Q2 2025 National Fuel Gas Co Earnings Call
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Speaker Change: Hello, and welcome to the National fuel gas Company Q2 fiscal 2025 earnings conference call.
Alex: My name is Alex and I'll be coordinating the call today.
Alex: If you'd like to ask a question that once the presentation has finished please press star followed by one on your telephone keypad.
Naturally Fisher: I'll now hand, it over to your host naturally Fisher director of Investor Relations. Please go ahead.
Naturally Fisher: Thank you Alex and good morning.
Naturally Fisher: Appreciate you joining us on today's conference call for a discussion of last evening's earnings release.
Speaker Change: With us on the call from National fuel gas company are Dave Bauer, President and Chief Executive Officer, Tim Silverstein, Treasurer, and Chief Financial Officer, and Justin Lewis President of Seneca resources, the national fuel midstream.
Speaker Change: At the end of today's prepared remarks, we will open the discussion to questions. The second quarter of fiscal 2025 earnings release and April Investor presentation have been posted on our Investor Relations website.
Speaker Change: You may refer to these materials during today's call.
Speaker Change: We would like to remind you that today's teleconference will contain forward looking statements.
Speaker Change: While national Fuel's expectations beliefs, and projections are made in good faith and are believed to have a reasonable basis actual results may differ materially. These.
Speaker Change: These statements speak only as of the date on which they are made and EMEA refer to last evening's earnings release for a listing of certain specific risk factors.
Speaker Change: With that I'll turn it over to Dave Bauer, Thank you Natalie and good morning, everyone.
Speaker Change: If you had a great second quarter with earnings increasing more than 30% compared to last year.
Speaker Change: We continue to build on our positive momentum across each of our businesses, which drove the strong results for the quarter.
Speaker Change: At Seneca, we continue to see outstanding well results from our Utica program entitled to Tony.
Speaker Change: Since the start of the fiscal year, we brought online 12 wells across two pounds.
Speaker Change: These wells are the best we've turned in lines since the inception of our Utica program and was the main contributor to our 8% sequential growth in production.
Speaker Change: Also as we mentioned last quarter, we recently brought online our best <unk> Utica pad to date and those wells continue to exceed our initial expectations.
Speaker Change: Given the performance of these wells, we are increasingly confident in the long term outlook of our Appalachian development program.
Speaker Change: We have great inventory across the EDA and <unk> with two decades of development locations that are economic at Nymex prices below $2 25.
Speaker Change: <unk>.
Speaker Change: As we continue to optimize our well design and facilities, we expect further enhancements in both productivity and inventory life.
Speaker Change: Add to that the benefits of owning and operating our gathering facilities and we see the ability to develop deliver still further improvements in capital efficiency.
Speaker Change: Switching to our regulated businesses, our utility had a particularly good quarter with earnings per share increasing by 22.
Speaker Change: The biggest driver behind the increase was the rate settlement approved by the New York PSC in December.
Speaker Change: The settlement will be a tailwind for the remainder of this year and given its multiyear nature will drive additional earnings growth through fiscal 2027.
Speaker Change: In Pennsylvania, we are starting to see the initial uplift from our modernization tracker.
Speaker Change: While the impact in the second quarter was small we expect this to grow over the next two fiscal years until we hit the approximately $7 million annual cap on that program.
Speaker Change: And our FERC regulated pipeline and storage business supply Corporation's 2024 rate settlement continues to benefit earnings.
Speaker Change: Rates went into effect last February so this quarter reflects the full benefit of that rate increase.
Speaker Change: At Empire pipeline in January we reached an agreement with our shippers to amend our 2019 reached settlement.
Speaker Change: As you May recall, we had a mandatory comeback provision in that settlement that required us to file a rate case by may one of this year.
Speaker Change: We began conversations with our shippers in the fall and we're able to reach an agreement with FERC approved this quarter.
Speaker Change: This is a good outcome for both us and our shippers we agreed to a modest roughly $500000 rate decrease which will go into effect in November and in exchange, we were able to extend some key contracts with major shippers, which limits near term re contracting risk.
Speaker Change: The settlement also gives us the ability to stay out of a rate case for another six years, but we are allowed to file as early as 2027 should we need to.
Speaker Change: Separately, we continue to make progress on our <unk> pathway project.
