Q2 2022 EQT Corp Earnings Call
It is overwhelmingly turning to natural gas as the solution.
Here at home recent nationwide polling data shows the U S public speaking loud and clear in support of more domestic natural gas development, specifically the polling data shows nearly two thirds of voters ranked strengthening U S energy independence, and reducing energy costs as their top priority today.
Nearly 70% of voters support increasing U S natural gas production and a similar amount support building new natural gas pipelines with majority of support running across all party lines and voters are more likely to support a candidate that supports natural gas development by a 33 point margin.
Put simply the American public is demanding that use natural gas play a leading role in providing affordable and reliable energy to the world. While also addressing climate change by replacing forward call.
And in a world that recognizes and acts on the need to unleash U S. Natural gas EQT will thrive for several key reasons first we are the largest producer of natural gas in the U S with a multi decade high return inventory as shown on slide 12 of our Investor day, we highlighted breakeven pricing of our entire <unk> thousand 800 <unk>.
Core Marcellus inventory with every location generating a 10% or higher return at a natural gas price below $3 per Mcf.
We note. This core inventory has very rigid inclusion criteria and a de risked view of our portfolio shows more than two times. The upsides of this location counts across our broader acreage position.
We believe this combination of depth and quality of our inventory is unrivaled amongst peers and gives us significant confidence in our ability to generate strong shareholder returns for as far as the ITC.
Our investment grade credit ratings underscore the strength of our balance sheet, which we see as a key tenant for the long term sustainability of our business and allows us to opportunistically lean into value, creating investments across commodity cycles year to date, we have repurchased approximately $830 million of debt principle, and we plan to further fortify our balance sheet as we.
We are raising our year end 'twenty three debt reduction goal by $1 billion to $2 5 billion to tactically captured the market discount currently available.
Third we have among the best ESG credentials across the entire energy sector, which is backed up by the progress highlighted in our recently released 2021 ESG report as shown on slide 14 of our deck, we have lowered our scope one and scope two ghd emissions by 36% on an absolute basis and rich.
<unk>, our methane intensity by a similar amount in just three years, our track record gives us tremendous confidence in achieving our net zero goal by or before 2025, and we highlight the credible path. It will take to get there on slide 15 of our deck.
In summary, we have what the world needs, a leading inventory of low cost low emissions natural gas with the balance sheet and scale to support long term development. These characteristics position EQT at the tip of the sphere to meet the growing natural gas needs of both domestic and international end users via LNG as high.
In our last call. We continue to have discussions with LNG end users across various geographies as a reminder, our firm transportation portfolio delivers approximately one bcf per day of production to the Gulf Coast and we are looking at various path to unlock LNG opportunities along the east coast.
Turning to second quarter results, we executed on the midpoint of our production guidance as we were able to ameliorate the logistical issues that slowed down Frac times in Q1 as shown on slide 13 of our deck pumping hours per frac crew during the quarter increased by 25% sequentially and were up 7% year over year. Despite.
Significantly tighter oilfield service backdrop, we tip, our hat to our operations teams here as they have enabled continued efficient execution of our corporate development strategy, even in the face of a challenging operating environment.
We continue to make progress on the evolution of our new completion designs with several key projects successfully executed in Q2 and several more planned for Q3 and Q4, while we are still in various stages of assessing our science work recent indications give us incremental confidence in the productivity uplift associated with our new design and we plan to.
Make a decision in 2023 as the broader implementation across our asset base. As a reminder, full implementation of this new design will be expected to both reduce annual long term well count and capital needs to produce the same level of volumes.
Turning to capital returns as shown on slide nine of our Investor Day, we are augmenting the framework. We originally laid out to the market last December .
First we recently raised our annualized dividend by 20% from 50 to 60 per share, which is a sign of the growing confidence we have in the sustainability of our business and longer term natural gas prices. We believe are strong and growing base dividend is one of the best read throughs to the long term value proposition of an organization and this is.
Adjustments reflect exactly that we plan to continue reassessing, our base dividend at least annually and see material growth for long term sustainable growth second we are increasing our debt reduction target by $1 billion to $2 5 billion by year end 'twenty three while we had planned incremental debt retirement beyond 2023, given our long term.
