Good morning, and welcome to the Chesapeake Energy Corporation and Southwestern Energy Merger Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note, today's event is being recorded. I'd now like to turn the conference over to Chris Ayres, Chesapeake's Vice President of Investor Relations and Treasurer. Please go ahead, sir.
Thanks, Rocco. Good morning, everyone, and thank you for joining our call today to discuss Chesapeake and Southwestern's merger announcement. What an exciting day! Hopefully, you've had a chance to review our press release and the updated investor presentation that we posted to our website this morning. During this morning's call, we will be making forward-looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections, and future performance, and the assumptions underlying the statements. Please note, there are a number of factors that will cause actual results to differ materially from our statements. Please recognize that, except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements.
We may also refer to some Non-GAAP financial measures, which will help facilitate comparisons across periods and with peers. For any Non-GAAP measure, we use a reconciliation to the nearest corresponding GAAP measure, which can be found on our website. Additionally, throughout today, we're going to be discussing the merger of Chesapeake and Southwestern. We will avoid any sort of fourth quarter-specific questions for later in the year. With me today on the call is Chesapeake's President and Chief Executive Officer, Nick Dell'Osso, and Southwestern's President and Chief Executive Officer, Bill Way. Nick will give a brief overview of the announcement, and then we will open up the teleconference to the Q&A. With that, thank you again, and now turn the time over to Nick.
Good morning, and thanks for joining us today. This is an exciting day for Chesapeake Energy and Southwestern as we combine to create an unmatched global natural gas company with the scale, asset quality, financial strength, and people to create enormous value for shareholders while accelerating America's energy reach, fueling a more affordable, reliable, and lower carbon future. Over the next few minutes, we want to highlight the compelling rationale and value proposition behind our combination. We will outline the tremendous opportunity and synergies that will maximize value for shareholders and benefit consumers and all stakeholders by reaching more markets with our valuable product. Following our prepared remarks, we'll be happy to take your specific questions. Many of you know that we often speak about our strategic pillars and non-negotiables with respect to strategic decisions.
They absolutely guide our decision-making and ensure that any transaction serves to enhance returns, deepen inventory, strengthen our capital structure, and allow us to lead in ESG. This combination checks all these boxes and combines the best of Southwestern and Chesapeake that will materially advance these pillars. This is an all-stock merger that is immediately accretive to all key per-share financial metrics on a pre-synergy basis. Under this structure, the value-enhancing features of the combination, including material synergies, will benefit both shareholders of both companies. The enterprise value of the company will scale to approximately $24 billion, positioning us for eventual S&P 500 index inclusion. Upon closing, the company will assume a new name as we mark a fresh start for both of our organizations and redefine the natural gas producer. The rationale for this combination is compelling. Our assets fit together exceptionally well.
We will have the industry's premier natural gas portfolio, with daily production of nearly eight BCFE per day and more than 5,000 gross locations or over 15 years of inventory across the Haynesville and Appalachia. With over 15 TCF equivalent in proved developed reserves, our portfolio will span across 1.2 million net acres in Appalachia and 650,000 net acres in the Haynesville. This will be an unparalleled natural gas portfolio in terms of scale and quantity. We will have unrivaled access to premium markets and the flexibility to seamlessly move capital and best operating practices across two premier basins to create capital efficiencies, maximize returns, and reduce risks. We will have flexibility across basins with access to more than 25 unique sales points to ensure the best prices for our products and reliable delivery for customers.
We have identified more than $400 million in annual cost and capital synergies to date that will benefit shareholders of both companies over the next decade. These are material synergies. More than half of these synergies will come through reduced corporate costs as we streamline how we work. In addition, our overlapping operations create a great opportunity to share proven operating practices and optimize the use of common field infrastructure. We know we will be able to drive additional meaningful synergies as we effectively integrate assets, teams, and processes. This combination will create a global platform for us to expand our marketing and trading business, which we will run from our material presence in Houston.
The primary goal of this business will be to enhance the value of our equity production and access to domestic and international customers alike. Our scale and balance sheet strength will allow us to serve new domestic customers and compete in rapidly expanding global LNG markets. Our assets will be strategically positioned in the best natural gas basins, with proximity and access to premium markets along the East Coast and Gulf Coast. With our size and Investment Grade quality balance sheet, we will be in the driver's seat to supply lower cost, lower carbon energy to meet growing global LNG demand. By combining our companies, we are LNG-ready. We expect to ultimately link up to 20% of our production to international pricing to reprice our molecule to the global markets, which will enhance revenues and reduce pricing volatility. Our pro forma balance sheet and capital structure will remain strong.
