1Q1 2022 EQT Corp Earnings Call
Industry to meet the energy demands of Americans, while providing energy security to the world.
At EQT, we are uniquely positioned to be the linchpin in putting this game plan into action as the largest natural gas producer in the U S. Our scale provides a material supply base with multiple decades of core high return inventory.
Depth and quality of our resource gives us tremendous confidence in being able to meet growing long term natural gas demand. Our recent investment grade credit rating upgrade highlights the differentiated strength of our balance sheet.
And as the largest producer of responsibly sourced guests with line of sight to being net zero buyer before 2025, we believe eqt's natural gas production is among the most coveted energy molecules in the world.
We are currently in discussions with LNG end users across various geographies and are contemplating equity investment opportunities in LNG export facilities, our firm transportation portfolio delivers over one Bcf a day of production to the Gulf Coast, which will underpin the initial leg of our LNG strategy. We are pursuing a portfolio approach from the perspective of <unk>.
At end to end markets.
Our goal is to have our first LNG contract signed by the end of the year and believe we could see meaningful accretion associated with our LNG strategy by the middle part of the decade.
Turning to first quarter results, we executed upon our guidance and got off to a fast start in returning capital to shareholders since announcing our capital allocation framework in December on the operations front, we began to realize the returns from our investment in our mixed use water system and execution of large scale combo development in West Virginia, Our first two pads utilizing.
Modern development runs came in with D&C costs, nearly 20% below legacy West Virginia development. Furthermore, after nearly a decade of advocacy West Virginia Governor Justice recently signed into law, modern pooling and utilization legislation, marking a huge win for both the industry and landowners in the state the unique property laws and Wes.
Virginia have made it a challenging place to operate oftentimes, resulting in delays in planting risk. This new legislation will streamline our operations and allow for more efficient long lateral development of our nearly 300000 core net acres and when combined with the synergies we are realizing on the water and operational front should drive additional value creation for our.
<unk> over the coming years.
Since announcing our shareholder return framework in December we have repurchased $230 million of our common stock at an average price of approximately $23 per share reducing our share count by approximately two 5% and we made our first $47 million quarterly fixed dividend payment. We also repaid 570.
Of 2022 senior notes during the quarter marketing substantial progress towards our goal of reducing debt by $1 5 billion by year end 'twenty three in total we returned $816 million during the quarter via share repurchases dividends and debt retirement.
With the robust backdrop for natural gas prices, we are increasing our 2022 free cash flow outlook by 50% to roughly $235 billion at the midpoint.
We believe the recent rise in natural gas forward curve is structural in nature and have positioned EQT stakeholders to meaningfully benefit and.
In the past quarter, we have not added any hedges, but early in this pricing run up we restructured our existing Q1 2023 swaps into callers with a ceiling of $10 per million Btu, providing shareholders direct exposure to the recent rally in both near and long dated natural gas prices looking to 2023, despite the recent appreciation.
<unk> in our share price, our 2023 free cash flow yield is approximately 25% at strip pricing as natural gas prices have rallied alongside our stock we now expect to generate roughly $17 billion of.
Cumulative free cash flow from 2022 through 2027, representing approximately 115% of our current equity market capitalization beyond 2027, our 15 plus years of core long lateral inventory has also substantially increased in value due to the rally in prices and the realisation by investors and policymakers.
The key role that natural gas will play in providing cheap reliable and low carbon energy to the world for decades to come.
We believe that while many operators core inventory is being depleted EQT will remains uniquely positioned amongst peers to continue delivering predictable robust returns from our deep core inventory. This outlook underscores the compelling value opportunity at EQT and affords us tremendous flexibility to build upon our capital return framework moving forward I will now.
I'll turn the call over to Dave.
Thanks, Toby and good morning, everyone I'll briefly summarize our first quarter results before moving to the balance sheet hedging RFP and with some guidance updates.
Volumes in the first quarter were 492 Bcf.
Roughly in line with the midpoint of guidance, we experienced some weather related and trucking service impacts that put modest downward pressure on our first quarter production to address tightness in the trucking market, we began to implement new technologies with positive results and believe we can substantially mitigate any sustained impact moving forward our adjusted.
Operating revenues for the quarter were $1 $5 7 billion or $3 19 per Mcf.
And our total per unit operating costs were $1 33 per Mcf.
As a result, our operating margins were $1 86 per Mcf fee about 60 cents higher than last year and on higher volumes.
Capital expenditures were $310 million, which was 5% below the midpoint of guidance and benefited from drilling costs coming in below budget adjusted operating cash flow was $889 million and free cash flow was $580 million inclusive of about $15 million of nonrecurring expenses for changes and litigation reserves and settlements.
