The conference call for EQT's fourth quarter and year end 2023 earnings results has begun. The call will include a presentation from President and CEO Toby Rice and CFO Jeremy Knop, followed by a question-and-answer session. Forward-looking statements and non-GAAP financial measures will be discussed. The company's mission for the year is to achieve "peak performance."

In the fourth year since EQT's takeover, the organization achieved multiple accomplishments, including setting drilling world records, increasing completion efficiency, improving EHS intensity, generating significant free cash flow, reducing debt, and making a strategic acquisition. The integration of the acquired assets has resulted in significant operational performance improvements and potential for even more cost savings and synergies.

EQT's low-cost and environmentally friendly approach has allowed them to sign major supply deals and make progress in the LNG market. The company's integrated approach gives them an advantage in connecting with global buyers. Despite recent challenges with LNG permitting, the world recognizes the importance of natural gas in the energy transition. EQT has also announced a partnership with West Virginia for a carbon sequestration project.

EQT has shown strong progress in their net zero emissions project and their reserve report for 2023 has proven their economic resilience. They have a large inventory of undeveloped reserves and their current proved reserves have a PV-10 value of $12 billion. With recent strip pricing, this value increases to almost $23 billion, showing the potential for future growth.

EQT's reserve valuation does not include the value from their firm transportation portfolio, which includes contracts like the MVP firm sales contracts. This highlights EQT's high-quality and low-cost natural gas assets. For 2024, they plan to produce 2,200 to 2,300 Bcfe and have a flexible plan in case of weak gas prices. Their capital efficiency is shown by their high production per rig compared to other operators. They have a maintenance capital budget of $1.95 to $2.05 billion and have allocated $200 million to $300 million for strategic growth projects. These projects have the best risk-adjusted returns, derisk their operations, and allow for shareholder value creation.

EQT is projected to have a strong economic profile compared to other natural gas producers, with a low maintenance capital efficiency and a decreasing all-in NYMEX free cash flow breakeven price. This will allow them to generate significant free cash flow and returns for shareholders over the next 5 years, even at a relatively low natural gas strip price. This highlights the importance of cost structure in creating sustainability and value in the commodity business.

In the paragraph, Jeremy Knop, the speaker, summarizes the fourth quarter results for EQT, highlighting their operational momentum and strong financial performance. He mentions that sales volumes were at the high end of their guidance range, while operating costs were at the low end. He also discusses the company's recent transactions that eliminated debt, reduced interest expenses, and simplified their balance sheet. This included retiring all outstanding convertible senior notes, which eliminated over $400 million of debt.

The company recently paid off a convertible note and executed a successful bond offering to pay off a portion of their term loan. They are focused on paying down debt and have a long-term capital allocation strategy that includes maintaining a strong balance sheet, share repurchases, and a growing dividend. They have set a production guidance for 2024 and have a maintenance capital program in place.

EQT is investing $200-300 million into strategic growth projects, including midstream and water infrastructure and infill land capture. These investments are expected to generate strong returns and free cash flow, while also derisking the company's upstream operations. The company is currently investing in three midstream projects with a combined capital of $115 million, which are expected to generate annual free cash flow of $50 million and a 40% free cash flow yield. These investments are estimated to have a total return on investment of 8x and a net present value of $250 million, creating value for shareholders. The success of these initial projects highlights the potential for the company's new midstream business line, which is a result of the collaboration between the midstream and upstream teams.

The company believes their approach to growing shareholder value is unique and will continue to drive value in the long term. They have allocated $80 million to expand their water infrastructure, which is expected to result in annual savings of $20 million. They also have $100 million allocated for opportunistic infill leasehold growth and mineral acquisitions. This has allowed them to organically replenish 65% of their developed acreage over the past year, which is a unique feature in the U.S. shale industry. They are taking advantage of the low commodity price environment to acquire acreage at attractive prices and highlight a specific example in their investor presentation.

In 2022, the company increased its working interest in the Polecat North development, which is projected to generate high free cash flow yields and a strong return on invested capital. The company strategically aligns its decisions to optimize shareholder value and expects this to be reflected in its stock price. The company's cost structure guidance for the year includes higher transmission expenses due to the startup of MVP, but this is offset by a decrease in gathering rates in 2024.

EQT's 2024 corporate differential guidance includes a conservative assumption that only a portion of their MVP capacity will be utilized due to downstream limitations. However, in the winter months, they expect to flow at higher rates and realize a greater premium on downstream pricing. They have hedged a significant portion of their pricing exposure and have upcoming project expansions that will improve their ability to flow volumes and realize better pricing. They also announced the proposed acquisition of an additional 34% ownership in a gathering system in Northeast Pennsylvania, which will increase their pro forma ownership to 84%. This gathering system has been a significant source of value creation for EQT.

The company's recent acquisition of assets is expected to provide a double-digit free cash flow yield and improve their corporate cost structure. They have also strategically hedged a significant portion of their production for the first and second quarters of 2024, as well as the fourth quarter of 2024. The company's strong basis hedge position helped boost their overall realized natural gas price by $0.08 per MMBtu during the fourth quarter.

