The operator, Eric, welcomes everyone to the EQT Q3 2023 Results Conference Call and introduces Cameron Horwitz, Director of Investor Relations and Strategy. Toby Rice, President and CEO, and Jeremy Knop, CFO, will present their prepared remarks and a question-and-answer session will follow. The call may contain forward-looking statements and non-GAAP financial measures, and a replay will be available on the company's website. Toby Rice thanks everyone for joining the call.

The third quarter was a successful one for EQT, with the completion of the Tug Hill and XcL Midstream acquisition and 74% of the integration milestones already completed. The company's integration process has improved over time, and the team has identified potential operational improvements. The third quarter also saw record-breaking performance for EQT's drilling and completions, with the team setting a new world record for drilling in 48 hours.

In the third quarter, EQT's completions team has achieved record-high pumping hours, with two crews surpassing 500 hours in a month. This is a result of the company's strategy to eliminate bottlenecks in the supply chain. Since taking over operations at Tug Hill, EQT has already increased stages completed per day by 35% and improved horizontal drilling speeds by 50%. Further efficiency gains are expected, allowing them to reduce drilling activity from two rigs to one while maintaining the same amount of lateral footage by 2024.

EQT plans to test different well-design changes on their Tug Hill assets, which could potentially result in $150 per foot of cost savings. These efforts, along with previously announced synergies, could lead to a total of $80 million in value creation. In 2024, EQT expects to run three horizontal rigs and three to four frac crews, maintaining production at 2.3 Tcfe per annum. This could result in $1.7 billion of free cash flow in 2024 and a cumulative $14 billion from 2024 to 2028. This equates to approximately 60% of EQT's enterprise value, making it the highest among gas peers and the broader upstream energy sector. This highlights the strong value proposition of EQT shares, even after recent stock performance.

EQT has signed two 10-year firm sales agreements with investment-grade utilities for 1.2 Bcf per day of capacity on MVP, which will begin in 2027. These agreements, along with a previous AMA, make up two of the largest long-term physical supply deals in the North American natural gas market. They demonstrate confidence in EQT's ability to deliver reliable, clean, and affordable natural gas to customers in the Southeast and will help reduce emissions and provide economic benefits.

EQT's capacity on MVP will initially receive pricing at Station 165, but as downstream projects and new firm sales arrangements commence, the capacity will be debottlenecked and pricing exposure will shift to a blend of premium demand areas. This is expected to increase annual free cash flow by over $300 million and reduce natural gas price volatility in the Southeast. EQT's ability to generate shareholder value and benefit American consumers is highlighted through these agreements. The company has also announced a heads of agreement for liquefaction services at Commonwealth LNG facility, which will bring their total committed LNG tolling capacity to 2 million tons per annum. This is part of EQT's strategy to diversify a portion of their gas delivery to the Gulf Coast into international markets.

EQT is pursuing a differentiated and integrated approach to international exposure through tolling arrangements, which provides upside exposure with downside risk mitigation. They are currently pursuing signing SPAs with international buyers and increasing tolling exposure. They believe their scale, low-cost structure, core inventory depth, and environmental attributes make them uniquely positioned to compete in the global energy market. They have also announced a public-private partnership with the state of West Virginia to implement forest management practices and reduce emissions, using advanced technology and partnerships with Teralytic and Context Labs.

EQT and West Virginia University's Natural Resources Analysis Center are working together to create high-quality, verifiable nature-based carbon sequestration projects. This will help EQT become the first energy company to achieve verifiable net zero GHG emissions. EQT's collaboration with other organizations has also led to the selection of the Appalachia Regional Clean Hydrogen Hub for DOE funding, which will use low-cost, low emissions natural gas to produce clean hydrogen and create numerous job opportunities in the region.

The selection of ARCH2 highlights the important role of natural gas in the transition to a lower carbon future, and EQT is well positioned to take advantage of this opportunity. They are currently developing a plan for participation and expect minimal capital requirements in the next few years. They also see potential for second-order effects and opportunities for CO2 sequestration. The third quarter results, which include contributions from Tug Hill and XcL, showed sales volumes of 523 Bcfe. However, there were some curtailments due to weak demand and lower-than-expected turn-in lines.

In the third quarter, adjusted operating revenues were $2.28 per Mcfe and operating costs were $1.29, reflecting the acquisition of Tug Hill's low-cost assets and increased produced water recycling. Capital expenditures were $445 million, with adjusted operating cash flow of $443 million and negative free cash flow of $2 million, impacted by non-recurring expenses from the Tug Hill transaction. In the fourth quarter, full contribution from Tug Hill and XcL Midstream acquisitions is expected. The midpoint of GP&T guidance is $0.10 lower than stand-alone GP&T in the second quarter, showing cost structure accretion. Production outlook for the fourth quarter includes expectations of curtailments, and next year, three rigs and three to four frac crews are expected to maintain pro forma production at 2.3 Tcfe. Free cash flow of $1.7 billion is anticipated at recent strip pricing of $3.40 per MMBtu, with a 2024 free cash flow yield of 10%.