Our capital efficiency for the quarter came in at 63 per Mcf or <unk>, 3% better than what was implied by the midpoint of our capital and production guidance ranges.
During the first quarter, we achieved investment grade credit ratings from Fitch and S&P, marking yet another fast milestone in our efforts to become a more sustainable company for our stakeholders investment grade ratings provide us an expected approximately $20 million per year in interest savings and improved liquidity strong ability to maintain.
<unk>, our $2 5 billion under secured revolver and potentially for higher revenue tied to our LNG strategy.
During the quarter. We retired all our 2022 notes, which leaves us about $900 million left of our 2023 goal of reducing absolute debt by $1 5 billion.
Also worth noting with rising interest rates, we may be able to retire an even greater amount of principal with these dedicated dollars.
Our trailing 12 months first quarter 'twenty, one net leverage stood at one nine times at.
At recent strip pricing, we forecast our year end 2022, and 2023 net leverage to be approximately <unk> eight times and one times respectively.
Forecast assumes we use the full $1 4 billion of dividends and share buybacks. We continue to target a long term net leverage goal of one to one five times, assuming a conservative $2 75 per Mcf natural gas price, which should bulletproof our balance sheet through all parts of the commodity cycle.
We ended the quarter with $2 1 billion of liquidity and expect the benefit of investment grade credit ratings to add an additional 200 plus million to our liquidity position over the near term as letters of credits are eliminated.
We also recently completed the sale of the remaining balance of the shares of equity <unk> midstream common stock for proceeds of $189 million as highlighted last quarter, we transitioned from a defensive hedging strategy to a more balanced approach that utilizes white collars inputs, providing prudent downside protection, while allowing us to benefit from <unk>.
Natural gas prices, our percentage of production hedged for 2022, and 2023 remains unchanged from our prior outlook with 65% and 45% of volumes hedged respectively.
However, we opportunistically restructured approximately 450 million a day of first quarter 2023 swaps, replacing them with Costless collars with a floor price of approximately $5 and a ceiling of approximately $10.
We are even better positioned to capture more upside from the bullish fundamental setup for the upcoming winter as storage refill will likely continue to underperform.
Recall last September we spent approximately $75 million to restructure approximately 15% of our fourth quarter to 21, and 2022 hedge book to gain greater upside exposure to natural gas prices.
At recent strip pricing the mark to market value of these positions is approximately $600 million.
We also added to the basis hedge positions for Knight with 90% of our in basin production now covered for the balance of 2022.
Fundamentals within Appalachia remained solid in basin production has been trending below forecast. This year with volume is running approximately two bcf of lower than year end exit 'twenty rates, we believe the capital discipline due to lack of pipelines as well as general oilfield service tightness or the key contributing factors at the same time gap.
Power generation is surprising to the upside as overall growth in power demand is occurring.
Coal supply.
Come even more increasingly tight.
Europe's recent decision to ban rushes coal imports could lead to further increases in natural gas demand as more northern Appalachian coal is likely to be exported to Europe next year.
These dynamics are leading to significant in basin gas price strength with <unk> and Dom south cash prices trading around $6 40 per <unk>.
As shown on slide 20 of our Investor deck local prices are highly correlated to Henry hub with the average <unk> forward curve trading at 75% to 80% of Nymex as Appalachian production growth slows while demand continues to rise we believe the fundamental backdrop for local pricing remains healthy.
On the RFP front, we've now signed a total of 13 deals to sell responsibly sourced gas to various counterparties totaling more than three Bcf per day.
This includes our recently announced deal with Bloom energy, which purchased certificates from us to cover all of its U S fleets natural gas consumption for the next two years.
Given the low methane intensity of our production. This represents the equivalent of taking more than 38000 passenger vehicles off the road annually. This deal highlights the expanding opportunities we have to monetize <unk> into the industrial complex and further validates the market's recognition of value associated with our <unk>.
Low emissions natural gas.
As the largest producer of RFP in the U S. We are uniquely positioned to capitalize on these opportunities and directly facilitate emissions reduction goals across multiple industries.
Turning to guidance, we are raising the midpoint of our 'twenty two outlook for adjusted EBITDA by roughly 25% to $4 billion and free cash flow by 50% to $2 three 5 billion, respectively, which reflects the materially rally in the forward gas curve since issuing our 'twenty two two times.
As our hedges roll off next year or 'twenty, three free cash flow should expand by 50% year over year, providing differentiated free cash flow per share growth, even as we maintained flat production volumes.
