CNX Resources Corp (CNX) 2020 Q4 法說會逐字稿

Good morning, and welcome to the CNX Resources Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) 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 to 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 Yemi 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 2020 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 Yemi will participate as well. With that, let me turn the call over to you, Nick.

Thanks, Tyler. Good morning, everybody. I want to emphasize 4 points in my brief remarks before I turn it over to our CFO, Don Rush. All 4 of these are emphasized in the slide deck that we posted this morning. First up, the first one is 2020 marked the most successful year we've seen as an E&P, and frankly, as a public company going back to the late 1990s is measured by free cash flow. Better yet, this bar-setting level of free cash flow and free cash flow per share, it steadily and substantially grew as 2020 unfolded. Our original guidance for 2020 free cash flow was around $135 million compared to over the $356 million or approximately $1.60 per share that we actually posted.

It's been an awesome year on the simplest yet most crucial of metrics. Our debt and share count both declined in the quarter as we allocated that free cash flow to the great benefit of our owners. And execution allowed us to strengthen our balance sheet and return capital to shareholders, all of it in the middle of one of the most challenging of years in decades.

Second point I want to make. We expect 2021 to be materially better than 2020 as measured by free cash flow. We expect to deliver approximately $425 million of free cash flow in 2021 so that builds upon and then exceeds what we accomplished in a very successful 2020. And that's at the current strip pricing, not consensus pricing.

Third point. We built a free cash flow generating machine, and that should deliver, on average, $500 million of free cash flow per year between 2022 and 2026. Of course, that's a marked improvement from our 2021 target that I just mentioned of $425 million, and that creates a sequencing to position us for a three-peat on free cash flow level setting when you run through 2020, 2021 and 2022. And again, that's also at the current strip, not consensus pricing. And that assumes the incremental interest expense for our bond issuance that we did last year. Our 7-year $3-plus billion free cash flow plan that we unveiled last April, it remains in place and the first year is now successfully in the books.

Fourth and last point I want to make. We expect the generation of $500 million per year of free cash flow to continue for many years beyond 2026. Our base [in] leading cash costs, which were just $0.01 over $1 all in for the fourth quarter, it remains a huge differentiator for the capital markets, and I think they're just starting to wake up to that fact. Extensive swaths of our acreage footprint in inventory, they work quite well at the forward strip because of our cost structure. That fires the engine for the free cash flow machine that creates an annuitized and sizable free cash flow stream for years measured in decades.

It's no coincidence that all 4 of these points that I just highlighted, they speak to the same metrics of free cash flow and free cash flow per share. Free cash flow, it informs our execution focus, our strategy, our capital allocation, incentive comp, our investment thesis and our M&A screening process. We secure the drivers of it like low cost and midstream integration. We execute to generate it and then we astutely allocate it by applying clinical math. It's a simple yet very powerful concept.

Now before turning things over to Don Rush, one final thought. I just said our approach is simple and powerful but it's also different from the industry. The management team and Board of CNX, we didn't make our names originally in E&P and what we've accomplished to date sort of proves that. How? We said we were different than a typical E&P from the get-go. And at the time, there were a lot of industry experts that were skeptics that really didn't matter. We took a 150-year-old coal company at the time, and through constant battling, toiling and perseverance, we transformed it in really every imaginable way into the premier manufacturer of natural gas and free cash flow per share as well as the leader in tangible and impactful ESG performance in our space.

We shunned the conventional E&P wisdom and we took a best-in-class approach to disciplined capital allocation that was injected by our Board to create even more per share value. And we achieved all this during some of the most tumultuous times seen in generations. A traditional E&P team or Board, coupled with a standard asset base, would have driven the company to a very different place. We know it because we see it out there.

Fortunately, our differentiated approach set us up in the position of strength that we enjoy today, and it positions us for even more great things on a per share basis moving forward. This is the team investors and other stakeholders want as stewards of their capital. With that, I'm going to turn things over now to Don Rush, our CFO.

Thanks, Nick, and good morning, everyone. I'm going to start on Slide 3, which highlights some of the key metrics that differentiate CNX. As you can see in the top left chart, CNX has one of the largest net shale acreage positions in the basin. This acreage position is even more impressive when looked at on a relative standpoint. Since our production is less than our peers and our base PDP decline is so shallow, we need to consume less of our current acreage each year to maintain the production profile we have today.

So if you look at the next 10 to 20 years, we will only need to develop a fraction of our acreage if we continue to stay in a maintenance of production plan. This is a key fact overlooked by many. The bigger you are, the more acres you must consume each and every year to maintain your business model.

Our lean and highly profitable approach allows for a much longer runway and less risky next few decades relative to our bigger peers, which need to consume 2 to 3x the amount of acres we do each year in order for them to maintain their production. This is a big difference, especially when you consider that our plan not only consumes fewer acres but also generates approximately $500 million per year of free cash flow on average. This outsized profitability on less production is due to our superior margins, driven by our best-in-class cost structure that you can see on the top right.

This cost advantage allows us to generate significant free cash flow. And based on where we are currently trading, creates a very attractive free cash flow yield on our equity. And we remain on track to continue to strengthen our balance sheet over the next several years, as you can see in the bottom right. When you view all these metrics together, it is clear we have positioned the company to grow intrinsic value per share going forward.

Slide 4 digs deeper into the cost structure. As you can see, our Q4 cost came in around $1.01, which was slightly under the $1.04 we guided to on our Q3 call. All in, our fully burdened cash cost finished at $1.17 per Mcfe for the full year 2020. We expect 2021 cost to be more in line with our Q4 numbers and to average approximately $1.05 per Mcfe. Year-over-year equates to a 10% expected cost reduction. Assuming that future free cash flow is allocated towards debt repayments, we would expect fully burdened costs to decrease even further to around $0.90 per Mcfe and lower in the years beyond.

When you combine our low cost position along with the steady execution we have seen throughout 2020, the result is 4 quarters of consistent free cash flow generation, which you can see on Slide 5. In Q4, we produced approximately $85 million of free cash flow and $356 million for full year 2020, which was modestly above our previous guidance.

Last quarter, we discussed that if CNX shares continue to trade at a high free cash flow yield, we would have the wherewithal to repurchase shares in conjunction with paying down debt. That is exactly what we did. And in the quarter, we bought back $43 million worth of shares at an average price of $10.43 per share, with $6 million of that cash settling in the first few days of January 2021.

