not getting us the returns that we’re targeting, we’re looking to eliminate that waste, or that’s not providing the greatest return for us. So looking to drive the greatest value to drive the leakage out of the program, to identify waste where it exists in our operations and is not getting us the competitive return. That all rolls up, is going to create a much more competitive program.

Are there any commitments, whether it’s acreage commitments or pipeline commitments, that might preclude you from doing what you want to do?

We’re in the process of evaluating all that. I think there are going to be some that we have to evaluate and scrutinize really closely, but my observation at this point in time is that we’re going to be able to accomplish that, and we’re going to be targeting working as quickly as we can. And so I’ll reiterate the issue around providing 2014 guidance, that this is the strategic tenets that we’re trying to accomplish, and we’re very focused on trying to get there as quickly as possible.

And then is debt paydown also still a big goal for Chesapeake? Nick Dell’Osso : Absolutely. It’s still a major goal of ours. We expect to have a simplified and improved balance sheet in the coming years. In the coming months, as well as years.

So does that mean that your intention is to pay down at least a few billion dollars of long term debt? Nick Dell’Osso : I’m going to stay away from an exact number, because it’s going to depend on the opportunity set that’s in front of us when we are at a point of excess liquidity and we make that decision. But we are continuing to target investment grade metrics. It’s a goal of the company to be investment grade. We have been making good progress on improving our liquidity, and the next step will be to apply that excess liquidity towards our balance sheet when we’re ready to do so, which we will do at some point in the relatively near future, especially as we consider a noncore asset sale program. We have significant liquidity today. Remember, it’s in the release that we ended the quarter with an undrawn revolver. We’ve closed a couple of very large asset sales since then, so we have quite a bit of liquidity today.

And then lastly, Doug, I know it’s relatively new for you, but when you look at the portfolio, what would you identify as the top three plays that you likely are not willing to sell or touch in terms of any monetization?

I hesitate to say that. I would ask you just to focus on the strategic things we’re driving, and capturing the greatest value and being the most [competitive] to the company. So there may be some noncore positions in the best assets that we’ve got that we’d look to monetize to accelerate the value. And we may consider asset sales across the whole portfolio. But the driver here is where we can capture the greatest value, and where we can be more competitive, and so I just would prefer to stay away from saying any one particular asset is untouchable or that we wouldn’t focus on. But I will also comment that I’m really excited about our strong portfolio. I think the Eagle Ford assets, the Marcellus assets, Haynesville although it’s hurt a little bit by gas prices. The position there is outstanding. The Utica is outstanding, and we have several other emerging areas that are in the evaluation process that we’ll be looking at. I think that it’s important to note that as we allocate our capital in creating this competitive process for funding in 2014 and beyond, that there will be opportunities for other areas that we’ll invest in. But those other areas will be invested in based on substitution, not addition. So the competitiveness within the portfolio to make sure that we’re doing the best things for our shareholders is our focus, and if we’ve got new opportunities in a new place that we can run with, that will add to the value of the company, we’ll be looking to do that, but the overarching statement there is that the financial discipline is very, very critical to the company going forward.

Our next question comes from Amir Avif with Stifel.

Just a couple of quick questions. First, once you finish your review of capital allocation, can you give us a sense of when you’d be ready to provide ’14 guidance or color?

I hesitate to give that at this point. Obviously our capex program will be reviewed with our board, and so I’m just not going to provide any information about that. But we’re working it very hard and very diligently, and you guys will be hearing more from us soon.

But in terms of timing, though, when you’d be willing to provide that.

What’s critical there is making sure that we do the comprehensive analysis and determine the best opportunity set for us to invest in. So I don’t want to put a time limit on it, simply because we want to make sure we evaluate it properly.

And you had great sequential growth this quarter. But as you cut your rig count here in the second half, and based on your guidance, there’s no sequential growth showing up in the second half on an absolute production basis. Is that basically a conservative reflection in your guidance? Or should I look at the second half run rate capex as a good reflection of what you need to maintain your production?

It’s a function of the sales that we just had. You know, we sold quite a bit of production in the Miss Lime JV, Haynesville, and north Eagle Ford. So it’s a reduction of that that we’re seeing now in the second half that wasn’t in the first half. But there is a reduction in capex spending, and a reduction in wells turned online also, 20% less in the second half than in the first half. So all those factors, and hopefully conservatism also.

Our next question comes from Jason Gilbert with Goldman Sachs.

I wanted to put a finer point on one of the strategic questions earlier, which is so far it appears you’ve been pruning and optimizing within your legacy plays with your divestiture program, for the most part. I was just wondering how you thought about complete exits from plays. And I guess where I’m coming from is that if you think there’s a real strategic benefit to being in eight major plays, and there might be fewer distractions if the company was able to focus on a smaller number, and furthermore with a larger sale you might be able to accelerate the repair of the balance sheet. So I just wanted to hear your thoughts on that.

Your question is very good, and I guess the way I’d answer it is yes. We’ve exited plays before, including Fayetteville, Permian, and we potentially, for those that are noncore, will have complete exits. So I think it’s all a part of the portfolio evaluation that’s underway.

And then the last question would be, you mentioned you want to reach IG metrics, and I think I know what your answer’s going to be here, but I was just wondering if you could put any sort of timeframe around that. Nick Dell’Osso : No, we really can’t put any timeframe around that. We are focused on it. We have a number of things that we’re looking at that will help us to get there, but it’s going to be a combination of improved operational performance, taking the proceeds from noncore asset sales, applying them to our balance sheet, etc. So it’s a process that will take some period of time, and we don’t have an exact timeframe for it.

Our next question comes from Brad Karp with Wells Fargo.

Regarding IG metrics, Doug, you mentioned it in your prepared remarks. Just curious, is that a standalone strategic goal? Or is that more or less a byproduct of other strategic goals such as efficient capital allocation and balancing capex and [unintelligible] and so on?

It’s a part of the financial discipline. So I think in terms of those things that I mentioned, they’re all A priorities. But it falls under that financial discipline umbrella.

And then are there any specific metrics associated with that? Is it just kind of debt per BOE and so on? Any specific numbers surrounding those? Nick Dell’Osso : There’s obviously a number of metrics that we look at, the agencies look at, and you all look at. We could go through the list, but different companies rank stronger in some metrics than others when they get to investment grade. And we’re looking at the entire suite. We know what our strengths are, and we know what our weaknesses are, and we’re focused on having our entire set of metrics look investment grade over time.

And then final one just on asset sales. Just based on where you’re at year to date, it seems like you’re right around that lower end of the $4-7 billion guidance. Do you see yourselves falling into the lower half of that for the full year? Or basically what would it take you to get to that upper half that you’ve kind of touched on throughout the call?