As Toby mentioned, we see $17 billion of cumulative free cash flow from 2022 to 2027 at recent strip pricing.
We assume all cash taxes and modest wallet cost inflations in these projections, but do not assume any benefit from the broader success of our next generation well completion design as it relates to capital oilfield service inflation has accelerated of late pricing pressures broadening out across all service lines.
That said, we are relatively well positioned with more than 50% of our 2022 capital locked in and we remain comfortable with our capital guidance range at this time.
Our long term sand supply agreement is also a key differentiator for EQT at market tightness has driven increased industry focus on security of sand supply I'll now turn it back to Toby for some concluding remarks.
Dave to conclude today's prepared remarks, I want to reiterate a few key points. One we believe the U S is a tremendous opportunity and responsibility to provide energy security to our allies, while concurrently addressing global emissions associated with foreign call and this can only be done by unleashing U S LNG to as the largest natural.
Gas producer in the U S with a multi decade core inventory investment grade balance sheet and the largest base of responsibly sourced gas EQT will play a key role in meeting both domestic and global natural gas demand growth for the foreseeable future.
And three the recent rise in the natural gas curve is likely structural in nature and EQT shareholders are well positioned to benefit on the back of the cost structure and balance sheet improvements we've achieved over the past several years, the showing of our base decline in future gathering rate improvements should drive an additional 10% reduction in our breakeven Nymex price through 2020.
Seven.
Four lastly, we are aggressively executing upon our capital allocation framework and our updated free cash flow outlook underscores the material flexibility we have to expand shareholder returns over time I would now like to open the call up for questions.
Of course, thank you.
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Pause here briefly ask questions registered.
Our first question comes from Erin <unk> with J P. Morgan Aaron Your line is now open.
Yeah. Good morning, Toby My first question is just on the LNG.
On the Baker Hughes call.
That management team highlighted the potential for 100 to 150 million tonnes per annum.
New global LNG capacity for the next couple of years most of that concentrated.
In the U S North America.
Thus far.
In my coverage, we've seen EOG and Apache.
Okay agreements linked to global gas pricing I was wondering if you could discuss.
What youre seeing today, obviously the market has changed a little bit over the last couple of years and I wanted to maybe if you could give us some more details on the first LNG contract that you think could be signed by the end of the year.
Yeah, Hey, Arun good morning.
So there's been a tremendous amount of demand that we feel that here at EQT over the past few months.
I'd say, what EQT can offer.
With some of the contracts that we're looking at right now is.
Is to reduce the exposure for these international buyers to with the volatility that we're experiencing right now I think some of the contract structures that we're looking at.
<unk>.
To provide a call or type structure for these international buyers.
And obviously, it's going to be something that's.
Respects the <unk> right now, but I think going longer term I think just gives us exposure to rising prices.
But provides provides the international buyers allows them to avoid the blowout because thats really the part that really hurts their countries and their economies is really significant pricing swings that they're experiencing right now.
Great Great and my follow up Toby.
In the deck you guys have highlighted.
Over the next couple of years.
Got it.
After debt retirement, the buybacks the dividend you would have.
Call it $3 billion of excess free cash flow.
Over the next couple of years.
You look at your opportunity set today.
How would you rank the priorities for that excess free cash flow between between additional returns to shareholders.
M&A dividends I loved it.
<unk>.
Could see where your head's at particularly with the stock now and are moving a lot higher than when you are buying back stock.
On a year to date basis.
Yes, well, while the current environment is sort of has certainly given us even more ability to return more capital to shareholders. That's very exciting I think one thing that will be consistent as our approach towards making the best risk adjusted allocation of this capital.
So listen I mean, this is the environment is constantly changing but we still see a tremendous opportunity in our stock.
And that looks to be like.
They used to be a priority in addition to accelerating the paydown of our debt.
<unk>.
I'd say were going to continue to assess the landscape, but that will be our guiding principle is just making the best risk adjusted return for our shareholders.
Great. Thank you.
Got it.
Thank you Anne.
Our next question comes from.
Holly Stewart with Scotia, Howard Weil.
Caller. Your line is now open good morning.
Good morning, gentlemen.
Maybe Toby just to continue on with LNG theme I'm sure, we'll beat a dead horse today.
Okay.
EQT is really spearheaded this whole LNG push and now we have a few potential policy changes that are coming out of the EU.
And the U S.
So maybe my question would be.
You're looking at the landscape what signals are you looking for to see that we're on the right track and maybe what do you expect to see first.
Yes, Holly I think.
