Good day and welcome to the Chesapeake Energy Corporation Q2 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brad Sylvester. Please go ahead, sir.

Good morning, everyone, and thank you for joining our call today to discuss Chesapeake's financial and operational results for the 2018 second quarter. Hopefully, you've had a chance to review our press release and the updated investor slides that we posted to our website this morning. During this morning's call, we will be making forward-looking statements, which consist of statements that cannot be confirmed by reference to existing information, including 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 will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our earnings release today and in other SEC filings. Please recognize that except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements. We may also refer to some non-GAAP financial measures, which may help facilitate comparisons across periods and with peers. For any non-GAAP measures we use, a reconciliation to the nearest corresponding GAAP measure can be found on our website and in our earnings release. With me on that call today are, Doug Lawler, Nick Dell'Osso, Frank Patterson and Jason Pigott. Doug will begin the call and then turn the call over to Nick for a review for our financial results before we turn the teleconference over to Q&A. So, with that, thank you. And I will now turn the teleconference over to Doug.

Thanks, Brad, and good morning, everyone. Chesapeake continued to build upon the transformational momentum established over the last several years through consistent operational and financial improvement. The announcement of our Utica divestiture is yet another step that demonstrates our commitment to achieve and sustain top-quartile performance amongst our peers. The enterprise strength of Chesapeake Energy comes from our strong diverse portfolio of assets and our solution-minded employees, each providing optionality and opportunities for greater shareholder value. We have fundamentally transformed all aspects of the company in the last five years. With closure of the Utica transaction, we'll have eliminated $12.2 billion in total leverage, lowered our annual gathering, processing and transportation expense by approximately $900 million, while raising over $10.3 billion in additional midstream and downstream commitments. We've reduced our CapEx cumulatively by more than $12 billion, while keeping adjusted production relatively flat, and removed over $1 billion of annual cash costs. Importantly, we have done all of these while delivering record environmental health, safety and regulatory performance. Simply put, we have accomplished differential performance improvements during the challenged commodity price environment. As noted previously, our sequential and successive improvements have yet to be materially recognized by Chesapeake's common equity holder. I believe we are positioned today with continued progress to deliver that differential value growth to our common equity holders. We recorded another solid quarter, our fourth in a row, growing adjusted production year over year and increasing cash flow and operating margins per barrel of oil equivalent. For the 2018 second quarter, we posted total production growth of 8% year over year, after adjusting for asset sales, which is roughly 38,000 barrels of oil equivalent per day. Importantly, we grew our oil volumes 11% adjusted for asset sales, contributing to the increase in our full-year oil production guidance…

Thank you. At this time, we will start the question-and answer-session. We shall take our first question from Neal Dingmann of SunTrust. Please go ahead, sir.

Good morning, guys. Nice details. Doug, my first questions for on the PRB. You obviously have seen some recent success, I guess a question for you or Frank, the recent success you've seen in the down-spacing, your thoughts as you progress forward, is that something you'll do in other areas there or maybe just talk about the spacing in general on the play.

Good morning, Neal. This is Frank Patterson. Yeah. We are in the midst of a six-well down-spacing test. We've talked about it. We now have 100 days of performance. We actually put a slide in the deck to kind of give you an update on that. What we're seeing, it's early, is really no effect to down-spacing to 1980 feet. If we are able to down-space to 1980 feet with confidence across the field, that would give us probably another 80 wells plus. So that's pretty powerful. We've already run spacing tests in the Niobrara and we have a pretty good feel for what the Parkman is going to look like and the Sussex. So, once we get this information, we'll be able to develop the field and then the proper spacing from the onset and that will allow us to create a lot of synergies off of pads. We'll have a significant number of multi-well pads across the field.

Certainly sounds encouraging. And just one last follow-up (00:15:25) for Nick or Doug. Just on CapEx, a question overall, that overall CapEx was about $2.3 billion. What does that include for the Utica? I guess, does that include bringing a couple of those Utica rigs back or how much of that is going to be factored into that overall CapEx? And maybe Doug, just aside (00:15:42) on that, maybe just talk about free cash flow, how you guys, you or Nick, sort of see that going forward. Domenic J. Dell’Osso - Chesapeake Energy Corp.: Sure, Neal. This is Nick. I'll answer that. So, the CapEx, we increased our range last week. Keep in mind that we are now running five rigs in the Powder, and based on the success we've seen this year, we're really pleased with that level. It's generating great cash flow growth and will be the driver of our cash flow growth in 2019 versus 2018 as we have a pretty significant turn-in-line program in the second half of this year. When we originally put our budget together, we had three rigs in the Powder. So, our outlook – initial outlook was based on lower activity there. We have shifted some dollars around, so that's not all, just a net add from the Powder. We've pulled some activity down in other places and just generally been able to optimize moving some dollars around, really largely based on the efficiencies we've seen working faster in each of our plays and we continue to see that in the Powder as well. It's a theme across the portfolio. We're getting more done every day in the field with the same dollars. And that's been a big help to the growth profile. As we look at the Utica, though, we did add some dollars back into our program. This summer, we had front-end loaded our drilling program in the southern portion of our Appalachian region. Remember, we think of our Appalachian region historically as being both the Utica and the Marcellus. So, we had rigs in Ohio in the first half of the year. We had planned to move those rigs to Pennsylvania in the second half of the year, with frac crews then filling out in Ohio behind them. They were actually going to finish up during this quarter. So, what we've done now is we've shifted. We have rigs staying in Ohio through the closing of the transaction, and then they'll stay there post the closing of the transaction. We'll operate them under a transition services agreement. But as soon as the transaction closes, the CapEx moves off of our books and on to the buyer. So, there is some there for the transaction. There's a good bit of it is just overall activity, accelerated activity in the Powder. And again, you see it in our results, our growth rates are showing the benefit out of it.