Combined, we will have an Investment Grade quality balance sheet and expect to achieve a Net Leverage Ratio of less than 1x within one year of closing. We also expect to reduce absolute debt by approximately $1.1 billion by year-end 2025, using cash on hand and free cash flow from the business. Lastly, this combination strengthens our ability to return more cash to shareholders through cycles, and we will continue our best-in-class equity return framework, driven by increased free cash flow. When compared to a standalone basis, this combination will allow us to increase pro forma dividends per share by more than 20% over the next five years. We are incredibly excited about this transaction.
We will have more scale, be stronger, more flexible, and financially advantaged, allowing us to access new markets for our products, deliver more low-carbon energy to consumers, while returning significant cash and value to shareholders through the cycles. Before I turn the call over to Bill for a few comments, I would like to congratulate Bill and the entire Southwestern team. Today's transaction is a testament to the talent, drive, and culture they built together, and I look forward to seeing what our two companies can accomplish when combined as one organization. I will turn the mic over to Bill now.
Thanks, Nick, and good morning, everyone. This is a great day for Southwestern and Chesapeake, and we are confident that this merger provides for the delivery of increased shareholder value and provides an opportunity to achieve great things that neither company could do on a standalone basis. While there are many similarities in our asset bases and the operating practices, the integration of these two special cultures will allow the best of both to rise to the top, to enhance returns and progress our competitive advantages. The benefits of scale are undeniable today. Our industry has been consolidating into larger, financially stronger enterprises with best-in-class operating and environmental practices. The company will be well positioned to lead with premier assets and an increased ability to serve domestic and international end users with responsibly sourced gas while delivering sustainable value to our shareholders.
We are confident that shareholders from both companies will recognize the meaningful synergies created by this combination, and we look forward to moving quickly on integration and gaining market recognition for the value we see in our combined organizations. And finally, I'd like to acknowledge our employees. Today's announcement will not have been possible without our people, which I firmly believe is Southwestern's greatest asset. Leading this company has been an honor in my career, and I would like to thank each and every one of our employees for their commitment and dedication to our company and to one another. Let me pass the mic back to Nick.
Thanks, Bill. Before opening up the call for questions, let me reiterate what a compelling investment opportunity we are creating in this pro forma company. We're very excited about the growth and long-term demand of natural gas, as we believe it is the most important fuel to improve access to affordable, reliable, lower-carbon energy. Simply put, natural gas makes people's lives better. This new company will be a market leader through its ability to reach more markets, mitigate price volatility, and increase the revenue per unit of the product we sell. Fundamentally, this company is built to make decisions that will reward shareholders through cycles of natural gas volatility by having the flexibility to make decisions differently than independent gas companies have been able to over the past 20 years.
The large installed base of production and cash flow, the flexibility of capital allocation, and the ability to adjust rig activity is differentiated from today's natural gas producer. This combination will lead to increased profitability and shareholder returns through cycles. That is the opportunity we are excited about today for our shareholders and our people. Operator, we are now ready to take questions.
Thank you. As you would like to ask a question, please press star then the one on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Matt Portillo with TPH. Please go ahead.
Good morning, Nick and Bill. Thank you for taking my questions. This is an extremely interesting deal on a lot of levels. Maybe my first question kicks off on marketing. I was hoping you might be able to provide some insight on how this transaction may not only improve your in-basin marketing opportunities in the Appalachia and the Northeast, but also your strategy around marketing molecules on a global basis.
Thanks, Matt, and a great question. This combination of these two companies has so many really obvious benefits to shareholders through the traditional ways that you think about a really productive oil and gas merger opportunity. Obviously, we save a lot of costs together. We can improve our business practices by bringing the best of both organizations together, and those things are pretty evident in this transaction, we believe. The piece of it that we believe is a new strategic element that is now available to the combined company that was not available to each organization independently, is to be able to market our product differently.
As a company that has a clearly investment-grade quality balance sheet and a scale of production to be attractive to customers, both in domestic markets as well as international markets, we have an opportunity to expand and build out a more robust marketing effort that will be unlike what independent gas producers traditionally do. We'll be able to access incremental infrastructure, build better relationships with customers, and contract for gas in a more constructive way that ensures that our product can be delivered to markets where it's needed most in a timely fashion and flexibly through cycles. This should absolutely lead to a better meeting of supply to demand and better value for our shareholders over time, and it's a strategic part of this transaction that we're very excited about.