Calling out sort of the biggest opposition against.
Natural gas and really hydrocarbons in general.
It is really we need to see a shift in the general sentiment.
And a differentiation that natural gas is.
It should not be lumped in as with coal and just be called a fossil fuel.
I think that there is a couple of things going on that people need to be aware of one <unk>.
Emissions around the world are rising to emissions in the United States are dropping.
And three the conclusion people need to take us.
Not really people need to understand that it doesn't really matter, what we do in the United States.
Because we've dropped the missions here, but emissions around the world are still rising and so.
Zero carbon solution only mentality need to shift towards a any de carbonization opportunity needs to be considered and put on the playing field and we are starting to hear those signals.
Specifically from John Kerry to say that natural gas has is a decarbonising tool.
That's incredibly encouraging to hear I think that message is going to start.
Bleeding out into the to be at a more common.
Practical mentality and when you see that then I think we'll be able to start seeing the doors open on policies that will encourage and fast track the pipelines in LNG facilities that we need to build.
We are fortunate that there is a tremendous amount of demand for this for international LNG.
It's just really about having a framework that allows us to build these pipelines and LNG facilities faster than ever before and I think the mentality shift towards decarbonising.
Projects like Unleashing U S. LNG is the key to to really putting these plans in motion.
Okay.
I don't really think about it as one regulatory item or something that we need to see come across.
It's just the broader the broader push on on de carbonization, and sort of not including natural gas and that.
That mix is that that.
Yes, yes, and Holly listen I mean, I think youre going to start seeing I mean, what we're doing right. Now is really just changing the is putting a environmental centric.
Approach justification of why natural gas should be utilized in the energy transition to Decarbonize the world.
This will change there'll be specific policy requests there'll be specific projects to fast track.
And when those projects get put on the table then we'll have some things specifically that we've talked about and both the political support and financial support to make those.
<unk> is a reality.
But right now we really just want to make the case that natural gas.
U S LNG the biggest green initiative on the planet, it's the key towards providing energy security for the world.
And getting people behind that idea and knowing that the projects will fall and will be able to have request specific support on those as they come up.
Yeah, Okay perfect.
And then Dave maybe one for you.
You are forecasting sort of that sub one times leverage by year end I know the target is one to one and a half, but assuming $2 75 gas you got the nod.
Buyback just started.
In a material way. So I guess my question for you would just be what are you focusing on now it seems like you've checked a lot of those financial boxes that.
You guys are certainly targeting.
Yes. So if you think about it a year ago, we were focusing on our capital allocation plan was all about debt reduction and now we have a much broader array of opportunity sets to think about and how we invest our capital so that I.
I guess, the positives and the challenges are we need to make sure. We have the broadest opportunity set that generates the greatest rate of return for the investors, whether it's buybacks dividends investing LNG and other infrastructure that generates will call real sustainable uplift at a rate of return.
Awesome, that's great. Thank you guys.
Thanks Ali.
Thanks, Tony Thank you Holly.
Our next question comes from.
Neal Dingmann with truly.
Yes.
Can you talk about cadence a bit.
Good morning, Toby Toby can you talk can you just talk about again first just on at really.
A two fold question just on any thoughts on stepping up activity and secondly, all the activity be on your <unk> combo development.
Yes, Neil I mean.
We're sticking to maintenance mode.
We've been pretty vocal about this.
Without more pipelines the prudent thing for us to do is continue to stay in a maintenance mode.
So that's been our that's been our.
Mentality in the past that's our mentality until we start getting some more pipeline put in and everybody knows MVP is a pipeline project.
That is still currently being opposed and in this pricing environment with this.
These conflicts going on around the world we've got to be asking a question is what can we do as leaders in this country.
<unk> This project and get this project built because American knee the world needs. It.
We hope that people will look at this as one clear thing that people can do to address some of the issues that Americans are facing today with their with high prices.
And people around the world looking at the United States to get more access to more natural gas.
No.
Just on the combo development can you just talk about cost around there. It seems like that's actually improving efficiencies and helping overall I guess unit cost is that is that fair to say.
Yes, that's fair.
Very accurate to say Neil I think when you think about.
I mean, the biggest factor I think people are looking at an industry in general is just service cost inflation.
That's something that we factored into our forecast.
But one thing I would like to highlight is the innovation that's taking place here at EQT.
Our evolved well design concept that we're putting out right now.
This will have the potential impact to mitigate service cost inflation. So.
That's not baked into our forecast now, but that's an upside that would address I think what peoples large concerns are on on well costs going forward.
I think if we add a rig.
