Q4 2023 EQT Corp Earnings Call - Q&A

February 14, 2024

<unk> quarterly results conference call all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star. One again, we ask that you. Please limit yourself to one question and one follow up I would now like to turn the conference over to Cameron Horwitz managing direct.

Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the EQT fourth quarter 2023 quarterly results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Of Investor Relations and strategy. Please go ahead.

Good morning, and thank you for joining our fourth quarter and year end 2023 earnings results Conference call with me today are Toby Rice, President and Chief Executive Officer, and Jeremy can note Chief Financial Officer in a moment, Toby and Jeremy will present their prepared remarks with a question and answer session to follow and updated investor presentation.

If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star. One again, we ask that you. Please limit yourself to one question and one follow up I would now like to turn the conference over to Karen who are at managing director of Investor Relations and strategy. Please go ahead.

<unk> has been posted to the Investor relations portion of our website and we will reference certain slides during today's discussion a replay of today's call will be available on our website beginning this evening.

Karen: Good morning, and thank you for joining our fourth quarter and year end 2023 earnings results Conference call with me today are Toby Rice, President and Chief Executive Officer, Jeremy <unk>, Chief Financial Officer in a moment, Toby and Jeremy will present their prepared remarks with a question and answer session to follow up and updated investor.

To remind you that today's call may contain forward looking statements.

Actual results and future events could materially differ from these forward looking statements because of the factors described in yesterday's earnings release, and our Investor presentation. The risk factors section of our Form 10-K and in subsequent filings we make with the SEC, we do not undertake any duty to update any forward looking statements today's call.

A presentation has been posted to the Investor relations portion of our website and we will reference certain slides during today's discussion a replay of today's call will be available on our website beginning this evening.

Also contains certain non-GAAP financial measures.

Please refer to our most recent earnings release and Investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures with that I'll turn the call over to Tobi.

Like to remind you that today's call may contain forward looking statements.

Thanks, Cam and good morning, everyone coming into 2023, I sat down with our leadership team and we set our overarching corporate mission and goal for the year with two simple words peak performance I wanted our fourth year since the takeover of EQT to be our best one yet and the crude certainly came through and delivering on that mission I want to take a few.

Also contains certain non-GAAP financial measures. Please refer to our most recent earnings release and Investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures with that I'll turn the call over to Tobi.

A moment to briefly reflect on the incredible accomplishments from this organization and we achieved over the course of 2023.

On the operations front, we set multiple drilling World Records and achieved our highest completion efficiency pace ever with 2023 monthly pumping hours per crew up more than 15% year over year. Importantly, this incredible operational pace came amid a 22% improvement in our 2023, EHS intensity, which was even better than our <unk>.

Tobi: Thanks, Cam and good morning, everyone coming into 2023, I sat down with our leadership team and we set our overarching corporate mission and goal for the year with two simple words peak performance I wanted our fourth year since the takeover of EQT to be our best one yet and the crude certainly came through and delivering on that mission I want to take a few.

The 15% target and underscores our unwavering commitment to safety at EQT on the financial front, despite a challenging natural gas price environment EQT generated nearly $880 million of free cash flow in 2023 retire north of $1 $1 billion of debt and raised our base dividend by 5%. This fine.

Tobi: Moments to briefly reflect on the incredible accomplishments from this organization that we achieved over the course of 2023.

<unk> performance is a clear demonstration of our advantage position at the low end of the North American natural gas cost curve and highlights that EQT is poised to thrive regardless of where we are in the commodity cycle.

Tobi: The 15% target and underscores our unwavering commitment to safety at EQT on the financial front, despite a challenging natural gas price environment EQT generated nearly $880 million of free cash flow in 2023 retired north of $1 $1 billion of debt and raised our base dividend by 5%. This fine.

On the M&A front, we closed on the strategic acquisition of tug Hill, and Xel midstream and integrated the assets at a record pace. Our team has wasted no time driving material operational performance improvement on the assets with the latest EQT operated Marcellus drilling costs coming in more than $200 per foot or nearly 55%.

Tobi: <unk> performance is a clear demonstration of our advantage position at the low end of the North American natural gas cost curve and highlights that EQT is poised to thrive regardless of where we are in the commodity cycle.

Lower than <unk> operated wells. This recent performance suggests the potential for even more upside than the $150 per foot of well cost savings, we discussed last quarter, which as a reminder is additive to $80 million of largely infrastructure related synergies, we originally announced with the deal.

Tobi: On the M&A front, we closed on the strategic acquisition of <unk> and <unk>.

On the marketing front, eqt's low cost peer leading inventory depth and environmental attributes enabled us to sign the largest long term physical supply deals ever executed in the North American natural gas market with some of the country's leading utilities with much stronger than expected power generation growth in many regions of the United States and natural gas.

<unk>, providing the ideal low carbon disposable complement to renewable generation, we expect gas fired power demand will surprise to the upside over the coming decade, and eqt's unique ability to meet this demand should result in additional margin capture opportunities moving forward.

We also made material progress executing on our differentiated LNG strategy, leveraging our significant Gulf coast firm transportation capacity to sign HOA covering two 5 million tonnes per annum of LNG tolling capacity were roughly 5% of our total natural gas production.

Tobi: With regard.

Our more integrated approach to LNG exposure compared with peers gives us direct connectivity to end users of our gas globally, and we have seen strong interest from prospective international buyers.

While there has been some noise around LNG permitting of late the outcome of Cop 28 demonstrates the world has spoken deeming natural gas is critical in facilitating the energy transition, while ensuring energy security. It is abundantly clear that nations around the world currently powered by coal desperately want and need greater access to natural gas.

And ultimately political posturing will reconcile with this reality if we as a society are truly intent on achieving global climate goals.

On the ESG front, we announced a first of its kind public private forestry partnership with the state of West, Virginia, which will create one of the highest quality most verifiable nature based carbon sequestration projects anywhere around the globe. We have already seen solid momentum on this project to date and we are incrementally confident in eqt's ability to become.

The first energy company of meaningful scale in the world to achieve net zero scope, one and two emissions.

This impressive list of achievements is a showcase of what is possible. When you combine a world class asset base with an industry, leading digitally enabled team underpinned by our culture of excellence and teamwork.

Turning to our reserve report Eqt's 2023 proved reserves totaled $27 six Tcf, which was up two six tcf relative to 2022, largely driven by additions from the <unk> acquisition.

Importantly, even with the SEC price deck dropping from over $6 per million Btu at year end 2022 to $2 64 at year end 2023, Eqt's proved reserves prior to the impact of tug Hill were slightly higher year over year underscoring the economic resiliency of our world class low cost Appalachia.

Reserve base.

Within our proved undeveloped reserve category of roughly eight Tcf, we have just 417 gross locations booked or roughly three years of development, representing only 10% of our de risked inventory of nearly 4000 gross locations. It's also worth highlighting that we estimate an additional two tcf of.

Serves not captured in our bookings associated with our non operated position in northeast, Pennsylvania, as we book limited pods on this asset given we only have timing visibility out three to six months.

Additionally, we've taken a conservative stance with limited reserve bookings for <unk> go forward, Utica inventory and West, Virginia, which should be a source of reserve upside over time using the year end 2023, SEC price deck of just $2 64 per million Btu. The PV 10 of our proved reserves is approximately $12 billion assuming <unk>.

<unk> strip pricing this value jumps to almost $23 billion and again, the subscribes credit to just three years or 10% of our remaining inventory I'd also note a reserve valuation is calculated prior to the impact of our firm transportation portfolio to the value accruing to EQT for marketing arrangements like the MVP firm sales comp.

Tracks, we announced last quarter are incremental to these PV 10 values.

We see the consistency and economic resiliency reflected in our reserve report as an important channel check for investors that highlights EQT has among the highest quality lowest cost natural gas asset base anywhere in the world.

Looking to 2024, we are initiating 2024 production guidance of 2200, 2300 Bcf, which include some flexibility to curtail volumes should natural gas prices remain weak our program contemplates running two to three rigs and three to four frac crews and turning in line 110 to 140 net wells as shown.

On slide six of our Investor deck. This activity level juxtaposed against our large production base underscores the incredible capital efficiency and quality of our assets as EQT is generating the most gross operated production per rig of any natural gas operator in the United States by a wide margin.

Looking at our spending profile, we are setting a 2020 for maintenance capital budget of $1 95 to $2 5 billion.

Including maintenance land and infrastructure spending we have also tactically allocated $200 million to $300 million.

For strategic growth projects across water infrastructure gas gathering and land that are opportunistic in nature and highly symbiotic with our upstream operations Jeremy will give more details later on but these projects generate the best risk adjusted returns in our portfolio de risk our upstream execution allow us to replenish inventory at <unk>.

Streamlet attractive cost and facilitate the compounding of capital for shareholder value creation.

At the midpoint of our maintenance capital and production guidance ranges are implied 2020 for maintenance capital efficiency equates to 89 per Mcf.

And our unhedged maintenance Nymex free cash flow breakeven is $2 50 to $2 60 per million Btu with contractual gathering rate reductions the shallow of our base decline improving basis from the firm sales arrangements, we announced last quarter and reductions in interest expense are all in Nymex free cash flow breakeven price should be.

We will give more details later on but these projects generate the best risk adjusted returns in our portfolio de risk our upstream execution allow us to replenish inventory at extremely attractive cost and facilitate the compounding of capital for shareholder value creation.

On a glide path down towards $2 30 per million Btu over the next several years.

At the midpoint of our maintenance capital and production guidance ranges are implied 2020 for maintenance capital efficiency equates to 89 per Mcf.

We believe this economic profile is in a class of its own relative to the rest of the industry, where we expect to see upward pressure on cost structure over this period associated with operators shifting to lower quality inventory in both the haynesville and parts of Appalachia. This differentiation is highlighted by the fact that we project EQT will generate cumulative free cash flow.

Of almost $9 billion over the next five years at a natural gas strip that averages approximately $3 40 per million Btu over this period.

On a glide path down towards $2 30 per million Btu over the next several years.

This gas price is roughly equivalent to the fully loaded corporate marginal cost of supply in the U S required to simply breakeven from a free cash flow perspective, let alone to generate returns for shareholders.

Said, another way higher cost natural gas producers will at best generate no shareholder value at the current strip over the next five years, while EQT is set to generate more than 40% of our enterprise value and free cash flow over the same timeframe. This stark contrast, underscores why cost structure is our north star at EQT and why we strive.

Almost $9 billion over the next five years at a natural gas strip that averages approximately $3 40 per million Btu over this period.

Not to be the biggest but to be the highest quality. Most resilient company that can generate durable free cash flow both in up cycles and in down cycles.

This is the essence of sustainability and value creation in a commodity business and we believe our shareholders are uniquely positioned to reap the rewards of Eqt's unrivaled combination of scale peer leading low cost inventory depth and best in class emissions profile I'll now turn the call over to Jeremy.

Said, another way higher cost natural gas producers will at best to generate no shareholder value at the current strip over the next five years, while EQT is set to generate more than 40% of our enterprise value and free cash flow over the same timeframe. This stark contrast, underscores why cost structure is our north star at EQT and while we strive not.

Thanks, Toby and good morning, everyone I'll start by summarizing our fourth quarter results, which highlight our operational momentum as we closed out the year.

To be the biggest but to be the highest quality most resilient company that can generate durable free cash flow both in up cycles and in down cycles. This is the essence of sustainability and value creation in a commodity business and we believe our shareholders are uniquely positioned to reap the rewards of Eqt's unrivaled combination of scale.