Slide 6 illustrates the point that our best-in-class cost structure not only drives our annual free cash flow generation under the current strip, it also allows us to develop wells more economically than our peers. As you can see on the slide, out of the key variables and well economics, excluding price, OpEx has the largest overall impact on the economics of a new well. To quickly explain this slide, we use the hypothetical Southwest PA dry well with a 2.6 Bcfe per 1,000-foot type curve and the other assumptions footnoted below. We then looked at how changing the 4 main variables affect the internal rate of return for that well.

For clarity, the delta shown on the slide are not percent improvements, but nominal rate of return enhancements for that well. So for example, if the base well had a 30% IRR and you lower the OpEx of that well by $0.50, the well would improve to a 68% IRR. As you can see, operating expense has, by far, the largest impact on the profitability of a well, much greater than even a sizable 0.5 Bcfe per 1,000-foot type curve difference.

Also, as you can see on the slide, the CapEx or D&C per foot of a well has a much smaller impact to the well's profitability compared to OpEx. And this relationship holds true if you want to look at NPVs instead of IRRs as well. This is not to say that EURs and D&C costs are not important to us. We continue to focus on driving down capital costs and improving capital efficiency and well performance and look forward to that trend continuing as we become more and more efficient.

However, we recognize a few things about capital D&C costs and its competitive impact: one, we acknowledge that all of our peers are good operators; two, we all use the same vendor base in the basin, so cost and technology advantages don't last long and ultimately, D&C costs converge over time within the peer group. One example of this is the ongoing adoption of electric frac fleets by our competitors, a technology that CNX adopted early on; three, lower D&C cost across the industry over the past decade has led to continued drilling at lower and lower gas prices, ultimately just bringing down the gas price; four, at the end of the day, OpEx is the most material driver of well economics as we said before; and five, our OpEx advantage is sticky and will remain in place for a long time.

These concepts seem like they are common sense, but we find that most in the ecosystem often overlook it and instead focus too intently on whether capital costs are $730 per foot or $680 per foot when the reality is that CapEx per foot is far less impactful to the profitability of a well than operating costs. The bottom line is that CNX has a structural cost advantage on the biggest driver of well profitability due to the fact that we own and control our midstream and water infrastructure and that we have avoided significant out-of-the-money firm transportation agreements that burden others.

These were strategic decisions and cannot be replicated by others quickly or cheaply, and it allows our best areas to be more profitable than our peers in similar areas and it allows for a large swath of acreage to be economical for CNX at the current strip, whereas they might not be for our peers with higher cost structures and higher operating costs.

Slide 7 is an update from last quarter. Since then, we have closed on a $500 million senior notes offering, which created additional financial flexibility over the next several years. We have worked hard to get the balance sheet to where it is today. And as you can see, we have not only paid down a significant amount of debt in 2020, we have also increased our maturity runway significantly, with our closest bond maturity now 5 years away in 2026.

Slide 8 provides an updated look for 2021 guidance. As we typically do for current year guidance, we incorporated some modest ranges with this updated disclosure. The summary is that based on the midpoint of the 2021 guidance ranges, production and EBITDA are up slightly from our previous guidance, and CapEx is up slightly due to timing and the [$18 million] CapEx beat last quarter based on the midpoint of 2020 guidance.

Most importantly, we are reaffirming our 2021 free cash flow at approximately $425 million, where our free cash flow per share guidance is increasing due to our share buybacks in Q4. On the pricing front, our guidance is based on the forward strip as of January 7, 2021, for natural gas prices, and we have used a conservative forecast for our NGL realized price per barrel of $15. Q1 NGL prices are currently running higher than that and we will continue to monitor this as the year unfolds.

And last, as we have said in the past, quarterly guidance is difficult to be accurate on since a few weeks, one way or the other, on a new pad, make a big difference for the quarter but not for the overall pad economics. However, for some color, we expect quarterly production volumes to be relatively consistent throughout 2021. And as of now, capital is projected to be modestly heavier in the first half of the year versus the second half of the year.

Slide 9 is just a reminder that CNX continues to stream very well compared to not only our E&P peers but against the market indices highlighted on this slide. And as such, we feel that we are a great investment opportunity. Our focus remains on executing what has become a simple story: about generating a significant amount of free cash flow each year and allocating that free cash flow to create substantial value for our shareholders.

We believe that this will drive the intrinsic value per share of the company higher over time and continue to provide meaningful opportunities to reward our shareholders. With that, I will turn it back over to Tyler for Q&A.

Great. Thanks. Operator, if you can open the line up for Q&A at this time, please.

(Operator Instructions) And the first question will come from Zach Parham with JPMorgan.

Just wanted to ask on thoughts on the buyback going forward. You utilized roughly half of the 4Q free cash flow to buy back shares. Is that a preview of what we should expect in '21? And I guess, just more generally, your thoughts on buying back shares versus reducing debt with the free cash flow you generate.

Yes. No, thank you for that. And I'll start and Nick can add in anything I miss here. So I think if you rewind time back to our Q3 call, we were pretty consistent in the conviction of the free cash flow plan, not only to close out 2020 but where we were projecting for '21 and, call it, the $500 million on average, 2022 to '26. And now we made it fairly clear that, hey, the balance sheet was in a good shape or our cash flow generation relative to our debt and our maturities was a very stable, manageable scenario and situation. And the leverage ratio targets that we're trying to get to like a 1.5x leverage roughly with $1 billion EBITDA runway as you're in that zone, you need to have $1.5 billion of debt to kind of get to that 1.5x leverage position.

And we had the wherewithal and again, going back to the Q3 call, we quoted $1.5 billion between now and the end of '23. Q4 was the first chunk of that $1.5 billion that we were projected to make. And we said we had the wherewithal to spend $1 billion to pay down debt and have plenty of capacity of that extra $500 million to utilize for other things along the way. And if the free cash flow yield at the equity, and if you look at the, call it, close to roughly $2 per share of free cash flow that we're projecting for 2021, stayed around close to a 20% free cash flow yield, we would be thoughtful and opportunistic as we move through the year here.

So I think as you look forward, the clean answers are: we follow the math. We use the variables. We change decision making based on how the variables move around us. And we have the wherewithal to do things opportunistically with share count as the next several years unfold, and it will be a part of the balance between the debt paydowns and potential returning capital to shareholders. And then the good news for CNX and CNX's shareholders are we have the confidence and the wherewithal to do both.