Yes, we would probably see more inflation and maybe some initial productivity issues as well.
Great point, Dave Thanks, guys.
Thanks Neil.
Thank you Neil.
Our next question comes from.
Oman, Shanghai with Goldman Sachs. Your line is now open.
Hi, good morning, and thank you for taking my questions.
Wanted to follow up on your last comment around cost inflation.
As you look to do not just disciplined but I was hoping next year plan what are the Ada is where youre seeing some tightness in the market and then are there any opportunities to kind of proactively manage cost going forward beyond the combo development, which I'm excited to hear more about later this year.
Yes, consistent with what others are saying, we're seeing impacts on steel and labor.
Sure.
Sand is a big factor cross industry, especially in the Permian.
You've seen getting access to sand supply costs have gone up but for EQT with our sand supply agreements.
We're not seeing much inflation on that front.
Our challenge is more on.
On the labor side, and getting that sand to location, so things like drivers.
It is an area that we're looking to get some more horsepower into the system that way.
So that's where we see the inflation really.
Great. Thank you and the follow up would love your thoughts around gas macro.
Acknowledging that there is a there is already emerging potential for.
LNG longer term, but how do you frame the gas macro in the near term and then also your thoughts around local Appalachia basis. Following to some recent M&A and some of the gas plant or diamond, which Youre seeing do you see outlook for Appalachia basis, improving in the near term.
Yes, so yes so.
I would say.
One.
As Nymex goes up I think youll see that Appalachia will continue to correlate fairly well and again, we call it roughly around 80% correlation.
Some of the things that will change the correlation and maybe even tighten up the correlation in times will be there is there is multiple bcf per day of either pipeline or end market demand.
Such as coal retirements, the shell Cracker Thats coming online in July here.
And so you could see it and I think the basin is not really growing like it did before its really moderated and you could see producers or looking at the end market and they want to participate with Nymex so disciplined with that.
Lack of pipeline is keeping it keeping a tighter so on a broader base.
The LNG markets are going to continue to be pinned up as Europe needs to be refilled.
You have the exports to Mexico industrial demand Theres, a big arb between U S and Europe on gas price. So that's putting upward pressure on demand as well and then we talked about northern App coal supply but.
The global market has really spent about 60% capital.
Drops since the last five years, so supply will be very very tight in coal supply while demand is still growing.
Unfortunately for from a carbon perspective, so that's going to keep tightness in the power market for the next several years.
Great I appreciate the response thank you.
Youre welcome.
Thank you Ramon.
Our next question comes from.
Josh Silverstein with Wolfe research.
Josh Your line is now open.
Yeah. Thanks, good morning, guys.
Just on the LNG.
Tract and thinking about how this comes together is it just a supply agreement in place do you guys think maybe you take.
Equity stake in one of these facilities.
Trying to get a better sense as to what you guys think is the.
<unk> strategy.
Yes.
I would say.
It's all the above right now we have.
Now we are assessing multiple different things out there.
To see whether investment to contract only.
And so.
We have obviously we have.
Large amount of free cash flow in front of us to think about how do we generate the right rate of return, but we want to make everything we do very sustainable and so the contracts will be very easy thing to do investing in a facility comes with really some great opportunities there, but also big projects and you have to think through that so.
There's a lot of things we're looking at right now.
Thanks for that.
And it sounds like you guys were debating potentially what you could be doing with the free cash flow, depending on what the stock prices, but.
As you look out a few years given the.
Buildup in sustainability and the free cash flow profile, there's a pretty big opportunity to shrink the share count meaningfully maybe in half.
<unk>.
I'm just curious how aggressive you guys they want to get on that now and maybe walk in some additional collars for 2024.
Because it just seems like the free cash flow yield is not coming down based on.
Where the free cash flow is going towards.
Yes, Josh that's a great question, it's something that the question that we ask ourselves every day as we look at the as we look at the strip I mean going out past 'twenty three 'twenty into 'twenty four through 26.
Gas prices around $4, which if you looked at US two years ago, and said which guys.
Like that we'd be we'd be hedging that all day long.
But I think just looking at the macro today and.
The fact that we've just got a significant underinvestment in energy.
The World is energy short I think we're a little bit more patient.
From from being a little being aggressive on locking in these prices I mean, if these unless something changes.
There's a lot more reason to think that these.
Prices will be sustained higher that's sort of where they are at today and there is a room now that being said there is always weather risk.
So I mean, what we have to balance all of these things as we're looking but yes, certainly it's a really exciting set up for for natural gas and the value creation potential from EQT.
And the other thing Josh is.
We might be hedging effectively.
