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Expand Energy was founded in 1989 as Chesapeake Energy by Aubrey McClendon and Tom L. Ward, and it has since evolved into the largest independent natural gas producer in the United States. The company is headquartered in Oklahoma City and was renamed Expand Energy in October 2024 after Chesapeake Energy and Southwestern Energy completed their merger. The company’s operations are concentrated in some of the most productive gas basins in North America, including the Appalachian Basin and the Haynesville Shale. It also maintains interests in the Marcellus, Utica, Haynesville, and related Mid-Continent assets.

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Expand Energy (EXE): Company Profile, Stock Price, News, Rankings

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Expand Energy

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Please note this event is being recorded. I would now like to turn the conference over to Chris Ayer, Vice President of Investor Relations and Special Projects. Please go ahead.

Thank you, Lisa. Good morning, everyone, and thank you for joining our call today to discuss Xpand's twenty twenty four fourth quarter and full year financial and operating results. Hopefully, you've had a chance to review our press release and the updated investor presentation we posted to our website yesterday. 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 also note there are a number of factors that will cause actual results to materially differ from our forward looking statements, including factors identified and discussed in our press release yesterday and other SEC filings.

Please also recognize that as except or required by 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 measures, which will help facilitate comparisons across periods and with peers. For any non GAAP measure, there's a reconciliation on our website. With me on the call today are Nick D'Alaso, Mohit Singh, Josh Vietz and Dan Turco, our new EVP of Marketing and Commercial. Nick will give a brief overview of our results, and then we will open up the teleconference to Q and A.

So with that, thank you again and I will now turn the teleconference over to Nick.

Good morning and thank you for joining our call today. The world's need for energy continues to grow. With our attractive market connected portfolio, resilient financial foundation and peer leading returns, Xpand Energy was created specifically to better respond to this growing demand and yield stronger returns for shareholders in times of volatility. Our productive capacity strategy uniquely positions us to not simply react, but to capitalize on the dynamic market we see today. As our 2025 capital and operating plan demonstrates, this is exactly what we are doing.

Benefiting from a powerful combination of premium rock returns and runway across our portfolio, access to advantaged markets and some of the most capital efficient operations in the industry, we've enhanced our outlook for 2025. We continue to benefit from the tailwind of our 2024 productive capacity strategy and now expect to produce approximately 7.1 Bcf per day for a capital investment of approximately $2,700,000,000 As market fundamentals continue to improve the outlook for natural gas, we are electing to invest an incremental $300,000,000 to build approximately 300,000,000 cubic feet per day of additional productive capacity. This will allow us to efficiently deliver 7.5 Bcf per day in 2026 should market conditions warrant. We believe this level of production optimizes free cash flow at mid cycle prices. Since we won't pull the trigger on this incremental capacity until mid year, we have time to watch the market and will have the flexibility to adjust as necessary.

Successful integration has further strengthened our outlook. We continue to capture significant capital and operating efficiencies rapidly accelerating the achievement of our annual synergies. We now expect to achieve approximately $400,000,000 of our annual synergy target in 2025 and to capture the entire $500,000,000 target by year end 2026. I am especially encouraged to see the 20% plus improvement we are delivering in our Haynesville drilling performance. In the fourth quarter alone, we cut nearly nine days and $1,500,000 in cost per well from Southwestern's legacy drilling performance.

The definition of synergy success is clear, achieving capital and operating efficiencies that result in spending less while producing more, which is exactly what we're doing. Our resilient financial foundation and peer leading returns program are two areas which also further differentiate our company. At today's prices, we expect to end 2025 with less than $4,500,000,000 in net debt. Our debut $750,000,000 investment grade issuance set a record spread for an Energy Rising Star at 132 basis points over ten year treasuries and cleared all near term maturities through 2029. Our enhanced capital return framework is designed to efficiently return cash to shareholders and reduce net debt.