Speaker Change: As a reminder, this project will provide Seneca with an outlet for 190 million a day of Tioga County production and will add $15 million in annual expansion revenue for our pipeline business.
Speaker Change: In February FERC issued its environmental assessment of the project with no significant issues noted.
Speaker Change: The projects next milestone is the <unk> certificate, which is still on track for later this summer.
Speaker Change: Over the past three months <unk> sentiment in Washington has clearly shifted towards more practical energy solutions.
Speaker Change: Of the executive orders and early actions at agencies, like EPA, Doe and others, but certainly been encouraging.
Speaker Change: But at the end of the day building significant energy infrastructure projects still takes far too long and carries substantial regulatory and litigation risk.
Speaker Change: And it's not just natural gas facilities wind solar and electric transmission projects all face similar hurdles.
Speaker Change: I am hopeful the new administration will work with Congress to achieve the permitting reform that so desperately needed in this country.
Speaker Change: Moving to the broader pricing environment the outlook for natural gas remained strong with demand increasing rapidly.
Speaker Change: The industry has line of sight on significant LNG export growth over the next few years and still further growth potential beyond that.
Speaker Change: The Woodside announcement earlier this week, reaching out Friday on.
Speaker Change: There are $17 5 billion.
Speaker Change: Louisiana LNG project is a strong indication the LNG growth story is not over.
Speaker Change: In addition, domestic energy demand is robust with positive momentum from data centers industrial growth and the ongoing electrification of certain parts of the economy.
Speaker Change: As is becoming increasingly obvious this demand growth can't be met with renewables alone.
Speaker Change: Natural gas and its ability to provide reliable cost effective base load generation is critical to meet the growing demand for energy.
Speaker Change: National fuel with our integrated mix of businesses is well positioned to play an important role in meeting this growing demand.
Speaker Change: Seneca has clear visibility on incremental firm sales and additional pipeline takeaway capacity that should allow us to continue growing production.
Speaker Change: We are in a unique position of high grading our development, while other operators are moving down the inventory quality spectrum, we're focusing on in other basins.
Speaker Change: It should naturally lead to a moderation of activity levels in Appalachia and allow Seneca to capture market share, particularly with capacity originating in the EDA.
Speaker Change: We also continue to see growing interest from data center developers and Ipp's that seek reliable cost effective energy and timeliness to market. It.
Speaker Change: The resource cooler weather and the significant amount of existing pipeline infrastructure makes Appalachia, an attractive place for the next wave of data Center development.
Speaker Change: National fuel is uniquely positioned to offer solutions to meet this growing demand.
Speaker Change: Whether its utilizing our existing pipeline infrastructure to provide transportation capacity building, a short lateral to bring gas to an IPP or contracting for long term gas supply agreement. We are seeing increased desires from counterparties to work with national fuel to meet their needs.
Speaker Change: While a lot of these conversations are still in the early stages. They are ramping up and we are optimistic they will lead to new opportunities for us in the coming years.
Speaker Change: Putting it altogether national fuel's underlying fundamentals remain very strong and position us well to deliver continued value to shareholders.
Speaker Change: Our deep inventory of economic wells low cost operations and a strong outlook for natural gas prices should deliver continued growth at Seneca and energy midstream.
Speaker Change: At the same time, we expect the ongoing expansion and modernization of our pipeline and utility infrastructure to provide rate base and earnings growth in our regulated subsidiaries.
Speaker Change: All of which should drive significant free cash flow generation in fiscal 2025 and beyond.
Speaker Change: With that I'll turn the call over to Tim.
Tim Silverstein: Thanks, Dave and good morning, everyone across the company, we are continuing our track record of strong execution.
Tim Silverstein: Combine that with the tailwind of higher natural gas prices and adjusted operating results increased 32% for the quarter.
Speaker Change: David on the high points, so I'll focus on the outlook for the business.
Tim Silverstein: Starting with natural gas prices, we have seen a structural improvement since the beginning of the year with.
Tim Silverstein: With colder than normal weather, along with a faster than expected ramp in LNG export demand, we saw storage level shift from a 5% surplus to a 10% deficit compared to the five year average.
Tim Silverstein: With the evolving supply demand fundamentals, we saw an opportunity to layer in a number of favorable hedges specifically for fiscal 'twenty, six and 27%. We added 76 Bcf of swaps and collars are swaps were executed at an average price of over $4. While our callers had an average floor of $4 and an average cap of $5 50.
