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Southwestern Energy Company (SWN) Q3 2021 Earnings Call Transcript

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SWN earnings call for the period ending September 30, 2021.

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Southwestern Energy Company (SWN -2.86%)
Q3 2021 Earnings Call
Nov 4, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Southwestern Energy Call discussing its Third Quarter Results and the Acquisition of GEP Haynesville. [Operator Instructions]

I will now turn the call over to Brittany Raiford, Southwestern Energy's Director of Investor Relations.

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Brittany Raiford -- Director of Investor Relations

Thank you, Tom. Good morning and thank you for joining today's call. Joining me today are Bill Way, President and Chief Executive Officer; Clay Carrell, Chief Operating Officer; Carl Giesler, Chief Financial Officer; and Jason Kurtz, Vice President of Marketing and Transportation. As a part of this morning's announcement, we also posted a new investor presentation to our website. Before we get started, I'd like to point out that many of the comments we make during this call are forward-looking statements that involve risks and uncertainties affecting outcomes. Many of these are beyond our control and are discussed in more detail and the risk factors in the forward-looking statement sections of our annual report and quarterly filings with the Securities and Exchange Commission and the forward-looking statement sections of the respective announcement.

Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results on developments may differ materially and we are under no obligation to update them. We may also refer to some non-GAAP financial measures which help facilitate comparison across periods and with peers. For any non-GAAP measures we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release available on our website.

I will now turn the call over to Bill Way.

Bill Way -- President and Chief Executive Officer

Thank you, Brittany and good morning, everyone. We really appreciate you joining us on the call today for our discussion. We delivered another strong quarter, both financially and operationally. In addition, we financed, closed and integrated the Indigo acquisition, a transformative opportunity that positions us well in the two premier US natural gas basins. Our dedicated team has worked closely and incredibly hard over the last year to execute our strategy, many of whom are listening to this call.

By way of one example we just surpassed 4 trillion cubic feet of responsible natural gas production in our Pennsylvania asset in Northeast Appalachia which continues to deliver great value to the Company. So to my team on this call and across the Company, I congratulate you on all -- on all that you do on a job well done and thank you. Our strategy is comprised of four interdependent pillars including creating sustainable value, protecting financial strength and progressing our leading operational execution. Results delivered by our teams in these first three pillars allow us to execute the fourth pillar, capturing the tangible benefits of scale. Our strategic intent is to be the preferred investment vehicle for institutional investors to gain exposure to responsible natural gas development.

The acquisition of GEP announced earlier today directly supports that intent. It also meets all the criteria of our disciplined acquisition framework as any deal must. GEP brings large scale core Haynesville assets with stacked pay Haynesville and Middle Bossier inventory. The 226,000 net effective acres are adjacent to SWN's newest operations in the Haynesville. The addition of GEP increases SWN's total production to 4.7 billion cubic foot a day [Phonetic] equivalent per day, including 1.7 Bcf per day from Haynesville making us the largest operator in the Haynesville. It will also increase SWN's expected year end 2021 SEC proved reserves to approximately 21 trillion cubic feet equivalent. The transaction had 700 economic locations to our high quality inventory with the scale adding acquisitions, well cost reductions, performance enhancements and commodity price improvement. The Company now has approximately 6800 economic locations across the enterprise.

Given the strength and complementary nature of our portfolio, we expect to have investment activity across all of our operating areas in 2022 as part of our maintenance capital program. With the expanded exposure to LNG -- the LNG corridor and the growing demand centers along the Gulf Coast, this acquisition will further improve the Company's overall basis differentials and increase our margins. The access to high value global markets will supplement our premium Appalachia outlets [Phonetic]. As part of our leading ESG practices, we plan to implement a responsibly sourced gas program in the Haynesville. Beyond the clear ESG sustainability benefits, we believe that responsibly sourced gas will ultimately lead to enhanced margins and improved economics from greater access to global markets.

Turning to the terms of the deal, the $1.85 billion total consideration is comprised of $1.325 billion in cash and approximately $525 million of SWN stock. The cash portion will be debt financed and the equity portion will consist of 99 million shares of SWN stock calculated per the agreed 30 day VWAP of $5.28 per share as of November 3. We have a clear and appropriately de-risked path to reach our revised lower debt and leverage targets announced in our press release and Carl will more fully discuss this in a minute. The purchase price implies an enterprise value to projected '22 EBITDA of 2.9 times, a meaningful discount to where SWN currently trades and at a discount compared to other recent natural gas consolidation transactions.