To be clear, when we think about this, this effort is focused on enhancing the value of our equity production as a company, and that's the number one priority of the marketing organization that we will seek to build.
Perfect. And then as a follow-up question, I was hoping maybe to touch on the synergy side. Obviously, very meaningful synergies coming with the deal. I wanted to see if you might be able to speak to some of the operational synergies you're expecting from a D&C perspective. Is that being driven by faster cycle times, changes to the completion design? Just any broad strokes around how confident you are in achieving that $130 million synergy target. And then at a high level, just curious how you're thinking about capital allocation kind of across the basins, given that you've got pure inventory in three distinct areas within the U.S. from a gas perspective.
Sure. Great questions again, Matt. So first, on the drilling completion synergy, we're very excited about these opportunities. The synergy opportunities here, like I said a minute ago, are really significant when you have two offsetting assets like this and familiarity across both companies with the assets. We are definitely focused on improving cycle times of drilling across both companies, and that drives the biggest amount of the synergies that we've quantified in this analysis. It is $130 million of D&C synergies alone. There are some additional capital synergies that you'll see highlighted on the slide in our presentation today.
That said, with the focus of that number being primarily on drilling, one of the things that we're excited about, which would be beyond the synergies that we've modeled, is bringing the two organizations together and leveraging the best of the experience of both teams to optimize the approach to completions as well. We think there's a pretty big opportunity here, and we have not counted on very much of that in our estimate of synergies. Your second question was on capital allocation across the basins. You know, I would note that today, we think the companies have a fairly efficient capital allocation across the entire portfolio. In the near term, it's certainly focused on maximizing free cash flow from both of our asset bases, given the current market conditions.
So I would expect that as a starting point, it'll look pretty similar to where it is today. What's great about a portfolio, like this is that we can be very flexible over time. And as we identify synergies and the assets truly evolve in the way that they compete with each other in the combined portfolio, we expect to create, again, additional value not contemplated in our current synergy number by optimizing how we allocate capital over basins. But as a starting point, we kinda like where we are.
Thank you. Our next question today comes from Doug Leggate with Bank of America Securities. Please go ahead.
Thank you. Guys, I think both sides obviously see the logic to this, so congratulations to both of you. I would like to ask each of you a question, if you wouldn't mind, one to Nick and one to Bill. Nick, I guess the first question is kind of a follow-up to Matt's. If we look at some of the granular detail behind your philosophy on development in the Haynesville, your well costs per lateral foot are about a third lower, maybe a little, a bit more than that, about 40% lower than Southwestern. And you've told me in the past that deliberately you didn't want to go after the biggest completion, and completion was a big part of that philosophical difference in cost.
Southwestern, on the other hand, has tremendous productivity, but significantly higher costs for per lateral foot. So I guess my question is, why are we not seeing any of that in the capital synergy number? Because it doesn't look like that's included, and if it is, what would that synergy number look like?
Sure. Thanks, Doug, for that question. So, again, I mean, I think, you know, as we think about the completion opportunity here, the drilling and completion opportunity combined, there is a real opportunity to reduce costs across the combined portfolio. Our cycle times for drilling are lower. We have a really long history in this basin, and we've improved upon our drilling practices and targeting and monitoring over the course of more than 10 years in this basin. And we bring that expertise, and our team brings that knowledge and all of the data behind it every day to execute extremely well through the drill bit.... From a completion standpoint, both companies have a pretty interesting approach to completions, and we are really eager to get these teams together and optimize around what that completion design looks like.
We think there is further upside beyond what we have modeled in the way of synergies here. We're very focused on that, and we think the opportunity is real.
Okay, we'll wait, we'll wait on the update. I guess, Bill, you know, sorry to see you go, but, but at the same time, I'm curious on why now? There's obviously an inflection going on in gas markets longer term, and obviously a lot of leverage to that upside potential for Southwestern. Obviously, shareholders get that for the combined company, but I'm curious what, why you decided to kind of press the button at this point.
Well, thanks for your question, and good to hear from you. Quite frankly, we recognize and believe the market recognizes as well the synergy and value enhancement of our asset positions that they're quite complementary. Our collective positioning for the substantial near-term increase in natural gas from LNG, which we'd all talk about a lot, created some impetus to move. Moreover, we were able to arrive at a shared ownership that we believe is fair for both shareholders, reflecting the through-the-cycle contributions and respective enterprises. Given the all-equity nature of the combination, our shareholders, both shareholders, will participate in greater potential reward and what we believe is a lower risk profile from scale, cost, and leverage perspective, while benefiting from a robust return to capital program when we join forces with Chesapeake.