After paying our $2.3 per share dividend, we expect to allocate $500,000,000 to debt reduction in 2025. Given our strong free cash flow outlook, we expect to have additional cash available to allocate to a combination of variable dividends, share repurchases and the balance sheet. Turning to our marketing program, we see great opportunity to capitalize on our position as the nation's largest natural gas producer. There is greater than 11 Bcf per day of LNG capacity under construction and the domestic power market continues to grow in support of data centers and rising consumer demand. We have the assets, balance sheet and capital efficient operations to help meet this new demand.

I'm pleased to welcome Dan Turco to our team to lead this effort. Dan has extensive experience creating value for marketing and trading programs and will help us realize the benefit of our advantage position. The marketing program has already seen the value of our combined portfolio. Our team worked extremely hard from the date of close to fully integrate our marketing and transportation portfolio by January one of this year, allowing us to optimize the flow of volumes across pipes, increasing value for our gas and reducing costs. Looking forward to 2026, once the NG3 pipe is online, approximately 75% of our marketed volumes are expected to reach strategic markets, including 2.5 Bcf per day directly to the growing LNG corridor.

Expand's powerful combination of an attractive connected portfolio, a peer leading returns program and resilient financial foundation is distinct among natural gas producers. Today's market provides a unique opportunity for our company and we look forward to expanding opportunity for our shareholders in the year ahead. Operator, we'll now take questions.

Thank you. Our first question will come from the line of Matt Portillo of TPH. Your line is open.

Just a quick question. Slide nine, very helpful laying out your thoughts on maximizing free cash flow at mid cycle pricing. Just curious maybe if you could speak to that slide and specifically if we're in kind of a $3.5 to $4 world, should we be thinking about kind of your productive capacity once you get to the 7.5 Bcf a day in 2026 to hold around 7.5 Bs or do you think you could continue to see growth from that point forward?

Yes. I'm really glad you asked about this slide to start off with, Matt. This is an important way for us to communicate how we think about our capital allocation for this year and over time. We all talk a lot about the right way to set up our business and we thought this slide did a good job of laying out our thought process. We believe that it starts with a view of the macro.

And so we'll continue to have a view of the fundamentals and let that underpin how we think about allocating our capital. And for us that means that we're going to always have a rolling forward two to three year assessment of where the market is and what that means for mid cycle prices. And you're right to point out that right now we're pegging that at $3.5 to $4 per Mcf Henry Hub. And so the table below simply lays out a look at the heat map is designed around cash flow generation, free cash flow and looking at various levels of production relative to various levels of price where is your business optimized. It's pretty easy for any of us to think about in a stronger market growing volumes.

That always feels good. But there's certainly an optimal level of production for a business given the underlying macro. And I think this helps to highlight how we view that. There can be levels of production that are too high for a given price and there can be levels of production that are too low. And so at 3.5 to four point zero you can see that we sit in a pretty good place at 7.5 a day.

What we also like about this slide is that we're giving you some parameters around which we would have to underwrite a longer term view of the macro in order to raise that level of targeted production. And I say targeted and we say mid cycle and all of those things because there's plenty of volatility that could show up in the short term that would continue to cause us to do things like we did in twenty twenty four curtail volumes, curtail activity. There might be times where you want to accelerate capacity that's otherwise on the sideline given a short term event. But when we think about mid cycle activity we think about this level of production relative to this price that we're underwriting. So right now $3.5 to $4 7 point 5 0 dollars Bcf a day of production.

I think it's pretty interesting to note that from an overall market standpoint we are underwriting a level of price that is below where the 25 and 20 6 strip is today. We do that with the recognition that one, we don't mind being just a bit on the conservative side in underwriting price. Two, we do think a lot about how this will evolve over time and we know that when prices as they are today are above the marginal breakevens of the industry supply will ultimately show up and compete. And that competing supply as we go out into '27, '20 '8, '20 '9 is increasingly going to be not just domestic supply but international supply. We've talked for a while about how in the second half of this decade there will be more LNG capacity that comes online around the world that will compete directly with U.