Sales volumes of 564 Bcf was toward the high end of our guidance range, reflecting continued best in class execution from our drilling and completion teams along with strong well performance.

Our per unit adjusted operating revenues were $2 75 per Mcf.

Peer leading low cost inventory depth and best in class emissions profile I'll now turn the call over to Jeremy.

And our total per unit operating cost were $1 27 per Mcf.

Which were at the low end of our guidance range, driven by lower than expected LOE and G&A expenses.

Thanks, Toby and good morning, everyone I'll start by summarizing our fourth quarter results, which highlight our operational momentum as we closed out the year.

It's worth noting that we outperformed low expectations every quarter in 2023 with total absolute low coming in at $40 million below our internal forecast driven largely by more efficient water handling facilitated by the investments we've made in water infrastructure.

Those volumes of 564 Bcf was toward the high end of our guidance range, reflecting continued best in class execution from our drilling and completion teams along with strong well performance.

Our per unit adjusted operating revenues were $2 75 per Mcf.

Capital expenditures were $539 million, which were in the lower half of our guidance range, reflecting the operational efficiency gains Toby mentioned previously.

And our total per unit operating cost were $1 27 per Mcf.

Which were at the low end of our guidance range, driven by lower than expected LOE and G&A expenses.

Turning to the balance sheet.

Last month, we completed several transactions that eliminated debt reduced interest expense simplified our balance sheet and established an important 10 year pricing reference point, which is the longest dated bond outstanding of our natural gas peers and underscores the market's confidence in our inventory duration.

It's worth noting that we outperformed low expectations every quarter in 2023 with total absolute low coming in $40 million below our internal forecasts driven largely by more efficient water handling facilitated by the investments we've made in water infrastructure.

First we retired all outstanding convertible senior notes due in 2026, which eliminated more than $400 million of absolute debt for.

Karen: Capital expenditures were $539 million, which were in the lower half of our guidance range, reflecting the operational efficiency gains Toby mentioned previously.

Call our fully diluted share count already included the shares associated with our convertible notes.

Karen: Turning to the balance sheet.

Karen: Last month, we completed several transactions that eliminated debt reduced interest expense simplified our balance sheet and established an important 10 year pricing reference point, which is the longest dated bond outstanding of our natural gas peers and underscores the market's confidence in our inventory duration.

We simultaneously liquidated the capped call that we had purchased in conjunction with the issuance of the convertible notes for cash proceeds of $93 million pro forma the convertible note retirement, our total debt outstanding is currently five 5 billion.

Which equates to one six times leverage when annualized fourth quarter adjusted EBITDA.

Karen: First we retired all outstanding convertible senior notes due in 2026, which eliminated more than $400 million of absolute debt.

Following the convertible notes settlement, we executed a highly successful $750 million 10 year bond offering last month, the proceeds of which we used to pay off 60% of the term loan that we borrowed in conjunction with the closing of the tug Hill and Xel midstream acquisitions, we saw extremely strong demand from the credit market with a P.

Karen: Our fully diluted share count already included the shares associated with our convertible notes.

Karen: We simultaneously liquidated the capped call that we had purchased in conjunction with the issuance of the convertible notes for cash proceeds of $93 million pro forma the convertible note retirement, our total debt outstanding is currently five 5 billion.

<unk> order book of almost $6 billion and the bonds pricing in a tight 165% spread to comparable U S. Treasury rates, which is similar to credit spreads of many of the highest quality large cap companies in the broader energy sector.

Karen: Which equates to a one six times leverage when Annualizing fourth quarter adjusted EBITDA.

Tobi: Following the convertible notes settlement, we executed a highly successful $750 million 10 year bond offering last month, the proceeds of which we used to pay off 60% of the term loan that we borrowed in conjunction with the closing of the <unk> and <unk> midstream acquisitions, we saw extremely strong demand from the credit market with it.

In conjunction with the bond offering we also extended the maturity of our remaining term loan from mid 2025 to mid 2026, providing ample flexibility for maturity management moving forward.

In terms of capital allocation, we will continue to prioritize debt paydown.

Tobi: <unk> order book of almost $6 billion and the bonds pricing in a tight 165% spread to comparable U S. Treasury rates, which is similar to credit spreads of many of the highest quality large cap companies in the broader energy sector.

Until we achieve our $3 5 billion gross debt target.

Our capital allocation philosophy is underpinned by an unwavering focus on establishing a fortress balance sheet counter cyclical and opportunistic share repurchases.

A steadily growing base dividend. This long term focused value investing framework has received a resounding support from our increasingly high quality shareholder base and we will continue to allocate capital in accordance with this first principles framework.

Tobi: In conjunction with the bond offering we also extended the maturity of our remaining term loan from mid 2025 to mid 2026, providing ample flexibility for maturity management moving forward.

Tobi: In terms of capital allocation, we will continue to prioritize debt paydown.

Looking ahead to 2024, we are setting an annual production guidance range.

Tobi: Until we achieve our $3 5 billion gross debt target.

2200, 2300, Bcf, which is underpinned by our fully loaded maintenance capital program of $1 95 to $2 <unk> 5 billion.

Tobi: Our capital allocation philosophy is underpinned by an unwavering focus on establishing a fortress balance sheet counter cyclical and opportunistic share repurchases.

Additionally, we are investing $200 million to $300 million into several strategic growth projects in the form of midstream and water infrastructure and infill land capture this year. These.

Tobi: And a steadily growing base dividend. This long term focused value investing framework has received a resounding support from our increasingly high quality shareholder base and we will continue to allocate capital in accordance with this first principles framework.

These opportunistic investments or significantly value enhancing and I want to take a moment to highlight the merits of each of these.

Tobi: Looking ahead to 2024, we are setting an annual production guidance range.

The acquisition of Xel Midstream last year created a full service midstream platform within EQT and through this platform. We are already sourcing proprietary opportunities that generate strong risk adjusted returns and robust free cash flow yields even superior to those of our core Marcellus wells, while at the same time derisking.

Tobi: 2200, 2300, Bcf, which is underpinned by our fully loaded maintenance capital program of $1 95 to $2 5 billion.

Tobi: Additionally, we are investing $200 million to $300 million into several strategic growth projects in the form of midstream and water infrastructure and infill land capture this year. These.

Our upstream operations.

As shown on slide 10, we are investing in three midstream growth projects. This year comprised of declaring 10 connector the oak gate pipeline and the Pacific Coast compression project the.

Tobi: These opportunistic investments or significantly value enhancing and I want to take a moment to highlight the merits of each of these.

Tobi: The acquisition of Xel Midstream last year created a full service midstream platform within EQT and through this platform. We are already sourcing proprietary opportunities that generate strong risk adjusted returns and robust free cash flow yields even superior to those of our core Marcellus wells, while at the same time derisking.

The combined capital associated with these projects is approximately $115 million and once fully operational these projects should generate aggregate annual free cash flow of nearly $50 million in the form of superior price realizations.

This implies these investments will generate in aggregate free cash flow yield of nearly 40%, which is extremely attractive given the absence of price risk and the annuity like cash flow profile over a 20 year asset life, we forecast a total return on investment of roughly eight times in the aggregate net present value of these projects is estimated at.

Tobi: Our upstream operations.

Tobi: As shown on slide 10, we are investing in three midstream growth projects. This year comprised of the <unk> connector, the Oak gate pipeline and the Pacific Coast compression project the.

Tobi: The combined capital associated with these projects is approximately $115 million and once fully operational these projects should generate aggregate annual free cash flow of nearly $50 million in the form of superior price realizations.

$250 million implying.

Implying value creation for shareholders equivalent to roughly <unk> 60 per share.

Despite only having this midstream business for just six months. These initial projects provide a glimpse into the long term opportunity we see for this new business line.

Tobi: This implies these investments will generate in aggregate free cash flow yield of nearly 40%, which is extremely attractive given the absence of price risk and the annuity like cash flow profile over a 20 year asset life, we forecast a total return on investment of roughly eight times in the aggregate net present value of these projects is estimated at.

Investment opportunities of this quality only come about because of the symbiotic relationship between our midstream and upstream teams working in alignment together.

We believe this approach to growing shareholder value is differentiated among peers, especially in a $2 gas world.

Tobi: $250 million implying.

And intend to cultivate this platform so that it becomes an even more impactful driver of shareholder value creation over time.

Tobi: Implying value creation for shareholders equivalent to roughly <unk> 60 per share.

Tobi: Despite only having this midstream business for just six months. These initial projects provide a glimpse into the long term opportunity we see for this new business line.

Within our reserve development Capex, we've also allocated $80 million to expand our existing water infrastructure assets in West Virginia.

Tobi: Reinvestment opportunities of this quality only come about because of the symbiotic relationship between our midstream and upstream teams working in alignment together.

As shown on slide 12 of our Investor deck, we expect 2020 for investments into our water infrastructure to drive annual savings of $20 million, implying a 25% free cash flow yield on our invested capital.

Tobi: We believe this approach to growing shareholder value is differentiated among peers, especially in a $2 gas world.

Our EQT owned water system has materially increased the amount of water produced that we can recycle which is having a tangible impact on our cost structure as demonstrated by our low coming in below forecast every quarter last year translating to $40 million more free cash flow than originally forecasted.

Tobi: And intend to cultivate this platform so that it becomes an even more impactful driver of shareholder value creation over time.

Tobi: Within our reserve development Capex, we've also allocated $80 million to expand our existing water infrastructure assets in West Virginia.

Turning to land, we have roughly $100 million allocated to opportunistic infill leasehold growth and mineral acquisitions. This year.

Tobi: As shown on slide 12 of our Investor deck, we expect 2020 for investments into our water infrastructure to drive annual savings of $20 million, implying a 25% free cash flow yield on our invested capital or.

Shown on slide 13 of our Investor presentation opportunistic leasehold additions organically replenished, 65% of the acreage that we developed over just the past year, which is the pace of replenishment that can materially expand our years of inventory when aggregated overtime.

Tobi: Our EQT owned water system has materially increased the amount of water produced that we can recycle which is having a tangible impact on our cost structure as demonstrated by our low coming in below forecast every quarter last year translating to $40 million more free cash flow than originally forecasted.

We believe this ability to organically backfill developed inventory is a unique feature among U S. Shale plays that largely exist only within southwest Appalachia due to the land configuration and historic development activity.

Tobi: Turning to land, we have roughly $100 million allocated to opportunistic infill leasehold growth and mineral acquisitions. This year.

Tobi: As shown on slide 13 of our Investor presentation opportunistic leasehold additions organically replenish 65% of the acreage that we developed over just the past year, which is a pace of replenishment that can materially expand our years of inventory when aggregated over time.

We're seeing notable opportunities to add to our acreage position at extremely attractive prices. This year, given the low commodity price environment, which we're able to capture due to our strong financial position.

To put into context, the value creation potential of deploying leasehold capital. We highlight a very tangible example on slide 13 of our investor presentation.

Tobi: We believe this ability to organically backfill developed inventory is a unique feature among U S. Shale plays that largely exist only within southwest Appalachia due to the land configuration and historic development activity.

In 2022, we infill leased acreage and increase our working interest by 18% and our polecat North development located in Greene County.

Which we brought online last year the incremental interest we added in this project through organic leasing is projected to generate a 90% plus free cash flow yield in year, one alone and nearly 55% annual free cash flow yield over the first five years and our return on invested capital of roughly seven times.

Tobi: We are seeing notable opportunities to add to our acreage position at extremely attractive prices. This year, given the low commodity price environment, which we're able to capture due to our strong financial position.