All right. Bill, look forward to seeing how this plays out. Thank you, guys. Congratulations again.
You bet.
Thank you. Our next question today comes from Josh Silverstein with UBS. Please go ahead.
Yeah, good morning. Thanks, guys. Nick, can you just talk about free cash flow allocation? You know, the pro forma balance sheet isn't as strong as CHK standalone. It looks like you're gonna plan to take down about around $1 billion of debt, but how do you think about the allocation for that versus the base dividend and additional kind of variable and buybacks? Thanks.
Yeah, great question. Thanks, Josh. So we're really pleased that we're continuing our, what we think is the, you know, best formulated capital return to equity program in the industry. We have our base dividend, we have our variable dividend. None of that changes. The philosophy and the calculation as we approach the way we return capital to shareholders isn't changing here at all. So both shareholders will benefit from that. As you know, it's been our practice to have a buyback in place. We look forward to restarting that in the future here as we are able to post the disclosure of everything in the transaction. And so for us, the capital return to equity, we believe, looks very similar.
Now, the business is going to generate a lot of cash flow, and Chesapeake has today quite a bit of cash on the balance sheet. So, we are looking forward to reducing debt. We have thought pretty carefully about the pro forma balance sheet. We are very pleased that the pro forma company sits in a place where we are maintaining our very firm commitment around staying below 1x net leverage, and we know that we will definitively be there within a year. And then I would just lastly point out, Josh, and this is sort of recently hitting this morning, that two of the agencies have now put out notes that indicate that we should be investment grade under their expectations at closing, which is a pretty big accomplishment for this combined organization.
Great. That's awesome, Nick. And then, you know, both companies have, you know, midstream commitments in the Haynesville right now. You know, as you guys have gotten bigger in the basin over the course of the past few years, how does the combined company optimize the new capacity additions, and does this change any of your strategies down there?
Great question. Look, the combined company being able to access as many markets as it can, and we've referenced 25 sales points across the entire portfolio, a lot of those obviously in Louisiana, as well as everywhere. The flexibility is just really important to us. As we all know, demand for natural gas is very volatile, and therefore, the price that you receive for natural gas can be very volatile. And so the ability to move supply to the places where it is needed most, when it is needed most, and be flexible in how you do that, is super important to customers as well as to the value that you receive.
We're really excited about having as many outlets as we have, having more access to infrastructure, and we're really excited about having the scale of portfolio that will allow us to build out, like I said, a more robust marketing organization that's going to allow us to be more proactive in how we manage our exposure to and access to incremental infrastructure. That incremental infrastructure allows you to build better relationships with customers and to drive contracts that can meet demand in a more efficient and effective way over time, supplying gas when and how, and where it's needed. So we think the opportunity to improve upon the overall access to infrastructure of this combined portfolio is tremendous.
Again, as we talked about, you know, what is a synergy in this assumed transaction and what is not, how we market our gas is, is not assumed as a synergy here, but it is an enormous opportunity and something we expect to deliver really significant value out of.
Perfect. Thanks, guys.
Thank you. Our next question today comes from Arun Jayaram with JPMorgan Chase. Please go ahead.
... Yeah, good morning. Nick, I wanted to ask you about how the pro forma operating, you know, segment, you know, business will be run. In particular, you know, Southwestern had vertical integration in terms of some of its OFS, including the ownership of some rigs and frack crews. I was wondering your thoughts on that, and is that something that you'd like to maintain, expand, or perhaps get away from in the future as you think about the pro forma entity?
Great question, Arun. We've obviously looked at this really closely as we've considered this combination. We're really pleased to integrate the rigs and frack crews that Southwestern has owned. We've looked at their performance very carefully, and believe that those assets are performing at least as well as what our third-party service providers are performing today. So to be able to leverage those owned assets as you move through cycles, we think is a real advantage. But mostly what I would point out to you is, on the combined basis, it's not a huge percentage of the total service contracting capacity that we need at any given time. So we're looking forward to making it work for us and think it could add some value.
Okay. And just in terms of the pro forma and technical operating team, how should we think about this? Is this, is this a transaction where you bring the best athletes from both organizations, or will have a little bit more of a Chesapeake feel? But give us your thoughts on how that pro forma entity will look like.