Yes, Zach, I would just add that to me, the most important thing here is that we've got a conviction that our cost structure, the integration of our water midstream, upstream and our inventory is going to be a substantial engine for generating free cash flow. So I look at 2020 in total, Q4 for 2020, what our guidance is for '21 and 1 year in the books across that 7-year plan that we unveiled last year.

As long as we continue to execute, we are going to, A, generate that substantial free cash flow. I think the scoreboard to date has shown that we're doing that; B, we then want to allocate that free cash flow in the right places and at the right times. And the 2 biggest, most attractive opportunities we see right now are, A, reducing debt, and B, opportunistically retiring shares at those free cash flow yields that Don had mentioned.

So that continues to be the 2 areas of focus for us on free cash flow allocation. The share count reduction will be opportunistic. And I wouldn't read into a quarter or a year in past. I would instead look towards the metrics that matter to us when we're doing our rate of return math. I'd expect too in '21, we continue to execute, we hit our guidance on free cash flow, you're going to see significantly lower debt at end of year, and you're going to see a lower share count if the free cash flow yield stays where it's been hovering at of recent.

Yes. And last quick comment since I forgot to mention it. Our hedge book really helps on just the comfort and confidence in what these cash flows look like for the next several years, with our approximately 90% in '21. We already have a material position in '22. And then if you look on '23, '24, it's getting close to almost being half -- 50% hedged out in that area, if you assume flat production. So the structural advantages we have as a business coupled with the clarity and cash flow generation via the hedge book allows the wherewithal to be thoughtful on this as these next quarters and years unfold.

Just 1 follow-up. We've seen basis widen out a bit. You all are mostly hedged on basis in '21 but less so in the out years. Can you talk about what you can do to mitigate widening basis and just your general thoughts on what happens with basis over the next few years in Appalachia, given some concerns about new pipelines potentially being delayed?

Yes, Zach, this is Chad Griffith. I'll take that. And I'm glad you asked because it was a point I was hoping to be able to make today. We've actually gotten out ahead on the hedging risk, and we're actually over 90% hedged on in-basin exposure, '21 through '24, inclusive. So that really isolates us and protects us from some of the invasive volatility that I think you're pointing to and certainly that you're seeing in some of the risk with some of these pipeline projects and potentially what might come down the road on these pipeline projects.

So that was -- we've gotten out ahead of it. We've isolated CNX from that risk, and we've been able to get those hedges put in place at what we think were attractive levels. A lot of those details are available in the supplemental materials that we've put out. We have not traditionally talked about exactly what markets have been included, but I was -- I'm glad you asked because we were able to sort of add the additional color that a lot of that forward basis has actually been focused on removing that in-basin pricing exposure.

And just to sort of add on on top of that, to Chad's point, there's the basis side and there's the indexed in-basin price. So those 2 things kind of can be confusing to think between the 2. The basis numbers sometimes is just the difference between what Henry Hub is and what the in-basin local marginal dispatch cost is to economically kind of hedge out in the future for it to produce a well in-basin.

So we monitor this stuff very carefully. One thing the entire industry has gotten very good at is producing gas. So I think when you look at any of the supply-demand fundamentals, whether it's in-basin or any other basin markets out there, it's going to be tight. These things are going to be volatile. That's why we make decisions off the forward strip. That's why we take opportunities to sort of derisk the forward plan and ensure that we have the clarity and line of sight on the investments that we're making on the drill bit are protected from fluctuations that may or may not occur.

One thing we've, I think, all learned is the world is very unpredictable. There's major drivers and variables of gas prices that are out of anybody's control for the next months, let alone years. So we use the strip to make decisions. We go ahead and lock in some of the economics of the wells prior to spending the capital. Gas prices go up. We have a good wherewithal to be able to take advantage of that if it's structural and it's a long-term forward strip thing that we can do.

We've shown the wherewithal to manage our production profile to take advantage of seasonality or differences in spikes or downdrafts in the, call it, hand-to-hand combat gas pricing environment, and we feel good about the business model we've built. Works really well if gas prices stay where they're at and basis stays where it's at for the next decade or if it step changes up by $0.50, that's just even a better company for CNX. But we work well either way.

And the next question will come from Neal Dingmann with SunTrust.

My first question, Nick, for you or Don, really. Given your now stellar free cash flow, could you discuss a bit your thought process around free cash flow allocation? You mentioned a bit about all the debt repayment, equity repurchase. But I'm wondering when it comes to these 2 plus a bit of growth and then probably even in the future, potential dividends, I'm just wondering how you sort of think about all these.

Sure, Neal. I'll take a start at this. Just generally, thoughts, macro thoughts that sort of play into this allocation opportunity set: one, lower debt, typically in our industry with its volatility, coupled with the opportunities that present themselves when things get volatile, is always a good thing. Sometimes, that's difficult to quantify but we know it's tangible. We know it's real. So I think the leverage ratio metric, absolute debt level metric, continuing to allocate a portion of the free cash flow to debt reduction is always going to be front and center with us through the -- definitely the next calendar year, if not the next 2, right?

When you get into issues with respect to capital itself, I think the industry is going to be facing more challenging times, frankly, whether it's because of forward strip pricing or just the overall sort of approach of how our industry is viewed by the capital markets. It's going to get stingier in terms of being able to make your case to secure capital. And those that can be free cash flow generators and self-fund and take advantage of the stingier capital environment are going to be the ones that not just navigate through it but thrive in it. And that's certainly us. So the ability to post free cash flow is more crucial than it's ever been, especially on a consistent basis.

And then the third thing goes back to our prior comments on the first question, which is on the share count reduction front, it is part and parcel and integral to our philosophy that was really started by our Board a number of years ago. And if you look at our 7-year plan with one in the books and you look at what the prognosis is for our business when it comes to free cash flow generation after that 6-year period left on the 7 years, there's a compelling case if the free cash flow yields we're trading at to reduce share count and create substantial owner value on a per share basis.

When that changes because of the math, right, because of the fact and circumstances when we start to trade in line with what you would expect on yield then other avenues for shareholder return like dividends, I think, come to the fore to be considered. But right now, for the foreseeable future, debt reduction, share count reduction opportunistically, I think those are the 2 primary paths for free cash flow allocation.