Thanks, guys.

Neal, I'm going to just add – just if you don't mind, I'll interject with the last comment around the free cash flow. Just to remind you that each of the assets, with the exception of the Powder River Basin, are free cash flow positive today. We anticipate in 2019 with the increased oil production there and the efficiencies we're seeing that the Powder River will be close to free cash flow positive and the team's targeting to achieve that. And so the assets are performing outstanding. And then, as we just look at the larger balance sheet and how we continue to attack that through further growth, exploration and acquisition opportunities is how we'll continue to further delever. And I'll build on that just one step further as well, Neal, which is that as we think about being free cash flow positive, it has to be at a sustainable level of cash flow. And post the sale, what we've said is that we will replace the EBITDA from the sale within a year. So that will certainly put a little bit of pressure on being free cash flow positive in 2019, but we're doing so with a significantly reduced balance sheet and then as we replace that cash flow, it becomes a place where you see the leverage start to move lower very quickly. So we could be free cash flow positive anytime we choose, right? You can just drop your CapEx, but it's got to be at a sustainable level and one in which we know from that point forward, we can add shareholder value every day, while maintaining that free cash flow profile. We're pretty close. We're going to get there very soon. And we're going to now do it with a lot less leverage. So it all feels pretty good to us.

Yeah. That makes sense. Thanks for the additional details.

We shall take our next question from Charles Meade of Johnson Rice. Please go ahead. Charles A. Meade - Johnson Rice & Co. LLC: Good morning, Doug and Nick and to the whole team there.

Good morning, Charles. Charles A. Meade - Johnson Rice & Co. LLC: Thank you. Your last comments have actually really teed up, I guess, the question I wanted to ask well and it's that you made this comment about the asset sales being no longer the primary way of deleveraging. And I wonder if you can talk about 2019 and what the broad parameters of how that is going to look. I think, Nick, you were just alluding to it a bit. It sounds like you guys are planning to stop the outspending versus cash flow and now spend within cash flow. And is that the right read on 2019? And what's the kind of commodity price at which we should think about that being a valid read? And how are you – I know it's early, but how are you projecting oil volumes to grow and your overall volumes to grow?

Sure, Charles. We're happy to provide a little more clarity with that. And as we've stated, we anticipate our 2019 oil volumes to grow by 10% and this recognition of our ability with the remaining assets post Utica divestiture of being able to replace that EBITDA within a year speaks to the capital efficiency and the cash flow generating capability of our assets. As we look forward to 2019, the reduction in our interest expense, it will help us as we pay down some of our debt. But we anticipate that that free cash flow neutrality is – as a primary target will be something that we have to continue to look at. And as Nick noted, in 2019, we aren't forecasting any major asset sales. But through our own operations from our existing assets, we expect that production growth will help us in reducing any outspend. Nick's point on the sustainable free cash flow at this point and you look to 2019, we will accomplish that principally through our organic production growth, but we will also have and continue to look at smaller asset sales and other opportunities for us to generate cash. What we're excited about is that, as I noted, each of the assets are free cash flow positive today, with the exception of the Powder, and the oil's growth, strength there, we clearly will achieve that in 2020, but targeting with the team to try to achieve that in 2019. So, our objective to be free cash flow positive is very strong. And from an operating cash flow basis, we're there. When you look at all the other corporate liabilities that we have, we're making excellent progress on that and expect to share good results with you as we progress. Charles A. Meade - Johnson Rice…

Let me just add further to that, Charles, that the Chesapeake's experience and expertise and the fact that we are the leader in unconventional shale development in the United States gives us tremendous optionality. We are capable of absorbing additional assets, bolt-on assets. And so, as Nick noted, the opportunity to – where we can utilize and lever our core strengths, 00:25:31 we will always be looking for those opportunities. Charles A. Meade - Johnson Rice & Co. LLC: That's helpful detail. Thanks for sharing, guys.

We shall take our next question from Doug Leggate of Bank of America Merrill Lynch. Please go ahead.

Thanks, guys. Good morning, everybody. Thanks for taking my questions.

Good morning, Doug.

