Q3 2024 EQT Corp Earnings Call - Q&A
Thank you for standing by my name is Danica and I will be your conference operator today.
At this time I would like to welcome everyone to the EQT Q3, 2020-24 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 would like to ask us a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you.
Speaker Change: I would now like to turn the call over to Cameron Horwitz, Managing Director, Investor Relations and Strategy. Please go ahead.
Speaker Change: The End.
Cameron Horwitz: Good morning, and thank you for joining our third quarter 2024 earnings results conference call. With me today, Toby Rice, President Chief Executive Officer and Jeremy Knop, Chief Financial Officer.
Cameron Horwitz: and a moment Toby and Jeremy will present their prepared remarks with a question and answer session to follow. An updated investor 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 in our website beginning at evening.
Cameron Horwitz: I'd like to remind you that today's call may contain forward-looking statements.
Cameron Horwitz: Actual results in future events can materially differ from these forward-looking statements.
Cameron Horwitz: Because of the factors described in yesterday's earnings release.
Cameron Horwitz: In our investor presentation, the risk factor section of our most recent Form 10K in Form 10Q and in subsequent filing we make with the SEC. We do not undertake any duty to update any forward-looking statements.
Cameron Horwitz: Today's call also contains certain non-gap financial measures. Please refer to our most recent earnings release and investor presentation for important disclosures regarding such measures, including reconciliation to the most comparable gap financial measures. With that, I'll turn the call over to Toby.
Toby Rice: Thanks, Cam and good morning everyone.
Toby Rice: The third quarter was Hallmarked by the closing of our strategic acquisition of Equitrant Vigilin, which transformed EGT into America's only large scale vertically integrated natural gas business.
Toby Rice: This combination has created a differentiated business model among the energy landscape. One that has leading inventory duration at the absolute low end of the North American natural gas cost curve.
Toby Rice: KT's position as the lowest-cost producer structurally de-risk service in the low parts of the commodity cycle while simultaneously unlocking unmasked upside to higher price environments by eliminating the need to defensively hedge longer term.
Toby Rice: We believe these characteristics position EQT to generate disproportionate value for our shareholders, regardless of where we are in the commodity cycle.
Toby Rice: Since we closed the Equal Trans acquisition, our integration team has been sprinting ahead with more than 60% of total integration tasks completed in just three months. This remarkable pay is a testament to our proprietary integration system, which has been honed across multiple successful transactions over the past several years.
Toby Rice: The highly efficient integration pace we've seen today is resulting in synergy capture occur in quicker than we originally expected.
Toby Rice: We call the previously assumed base synergies, which started crewing by the middle of 2025. But with our integration progress to date, we have already achieved $145 million of annualized financial and corporate cost savings, which is $25 million more than our original underwriting assumptions.
Toby Rice: Set another way. We have already de-risked more than half of our $250 million base synergies in just three months of owning equitrans.
Toby Rice: This rapid pace of base synergy capture along with longer-term system compression upside. Further increases confidence in our ability to optimize value from the combined entities.
Toby Rice: We are also seeing Equitrans employees excited to be integrated into EQT's culture.
Toby Rice: This is a similar situation to what we observed when we took over EGC in 2019.
Toby Rice: with a cultural buy-in of our employee base enabled us to create more values than we originally anticipated. I'm extremely excited to see what the combined EQT and Fletrax teams can accomplish together over the coming years.
Toby Rice: Alongside rapid integration in synergy capture, we are already unlocking operational with this defense as a direct consequence of the acquisition.
Toby Rice: An example of this can be seen in our investor presentation where we highlight a new EQT record for water delivered to a well site. This record watered delivery pace, in turn, facilitated another all-time EQT record for completion pumping time. Guessing our prior record set early this year by 10%.
Toby Rice: The pace of water delivery is a key factor in completion efficiency. But simply, the faster you deliver water to the well site, the faster you can track, which in turn drives down well costs.
Toby Rice: This record was only possible because of the seamless coordination of our now internal Equaturn's water system with EQT's upstream operations. Highlighting that optimization of the Equaturn's water assets have the potential to drive additional operational efficiencies that we could not have achieved stand-alone.
Toby Rice: We also recently completed the connection of E.G.T. Water Network in West Virginia with Equitrans' water system in Pennsylvania.
Toby Rice: which structurally improves our ability to deliver water to well sites. This connection should also save more than $70 million in water disposal costs over the next two years from an investment of just $15 million.
Toby Rice: Highlighting an example of the type of low risk, high return investment opportunities that are unlocked by the acquisition.
Toby Rice: Offician Waters delivering along with various other supply chain initiatives are supercharging the recent completion of this year's game that we highlighted with Q2 results.
Toby Rice: During the third quarter, we said a new EGT record for completion efficiency with footage completed per day averaging 35% faster than our 2023 pace.
Toby Rice: The past two quarters of operational performance, along with our Equal Transintegration Moment, and them, are increasing our confidence in a sustainably faster completion space and we see the opportunity to complete 50% more footage per day in 2025 compared to our historic average.
Toby Rice: With continued success, we may ultimately be able to drop from three to two fract crews over time, which is remarkable. Given we are able to hold flat 7 BCF a day of gross operating production at this activity level.
Toby Rice: We are still quantifying the potential impacts to our capital budget, but we believe these gains could have the potential to sustainably save approximately $50 per foot, which could translate to $50 to $60 million per year.
Speaker Change: Shifting years, we recently announced that ETT has become the first traditional energy producer of scale in the world to achieve net zero scope one and two greenhouse gas emissions.