No, it makes sense. And then really, Nick, my follow-up for you or Chad, just on sort of more on cadence, timing and focus. Obviously, those earlier slides just showed the depth of your inventory. So I'm just wondering specifically, given that depth and a moderate plan, how do you think about this year? Maybe talk about targeting the Marcellus and Utica sort of dry and wet gas plans around that.

Yes. I think there's a little bit more wet gas in the mix as you roll in through from '20 into '21. You can kind of see it flowing through a little bit of the production cash costs that you're seeing in '21 versus 2020. I think when you look at, call it, what we're going to do in '21, we've kind of, call it, go back to the Q3 call, said that if there is this -- the price spike that may or may not happen sort of later in the year, we've got the wherewithal to kind of pull some of the 2022 deals up a little bit, or like we've done before, if there's a disconnect and shoulder seasons or something like that, we can kind of delay some things and push it back to later periods.

But the net-net, we feel good about the next couple of years. We have clean line of sight on being able to execute it very, very efficiently. We've got an operating team that's the best in the business to get this done in a very efficient manner. So we're set in how we want to think through that. As we said before, the bulk of the 6-year program, I guess, it really was 7, now a 6-year program is based off of the Marcellus activity with a little bit of Southwest PA, Utica to just blend down some of the damp Marcellus gas, although Chad can talk a little bit after I finish about how that damp Marcellus gas and what we blend versus what we process now that, that changes as NGL prices change.

And then a little bit of activity in the CPA Utica. But yes, cadence wise, it's fairly similar, fairly consistent, although, again, these things get lumpy quarter-on-quarter. But Chad, do you want to talk a little bit about the blending and what we're doing?

Yes. Thanks, Don. So one of the additional benefits of owning our midstream system beyond the cost benefit is it provides you a tremendous amount of additional flexibility to be able to move gas around to optimize or maximize the value of those molecules. And certainly as NGL prices have rallied, particularly propane, we've been able to already move some of our damp production back towards processing to take advantage of that positive frac spread.

And we're continuing to assess a number of additional wells that are sort of right on the border between better to send to dry versus wet. We're monitoring those really on a daily basis and close sort of communication with our processing partners to determine like when is it actually like economically best to send those molecules to processing. And ownership of that midstream system provides us that flexibility.

Similarly, we have -- our asset base has a mix of really a dry sort of Marcellus versus some wet opportunities down the Shirley-Pennsboro field. So we're looking at what's the exact way to optimize the timing of the fracs and tills in that Shirley-Pennsboro field to take advantage of some of the near-term strength in NGL pricing.

If I can just sneak one in on Chad on your comment, I guess, for you, Don. Would you all consider monetizing this midstream or it's just -- it sounds like it just remains too important currently?

Yes. I mean, we've -- I mean, I guess if you look at the last several years, we've got a pretty thorough track record of just making economical decisions on left, rights on do you keep a business? Do you sell a business? We've sold more things, both undeveloped acres and producing acres in different business units than I think anyone else over the last several years.

So we follow the math. We assess any of these decisions. Do we think that it's a big part of what drives the future economics of the company? Yes. Do we think it's a big piece of why our cash flows are so much lower risk than the peers? Absolutely. I mean, I've tried to explain it, call it, upside down. What the peers would look like at a $0.50 higher gas price, we look like now, like -- that just gives us a layer of reliable free cash flow that gives optionality to do interesting things over and above and beyond that. It unlocks a lot of -- a lot of additional values for CNX.

So we evaluate everything when we go to making decisions to do things on a risk-adjusted cash flow basis and we'll continue to do so. But we like the position we're in. And part of the reason we like the position we're in because we're the only one that has it. If everybody had the midstream, the gas price would probably just be $0.50 lower. So I mean, it's unique for us because we're the only ones that have this type of a situation.

No. Great details and tremendous free cash flow, guys.

And the next question will be from Holly Stewart with Scotia Howard Weil.

Maybe I'll just start off with a couple of questions on the production numbers. Could you provide the overall shut-ins in 2020 and then let us know or give us some color on if there's anything in the '21 guide in terms of shut-ins?

So as far as what the total quantity of Bcf shut-in during 2020, I mean, I think we can follow up with you on that, Holly. It's not -- I sort of looked at it on a per day number and sort of watched how it fluctuated over time, made sure we were optimizing the value of that. But I don't have like the total quantity sort of available in my back pocket right now.

As far as like 2021 guidance, we're not currently planning on having any shut-ins in any of that guidance. It is obviously something we'll continue to monitor if the opportunity presents itself to be able to maximize the value of our assets or our production stream by timing production differently, then we will definitely jump on that just like we did last year. And just like we did last year, if we'd make that call again, we would lock in the arbitrage or hedges again, just like last year.

Yes, we'd modify and sculpt our hedge book appropriately if that opportunity presents itself. And like I said, that's just a lot -- a lot of the flexibility that we have, it's hard to mathematically show the value until you do these things as they unfold and trying to predict when they happen is impossible. So we don't try. We just keep our eyes open for (inaudible) and we move quick when they show up.

Great. Well, maybe, Chad, just a follow-up to that. Can you provide the exit rate for the year for 2020?

Yes, I got that. We're looking at 1.7?

Yes.

About 1.7. About 1.7 today, Holly, is our exit rate.

Okay. Perfect. And then, Don, I saw the slide on just the total cash cost guidance for 2021. Maybe getting just a little bit more granular, 4Q, the midstream costs were a lot lower than expectation. Is that a good level kind of to think about as we're moving through 2021?

Yes, where it gets us into some of the mix. As you roll into '21, we've kind of given what the costs look like in '21, and clearly, some of the optimization Chad talks about moves some things around. If you have some processing, you end up with some higher realizations. So the cost looks a little bit higher, but ultimately, your margins stay and your cash flows that you're looking for '21 stay the same.

So you're going to see, call it, fluctuations based on a little bit more dry versus a little bit more wet. And you look at some of the kind of the FTE moving around onto unused to used and stuff like that, and it's just really kind of day-to-day hand-to-hand combat as we're seeing what the delta is between the Q3 into Q4 and then into 2021. So we'll continue to use, call it, goalpost guides to give somewhat clarity, but it's going to fluctuate on a quarter-to-quarter as we make these week-to-week decisions.

Okay, okay. And then one more for me, if I could. How are you thinking about that CNXM credit facility? Does that stay in place?