Average goal of one to one five times, we have taken the opportunity amid robust commodity prices to accelerate delevering and unequivocally fortifying our balance sheet.
The recent rise of broader interest rates has created a unique opportunity as our bond prices have declined despite our strengthening underlying credit quality, taking this action ensures long term business sustainability drives asset value to our equity holders and gives us significant flexibility to invest through up cycles. We are keenly focused on deploying capital to the best.
The risk adjusted return opportunities available to us at a pristine balance sheet is a key enabler for us to compound value for our shareholders over time.
On share repurchases recall, we rolled out our $1 billion authorization last December noted, we would be opportunistic with deployment after aggressively repurchased $230 million of stock in Q1 at an average cost of $23 per share our stock more than doubled in value at certain points during the quarter at the same time, we saw some early warning sign.
<unk> of assessing every risks and as such we temporarily tap the brakes on our buyback highlighting that we will remain disciplined on all forms of capital deployment and firmly focused on earning the best risk adjusted return for our shareholders as a stock pulled back toward the end of Q2, we started opportunistically retiring our convertible notes, which are trading virtually at parity with our <unk>.
And shares with the $213 million, we spent repurchasing convertible notes during and subsequent to the end of Q2, we lowered our fully diluted share count by almost 6 million shares at an effective equity price of approximately $37 per share while simultaneously, eliminating a debt obligation and simplifying our balance sheet.
In total our updated framework allocates roughly $4 billion.
Shareholder returns by year end, 'twenty, three and leaves approximately $3 5 billion.
Of retained free cash flow flexibility at recent strip with the continued resiliency of longer dated natural gas prices, we now see approximately $22 billion.
Our cumulative after tax free cash flow from 2022 through 2027 at current strip.
This is up from the prior year $17 billion, we highlighted last quarter and equates to approximately 140% of our current equity market cap underscoring the tremendous value opportunity embedded EQT shares I will now turn the call over to Dave.
Thanks, Toby and good morning, everyone.
Briefly summarize our second quarter results before discussing our balance sheet hedging basis and guidance updates sales volumes for the second quarter were 502 Bcf.
In line with the midpoint of our guidance.
As Toby mentioned, we implemented new technologies during the quarter to address the tight trucking market, we experienced in the first quarter. This.
This is paying off as we saw a material improvement in completion efficiency on a sequential basis.
Our adjusted operating revenues for the quarter, $1 6 billion or $3 21 per Mcf and our total per unit operating costs were $1 37, as a result, our operating margin was $1 84 per mcf fee about 80, or 75% higher than last year on higher volumes and price real.
<unk> <unk>.
Capital expenditures were $376 million in line with the high end of our guidance range.
Adjusted operating cash flow was $915 million and free cash flow was $543 million, bringing our total year to date free cash flow to more than $1 1 billion.
Our capital efficiency for the quarter came in at <unk> 75 per Mcf.
Which was up sequentially due to the greater spending on science associated with our new completion design and continue inflationary pressure.
Turning to the balance sheet recall, we achieved investment grade credit ratings from Fitch and S&P earlier this year underscoring the material progress we've made in creating a more sustainable company for our stakeholders as Tobi mentioned, we're taking even more actions to bulletproof our balance sheet through all parts of the commodity cycle by raising our year end 'twenty three.
Our debt reduction target by $1 billion to.
Two two and a half during this.
This will reduce our gross debt to approximately $3 billion and accelerate achieving our long term leverage target of one to one and half times using a 275 gas price.
We are not wasting any time executing our goals as we deployed approximately $390 million over the past several weeks, including repurchasing approximately $175 million of senior notes and $213 million of convertible note principal and premiums.
We note that the retirement of convertible notes executed to date has lowered our fully diluted share count by approximately 6 million shares while also simplifying our balance sheet.
At the end of the second quarter of trailing 12 month net leverage stood at one six times down <unk> three turns from the prior quarter.
Our net debt at quarter end reflects the impact of approximately $690 million of working capital usage during the quarter.
The bulk of which should reverse in the second half of the year.