Doug, Nick, I hate to beat on the CapEx question, but I just wonder if you could just help us with the moving parts a little bit. What was the Utica spending in the budget for this year, including the two additional rigs, which I presume you will get by incremental capital at close? But if you could just give us that and then help us walk through how the deltas with the additional rigs in the Powder leave the year-over-year outlook going into 2019. Domenic J. Dell’Osso - Chesapeake Energy Corp.: Yeah. So, Doug, our spending in the Utica this year was intended to be about $450 million. It'll go a little bit higher as we go into the third quarter here and have this incremental activity. The increase that we guided to last week is the same number we're talking about this morning. There's no difference there. And again, that's a mix of that incremental, as well as the Powder River Basin incremental activity where, in our original outlook for the year, we were targeting three rigs based on success and confidence in that program, sustained good oil pricing, and continued hedging of those oil prices into 2019. We've gone from three rigs to five rigs. That rate of return is solid and that incremental CapEx is doing very, very well for us across the board, including encouraging the sale of the Utica asset. So, it's all of those things combined and it's generating very good return for us.

So, to be clear, do the two additional rigs for the full year in the Powder offset fully the $450 million drop in the Utica? Domenic J. Dell’Osso - Chesapeake Energy Corp.: Well, wait a minute. We're talking about 2018 CapEx here. So, the Utica...

I am talking about going... Domenic J. Dell’Osso - Chesapeake Energy Corp.: ...CapEx are (00:27:41) for three quarters.

Yeah. Domenic J. Dell’Osso - Chesapeake Energy Corp.: (00:27:43)

I am talking about going into 2019, as we go into 2019. Domenic J. Dell’Osso - Chesapeake Energy Corp.: No, no, no, no two rigs in the Powder does not equate to $450 million.

No. Domenic J. Dell’Osso - Chesapeake Energy Corp.: No.

So to be clear, net-net, we should expect spending trend to be lower next year? Domenic J. Dell’Osso - Chesapeake Energy Corp.: Yes.

Great. Thank you. My follow-up, if I may, is for Frank. Frank, obviously, the Powder is getting a lot of attention and I think you first flagged this to me personally about two years ago. So, tremendous success and congratulations on that. However, my question is that the 2016 type curve you gave is obviously now stale and I'm guessing the inventory is pretty stale as well particularly when you look at Niobrara and Parkman opportunity. So, can you just speak to the depths of inventory that you see today and what trend type curve we should be using for development as we look forward on this?

Yeah, Doug. We are updating type curves as we speak. We have a couple of type curves in the Turner. The big change in the Turner is we have learned through going through this process that we want to manage the chokes a little bit more than what we had anticipated, so we're not going to see this high IP, what we're seeing is a lower decline rate. So we're seeing that the wells perform – actually, pretty spectacular. If you look at the graph that's in the presentation, every well that we've turned on in the Turner has been in the upper quartile in the basin. So, I think that speaks for itself. We've seen a lot of operators in the Turner, flow up casing and flow up unconstrained. It looks really sexy the first 30 days. But around 60 days or 65 days, they cross over the wells that we're actually flowing up tubing and managing the choke. On the Niobrara, the big difference, we still have some work to do. But the big difference is, the historical Niobrara wells were severely under-stimulated and, quite frankly, drilled probably too tight a spacing. So, we're going to up-space that, put longer wells in the ground and put bigger fracs on the wells. The three wells that we have, that we have had larger fracs on, we had a historical well called the Barton out to the east that had – it was a 10,000-foot lateral and a larger frac. It's the best Nio well in the country as we can see it from the data that we can pull. We've now done three DUCs with larger stimulations that were shorter wells, and those wells are performing in the upper quartile of Niobrara as well. So, we think the Niobrara…

Yeah. Thanks, Frank. Yeah, in addition to the productivity gains we've seen, they've been (00:32:24) just phenomenal work done on the completion and drilling efficiency. We've cut 10 days off our drilling time over the last year. So it's just phenomenal. They've had average 24 days for the quarter. But we've had several wells hit the sub-20-day mark, so they're killing it there. We're doing innovative things like drilling with produced water which can cut one of our bigger expenses which is mud costs, some of the cluster spacing test they've got can cut cost on the completion side up to $200 per foot as well. So, in addition to the productivity, again, efficiency gains, capital costs are going to come down in the area and we're going to get faster and better every month.

Ladies and gentlemen, this concludes our question-and-answer session. Therefore, I'd like to hand the call back to Doug Lawler for any closing statements or remarks.

Yes. Thank you, operator. Just in closing, I just would like to further highlight the confidence we have in our continued progression. Chesapeake is already a top quartile performer in capital efficiency and the way we run our cash cost and all associated costs in the business. And what we're seeing is continued incremental steps of improvement, and I think the investment community can expect nothing but continued performance. And our excitement and our confidence in the things that we're doing is very high. And this is what we consider to believe a very attractive opportunity in our equity as we continue to build on the Utica divestiture and other transformative events that will put us in position to further round out being a top quartile company in every aspect of our business. So, thank you, all, for your time today, and we'll talk to you all soon. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.