Tobi: To put into context, the value creation potential of deploying leasehold capital. We highlight a very tangible example on slide 13 of our investor presentation.

Pricing.

This example highlights why we see these tactical land expenditures as an extremely attractive reinvestment of capital while simultaneously extending inventory duration, which can in turn help facilitate additional strategic initiatives such as signing long term supply agreements.

Tobi: In 2022, we infill leased acreage and increase our working interest by 18% and our polecat North development located in Greene County.

Tobi: Which we brought online last year.

Tobi: The incremental interest we added in this project through organic leasing is projected to generate a 90% plus free cash flow yield in year, one alone and nearly 55% annual free cash flow yield over the first five years and our return on invested capital of roughly seven times at strip pricing.

A key point I want to leave you with on these growth projects is whether it's land capital infrastructure investments our acquisition strategy long term agreements with utilities or our base upstream business. We're incredibly intentional about aligning these decisions to ensure they symbiotically work together to enhance each other and collectively result in optimal.

Tobi: This example highlights why we see these tactical land expenditures as an extremely attractive reinvestment of capital while simultaneously extending inventory duration, which can in turn help facilitate additional strategic initiatives such as signing long term supply agreements.

Risk adjusted compounding of shareholder capital in the decades ahead.

In essence. This is the definition of terminal value and through building a successful track record of these decisions. We expect this to be reflected in our stock price.

Tobi: A key point I want to leave you with on these growth projects is whether it's land capital infrastructure investments our acquisition strategy long term agreements with utilities or our base upstream business. We're incredibly intentional about aligning these decisions to ensure they symbiotically worked together to enhance each other and collectively result in optimal.

Lastly, I want to quickly touch on our cost structure guidance, given the moving pieces with the imminent startup of MVP.

We are guiding full year transmission expense to 42 to <unk> 44 per Mcf, which is up approximately <unk> year over year, driven by the cost associated with MVP. This.

Tobi: Risk adjusted compounding of shareholder capital in the decades ahead.

This was partly offset by an accompanying contractual step down in our gathering rates, which we forecast to be in the 52 to 54 range for 2024 down from roughly 65 in 2023.

Tobi: In essence. This is the definition of terminal value and through building a successful track record of these decisions. We expect this to be reflected in our stock price.

Tobi: Lastly, I want to quickly touch on our cost structure guidance, given the moving pieces with the imminent startup of MVP.

Within our 2020 for corporate differential guidance of 50 to 70 <unk>.

We conservatively assume EQT flows only a portion of our MVP capacity due to downstream limitations at station 165.

Tobi: We are guiding full year transmission expense to 42 to <unk> 44 per Mcf.

Tobi: Which is up approximately 10 cents year over year, driven by the cost associated with MVP.

In the winter months, we should be able to flow at higher rates on MVP and realize a greater premium on downstream pricing.

Tobi: This was partly offset by an accompanying contractual step down in our gathering rates, which we forecast to be in the 52 to 54 range for 2024 down from roughly 65 in 2023.

Thus the cash flow uplift associated with MVP will be seasonal in nature until downstream expansion projects come online.

It's also worth highlighting that we have roughly 500 Mcf per day of our station 165 pricing exposure hedged through financial instruments and firm physical sales through 2025, which provides downside protection should there be any further price pressure downstream of MVP over the next few years.

Tobi: Within our 2020 for corporate differential guidance of 50 to 70.

Tobi: We conservatively assume EQT flows only a portion of our MVP capacity due to downstream limitations at station 165.

Tobi: In the winter months, we should be able to flow at higher rates on MVP and realize a greater premium on downstream pricing.

With nearly two five Bcf per day of upcoming project expansions at station 165, and significant demand pull from the southeast region, our ability to flow volumes on MVP and associated realized pricing should progressively improve over the coming years, culminating in the commencement of our firm sales contracts in 2027 that were projected.

Tobi: Thus the cash flow uplift associated with MVP will be seasonal in nature until downstream expansion projects come online.

Tobi: It's also worth highlighting that we have roughly 500 Mcf per day of our station 165 pricing exposure hedged through financial instruments and firm physical sales through 2025, which provides downside protection should there be any further price pressure downstream of MVP over the next few years.

To improve our corporate wide differential by 15% to 20.

Driving a $300 million plus uplift in annual free cash flow generation.

Turning to slide 11 of our Investor presentation, We announced the proposed acquisition of an additional 34% ownership in the EQT operated caelian Warrenville gathering system in northeast, Pennsylvania for $205 million in cash and we currently expect the transaction to close in late Q1 early Q2.

Tobi: With nearly two five Bcf per day of upcoming project expansions at station 165, and significant demand pull from the southeast region, our ability to flow volumes on MVP and associated realized pricing should progressively improve over the coming years, culminating in the commencement of our firm sales contracts in 2027 that are projected.

EQT currently owns 50% of this gathering system. So our pro forma ownership will increase to 84% based on terms agreed to in the purchase agreement subject to the potential exercise of certain preferential purchase rights.

Tobi: To improve our corporate wide differential by 15% to 20.

Tobi: Driving a $300 million plus uplift in annual free cash flow generation.

Tobi: Turning to slide 11 of our Investor presentation, We announced the proposed acquisition of an additional 34% ownership in the EQT operated caelian Warrenville gathering system in northeast, Pennsylvania for $205 million in cash and we currently expect the transaction to close in late Q1 early Q2.

Recall this gathering system was part of the Ultra acquisition, we completed in 2021, which has been a significant source of value creation for EQT.

The purchase price implies we are acquiring these assets for a double digit free cash flow yield underscoring. How this deal allows us to reinvest capital into durable long lived infrastructure at an attractive rate of return with near zero execution risk given we operate both the system and the upstream development underpinning the assets.

Tobi: EQT currently owns 50% of this gathering system. So our pro forma ownership will increase to 84% based on terms agreed to in the purchase agreement subject to the potential exercise of certain preferential purchase rights.

Consistent with our broader strategy to reinvest capital into assets that improve our corporate cost structure are greater ownership in the system will immediately lower our overall free cash flow breakeven price by more than <unk> <unk> per Mcf upon close.

Tobi: Recall this gathering system was part of the Ultra acquisition, we completed in 2021, which has been a significant source of value creation for EQT.

Tobi: The purchase price implies we are acquiring these assets for a double digit free cash flow yield underscoring. How this deal allows us to reinvest capital into durable long lived infrastructure at an attractive rate of return with near zero execution risk given we operate both the system and the upstream development underpinning the assets.

We are currently looking at ways, we can shift even more development activity onto this system over the coming years, which could drive additional upside to the transaction.

Moving to hedging we tactically added at the front end of our 2024 hedge position earlier this year leaning into the price Spike that occurred ahead of the winter storm in January.

Tobi: Consistent with our broader strategy to reinvest capital into assets that improve our corporate cost structure are greater ownership in the system will immediately lower our overall free cash flow breakeven price by more than <unk> per Mcf upon close.

We have now greater than 50% of our first quarter 2020 for production volumes hedged with a weighted average floor price of $3 87 per <unk>, which is derisked a significant portion of our free cash flow outlook for the year.

Tobi: We are currently looking at ways, we can ship, even more development activity under this system over the coming years, which could drive additional upside to the transaction.

We have nearly 50% of our second quarter production hedged with a weighted average floor of $3 39 per annum Btu and a roughly 40% of our Q3 production covered at a weighted average floor price of $3 42 per M and Btu. Additionally.

Tobi: Moving to hedging we tactically added at the front end of our 2024 hedge position earlier this year leaning into the price Spike that occurred ahead of the winter storm in January.

Additionally, we've recently added some 2020 for winter hedges taken our fourth quarter hedge coverage up to more than 20% with a weighted average floor price of $3 47.

Tobi: We have now greater than 50% of our first quarter 2020 for production volumes hedged with a weighted average floor price of $3 87 per <unk> Btu, which is derisked a significant portion of our free cash flow outlook for the year.

<unk> Btu.

Turning to Appalachian basis differentials were relatively wide during the fourth quarter, driven by an elevated eastern storage level and rising production associated with multiple operators completing wells that were deferred from earlier in the year.

Tobi: We have nearly 50% of our second quarter production hedged with a weighted average floor of $3 39 per annum Btu and roughly 40% of our Q3 production covered at a weighted average floor price of $3 42 per <unk> Btu. Additionally.

Our strong basis hedge position again pay dividends this quarter boosting our corporate wide realized natural gas price by <unk> <unk> per <unk> Btu.

Tobi: Additionally, we've recently added some 2020 for winter hedges taken our fourth quarter hedge coverage up to more than 20% with a weighted average floor price of $3 47.

As it relates to the increase in Appalachian supply after peaking at just under 37 Bcf per day in December production in the basin has fallen by roughly one five Bcf per day, and we anticipate further declines in the Appalachian supply through the second quarter.

Tobi: For <unk> Btu.

Tobi: Turning to Appalachian basis differentials were relatively wide during the fourth quarter, driven by an elevated eastern storage level and rising production associated with multiple operators completing wells that were deferred from earlier in the year.

On the local demand side, it's noteworthy that PJM recently doubled its 15 year annualized load growth forecast from 8% to one 6%.

Tobi: Our strong basis hedge position again pay dividends this quarter boosting our corporate wide realized natural gas price by <unk> <unk> per <unk> Btu.

This equates to nearly seven gigawatts of additional power demand by 2027 and more than 10, Gigawatts by 2030, which if satisfied by natural gas would translate to nearly two bcf per day of additional local demand by the end of the decade.

Tobi: As it relates to the increase in Appalachian supply after peaking at just under 37 Bcf per day in December production in the basin has fallen by roughly one five Bcf per day, and we anticipate further declines in the Appalachian supply through the second quarter.

This trend of increasing local demand juxtaposed against a relatively flat based on supply and the commencement of MVP should provide a structural tailwind for local pricing over the coming years.

Tobi: On the local demand side, it's noteworthy that PJM recently doubled its 15 year annualized load growth forecast from 8% to one 6%.

Which we do not believe is currently priced into the basis futures market.

As it relates to lower 48 supply, it's worth highlighting that a prominent data vendor revised its year to date supply estimates downward by one to two Bcf per day this week.

Tobi: This equates to nearly seven gigawatts of additional power demand by 2027 and more than 10, Gigawatts by 2030, which if satisfied by natural gas would translate to nearly two bcf per day of additional local demand by the end of the decade.

We had suspected certain data sources were overstating production and this downward revision validated the market is not as oversupplied as many previously thought.

Tobi: This trend of increasing local demand juxtaposed against relatively flat based on supply and the commencement of MVP should provide a structural tailwind for local pricing over the coming years, which we do not believe is currently priced into the basis futures market.

Assuming production is simply stays flat at the current revised level and weather is normal through the injection season into summer gas storage will be roughly in line with the five year average level.

Tobi: As it relates to lower 48 supply, it's worth highlighting that a prominent data vendor revised its year to date supply estimates downward by one to two Bcf per day this week.

I'll close by sharing a few philosophical thoughts on what we believe it takes to not only survive but to thrive as a natural gas producer and a macro backdrop that we expect will be characterized by unpredictable volatility for the foreseeable future.

Tobi: We had suspected certain data sources were overstating production and this downward revision validated the market is not as oversupplied as many previously thought.

The real long term winners in this business will not be the biggest companies the gain scale simply for the sake of scale, but will instead be the companies that have a corporate cost structure that is currently and in the future at the low end of the cost curve.

Tobi: Assuming production is simply stayed flat at the current revised level and weather is normal through the injection season into the summer gas storage will be roughly in line with the five year average level.