Given this attractive valuation, we expect that the transaction to be immediately accretive to SWN's margins, returns and key per share metrics. Cash flow per share, free cash flow per share and earnings per share all increased by approximately 15%. Included in these accretion estimates are the already identified $25 million of synergies in 2022. We expect our synergy capture to increase to $50 million per year starting in '23. The integration of GDP will be enhanced by our recent experience integrating Indigo as well as with a six-month transition services agreement negotiated with the seller. We expect to close the deal by year end subject to customary closing conditions, including regulatory approvals.

Now let me turn the call over to Clay Carrell, who will provide an update on the quarter and operational perspectives on the GEP acquisition.

Clay Carrell -- Executive Vice President and Chief Operating Officer

Thanks, Bill and good morning. Before I get to some operational details related to the acquisition, I want to touch on the third quarter results for our team hit the ground running in Haynesville and continue to deliver in Appalachia. In 3Q, which included 30 days of Haynesville, we reported total production of 310 Bcfe at the top end of our guidance range. We exited the quarter producing 4 Bcfe per day including 1 Bcf per day in Haynesville. Total production included 106,000 barrels per day of NGLs and oil which is flat with the previous two quarters. During 3Q, we averaged four drilling rigs in Appalachia and there were six rigs running in the Haynesville with two completion crews in each area.

We have now been operating the Haynesville for two months. Our new employees in Houston and Louisiana have been integrated into the business and operations have been running smoothly. Our initial focus in Haynesville has been to leverage the operational expertise that our combined teams bring to the table. In September, we brought our first five wells online, all of which were in the Middle Bossier with an average initial production rate of 24 million cubic feet per day and an average c lat of approximately 6300 feet. These results are indicative of the quality of our existing Haynesville position and with today's GEP acquisition announcement, we increased the scale of that high quality position.

As Bill mentioned earlier, the proximity of the GEP acreage to our existing Haynesville position will allow for operating economies, marketing synergies and contract optimization realizing the benefit of our enhanced scale. GEP is currently running four rigs and one completion crew and expect to exit the year running three rigs. We will issue formal 2022 guidance early next year and maintain our commitment to maintenance capital program with investment of approximately 1.9 billion holding production flat.

I'll close by acknowledging the continued high-end performance of our technical and operating teams who are driving improved performance through efficiency gains, innovation and knowledge transfer. We have established a track record of leading operational execution in Appalachia and we expect to do the same in Haynesville as we move forward with our 2022 development plan.

I'll now turn it over to Carl to discuss the financial highlights.

Carl Giesler -- Executive Vice President and Chief Financial Officer

Thank you, Clay. During the quarter, we generated $105 million of free cash flow. We expect our free cash flow to materially increase in the fourth quarter. We ended the third quarter with $4.2 billion in total debt, reducing our leverage by 0.4 times to 2.2 times.

Turning to today's announcement, we plan to finance the acquisition in the manner that A, protects our financial strength; while B, minimizing equity dilution. From a debt perspective, the deal is essentially leverage neutral with our expected year end leverage near 2.0 times. And as Bill referenced and I'll discuss further, we have a clear and appropriately de-risked path to materially lower total debt and leverage ratios. From an equity perspective, the transaction should drive immediate double-digit accretion across key [Indecipherable] maintenance. Given our increased scale, with the current commodity price outlook, we would expect approximately $2.3 billion in free cash flow over the next two years.

We intend to apply our disciplined hedging approach to the acquired production. We should go a long way to safeguarding this expected cash flow. Using this cash for debt repayment, we'll reduce our total debt to approximately $3 billion, our leverage ratio to near 1.0 times, our debt would then be at the low end of our announced $3.0 billion to $3.5 billion target range and our leverage ratio at the lower end of our newly announced 1.0 times to 1.5 times target range. We added the absolute debt range to the updated leverage target range to provide better clarity to the market about how we're thinking about the right hand side of our balance sheet.

Importantly, as we approach our total debt and leverage targets, we would look to initiate a return of capital program. The Company's hedging strategy remains a core part of our enterprise risk management process. We would like to clarify the execution of some aspects of our hedging approach. Given the Company's improved financial strength, going forward, we will target hedging at a level sufficient to cover the Company's expected costs and capital program assuming conservative pricing on unhedged production. In general, with this dynamic construct, where hedging levels will shift to lower or higher inversely with commodity prices, and directly changes to our cost structure and capital investment. We believe our hedging approach protects the Company's financial strength while retaining appropriate exposure to potential commodity price upset.