S. Gulf Coast capacity. And so we think it's appropriate to take this multi year view of the market. And again, we see $3.5 to $4 as a pretty reasonable price to underwrite. So all of that informs how we think about our business today, it what helps us to think about what the optimal level of production and CapEx is that then drives the optimal level of cash flow.

I would also just point out that, we're giving you a lot of information on this slide including the right hand column of the matrix which tells you the amount of maintenance capital that would be required for each of these levels of production. Obviously, there's a lot of assumptions embedded into a chart like this and those assumptions would have to be revisited over time. We're using our current assumptions of well cost. We're using our current assumptions of well productivity. Our team is pretty focused on improving our capital efficiency around both halves of that equation every day.

And so we'll continue to refresh our thoughts around this. But we think this is a pretty good framework.

Perfect. And then maybe just a follow-up, you mentioned LNG. I was just curious if you can maybe touch on your updated thoughts on the marketing strategy.

I know it's a diversification for you all. And there's obviously some

puts and takes and views. Incremental supply versus demand over the next few years. So just curious how you guys are thinking about the LNG market and your strategy moving forward?

Yes. Another great question. So again, we're excited about what's happening with the incremental LNG export capacity on the Gulf Coast and how we're positioned relative to that. We think we are uniquely positioned to that. One, just given the scale of production that we have proximate to those assets in the Haynesville.

But then also we have a really nice transportation portfolio that allows us to move 2.5 Bcf a day by the end of this year to Gilles. We move another two Bcf a day over towards Perryville, which then can flow south towards the eastern facilities like Plaquemines. And we have a lot of connectivity to these projects. We have a great relationship with a lot of the liquefiers themselves as well as the off takers and we have regular communication with all of them about what their needs are and how we should think about being prepared to supply gas. So we really like our position.

As you know, we have announced one supply agreement going through the Delfin facility. And we think there's more that we can do around LNG in the future. But I would say, we're really focused on ensuring that as we take on any incremental LNG projects, we're thinking hard about how we can do a couple of things. One ensure that it provides a diversified revenue source for us connecting us to markets that we wouldn't otherwise be connected to that have diverse and different characteristics than Henry Hub. We think that's important.

And then exposing us to revenue opportunities that again help to generate higher levels of cash flow through cycles for our business. I think as we think about our business today, we are in the Haynesville which is a really important geographic diversity for us being proximate to markets and being able to grow and we need to show higher revenue to prove out the value of that geographic diversification.

Thank you. One moment for the next question. And our next question will be coming from the line of Doug Leggate of Wolfe Research. Your line is open.

Hi, good morning, everyone. Thanks for taking my questions. Nick, I've got two, if I may. I guess the synergy number, we're all kind of watching that evolve a little quicker than you'd originally planned. But if I go back to when you announced the deal back in January of last year, you'd put a kind of a two year timeline on building a marketing business and you obviously made a very high profile hire here recently.

So I just wonder if you could give us a quick refresh on what you think the timing looks like now to achieve what you think is possible and maybe quantify what that number looks like? Again, 2.5 Tcf a year more or less. What's the is that a $0.1 number? Is that a $0.2 number? What's the ambition?

Because Obviously, I don't think asking a lot of people's numbers at this point. That's my first one. I've got a quick follow-up, please.

Thanks, Doug. We're really excited about what is in front of us from a marketing perspective. And you're right, we have made a really important hire for our team. And we're looking forward to building out our business in a way that takes better advantage of the scale of production that we have as well as the transportation portfolio we have today. Traditionally, both Chesapeake and Southwestern marketed gas in a relatively close to wellhead fashion.

We do have a lot of transportation, but we are for the most part selling gas to the nearest purchaser at the terminus of that transportation whether that's off the gathering system or if it's further downstream. And we haven't engaged in a lot of optimization which generally larger companies do. We think there's quite a bit of value in the domestic optimization of how we sell our gas. And we're looking forward to building out the processes and the capabilities to do that. We know how to do it.