Speaker Change: Not only did we accomplish this ahead of our 2025 goal.
Speaker Change: But we achieved this net zero status across the entirety of our upstream operations, inclusive of the reasonably acquired Tug Hill, XEL mystery, and all the assets, which were not included in the target originally set in 2021.
Speaker Change: This means that over the past five years, EQT has reduced total scope 1 and scope 2, GHG emissions by over 900,000 tons, which is the equivalent of taking approximately 195,000 cars off the road annually.
Speaker Change: The bulk of these reductions came from structural emissions abatement, including replacing more than 9,000 pneumatic devices shifting to electric frat fleets, deploying combat development and installing advanced emissions control devices.
Speaker Change: For the remaining emissions that are not available with current technologies, EGT has generated carbon offsets to force management projects as opposed to purchasing third party carbon credits.
Speaker Change: This was done via our partnership with the State of West Virginia and includes conservation management practices such as the removal of invasive species, wildfire risk monitoring, and native tree and shore placement. All of which have co-benefits for our local stakeholders.
Speaker Change: These efforts are verified by West Virginia University, ensuring both economic and environmental benefits to the region.
Speaker Change: Over the life of this partnership, we expect to generate approximately 10 million tons of high quality carbon offsets at a cost to each UT below $3 per ton. Under scoring UT's capital efficient path to achieving that zero emissions.
Speaker Change: We believe each UT's unique position as the only vertically integrated low-cost natural gas producer with multi-decade inventory and net zero scope one and two emissions will continue to open differentiated ways to maximize the value of each molecule.
Speaker Change: Similar to the long-term supply deals we announced with utilities in the southeast last year, with that, I'll now turn the call over to Jeremy.
Jeremy Knop: Thanks Toby
Jeremy Knop: I'll start by summarizing our third quarter results.
Jeremy Knop: So, prior to doing so, I'd like to note that results shown on our financial statements.
Jeremy Knop: Include Aquatrans for 70 days during the quarter.
Speaker Change: The lead also provided pro-formant numbers assuming a full quarter of Equeterans results for the purpose of comparability to guidance and consensus estimates.
Speaker Change: Strong Well Performance continued efficiency gains and modestly lower than expected for Taleman's throw 2-3 sales volumes to 581 BCSE, for 4% above the high end of our guidance range.
Speaker Change: It's worth noting that had we not curtailed, we estimate production would have come in at 616 BCFE for the quarter, or 6.8 BCFE per day, highlighting the true strength of our performance.
Speaker Change: As it relates to your tellments, we have been taking a highly tactical approach over the past few months and response to the volatile gas price environment. This strategy has allowed us to match supply with demand on a daily basis. Thus, maximizing our price realizations.
Speaker Change: Consequently, our differential for the third quarter came in ten cents better than the midpoint of our guidance range at 65 cents per in CF.
Speaker Change: Under scoring how this tactical approach is creating value in real time without disrupting operations or impairing productive capacity.
Speaker Change: We believe these impressive results prove why tactically curtailing volumes in periods of weak pricing is the right strategy in a volatile world.
Speaker Change: The acquisition of Equatrans gives us greater ability to deploy the strategy as a eliminated 4 BCF per day of minimum volume commitments, while simultaneously lowering cost structure to a level that we can maintain steady operations even in the low parts of the commodity cycle.
Speaker Change: Brothers and Dean Forced to Slash Activity due to high operating leverage.
Speaker Change: Proforma for the full quarter of Equatrans are operating costs came in five cents below the low end of guidance and $1.7 per in CFE due to production out performance and L-OE and G-N-A expenses below expectations.
Speaker Change: For form a capex with nearly a hundred million dollars below the midpoint of our guidance range at 573 million as efficiency gains and lower midstream and pads construction spending accrued to our benefit.
Speaker Change: On the mid-string side, Proforma III Party revenue came in at $104 million dollars at the high end of guidance driven by better than expected up time. MVP capital contributions were 160 million in line with expectations.
Speaker Change: Turing to the balance sheet, two three was an eventful quarter with a closing of Equatriance in July. As we discussed in our last conference call, ahead of closing we negotiated an up-size of EEC's unsickered revolver capacity from $2.5 billion to $3.5 billion.
Speaker Change: At closing, EQT redeemed all of Equitains' outstanding preferred shares, followed shortly thereafter by the redemption of EQMs $300 million of bonds due in August 2024. Saving approximately $50 million annually from reduced cost to capital.
Speaker Change: R. Yes, today we announced the debes to trigger of our remaining non-operated assets in Northeastern Pennsylvania to Equinoire for $1.25 billion in cash.
Speaker Change: Recall, these non-operated assets came with our all-apposition in 2021 and we allocated approximately $1.1 billion of value to them at the time.
Speaker Change: between asset-level cash flows and the two transactions announced this year. We expect to realize approximately $3.6 billion of total value, and applying a 3.3 times return on investment since 2021.
Speaker Change: We expect this transactional act in order closed by your end with proceeds expected to be used for debt repayment.
Speaker Change: With this latest sale, we have now announced cash proceeds of $1.75 billion, compared to our $3-5 billion asset sale target.
Speaker Change: We are simultaneously making rapid progress in our regulated mystery and sale process, getting up confidence in achieving the high end of our asset sale target range by year in 2024. Thus, the risks in our balance sheet several quarters ahead of schedule.
Speaker Change: Turning to hedging, since our last update we've added a significant amount of hedges in the back half of 2025 to bulletproof our delivering plan.