Yeah, another great question, and one that we're really excited about here. These are two big companies with a lot of history and a lot of great talent in both organizations. If you bring two companies together on what is a 60/40 ownership split, it is incumbent upon us to ensure that we get the best talent out of both organizations together to drive a completely different outcome and better outcome than either company can achieve on their own. This goes all the way through to the point, Arun, that we're rebranding this company. This is not Chesapeake is adding a bunch of things. This is a completely new organization that is coming together to build a differentiated, clear natural gas leader in the marketplace, and it will require the absolute best talent from both organizations to do that.
Great. Thanks a lot, Nick.
Thank you. Our next question today comes from Kevin McCurdy with Pickering Energy Partners. Please go ahead.
Hey, good morning, and congratulations on getting the deal announced.
Thanks, Kevin.
My question is on pro forma activity. Realizing you still have some work to do, I think the market assumed that Chesapeake and Southwestern would be adding some rigs here in early 2024. Is that still the plan? Will you consider slowing activity once the company's combined?
Yeah. Thanks, Kevin. I noted earlier that I think both companies have a current rig allocation that is pretty appropriately focused on generating free cash flow in 2024, given the market conditions. And that's certainly how I think about this business at the moment. I mean, you know, gas prices, I guess if you look in the super recent term of the last few days, have improved a bit, but overall, we still have a market that you know, looks fairly heavily supplied and does not look for growth today. And I don't think either company is positioned for growth today, and I think that's appropriate, given the supply-demand fundamentals that are present.
Great. I appreciate that color. And then just maybe a question on taxes. Do you see any tax benefit from this deal? And what should we kind of be assuming for cash taxes this year and next?
Yeah, you know, we're as we bring these companies together, Chesapeake's cash position, the cash tax position, I think, is pretty well understood. It's gonna be, you know, a several months here before we close, and, depending on when and how we close, will have an impact on what year you're thinking about here. But, we will hit AMT over a period of a few years across the combined organization. That's probably how you should think about modeling it.
Great. Thank you for taking my question.
Thank you. Our next question comes from Umang Choudhary with Goldman Sachs. Please go ahead.
Hi, good morning, and thank you for taking my questions.
Thank you. Morning.
Morning. My first question is on the balance sheet. In the past, you indicated a focus on having a strong balance sheet to have options, including on share repurchase. Curious on your thoughts around the optimal debt level of the combined company longer term. And then, as you think about the opportunity set to improve the balance sheet sooner, are there any asset sales or non-core asset sales, which you would look to prosecute here?
Yeah. Thanks for that question. So, again, our balance sheet on a combined basis is very strong. We will have less than one times net leverage within a year. We have a clear plan in front of us to be able to reduce gross debt outstanding by over $1 billion by the end of 2025, given the cash that we have on the balance sheet, as well as the cash flow that we expect to generate over time. You know, when we think about a target for the business, we think $4.5 billion is a pretty good net debt target, which would equate to one times leverage on a $3 long-term gas strip. You know, that seems to be a reasonable way to think about a mid-cycle price.
You've seen us be pretty, I would say, diligent in the protection of our balance sheet over the last couple of years. You shouldn't expect anything different out of this combined organization, and the cash flow generation of the business gives us a lot of confidence that that will continue to be the case.
... That's very helpful. And then, quickly on the opportunity set, which you highlighted on extended lateral on the synergy camp, can you help us understand what that opportunity is? And then, any thoughts around how the free cash flow breakeven before hedges of the combined entity looks like compared to standard Chesapeake?
Sure. Just first on the extended laterals, you know, when you, when you have offsetting acreage positions like this, there are a lot of opportunities to put together units to drill more efficient wells. It's a pretty significant opportunity for us. We're excited about it. You also have an opportunity with this more contiguous land position to then add other, in-between sections and units, across the portfolio, so that opportunity will grow over time as well. And that's included in our—what we can see clearly today through the combined is included in our synergy number. When you think about the break evens of the companies, I'm really glad you asked about this, Umang.
When I think about the breakevens of both Chesapeake and Southwestern, we sit at the higher end of the spectrum across the industry, and we do because we own a pretty significant position in the Haynesville. And so when we combine this business, we own a bigger position in the Haynesville, and on a pro forma basis, before any changes, we remain with a breakeven that is not as low as Appalachian-only producers. Of course, the benefit of being in the Haynesville is that you have a differential revenue opportunity, being closer to market and being better connected to infrastructure. The opportunity for us that is in front of us today is to close the gap on that breakeven. That is something that this combined organization will have as a top priority.