EQT projects a significant amount of free cash flow over the next five years, making it an attractive investment opportunity. The company has a strong balance sheet, with low debt levels and a high credit rating. EQT's credit spreads have tightened, indicating its strong credit profile. The company has a solid track record of shareholder returns and will continue to prioritize long-term cash flow growth.

EQT plans to prioritize debt repayment and maintain a strong balance sheet until they achieve their leverage target. They will also assess new investment opportunities and explore infrastructure investments to improve efficiency. Share buybacks and dividend growth are also important components of their shareholder return strategy.

The company has increased its dividend by over 25% since 2021 and plans to continue growing it without increasing costs. The natural gas market is expected to be supported by factors such as strong gas-fired power generation, resilient LNG exports, and lower-than-expected production. The commissioning of new LNG facilities and the shift towards natural gas in power generation are also expected to contribute to the market's growth.

In 2024, coal production is expected to decrease by 20% due to recent retirements, leading to a tighter coal market and a boost in natural gas demand in the power sector. The company has strategically increased their hedge position to mitigate risk and has a weighted average core price of $3.60 per MMBtu. They have also hedged their basis, which has resulted in a $0.12 per MMBtu increase in their realized natural gas price this quarter. In the long-term, they anticipate structural support for Appalachian bases due to the commencement of MVP and additional coal retirements in the PJM market.

EQT is confident in the timing of MVP and expects it to be in service by the first quarter of 2024. The company's strong position and agreements with investment-grade utilities in the Southeast region will help facilitate expansion projects and improve corporate-wide differentials. These deals will also lead to an increase in free cash flow and provide long-term supply growth optionality. Additionally, gathering rates with Equitrans will decrease in 2028, further boosting free cash flow growth and lowering the breakeven price.

The paragraph discusses how EQT's declining cost structure compared to its peers' higher marginal cost of natural gas will benefit EQT's shareholders in the form of free cash flow growth and value creation. This is due to EQT's world-class assets and culture, which allow the company to be the preferred operator in the market. The paragraph also mentions how wellhead IRRs are no longer the driving force for activity among U.S. gas producers, and instead, the focus is on generating a sufficient return on corporate capital. The paragraph concludes by highlighting some observations from the slide, including the importance of a company's cost curve and the need for a sufficient return on corporate capital.

The gas supply for EQT is coming from the Haynesville and requires a natural gas price of $3.50 per MMBtu to generate cash flow. This is lower than the required price for Haynesville producers, making EQT a more attractive investment due to its lower cost of supply. The company's contractual gathering rate improvement and low-cost inventory will drive its cost of supply even lower over the next five years, positioning EQT to capture a disproportionate amount of natural gas price upside. The CEO, Toby Rice, emphasizes the strong momentum and potential for growth at EQT.

The company is performing exceptionally well, with record levels of execution and historic deals being signed. Integration of assets is progressing quickly thanks to their digital platform and operational excellence. The drilling and completions teams have set new records and are driving potential cost savings. The firm sales agreements and public-private partnership highlight the company's scale, low cost structure, and environmental commitment. The call is now open for questions.

The firm sales contract for the Mountain Valley Pipeline is a significant achievement for the company as it improves their long-term supply cost positioning. The deal was the result of ongoing efforts to find similar opportunities, and there is potential for more in the future. The risk in achieving the projected free cash flow uplift of $300 million is unclear. The company's CEO and CFO provided more details on the transaction and the potential for future opportunities.

EQT's Chief Financial Officer, Jeremy Knop, discusses the potential risks associated with the expected $300 million increase in free cash flow. He believes the risk is low due to the structure of the contracts and the company's ability to replicate this success in future deals. He also mentions the short-term cost of restructuring the AMA, but sees it as a long-term investment in building value for the company.

John Abbott from Bank of America asks Toby Rice about EQT's potential role in industry consolidation and their view on it. Toby Rice believes that consolidation can create value for shareholders and cites their successful Tug Hill acquisition as an example. He also mentions their focus on lowering costs, improving their long-life inventory, and making their energy cleaner. They will continue to be disciplined and wait for attractive opportunities. When asked about long-term maintenance CapEx, Jeremy Knop responds that they have not yet put out a budget, but their goal is to hold production flat at 2.3 Tcfe and they will consider debottlenecking opportunities.

A question was asked about the potential value creation opportunities from the integration of XcL Midstream system, which was the highlight of the Tug Hill deal. The speaker, Toby, provided his thoughts on the potential for internal and third-party opportunities in this regard.

Toby Rice, CEO of the company, discusses the potential for cost savings and value creation with the new asset base and leadership team. The focus will be on capturing synergies, accelerating water debottlenecking, and investing in water infrastructure. Third-party business opportunities are limited due to the company's large acreage position, but they will be taken advantage of if they arise. In terms of the 2024 outlook, the company expects to generate $1.7 billion in free cash flow with a low $2 billion CapEx and an all-in differential of $0.55 to $0.60.