Speaker Change: Post these additions and perform up for the non-op sale, we are now approximately 60% hedged for calendar year 2025 with an average for price of $3.25 for an MBTO. With color upside, it's highest $5.50 per MBTO in Q4.
Speaker Change: With our updated hedge book and low-grade even cost structure, we estimate EQK can generate free cash flow next year down to a 9x natural gas price of approximately $1 per in-n-b-t-u.
Speaker Change: In Generate nearly $1 billion of free cash flow at $2 per in-in-btu Henry Hub prices. Underscoring the unrivaled earnings power of our business in any scenario.
Speaker Change: The On 2025, we expect to use commodity derivatives, opportunistically, rather than defensively.
Speaker Change: As our position at the low end of the natural gas cost curve acts as a structural hedge, which in turn facilitate unmasked exposure to high price scenarios by limiting our need to financially hedge.
Speaker Change: Reefly to the macro landscape, we have spent the last few quarters studying the power markets, which are awakening from two lost decades and becoming one of the most interesting corners of the energy industry with a direct impact on natural gas demand.
Speaker Change: Over the course of this year, we have witnessed a reluctance to entertain the idea of gas power generation for data centers, evolved into a widespread acceptance of natural gas as critical.
Speaker Change: At the same time, more than 80 gigawatts of cold generation capacity is scheduled to be retired by 2030, and nearly 200 gigawatts by 2030-5, leaving a hole in the US-based load power stack, they can only be filled quickly by reliable natural gas generation.
Speaker Change: We expect natural gaps to take 50 to 80% of new power generation market share as intermittent renewables are not suited for 24-7 reliability. And we believe there are just a handful of more nuclear facilities that can be restarted through the end of the decade.
Speaker Change: These dynamics are getting us greater confidence in our base case view, the data centers, and additional cold retirements will drive up to 10 BCS per day of incremental natural gas power demand by 2030.
Speaker Change: Notably, this demand will be regional in nature, with more than half life that it come from the southeast in PJ and markets.
Speaker Change: Given EQT is the only large scale integrated natural gas producer with exposure to these regions, we've sand ready to support and directly benefit from this mega trend.
Speaker Change: and the Ford Ford guidance we've made the modest sweep to our prior outlook.
Speaker Change: We now expect fourth quarter production to range from 555 to 655 BCFE.
Speaker Change: Up 7% from our prior outlook of 515 to 565 BCSE due to robust well results in less per tail volumes than we previously expected amid an improving Appalachian price environment.
Speaker Change: For perspective, we estimate our 2024 production is tracking above the high end of our original 2200 to 2300 BCFE guidance range when normalized for settlements. Demonstrating the strength of this year's underlying performance before the impact of our decision to protect production.
Speaker Change: Looking into 2025, we still intend to maintain flat year over year sales volumes, pro form of the transactions with Ecuador around 2100 BCFE.
Speaker Change: and expect the pullback activity if efficiency improvements continue to pull forward volumes.
Speaker Change: On basis differentials, we are tightening our fourth quarter differential guidance range by five cents to 50 to 60 cents per in CF as Ether and storage levels have normalized improving local pricing this winter.
Speaker Change: Looking at operating expenses, we are lowering the midpoint of our fourth quarter operating expense guidance range by five cents per in CFE, largely driven by higher volumes and lower upstream LOE in GNA expenses.
Speaker Change: Note we reallocated some expenses within our GPNT outlook as we find to under a pro-forma accounting for aquatrans.
Speaker Change: So this had essentially no net impact on our total GPNT expenses.
Speaker Change: On CapEx, as I mentioned previously third quarter spending came in nearly $100 million below expectations, with part of this variance driven by pad construction shifting from Q3 into Q4.
Speaker Change: This shift along with embedding some conservatism around non-off spending drove a $50 million increase in our fourth quarter capital guidance.
Speaker Change: That said, our total second half spending is still trending below the midpoint of guidance. We put out last quarter by a net $50 million, reflecting the efficiency gains for reference previously.
Speaker Change: It's MVP, we are flying to an estimates for slightly higher capital contributions to complete the right-away reclamation post hurricane healing and a slightly lower distribution of the fourth quarter simply driven by pain and timing.
Speaker Change: It's recent trip pricing and pro form of a non-op sale. We forecast cumulative free cash flow of approximately $14.5 billion from 2025 to $229 an average natural gas price of roughly $3.50 per in the DTO.
Speaker Change: At $2.75 for gas prices, EQT would still generate approximately $8 billion of 5-year cumulative free cash flow. While at $5 gas, this number swells to almost $25 billion. Which we can realize is we do not need to defensively hedge.
Speaker Change: There is no other natural gas business that comes close to providing the same combination of downside protection and upside exposure for investors. We believe EQK is now in a class of a film.
Speaker Change: Our simple goal is to be the easy to own way for investors to gain exposure to natural gas.
Speaker Change: Meaning if you're a thematically bullish natural gas, whether it's because of cold retirements.
Speaker Change: Power Growth, LNGX Fort, the Windling Corps Inventory, Barrett Oil Price is due to OPEC over supply or anything else. We are positioning EQT to be to go to National Gas Stock that is a through the cycle fixture of your energy portfolio.
Speaker Change: We see our story increasingly resonating with long-term investors who trust we will continue to operate from the same principle framework that has brought us success to date, compounding cash flow year after year. And with that, I will turn it back to Toby for some concluding remarks.
Toby Rice: Thank you, Jeremy. EQT today is operating at the highest levels of efficiency in history. And quarter after quarter we continue to break records. We've built an unlyveled integrated natural gas business with key catalysts for continued value creation.