We have the talent to do it. We need to build systems processes and certainly need to build a risk framework to ensure that we do it properly. But in doing that, we think we can add pretty meaningful value to our business and increase our netbacks to our equity production certainly by a few pennies on that domestic optimization alone. And then the longer term value opportunity is of course around new commercial relationships that could be more interesting. And those could be in the form of power deals, industrial deals, LNG deals, long term buyers of gas that seek certainty of supply and potentially seek some certainty of cost.

And we think there's quite a bit of opportunity in a market that looks like it will increasingly have challenges of getting the right amount of gas to the right markets at the right time. And we think we're well positioned to help solve those challenges.

So just to be clear, is that a $400,000,000 annual business or is that stretching

Yes. I think we're going to hold on to giving you an exact number today, Doug. We're going to continue to build out this business plan. We're going to hold off on giving you exact number today, but we think it's certainly meaningful and we're pretty excited about what's in front of us.

Okay. Got it. So my follow-up is you've kind of subtly slipped into the presentation twenty years plus of inventory. And I think you used to have the Southwestern and the Chesapeake standalone saying we've got a fifteen year backlog. I think when you think about we're telling you, you can hold this at $3,000,000,000 of capital, 7.5 Bcf a day.

It seems you're making life pretty simple for everybody to kind of lay out what the value proposition is. My question is, what co mingling Bossier, Haynesville, Upperlower Marcellus, what's extending the inventory? What is the relative economics look like of the portfolio today versus what you were saying before? And because I was always the impression that Bossier and Haynesville had very different returns, but now they're both part of the story. So if you could help us understand that a little bit, if that twenty years is apples for apples comparison, that'd be great.

Yes. Look, it's essentially the productive life around the assets that we generate today. So yes, Bozier is in there, Upper Marcellus is in there. And we continue to de risk all aspects of those plays that have less producing wells than maybe the more traditional Haynesville zone or the Lower Marcellus zone. Our team has done some really, really good work over the last couple of years to add value to all of those locations.

And every time we add value to those locations, more of those locations can turn green, so to speak, in our inventory counts and in our skyline charts. One of the things that's happening here though is that as we brought these two companies together, we think we are ultimately going to be most efficient and most effective and leaning on the capital efficiency of our business. We'll run less rigs than each company was running on a standalone basis. And so the life extends, the number of years of development extends partially just because of that. But we're definitely very focused on continuing to turn more and more sticks within our acreage green which allows us to add more adjacent acreage around our place.

Thank you. One moment for the next question. And our next question will be coming from the line of Scott Hanul of RBC. Your line is open.

Yes. Hey, thanks. Good morning. Let's stick on that same topic, if we could. And specifically with the Upper Marcellus and Bossier, can you talk about how what percentage of that is in the activity over the next couple of years?

And just give us a sense of the relative economics of those zones comparatively? And are you seeing the ability to kind of what things are you seeing that can maybe improve those economics and you get closer to sort of the Haynesville slash Lower Marcellus?

Yes. Hey, good morning, Scott. This is Josh. First on the split, we do provide a slide in the deck on Slide 35 that provides the breakdown for the number of hills. But you'll notice in the Haynesville, we are going to be slightly heavier weighted towards the Haynesville wells.

So it's probably closer to 60% to 65%. And in the Northeast with the upper and lower, it's probably closer to maybe 45% lower and the rest will be upper. And so on the comparative economics, one of the things I would just say, I'll maybe start with the Haynesville specifically. Both reservoirs offer tremendous potential from a return stand point. And we like the productivity that we see in each.

The Bossier tends to be just a little bit more expensive on the completion side, but also recognize it's shallower. So drilling costs are a little bit less. We find productivity to be fantastic across both, I would say somewhat equitable. The upper and the lower, we've talked about for some time the fact that we do see lower productivity on a per foot basis in the upper. But the ways we find to enhance the economics of that, which is really the ultimate goal is by extending lateral lengths.

