Bill Way: Sure. I’ll take that one, Scott. And thank you for asking on a day when the market is up. It’s oddly validating. We remain cautiously optimistic on the first half of ’24 pricing, constructive on the second half of ’24 and far more convinced on the upside potential for CAL-25 and beyond. Our optimism for the first half of ’24 stems from slowing production growth, as you alluded to, plus the strong power burns we’ve seen the robust LNG demand that we’ve seen recently and the rising exports to Mexico. That’s tempered somewhat, of course, by the winter weather forecast and the possibility that we could exit March with as much as 1.8 Tcf in storage. As we look at the second half of 2024 our constructive views informed by LNG demand, it’s likely to materialize much sooner than originally expected with both Plaquemines and Golden Pass currently ahead of schedule and now reports that Corpus Christi expansion project could start pulling gas in late 2024.
By the time we get to 2025, we see over 4 Bcf a day of incremental LNG demand and the clear need for higher prices to incentivize increased activity with even more LNG on the horizon. As you’ve seen, we’ve had this rally now in the deferred part of the curve with the prompt month [ph] up $0.04 week-on-week with Cal-24, up $0.15, Cal-25, up $0.16, and in Cal-26 through -28 up $0.17, that’s been driven by strong power buying and the anticipation of the early start-up of the LNG facilities that I mentioned. When you add that all up, we find ourselves on the precipice of a paradigm shift in the U.S. market as it globalizes. And we think this greater connectivity will introduce increased risk premium and volatility, especially for those who can deliver gas reliably to the Gulf Coast where the demand will be.
Operator: And our next question today comes from Umang Choudhary with Goldman Sachs.
Umang Choudhary: My first question was a follow-up to Charles’ question. I guess you talked about a first half weighted activity next year with the potential to have your rigs if prices and outlook looks a little bit better. I was wondering if you can compare the efficiency gains which you have seen this year to rig plans next year to hold production flat year-over-year.
Clay Carrell: Yes. My thought on that would be that with the reduction in activity that we did this year and the back half of the year, the go-forward 2024 plan — and we haven’t finalized that at all right now. We’re continuing to watch where commodity prices are at and continue to balance the priorities that Bill mentioned. I think that the timing to get all the way back to flat would mean a pretty heavy start and pretty much flat activity throughout the year to get back to that place, and we’re going to need to see where commodity prices move through the winter to understand that. But I think it all lives with a capital plan that’s within the range that we’ve been talking about between $2 billion and $2.3 billion for the year.
Umang Choudhary: And then as a follow-up, you talked about your optimism around 2025, and you have also laid out plans to hedge 40% to 60% of your production. I was wondering if you can provide any color in terms of how you would approach hedging for 2025.
Bill Way: Yes, absolutely. I think Carl touched on it earlier, and the idea of increasing our downside protection at levels at or above our key economic thresholds is an important tenet in our hedging strategy. And with the move we’ve seen in the strip, those prices are now available to us and lead us to shift our focus away from fixed price swaps to option structures that give us that downside protection but then allow us that asymmetrical exposure to the upside. So, we will use that view to inform how we enact our next tranche of Cal-20 25 [ph] and beyond hedging.
Carl Giesler: I mean I’d also add that another key component of our commodity risk management has really been to improve our balance sheet and lower debt. And lower debt levels have afforded us the opportunity to have this more moderate approach to hedging and lower churn should continue.
Operator: And our next question today comes from John Annis from Stifel.
John Annis: For my first one, looking at state data, your Haynesville wells continue to meaningfully outperform the basin average. Can you share your views on what is driving this outperformance? And how sustainable you think that is on a go-forward basis?
Clay Carrell: Sure. I think the driver of it is the Natchitoches Fault Zone in the southeast part of our acreage is the highest pressure area in the field, and the well performance has shown the quality that’s there, both from an initial production rate and from a forecasted EUR standpoint. And so, the other piece though that I think is a contributor to that sustained performance has been that that’s a newer part of the core of the Haynesville. And so, it doesn’t have right now the parent-child relationship issues, the well density issues that the traditional core of the Haynesville has. So a relatively new area, highest bottom hole pressure and it’s delivering that kind of well performance. And so, as you’ve noticed, our percentage mix of wells in that area has grown from about 25% in 2022 to closer to 50% in 2023.
John Annis: Makes sense. For my follow-up, maybe looking down the road towards 2025, once the debt targets are reached, would you consider other mechanisms to return capital above the repurchase program already in place?
Carl Giesler: Of course, we would. I think as we said all along, we’d probably continue, reinitiate, if you will, share buyback, given what we believe our value is relative to our intrinsic value or at least our share prices to that. But absolutely, if we can sustainably generate free cash flow and we believe we’ll be able to, particularly with lower debt, the way you kind of prove that, if you will, to put in some sort of base dividend. So that would be something that we certainly would consider.
Operator: And our next question comes from Paul Diamond at Citi.
Paul Diamond: I’d ask a quick one, stepping back to the well cost reductions expected next year, noted 15% in Haynesville, 5% in Appalachia. Just wanted to get your idea of how we should think about that trend, whether it’s linear through the year or more chunky, or just kind of how you’re thinking about how you get from A to B?
Clay Carrell: Sure. So, I think with the Haynesville, given the cycle times there that we should be seeing that starting in the first quarter as we think about the wells that have already been drilled and that will come on, turn in line in the first quarter. That’s how we’ve been able to forecast that. And so, as we move through the year, depending upon where commodity prices are at, we’re going to be continuing to drive efficiency gains there. Well mix can move that around, and we’ll see what happens with — if there’s any inflation that comes into the mix with higher prices or pricing stays where we think it is, and we can keep moving those costs down. In Appalachia, there is a little bit of differences in well mix in our overall Appalachia.
