Nick Dell’Osso: Sure. So, first of all, let’s talk about what’s going to trigger this for us. We get asked a lot about what price are you going to bring volumes back online? And of course, that’s an easy way to think about it and an easy way to model it, but it’s not the right way for us to make that decision. When we think about price, we think about it as an indicator of what’s going on in the underlying market. But the trajectory of what’s going on in the underlying market matters a lot more to us than what the price is at the moment. And so, we will continue to monitor the current production levels and the trajectory of that production, the storage levels, the activity levels across each of the basins and think hard about what we really believe the market needs before we make any changes.
And then once we determine that the market does need more gas, it would just follow the logic of what we have available to us. So the fastest thing for us to respond with are the wells that have been drilled and completed, but are just waiting to be turned in line. Following that, we would begin to work on completing the additional wells that have been drilled but are uncompleted. And certainly, I guess, along that time, we will be bringing back volumes that are curtailed out of the base. So I think there’s a lot of flexibility in how we respond to this. I would imagine that this will come about in a rather slow manner. I don’t believe it’s likely that we will wake up one day and see that the market needs all of the gas and that we will be racing to bring it all back at once it’s possible.
And if that happens, we will move through it in the way I just described, as efficiently as possible. But I think it’s more likely that we will be bringing volumes back to match a growing demand that will be pretty well, pretty well previewed by the activity levels that are out there in the market around LNG, around the increase in power-gen and industrial demand when it’s needed. Now you can have a cold spike, and cold spikes show up with a need for incremental demand. We would always try to respond to those needs as quickly as we can, but know that those are not necessarily sustained. And so that would probably be a short-term event, and we would incorporate that into our decision making.
Josh Silverstein: Great color. Thanks Nick.
Operator: The next question will come from Neil Mehta with Goldman Sachs. Please go ahead.
Neil Mehta: Yes. Good morning Nick and team. Thanks for all the color. I wanted you to spend some time on your hedging framework, specifically the hedge-the-wedge concept. So can you just talk about the way that you approach hedging and the advantages of having a rolling program, especially in a contango curve? And then I have a follow-up.
Mohit Singh: Yes. Neil, good morning. This is Mohit. Thanks for that question. You referenced the hedge-the-wedge program. That’s been our way that we have been hedging over the last several years. The way we philosophically think about it is, you have a $1 billion, $1.5 billion capital program so you’re investing dollars into the ground. You want some certainty on when you start getting the production back. So let’s think of that as nine, 12 months after making the kind of the initial investment decision when you’re spotting the well and you just fundamentally don’t know what prices would be at that point. So you want to lock in some of that returns that on the investments that you’re making, which are fairly substantial. Right?
I mean, you look at the market cap of the company versus that kind of a capital program, you might be investing 10% to 15% of your market cap into the ground. So for us it’s a prudent way of just taking the risk off. One thing that we have done structurally, which we are pretty excited about given the contango that you referenced out in the curve is instead of doing swaps we’ve been doing callers, which allows us to monetize the volatility, so kind of bringing up the floors that we are getting from the puts, but still retaining some of the upside by the calls that we are selling. Overall the program is working, especially when you’re in low price environment like that, like we are in right now. Every month we are getting receipts of hedge settlements, which help support the base business and the cash flows and again underpins the return to shareholders and the base and the variable dividends that we are making.
So overall we think it works. It works well, reduces volatility of the returns and allows us to be more consistent with shareholder returns.
Neil Mehta: Thanks. Mohit. And the follow-up is just on the global LNG markets. You talked in the slides about the 12b’s [ph] of incremental supply coming out of the United States, cutters coming through with Northfield expansion in 2026 and beyond. And so Nick and team, how do you think about global LNG price being a potential governor on long-term gas prices?
Nick Dell’Osso: Yes, Neil, it’s a great question and it’s something we think about a lot. And as we think about LNG growth, I mean, the market is clearly eager to have more LNG supplies. There are a number of different projects out there that are eager to accept in the growth in LNG. But it’s also pretty obvious that at some point there will be oversupply and that market will have volatility in the same way that domestic markets do and we’re prepared for that and understand that. One of the things I think we’ve seen that’s really interesting is that there’s clearly some elasticity to demand for LNG prices I’ll say in the $9 to $12 range, and that range is probably debatable. It might be down to $8, it might be a little higher than that.
But you’ve seen that demand clearly goes up when you get into the single digits and you’ve seen that demand can be fleeting as it gets into the mid double digits, certainly over the longer term. And what that tells us is that this market requires that you remain really, really efficient in your cost structure and how you deliver supplies. And so that’s something that we’ll stay focused on and we’ll work with all of the different providers through the value chain, both domestically and internationally, to make sure that we can do that. But it’s a real thing and something that we have our eyes wide open about. At the end of the day, we still think natural gas is the most efficient and effective way to supply markets that are in demand for greater energy.