Yes. So right now, when that transaction was structured and effectuated, the debt instruments remained outstanding. So we still do financials and post them to the holders down in that standpoint. And what we do or don't do, call it, over the long term, I guess to be determined. I think what it allows is some flexibility and, call it, safety and capital structure management.

Obviously, the simple thing would be that, hey, one, capital consolidated structure and low debt for the enterprise. And if that makes sense over the next several years, then we can migrate towards that. If, for whatever reason, to Nick's earlier comment, if some of the E&P-specific kind of debt markets are more difficult due to whatever reason and rationale that that might be, even though our balance sheet and everything looks good individually, you could get caught in like just the industry-wide like noise.

We have like the midstream side, which is just a pretty amazing, efficient way to raise capital with the kind of security and collateral you can provide in that. And like we talked about, the safety and the cash flows that are available to that kind of piece and entity. You saw this, I guess, right in the middle of the COVID situation last -- just when it started, last February or March, when we did our CSG project financing. I mean, our upstream bonds were trading difficult along with the rest of the peers' groups on trading difficult.

But we raised $150 million-or-so dollars at call it a blended almost 6% interest rate whenever upstream bonds were very, very challenged. So long term, we'll see. Near term, the most cost-effective thing to do is kind of leave them as they are and we'll make those decisions. And we got time clearly with when the bonds down there expire. And obviously, the credit facility down there has a good runway on it, too.

Holly, this is Nick. Just a general thought on that. I think it's an important point because whether we keep 2 separate facilities or whether we combine them into 1 moving forward, I think it does show that our cost of capital should be more efficient because of the asset array that we've got than your typical upstream Appalachian peer.

In other words, that -- whether it's 1 single facility moving forward or 2 separates, the weighted average or blended cost of that is going to be better and cheaper than what you would typically see for an upstream only. And that makes sense to us. That's part of the -- that's like another confirmation of driving things like costs and free cash flow.

Yes. And you probably saw that in the way that your bonds priced back in November. So -- okay. I appreciate all the color.

The next question will be from Michael Scialla with Stifel.

It looks like you're going to be able to pay off all your debt and your revolver pretty quickly with free cash flow. I just want to see how and when you're planning to retire your fixed debt in your 7 year plan. Do you build up a pile of cash until the fixed debt becomes due or can you call any of the fixed debt early? Just how are you planning on handling that in your 7-year plan?

Yes. No, it's -- I guess flexibility is a word we've been using often, but being able to pick and choose along the way is just something that we find to be helpful and thoughtful to be able to do this. We have a nice structure, I think, with what we have. The RBL, like you mentioned, we do have some of the CSG bonds out there, too, that are pretty -- well, not pretty, they're very efficient. They're basically like callable at par. And we also have -- the call structure is starting to kick in really here in a couple of months for our first unsecured bond. And clearly, there's open market trading, too.

So if you look through '21, easy math is, and just like you said, I mean, there's enough to basically take care of the RBLs, and that puts you in a place to allocate capital very, very thoughtfully, not only across the different pieces of the debt structure but the wherewithal to do things on the share repurchase side as well. So simple math and what we've kind of laid out in the '21 guidance is it's just going to the RBL for the simple math in the guidance. But when you look at the optionality we have to pick and choose these capital stacks, that's a nice piece to have.

Okay, good. So it sounds like no need to park cash on the balance sheet for any extended period of time. Wanted to ask on Slide 6. It's a great slide to show your cost structure advantage on operating costs relative to your competitors as it relates to well economics. If you looked at that same chart, not relative to your competitors but just relative to yourself today versus where you think you'll be 12 to 18 months from now, can you say what you think the biggest controllable driver under that scenario would be on your returns?

Yes. No, I think as we've laid out in prior calls, we've -- forward-looking assumptions are fairly conservative, so the cost components that we have kind of coming down were basically contractual in nature. I mean, it's unneeded commitments that we have just rolling off as they expire, the contracts expire. Clearly, Chad and team is obsessed on the D&C front, and they're doing a lot of great things to push the envelope there. And we're trying to obviously push the envelope on the OpEx cost side as well. But Chad, I don't know if you want to talk about any of the initiatives we got on sort of the OpEx and the D&C to try to, call it, continue to beat what it is we're doing today.

Yes. Thanks, Don. So certainly on the OpEx side, as we've talked many times about, a big chunk of the OpEx stack is contractual and/or corporate structure-based, means that the ownership of our midstream, the firm transportation commitments we've made, these are long-term sticky cost advantages that it would take our peers a long time or a lot of money to sort of narrow the gap on.

Some of the stuff that's a little bit more directly controllable that we are paying a laser focus to is your OpEx piece, which is a smaller part of overall operating cost. But certainly, OpEx contributes to that. It's about 10% of that stack. And we're always looking at ways of maintaining by optimizing, how much maintenance we're doing, optimizing how much expense -- how much money we're spending, what we're doing with crews, how are we deploying our workforce, trying to squeeze every bit of optimization we can out of maintaining our asset base.

Similarly, on the D&C side, look, one of the -- not only does our sort of maintenance and production, the 7-year plan that we've put out there provide you guys a lot of guidance and a lot of long-term view, it also provides our operating teams a long-term view. And that allows them to plan ahead, negotiate smart contracts, smart logistics, make sure that supplies will be in place, service providers know what's coming, that we see what challenges are coming down the road, whether it's longer laterals or different drilling locations, like making -- they see that coming down the road, they know where they're going. They know what to expect and they can plan accordingly.

That has allowed us to execute at an extremely high level and continue to improve the leading edge, cutting-edge of D&C efficiency. And look, we've got a team downstairs, incredibly intelligent people, incredibly technical operators. Giving them that long line of sight on what to expect, giving them clear goalpost to what we're solving for, free cash flow per share, has allowed them to just focus on executing and getting the job done.

And the next question will be from Nitin Kumar with Wells Fargo.

I want to maybe change tack a little bit and talk a little bit about, what is your macro view on gas right now? Your own plan calls for very steady production. You were talking earlier about hedges. But I'm just kind of curious, what do you see out there from your peers and some -- just from the gas perspective?

Yes. So we've been cautious about the '21 strip for some time now. I think we've consistently messaged that we're very -- keeping a very close eye on weather, particularly this winter weather. And I think we're all keenly aware that the winter has been a little bit disappointing so far, and I think the strips traded off as a result.