Nitin Kumar from Mizuho asks about the impact of the new firm sales contract and the restructuring of the AMA on the company's finances. Jeremy Knop explains that the company will see a near-term impact of $100-200 million due to the restructuring, but the long-term benefits will outweigh this. The company is investing in these projects for a potential 10% free cash flow yield. Nitin also asks about service costs for next year, and Toby Rice mentions that they are expecting single-digit deflation, with the biggest driver being a 20% reduction in steel costs.

The speaker discusses the potential for cost savings in the company through operational excellence in the field. They mention a 2024 outlook that includes a budget of $1.7 billion for EQT and $300 million for Tug Hill, but note that the actual maintenance CapEx number could be lower if certain items are excluded. They also mention front-loaded opportunistic investments in infrastructure and land that may extend into 2025 and 2026.

The company has identified potential for $150 per foot of savings through operational efficiencies in their Tug Hill assets. They are currently working towards implementing these efficiencies and have not yet achieved the savings. The current costs of the wells completed in Tug Hill are not mentioned.

Toby Rice, CEO of the company, discusses the $150 cost savings achieved through operational efficiency and well design. He emphasizes the need for continued execution in the field and a methodical approach to implementing changes. This could result in a $50 million total spend reduction and a $0.02 to $0.03 lower cost structure. He also mentions the progress in discussions with potential end users for LNG and the need for long-term agreements before finalizing the SPA. The process is expected to take 6-12 months.

Kevin MacCurdy of Pickering Energy Partners asks about the firm sales contracts signed starting in 2027 and whether they are factored into the company's free cash flow outlook. Jeremy Knop, the speaker, says they have the option to grow into the volumes but it is not currently included in the outlook. He also mentions the $0.55 NYMEX for 2024, including basis hedges and Btu uplift. The next question is from Jean Ann Salisbury of Bernstein who asks about the ideal share of portfolio linked to global gas prices, to which Toby Rice responds that around 10% feels balanced, but it ultimately depends on the netbacks achieved by connecting to that market. The 2 million tons per annum is currently the company's way of testing the waters in this market.

The speaker discusses the potential for accessing a market that would provide a significant amount of gas and energy security for customers around the world. However, this would only make up less than 5% of their total volume and they plan to take a measured approach. The speaker also mentions their goal of reaching 500 hours per month in terms of production, but logistical support for frac operations is a key factor in achieving this. They mention potential investments in sand and water infrastructure, which would benefit from their deep inventory in the area. A question is asked about bridging the gap between the theoretical maximum of 600 hours per month and their current average of 400, and the speaker discusses the potential for investments in infrastructure to help achieve this goal.

In response to a question about the timing of incremental demand from the incorporation of MVP and coal retirements, the speaker explains that they expect half of the demand to come from MVP within the next five years, while the rest will gradually increase over the same timeframe. When asked about the potential for a high gas price to cause overdrilling, the speaker emphasizes the importance of considering holistic cost of returns and meeting investor demands for value creation, noting that even with current strip prices, the industry is not meeting these requirements.

The speaker believes that operators in the shale industry are being more cautious and holistic in their investment decisions, which will lead to a more durable industry. However, future gas prices may be more volatile due to factors such as renewable intermittency, which may cause companies to pause before investing large amounts of money. This was seen in the past year when prices fell from highs to lows, causing a decline in the Haynesville region.

The speaker discusses the potential for air gaps to emerge in the supply and demand of energy, leading to a focus on cost structure and the desire to generate durable cash flow. They also mention the importance of considering volatility and energy security in long-term planning, as well as the potential impact of advanced technology on coal replacement.

Toby Rice discusses the importance of protecting against downside risk and providing exposure to the natural gas market. He explains that this is a prudent strategy for investors and can be achieved through hedging and supply deals. By setting floors and ceilings, the company can ensure a return on investment while also preventing price blowouts for customers.

The integrated energy producer EQT has control over the cost of gas production and pipeline contracts, allowing them to offer stable pricing and provide energy security. They are taking a more tactical approach to hedging and have a low cost structure, making them well-positioned to take advantage of market opportunities. They have increased their hedges for the next 9-12 months due to potential fluctuations in prices during the winter season.

The company expects to see changes in the natural gas market in the future, with increased demand and declines in production. They plan to take advantage of these opportunities through their hedging program, but their main focus is on providing investors with stable cash flow and reducing volatility. They are not interested in running a high-risk business solely focused on gas price fluctuations.

During the earnings call for the fourth quarter of the year, EQT's CEO Toby Rice discussed the company's strategy of targeting longer laterals and leveraging common development to unlock the scale of their asset base. He also highlighted the company's efforts to make their energy production cheaper, more reliable, and cleaner for the world, while also creating value for shareholders. The company's low-cost structure, scale, deep inventory, and environmental attributes are seen as differentiating aspects that are creating opportunities for future investment. Rice expressed optimism for the future and promised to keep investors updated. The call concluded with a summary of the key points discussed.

This summary was generated with AI and may contain some inaccuracies.