Tim Silverstein: These hedges are in the money today and the price of order run we retain significant upside exposure to our portfolio of <unk> and unhedged production.
Tim Silverstein: Turning to earnings guidance, we continue to use a nymex price of $3 50 per M of Btu as our base case assumption for the remainder of the year.
Tim Silverstein: At this price level our guidance for adjusted operating results is now in a range of $6 75 to $7 five per share.
Tim Silverstein: At the midpoint. This represents a <unk> <unk> per share increase from our prior guidance.
Tim Silverstein: Higher natural gas prices during the second quarter combined with the improved cost structure outlook are the main contributors to this increase.
Tim Silverstein: Partially offsetting these as an expectation for increasing basis differentials.
Tim Silverstein: While the forward markets are projecting this widening we are optimistic that increased regional power Gen demand and lower storage levels, particularly in the east region, which sit at 27% below last year's levels will provide support and lead to tighter basis differentials as the summer cooling season arrives.
Tim Silverstein: Given the potential for continued volatility we've provided earnings per share guidance ranges at various Nymex gas prices.
Speaker Change: Switching to capital we.
Speaker Change: We're holding our guidance range are the same as last quarter.
Speaker Change: We are seeing some tailwind across the company, but given that we're just moving into the warmer weather months and increasing levels of capital spend activity, we will wait until next quarter to provide an update.
Speaker Change: One other item I wanted to address on the cost side relates to global tariffs to date, we are seeing a minimal effect from both U S tariffs on imports and related retaliatory tariffs.
Speaker Change: We've been proactive in procuring critical equipment to have certainty of supply and maintain a stable cost structure throughout the course of the year.
Speaker Change: Further almost all our steel products are produced domestically.
Speaker Change: While certain larger items such as engines used in our compressor packages are manufactured in Canada.
Speaker Change: Those needed for near term development in our gathering business are already state side.
Speaker Change: We're seeing some indirect cost increases in certain other goods and materials that have components manufactured internationally.
Speaker Change: But in aggregate these increases have been very modest.
Speaker Change: On the revenue side of the equation. The recent tariff activity is not impacting us all our gas is sold domestically typically under firm sales agreements where title is transferred at the interconnect between our gathering system and the Interstate pipelines.
Speaker Change: You can see a modest impact is if Canada were to impose retaliatory tariffs on energy, which has not yet occurred although Seneca does that have any contractual arrangements in place to physically transport gas into Canada. A limited portion of Senecas production is sold through marketing Counterparties, approximately 5%, which may be exposed to Canadian tariffs.
Speaker Change: Switching gears you will note that we pulled back the pace of repurchases during the quarter.
Speaker Change: While we remain highly confident in the outlook for the business, we deemed it prudent to reduce our buyback activity amid the broader macroeconomic uncertainty.
Speaker Change: As things stabilize we plan to resume our prior cadence such that we are targeting to complete the original $200 million authorization by the end of calendar 2025.
Speaker Change: With our balance sheet on a path towards two times debt to EBITDA by the end of the year and the outlook for free cash flow remaining strong we're in a great position to return to buying back shares and retain significant flexibility on our capital allocation strategy going forward.
Speaker Change: We also took a big step to reduce near term refinancing risk.
Speaker Change: Taking advantage of a strong execution window and with an eye toward removing the risk of increasing economic volatility in February we issued $1 billion in new notes split evenly across five and 10 year tranches.
Speaker Change: This was the largest bond issuance in the Companys history, and with strong demand our issuance was nearly seven times oversubscribed, we achieved record low credit spreads for national fuel that more.
Speaker Change: More importantly, this managed all our fixed income liabilities through early next year.
Speaker Change: Also ahead of this transaction, we discharged our legacy 1974, indenture and are no longer subject to those covenants.
Speaker Change: In summary, national Fuel's outlook is exceptionally strong.
Speaker Change: Supply and demand fundamentals are driving a constructive long term outlook for natural gas prices.
Speaker Change: We are also seeing strong capital efficiency tailwind in our nonregulated businesses and strong earnings growth potential in our regulated businesses.
Speaker Change: We expect both of those trends to continue for the foreseeable future driving growing free cash flow.