A low cost structure is the only competitive advantage one can have in a commodity driven business, which is why it is our north star and drives nearly all of our strategic decision making.

Speaker Change: I'll close by sharing a few philosophical thoughts on what we believe it takes to not only survive but to thrive as a natural gas producer and a macro backdrop that we expect will be characterized by unpredictable volatility for the foreseeable future.

While we are believers that future natural gas prices will be higher on average we do not believe that prices will be stable at this 4% to five dollar level like the prevailing consensus view.

Speaker Change: The real long term winners in this business will not be the biggest companies the gain scale simply for the sake of scale, but will instead be the companies that have a corporate cost structure that is currently and in the future at the low end of the cost curve.

And building a business around this assumption of average prices is likely to in poorly.

Until we return to a world, where we can build necessary domestic infrastructure. We believe we are more likely to see prices either around the $2 level. They are today to force high cost producers to curtail production and activity were materially higher to curtail demand as pricing becomes the only variable left to balanced natural gas inventories.

Speaker Change: A low cost structure is the only competitive advantage one can have in a commodity driven business, which is why it is our north star and drives nearly all of our strategic decision making.

Speaker Change: While we are believers that future natural gas prices will be higher on average we do not believe that prices will be stable at four to five dollar level like the prevailing consensus view and.

Said another way, we believe in an increasingly fat tail distribution of outcomes.

Tobi: And building a business around this assumption of average prices is likely to in poorly.

That is a critical distinction and we have already seen the manifestation of this dynamic with prompt month pricing at this moment.

Tobi: Until we return to a world, where we can build necessary domestic infrastructure. We believe we are more likely to see prices either around the $2 level. They are today to force high cost producers to curtail production and activity were materially higher to curtail demand as pricing becomes the only variable left you balanced natural gas inventories.

However, EQT is at the low end of the cost curve and we will be moving even farther down the cost curve over the next five years due to our contractual gathering rate reductions in long term MVP firm sales agreements.

This outcome is by design as our philosophy toward creating value in a cyclical volatile commodity business is underpinned every one of our strategic decisions over the past several years.

Tobi: Said another way, we believe in an increasingly fat tail distribution of outcomes.

The culmination of these decisions has created a unique opportunity for investors to deploy capital into the preeminent natural gas platform is positioned to generate peer leading shareholder value through all parts of the commodity cycle over the long term.

Tobi: That is a critical distinction and we're already seeing the manifestation of this dynamic with prompt month pricing at this moment how's.

Tobi: However, EQT is at the low end of the cost curve and we'll be moving even farther down the cost curve over the next five years due to our contractual gathering rate reductions in long term MVP firm sales agreements. This.

And with that we'll open the call to questions.

At this time, if you'd like to ask a question press star followed by the number one on your telephone keypad. We ask that you. Please limit your questions to one and one follow up.

Tobi: This outcome is by design as our philosophy toward creating value in a cyclical volatile commodity business is underpinned every one of our strategic decisions over the past several years.

Our first question will come from the line of Arun <unk> with Jpmorgan. Please go ahead.

Tobi: The culmination of these decisions has created a unique opportunity for investors to deploy capital into the preeminent natural gas platform that is positioned to generate pure leading shareholder value through all parts of the commodity cycle over the long term.

Yeah. Good morning team I wanted to see on slide nine you highlight.

Your views on maintenance Capex and strategic growth Capex.

From 2024.

Speaker Change: And with that we'll open the call to questions.

Relative to two or 2025 to 28 outlook.

Speaker Change: At this time, if you'd like to ask a question press star followed by the number one on your telephone keypad. We ask that you. Please limit your questions to one and one follow up.

Jeremy I'm wondering if you can maybe help us think about the trajectory of that spend how does 2025 look versus 28.

Speaker Change: Our first question will come from the line of Arun <unk> with Jpmorgan. Please go ahead.

And maybe just some thoughts on midstream capex under this outlook.

Arun: Yeah. Good morning team I wanted to see on slide nine you highlight.

With a clear focus of today some of the strategic the midstream investments that EQT is making.

Arun: Your views on maintenance Capex and strategic growth Capex and you compare it from 2024.

Yeah, absolutely. So we've assumed in our go forward forecasts in our five year outlook about $150 million per year, which.

Arun: Relative to two or 2025% to 28 outlook.

Which is kind of a loose bucket, we've assigned I wouldn't say, it's entirely defined through that forecast, but that's our broad assumption, which is what's reflected on that slide.

Arun: Jeremy I was wondering if you could maybe help us think about the trajectory of that spend how does 2025 look versus 28.

There is a little bit of carryover on this clearance and connector project into 2025, but I would say that at <unk>.

Arun: And maybe just some thoughts on midstream capex under this outlook.

Our expectation for spending is within that bucket.

Arun: With a clear focus of today some of the strategic the midstream investments that EQT is making.

I mean look I think the sort of spending projects, it's not something that necessarily will be recurring but if look if we see great opportunities that make our business better.

Jeremy: Yeah, absolutely. So we've assumed in our go forward forecast in our five year outlook about $150 million per year, which is kind of a loose bucket. We've assigned I wouldn't say, it's entirely defined through that forecast, but that's our broad assumption, which is what's reflected on that slide.

Sometimes the cost a little bit of money to invest and actually capture that price in that value. That's what you're seeing us do in 2024 there'll be years, where we probably don't spend any of that capital in other years, where we spent a little bit more.

Sure.

Jeremy: There's a little bit of carryover on this clearance and connector project into 2025, but I would say that at <unk>.

That's helpful.

Good question.

Give us some thoughts on the glide path on the on the $2 billion deleveraging target.

Tobi: Expectation for spending is within that bucket.

Speaker Change: I mean look I think the sort of spending projects, it's not something that necessarily will be recurring but if look if we see great opportunities that make our business better.

There have been some recent press reports.

On EQT potentially looking at selling your non op piece in northeast PA I don't know if this is a great environment to be selling assets. I was wondering if you could comment on maybe some inorganic opportunities to delever call. It in a big Bang type of approach.

Speaker Change: Sometimes they cost a little bit of money to invest and actually capture that price in that value. That's what you're seeing us do in 2024 there'll be years, where we probably don't spend any of that capital in other years, where we spent a little bit more.

Yeah look at obviously with the volatile commodity price environment, even a month ago. The outlook with the strip was at $3 is different than where the strip is today closer to closer to 40. So it's in many ways organically. It will depend on just where the strip settles. We continue to be really bullish the next six to nine months might be a little bit.

Speaker Change: That's helpful.

Speaker Change: Good question give us some thoughts on the glide path on the on the $2 billion of deleveraging target.

Tobi: There have been some recent press reports.

Tobi: On EQT potentially looking at selling your non op piece in northeast PA I don't know if this is a great environment to be selling assets. I was wondering if you could comment on maybe some inorganic opportunities to delever call. It in a big Bang type of approach.

But I think we continue to have the view and I think youre starting to see it from some of the earnings guidance already coming out this quarter.

A curtailment of activity today is just going to really amplify the upside I think as we get into next year. So we remain well positioned to capture that I think as much as really anybody in terms of inorganic ways to Delever I mean look we for the right price.

Speaker Change: Yes look obviously with the volatile commodity price environment, even a month ago.

Speaker Change: Outlook when the strip was at $3 is different than where the strip is today closer to closer to $2 40. So it's in many ways organically. It will depend on just where the strip settles. We continue to be really bullish. The next six to nine months, maybe a little bit bumpy, but I think we continue to have the view and I think youre starting to see it from some of the earnings guidance already coming.

We're a seller of anything right I mean, our focus and our North star is really just creating shareholder value. If there is an opportunity to do that certainly I think when we started thinking about rationalizing the portfolio in Q4, we were looking at a $3 50 strip.

Speaker Change: <unk>.

Speaker Change: This quarter.

So.

Speaker Change: Really a curtailment of activity today is just going to really amplify the upside I think as we get into next year. So we remain well positioned to capture that I think as much as really anybody in terms of inorganic ways to Delever I mean look we for the right price.

The process for executing on that might be maybe a little bit delayed, but I would say.

There is a renewed interest really across the market and non operated assets.

Really from international players, who have interest in having exposure to U S. Gas. So I think we've seen a little bit of this recently, but don't want to actually have U S operations. So.

Tobi: We're a seller of anything right I mean, our focus and our North star is really just creating shareholder value. If there is an opportunity to do that.

We really started exploring that because of inbounds, we got and I think a lot of those buyers are a little less price sensitive than some of the buyers domestically. So look we.

Tobi: I think when we started thinking about rationalizing the portfolio in Q4, we were looking at a $3 50 strip.

Tobi: So.

Tobi: The process for executing on that might be maybe a little bit delayed, but I would say.

We do it certainly not is not defensive it would be opportunistic and I'd say, we've seen some really good interest on the asset I think at values that.

Tobi: There is a renewed interest really across the market and non operated assets.

Certainly do not reflect strip pricing so.

Tobi: Really from international players, who have interest in having exposure to U S gas and I think we've seen a little bit of this recently, but don't want to actually have U S operations. So.

We will remain opportunistic, but its something that could happen near term it could happen a year from now.

But it's just part of our continued effort to not necessarily just chase scale, but really chase quality and what creates the most value.

Tobi: We really saw.

Tobi: Turning to exploring that because of inbounds, we got and I think a lot of those buyers are a little less price sensitive than some of the buyers domestically. So look we.

Great I'll turn it back thanks.

Your next question comes from the line of Sam Margolin with Wolfe Research. Please go ahead.

Tobi: We do it certainly not is not defensive it would be opportunistic and I'd say, we've seen some really good interest on the asset I think at values that.

Hey, good morning, everybody. Thanks for taking the question.

Good morning.

Thanks for the detail on the on your activity plans for 'twenty four as always it's a recurring slide.

Tobi: Certainly do not reflect strip pricing so.

Tobi: We will remain opportunistic, but its something that could happen near term it could happen a year from now.

My question is the ranges of the number of wells that you drill and complete and turned to sales are the same range, but they're not necessarily aligned on.

Tobi: But it's just part of our continued effort to not necessarily just chase scale, but really chase quality and what creates the most value.

On either end and so when you think about how you execute within those ranges do they move together on a one to one basis or is there a scenario where you drilled 120 wells you complete 120 wells and you turn on June 20 wells in line.

Speaker Change: Great I'll turn it back thanks.

Speaker Change: Your next question comes from the line of Sam Margolin with Wolfe Research. Please go ahead.

Sam Margolin: Hey, good morning, everybody. Thanks for taking the question.

Sam Margolin: Good morning.

Sam Margolin: Thanks for the detail on the on your activity plans for 'twenty four as always it's a recurring slide.

And you have no change in sort of like your DUC backlog are your are your deferred pills.

Sam Margolin: My question is the ranges of the number of wells that you drill and complete and turned to sales are the same range, but they're not necessarily aligned on.

Yes, so to provide some more color on the numbers, we put out there I mean, there is a mix of wells that are not all the numbers are the same for what we spud to what we horizontally drill complete and what we ultimately turn in line.

Sam Margolin: On either end and so when you think about how you execute within those ranges do they move together on a one to one basis or is there a scenario where you drill 120 wells you completed 120 wells and you turn 120 wells in line.

When we put those numbers out.

When we have to pick a number it's typically the tail.

And so there will be a little bit of a range there to account for some flexibility.

We see a more compelling opportunity in 'twenty five we could pause on some of the the til activity.

Sam Margolin: And you have no change in sort of like your DUC backlog are your are your deferred sales.

Okay.