At recent strip pricing, we forecast our year end 2022, and 2023 net leverage to be approximately one times and one negative times, respectively, which contemplates executing the remainder of our buyback authorization and accounts for our 20% dividend increase.
We ended the quarter with approximately $2 2 billion of liquidity and we recently renewed our $2 5 billion.
Unsecured revolving credit facility with a five year maturity.
Two key points to note here.
First we added two new banks to our bank syndicate.
Second we are easily able to maintain our credit size, while most revolvers have shrunk by approximately 15%.
So which showcase the underlying credit of our business and the strength in our bank relationships as noted in our SEC filing earlier. This month, we exercised our option to receive a cash payment of $196 million from Echo Trans midstream in lieu of a portion of near term fee relief.
We expect to receive proceeds by late <unk> or early <unk>.
As shown in slide 18 of our Investor deck. This cash election does not impact the <unk> 15 per mcse long term gathering rate reduction from today's levels.
Also we still model in MVP startup in fourth quarter 2023.
Moving over to hedging during the quarter, we opportunistically restructure our hedge book for 2023.
Specifically, we converted the bulk of our remaining <unk> through <unk> through 'twenty three swap positions into Costless collars for the summer, we placed approximately $4 floors and $6 25 ceilings and in the winter $7 30 floors with $11 ceilings.
The positive market SKU at the time enable us to set $3 of upside with only $1 downside tying to our plan to provide stakeholder with strong risk adjusted upside.
Separately as we've seen signposts of global economic slowdown, we thought it would be prudent to add floors towards 2023 hedge book buying approximately $4 55 puts with premiums that we were able to defer into 2023 with.
With these actions we are now approximately 50% hedged on our 2023 volumes predominantly with wide collars inputs.
As an illustration of the resiliency of our forward outlook, if nymex retrace to approximately $3 per <unk> in 2023, we would still expect to generate approximately $1 $6 billion of free cash flow next year or a 10% free cash flow yield.
Conversely, if natural gas averaged $7 <unk> level, we would expect to generate almost $6 billion of free cash flow in 2023, or nearly a 40% free cash flow yield.
Now turning to LNG as Tobi mentioned, we are making progress on our strategy and see an increasingly bullish setup for global natural gas fundamentals on a multi decade basis, we expect global natural gas demand outside of North America to grow from approximately 285 Bcf per day today to 370.
Five Bcf per day by 2050, this means supply growth equivalent to doubling the entire U S. Natural gas production base is necessary to balance the global market and less than 30 years. There is a growing recognition both domestically and abroad that we are unlikely to meet this demand without significant incremental production.
From Appalachia.
Which is home to the longest runway of low breakeven low carbon intensity natural gas inventory in the world.
Okay.
As noted in our unleash Allianz U S LNG deck resource quality and longevity dictate that 70% of incremental U S. LNG export growth will ultimately need to come from Appalachia. EQT is currently in various stages of discussion for supply agreements covering approximately one bcf per day of ft capacity to the Gulf Coast.
Most.
We are looking at ways to catalyze east coast, LNG, which can have meaningful ramifications to our Appalachian production long term.
Turning over to guidance as we noted last quarter, we saw pricing pressures across all service lines.
We experienced some further inflationary impact since our first quarter call and as such we are raising our 2022 capex guidance range to $1 4 billion to $1 5 billion.
Midpoint of which is in line with the high end of our prior guidance.
As highlighted in slide 13 of our slide deck, our contracting strategy provides significant risk mitigation on a go forward basis. The most notable is our long term sand supply agreement and Frac crew contracts were extended to 2024 and 2025.
We are reiterating our 2022, EBITDA and free cash flow guidance ranges, but see bias towards the upper end note that our guidance reflects strip pricing as of July 20 <unk>.
Given a structurally superior hedge position next year.
Our 2023 free cash flow should expand by approximately 100% year over year, providing differentiated free cash flow per share growth, even with flat production volumes.
Again, using strip pricing, we see approximately $22 billion of cumulative free cash flow through 2027, which is net of all expected cash taxes and hedges pre hedged premiums.
I'll now turn it back over to Toby for some concluding remarks.