Speaker Change: Our balance sheet is already in great shape and with key refinancings behind US we are in a position to deploy this free cash flow and the most opportunistic way to create value for our shareholders.
Justin Lewis: With that I'll turn the call over to Justin.
Justin Lewis: Thanks, Tim and good morning, everyone.
Justin Lewis: Positive momentum at Seneca and <unk> midstream continued in the second quarter with record production and throughput.
Justin Lewis: Production increased 8% from the prior quarter to almost 106 Bcf, which helped drive all time high gathering volumes of nearly 130 Bcf.
Justin Lewis: Our EDA focused development program strong operational planning and execution and enhanced well designs are driving significant capital efficiency gains.
Justin Lewis: The performance of recent Utica pads, incorporating our gen. Three well design has been our best to date, both in terms of initial production rates and <unk> and.
Justin Lewis: In aggregate. These two patents are producing 300 million per day, which is the same rate I noted three months ago on our last earnings call. The most recent pad also inquiries for April.
Speaker Change: Welcome and asking rents.
Justin Lewis: Right.
Justin Lewis: Okay.
Justin Lewis: Sure.
Justin Lewis: So, we're making positive use to enter fiscal 'twenty.
Justin Lewis: First.
Justin Lewis: Great.
Justin Lewis: Hello.
Justin Lewis: Okay.
Justin Lewis: Despite.
Justin Lewis: Yes.
Justin Lewis: Range.
Justin Lewis: Good morning.
Justin Lewis: 25, yes.
Justin Lewis: Okay great.
Driven.
Justin Lewis: Okay.
Justin Lewis: So I think year over year production.
Justin Lewis: The point of our updated guidance.
Justin Lewis: T Shreveport still effective.
Sure.
Justin Lewis: We anticipate production.
Justin Lewis: Okay.
Justin Lewis: We are in.
Justin Lewis: Okay.
Justin Lewis: We are lowering guidance.
Justin Lewis: 68%.
Justin Lewis: Yes.
Justin Lewis: Success.
Justin Lewis: Sure.
Justin Lewis: Yes.
Justin Lewis: Fiscal <unk>.
Justin Lewis: Yes.
Justin Lewis: With the FERC.
Justin Lewis: Okay.
Justin Lewis: Yes.
Justin Lewis: $95 million to $515 million.
Justin Lewis: As planned we recently picked up the second rig and commenced seasonal construction activities building roads pads and infrastructure projects, which will increase our level of spending in the second half of the year.
Justin Lewis: Longer term, we intend to maintain a one to two rig development program and dedicated Frac spread.
Justin Lewis: Turning to the outlook for natural gas prices, we believe the supply and demand fundamentals remained firmly supportive of our development plans, particularly as we look out to 2026.
Justin Lewis: Demand has been strong year to date with record natural gas fired power generation and a faster than expected ramp up in LNG feed gas volumes.
Justin Lewis: On the supply side overall levels of gas production has moved up slightly likely due to producers turning in line remaining ducks and deferred tills to capture strong winter demand and pricing.
Justin Lewis: As this flush production rolls over we anticipate flat or even declining production in the coming months.
Justin Lewis: That trend combined with the potential for decrease associated gas growth from the Permian basin due to low oil prices sets the stage for a bullish gas market as we approach next winter.
Justin Lewis: Overall, we are well positioned both physically and financially for this backdrop.
Financially, we have an excellent portfolio of swaps fixed price deals and colors stretching out across the remainder of fiscal 'twenty five and into fiscal 'twenty six and beyond.
Justin Lewis: These instruments provide us with appropriate downside protection, while allowing us to capture significant upside should our bullish gas thesis proved accurate.
Justin Lewis: On the physical side, almost 90% of <unk> remaining expected fiscal 2025 production is secured through firm sales and firm transportation.
Justin Lewis: These agreements provide access to premium markets as well as mitigate exposure to in basin pricing fluctuations.
Justin Lewis: Pivoting to in a few midstream we continue to grow Seneca gathered volumes and plan for New third party production.
Justin Lewis: Seneca EDA production ramps and a few midstream is expanding existing stations and building centralized facilities in multiple locations to enable future growth for.
Justin Lewis: For example, we recently began the installation of compression at our <unk> facility in northwest titled The County to support current producing wells and we also commenced engineering design to accommodate <unk>, increasing well productivity and deliverability.