That makes sense and then I mean, this is sort of a follow up to those ranges there they're designed I guess.

Sam Margolin: Yes, so to provide some more color on the numbers, we put out there I mean, there is a mix of wells that are not all the numbers are the same for what we spud to what we horizontally drill complete and what we ultimately turned in line.

To correspond to a number of different market outcomes I mean, what's the market condition.

There you might materially change those ranges and bring down activity levels below where you've been running obviously as you can imagine that's a that's an inbound question I think all of us getting from some investors. Thanks.

Sam Margolin: When we put those numbers out.

Sam Margolin: When we have to pick a number it's typically the tail.

Sam Margolin: And so there will be a little bit of a range there to account for some flexibility.

Yes, Sam it's something that I think we like every one of our peers is probably thinking about.

Sam Margolin: If we see a more compelling opportunity in 'twenty five we could pause on some of the <unk>.

Sam Margolin: Til activity.

Every day right now I mean, you look at the prompt price in the 100 <unk> when the market is asking for not only production curtailments, but also activity reductions.

Sam Margolin: Okay.

Speaker Change: That makes sense and then I mean, this is sort of a follow up to those ranges there.

Speaker Change: <unk> I guess.

Sam Margolin: To correspond to a number of different market outcomes.

And look if you look at our even our production guidance that we gave and that bond prospectus in mid January.

Sam Margolin: What's the market condition.

Sam Margolin: There you might materially change those ranges and bring down activity levels below where you've been running obviously as you can imagine that's a that's an inbound question I think all of us get from some investors. Thanks.

Youll notice, we've reduced that that range by about 50 Bcf I would characterize that as a response to the price environment. We're in.

Speaker Change: Yes, Sam it's something that I think we like every one of our peers is probably thinking about.

Wanting to make sure there is flexibility so EQT can respond.

And make sure that.

Speaker Change: Everyday right now I mean, you look at the crop price in the 100 <unk> when the market is asking for not only production curtailments, but also activity reductions.

If price gives it gives a signal for lower activity and lower production, we stand ready to respond.

Understood. Thank you so much.

Speaker Change: And look if you look at our even our production guidance that we gave and that bond prospectus in mid January.

Your next question comes from the line of John Abbott with Bank of America. Please go ahead.

Hey, good morning, and thank you for taking your questions.

Speaker Change: You'll notice we've reduced that that range by about 50 BCC.

Our first question is really on your five year cumulative free cash flow outlook, you mentioned $9 billion.

Speaker Change: I would characterize that as a response to the price environment, we're in and wanting to make sure. There is flexibility so EQT can respond.

That's lower than its you gave into third quarter, obviously, that's part of lower commodity prices.

Speaker Change: Make sure that.

Sam Margolin: If price gives us gives a signal for lower activity and lower production, we stand ready to respond.

But when you think about those two outlooks.

Is there anything really changed on the cost side in terms of assumptions.

Speaker Change: Understood. Thank you so much.

Particularly moved when you look at those two projections.

Sam Margolin: Your next question comes from the line of John Abbott with Bank of America. Please go ahead.

No John there have been no changes I don't think of any material consequence aside from pricing.

John Abbott: Hey, good morning, and thank you for taking our questions.

John Abbott: Our first question is really on your five year cumulative free cash flow outlook, you mentioned $9 billion.

Alright, and then the other question here is really related to your long term gas differential.

Where do you think your differential sort of if you sort of look at strip pricing, where do you think it is from 2027 and then Jeremy you sort of went out there and you suggested that in basin demand should improve over time and thats not reflected in current differentials, where do you think that could potentially move.

John Abbott: That's lower than its you gave in the third quarter, obviously, thats part of lower commodity prices, but.

John Abbott: But when you think about those two outlooks.

John Abbott: Is there anything really changed on the cost side in terms of assumptions.

John Abbott: Particularly moved when you look at those two projections.

John Abbott: No John there have been no changes I don't think of any material consequence aside from pricing.

Yes. So if you look at just the EQT forecast the midpoint of our range is that 60% level for differentials for this next year. If you look at.

John Abbott: Alright, and then the other question here is really related to your long term gas differential.

Where we end up in 2028 with the expansion projects in line and just at current strip pricing our realized differential will be about 50. So our differential on average drops about 10 cents from from where we sit today, it's really the back into that five year guidance range.

John Abbott: Where do you think your differentials sort of if you sort of look at strip pricing, where do you think it is from 2027 and then Jeremy you sort of went out there and you suggested that in basin demand should improve over time and that's not reflected in current differentials, where do you think that could potentially move.

I mean look when you think about the in basin demand dynamics I think what we've highlighted.

Jeremy: Yes. So if you look at just the EQT forecast the midpoint of our range is that 60% level for differentials for this next year. If you look at.

Could add potentially up to two BS a day of demand and based on some of that might be taken by renewed by renewables. So call. It one to two bps net gas and then.

Speaker Change: Where we end up in 2028 with the expansion projects in line and just at current strip pricing our realized differential will be about 50. So our differential on average drops about 10 cents from from where we sit today, it's really the back into that five year guidance range.

The MVP downstream expansion projects come online too I mean, that's kind of fully utilized MVP and I'd actually think from conversations we're having theres probably likelihood MVP gets expanded by another half a day.

At EQT, we stand ready to really be a supplier of that support that project I think there is ample ample demand in that southeast market with data center build outs really underpinned by the AI Revolution right now.

John Abbott: I mean look when you think about the in basin demand dynamics I think what we've highlighted.

John Abbott: Could add potentially up to two BS a day of demand and based on some of that might be taken by renewed by renewables. So call it 1% to two <unk> net to gas.

And population growth in that in that area, that's really pulling on gas or just absolute power demand increases. In addition to coal retirement. So its power I think in our view as you look towards the end of this decade is increasingly becoming I think as bullish as of a thematic tailwind is really LNG and will probably take the torch from LNG.

John Abbott: And then.

John Abbott: The MVP downstream expansion projects come online too I mean, that's kind of fully utilize MVP and I'd actually think from conversations we're having theres probably likelihood MVP gets expanded by another half a day.

In the coming years.

John Abbott: At EQT, we stand ready to really be a supplier of that support that project I think there is ample ample demand in that southeast market with data center build outs really underpinned by the AI Revolution right now.

And so I think that dynamic really when you couple all those all those dynamics and themes together and I think you really see a really healthy backdrop for Appalachia.

John Abbott: And population growth in that in that area, that's really pulling on gas for just absolute power demand increases in addition to coal retirement.

I think certainly as you see some operators start to run than on inventory in the basin I think it provides opportunity for companies like EQT to not only capture better in basin pricing.

John Abbott: Power I think in our view as you look towards the end of this decade is increasingly becoming I think as bullish of a thematic tailwind is really LNG will probably really take the torch from LNG in the coming years.

But actually really grow our own production into that.

Take a bigger share of the pie so.

That's really our expectation over the next couple of years, we stand ready to respond to it but we see it really more of a tailwind than a headwind.

John Abbott: And so I think that dynamic really when you couple all of those all of those dynamics and themes together and I think you really see a really healthy backdrop for Appalachia.

Very very helpful. Thank you for taking our questions.

Your next question comes from the line of David <unk> with TD Cowen. Please go ahead.

John Abbott: And I think certainly as you see some operators start to run than on inventory in the basin I think it provides opportunity for companies like EQT to not only capture about our in basin pricing, but actually really grow our own production into that and take a take a bigger share of the pie. So.

Okay.

Good morning, guys. Thanks for taking my questions.

I was hoping just to dig in a little bit more on just a <unk> question I think you all highlighted the lower implied maintenance capex.

Going into 'twenty five and beyond.

John Abbott: That's really our expectation.

I guess, if we think about that delta of 100 $200 million next year.

As most of that is just coming from continued synergies on the tug Hill assets is a lower base decline is it implied cost savings is less infrastructure spend or is it sort of all of the above or what's driving the bulk of it.

Yes, I would say it would be all of the above.

It seems just looking across all angles of the business looking for ways to shape Fannies off the program.

And then maybe just to talk a little bit about just the low side or production cost side.

I think you've highlighted in the deck, especially on slide 12, the <unk>.

Benefits of the water system.

So the guidance obviously this year.

Now inclusive of the tug Hill deal on some other moving parts, you're eloise moving higher.

Are you, including the expected <unk>.

Benefits from the water system investments and your 24 guidance.

Round low or is that something that would be additional upside.

Okay.

You are talking about.

The savings of $40 million that we referred to in the prepared remarks, or which youre referring to.

The $40 million and I guess like the completion of the systems and 24.

Yes, so those investments I mean, you don't get a.

And instant response, the same year I mean, the time it takes to build those systems you usually see that that savings show up in the following year and the years after that so like the water system investments the additional $80 million, we're spending this year and interconnecting really the chevron water systems, what we've built out the tug Hill systems.

I mean, that's really going to pay dividends for us not only in completion cost over the coming years, just through lower water cost in water recycling, but also through low I expect more of that show up in 2025, and beyond where you start seeing that move the needle.

I appreciate the color.

Your next question comes from the line of Kevin Mccarthy with Pickering Energy Partners. Please go ahead.

Okay.

Hey, good morning, I had a couple of questions on the liquids production and pricing. The first question is it looked like ethane production was lower than guidance for <unk>, while pricing for the other Ngls was higher than what we expected can you give us some more detail on those two items and maybe remind us how your heavier ngls are priced.

Yes look I would say on the ethane side. It really just comes down to what's going on with the shell cracker. Both in terms of Q4 actuals and also the outlook for 2024.

So thats really going to be the main driver of that I think in the guidance, we gave assumed that.

Our underlying assumption there is.

Is influenced by our expectation that that that cracker plant is not fully online really for another year, but that's something that I think we and our peers around us in southwest.

Appalachia or having a haircut a little bit just due to the continued startup delays on that facility.

And how are your heavier Ngls price.

Okay.

Really just based on index in basin.

I wouldn't say there was anything that's really changing as it relates to those dynamics.

Great.

Looking at the forward guidance it looks like liquids, excluding ethane declines from <unk> volumes and then again.

From the <unk> volumes.

What's the driving the decrease for the heavier liquids.

Yes, I would.

Simply chalk it up to just the we have some pretty lumpy pads in the way we develop.

It really just comes down to some of the liquids rich pads that we acquired from tug and how that alternates of some of the more of a Utica pads. They get turned online or other Marcellus just dry Marcellus activity. So it's just kind of normal course, lumpiness, but I wouldnt expect any sort of long term trend or change from what <unk> seen recently.

Great I appreciate the details thank you.

Your next question comes from the line of Adam <unk> with Goldman Sachs. Please go ahead.

Hi, Good morning team. Thank you for taking the questions.

Talked about the capital allocation priorities. This year highlighted debt Paydown is the focus maybe help us understand the thought process around how your view of the macro environment factors into that decision matrix between the different pieces and how we could expect that to evolve.

Marcellus activity. So it's just kind of normal course, lumpiness, but I wouldnt expect any sort of long term trend or change from what you've seen recently.

Yeah for sure.

It actually is really driven by the macro in many ways I think.

Great I appreciate the details thank you.

At a high level I mean look I think we're as bullish as anybody has it really is as it relates to the gas macro outlook as you get to kind of mid 25% to 2026. So so really what we have to weigh on our end is.

Your next question comes from the line of Adam <unk> with Goldman Sachs. Please go ahead.

Hi, Good morning team. Thank you for taking the questions.