Toby Rice: We have high confidence in the successful completion of our DeLevaging Program in continuing our long track record of delivering on our promises to shareholders ahead of schedule with better than expected results. And with that, I'd now like to open the call to questions.
Speaker Change: At this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad.
Speaker Change: Please only ask one question and one follow-up during this time.
Speaker Change: Your first question comes from Doug Legat with Wolf Research. Please go ahead.
Doug Legat: Thanks for the morning guys and gosh you guys are moving quite quickly on this and congratulations on
Doug Legat: and what you've done but Toby, I guess, I were never happy with the pace.
Doug Legat: especially given that you're moving a lot faster than perhaps you initially guided. So my question is when I look at slide six, which is obviously your progress on the 250 million, and then I look at slide 25, which is the uptake case to 425.
Doug Legat: How would you have us think about timing and the risking of both those numbers, particularly the upsides and the views from infrastructure optimization?
Speaker Change: Well I'd say we're a head of schedule.
Speaker Change: Both from a time perspective and realizing synergies that are a little bit greater than what we had anticipated. You know what's in front of us now really are the synergies related to the operational execution and
Speaker Change: Those, the pace at which we're moving into the integration being 60% through this help up, frame those up a little bit better and do those, those synergy capture estimates will be folded into our 2025 budget, which we're currently working through and we'll provide updates and future calls.
Speaker Change: Good stuff, well again, and the pace seems to be certainly ahead of what you were expecting. Toby, my next question is, my full web mother is a little bit tricky to ask. I'm not quite sure how to articulate it, but if I look at the volatility of gas prices through the third quarter.
Speaker Change: and then ultimately the way that you'd buy volumes.
Speaker Change: I'm Trondon Spanth Hall.
Speaker Change: Malibu, the, you know, the curtailman strategy, I mean, how easy is the green things on off in response to price? And what's behind my question is...
Speaker Change: You no longer have any MVP obligations really at the place for your ownership of Ytrend. So you have tremendous flexibility to really navigate around very short term moves in price. Is that how we should think about this curtailment strategy or am I thinking about it wrong with?
Speaker Change: Yeah, I think it's really important to understand. I think the dynamic that we laid out on slide 21, which is framing up sort of the natural gas.
Speaker Change: Market Characteristics and how they've changed. I think it was a really powerful chart that sort of supports the fact that we're going to be in a more highly volatile world going forward.
Speaker Change: Death.
Speaker Change: Question that people need to ask is how are these businesses going to perform in this more vault of world where you're going to have lower lows and higher highs.
Speaker Change: The way that our business is going to manage in those low price periods is really two things. It's the integrated nature of our business, which, as you mentioned, will give us tremendous flexibility to by removing NBC's that we had in place.
Speaker Change: So we've lifted a huge constraint and have more flexibility there. But the other thing that's going to allow us to curtail that's equally as important is having a super low cost structure.
Speaker Change: and that will give us the ability to curtail volumes and not have to alter or slash activity levels.
Speaker Change: What that means is that when those higher price environments show up, we're going to be positioned to capture that.
Speaker Change: and we're not going to be sitting six months, our production is not going to be sitting behind six months of restart. It's something that we can turn on pretty rapidly. And that's a muscle that we've been flexing in the past and it's going to be a muscle that's going to be really important in this environment that we're looking at.
Speaker Change: Doug, if you look at few briefs of the split-leafs.
Doug Legat: We have been turning on and off up to a BCF a day on a near daily basis in response to where we're pricing is.
Speaker Change: That is really the reason we've realized.
Speaker Change: That Pinson better differential, this quarter has been able to tactically do that. Now, I think in a low price environment, that's a great tool. It's kind of like hedging, kind of like basis hedging away. And when you look at that chart, Toby referenced on page 21.
Speaker Change: 60% of the data points you see on that bottom chart are really the low $3. So about 20% of those are below $2. And that environment that's generally where you're going to see us.
Speaker Change: Turn volumes off because you just can't make money there.
Speaker Change: Dereasted at time.
Speaker Change: We plan to be supply and gas to the market and sort of allows us from the elite, the lows, out of our sales volumes. This still keeps the position to capture the highs. And so if you look at the data shown there, the difference between the median and the average is over 80 cents.
Speaker Change: and that's effectively the difference.
Speaker Change: If you pursue the strategy you were pursuing, where you don't have to head you with highs, but you still are protected against the loads you can curtail and you have a structurally resilient business.
Speaker Change: At 80 cents for us over 2G of the year production is a tremendous amount of value added, certainly when you look at long term. So it's very hard to model, but that I think the character of the market is the key to talk about is you and I have to discuss a lot is changing and that's how we're trying to position.
Speaker Change: Guys, pardon the qualification and of course I'm an NBC, not MVP, you know, you got 75 pounds, I guess, but just to be clear, so when we look at the volatility, enter a quarter.
Speaker Change: In your curtailman strategy you have the ability to basically pick your spots and therefore betas on your basic differential. Does that right? We should think about it.
Speaker Change: Rice.
Toby Rice: Thank you. As well as working for Thanksgiving, I appreciate the time.
Toby Rice: I think we got it.
Speaker Change: Our next question comes from Roger Reed with Wells Fargo. Please go ahead.
Roger Reed: Yeah, thanks. Good morning and appreciate the clarity on the previous questions. I think a lot of us were going to figure that out on the curtailment side.
Roger Reed: I think one of the other questions I have is, you know, early days obviously with the Ectraterans acquisition, but as you think about synergies into 25.