Thanks, Dave to conclude today's prepared remarks, I want to reiterate a few key points, one Americans a voice and clear support for more domestic natural gas, which is critical to reducing extreme energy costs, increasing America's energy independence, and tackling global climate change by replacing international coal.
Two our depth and quality of inventory investment grade balance sheet, and our peer leading ESG credentials differentiate EQT as a leading producer on a global scale and we stand ready to meet the long term call on natural gas demand.
Three we are outperforming our emissions reduction targets and have a clear and credible path to net zero by 2025, which can be achieved with current technologies and at a very affordable price tag.
And finally, our updated capital returns framework shows a resounding commitment to our shareholders with $4 billion of earmarks through year end 2023 for debt reduction share buybacks and our increased base dividend with plenty of room for upside given we expect to generate $22 billion.
Our cumulative free cash flow through 2027.
I'd now like to open the call to questions.
We will now begin the question answer session.
If you would like to ask a question. Please press star followed by one when you touch tone keypad.
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As a reminder.
Speakerphone, please pick up your handset before asking your question.
Pause here briefly to allow questions to generate in Q.
The first question is from the line of <unk> Zhang with Jpmorgan you May proceed.
Yes, good morning Tobey.
Some incremental action on shareholder return.
And incremental debt reduction plus the dividend increase.
My question is regarding.
When do you think the company would provide more clarity around the retained flexibility.
Category.
On your updated guide $6 4 billion of free cash flow if the strip holds over the next six quarters.
If you back out that reduction in the dividend you would have just under $4 4 billion.
Unaccounted for free cash flow, so just some thoughts on that and perhaps the pace of buyback activity.
Given under your current authorization.
Sure Arun.
Good morning.
So as it relates to our capital allocation framework.
Think what we've done is set out.
<unk> that we know we can execute.
As you mentioned, we do have flexibility to go above there I think the flexibility is important because we want to make sure that we're matching the allocation decisions from the environment that we're in I think there's a lot of clarity on.
The debt retirement goals that we've stated but to put a little bit more color on our buyback approach.
Our buyback approach is as opportunistic and we believe that's appropriate given the current volatility that we see in this world.
But understand that that's tough to model the buyback pace that we have so I'd ask you to look at what we've done.
In the past in Q1, we've taken advantage of our buyback authorization and bought back over $240 million worth of stock retiring about $9 9 million shares in Q2.
We repurchased about $213 million of convertible notes and that is the impact of retiring around five 7 million shares so over the past two quarters, we've retired over $400 million of.
Chairs.
Talking about 50 million shares at an average price of around $31 per share.
We think the approach has provided some pretty good results.
But look at what we can do in the future and we have the opportunity to continue that pace.
We're obviously stepping into a more robust free cash flow generation phase of this business.
I think the opportunity for us to do more as appropriate.
Fair enough.
Perhaps for David David EQT repositioned your hedge portfolio.
Getting some question on the impact to your free cash flow outlook.
The repositioning started in the fourth quarter of this year can you give us a sense, if we kind of.
Put in strip in the model what kind of.
The impact that had to cash flows from the from those moves.
Was there any cost associated with this repositioning activity.
Yes.
Yes, so I'll answer that question, yes, no no cost everything was done at market and so no cost to us. So if you step back and just give you a high levels right now with our hedges in place, we basically have a $2 92 floor and we have approximately $400 95 ceiling.
And so that's the bounds of and we're about 45, I'm sorry about 50%.
Floors, and we're about 45% ceiling so.
That that provides the risk adjusted benefit if the floors were reached we'd be about $1 5 billion. If the ceilings would be reached or breached it would be about almost 4 billion. So that just gives you a sense of range of outcome there.
The repositioning okay, we basically.
Converted our swaps, which we'll call it about 10% of our hedge position was converted into Costless collars.
And as I said earlier on the prepared comments.
SKU was about three $3 up and $1 down and if you.
Look at the.
The value today.
That position that we did is about $110 million into the money and if we hit the ceilings of that.
But we just did we would create about $450 million of upside on free cash flow. So so that gives you a sense of magnitude of what we did and it allows the investors understand how we have we think about the risk adjusted upside.
Thanks for that color I appreciate it.
Welcome.
Thank you.