You talked about the capital allocation priorities. This year highlighted debt Paydown is the focus maybe help us understand the thought process around how your view of the macro environment factors into that decision matrix between the different pieces and how we could expect that to evolve.

If we did if we reallocated those dollars instead of to debt pay down to something like a buyback and accelerating that right now it would probably in turn caused us to want to go hedge more and protect the balance sheet. In case, you just add a bunch of macro factors not go according to plan and in that time period.

Yeah for sure.

It actually is really driven by the macro in many ways I think at a high level I mean look I think we're as bullish as anybody's. It really is as it relates to the gas macro outlook as you get to kind of mid 25% to 2026. So so really what we have to weigh on our end is.

So when it comes to opportunity cost for us, it's really just a simple question.

What's the upside spending the dollars buying the stock versus the upside, leaving that more unhedged and I think with the asymmetric expectation, we have to where pricing could go certainly by the end of 2025 as you get into 2026 that it dwarfs any sort of return we can get.

If we did if we reallocated those dollars instead of to debt pay down to something like a buyback and accelerating that right now.

Just by buying back stock right now and so for US. The question is what ultimately is going to create the most shareholder value and so really we'd rather be patient on the hedging front end.

Probably in turn caused us to want to hedge more and protect the balance sheet. In case, you just had a bunch of macro factors not go according to plan and in that time period.

And use our dollars near term to just to Derisk the balance sheet. So really by doing that we think that actually gives investors more upside and exposure to gas prices and if for some reason things don't work out on our expectations on the macro it provides more downside at the same time. So that's why we've allocated and plan to allocate the way.

So when it comes to opportunity cost for us, it's really just a simple question of.

Whats the upside spending the dollars buying the stock versus the upside, leaving that more unhedged and I think with the asymmetric expectation, we have to where pricing could go certainly by the end of 2025 as you get into 2026 that minute dwarfs any sort of return we can get.

The way I already explained.

Got it. Thank you for that and then you mentioned the low cost structure is an advantage. We mentioned a couple of drivers there as well, but I was wondering if you could provide some more color on those pieces and what drives it down further over the next few years.

Just by buying back stock right now and so for US. The question is what ultimately is going to create the most shareholder value and so really we'd rather be patient on the hedging front end.

And use our dollars near term just to Derisk the balance sheet. So really by doing that we think that actually gives investors more upside and exposure to gas prices and if for some reason things don't work out on our expectations on the macro it provides more downside at the same time. So that's why we've allocated and plan to allocate the way.

Yes, yes, I mean, it's a couple of kind of key things and it's it's really contractual.

So I mean, our gathering rates I mean, you've seen our guidance with MVP coming online the impact on just the full year as those rates stepping down at the same time MVP goes into service.

The way I already explained.

Those further step down as we've talked about before into 2026 27 really hit a bottom in 2028 and so it really does those rates on an echo trans contract that last year were about 80 cents for just the gathering rate hit a bottom of 30.

Got it. Thank you for that and then you mentioned the low cost structure is an advantage you mentioned a couple of drivers there as well, but I was wondering if you could provide some more color on those pieces and what drives it down further over the next few years.

Yes, yes, I mean, it's a.

Couple of kind of key things and it's it's really contractual.

By the time, you get to 2028 on a blended basis I mean, they don't gather all of our production. So on a blended basis. It's a little more muted you don't see that full 50 drop but that is a contractual step down that is that as part of our longer term forecast and again, just a tailwind to us.

So I mean, our gathering rates I mean, you've seen our guidance with MVP coming online the impact on just the full year is those rates stepping down at the same time MVP goes into service.

Even if you have flat pricing and everything else in that in the environment doesn't improve.

Those further step down as we've talked about before into 2026 27 really hit a bottom in 2028, and so really those rates on our <unk> contract that last year were about 80 cents.

And then the other piece of that too as we talked about last quarter. The supply deals that we signed downstream MVP and so thats going to also improve our realizations are realized pricing by 15 to 20, which.

For just the gathering rate hit a bottom of 30.

By the time, you get to 2028 on a blended basis I mean, they don't gather all of our production. So on a blended basis. It's a little more muted you don't see that full 50 drop but that is a contractual step down that is part of our longer term forecast and again, just a tailwind to us.

Which over our production basis that kind of rounded $300 million free cash flow.

It's really the combination of the two.

There is some offsetting factors in there.

<unk>.

But around like compression adds and you have a tailwind as you pay down debt your interest expense falls as well, but.

Even if you have flat pricing and everything else in the environment doesn't improve.

By the time, you get to 2028, we see that breakeven cost structure about $2 30.

Karen: And then the other piece of that too as we talked about last quarter. These supply deals that we signed downstream MVP and so thats going to also improve our realizations are realized pricing by 15 to 20.

Down about 30 since from where we sit right now so it's a continued tailwind and look as we've talked about I think.

Over and over again, I think that is really unique EQT.

Karen: Which over our production basis that kind of rounded $300 million free cash flow.

<unk>.

I think where you are in the shale Revolution right now a lot of that core inventory is depleted.

Karen: It's really the combination of the two.

We're rapidly getting depleted I expect a lot of cost structures to be rising over that period. So it's really it's really a unique differentiating characteristic of EQT and its.

Karen: Some offsetting factors in there.

Karen: But you know around like compression adds and you have a tailwind as you pay down debt your interest expense falls as well, but.

Really just further like.

Karen: By the time, you get to 2028, we see that breakeven cost structure about $2 30.

Share price upside free cash flow upside relative to what you would get anywhere else.

Karen: Down about 30 from where we sit right now so it's a continued tailwind and look as we've talked about I think over and over again I think that is really unique EQT.

Thank you Alan I appreciate that I'll turn it over.

Your next question comes from the line of Scott Hanold with RBC capital markets. Please go ahead.

Yes.

Karen: I think where you are in the shale Revolution right now a lot of that core inventories depleted.

You all kind of indicate that your breakeven point this year is around $2 20.

Karen: We're rapidly getting depleted.

Karen: A lot of cost structures to be rising over that period. So it's really it's really a unique differentiating characteristic of EQT and its.

How do you think about that with the gas macro if gas prices do see continued trend on the direction. They are.

Tobi: Really just further like.

Related to weather and whatnot I mean would you guys be willing to make changes to make sure that you guys generate positive free cash flow like so the bottom line question is like when you start getting around that 220 threshold would you be willing to cut a little bit more to kind of preserve free cash flow rather than burn some cash.

Tobi: Share price upside free cash flow upside relative to what you would get anywhere else.

Speaker Change: Thank you I appreciate that I'll turn it over.

Speaker Change: Your next question comes from the line of Scott Hanold with RBC capital markets. Please go ahead.

Tobi: Yes.

Tobi: You all kind of indicate that your breakeven point this year is around $2 2 million.

Scott I think there's two factors.

That we think about that would cause us to curtail one is preserving the ability to.

Tobi: How do you think about that with the gas macro if gas prices do see continued trend on the direction. They are.

Not lose money.

And so that's where I would look for us to curtail and the other one is we're looking at 2025, where you see a one.

Tobi: Related to weather or whatnot, I mean would you guys be willing to make changes to make sure that you guys generate positive free cash flow like so the bottom line question is like when you start getting around that $2 20 threshold would you be willing to cut a little bit more to kind of preserve free cash flow rather than burn some cash.

Dollar higher pricing.

That is that's going to be further incentive pinchback and deliver those molecules into a higher price market. So.

Yes, it's something we're watching and thinking a lot about yes, Scott I'd just underpinned too.

You have to remember I mean, certainly for a business like EQT or drilling 15, 20 wells a pad. The capex. We spend this year has no real impact on our production. This year. It really has an impact on production next year and so when we're thinking about that sort of rate of return and you save yourself a $100 million. This year, what's the impact on free cash flow next year.

Speaker Change: Yes, Scott I think there's two factors that we think about that would cause us to curtail one is preserving the ability to.

Tobi: Not lose money.

Tobi: So that's what I would look for us to curtail and the other one is we're looking at 2025, where you see a dollar higher pricing in.

<unk>.

Tobi: And that is even that's going to be further incentive.

Certainly with where our pricing even as today after pulling back and I think our expectation is probably significantly higher than the strip today, it's really hard for us to justify that especially just given the financial position. We're in the amount of liquidity. We have in our credit ratings were just not under the same pressure that most of our peers are so that.

Tobi: Pinch Bakken do over those molecules into a higher price market. So.

Speaker Change: Yes, it's something we're watching and thinking a lot about yes, Scott I'd just underpinned two I mean, you have to remember I mean, certainly for a business like EQT or drilling 15 to 20 wells a pad. The capex. We spend this year has no real impact on our production. This year. It really has an impact on production next year and so when we're thinking about that sort of rate of return.

That allows us to be a little stickier and plan for the long term and not be as reactive but look we.

As we said before our production guidance gives us flexibility to reduce as needed.

Tobi: And you save yourself, a $100 million this year, what's the impact on free cash flow next year.

But reducing capex activity. This year is not I mean, it would be window dressing this year the expense in next year and that's just not how we run the business.

Tobi: Certainly with where pricing even as today after pulling back and I think our expectation is probably significantly higher than the strip today, it's really hard for us to justify that especially just given the financial position. We are in the amount of liquidity. We have in our credit ratings were just not under the same pressure that most of our peers are so.

Yes, Tobey I appreciate the fact that obviously looking at the forward curve, we do all see obviously that improvement but.

One could argue.

Step back several months ago, I mean, certainly 2024 looked significantly better than it is right now so like.

Tobi: That allows us to be a little stickier and plan for the long term and not be as reactive but look we as.

As you step back and think about the macro like what do you think the big risks are that this gas price trend remains what we've been seeing outside of obviously weather, but no more.

Tobi: As we've said before our production guidance gives us flexibility to reduce as needed.

Tobi: But reducing capex activity. This year is not I mean, it would be window dressing. This year. The expense next year and that's just not how we run the business.

And I guess, the political front and everything else that some.

Out there and then how do you react as a company of this persist into 2025.

Speaker Change: Yes, Tobey I appreciate the fact that obviously looking at the forward curve, we do all see obviously that improvement but.

Yeah, that's a great question.

Tobi: One could argue.

Tobi: Step back several months ago, I mean, certainly 2024 looked significantly better than it is right now so like.

Listen I think on the political front.

I mean, I think political force can override market forces for so long.

Tobi: As you step back and think about the macro like what do you think the big risks are that this gas price trend remains what we've been seeing outside of obviously weather, but more on I guess, the political front and everything else that some.

And our job is to align with the market is to make sure of the energy. We produce is the cheapest most reliable cleanest form of energy Thats out there.

And I think eventually the demand for this product is going to is going to overweigh I think the political short term gains that people think that they're helping by doing this so.

Tobi: Out there and then how do you react as a company of this persist into 2025.

Speaker Change: Yeah, that's a great question.

So I mean long term, we feel even more optimistic about the large role natural gas will play in the commodity mix going forward.

Speaker Change: Listen I think on the political front.

Speaker Change: I think political force can override market forces for so long.

But yes, I mean in the short term, we need to be sensitive to the market that we're in.

Tobi: And our job is to align with the market is to make sure of the energy. We produce is the cheapest most reliable cleanest form of energy that's out there.

<unk> reductions is going to be is going to be a big thing I mean, a key part of our thinking is.

We positioned our business to be a low cost operator in the U S. I mean, our break evens are significantly lower than what we think is the marginal cost of production.

Tobi: And I think eventually the demand for this product is going it is going to overweigh I think the political short term gains that people think that they're helping by doing this.

And we're going to see if those those marginal producers reduce activities, we've already seen that start to happen, but that's something we're going to be monitoring and.