Roger Reed: Maybe a little bit of a, you know, what have you seen that surprised you so far? What do you think that might take a little bit longer and just trying to get an idea? You know, we're used to companies setting a synergy target in an outperforming it. You think that's, you know, something that's likely to play out for you here.
Speaker Change: Yeah, so the biggest thing for us operationally, which I think you have most of the conservators baked in in the synergy. It's really that we've all been on slide 26, the uplift we're going to see from compression.
Speaker Change: You know, it's important to know when we framed up that synergy, we were assuming a 10% uplift.
Speaker Change: from the benefits of compressed adding compression and these pilots that we're showing there are showing that we're seeing.
Speaker Change: Nearly two times that uplift so
Speaker Change: That will be helpful timing on when we can get these two fresh projects rolling at a larger scale. It is going to be the big, termini factor and the team has been hard at work. And we'll be putting those projects into our budget. So timing and all of that will be framed up in our 25 budget plan.
Speaker Change: Okay, and then my other question is obviously things have gone fairly well on the asset disposition, the non-op stuff you've cited, I think we've seen rumors in the...
Speaker Change: In the press about MVP, sale, if you're able to generate more cash just from operations in addition to the asset sales, what's the right way to think about how you would, you know, right size the balance sheet, meaning
Speaker Change: You know, how much of a premium would you have to pay on any of the debt to retire early? And I'm just trying to think about it as, do you build cash, do you return cash and then pay the debt off in a more methodical pattern?
Speaker Change: No, I, we've been spending a lot of time on this. I think we have a pretty efficient plan to eliminate the, the death that we have in front of us and smooth out our, our maturity stacks. So I don't expect any sort of inefficiency to come out of that. I think it'll be pretty straightforward.
Speaker Change: Alright, appreciate it. Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Neil Mehta: Thank you, Team, and congrats on making the progress on around the assets sales. I get you mentioned in your prepare to mark, you spent a lot of time in the power markets.
Neil Mehta: Just curious what your real-time assessment is around the AI and data center theme. And how do you see that specifically in the Marcellus? Do you see a case for a step up in in-base and demand around data centers as well? So, does any real-time conversations perspective?
Neil Mehta: and a mark to market of your views as you guys have been on the forefront of this.
Speaker Change: Yeah, so we laid out sort of our plan on 16. We're seeing between 10 and 18 PCF a day of
Speaker Change: demand growth for natural gas due to power. Some of the real-time data that we're looking at
Speaker Change: because this is the million-dollar question is AI people know power generation is coming.
Speaker Change: What percentage of that is going to be natural gas? So, like a lot of you, we're looking at the orders that are coming in for natty gas turbines.
Speaker Change: And, you know, you see...
Speaker Change: One of the largest turbine manufacturers in the world, Mitsubishi, seeing a 50% increase in their orders.
Speaker Change: You see GE, compared to last year, their orders are up 90%.
Speaker Change: So, you know, while this stuff isn't making the headlines of how much market share natural gas is taking,
Speaker Change: The orders are building up and strengthening that natural gas is going to continue to be the workhorse that adds a lot of this power demand. And just looking at the baseline of what we've done over the last 10 years, I mean, natural gas has seen power demand
Speaker Change: needs requiring 14 BCF a day. That's what we've done over the last decade. Not a lot of people have talked about that. That was largely driven by coal-to-gas switching, which is still a theme going forward. And now you add on the power generation growth from AI.
Speaker Change: And, you know, it's not too hard to believe some of these numbers that we're putting forward.
Roger Reed: Toby, we've seen we've seen nuclear restarts in PJM, we've seen some talk about, you know, license re-extensions on the nuclear side as well. You know, as you think about
Toby Rice: competition for for that natural gas demand how do you think about the alternatives whether it's renewables or nuclear and and how does that fit into the map for for the TAM around this market
Speaker Change: On nuclear, that was something we looked at, you know, what would be the other options like Three Mile Island that could come back online, you know, keeping in mind some of this power demand, growth estimates is around, call it 70 to 80 gigawatts.
Speaker Change: You know, our view on this, looking at similar nuclear facilities that would have the potential to add about 3 gigawatts of power demand, you know, relative to what's required, it's a drop in the bucket, it's not meaningful.
Speaker Change: And it still needs to happen, but the world is going to be looking for fresh, reliable, affordable energy sources. And that's going to mean more natural gas. And that's what we're seeing in the order books, you know, when people are looking to pick up these turbines.
Speaker Change: Thank you, sir.
Speaker Change: The next question comes from Jacob Roberts with TPH. Please go ahead.
Speaker Change: Morning.
Speaker Change: Morning.
Speaker Change: I just wanted to, uh...
Speaker Change: See if we can
Speaker Change: hit on an early 2025 look, but looking at Q3 and Q4, excluding shut-ins...
Speaker Change: I think the run rate's closer to 2,400 and should the market be thinking about slight declines on your production base in 2025 given the earlier comments, kind of the 2,100 level net of the sale?
Speaker Change: Yeah, look, I think from where we are within the year, I think we're at a peak time right now. So I do expect that to come up a little bit as we get into 2025. But I would say year over year, we see this is relatively flat growth on our remaining assets that we've not divested.
Speaker Change: Okay, I appreciate that. And then lastly, another release noted the production and capital impacts in the non-op sale. Should we be thinking about any changes to operating expense?
Speaker Change: No, I wouldn't say materially at this time.
Speaker Change: Alright, appreciate the time guys.
Speaker Change: Your next question comes from Kalei Akamai with Bank of America. Please go ahead.