Justin Lewis: Turning to our third party activity I'm pleased to share we recently executed a new interconnect agreement with a tie with county producer, while our primary focus in <unk> midstream is to serve Seneca is increasing production volumes. We remain engaged with third party shippers to leverage and more fully utilize our significant gathering infrastructure and associated facilities.
Justin Lewis: In closing our focus on operational excellence and continued capital efficiency gains is yielding outstanding results.
Justin Lewis: Mongst, our peers Seneca stands out as one of the few companies who has to achieve both increasing production and decreasing capital over the three year period ended in 2025.
We expect this positive capital efficiency trajectory growing production, while driving capital lower will continue beyond fiscal 'twenty five as we develop our gen three titles, a Utica wells and pursue operational efficiencies.
Justin Lewis: This trend combined with our unique integrated business model and more than two decades of inventory at PV 10 breakeven prices below $2 25, Nymex physician, Seneca and energy midstream extremely well to thrive in the years to come.
Justin Lewis: With that I'll ask the operator to open the line for questions.
As a reminder, if you'd like to ask a question. Please press star followed by one on the telephone keypad.
Speaker Change: Our first question for today comes from Paul <unk> of J P. Morgan. Your line is now open. Please go ahead.
Paul: Thanks for taking my questions.
Paul: First could you talk a little bit more about how youre thinking about the buyback the stock has been very strong year to date, both absolute and relative to new all time highs held stock price factor in how youre thinking about buying back shares.
Paul: I know you've moved back.
Paul: Target date by quarter here, but if the stock remains strong do you think about push it out to buy back even further.
Paul: Yes.
Paul: I don't see any any change in our thinking right now.
Paul: Our buyback program and then certainly prices it is a factor.
Paul: But overall when we.
Paul: We look at capital allocation.
Paul: Once our balance sheet isn't.
Paul: And the place we want it to be which which it is.
Paul: Our first preference is going to be to grow the company.
Paul: Either organically or through M&A, but absent that our plan would be to.
Paul: To return capital to shareholders. So so we're still committed to this buyback program as you pointed out it can take a couple of months longer to get done but.
Paul: We fully intend to.
Paul: Thanks for that color.
Paul: A follow up I just wanted to ask about infrastructure build in general I mean, there's been some rumblings out there about the constitution pipeline potentially coming back any thoughts on if that could happen and then may be just your broader thoughts on what the new administration could do to encourage more pipes to get built out of Appalachia to get more gas out of the basin.
Paul: Yeah.
Paul: Okay.
Speaker Change: Yes with respect to Constitution I think the biggest roadblock there is new York State.
Paul: Much more so than than the market referred or.
Speaker Change: Or anything.
Speaker Change: So, we'll see where that goes but I think it would change it would require a big change in thinking out in New York too.
Speaker Change: To get that one over the finish line.
Speaker Change: In terms of the.
Speaker Change: What was the new administration could do.
Speaker Change: To me the two biggies would be tackling the clean water Act.
Speaker Change: And in so doing away with or preventing the states from using it in the ways that they have.
Speaker Change: Over the years, whether it's with respect to the constitution of what they tried to do with the.
Speaker Change: Our northern access project.
Speaker Change: And then looking at the.
Speaker Change: The judicial review process.
Speaker Change: To try to get.
Speaker Change: So the projects don't stretch out so long and have to have as much litigation and delays.
Speaker Change: Thanks, a lot.
Speaker Change: Yep.
Speaker Change: Thank you. Our next question comes from Noah <unk> of Bank of America. Your line is now open. Please go ahead.
Speaker Change: Good morning, everyone.
Justin I think I've two questions for you. The first one here is could you maybe give us some additional color on what leading edge EUR per thousand foot.
Speaker Change: As for as per the recent EDA tools that you all have seen in.
Speaker Change: If the wells haven't been falling long enough to give us just to have an EUR in mind, maybe you could you just talk about the pressure declines that you have seen.
Speaker Change: Yeah sure no. Thanks.
Speaker Change: The.
We've got now a number of Tiger Utica pads online, but only really the last one to two pads, where we've kind of been employing fully and had a chance to see this gen. Three design and what it can deliver in the <unk>.
Speaker Change: Your line is less last quarter I spoke about.
Speaker Change: Our EUR moving up to an expectation of two five bcf per 1000 feet.