The next question is from the line of EMR Shattering Goldman Sachs. You May proceed.
Hi, Good morning, and thank you for taking my question.
My first question was on the well performance any any from the next generation completions any early read through there and then if it is successful how would that change slide number two out of how much of that and when can you would you be able to add with the sub 250 breakeven.
Good morning so.
It's early on our science.
We are encouraged but I will say that the wells are still in flat time.
Our choke management program. So we will get a better read once these wells enter.
Closer towards a decline periods of their lives and so that's why we're sort of.
Refraining from.
But we are leaning positive right now for.
For slide 12.
Couple of impacts on the enhanced well design.
It's obviously going to improve the economics of the inventory that we put there so youll see those sticks.
Shift down the cost curve, which would be good.
That will also pull some more what we consider non core and give that a shot of lowering their breakeven but to.
This will also have the impact of extending our inventory life.
Because if this hits this will allow us to reduce the number of wells that we need to drill each year to maintain volumes.
No.
That will extend our inventory life past 18 years of core inventory. So those are really the two dynamics that are at play right now.
That's helpful. Thank you and maybe next question.
On the LNG strategy.
You mentioned you are in discussion with a lot of LNG customers. How are the discussions progressing and what are the key points, which are.
The customers are looking for more clarity on.
Yes, so I would just say right now, we probably have an opportunity.
To lock in contracts for probably about three or four different facilities.
So.
So the question for us is duration and which we want to do.
If we won international markets do we what toll rates are willing to accept and then and then we're trying to work on with the end market specifically.
Ah collared structure, where we give ourselves some protection on the downside, but allow us to get that risk adjusted upside. So those are the things that we're looking at right now and I would just say, there's a great demand from a producer standpoint, these facilities need gas supply.
And so it gives us the option right now to figure out who we want to do we want to use and who we want to go through.
Got it that's helpful. Thank you.
Youre welcome.
Thank you.
The next question is from the line of New England Choice you May proceed.
Good morning, Toby can you talk a little bit about just the availability of capacity going forward.
It seems like Youll have some availability going forward your thoughts on if there is thoughts on wanting to growth.
Our production capacity, yes Neal.
Pipeline capacity in Appalachia.
We finally reached the limit of the midstream takeaway capacity in Appalachia.
And as long as that's the case, we're going to remain disciplined and maintenance production mode.
Put a slide in our deck that sort of shows the dynamics of what's taken place.
Yeah.
On slide.
Slide 29.
One of the questions. We get a lot is people have said, we say well why aren't we able to add more supply. We've got the biggest natural gas field in the world and we cannot use that to help lower energy prices for Americans.
Is that and we say well because we don't have pipelines they've been blocked canceled unopposed over the last 10 years.
And people say well.
We've all we've been blocking pipelines for the last 10 years, and we've been able to experience low energy prices well.
The reality is we've always had excess pipeline takeaway capacity out of this basin during those times when those pipelines were canceled those would have added to that capacity.
We've hit the wall now and that's why EQT is going to continue to remain disciplined.
And it's an opportunity for this country to recognize this and say that.
And get more pipelines and LNG infrastructure built in this country. So we can.
Address the growing demand for natural gas.
Yes.
Great to hear and then.
Now in the tight capacity together.
Then my thought is again, given where gas prices are obviously the returns are fantastic.
You view way like when you and Dave were looking at it weighed new is there I guess sort of two part question are there opportunities to roll in I don't know either bolt ons or some bigger deals.
And if so is it just simply comparing that to you have ample acreage no question being the largest gas player is it just simply a comparison of what the deal price looks like maybe on PDP or however, you want to value versus what your organic growth.
Yes, Neil So I think.
Anything any asset you look at it I think you want to make sure youre getting quality. So we definitely compare asset quality versus ours, I think youll look at Alta and the cost structure that that asset.
That asset base did it lowered our cost structure of this company lowered our breakeven by up by over a nickel.
So that's one consideration, but I mean at the end of the day everything we do.
On M&A is going to be it's got to be more accretive than buying back our stock and that's the ultimate decision.
Yes, youll have been very disciplined it's great to see great quarter. Thanks Tobey.
Thanks, Bill Thanks Neal.