This concludes our prepared remarks, please open the line for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Holly Stewart with Scotia Howard Weil. Please go ahead.

Holly Stewart -- Scotia Howard Weil -- Analyst

Good morning, gentlemen, Brittany.

Bill Way -- President and Chief Executive Officer

Good morning, Holly.

Brittany Raiford -- Director of Investor Relations

Good morning.

Holly Stewart -- Scotia Howard Weil -- Analyst

Maybe, first one, Clay, I think you mentioned consolidated capex of $1.9 billion, first, I guess, is that right? And then could you allocate out for us, what GEP was expected to spend this year?

Clay Carrell -- Executive Vice President and Chief Operating Officer

So definitely the $1.9 billion is the correct number. We expect to have capital spend in all areas as we move into 2022. I don't -- I don't have what their full year 2021 capital number was. We know that four rigs are running right now and that's how they'll exit the year.

Bill Way -- President and Chief Executive Officer

Yeah. And Holly we put out our '22 plan in the first quarter like we usually do and even the $1.9 billion is just directional at this point. What we will be, and as a maintenance capital program enterprise -- for the enterprise.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. And maybe Bill, just to follow on to that point, I believe that GEP and Williams have a JV to develop a portion of its Haynesville and put out some pretty big growth plans associated with that. How should we reconcile maybe that with your plans on GEP's acreage?

Bill Way -- President and Chief Executive Officer

Yeah, I think, just for clarity, and you can check with them later if you want to, but GEP that acreage that you're talking about is in a separate company than what we are dealing with. It's never been a part of the acreage that we acquired it. They call it GEP too, it's a separate deal with Williams. So we are not privy to any of that. It's not something that we looked at and that's not a change from any part of this whole acquisition. It's always been carved out, it's relatively new arrangement.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. Okay, that's good clarification. Thank you so much.

Bill Way -- President and Chief Executive Officer

Yeah, thanks.

Operator

The next question comes from Jeoffrey Lambujon with Tudor, Pickering, Holt. Please go ahead.

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

Good morning and thank you for taking my questions.

Bill Way -- President and Chief Executive Officer

Good morning.

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

First one, I just wanted to ask about the puts and takes on the pro forma headline metrics for 2022, in comparison, how you're thinking about the business pre-deal that you appreciate the per share commentary on the change in free cash flow, cash flow and EPS. But just since the last time, I think the pre-deal estimates for 2022 are run at something like to $2.75 [Phonetic] gas. I was hoping you just give us a sense of how some of those metrics on slide 10 for capex, free cash flow and leverage, we're tracking, again pre-deal for next year at $4 gas.

Brittany Raiford -- Director of Investor Relations

Yeah, great question and you pointed out, Jeoff, that the metrics that are on slide -- I think slide 10 and you referenced $4 gas, and so definitely accretion on the free cash flow side, and free cash flow on all of the per share metrics leverage neutral. So we feel really comfortable that the deal progresses our financial strength and fits right in line with our strategic framework there.

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

Okay. Cool, I'll Just circle back on that after the call. The second question is on free cash flow use. I just wanted to kind of understand the priorities as you get kind of closer to that 1.5 times level at the top end of the sustainable range that you all updated obviously getting there closer to year end 2022. As we move toward that timeframe should we think about free cash flow allocation as 100% dedicated to the balance sheet. I'm just curious on how that balances already might be on shareholder returns and when that might chucked [Phonetic] into the discussion as you integrate the asset base?

Bill Way -- President and Chief Executive Officer

So you correctly, I think interpreted, started the question out that when we achieve the levels of debt and leverage that we've put out in our new press release, we have other options. Until we get there, we are committed to bring that debt down. As Carl said in the past, it is appropriately risk, are derisked and clear. Once we have $3 billion to $3.5 billion of debt and 1 times to 1.5 times leverage, then obviously our attention shifts to -- appropriately to, can we return, how do we return capital to shareholders. And then you open up the aperture a bit wider, and you talk about dividends. You talk about share purchases, number of different ways that we do that and that would be our intent.

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

Great. Thank you.

Operator

The next question comes from Doug Leggate with Bank of America. Please go ahead.