Speaker Change: Certainly the productivity, we're seeing out of these wells and it is early.
Speaker Change: We're kind of maybe.
Speaker Change: <unk>.
Speaker Change: Five to six months on on one of the pads and maybe closer to four three to four and the other one so we have data we have good history. The pressure declines are exceeding our expectations. The pressure drop is low.
Speaker Change: I just spoke about the fact that we expect to see a number of these wells.
Speaker Change: <unk> maintained sustained rates $25 million to $30 million a day for nine to 12 months, so that kind of informs what that means from a productivity perspective. So the bias right now is upside to the EUR.
Speaker Change: But we feel really good about what we put out to date and we feel really good about what we're seeing out of these wells and I'll have more color and more commentary in the coming quarters as we have more data.
Speaker Change: Sounds good.
Speaker Change: Then for my second question.
Speaker Change: Gen three well designed seems to be a success here.
Speaker Change: Could we see like a gen four design and if so could you maybe talk a little bit on on what that looks like.
Speaker Change: Sure so.
Speaker Change: Definitely.
Speaker Change: We've made an evolution I think we're we've arrived at was probably with.
Speaker Change: With the Gen. Three design has been.
Speaker Change: A big step forward for us.
Speaker Change: We've already begun the process of testing certain variables that would be an expansion. If you will upon the gen. Three design, so were kind of alluding to that.
Speaker Change: Gen. Gen. Four Gen three plus whatever you want to call it for now.
Speaker Change: The punch line is the places where I think we will we will potentially find the most gains are going to be related to continued adjustments on the inner well spacing and proppant loading looking to.
Speaker Change: Looking to test completions that are that are larger than the 2200 pound design and whether thats stepping up to more like 3000, or even 3700 3800 pounds per foot.
Speaker Change: We think that there is there is an opportunity we're kind of.
Speaker Change: In a spot where we've got a very a very.
Speaker Change: Melissa resource a lot of gas in place and we're looking for the right kind of mix of.
Speaker Change: Invested capital to drive productivity, but also balancing kind of the sweet spot between the returns youre getting as you deploy more capital into a more intensive design. So I think we're striving towards that I think we're making great gains with the team looking at that and.
Speaker Change: I do think as time goes on we will be talking about some additional tweaks to our overall well design.
Speaker Change: That's really helpful color. Thank you.
Grant: Our next question comes from Grant's address key of Goldman Sachs. Your line is now open. Please go ahead.
Grant: Good morning, and thank you for taking my questions. I was wondering if you could speak to your views on the current outlook for growing and based on demand.
Speaker Change: <unk> is currently stay on power related agreements and will components of your integrated business model have you found to be the most attractive for potential counterparties.
Speaker Change: Well I'll hit the first one and then.
Dave or Tim May hit on a little bit to the second there, but just as it relates to kind of the opportunity for more in basin demand.
Speaker Change: I would talk about a couple of things.
Speaker Change: One that we've been speaking to and have seen success with it.
Speaker Change: <unk> is almost more about the opportunity for other producers may be investing less capital in that kind of frees up capacity for us to to fill and whether thats through taking.
Speaker Change: New firm transport, that's been released or restructured whether that's through new firm sales with counterparties or just purely attrition.
Speaker Change: The backdrop to that the positive against even that kind of attrition. We spoken to is the corollary to more in basin demand.
Speaker Change: It's it's absolute that there are opportunities to see continued growth more industrial development and frankly, just running the existing power Gen assets that are in the basin today, they could run harder and increase the capacity.
Speaker Change: The throughput going into those plants.
Speaker Change: And put more power out so we see a lot of kind of I'll call. It green shoots and tailwind as it relates to how we're able to continue to grow our production.
Speaker Change: And we've got a lot of different avenues on that and then see continued in basin demand incrementally happening over the coming months and years.
Speaker Change: The second part of your question.
Speaker Change: The pipeline business this quarter.
Speaker Change: Call it.
Speaker Change: While it was hanging fruit.
Speaker Change: A lot of these hyperscale orders and developers are.
Speaker Change: Really value speed to market and so to the extent, we can provide a pipeline solution in a timely timely way is.
Speaker Change: It is likely the nearest term type opportunities.