Some of the LNG contracts that we do.
Yes.
Thanks, guys.
Thank you Josh.
Our next question comes from.
Scott Hanold with RBC.
Scott Your line is now open.
Thanks.
Toby you, obviously been one of the.
Leading proponents on trying to build LNG.
Globally, but could you give a sense I know you provide some color on some of the factors that are.
Or that should put them push the market that way, but is there as you start thinking about.
Desire to get a contract by the end of this year.
From an investor and analyst standpoint, like what are some of the key initiatives that are out there that you think is important for us to watch for that that's really going to sort of highlight the fact that there is going to be this push to get these additional facilities up and running and there is the ability to kind of link.
Pricing in the U S to something more.
Like the global market right now.
Yes, I think couple of things for everybody to look at <unk>.
Number one netback pricing that we're able to.
Get with these types of contracts and then the second part is if we do make investments what are the returns on those investments LNG.
We've got a lot of value to bring to the table.
Looking at doing more on the LNG side, both in the robust supply that we can bring to the table to help support getting to getting these projects.
And then also on the demand side being America's largest natural gas producer naturally.
National buyers are calling EQT directly so we can help on that front as well.
You throw in the fact that we're investment grade balance sheet growing the fact that we've got the cleanest energy on the I'd say on the planet from our methane intensity perspective.
There is an opportunity for us to leverage those tools to get some some pretty differentiated terms.
And create more value for our for our shareholders with this LNG strategy.
Yes, yes, and look I guess, maybe my question is more pointed to.
Obviously, there's a lot of talk about trying to get you as being a part of the global market, but.
And what are the key things that you think needs to happen I mean, you obviously talked about political support but is there one or two things you think could happen in the Timeframes I'm just kind of curious so their timeframes, which those could happen, which would be very good indication that it's sort of a green light for you guys to sign up for an LNG contract. This is coming.
Two a reality versus a conversation.
Yes.
So if you are asking for like what are some specific things that would would symbolize that we are green light on leasing U S LNG and moving towards that.
Realizing the potential of American American 50, Bcf a day.
I think we're I think we're starting to see the signs of it right now with people that have been.
Very very soon.
Strict on only promoting zero carbon solutions.
I think to see that people are now admitting that natural gas is decarbonising is the first time.
We're going to be coming up with some more <unk>.
Rejects here at EQT.
Working with the players on the downstream side of things on the LNG.
I think thats, where youll see some a little bit more tangible.
Steps being made there, but really the political signal right now is just incredibly important not just for.
The regulators and to help facilitate the.
And get to a place where it takes us longer too.
The ultimate goal here is to get to a place where it takes us longer to build something that does the permit.
But and also influencing the public sentiment so that Americans understand that more natural gas flowing more energy flowing through the pipelines of America.
Underwritten by our leasing U S. LNG is going to provide a tremendous amount of energy security here in the United States and having that amount of natural gas on standby is what's going to keep energy prices the lowest in the world for Americans.
Okay I appreciate that.
Maybe quickly for David.
Could you give us some color like on your free cash flow look like how do you think cash taxes could progress in that outlook over the next say 12 months to 18 months.
Yeah.
Yes so.
So first of all every free cash flow number we give you the whether it's the near term or the long term has.
As the impacts of cash taxes. So just so you know.
And so when you see the called the 'twenty three numbers in our deck you can know that we had that in there. So.
So this year, we have really virtually none.
But we're going to probably burned through our Nols.
This year and so we will start to become more of a cash taxpayer in 2023.
We'll give you I'll call you more guidance on that as we get through this year.
It's obviously very sensitive to the commodity price and as well as you've seen natural gas has been really really volatile so.
Instead of giving you a number that we know will change probably 20 times between now and then we will give you probably more guidance on how to think about the framework of modeling it.
Fair enough. Thank you.
Youre welcome.
Thank you Scott.
Our next question comes from.
John Abbott with Bank of America.
John Your line is good morning.
Good morning, John Good morning.
Alright.
First question here is tobey its for you.
<unk>.
The quarter did have you would you did have less turn on lines during the quarter.
It sounds like that was due to some tightness with trucking and hauling.
Now looking forward our those issues resolved.
And what have you done in order to make sure those issues have been resolved.
And let's just sort of start yes. So.
Yes, yes, John I think just at a very high level just recognizing that.
Our production guidance is hasnt change in Capex is sort of still still hasnt changed as well.
Youre going to see normal fluctuations quarter to quarter, but would point you to the high level staying consistent.
The things that we've seen.
One on the sand hauling is been some tightness we've added some new technology.