Tobi: So I mean long term, we feel even more optimistic about the large role natural gas will play in the commodity mix going forward.

Then eventually we will have a normal winter.

But even without that would just normal weather.

Tobi: But yes, I mean in the short term, we need to be sensitive to the market that we're in.

We should be balance coming into 2025.

Yes, yes.

Tobi: Activity reductions is going to be is going to be a big thing I mean, a key part of our thinking is.

Yes.

With all the bearish narratives out there I think it's really important to remember that these.

Tobi: We positioned our business to be a low cost operator in the U S. I mean, our break evens are significantly lower than what we think is the marginal cost of production and we're going to see if those those marginal producers reduce activities. We've already seen that start to happen, but that's something we're going to be monitoring and.

These data revisions that came out of gin escape a week or so ago production levels were not at 107.

Pushing his bearish narrative.

Production levels today are like 104, and a half and so if you look at where we're at today with normal weather the market's actually balanced and so the extra call. It 275 Bcf Thats in storage right. Now is really just a result of.

Tobi: Then.

Tobi: Eventually we will have a normal winter.

Tobi: But even without that would just normal weather we.

Again, a really warm El Nino winter.

Tobi: We should be balance coming into 2025.

We had just had normal weather the market would be balanced right. Now. So I think this sort of overarching view of the market is just so out of balanced production is way too high LNG is delayed I think when you step back and kind of cut through the noise. It's really not the case, which is I think why we're being a little more patient disciplined here.

Tobi: Yes, yes.

Tobi: Yes.

Tobi: With all the bearish narratives out there I think it's really important to remember that.

Tobi: These data revisions that came out of gin scape, a week or so ago production levels were not at 107.

Tobi: Pushing his bearish narrative.

Tobi: Production levels today are like 104, and half and so if you look at where we're at today with normal weather the market's actually balanced and so the extra call. It 275 Bcf Thats in storage right. Now is really just a result of.

And as it relates to a lot of that the LNG headlines and some of the politics playing into that I mean, there's really no impact to the at least the end of 2026. So as we look at the market today, we don't really see any change in the LNG Buildout timeline I mean, we expect in Q3 Q4. This facility start to come online.

Tobi: Again, a really warm El Nino winter.

Tobi: We had just had normal weather the market would be balanced right. Now. So I think this sort of overarching view of the market is just so out of balance productions way too high LNG is delayed I think when you step back and kind of cut through the noise. It's really not the case, which is I think why we're being a little more patient disciplined here.

And again I think that the work the market needs to do is just to clean up that excess overhanging storage coming out of winter, but but the market is really not that far out of balance I mean, it's a difference of a 1% to 2% kind of change in your in your fundamental model and it can flip back they are quite pretty quick too. So.

Tobi: And as it relates to a lot of that the LNG headlines and some of the politics playing into that I mean, there's really no impact or at least the end of 2026. So as we look at the market today, we don't really see any change in the LNG Buildout timeline I mean, we expect in Q3 Q4. This facility start to come online.

I think youre running a long term business you just have to you have to keep that in focus we are really not that not that far out of whack on the fundamentals.

Yes, no I appreciate that and Toby we all appreciate your obviously your insights into the political side. So just just kind of curious if I can extend the question like what are some of the major pushback you're getting when you.

Tobi: And again I think that the work the market needs to do is just to clean up that excess overhanging storage coming out of winter, but but the market is really not that far out of balance I mean, it's a difference of about 1% to 2% kind of change in your in your fundamental model and it can flip back the other way pretty quick too so.

Go go to Washington, and try to fight for kind of the gas.

The gas companies, what does it mean pushed back and how do you address it.

Yes.

It's really just asking people to step back and see.

Tobi: I think youre running a long term business you just have to you have to keep that in focus we are really not that not that far out of whack on the fundamentals.

It seems like we are in violent.

Disagreement violent agreement here on what we want from our energy system of the future like Republican Democrat everybody wants more affordable energy everybody wants more reliable energy everybody wants cleaner energy and I think the work that we're doing is highlighting I mean, I'd say the biggest difference that we're doing the hump that we need to get people.

Speaker Change: No I appreciate that and Toby we all appreciate your obviously your insights into the political side. So just just kind of curious if I can extend the question like what are some of the major pushback you're getting when you.

Speaker Change: Go go to Washington, and try to fight for kind of the gas.

Over is to understand that natural gas is a cleaner form of energy.

Tobi: The gas companies, what does it mean pushback and how do you address it.

Speaker Change: Yes, I mean, it's really just asking people to step back and see.

The good news is we don't have to play with theories. We don't have to rely on literature. We have case studies at big scale that show that natural gas is a decarbonising force whether that simply putting the spotlight on America and showcasing why we are the number one leader in lowering emissions in the world, It's because of natural gas and also.

Tobi: It seems like we are in violent.

Tobi: Disagreement violent agreement here on what we want from our energy system of the future like Republican Democrat everybody wants more affordable energy everybody wants more reliable energy everybody wants cleaner energy and I think the work that we're doing is highlighting I mean, I'd say the biggest difference that we are doing the hump that we need to get people.

No.

I'd say the other narrative, we need to we need to address is the fact that.

Some people think that America is the largest producer of oil and gas the regulations or pipeline blocker just can't be that bad.

Tobi: <unk> is to understand that natural gas is a cleaner form of energy.

Tobi: <unk>.

Tobi: The good news is we don't have to play with theories. We don't have to rely on literature. We have case studies at big scale that show that natural gas is a decarbonising force, whether that's simply putting the spotlight on America and showcasing why we are the number one leader in lowering emissions in the world, It's because of natural gas and also.

But I think the simple response of that position is.

Yes, we might be the largest producer of oil and gas in the country. We are the largest export of LNG in the world, but the question that needs to be asked is is that enough. We've got ramp of inflation wars in Ukraine.

Global emissions still skyrocketing energy poverty is growing energy security is crippled clearly the United States. These do a whole heck of a lot more because the world can only contain so much chaos before it starts spilling over and impacting Americans. So the world security is our security.

Speaker Change: I'd say the other narrative, we need to we need to address is the fact that.

Speaker Change: Some people think that America is the largest producer of oil and gas.

Speaker Change: The regulations are pipeline blockages can't be that bad.

Speaker Change: But I think the simple response of that position is.

Speaker Change: Yes, we might be the largest producer of oil and gas in the country. We are the largest export of LNG in the world, but the question that needs to be asked is is that enough. We've got ramp of inflation was in Ukraine.

And these are simple points that we can make it as a little bit of a different perspective that people haven't thought too much about you lay that common sense approach underneath the framework from climate leaders around the world that recently gathered a cop and came out with a very simple punch list of what needs to happen transition fuels are going to be.

Tobi: Global emissions still skyrocketing energy poverty is growing energy security is crippled clearly the United States. These do a whole heck of a lot more because the world can only contained so much chaos before it starts spilling over and impacting Americans. So the world security is our security.

Necessary to meet the climate ambitions that we have.

Thats a fancy word for natural gas is going to play a role.

Carbon capture is going to be a part of those solutions.

And then I think also the recognition that.

Tobi: And these are simple points that we can make it as a little bit of a different perspective that people haven't thought too much about you lay that common sense approach underneath the framework from climate leaders around the world that recently gathered a cop and came out with a very simple conscious of what needs to happen transition fuels are going to be.

Solar and wind as great as they can be they are not the complete solution and you need a heavyweight solution and that is that as natural gas to meet the goal. So we've got the we've got cover from the environmental front, but it's really just getting this common sense message out and that's where we spend a lot of time working the megaphone.

Tobi: Necessary to meet the climate ambitions that we have.

I appreciate that.

Speaker Change: That's a fancy word for natural gas is going to play a role.

Your next question comes from the line of Josh Silverstein with UBS. Please go ahead.

Speaker Change: Carbon capture is going to be a part of those solutions.

Speaker Change: And then I think also the recognition that.

Yes, thanks, good morning, guys.

You mentioned <unk>.

Tobi: Solar and wind as great as they can be they are not the complete solution and you need a heavyweight.

Obviously that you think were in an environment, where natural gas to be $2 or it could be $4.

Tobi: Solution and that is that as natural gas to meet the goal. So we've got we've got cover from the environmental front, but it's really just getting this common sense message out and.

How do you operate in that environment does your production relatively flat through all the DB.

Do you build ducks, when we're going to do you release them will work for you.

Tobi: That's where we spend a lot of time.

Are you kind of thinking about your development plans going forward and that kind of framework. Thanks.

Tobi: Work in the megaphone.

Speaker Change: I appreciate that.

Yes, I'd say at a very high level.

Speaker Change: Your next question comes from the line of Josh Silverstein with UBS. Please go ahead.

Keys to success is to have a low cost structure. So that we can weather the storm.

Speaker Change: Yes.

And that also is going to position us to be opportunistic.

Josh Silverstein: You mentioned previously that you think were in an environment, where natural gas to be $2 or it could be $4.

Some of the volatility.

And I'll, let Jeremy expand on that a little bit but.

Operationally one of the things that.

Tobi: Have you operate in that environment does your production stay relatively flat through all that.

We have looked to build into our business is the ability to bring some surge capacity so understand.

Tobi: Do you build ducks, when we're going to do you release them and work for.

Whether that's choke management and pension volumes backs or so we can response to higher price environments or some cases, just holding back some pills and building some docs.

Tobi: Are you kind of thinking about your development plans going forward and that kind of framework. Thanks.

Tobi: Yes, I'd say at a very high level I mean keys to success is to have a low cost structure. So that we can weather the storm.

I think I think having a flexible program is going to be something that's needed, but that's going to be more around the edges, having a low cost structure is going to allow us to run consistent program that would be responsive, but not be completely whipsawed by the commodity price.

Tobi: And that also is going to position us to be opportunistic.

Tobi: Play some of the volatility.

Speaker Change: And I'll, let Jeremy expand on that a little bit but.

Jeremy: Operationally one of the things that.

Jeremy: We have looked to build into our business is the ability to bring some surge capacity so understand.

Yes, I mean, I think one of the key things to remember.

As you think about how to actually manage the business in that environment. It comes down to like how do you see that distribution of outcomes and so remember our cost structure being.

Jeremy: Whether that's choke management and pension volumes backs or so we can response to higher price environments or some cases, just holding back some pills and building some docs.

I'll call it mid twos now headed towards low twos.

We think about like what's the worst that's happened in the last couple of years, which was 2020 and you had gas settled at about $1 99, so call it $2.

Tobi: I think I think having a flexible program is going to be something that's needed, but that's going to be more around the edges, having a low cost structure is going to allow us to run consistent program that would be responsive, but not be completely whipsawed by the commodity price.

In an environment like that even if we had EQT werent hedged and we have like at $2 30 breakeven our free cash flow outflow would be in the $5 to $700 million range. So it a lot and you can certainly hedged to protect that but.

Speaker Change: Yes, I mean, I think one of the key things to remember.

Speaker Change: As you think about how to actually manage the business in that environment. It comes down to like how do you see that distribution of outcomes and so remember our cost structure being.

Imagine being a producer in that environment and your breakeven is $3 and Youre at scale. I mean, you would have multiple billions of dollars of cash outflows and you just can't survive for more than a year of that because youre liquidity constraints. So.

Tobi: I'll call it mid twos now headed towards low twos.

Tobi: We think about like what's the worst that's happened in the last couple of years, which was 2020 and you had gas satellite about a buck 99, so call it $2.

For Us I think one of the things we have realized its scale as debt.