Bill Way -- President and Chief Executive Officer

Good morning, Doug.

John Abbott -- Bank of America -- Analyst

Good morning, this is -- unfortunately, this is a pretty busy morning, this is John Abbott on for Doug Leggate.

Bill Way -- President and Chief Executive Officer

Good morning, John.

John Abbott -- Bank of America -- Analyst

Just a couple -- hi, just a couple of questions here. So you've done two deals. You'll provide your budget in early 2022. Just thinking from a high level, you know, given your proximity to, in the Gulf Coast with your Haynesville assets, how do you -- how do we think about, how should we think about the opportunities for potential margin expansion? We have some FTE agreements up in Appalachia. But what is the ability -- when you think about those agreements to potentially shift Appalachia activity to the Gulf Coast?

Bill Way -- President and Chief Executive Officer

Yeah, the headline for every year when we do our planning and our budgeting, as you well know is we take our portfolio of drilling opportunities with an end game being a maintenance capital type program across -- from the enterprise perspective. And we -- and we again strip to rent economics on all of those and we force rank them, first on economics, and then on any other lever that one must deal with, opportunity to improve the margin by moving a little more over here, a little more over there, staying flexible because of vertical integration where we can shift on the fly, but we have no constraints upon us. For example, insufficient transportation or extra -- a lot of extra transportation. We have no MVCs, so -- and we actually have quite large banks in front of those MVCs, so quite -- well protected. So we have a lot of flexibility. And look, we will take the changes in the commodities through the -- into winter, a lot of these other thoughts and ideas, the rate of how we want to grow midstream-gathering faster or you don't want to create shark fins of investment and overcapitalize a certain area of the expense for another. So we take a look at all that.

One of the things we know is that, that the quality of the inventory in the last three deals we've done are complementary such that we'll have some level of activity in each area and the result of that, when you -- when you add it all up, it's focused on maximizing value and optimizing the generation of free cash flow while maintaining a maintenance capital level production profile.

John Abbott -- Bank of America -- Analyst

Right. It is sort of sticking with the marketing theme here.

Bill Way -- President and Chief Executive Officer

Sure.

John Abbott -- Bank of America -- Analyst

So for GeoSouthern, I mean, do they basically have further sale lease [Phonetic] agreement, do they have any FTE? And then when you sort of think about Indigo and then GeoSouthern together, could you talk about the opportunities to improve marketing along the Gulf Coast?

Jason Kurtz -- Vice President of Marketing and Transportation

Yeah. So, this is Jason. I manage the marketing group. That's a great question. You know, when we look at GeoSouthern, they roughly have 600,000 a day of FTE on three different pipes and then when you roll that in with the Indigo asset, we have probably over -- just over 2 Bcf a day of FTE among the two companies on a pro forma basis, but really those assets. Clay mentioned that earlier, they're very complementary from a marketing perspective, meaning that there are synergies between the downstream pipelines and the gathering system. So there is the ability to deliver into multiple pipelines, where we have transport from the same -- from the same gathering system. So there's optionality and flexibility to continue to build out their transportation and future sales portfolio.

Bill Way -- President and Chief Executive Officer

And so strategically we've gained access -- greater levels of access to the important Gulf Coast market where we already have 65% of our volume able to reach there. We have rightsized and right price transportation and then the Gulf Coast market and the LNG market bring all kinds of opportunities to the table and we will continue to optimize those, as part of those plans we'll talk about in February as well.

John Abbott -- Bank of America -- Analyst

Appreciate the color. And thank you for taking our questions.

Bill Way -- President and Chief Executive Officer

Sure. Thank you.

Operator

The next question comes from Charles Meade with Johnson Rice. Please go ahead.

Charles Meade -- Johnson Rice -- Analyst

Good morning, Bill, Clay and Carl in the whole Southwestern team there.

Bill Way -- President and Chief Executive Officer

Good morning. How are you?

Charles Meade -- Johnson Rice -- Analyst

I'm doing well, thank you. I think this first question maybe for Carl. In your prepared comments, Carl, you mentioned that, that you want to, I believe I heard you say that you want to finance this deal in a way that limits equity dilution. So should we interpret that is being and I recognize, you've been -- want to negotiate with yourself and publicly, so feel free to point [Phonetic] on this, if there is no color you want to add. But should we interpret that as saying that there is no equity on the table for this $1.325 billion. And then secondly, is there any kind of guidance you want to give us on what, how many tranches or what form that longer-term financing of that bridge will take?