That gives a little bit more flexibility to the driver pool.
So there is.
And just using pneumatic trucks.
We are using some other technology that will give us access to a greater supply of trucks and easier for the drivers to go out there for example location so.
That's one thing that is consistent.
We've raised prices a little bit on the sand hauling front, that's attracted more more labor. So the sand issues that we were dealing with.
We have largely been mitigated going forward and that really logistically has probably been one of the biggest constraints holding back our completions team from being being wide open but that was a focus in the first quarter I feel like what we've done is it has given us a lot of confidence that that's been that's been that's an issue that the bottleneck that's been relief.
Appreciate it and then the second question on the New completion design could you just sort of remind us how that kind of sort of feeds in throughout the year sort of the pace of that.
Yes, so it's going to be picking up.
Second quarter in the back half of the year.
And just as a reminder, I mean, what we're doing is making some changes to the completion design I mean, what we're looking.
Looking to improve is just the completion efficiency across the lateral.
So we look at data, we think that we're stimulating about 60% of the wellbore effectively.
And if we can change the completion design and get an extra 10%.
Completion effectiveness, while that could have the benefit of increasing our productivity.
Almost almost 15% so that's that's what we're looking at where we are.
We're targeting and we're on track to get early indications by the end of 'twenty two.
More firm indications on the total effectiveness by by 'twenty three.
Thank you very much Tobey.
Yes.
Thank you John .
Our next question comes from.
David <unk> with Cowen.
David Your line is now open.
Thank you and thanks, Toby and David for the time this morning.
Got it.
Yes.
<unk>.
Thank you.
I just wanted to ask Toby just for a little bit more clarification, I think you alluded it to.
Im not sure intentionally or not before with one of the other questions, but well.
EQT are you envisioning a broader role within sort of like the vertically integrated LNG food chain outside of just being an anchor shipper or an anchor tenant.
What sort of role do you envision EQT, playing either would there be potential partnerships with LNG.
Companies, whether it be capital available on your end just thinking about how you envision.
Taking on this.
Sizable goal out there.
Yes, I think understanding our ultimate our ultimate prize that we're looking for here at EQT has to get exposure to international markets.
And we want to make sure we have the flexibility to enter into the contracts that.
That really meet that will give us exposure to better realized pricing.
One of the ways that we get more flexibility towards accessing those contracts is to take an investment in the LNG facility itself.
I think that the other thing we look at our company mission here is realize the full potential of EQT, and that's where I think our supply and the demand that we could potentially bring to the table.
With the balance sheet with the with the environmentally great.
Great great great scores on the environmental front, coupled with our long inventory are ways that we can hopefully translate those into some what I, what I consider to be differentiated.
Equity investments in these LNG facilities.
I appreciate that clarity because I think it answers a big question around the benefits of being investment grade now and having that opportunity to touch more of that premium pricing.
So I appreciate that and then just the last last one for me I guess is.
Okay.
The.
The thought process now you talked about being in maintenance mode. As we build out LNG capacity do you consider those opportunities for growth molecules or just.
Taking a maintenance product and just pricing it at a more premium market.
No I mean, unleash U S. LNG is going to be the long term demand signal that this industry needs.
See before they think about growth.
So.
This these would be would be sustainable growth opportunities for us but.
The difference now versus in the past is we're going to need to see the pipelines LNG facilities long term contracts all lined up so we've really derisked.
Really derisked the returns that we're looking to generate in addition to making sure that we're not throwing the supply demand fundamentals out of whack and.
<unk> is a really great opportunity to bring sustainable growth back to this industry and listen I mean, it's we're not talking about a significant amount of growth.
This for this industry to meet the targets that we've laid out.
It's less than 10% growth a year, we can get to 50 Bcf a day as an industry.
And I think we can do that very sustainably backed with backed by long term contracts to make sure. We can preserve the type of returns that our shareholders are expecting and quite frankly deserve.
Thanks, Toby and good luck unleashing everything.
Okay. Thanks.
Thank you David.
Our next question comes from.
Harry Mateer.
Barclays.
Your line is now open.
Hi, good morning.
<unk>.
First question I know the base case on debt reduction has been one and a half.
Target through 2023.
I guess after re striking your hedges given the structure we have in gas prices do you think there are some opportunities to accelerate that relative to the existing plan and just get it done sooner.
Especially with the rates move does that.
Often up some additional options or is the preference to still just focus on what you can pay down.
Through.
Call schedules next year.
Yes. So good question, so I think I'll break it up into two pieces. The first part is.