Kalei Akamai: Hey, good morning guys. Thanks for getting me on
Kalei Akamai: My first question is on operational synergies, water in particular. Can you talk a little bit more about how putting water in the right places can help you drop one frac group? Are you simply cutting the standby time? When could this happen? And what does the impact on capital look like?
Speaker Change: Yeah, it's pretty simple, you know, when we look at
Speaker Change: driving factor for completions efficiencies. It's the amount of feet we can track per day. That is driven by the amount of hours that we're pumping per day. So we look at the NPT and when we're not pumping, for us, a big part of that non-productive time wedge was waiting on water.
Speaker Change: and you're running three frat crews, you've positioned yourself to get the same amount of footage and have 33% less frat crews.
Speaker Change: and monitoring to bake that into the 25 plan. From a cost perspective, that could translate to about $50 per foot of savings or roughly $50 million per year of operational efficiency value.
Speaker Change: That would be separate, that was not included in our synergies.
Speaker Change: I appreciate the clarity. The second one goes to gas balances and I guess it's two parts. First, can you remind us on curtailments, how much you currently have, and how you're thinking about bringing that back when you look at the winter in-basin pricing?
Speaker Change: And then on MVP, understanding is that it can flow more fully in the winter. Can you give us an idea what that looks like? And then what could that mean for headline in-basin production numbers?
Speaker Change: Yeah, so on that first question of what we have for tail, we've been fully back online for several weeks actually, so I wouldn't expect when you're looking at your gas balances that
Speaker Change: EQT is bringing back an additional 1 BCFA, which we had curtailed at the peak.
Speaker Change: That's already back, it's been back.
Speaker Change: And so I think as everyone's trying to look at their gas models, I think that's a pretty important factor. And look, we did that because the market showed that there was a need for that gas. It was above our price targets.
Speaker Change: And so, as you look at our improved guidance for Q4,
Speaker Change: A lot of that's because the assumptions we had previously made for curtailment in October just haven't played out, we just haven't needed to curtail in response to what the markets told us. And so that's why you've seen that move up in addition to better well performance.
Speaker Change: And then on your MVP question, look at the...
Speaker Change: The assumption we are making is effectively that between December and February
Speaker Change: NBP should flow at full capacity or near it, as you see that ARB open up, and there's that downstream demand. So that's effectively what you'll see baked into our guidance.
Speaker Change: Awesome, appreciate that. Thanks guys.
Speaker Change: Your next question comes from David Dekelbaum with 2D Cowan. Please go ahead.
David Dekelbaum: Morning, guys. Morning, Toby. Thanks for taking my questions this morning.
David Dekelbaum: I was hoping that you guys could give a little bit of color and update around the regulated asset sales process. Just given the success of the non-op now, how do you think about timeline? I know that you have a year-end 25 debt target, so presumably, I guess, you know, you have roughly...
David Dekelbaum: I guess 15 months or so before we get down to that level. Is this something you want to get done sooner than later? And then as you think about selling a portion of those assets, is there a right ownership percentage that you would like to retain outside of just a controlling stake?
Speaker Change: Look, I think we've provided pretty good clarity of the structure that we're pursuing in prior calls. We've been pretty open about that. I don't think there's going to be a deviation from what we outlined previously. There's been robust interest.
Speaker Change: I'd say the cost of capital that we are seeing has exceeded our expectations. I think the quantity of capital that investors have to put towards scarce high quality natural gas pipes like this is above expectations.
Speaker Change: And I think that's really what's pushing forward our expectations, like we said, in prepared remarks of when when a deal gets done. But beyond that, look, we're we're in discussions with parties. We're working through that. We hope it's even later. But it's certainly above our original or ahead of our original expectations.
Speaker Change: which initially we had pegged to be in the first half of next year. Now we expect that to probably get done before the end of this year.
Speaker Change: That's helpful
Speaker Change: If I could just ask one more, obviously I know the industry is focused on this AI power generation thematic and you talked about obviously the regionalization of demand with a lot of that proliferating in the southeast where EQT has a ton of egress via MVP and expansion.
Speaker Change: I know that you guys have already guided to obviously benefiting from the firm demand contracts that you have in place in late 27 with the Transco expansion with utilities.
Speaker Change: As we think about AI and its commercial impact at EQTA, you talked about benefiting from this directly.
Speaker Change: Potential for incremental basis improvement between now and the end of the decade.
Speaker Change: Yeah, great question. So, in our view, appellation demand would include what is taken or just really exported out of base and plus in base and demand.
Speaker Change: We think between now and the end of this decade that should increase to from about 35-36 BCF a day to about 42.
Speaker Change: So, effectively adding a whole other EQT in terms of demand.
Speaker Change: I think that is overlooked in many ways. And really, in our assumption, no new pipes are getting built aside from the expansion we expect to pursue on NVP through the compression that we've talked about previously. Beyond that, it's really in base and demand. And when we step back and think about...
Speaker Change: How does that play out and impact our business? It's either one of two ways. It's probably a combination of both. One, we think it tightens in-basin differentials.
Speaker Change: but it also allows us to grow. So we're really a price times volume business.
Speaker Change: We expect to see benefits on both sides of that, and now in our new integrated business model, we effectively control a lot of the toll roads in the basin. We expect to be the one to probably disproportionately benefit from that growth, where we can connect our low-cost
Speaker Change: decades of supply to those different sources of demand as they come online. So that's something that we're hyper focused on. It's one reason we haven't gone out to other plays because we do see that backdrop playing out in Appalachia and I think we're as well positioned as anybody to benefit from that.
Speaker Change: I appreciate that color.