Carl Giesler -- Executive Vice President and Chief Financial Officer

Sure. I think our press release made clear that we had committed financing to support the $1.325 billion consideration. So we don't anticipate issuing public equity to fund that portion of the purchase price. So I'm happy to make that clear. And no, it's not negotiating against ourselves. And then, no, I think is easily deductible from our commentary with the cash flow that we expect to generate over the next few years, as a company, I wouldn't participate, a meaningful portion of our permanent financing to be pre-payable.

Charles Meade -- Johnson Rice -- Analyst

Yeah.

Carl Giesler -- Executive Vice President and Chief Financial Officer

Sure, not needed [Phonetic]. Post $1.325 billion of debt against this asset permanently.

Charles Meade -- Johnson Rice -- Analyst

Right, right. Well, thank you for that. That's where I was leaning, but thanks for the clarification, Carl. And then if I could ask a question about the assets. And I'm wondering if maybe you guys can help me and other people learn a little bit -- a little bit more about this play. And that you come to this play with fresh eyes sometime over the course of '20 or '21 and you've made you made two deals here. And as I look at the math of, that you laid out there -- the first year, the Indigo was more kind of biased to the south and west. In this deal is a little bit to the north and east and I'm wondering if you can give us a sense of how the kind of relative strength or relative attractiveness varies across their position. And with a particular mentioned of how the Bossier prospectivity, where you kind of terminate to start to attenuate as you move north.

Clay Carrell -- Executive Vice President and Chief Operating Officer

Yeah, I'll take that. So starting with your Bossier comment, we are talking about 700 inventory locations here and it is close to a 50-50 split. There is a little more Haynesville, but it's close to a 50-50 split across the position, very similar to the Indigo position that we picked up. When you look at the map, the core of the GEP acreage fits pretty nicely in and around the acreage that we picked up from Indigo. When you look at the map that Southeast part of DeSoto Parish and the corner of Nacogdoches Parish is where we've been seeing really good Haynesville well results best in the basin, Haynesville and Middle Bossier, that a lot of the industry public data has also reported on. And when you look at the color combination here, Indigo with had a big grouping of acreage and then this GeoSouthern acreage hits on either side of that, which gives us more continuity across that really prolific part of the acreage position.

When you go north a little bit, that kind of fills in a whole more in Central DeSoto Parish, that's very high quality Haynesville, Middle Bossier, it's next to the VIM [Phonetic] area that we picked up and the Indigo acquisition which is in Louisiana, but closer to the western part of Louisiana, all similar performance and depths in that area. And then we're picking up a new area in the northern part of Red River Parish, which is also high quality performance, a mixture of Haynesville and Middle Bossier and essentially all of the position is greater than a 2 Bcf per 1,000 EUR and then when you go down toward that Southeastern piece that both deals connect, that's even better than the 2 Bcf per 1000 EURs. So we really like the complementary nature of the GeoSouthern acreage after already own in the Indigo position.

Charles Meade -- Johnson Rice -- Analyst

Thanks for all that added detail, Clay.

Clay Carrell -- Executive Vice President and Chief Operating Officer

Thank you.

Operator

The next question comes from Kashy Harrison with Piper Sandler. Please go ahead.

Bill Way -- President and Chief Executive Officer

Hi, Kashy.

Kashy Harrison -- Piper Sandler -- Analyst

Good morning, everyone. Congratulations on the deal between GEP, Indigo and Montage. I'm sure your team has been extraordinarily busy over the past year and a half.

Bill Way -- President and Chief Executive Officer

Appreciate that.

Kashy Harrison -- Piper Sandler -- Analyst

So my questions are mainly financial related, and maybe a sprinkle of strategy as well. So I was wondering if you could provide some clarification on just pricing risk mitigation on this deal. Carl, I know you talked about maybe the hedging philosophy is evolving a bit, but as we think about this deal specifically there is $1.3 billion worth of debt. And so I'm wondering, if you actually do intend to hedge this particular deal quite aggressively, just to make sure, you don't get cautioned on unfavorable position at the cycle turns. If we don't have weather or something else goes as unexpected.

Carl Giesler -- Executive Vice President and Chief Financial Officer

It's fair question. I think what we're prepared to say, we've already really said is we recognized the large quantum of debt, it puts our pro forma debt quite a bit higher than our target debt range. We're committed to getting that target to that range and we have a pretty disciplined hedging strategy that sort of our overall risk mitigation framework. Now, I'll just leave it at that.