Thank you.
The next question is from the line of Scott Hamann RBC.
RBC capital markets you May proceed.
Thanks, Good morning.
I have a question just to delve into a little bit more into the LNG discussions as well as the.
That potential free cash flow use thats not allocated at this point, but.
When you step back and look at it obviously there has been.
Some some larger peers that have gone out and made a announcement of potential agreement to invest in a Gulf coast LNG facility.
Where do you stand on using some of that free cash flow potentially to invest in a facility and are you really looking at.
So is that more of an east coast initiatives that you think would make more sense for you all.
Yes, so I sort of segregate the LNG into two categories, the Gulf Coast and the East coast from.
From a Gulf Coast perspective, it's really more about <unk>.
Looking at the best ways, we can commit our supply to projects.
I don't think the capital as needed down there to get projects off the ground.
On East Coast.
For Us I think there is an opportunity for us to help identify projects and work with <unk>.
Developers to get these projects off the ground.
So I mean, we're doing some feasibility work.
And some high level assessments of what some of those projects will look like but not a significant amount of dollars.
Be a thought up to apply to east coast LNG, obviously for us.
I spend dollars, even feasibility side I think east coast LNG, just could be so incredibly impactful to EQT and Appalachia.
Creating a demand source.
Next to where we operate should help strengthen basis that would have an impact not just on the volumes that we're able to supply to those facilities, but would also.
Impact.
The amount of gas that we sell in basin. So there's just a lot of reasons why.
There's reasons for us to really want to push to get.
East Coast, LNG and make that make that great idea a reality.
Sure.
That's great good to hear.
Then my follow up question is you all talked about going after the converts versus directly targeting I guess the outstanding equity on your buyback program could you give us a little high level view on is that.
There are a lot of benefits to that but can you just walk us through like.
Is there at what point does it make sense to target the equity versus the converts or do you feel all there's somewhat of an indifference.
To do that.
Yeah.
So it really depends upon.
Where the stock is and where the convert is so.
Right now the convert is way in the money and so it trades very much like the equity.
There is a little bit of a premium for call it for future dividends and things like that that you have to.
That you have to account for but effectively it now it's very much akin to two equity but.
There is there is a percentage that you would drive to the to the debt side in principal so.
So I think we just know we have basically two tools in place right. So we have the we'll call. It the direct way, where we have our ability to $1 billion buyback and then we have the indirect way, which gets captured really in the $2 $5 billion of debt principle that we have authorized to retire. So we have really two ways that gives us.
The flexibility to attack the equity.
And where there's disconnects or things we can we can try to play that arbitrage.
Understood. Thanks.
Welcome.
Thank you.
The next question is from the line of Jonathan Bock.
Bank of America, you May proceed.
Good morning, and thank you for taking my questions.
Told me. The first question is for you it's on inventory in West Virginia. During the first quarter call you had mentioned the potential benefits of <unk>.
Virginia, signing in the pooling and utilization law.
When you look at those 800 locations the distribution does that take into account those potential benefits or have you had the time. Please assess what the benefits are to your inventory.
Yes, great question.
So there were some legislation that was passed recently in West Virginia that basically allows modern utilization to take place.
This is a tool that is available to operators now that.
It really helps address if theres unknown airs which is something that happens in west Virginia, a lot, but if the majority of landowners have signed up.
And our ability to unitize.
Far as the way we view it the way we view this as really.
This is more of a backup plan in case, we run into some of those roadblocks, we have not had to use this legislation and but it's nice to know what has there it's there.
So ultimately the way. This reflects inventory is just a higher level of confidence that the sticks that we put on the map, we're going to be able to develop because we've got modern legislation in place that will facilitate that for us another read through we're out advocating for more pipeline infrastructure and the permitting policy.
<unk> reform.
Thank you look at what we've done in West Virginia.
Leading to get that legislation.
Put in place.
Im optimistic on <unk>.
Hopefully that we can continue to influence on a national level and help bring common sense pragmatic permit reforms. So that we can get these pipelines and LNG facilities built so.
So we can address the energy crisis Thats currently going on in the World.
Appreciate it and the next question is for you there David.