It is something that I believe we can achieve through lowering our costs and delivering a lower-cost product to consumers that will benefit everyone. In addition, the better access to infrastructure will offer us, and as well as having an investment-grade balance sheet, which gives us better customer relationships, will allow us to deliver gas to markets where it is needed better today, which better serves customers, but also offers a better revenue opportunity for our business. So, I think the opportunity to close that break-even gap is absolutely fundamental to the value opportunity in this combination and something that this organization will have as a top priority.
Great. Thank you for the details.
Thank you. Our next question comes from Bertrand Donnes with Truist. Please go ahead.
Hey, congrats, Nick and Bill. I will say I'm disappointed to see our coverage list shrinking so fast. But on the M&A side, you've clearly addressed the synergies from today's deal, but do you think you've reached the optimal size? I mean, is the plan to continue consolidation or... I mean, I assume at one point there's a limit to the synergies you can gain outside of G&A, so just wanted to see if you thought maybe you've kind of reached optimal scale.
Yeah. Thanks, Bert. You know, we have a lot in front of us to do to integrate this business, and there is so much value for us to go and capture. I think our attention will be solely focused on that for quite some time.
Got it. And then, maybe the follow-up is, you know, on kind of the same topic of M&A, is there any regulatory risk to this deal that, like we've seen in other deals and, you know, is that maybe come about a specific topic, maybe production or midstream or any areas that would be the primary concern?
Sure. It's certainly been topical in the market lately. We believe in the combination value of this new enterprise, not just for shareholders, but for the market broadly. As I've talked about, natural gas is a commodity that has growing demand, and there has been inconsistent and inadequate access to infrastructure for natural gas relative to where the demand centers are. We're looking forward to this company having a better ability to deliver gas to markets where it's needed. So we'll, you know, be ready to talk about that, and we think that this is a great transaction for everyone involved and believe it should be something that is ready for the market to accept.
Got it. Thanks for the update.
Thank you. Our final question today comes from Nitin Kumar with Mizuho Securities. Please go ahead.
Hi, good morning, Nick and team. First of all, congratulations. Nick, I wanna kind of go back to the synergies. Doug talked about the D&C synergies, but, you know, if I look at the P&L synergies in your presentation, they're only about $145 million. So, a quick two-parter here. I think you're looking—you said you're looking for these synergies to be achieved by 2026. So is that an 18-month timeframe from when you close the deal? And then, two, there was a difference in the cost structure for the two companies. Your LOE was much lower, and I think it was about $0.30-$0.35. Can you give us some color on how you expect to achieve the P&L synergies beyond G&A?
Sure. So a more efficient operation is certainly the target of bringing two organizations of this size together. We can be more efficient in how we contract for everyday services, how we allocate our human resources across the organization, and how we deliver on our business every day. It's through process, it's through technology, it's through how we communicate, it's through just generally how we work. We have a lot of confidence that we can do that. In addition, there would be cost saving, cost savings from on the P&L side through shared infrastructure around water infrastructure as well as gas gathering. So, there's quite a bit to do from a P&L standpoint here, and we think the opportunity is big.
Just like I said, on the capital synergies, you know, the $400 million is a very good starting place for us from a synergy expectation standpoint. We will not stop at that number, and we think the opportunity is quite a bit bigger over time.
Great. And maybe, I don't think you answered this question. You know, you've spent over the last three years kind of making Chesapeake a standalone, a dry gas company. Now you get a little bit of liquids. Arun mentioned the integrated vertical integration at Southwestern. Any thoughts on asset sales or things that you think could help accelerate the debt reduction as you look at that target?
Yeah, great question, Nitin. Look, we're really excited to bring this portfolio together. The assets in the portfolio all contribute and work together to create a really attractive set of cash flows. We don't have any plans for asset sales as of today, but one thing that we like about big portfolios is that there are things that come up over time that make sense. And so while there are no plans to do that today, you know, a big portfolio gives you choices, and, you know, you can act on that when and how it makes sense. But as of today, we're really happy to put all this together, add a lot of value to the combined business across the entire portfolio. And, you know, there could be opportunities for that in the future, but that's not our initial focus.
Great. Thanks for the answers, guys, and congrats.
Thank you.
Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks.
Great. Thank you again for joining our call this morning. We could not be more excited to launch this new company into the market to represent the clear leader in the natural gas space. We will reach more markets, we will be able to mitigate price volatility, and achieve a higher value of revenue for our product every day. We're very excited about the opportunities before us of bringing both organizations together to create a greater outcome than either organization could create on their own. And we look forward to seeing you all out on the road and continuing to engage about the future of this great company. Thank you for your time today.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.