Bill Way -- President and Chief Executive Officer

And then I think the Company's cash flow generation is, it is at the scale, we're right now estimated to be quite robust.

Carl Giesler -- Executive Vice President and Chief Financial Officer

Exactly.

Bill Way -- President and Chief Executive Officer

And all of that we've earmarked, if you want to get really close, really clear, we've earmarked all of that free cash flow to go to paydown debt until we reach our target. And that discipline is firm one.

Kashy Harrison -- Piper Sandler -- Analyst

Okay. And then maybe just...

Carl Giesler -- Executive Vice President and Chief Financial Officer

And then...

Kashy Harrison -- Piper Sandler -- Analyst

Sorry, go ahead.

Carl Giesler -- Executive Vice President and Chief Financial Officer

Go ahead.

Kashy Harrison -- Piper Sandler -- Analyst

Oh, no, no. Please go ahead.

Bill Way -- President and Chief Executive Officer

No. And then if you think about enterprise risk management and the fact that our, one of the tenants of that is managing commodity price and basis risk, we will continue to do what we are known for. And that is managing the risk associated with the capital outlays we had and other costs. So, yeah, there'll be hedges across our portfolio and we do that on a rolling three-year basis. And that practice will continue. And then the commodity price that is out there, enables us to hedge at different levels.

Kashy Harrison -- Piper Sandler -- Analyst

Got you. And then maybe either for Bill or Carl, just a quick clarification on the definition of sustainable leverage. So when you talk about getting through a specific 1 times to 1.5 times, sustainable leverage, does that contemplate using a price beneath the strip at any given point in time? Or does that take trough cycle pricing into consideration and really where I'm going with this is, it doesn't make sense to maybe go beyond the $3 billion to $3.5 billion just to make sure that, hey, if the cycle eventually turns, and we're looking at $2.50 [Phonetic] gas for whatever reason, Southwestern would be in an advantage position to make move strategically out within the downcycle.

Carl Giesler -- Executive Vice President and Chief Financial Officer

It's great question. I'll answer it in a couple of ways, most directly when we talk about long-term through the cycle, sustainable leverage ratio range of 1 times to 1.5 times, that's sort of where we'd like to be to maintain an appropriate balance of financial safety and still have an appropriate cost of capital. We don't want to be over-equitized. And so we would look to manage our business in that leverage range. I -- even got well below 1 times, when we try and get back above 1 times. And if we got above 1.5 times, get back down into that range. Now, so I would think about that, this is ongoing target despite commodity prices, up down. Now the other element, which is new for us to guide to is, what is our target quantum of debt. And with that $3 billion to 3.5 billion was predicated on a level of debt that we are quite comfortable with leverage in a low commodity price scenario. We run that depending on what shift, what prices you use, really low prices at that level of debt, doesn't give -- approach 2 times, not much more than that. And that's something that we are comfortable weathering downcycle with from a leverage perspective. So that basically how we zeroed in on that range for total quantum of debt with this new pro forma business.

Kashy Harrison -- Piper Sandler -- Analyst

Makes a ton of sense. Thank you.

Bill Way -- President and Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I will now turn the conference back over to Bill Way for any closing remarks.

Bill Way -- President and Chief Executive Officer

Well, thank you for being here today. And joining us on our call. We're very excited about the progress we've made in transforming the Company. And I hope the scale of the Company shows through on, as you look at our materials, the activity that we've done around growth and scale however is strongly supported by those other three pillars, I talked about and making sure that we're protecting our balance sheet and clearly looking after our financial strength, our costs and having the shareholder in front of our mind all the time. So as we continue to take this next step, we'll keep you posted and we look forward to having conversations on our next call. With that, thank you for joining us.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Brittany Raiford -- Director of Investor Relations

Bill Way -- President and Chief Executive Officer

Clay Carrell -- Executive Vice President and Chief Operating Officer

Carl Giesler -- Executive Vice President and Chief Financial Officer

Jason Kurtz -- Vice President of Marketing and Transportation

Holly Stewart -- Scotia Howard Weil -- Analyst

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

John Abbott -- Bank of America -- Analyst

Charles Meade -- Johnson Rice -- Analyst

Kashy Harrison -- Piper Sandler -- Analyst

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