With some more debt trading below par if we just apply the 1 billion and a half we will get more than a 1 billion and a half just from from that discount, but I think the second part is yes, we do see opportunities.
We wanted to accelerate over and above the 1 billion and a half.
Do we see that that that is clearly an option, so being able to buyback our stock being able to be raising our dividend and accelerating the debt repayment all three things.
Interesting to us as it is options along with maybe investing in LNG and other things like that.
Sure.
Great. Thanks, and then on the on the liquidity side I know I know the company is working on its 2020 through revolver.
I'm curious how to think about a potential eventual moody's upgrade they are lagging the other two and whether that would drive an additional improvement in your liquidity in LC needs or is that benefit pretty much done now that you have S&P and Fitch.
Hey.
Yes, I would say probably 80% 85% of the benefits really are coming from S&P and Fitch theres, a little bit of a KOL leftover piece that if moody's.
Where to upgrade us, we'll get a little bit extra.
Movement, so, but as you can see we're sitting with $2 1 billion of liquidity already.
Our letters of credit are going to drop down pretty meaningfully already in.
And our all our.
Right triggers that we had on our debt of all been reset down to zero effectively so we've done I'll call. It the majority of it in place.
But it would be nice to see Moody's give.
Give us an upgrade and recognize where the balance sheet.
Great. Thanks, guys.
You're welcome.
Thank you Jorge.
Our next question comes from.
All parks with tele batteries.
Your line is now open.
Hi, good morning.
Good morning, good morning.
I was.
Really interested in.
Can you drill down a bit on the.
The Bloom energy deal.
As essentially sort of.
Stone of the deal I'm not aware of any other E&P having made.
Similar supply arrangement with a fuel cell company. So I was just curious about how long it's been in the works.
Maybe.
Who approached who.
And what we might look for as far as.
Similar deals down the road.
And also if you could comment on.
If there are.
Any.
Restrictions after the two year timeframe.
Timeframe as far as what you can.
With that mark or other other similar companies.
Yes, great question.
So the <unk> deal, we did with Bloom energy.
Was something that I think they approached us, which is which is great to see I mean beat out there is.
In front of the environmental benefits of natural gas has led to a lot of calls like this there's been a lot of interest in.
EQT molecule specifically.
But listen I think what's really what's really exciting about the future of this is.
People.
Bloom energy as a company leveraging fuel cells to promote the responsible consumption of natural gas.
Fuel cells naturally will lower the emissions.
And and provide reliable energy.
At attractive cost.
There's a lot of people and this is what we're really excited about thinking about the fact that natural gas is the cheapest form of energy.
And reliability as well.
Can we do with natural gas and so I think youre going to see a lot more.
Demand for natural gas as people really use natural gas as a feedstock for innovation and a lower carbon future.
You see other other applications on the hydrogen side Theres a lot of.
There's a lot of innovation, taking place on hydrogen again thats going to be another follow on opportunity for for natural gas as a feedstock and EQT.
And.
I think it's just really exciting to see that.
People are looking for new creative ways to create demand for low carbon natural gas.
This market is broadening.
Thank you.
Sorry.
No thats it.
I'm sorry, okay.
I was just going to ask.
The terms is there any exclusivity in it.
Are you free to do similar deals with.
Other.
Other folks looking for a supply arrangement.
Yes, we have the capacity to do other deals.
Great and then I was curious about how long how will the transaction be accounted for is this.
Essentially.
And asset capital gains its something thats going to be.
Crude through income over.
The agreement.
Yes, it will be accrued as income over the agreement yes. It is.
Consider this as ordinary income items and it would just improve effectively approve our net.
Net realizations.
When you think about it that way.
Oh, It would show up in realizations okay.
Yes, yes.
Okay, Okay, great. Thanks, a lot.
Welcome.
Thank you Noel.
There are currently no further questions in queue. So as a reminder, that star one on your telephone keypad to register your question.
Yes.
Operator.
Yes.
Currently no further questions in queue. So I'll pass the conference back over to management team for any closing remarks.
Thank you.
It certainly is an exciting time in natural gas, but.
Think one thing that's really driving EQT is theres, knowing that theres a lot of issues that the world is dealing with and we want to be a solution provider and everyday.
Working hard to make sure that we address these issues.
And help provide energy securities of the World, while also helping arresting climate change so it's going to be a big driving factor for US going forward is continued commitment to making the world a better place. So thank you everybody for your support.
That concludes today's EQT quarter, one 2022 quarterly results conference call. Thank you for your participation you may now disconnect your line.
Okay.
Well we.
We were underperforming by call it a percent.