Speaker Change: Our next question comes from Josh Silverstein with UBS. Please go ahead.
Josh Silverstein: Good morning, guys. Last quarter you talked about an initial outlook for spending next year around the 2.3 to 2.6 range.
Josh Silverstein: Given the efficiency gains that you guys have seen this year, the non-up sale and then, you know, a pending midstream sale, are you thinking that the lower end of that range is now more likely relative to the initial views?
Speaker Change: So, if you're at a high level, kind of bridge that and just start with the midpoint for ease of discussion, the midpoint of that range we gave out was 2.45, then non-off sale removes about $75 million out of 2025.
Speaker Change: In the efficiency gains we referenced in prepared remarks, we equated to about $50 million of additional savings beyond what we had assumed at the time.
Speaker Change: So I would expect that to probably be.
Speaker Change: toward the lower end of that range at this point in time, but look, we're still working through it to figure out exactly how we might even put some of those savings into accelerating some of the midstream synergies. So it's a work in process, but I'd say directionally things are moving to the positive side of that range that we looked at previously.
Speaker Change: Sorry to come back to the curtailments, but I'm curious what specifically in the markets
Speaker Change: You guys see
Speaker Change: to bring back all of your volumes that were previously curtailed. Henry Hubbin, the fourth quarter pricing is lower versus when you announced the 45 BCF of expected curtailments for the fourth quarter. Is it something in Appalachia? Is there something else? What is it that you guys are looking at that we should be thinking about going forward to kind of adjust our quarterly numbers for you guys?
Speaker Change: Yeah, so all the volumes we curtail are volumes that we are selling in the Appalachian market. Those are in excess beyond what we have had out of basin. So the number we're looking at in Appalachia is about $1.50 at M2. So when you see M2 above that, you should assume we're generally going to be flowing at full capacity. When it dips below that, you'll see us pull volumes off the market. And that, at a high level, is really our cash costs.
Speaker Change: excluding this sort of integrated midstream payments we pay ourselves plus F and D, about that buck 50 level. And so when you kind of put that all together and think about what it means for the gas market, I think there's kind of three bands of the way you'll see the market evolve in the next.
Speaker Change: 12 months, call it. I think you will continue to sort of ping pong between $2 and $3 until all curtailments are back online, because as you approach three, all of that should come back online.
Speaker Change: I think there's a second band between probably 3 and 350, where you see some of the short-cycle ducks and deferred kills sitting out there that some of our peers have. I would expect that's the band where some of that starts coming online, so you see that additional resistance level.
Speaker Change: But I think once you get beyond that...
Speaker Change: You need to add real activity, and there's a delayed effect to that, as we saw, you know, on the downside, there's a delayed effect to production following, there's a delayed effect to...
Speaker Change: production resuming growth when activity is added.
Speaker Change: Which is also why we've hedged the way we have. We remain unhedged in 2026 and highly exposed in Q4 next year. But I think it is going to be a task to get back to that level, just putting aside, you know, how winter goes, which is hard to predict.
Speaker Change: Got it. Thanks for the call.
Speaker Change: Our next question comes from Bert Donis with Truist Securities. Please go ahead.
Bert Donis: Hey, good morning, team. You mentioned that the production should be, you know, kind of directionally flattish on the remaining upstream assets. Historically, though, we've seen some operators attempt to take advantage of shoulder months.
Bert Donis: you know, and shape their production. Should we expect, you know, to see that come about naturally as you use curtailment throughout the year next year, or is that strategy just not viable anymore because of the loss in efficiencies when you try to bring all those wells on at once?
Speaker Change: Yeah, that's never really been our strategy. I mean, we've always really focused on most, really the most efficient way to operate and execute, which is not really the start-stop nature of operations cadence, but you need to need to execute to pursue that strategy. So I don't think,
Speaker Change: I think for us, you know, we try to run that pretty consistently. You will see, like in Q3 this year,
Speaker Change: There are some quarters that will be higher than others, but year over year, you should expect that to be pretty flat until there's a real need in the market for that production, which I think you'll see in terms of Henry Hub pricing rising and local basis being relatively tight.
Speaker Change: Make sense. And then this one a little more more pointed on the on the timing of the asset sale. Obviously, you got a pretty strong price on the non up. But we've got a few questions on, you know, maybe selling assets with low capital requirements.
Speaker Change: during lower near-term gas pricing. So maybe you could talk about, you know, how do you balance selling assets versus achieving your leverage targets? Or maybe are buyers just willing to look past near-term gas prices and we should all just, you know, everybody started looking at 26 when they deal with A&D.
Speaker Change: Yeah, I'd characterize, at least in our view, the assets we sold this way under how we would have underwrote it. We still see it as like a 3 ppb 10 before tax type value at about 350 gas.
Speaker Change: So we felt like despite where the prompt
Speaker Change: prices on the strip we got we got pretty good value for it and that includes value for the upper Marcellus.
Speaker Change: which we think, you know, northeast Pennsylvania in the next couple years is going to be predominantly driven by a Marcellus development. There's just not a lot of core lower left.
Speaker Change: And so I think for us, we're really happy with it on just an intrinsic value basis. And you know, taking those assets specifically, the next five years, we estimated would generate about 250 million, or sorry, 750 million of free cash.
Speaker Change: We receive $1.25 billion right now without the effect of discounting.
Speaker Change: So, again, we feel like really no matter how you cut it, the valuation is pretty strong. You know, if you compare it to the deal that we did also with Equinor six months prior,
Speaker Change: you had two real differences. One, the back end of the curve has come down probably 50 cents, so that impacts value. The prior deal also had the asset swap component, so that obviously muddies it a little bit. That was also a strategic exit for them out of U.S. onshore operations. There's probably some element of a premium for that.