One of the risks risks that is created is if you pair scale with a really volatile environment and your cost structure is too high even if your balance sheet is clean you can put yourself in a pretty precarious position pretty quick so thats why we sort of.

Tobi: In an environment like that even if we at EQT werent hedged and we have like a 230 breakeven our free cash flow outflow would be in the $5 to $700 million range. So it a lot and you can certainly hedged to protect that but.

Tobi: Imagine being a producer in that environment and your breakeven is $3 and you're at scale. I mean, you would have multiple billions of dollars of cash outflows you just can't survive for more than a year of that because youre liquidity constraints. So.

That's why we focus so much on driving that cost structure down because.

For us if there if our downsides call it 50, and Thats pretty low, but if the upside is you have a year settling it.

<unk> $708. I mean, you are talking about 10 billion type of cash flow to our to our business. So we want to be in a position, where we don't have to hedge and inherently having a low cost structures like a structural hedge.

Tobi: For Us I think one of the things we have realized its scale as debt.

Speaker Change: One of the risks risks that is created is if you pair scale with a really volatile environment in your cost structure is too high even if your balance sheet is clean you can put yourself in a pretty precarious position pretty quick so thats why we sort of.

And I think that really is what positions us to again, not only just kind of survive and crews through those down periods, but not have to definitively hedged so much of your production.

Tobi: That's why we focus so much on driving that cost structure down because for us if there if our downside is call it 50, and thats pretty low, but if the upside is you have a year settling it.

You really miss out on the prize and the prize is that sort of asymmetric upside.

So again I think at a high level you might some people might say well, it's a little dilutive to just focus on cost structure. So much near term I think thats easy to see if you run a static model it like $3 $54 gas well that doesn't capture those is the element of volatility and if you talk to any of the producers any of our peers I think the theme of volatility is well understood.

Tobi: $708. I mean, you are talking about 10 billion type of cash flow to our to our business. So we want to be in a position, where we don't have to hedge and inherently having a low cost structure is like a structural hedge and I think that really is what positions us to again, not only just kind of survive and crews through those down periods, but not have to defensive.

I think EQT is unique in how we position ourselves to again be structurally defensive towards that for long term investors and then provide the best risk adjusted upside to that theme and capture that.

Tobi: Hedged so much of your production that you really miss out on the price and the prices that sort of asymmetric upside.

Tobi: So again I think at a high level you might some people might say well, it's a little dilutive to just focus on cost structure. So much near term I think thats easy to see if you run a static model it like $3 $54 gas well that doesn't capture though is the element of volatility.

Three to four years, when that sort of windfall period shows up.

And again, I mean think about it we had it a little bit.

We had a warm winter. This year you have an extra 275, BS and storage it could have gone the other way and we will have winners that go. The other way you can have pricing at $5 just as quickly as you have pricing it above 50%.

Tobi: If you talk to any of the producers any of our peers I think that theme of volatility is well understood.

And that amount of cash flow at our scale is just absolutely tremendous amount of value. So we're trying to position ourselves to be able to capture it and not again like the last couple of years, where we lost so much on hedging continue to give that upside up.

Tobi: I think EQT is unique in how we position ourselves to again be structurally defensive towards that for a long term investors and then provide the best risk adjusted upside to that theme and capture that.

So that's again why we just sort of philosophically focus on running the business the way we do.

Tobi: Three to four years, when that sort of windfall periods shows up.

Tobi: And again, I mean think about it we had it a little bit.

Got it.

Tobi: Got a warm winter. This year, you have an extra 275, BS and storage it could have gone the other way and we will have winners that go the other way you could have pricing at $5 just as quickly as you have pricing it above 50%.

My last question was.

As we mentioned a lot in there, but it looks like you didnt add anything for 2025, I definitely get the constructive outlook that you guys have but.

Clearly there is some factor of weather, which you mentioned as well that we just don't know how that will play out why not at least look to add in something for 2025 at this point just to have a base level and then it looks like you added something for second half or fourth quarter for this year below where the strip is next year.

Speaker Change: And that amount of cash flow at our scale is just absolutely tremendous amount of value. So we're trying to position ourselves to be able to capture it and not again like the last couple of years, where we lost so much on hedging continue to give that upside up.

Speaker Change: So that's again why we just sort of philosophically focus on running the business the way we do.

Any thoughts on that would be great. Thanks.

Yes, So I think we think about hedging going forward, just just with our balance sheet and credit ratings, where we are I think youll see us start to hedge at a level that effectively drops are I mean look if you think about what hedging does in a low price environment effectively synthetically drops your breakeven price.

Speaker Change: Got it.

Speaker Change: My last question was.

Speaker Change: You mentioned a lot in there, but it looks like you didnt add anything for 2025, I definitely get the constructive outlook that you guys have but.

Speaker Change: Clearly there is the factor of weather, which you mentioned as well that we just don't know how that will play out we're not at least look to add in something for 2025 at this point just to have a base level in there looks like you added something for second half or fourth quarter for this year below where the strip is next year.

And so if our if our breakeven price call. It is headed towards $2 30, we might long term hedge between like 20%, 30% and so if you do get that $2 a year on average that's kind of your free cash flow breakeven point on a hedged basis, we're kind of towards that with our hedging in 2020 for right. Now that's that 220 level that we talked about I think look.

Speaker Change: So any thoughts on that would be great. Thanks.

Speaker Change: Yes, So I think we think about hedging going forward, just just with our balance sheet and credit ratings, where we are I think youll see us start to hedge at a level that effectively drops are I mean look if you think about what hedging does in a low price environment effectively synthetically drops your breakeven price.

We don't plan to go into 2025 totally unhedged I think were just willing to be patient and I think some of the bearish narrative and positioning in the commodity markets has really pushed pricing really below where it probably needs to be.

Tobi: And so if our if our breakeven price call. It is headed towards $2 30, we might long term hedge between like 20%, 30% and so if you do get that $2 a year on average that's kind of your free cash flow breakeven point on a hedged basis, we're kind of towards that with our hedging in 2020 for right now that's that 220 level that we talked about.

So look we don't we don't need to hedge defensively right now I think we're we want to be opportunistic and we just think there's so much asymmetric call SKU that should show up in that market. In 2025, I think we're willing to be patient on that but I mean look we will take off risk. It at the right point in time, but we're going to continue to be patient on that.

Tobi: Look we don't plan to go into 2025 totally unhedged I think were just willing to be patient and I think some of the bearish narrative and positioning in the commodity markets has really pushed pricing really below where it probably needs to be.

Great.

Our last question will come from the line of Paul <unk> with Citi. Please go ahead.

Hi, Good morning, Thanks for taking my call just wanted to touch base real quickly on <unk>.

Tobi: Look we don't we don't need to hedge defensively right now I think we are.

Talking about <unk> and some of the savings have been driven by water handling I guess.

Tobi: We want to be opportunistic and we just think there's so much asymmetric call SKU that should show up in that market. In 2025, I think we are willing to be patient on that but I mean look we will take off risk. It at the right point in time, but but we're going to continue to be patient on that.

Question is how much more I guess.

Do you think there is there how much further drive it lower.

Yes, I would say that we had a big step change I think if you look at the water recycling rate.

That's a big driver on a large portion of our ROE obviously water is the biggest portion.

Tobi: Great.

Speaker Change: Our last question will come from the line of Paul Damon with Citi. Please go ahead.

So the goal for us is to stay in that 95%.

Paul Damon: Hi, Good morning, Thanks for taking my call just wanted to touch base real quickly on you talked about <unk> and some of the savings have been driven by water handling I guess my question is how much more I guess.

Plus range on water recycling I think the other benefits the water system will come through just more efficient logistics to service our completions team and.

And allow to give these guys. This space to continue to run hard.

We continue to capture the operational efficiencies that we're seeing there.

Arun: Do you think there is there how much further you can drive it lower.

Understood and then just one final quick one as the prompt market sits right now in the curve how should we think about kind of the operational cadence through the year with $1 40, or 110 to 140 pills. We think about that is pretty steady throughout the year more back half loaded or how should we think about it is the market itself.

Speaker Change: Yes, I would say that we had a big step change I think if you look at the water recycling rate.

Speaker Change: That's a big driver on a large portion of our ROE obviously water is the biggest portion.

Arun: So the goal for us is to stay in that 95%.

Jeremy: Plus range on water recycling I think the other benefits the water system will come through just more efficient logistics to service our completions team and allowed to give these guys. This space to continue to run hard and.

Yes look I would call it pretty steady throughout the year I mean, when you when you are running.

The size of spreads we are in the size of.

Logistics operations, and it's not something you start and stop quickly or easily the bar is pretty high for that.

Arun: To capture the operational efficiencies that we're seeing there.

Speaker Change: Understood and then just one final quick one.

I think the range. We gave is just based on some shifts in timing that can happen.

Jeremy: Prompt market sits right now in the curve, how should we think about kind of the operational cadence through the year with a $1 40 or 110 to 140 pills should we think about that is pretty steady throughout the year more back half loaded or how should we think about it as the market sits now.

I think in terms of the macro environment I mean look we the quickest thing thats going to balance the market is not having operators in Appalachia, which have a pretty shallow base decline cutting activity.

Our drilling big pads that are hard to slowdown I mean, that's base load supply as we think about it when we think about really the production needs to come out of the market the fastest way to balance the market, it's taking haynesville activity even further down.

Speaker Change: Yes look I would call it pretty steady throughout the year.

Speaker Change: When youre running.

Tobi: The size of spreads we are in the size of.

Speaker Change: Logistics operations, and it's not something you start and stop quickly or easily the bar is pretty high for that.

<unk>, they're drilling two to three wells at a time on the pads.

Speaker Change: I think the range. We gave is just based on some shifts in timing that can happen I.

Coming more and more infill wells and you have a 50% to 60% base decline.

Speaker Change: I think in terms of the macro environment I mean look we the quickest thing thats going to balance the market is not having operators in Appalachia, which have a pretty shallow base decline cutting activity.

Ah cutting that activity would balance the market a lot faster.

And that's also.

Marginal producer today and will continue to be in the future. So we expect that's really where the volatility of a production variances and production cadence will show up.

Speaker Change: Drilling big pads that are hard to slow down I mean, thats base load supply as we think about it when we think about really the production that needs to come out of the market the fastest way to balance the market, it's taking haynesville activity even further.

And we will continue to show up I think in the backdrop of volatility that we've talked about.

Thanks for the time.

Tobi: Downward they're drilling two to three wells at a time on the pads.

Okay.

I'll now hand, the call back to Toby rice for any closing remarks.

Tobi: Becoming more and more infill wells and you have a $50 to $6, 60% base decline.

Thank you everybody for your time, we are looking forward to executing for you in 2024, thanks a lot.

Tobi: And that activity would balance the market a lot faster.

Okay.

Tobi: And Thats also.

That does conclude today's meeting we thank you all for joining.

Tobi: The marginal producer today and will continue to be in the future. So we expect that's really where the volatility of a production variances and production cadence will will show up.

Speaker Change: And we'll continue to show up I think in the backdrop of volatility that we've talked about.

Speaker Change: Thanks for the time.

Speaker Change: I'll now hand, the call back to Toby rice for any closing remarks.

Toby Z. Rice: Thank you everybody for your time, we are looking forward to executing for you in 2024, thanks a lot.

Speaker Change: Okay.

Speaker Change: That does conclude today's meeting we thank you all for joining and you may now disconnect.

Speaker Change: Okay.

Speaker Change: That does conclude today's meeting.

Q4 2023 EQT Corp Earnings Call - Q&A

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