It's going to be on your cumulative free cash flow outlook and on cash tax.
So thats 76 year outlook.
Just curious does that assume does it have an inflation assumption baked in for 2023 already.
And then second on the cash tax recognize you will provide more color.
At some point later during the year, but as you sort of look out to 2027. This is more of a calibration cap cash tax question.
More of a 15% cash taxpayer of more of a 20% cash taxpayer.
Yeah, so as far as inflation and our 23 numbers, yes. They are in there.
And as far as cash taxes, whether 15 or 20%.
I think longer term it's rich.
Towards that 20%, but obviously as we.
As we consume our Nols and.
It will trend up over time.
I would just say one other factor that.
You should be aware of Pennsylvania, just announced a corporate reduction in cash taxes by about 3% and so that should help.
That should help on the margin.
With some cash taxes in the future.
Thank you very much. Thank you very much for the color and for taking our questions.
Well thanks.
Thank you.
The next question is from the lineup than lung chemo, but.
You May proceed.
Yes, thanks for getting me on.
So I really appreciate provision on LNG.
Projects since the longer lead in Appalachia as you said is off taken extreme.
I'm wondering if you're seeing yourselves as having a roll to claim stimulating regional demand growth.
And if theres anything that you can say around opportunities on that and especially on the industrial side. Thanks.
Yes, there is there is.
An opportunity to increase gas demand locally I don't think anything has the type of scale that we're talking about with LNG.
But there is new technology, I mean natural gas I think can be transformed into low carbon energy solution like blue hydrogen. So a lot of the new ventures work that we're doing is focus on what is the sustainability of hydrogen and what can we do to help.
Mature that the confidence in the sustainability of hydrogen there's also technology thats out there right now that.
Instead of Decarbonising the product before it gets consumed.
Which is what happened with blue hydrogen.
Also technologies out there that.
We will set the table for.
For carbon capture wallet, while the energy is converted into electricity. So there's a lot of new technologies out there a lot of low carbon solutions that we're looking at and right now though.
The key thing for us to do in this energy providers is understand the true sustainability of these options what is the actual cost what's the profitability.
What is the what is the <unk>.
Actual emissions full cycle emissions associated with it and then what how big could this be from a scale perspective.
So those are sort of the things that we're thinking about as word understanding these solutions.
Yeah, and I'd just add.
And as we've as we've gone back to investment grade, we're now being approached for a coal longer term firm sales contracts to some of the industrial space. So so I'd just say stay tuned on that progress.
Got it great and.
And I guess flipping over to the cost side.
One thing that's really stuck out for us.
In tubular pricing.
Like the supply chain bottleneck low inventories type of issue.
Wondering how that affected your planning.
If at all for 2023 compared to a more quote unquote normal year. Thanks.
Yes, so when we set our budget for 'twenty two.
We did account for inflation, but you see we did take that up a little bit here this quarter.
What's changed between the planning exercise and at the end of the year and where we're at today I think the assumption was that steel was going to be able to.
Rebound in pricing.
We get some some steel relief in the back half of this year.
Unfortunately.
The war in Ukraine.
More strain on supply chain when it comes to steel and so we're seeing those that were not seeing the lower prices that we anticipated towards the year end.
What's baked into our plan today and also into 'twenty three as well.
I would just add.
So.
Obviously, the intricacies of tubular, but then if you look at the steel.
Sector in general steel prices have come down pretty materially.
Metallurgical coal.
Which is the feedstock into steel has dropped from $600 a ton down.
So the 200 change to US and then iron ore has come down pretty hard. So you have the makings of steel and tubular to come down in price is just going to have to work its way through the processing side.
Makes sense. Thanks.
Thanks, guys.
Welcome.
Thank you.
The next question is from the line of Noel Parks Tuohy Brothers you May proceed.
Hi, good morning.
Good morning.
Just wanted to pick up on.
The comment you just made about it.
Blue hydrogen and your research there I'm just curious if you have any.
General thoughts on timeframe of when you think from technologies might mature.
And also might be able to achieve scale and just to give a sense of what you are looking at sort of like.
A y.
Players are technologies or or more of a short list.
Yes, my view of hydrogen right now blue hydrogen specifically.