Speaker Change: I appreciate it that's all very helpful. And then for my second question I'm, just wondering how you would characterize the outlook for regulated M&A at this point in time in the current macro environment does your disposition towards or the opportunity set for acquisitions changed meaningfully or if at all.
Speaker Change: Yes, it's something we're still focused on and I would like to gain scale across the business and I think the regulated side of the businesses.
Speaker Change: Is the plan to place to do it now that's not to rule out upstream M&A, but I think that would be more of a focus on bolt on type.
Speaker Change: Acquisitions as we've done in the past.
Speaker Change: And I guess I won't comment on any specific assets that may or may not come to market, but.
Speaker Change: We'll just leave with you that we're we're still interested in it.
Speaker Change: And are optimistic things will come to market that will be a good fit for us.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you. Our next question comes from John Freeman of Raymond James Your line is now open. Please go ahead.
John Freeman: Thank you and good morning.
Speaker Change: <unk>.
Speaker Change: And active in a consistent hedging program for years and I realize that's just part of the DNA of the company.
Speaker Change: I think Jeff when you were sort of outlining your bullish outlook on gas, which we obviously share.
Speaker Change: I'm curious.
Speaker Change: That that constructive outlook would potentially have you all maybe directionally more towards collars versus swaps in the future to kind of give you the opportunity to realize maybe more upside.
Speaker Change: Hey, John It's Tim Yeah, I think you're absolutely right, we're constructive but philosophically, we're still big believers in hedges, but given where our balance sheet sits today.
Speaker Change: We definitely would skew more towards collars as long as they're a SKU available on those colors, where it makes sense.
Speaker Change: For example, as the collars, we've put on over the last few months here with $4 floors and $5 50 average caps.
Speaker Change: No brainer hedges in our mines, where we protect the downside at a really fantastic price, but retain meaningful upside in case the strict brands. So I don't I don't see us changing our hedging philosophy, but definitely skewing more towards <unk>.
Speaker Change: Especially once we have the base load layer of hedges on that gives us downside protection.
Speaker Change: I appreciate that and then my follow up question.
Speaker Change: Slightly lower.
Speaker Change: Utility O&M expense guidance for the full year.
Speaker Change: You've got a slide in the back of the presentation I kind of go through kind of the moving parts you got the higher personnel costs, and then being offset by some of the rate case.
Speaker Change: And I could see that O&M expense went up during the quarter. So I'm just trying to understand maybe the moving parts involved with the lag factor for the rate case adjustments on what sort of drove the full year guide.
Speaker Change: Lower.
Speaker Change: Okay.
Speaker Change: Yes, I think it's just as we go through the year were very good and you've probably seen this historically in terms of keeping our cost structure down at the utility business in the pipeline business are really frankly across the company.
Speaker Change: And so we moved the O&M guidance down a little bit and while that the slide references O&M increases thats year over year increases. So some of those actually are tailwind relative to our original guidance outlook for the business.
Speaker Change: But this is something you should expect from US over time is the continued focus on maintaining costs, especially.
Speaker Change: Once we have set rates, it's really important for us to maintain that cost structure. So that we can earn an acceptable return in that business.
Speaker Change: I appreciate it nice quarter.
Speaker Change: Thanks, John Thanks, John.
Speaker Change: Thank you.
Speaker Change: Question comes from Jeff J of Daniel LNG Partners. Your line is now open. Please go ahead.
Speaker Change: Hey, guys, just curious about sort of how you're thinking about capex cadence beyond 2025, obviously youre well productivity is improving as you move into the EDA more.
Speaker Change: But there is also some puts and takes it seems to me where if you do sort of increased profit maybe that adds to costs.
Speaker Change: Kind of where you think you are in terms of gaining even more efficiencies kind of just curious if you're still sort of a baseline expectation is to sort of stay flattish from here 2026 and beyond barring any changes.
Speaker Change: Yes, Thanks, Jeff.
Speaker Change: The.
Speaker Change: I want to.
Speaker Change: I had some information here in my prepared remarks also to kind of at least point toward the trends that we see but.
Speaker Change: Look from 'twenty three to the midpoint of guidance at 25, we will have taking capital down from 588 million to $505 million. So we've made a dramatic decrease.
Speaker Change: I anticipate fully anticipate that as we move forward into 'twenty six 'twenty seven et cetera, we will find additional ways to drive that lower.
Speaker Change: The rate of change may shallow zone, but we fully expect we will be able to to move capital downward the.