I think since our last call, I think cal '21, full calendar year's off maybe, call it, $0.28 or so. And I think cal '22 is maybe off $0.10. So you've seen the markets respond to the weaker winter and I think that's what we were all sort of worried about. Nevertheless, I think there is some structural undersupply going on. It looks like, even with production -- production is off 1 or 2 Bcf per day compared to last year if demand and exports are up. So it does look like we're maybe structurally undersupplied.

So everyone's shifting their bull thesis to next winter. It sort of makes sense to us, I think. But at the same time, you've got rig counts ticking up ever so slightly. You've got -- weather continues to play a big role. I think the point is the markets are going to continue to fluctuate wildly as a function of weather, producer behavior, policy, like there's going to be a lot of volatility in gas prices.

We will continue to hedge. We continue to hedge. We're very heavily hedged well out into the future years. We'll continue to hedge. We'll continue to include basis as part of our hedge, just to minimize the amount of that fluctuation effect on our -- just to minimize the amount of those fluctuation's effect on our free cash flow plan.

Yes. And then just to sort of add on top of that, I mean, we do have a lot of internal views and analysis on these. We just recognize that a perfect crystal ball doesn't exist. A couple of variables and small movements on a couple of variables outside anybody's control can take a very accurate model and make it look silly within the matter of months.

And when you look statistically, I mean, you end up -- hedging typically ends up better than not hedging. That's just statistics and we recognize that fact. We're eyes open, there could be a structural change and obviously, we'd be happy to see that. I think you're hearing a lot of the right things from different folks about trying to stay disciplined and then focus more on free cash flow and maintenance and production. But I think the ecosystem has a long way to go to solidify that they're actually going to do that.

And part of the ecosystem is, I mean, if you just look at the research community and others, I mean, they're still valuing companies off of EBITDA multiples. And the free cash flow talk, I think, is starting to come but I think the more it's demanded and the more free cash flow is the main driver on how people are viewed and valued. There's always going to be risk because it's pretty easy to grow EBITDA as an E&P company. I mean, these wells and the ability to deploy capital and grow EBITDA is real. We've seen it. But it hasn't actually showed up in shareholder value.

So I think this -- you all can help the ecosystem and everybody, I think, will be better off if focus on free cash flow is the main driver on how companies are viewed and EBITDA multiples remain the soup of the day. It's risky. It's enticing, I guess, to go ahead and grow that EBITDA to get a favorable kind of treatment in your valuation mechanics versus maybe the right decision was just to focus on free cash flow, but it hasn't quite flowed through how people view companies yet.

I certainly appreciate your focus on free cash flow so I appreciate that part of your answer as well. I guess, you also, kind of in passing, mentioned how difficult it is for the industry these days in terms of investor sentiment and ESG concerns. You were one of the first to adopt e-fracs in the basin. But I'm just kind of curious, are there strategic opportunities that you see for to participate in any kind of green revenue streams and things like that? One of your peers was talking about partnering with a company on monitoring some of their wells. Just curious. Beyond just reducing your own emissions and using e-fracs, anything you're seeing that might be interesting?

Yes. No, I think this is something in some of the conversations I've had, and I know Nick has had as well, so I'll talk a bit and then Yemi can talk and if Nick wants to chime in too. But I think a lot of the things we've been doing have been very, call it, ESG-focused and friendly. If you look back to the creation of CNX Gas and capturing, call it, coalbed methane that would have escaped to the atmosphere. And today, it's called big flaring and different things like that in the oil and gas field, but we've been focused on trying to be thoughtful for a long time now. I just don't think we've talked in ways and languages that people are used to sort of seeing this.

So I mean, the Evolution [fracking] is one example. I mean, we're very focused on sort of local and sustainable and trying to be thoughtful on numerous fronts here. So I think our track record shows we've leaned into a lot of these sorts of things. I mean, we have a partnership with a bigger plant that does kind of like, call it, coalbed methane generation, and we've generated carbon credits. We have for the last few years in different vehicles.

So focus is there. I think communication could be improved. And I think the track record of things we've done, I think, gives you a little taste of things we can do going forward. So yes, we're very interested in not only doing right but generating thoughtful profitability through this. And the company is set up and has a lot of the ingredients to be very successful if that becomes more and more important to the world. But I'll go ahead and let Yemi chime in as well, too.

Thanks, Don. I think the ESG, the new focus on ESG is appropriate given the environment we're in right now, like Don was talking about. The whole purpose and the whole view of it has been our DNA, right, from the outset. The way the company was created was, if you look at it, is more in the long light of ESG.

And one of the things from us that we really appreciate with the new focus on it is we're local. We work local. We live local. Our employees are local. So the new focus on ESG, especially to make sure that the companies are responsible, is actually a good thing. It's good -- it's a very good thing for our workers. It's a very good thing for our company. And in addition to that, that provides new opportunities for us and for all the companies out there as it relates to that.

I mean, we've started looking at ways to use, to use more of our product. And we've seen that when we deployed our electric frac fleet. We saw the efficiency, and that's why we started seeing some of our other competitors adopt that as well. And as we continue to talk and evaluate, we're seeing more and more opportunity with our legacy assets to actually take advantage of the new focus and opportunities in ESG.

And then finally, the only thing I'll add is from a big picture perspective, if you look at sustainability and ESG, right, 2 buzzwords or terms that are being bantered about everywhere you look these days, we translate what that means into really 3 crucial legs: one, you've got to be transparent. So when I think of sustainability and our local commitments that Yemi just talked about or our free cash flow generation, we need to put out to the world, right, there's a responsibility to transparently state in very clear metrics that are measurable what you're going to do versus just hollow words or promises or happy talk. I think you see too much happy talk when it comes to sustainability and ESG. Let's be transparent. Let's lay our cards on the table and show the capital markets and the wider stakeholder group what we're going to do.

Two, tangible, okay? These things, these targets, these metrics need to be measured. They need to be tangible. Like what did we actually deliver on that you can measure, whether it's financial sustainability or ESG as it relates to wider stakeholder groups, like the tangible, measurable accomplishments, not sort of PR, feel-good type things.

Then the third piece of this is actions, right? So if you're laying up the transparent view on what you're going to do, and then you're doing that in tangible metrics, are your actions going to be consistent with all the stuff you just said? So I think it's pretty simple across those 3. But despite all the talk and the volume of stuff that's being bantered about across those metrics, I think those 3 things are lacking quite a bit.