And because it's less developed, we have opportunities to drill longer laterals, which we've been doing year over year. We've also really been investing in analytics and looking opportunities to enhance the way at which we complete these wells. And so the combination, the longer laterals, the enhanced completion designs, we've talked about hybrid wells in the past as another mechanism at which we could really boost up the profitability of the upper wells where we combine, let's say, a 10,000 foot section of upper with 5,000 feet of lower reservoir. That all helps to normalize our returns across the Marcellus play.

Appreciate the context. Thanks. And as my follow-up, just talking about the productive capacity increase that you have planned into 2026. And to me, it was interesting on I guess, you're calling it productive capacity versus just regular growth. So that does correct if I'm wrong, indicate to us that there's some optionality if the market's not there.

But can you give us some sense of as you get into the back half of 2025, obviously, it's a very sensitive time coming into the winter every year with the gas market. If you start building this productive capacity and in these wells to bring on and let's say the winter doesn't pan out, what happens in 2026 now that you've already spent those $300,000,000 of extra capital? What do you do?

Sorry, my mute didn't come off. I'm going to start over. Yes, we're really pleased with the flexibility we exhibited in our business in 2024 and we think it would set up really similarly. So, we're going to build this productive capacity coming into the end of this year. It will be ready to be turned in line in 2026.

And if the market is not there, then it would we would likely have a response to that. That would be some combination of either holding back the turn in lines or curtailing volumes to alleviate pressure on the market. But I would back up even further than that and let's say that we see that as we come through this year, the macro conditions change in some unforeseen way and the market doesn't look as strong in 2026 or 2027, then we'll change our capital allocation as well. We've proven, I think several times over the flexibility we have there and the willingness to try and be responsive and in front of market conditions to be efficient with our capital relative to where we are in the cycle. So we maintain a ton of flexibility in our business and this is what we think is the right planning step for today.

And we're very prepared for both increasing capital or decreasing capital as conditions warrant.

Thank you. One moment for the next question. And our next question will be coming from the line of Kevin McDermott of Morgan Stanley. Your line is open.

Hey, good morning. Thanks for taking my questions. So I wanted to dive in first on the 2025 activity in a little bit more detail. Definitely agree with the constructive outlook for gas prices this year. Looking back about a month ago, we were flirting with $2 on Henry Hub.

So I was wondering if you could talk a bit more about the decision process to pull forward the deferred tills and then also give a little bit more color on the cadence of that productive capacity throughout this year. I know you have the 1Q guide and the full year number, but how are you thinking about the volume trajectory as we move through 2025 for the business?

Yes. Good questions, Devin. So we're again, I want to go back to talking about how we think about the macro and thinking about a two to three year look of underwriting a price range here and we've landed at 3.5 to 4.

There's a lot that goes into that. And ultimately, you're thinking about the trajectory of supply and demand and all the features of the market that will impact supply and demand over the next couple of years. And so on the supply side, you're certainly thinking about how many rigs are running, how many wells are being completed, the productivity of those wells, how many pipes are coming online, including from associated gas areas like the Permian and building out a pretty good view of what the supply to the market looks like. On the demand side, we're going to pay a lot of attention to the trends of power generation and what fuels power generation growth is relying on, trends of industrial demand. And then certainly what we see now as the big driver is the increase in LNG export capacity, which requires a view not just of what that of the aggregate capacity, but also a view of the likely utilization of that capacity, which again we've talked about initially we think is going to be very, very high and then over the next few years would potentially begin to run at less than 100% capacity as more and more comes online.

So all of that informs this longer term view. One of the things that you do pay attention to as a part of all of this analysis is where storage is. So we've had this constructive view on the longer term. And then as we got through this winter, you see that it's been very cold, of course, and storage has drawn down a good bit, which just accelerates the timing at which the market is seeking incremental supply, so that storage doesn't run too low. I think the multi year look hasn't really changed much for us and all that's changed is that the starting point at which the market is looking for more supply has come to us a little bit sooner as a result of there being a cold winter.

We think it's really important to maintain this view that is multi year, multi season, so that we don't end up chasing a near term event of price in the market. And then again to make sure we have the flexibility in our business to continue to review those assumptions over time. I'll ask Josh to comment just on the trajectory of production this year and going into next because we gave a lot of thought about that as we have the flexibility with our deferred till strategy.