We think we can make through hydrogen for costs of $20 per million Btu.
Would include the carbon capture of that as well.
And I remember a year ago looking at that and saying Wow, it's too expensive, we're going to pay $20 for hydrogen where you can buy natural gas for loan that well.
The dollars per million Btu doesn't.
It doesn't seem that high compared to what Europes bank today.
But when you look at the majority of the cost of the iron how do we get that to a sustainable pricing level.
Majority of the cost to make blue hydrogen isn't being the actual transformation of natural gas to the hydrogen in capturing carbon and the majority of the cost come in the infrastructure.
It would take to move the hydrogen right now what's really interesting and what we're highlighting here is how can we bring the infrastructure cost down our unleash U S LNG campaign.
Initiative, one of the byproducts of that is we have the ability.
To execute this plan and increased production in United States by an incremental 50 Bcf a day slated for exports to replace coal.
We would have the opportunity to rebuild approximately 50 Bcf a day of pipeline infrastructure and when we do that.
We're looking at ways to make sure that when we build that pipeline, we built it so that their hydrogen ready and if we can do that then we've just set the table for the hydrogen economy here in the United States.
Net.
Basically secure natural gases future, but the role of natural gas may transform from being an end use products to be in a feedstock for blue hydrogen.
So so we're looking at that.
The other technology I'd say, that's out there and hydrogen is.
The technology to keep an eye on is the technology that <unk>.
Natural gas goes in hydro comes out and solid carbon comes out as opposed to gases.
That's obviously going to really lower the logistics for actually what we do to actually capture that hydrogen so that some new technology. That's out that that is probably three to five years out, but but well within our timeframe is where we're figuring out these different options.
Great that was.
Really really nice.
Or export.
The waterfront out there and.
I guess in general when.
You were talking about how.
It does seem all roads are many relatively lead to greater alliance in Appalachian gas.
And that to get there of course, the pipeline situations to be addressed.
What do you sort of see as maybe the the catalyst or what.
What hardie or piece of the puzzle as you think.
The first to budge, whether you say its on the financing side on sort of like the.
The state initiatives site.
Any ideas of kind of what what might start to unlock.
Yes.
Greater access to pipeline projects.
Yes, I think it starts by a shift in sentiment and the shift in understanding how important.
Natural gas plays in this world. We are seeing we are seeing the reality of a world that has that is under supplied with hydrocarbons and the result is this energy crisis, we're facing today unnecessarily high energy prices ramp of inflation warm Ukraine and by the way emissions around the world are still rising because without natural gas people are using more coal than.
They've ever used before.
That I think is being recognized and I think youre starting to see a shift in that sentiment shift translated to policies. The EU declaring natural gas is green.
We're seeing that with the customers around the world Youre seeing that here domestically.
The anti inflation act that that mention and has put together.
To talk about to include in that.
Pipeline reform.
Permitting reform that's necessary, so that we could get the pipeline infrastructure in LNG infrastructure built.
On an accelerated timeline.
And in a more pragmatic way that is that another precursor that youre starting to see here. So.
And then and then on top of all that you just look at the polling of Americans Americans get it over 70%, saying, we need more natural gas so the American support this.
World is showing there is clearly a need for it and now youre seeing governments.
Adjusted their policies to two.
Make this to make it easier for us to bring this energy into the world, but we're seeing the signs right now.
And then.
Just sort of fall through then the financing then follows our will follow you anticipate sort of a natural consequence.
Yes, yes, so this Dave yes, absolutely.
Yes, the banks will be there.
I think.
Everything's got to be done obviously with a really with the with low to no emissions kind of profile and so people are not.
Financing is not going to open up the.
The Kitty here unless.
Emissions and things are being done on a very.
Responsible manner, so and if it is done and I think Thats, then youll see the financing absolutely be there.
Terrific. Thanks, a lot.
Thank you.
Thank you.
Okay.
There are no additional questions at this time.
I'll pass it back to Toby for any closing remarks.
All right everybody.
Thanks for your time this morning, and we look forward to continue working hard to create value for our stakeholders. Thank you.
That concludes today's conference call. Thank you you may now disconnect your lines.
Yeah.