We don't want to be in that boat; we definitely want to be in the camp of, hey, here's what we're going to do transparently. Here's what we're going to measure and accomplish tangibly, and then here's what our actions were that were consistent with those 2 things.

Great. Well, Nick, I can certainly tangibly touch the $43 million that you returned to cash shareholders this quarter so that's great. If I can just sneak one last in. I wouldn't be an E&P analyst if I didn't ask about capital efficiency. As you head into 2021, what is your base decline compared to '20 -- as you headed into 2020? And kind of how do you see that tracking as you slow down your activity levels?

So we certainly expect base decline to continue to decline over the 7-, now 6-year plan. The thought was -- the idea there is as your production stays flat or flattish, that your replacement each year with new wells goes down because you got more -- a bigger, bigger portion of your production base is sort of older wells. And as those wells -- as the average age of your wells get older, the decline curve flattens out. So your replacement rate goes down over time and your average decline rate goes down over time.

I think this year, we're -- we expect sort of looking at 2020 exit rate and sort of what the decline is off of PDPs at the end of 2020, where I think we're somewhere in the, call it, mid- to low 30% sort of decline curve -- decline rate year-over-year. So that's sort of what we're targeting right now is needing to replace in 2021.

Yes. And as you move forward through '22 and beyond this '26 plan, it will kind of trend down to around that 20% sort of time frame. And I think when you look at, call it, 2021, it's a little bit noisy just because we shut in a lot of things in 2020, so it turned a bunch of things back on right around kind of November and December at the end of 2020. So again, the decline rate between '20 and -- versus '19 and '20 versus '21 just looks strange because of all the different shut-in things that we did.

But like I said, assuming sort of no shut-ins and similar cadence, you'll see it move from that position. And in the low 30s down into the mid-20s and down into around the 20% or so when you get to the midway point of our now 6-year plan.

Yes, that's a good point, Don. So if you all recall, we held back a lot of production of our new wells and brought them online with winter. So you basically have a handful of brand-new pads until the November, December time period. And so they were at our peak production. And then as we roll off into the balance of '21, you'll see those pads come off their typical early time for a new client.

And I was -- I'm kind of going off memory. Those are like from March to November. So it's the bulk of our pads that we -- and again, economically fantastic. It helped our cash flows tremendously, helped the rate of return of those pads tremendously. But clearly, it gets moving around a little bit on these base declines whenever you're doing things like that.

The next question will be from Leo Mariani with KeyBanc.

I was hoping to get a little bit more clarity on the production here. Obviously, a very strong fourth quarter. You guys talked about a 1.7 Bcf a day exit rate here. And I think if I heard you right, it sounds like you had a lot of wells that came on kind of later in the quarter at peak rates, which kind of helped you guys achieve that.

But as I look into '21, your guidance is kind of just over 1.5 Bcf a day on production, was down quite a bit from that 1.7 exit rate. Can you just kind of help me with the math there? Is there just a really big drop in the first quarter maybe because no wells are coming on? Because I think you guys have said that the quarters individually in '21 are all pretty similar on production. So can you kind of help me bridge the gap between the 1.7 and kind of the just over 1.5 in the guidance here?

Maybe I'll start and let Don maybe wrap up with anything I miss. But certainly, I think what you're seeing with that exit rate is an impact of the shut-ins that we had during 2020, right? So we held back a number of our brand-new pads, brought them online at the end of -- early November and into November. And so you're seeing basically December 31 number that is very, very strong.

And that results in a surge of production synced up with November, December, basically in (inaudible) March, right? November, the winter months, the strong pricing that we saw and the incremental hedging that we layered on to capture the strong winter pricing. That was by design, that was by plan. That was the whole point of sort of shutting in summertime 2020 production was to get this surge of production during winter 2021.

But obviously, as you roll into sort of normal course, steady pace development, that sort of normalizes over the course of the year and I think ultimately, averages out. So basically, what you're looking at, like over the course of the year, we'll end up averaging out like the numbers you're alluding to there.

Yes. And I think as you roll into -- again, all we had is by design. We wanted to get as much production as we can in how we optimize the flow of those wells to get when the price back. And again, we got it via the hedge book, so even though the kind of the cash price you've been holding there as much as you'd hoped in December and in January, we got it via -- because we resculpted the hedge book and we captured those margins, even though that it didn't kind of show up.

And as you look into, call it, I'd say our cadence on Q1, Q2, Q3, Q4, yes. I mean, it's -- Q2 is probably going to be the lightest quarter, I mean, it typically is for us. And -- but it's not like dramatically different. So yes, we'll run on that sort of average, will be -- Q1 will be a little bit above it, Q2 will be a little bit around it or so below it, then 3 and 4 will be kind of similar in that front. But like I said, this could change pretty quickly if the gas prices spike in the summer, drop in the summer, spike in the shoulder, drop in the shoulder, spike next winter, don't spike next winter. We'll shift around our production management to squeeze out X shares of millions of dollars.

And for us, like that's all free money. If you can just shape your production profile different and increase your returns, I mean, why wouldn't you, right? So I think these exit-to-exit quarter and years are going to just look weird for us because we're always going to be moving things around to try to grab that extra million dollars here or there.

All right. So just to make sure I sort of understand, I mean, again, I guess, the 1.7 exit to the 1.5 does seem like a fairly kind of healthy change. Are you guys sort of saying that there's a big component of like choke management and just production management also just driving the shape of the volumes where you guys were just trying to kind of produce all out into the winter, and now you can kind of choke back the wells and be a little bit more steady in '21? Am I understanding that right? And obviously, I know that as prices change during the year, you'll modify that approach, but I just want to make sure I get that at a high level.

Yes. No. If prices are good, you try to grab as much of production per day as you can. If prices aren't that good, you try to save a little bit for later if the later prices show something better. But I think, again, it's going to be -- on a quarter-to-quarter, week-to-week thing, it's going to be like hard to tick and tie it. But if you look -- step back, like 2020, our production, I don't know, was it 500...

555.

No, that's '21.

Yes, '21. 511.

So 2020, we were 511 for the year. 2021, we're forecasting 555. So just because we were like at 1.7 in December and we're going to average like a 1.5 or something all across the year, like we've increased our production by 10% on 2020 versus 2021. For the capital program that we have out there, it still generates $425 million in free cash flow. So this is like tick and tie in just like a 1.75 and like our '21 production is coming down. Like our 2020 to 2021 production grew by 10%.