Yes. Hey Devin, we absolutely started to see some strengthening fundamentals as we were exiting the year. And so we did start to bring online some of the deferred hills at the December. In fact, across the fourth quarter, we brought on about 40 wells and roughly 25 of those were technically deferred hills. And what you have to just remember in this is what we've been able to accomplish with just, let's just say, those 25 wells, those wells could have come online in a $2 gas price environment.

But instead, we were able to bring them on to a very strong environment with roughly $4 gas. So we feel really good about that decision. And then as we come into the first quarter and again fundamentals remain strong, we talked about weather. We've seen relatively strong LNG feed gas pools as well, which again we think is helping to tighten storage. And so across the first quarter, we're anticipating bringing on roughly 90 wells into the markets.

And just to give you a little bit of perspective on what that means from a trajectory standpoint, of course, we've guided to a six seventy five number for Q1. But we expect to grow from the December where our production was just over 6.4 Bcf a day. We expect to exit March around seven Bcf a day. And so when you talk about kind of short cycle market response of production, that's really what we've created here. And so with the deployment of our deferred hills, which we expect to be extinguished effectively by the first half of this year, we expect to be kind of up on plane between say seven and seven point one BCF a day heading into the second quarter.

And we'd expect to maintain that type of production as we exit the year, which then of course positions us to be able to benefit from the productive capacity that will now build on this upcycle as we look to exit 2025.

Got it. Thanks. That's really helpful. And my follow-up is on that productive capacity. Slide eight has the building blocks of capital and also some breakdown of where that incremental 300,000,000 of spending would go.

And I think it's notable that it's actually split across Appalachia and the Haynesville. You have some going to each of your core assets. So I was wondering if you could just talk a bit more about how you think about allocating growth capital across the different assets in your portfolio. Maybe as part of that, can you just address the takeaway situation in Northeast Pennsylvania and how much room there actually is to boost volumes there?

So we think about allocating capital across these assets just as you alluded to in your question. Our ability to grow is primarily in the Haynesville. In Appalachia, the capital that's coming in there is really in recognition of what the existing capacity is and bringing production up to those capacity levels. We know where we've been able to produce successfully in the past and we're not going to attempt to go beyond that. So the growth capital that you really see is more about the Haynesville.

I just want to remind everybody that we do sit right adjacent to the LNG growth corridor and have 2.5 Bcf a day by the end of this year of capacity to deliver to Gillis. So as you think about where that LNG gas is going to come from, it's going to primarily be sourced from Gilles. We have the LEAP pipeline and the NG3 pipeline and in aggregate that's 2.5 Bcf a day that gets delivered right to the source of growing demand. And so the incremental volumes that we really think about here as we increase our volume profile into 2026 are focused on meeting that growing demand. This is not delivering volumes into a static environment.

Thank you. One moment for the next question. And our next question will be coming from the line of Neil Mehta of GS. Your line is open.

Hi, Neil Mehta here. Can you guys hear me okay?

All right, Nick. So, hey, just wanted to spend some time just talking about return of capital and capital allocation and those three tranches that you outlined in the deck and your objectives here in 2025 as you transition from delevering to focusing potentially on shrinking your share count too?

Sure. We're pretty happy with the cash flow profile that's in front of us for the next couple of years. One, we've prioritized debt pay down and you can see that really clearly in that waterfall. We've put in place a $500,000,000 debt pay down goal for the year. That's on top of the fact that we retired the outstanding revolving credit facility that was Southwestern's at the close.

We paid down $389,000,000 of bonds that were maturing in January. And then we've done another refinancing, of course, with our first investment grade issuance that allowed us to push out some maturity. So we have a really good runway in front of us to retire debt and a lot of cash flow to do it. So that $500,000,000 out of our free cash flow will flow towards debt pay down as well as we have a little bit of incremental proceeds from the Eagle Ford sales that will come to us in deferred proceeds in 2025 that will go towards debt pay down as well. So we're taking a pretty good swipe at the balance sheet.