Speaker Change: The investments we would make related to.
Speaker Change: Related to say, an enhanced well design.
Speaker Change: It would also lead to enhanced well productivity and so we wouldnt be making those if we weren't seeing that and and we would expect that to show through with perhaps you need less wells or or less loss activity to achieve the same level of production growth. So we're very much. This trend is not a.
Speaker Change: A two three year trend for us. This is a multiyear trend that should extend beyond 'twenty five 'twenty six plus.
Speaker Change: And you should anticipate continued gains in terms of reductions of capital.
Speaker Change: And kind of that mid mid single digit production growth.
Speaker Change: That we've been on over the last three years, we see that continuing over the next few years.
Excellent and then just as a follow up on the low side are those improvements largely a function of better than expected volumes or is there something else going on there.
I would say, it's really it really cost just a detailed cost focus.
Speaker Change: The team has.
Speaker Change: He has done a pretty deep dive re look at all of the areas where we.
Speaker Change: Sure.
Speaker Change: Investing investing money.
Speaker Change: Across the I'll call it the controllable element of our low and so much rental we were just paying to our sister company and if <unk> midstream the controllable piece they have done a great job at looking for areas, where we can minimize those expenses and so.
Speaker Change: The beat we had here in kind of the first half of the year is translating to our ability to bring down the full year guidance.
Speaker Change: And then just overall I mean, there is some seasonality to the work we do we certainly have well do more workover and well repair work and maintenance work during the summer months when the when the weather stayed more favorable for some of those activities.
Speaker Change: Great. Thanks, I appreciate it.
Speaker Change: As a reminder, if you'd like to ask a question that style followed by one on the telephone keypad.
Speaker Change: Our next question comes from Timothy Winter Gabelli.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Congratulations on another strong quarter.
Speaker Change: I have two questions first Dave.
Speaker Change: I was wondering if you could clarify that I heard you correctly that on the M&A focus it is going to be more on regulated bolt ons.
Speaker Change: What you said and does that mean pipes.
Speaker Change: <unk> does that mean, our regulated utilities.
Speaker Change: No.
Speaker Change: The bolt on was in reference to the E&P side of the business.
Speaker Change: On the unregulated side, we'd be thinking bigger than just bolt on.
Speaker Change: <unk>.
Speaker Change: <unk> would be the most likely candidate.
Speaker Change: Okay, Okay great.
Speaker Change: And then.
Speaker Change: Just big picture.
Speaker Change: And more I guess, the state of Pennsylvania than than nationally.
Speaker Change: I'm curious what.
Speaker Change: The long term infrastructure potential is of the state I'm listening to conference calls PPL yesterday.
Speaker Change: Talking about 50 Gigawatts of data centers in its service area.
Speaker Change: Tremendous over in Ohio as well.
Speaker Change: What is the long term infrastructure potential of the state to serve that kind of demand both from a <unk>.
Speaker Change: Pipe network, and Oh, I forgot to mention Homer City gas plant three five Gigawatts also.
Speaker Change: Being developed.
Speaker Change: Is the infrastructure there to support all of this.
Speaker Change: Yes, I think to an extent, but certainly if the if the amount of generation.
Speaker Change: That's being contemplated there's still we're going to need more of it.
Speaker Change: And I think that Pennsylvania is.
Speaker Change: As obviously, a pro energy state.
Speaker Change: And so I don't think you'd see the hurdles to getting that built that you would in.
Speaker Change: In other states, but.
Speaker Change: The potential is certainly there and we will just see.
Speaker Change: See how it plays out.
Speaker Change: Okay.
Speaker Change: Okay, great. Thank you guys.
Speaker Change: You bet.
Speaker Change: Thank you.
Speaker Change: At this time, we currently have nine further questions. So I'll hand back to necessarily Fischer for any further remarks.
Speaker Change: Thank you Alex wed like to thank everyone for taking the time to be with us today.
Speaker Change: This call will be available. This afternoon on both our website and by telephone and will run through the close of business on Thursday may eight please.
Speaker Change: Please feel free to reach out if you have any follow up questions. Otherwise, we look forward to speaking with you again next quarter.
Speaker Change: Thank you and have a nice day.
Speaker Change: Yeah.
Speaker Change: Thank you all for joining today's call you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Okay.