And you're going to have some things. And like I said, I'm glad that we had a 1.7 in the good month pricing, and right now, it's a little bit shaped to be down. So I'd say it's a bunch of stuff, whether it's choke management or optimization on that, coupled with the fact, like we said earlier, we've saved all of our deals that were going to be coming online in the summer and fall last year and turn them online in the winter. So that's going to create a little bit of a not smooth production profile.

And just to sort of maybe wrap it up on this issue. I think what you're seeing is what happens, it's the difference between managing an E&P business for production and production growth and production cadence versus managing a cash flow generation plan to create per share value. We look at what's going on month by month or week by week or quarter by quarter in the context of free cash flow and free cash flow per share.

And the way I look at the progression is 2020 was a very successful free cash flow year at $356 million. And 2021 is going to be even more successful. We hit our guidance right or when we hit our guidance of $425 million. And to me, that's what we're solving for. Now where production cadence plays out in that is nothing more than a variable and a lever to be managed versus the other way around.

Okay. No, that's good color. And I guess, just last one here for me. Could you just give us the number of wells that you plan to drill and complete or turn in line, however you want to look at it, in '21? Like how many Marcellus wells should we expect to come online in '21 versus how many Utica wells in the plan this year?

Yes. It's something -- sorry, I'm just getting the sheet of paper. So the bulk of it is Marcellus. There's 2 Utica wells in '21.

Okay. So what's the total number of well then?

We haven't said explicitly. So I think in 2020, we were at 46 or 47 tills, I believe, off the top of my hand, 45. And then we said we're going to transition, obviously, to the maintenance plan, which averages 25 wells a year from '22 to '26. '21 is going to be probably somewhere in between but maybe a little bit higher.

Okay. So between the 25 to 45?

Yes.

Yes. I mean, we're -- I think right now, we're around 37. So I mean, we -- like I said, we can get something posted out there for clarity. We'll do it as like the quarters unfold in our supplemental tables. But yes, right now, '21, it's around 37 and 2 of those are Utica.

The next question will be from Noel Parks with Tuohy Brothers.

One question I had. I was thinking about your share buyback plan, and you already have a good, healthy allocation already approved. And just looking at the stock and the chart and thinking about what your appetite was for taking the risk of continuing to buy if the shares and maybe gas prices keep trending up, and if you have a sense of maybe an upper limit of how far up in price you might consider buying.

And I think why I ask this is -- on like a 52-week basis, the stock is kind of near the top of that range. If you back off a couple of years, it's kind of like right smack in the middle of where it's traded the last few years. So I guess my thought is, do you consider where it is now just way undervalued on the free cash flow basis, as you've mentioned, and where continued buyback would be attractive? Or do you think there's a chance that it's going to run too far beyond where you'd really want to put capital there?

Yes. I mean, I think I'll start with saying, predicting what the stock price is going to do or not do is an impossible thing. Like one time I never thought we would be a $5 or $6 a share for the time that we were there for the (inaudible). But trying to predict this stuff perfectly, it's similar to gas prices. It's like a fool's errand. Like it's just something that it's hard to do.

I think whenever you dumb it down to its basic principles of like how do you feel about the free cash flow per share of the company? What's that translate into free cash flow yield? How do you think about pace and process and timing? As Nick said, this is something we talk about and think through with the Board all the time. Clearly, we have the wherewithal to be thoughtful on this, and we'll try our best to judge things as best as we can over the next several quarters and years.

Because you're right. I mean there's different catalysts that could have different effects, and we'll continue to call -- make the right calls at the right time to the best of our ability over the next several years. The good thing is that there's a lot of cash flow coming relative to the debt relative to the market cap of the company relative to getting to the balance sheet, which would be completely, completely iron clad once we're at that level. So the optionality is there, and we spend a lot of time trying to be thoughtful around these decisions as weeks and days and months and quarters and years unfold.

And then the only thing I'll add, Noel, is that to me, it's much -- and you're right about, obviously, the 1-year and the prior multiyear averages versus stock price. But for us, the decision-making on allocation of our free cash flow and particularly in the area of share count reduction exclusively comes down to what we think our future performance is going to be, what the risk is assigned to it and that metric, right, that defines that is free cash flow, free cash flow per share, the free cash flow yield, and then seeing is there per share value creation opportunity with respect to share count reduction.

And with the yields that we've experienced, right, looking at -- based on what that is 2020, 2021 and forward on free cash flow, there was a good opportunity there we took advantage of in Q4. We've got the flexibility, as Don said, to keep doing that through '21 and beyond. But at the same time, debt reduction remains front and center with regard to our focus.

Great. And my other question, and again, this is asking you to talk about or think about totally external factors. But I have to admit I am a little surprised that crude has stabilized as handily as it has right in the sort of low $50s for the last, I guess, we're going on 3 weeks or so. And of course, a lot could happen geopolitically, OPEC, COVID and so forth.

But do you have any sense or -- in hedging -- with your hedging business directly that we might be seeing an associated gas story maybe start to interfere in the gas markets more as a, say, second half '21 event? I was not really thinking that was going to be likely for at least another year plus.

Well, I mean, I guess if you can predict how Saudi Arabia and Russia will cooperate over the coming 12 months, I mean, that's a better crystal ball than I have. I think that's why we definitely focus on hedging because some of this stuff is just beyond our ability to predict.

I'm encouraged by seeing crude sort of stabilize around that $50 a barrel mark. That seems to keep people from getting too heavy back into the associated gas plays. Although I am hearing some banks start talking about 7 handles on the oil price. You start getting up to those price levels. They're talking like a year or 2 down the road. At those levels, you'd probably start seeing some folks coming back into the associated gas play.

I'm just not sure whether our -- the OPEC Plus will -- is that interested in allowing American Permian producers to sort of achieve another foothold. I got to think that they are incented to try to keep price down to a level where the Permian just doesn't get going again, which should help keep associated gas out of the market.

But I mean, the future will tell. And that's why we keep -- we just stay steady and consistent on hedging and taking all that volatility risk out of our free cash flow plan.

Ladies and gentlemen, this 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, Chad, and thank you, everyone, for joining us. If you have any additional questions, please feel free to reach out to the company. But thank you for joining.

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