Speaker Change: But overall, we feel like it's a really strong outcome.
Speaker Change: You know, out of the entirety of the process.
Speaker Change: And just to clarify, sorry, on the A and D, does it work both ways? Is it, you were saying that you got value for later periods of strip pricing. Are you seeing that on the other side when you're looking at potentially acquiring assets? Does that work with sellers as well? And that's all I've got, thanks.
Speaker Change: Amen.
Speaker Change: I think it just depends. It's kind of hard to say. It just depends on the environment. I think for core assets...
Speaker Change: You're more likely to see value for that longer-term inventory.
Speaker Change: But I think in the mode we are in right now
Speaker Change: You know, we've gone through what Toby and I like to think of as like a transformation era of EQT in the last five years. M&A has been a very key part of that, to transform EQT into the lowest cost producer with the most inventory.
Speaker Change: I think where we're at today, there's no other assets out there that compare to what we've built.
Speaker Change: So, I don't think we're as focused on M&A going forward. I think we look at, if we have extra cash available, where can we actually put that to work acquisitively and buy the most duration of inventory at the lowest cost, and let's just buy enough shares back.
Speaker Change: Historically we haven't really had that option because we didn't, our business wasn't the character of what it is now, but I think going forward that's what you're going to see us focus pretty heavily on once we clear the balance sheet and ensure that through the cycle we have the ability to do that with confidence.
Speaker Change: All right, thank you.
Speaker Change: Our final question for today comes from Noelle Parks with Tui Brothers. Please go ahead.
Noelle Parks: Hi, good morning. Um, I was really interested to hear your, your comments about, um,
Noelle Parks: Do you see us reaching a point where this grid of volatility
Noelle Parks: winds up reflected in the strip. I'm thinking about how low the liquidity is out, you know, beyond a year or so.
Noelle Parks: compared to what we saw in prior eras where I guess there is more speculative capital out there. So I'm just curious about your thoughts on that.
Speaker Change: I think you, I mean, look, what the market will be short of is storage capacity.
Speaker Change: The way to incentivize more storage capacity to get built, especially like short-cycle salt storage, is you need seasonal spreads to whiten out. And so I think as the market evolves in the years ahead...
Speaker Change: I think you will see summer-winter spreads.
Speaker Change: I think the other place you will see that is in the U.S. I think the other place you will see that is in the U.S.
Speaker Change: begin to be expressed as in the options market. So that's what I'd be looking towards in terms of how the market is going to price that extra volatility.
Speaker Change: Got it. Storage again. Always, always comes to the floor sooner or later. And I'm just wondering, as you
Speaker Change: have outlined here.
Speaker Change: strategy around curtailments and you know just how those can be useful.
Speaker Change: Do any of your scenarios that you look at contemplate the possibility of LNG capacity that had been planned getting pushed out in its startup?
Speaker Change: With your strategy, I'm just trying to get a sense of whether that could actually be something favorable for you if sort of that demand burst.
Speaker Change: getting your little cost structure and everything does get delayed or more or less neutral effect.
Speaker Change: Yeah, if that happens...
Speaker Change: you know, gas prices would react, more lower prices. And I think it's going to reflect on why we've worked so hard to position this business to really get our cost structure to where it is to withstand those low-cost environments and not have to curtail activity. I mean, I think it's just a matter of time before this gas demand comes.
Speaker Change: And, you know, being able to get through those troughs and remain unhedged so you can take advantage of the higher prices when that demand does come is how we've set up the business, and I think it's
Speaker Change: The volatility that will come, whether it's LNG or weather events or geopolitical instances, I mean, step back and look at the last few years, we've seen some major things happen that have created some problems.
Speaker Change: Some pretty big opportunities, you know, we're positioning the business to be able to take advantage of those and I think to your prior question I'm like
Speaker Change: pricing in the strip. I think it's
Speaker Change: The dynamic that we've proven in the third quarter, that being able to curtail opportunistically has translated to higher realized pricing. I think that opportunity is gonna be hard to model when you look at companies and just take a gas price because we are going to be moving our volumes, curtailing them, and optimizing for better pricing.
Speaker Change: Noel, if your question, I'm trying to think about what exactly you mean by some of this too, if your question is getting at, for example,
Speaker Change: Golden Pass or other facilities getting delayed, we'll call it the back half of next year.
Speaker Change: I think one of the most bullish things for the gas market right now is that if all that capacity comes online in a very short amount of time, so if that facility really comes online towards the end of 2025, along with other facilities, instead of slowly and progressively,
Speaker Change: I think you're going to see, just say it's 3 BCF that comes online in very short order. Over 365 days, that's a TCF of incremental demand.
Speaker Change: producers simply cannot respond that quickly, and that is a material swing in U.S. balances. If that happens, I actually think, while it is a little more bearish near-term, I think once that happens and as you get into 2026, that is unbelievably bullish.
Speaker Change: So, look, we're going to be opportunistic. I think we're going to be well-positioned for whatever happens either way. But that is kind of a silver lining to some of this getting delayed and really getting stacked together all at the same time, potentially in the back half of next year.
Speaker Change: Right, that was exactly what I was getting at your remark earlier about the longer prices stay low and it suppresses overall industry activity, the harder it is to come back, you know, beyond ducks and tills to build activity back. So that was kind of what I was thinking. So thanks.
Speaker Change: Alright, thank you all for joining. That concludes today's call. You may now disconnect.