We're going to end the year with less than $4,500,000,000 of net debt based on the recent strip. So we feel pretty good about that. That will obviously be well under one times EBITDA with prices around where they are. I would also remind you that that $500,000,000 is a target that we'll set each year. So next year, we will have another debt pay down target.

And what we've attempted to do with this framework is allow for a good balance of ensuring that our balance sheet stays very, very strong. It's as you know with the history of our company and the way we've been able to bring assets into the portfolio that have been very accretive to our overall returns profile, we believe you need to have a very strong balance sheet to do that. So we're going to continue to have a really strong balance sheet. You need a strong balance sheet to allocate your capital efficiency and maintain the flexibility to allow production to decrease and increase as we've done over the last year. And that balance sheet strength is such an important part of how we think about our competitive position in the market that it will stay front of mind for us and be protected.

And then beyond that though, we're going to generate a lot of excess free cash flow and we think that that needs to be returned to shareholders in a pretty significant proportion. So that remaining tranche then we have the flexibility to return to shareholders seventy five percent of it either in the form of buybacks or variable dividends. We will use that flexibility to be thoughtful about the most efficient way to do that for shareholders. Over the last couple of years, you've seen us use both and I wouldn't be surprised if we continue to use both.

Yes. Thanks Nick. And that's kind of brings us to the follow-up, which is you guys have done a great job of hedging the wedge or taking advantage of the constructive forward gas curve. Can you just talk about how you're thinking about the hedging strategy on a go forward? Does hedge to wedge still make sense?

Have you gotten to an optimal level at this point? And just how you're thinking about that part of risk management?

Yes. Our hedging strategy, we feel like has worked really well for us. We had a really nice offset to the low prices last year that supported our cash flow. And despite the fact that gas averaged for the year about $2.26 we ended the year with a nearly neutral free cash flow position that's really largely supported by our hedges. In 2025, as prices have run quite a bit, our hedge losses are a fraction of what that gain was last year.

And that's a function of the fact that we've hedged, we think, on a rolling basis that has really made sense so that we have exposure to the right prices in the market that we're setting the appropriate floors. And we've been able to use a fair amount of collars as we approached the start of 2025. We like the approach. We like having roughly 50% to 60% of the first year hedged and then less in the second year and continuing to leg into those hedges over time. We also would acknowledge that in recent weeks as prices have been a lot stronger, we're not afraid to shift for near term prices more towards swaps.

You're elevating the floor of your locked in price and you're also willing to move to the higher end of your ranges of targeted levels of hedges. We see prices in 2025 that like I noted a few minutes ago are well above the marginal breakevens in the industry. And when you see that, you want to hedge more and you want to go ahead and lock in those prices. So that's what we'll continue to do.

Thank you. One moment for the next question please. And our next question will be coming from the line of John Freeman of Raymond James. Your line is open.

Good morning. Thanks. The first question I had just hi. Just following up on an earlier question, Josh, when you were kind of going over the accelerated pull forward on the deferred tills, just to sort of level set kind of the model since I know that the plan is that, as you said, all the tills basically get exhausted first half of the year. And then I believe the plan assumes about 85% of the DUCs get bought online this year as well.

Where did the deferred tills and the DUCs stand at year end?

Yes. So because we started bringing on wells in the back end of the quarter, which was about 25 of those deferred hills, that left us with about 55 to 60 deferred hills at year end and between fifty and sixty DUCs at year end. And just one comment I would make on the DUCs is that we have assumed a somewhat ratable activation of the DUCs across the year. And of course, there's a capital amount that comes along with that. One of the things we really like about the plan is just the retained flexibility that we have.

And we have this option to actually accelerate the completion of the DUCs that creates more flexibility in the year from a production standpoint while holding capital flat. And so though we'll have activated all of our deferred hills, hills, we still feel like we've retained flexibility with the ducks throughout the calendar year.

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