The Appalachian supply of natural gas is expected to decline in the second quarter due to decreased production and increased local demand. This could lead to higher local pricing, which is not currently reflected in the market. A recent revision of supply estimates suggests that the market is not as oversupplied as previously thought. In order to thrive in the unpredictable natural gas market, companies should focus on maintaining a low cost structure rather than simply gaining scale.

The company believes that a low cost structure is the most important factor in a commodity-driven business and drives their strategic decision-making. They do not believe that natural gas prices will stay stable at the current level and are prepared for a more volatile market. The company is positioned to generate shareholder value through all parts of the commodity cycle due to their low cost structure and strategic decisions.

During a recent presentation, an analyst asked about EQT's spending trajectory and midstream CapEx. Jeremy Knop, EQT's representative, stated that they have assumed a spending of $150 million per year for the next 5 years, with a focus on strategic investments. He also mentioned that this spending may vary depending on opportunities that arise. The analyst also asked about EQT's $2 billion deleveraging target and potential asset sales. Knop stated that the current volatile commodity price environment may affect their plans, but they are open to considering inorganic opportunities for deleveraging.

The speaker says that the future of the company will depend on where the strip settles. They are optimistic about the next 6-9 months but expect some bumps along the way. They believe that the current decrease in activity will lead to an increase in profits next year. The company is open to selling assets for the right price and has received interest from international buyers. They are focused on creating shareholder value and will remain opportunistic in their approach. They have seen good interest in their assets and will continue to prioritize quality over scale.

Sam Margolin asks a question about the ranges of wells that will be drilled, completed, and turned to sales. Toby Rice explains that the numbers are not always aligned and there is flexibility in the ranges. Jeremy Knop adds that market conditions will play a role in determining activity levels.

In the paragraph, the speaker discusses EQT's production guidance and how it has been reduced in response to the current price environment. The company is focused on maintaining flexibility to respond to changes in prices and ensure profitability. There have been no changes in cost assumptions, but the long-term gas differential is expected to improve over time, potentially reaching $0.50 in 2028 with current strip pricing and expansion projects in place.

EQT's differential is expected to drop by $0.10 in the next 5 years due to increased in-basin demand and downstream expansion projects. The company is prepared to supply the additional demand and sees a bullish outlook for Appalachia. They also expect to take a bigger share of the market as other operators run thin on inventory.

The speaker thanks the person for their questions and discusses the lower implied maintenance CapEx for the future. They mention that the savings will come from various factors such as synergies on Tug Hill assets, lower base decline, cost savings, and less infrastructure spending. They also mention that the benefits of the water system investments will not be seen immediately but will show up in the following years.

The speaker discusses the potential benefits of their water recycling efforts for completion costs and LOE in the coming years. They also address lower ethane production in the fourth quarter and higher pricing for other NGLs. The decrease in liquids, excluding ethane, in the forward guidance is attributed to lumpy pads in their development process.

The company's capital allocation priorities for the year include paying down debt as the main focus. This decision is influenced by the macro environment and the company's bullish outlook on the gas market. They are considering the potential upside of using the funds for stock buybacks, but ultimately believe that leaving the funds un-hedged will create more shareholder value in the long run.

The company plans to be patient with hedging and use dollars to de-risk the balance sheet, which will provide more upside and downside potential. The low cost structure is driven by contractual agreements, such as gathering rates that will decrease over time, and supply deals downstream from MVP that will improve realized pricing. These factors are expected to result in around $300 million of free cash flow.

The company has a breakeven cost structure of $2.30 in 2028, which is a $0.30 decrease from the current cost structure. This is a unique advantage for the company compared to others in the shale revolution. If gas prices continue to trend downwards, the company would be willing to make changes to preserve free cash flow, such as curtailment. The company also looks at the potential for higher pricing in 2025 as a factor in deciding whether to curtail production.

The speaker is discussing the company's approach to managing CapEx and production in light of current gas prices. They mention that EQT has enough liquidity and financial stability to not be as reactive as other companies. The speaker also mentions that while the forward curve for gas prices looks positive, there are potential risks and uncertainties, such as political factors, that could impact prices in the future.

The company's goal is to produce cheap, reliable, and clean energy. They believe that in the long-term, natural gas will play a large role in the energy mix. However, they are aware of the current market conditions and are prepared to reduce activity if necessary. They also mention that with normal weather, the market would be balanced and their production levels are lower than the marginal cost of production. They believe that the current bearish narrative is not accurate and that the market is actually balanced with normal weather.

The speaker believes that there is a lot of noise and politics surrounding the LNG market, but it is not impacting the market until at least 2026. They expect facilities to come online in Q3 and Q4, and the market is only slightly out of balance. The speaker also discusses their efforts to advocate for natural gas in Washington, and the main push-back they receive is the need to educate people on the benefits of natural gas as a cleaner form of energy.

The speaker discusses the role of natural gas in decarbonization and how it is the number one leader in lowering emissions in the world. They also address the misconception that America's large production of oil and gas means that regulations and pipeline blockages are not a significant issue. They argue that the US needs to do more to address global issues such as inflation, wars, and energy poverty. The speaker also mentions the need for transition fuels, including natural gas and carbon capture, to meet climate goals. They emphasize the importance of getting this common sense message out through their work with the megaphone.

The operator introduces a question from an analyst about how the company plans to operate in an environment where natural gas prices could range from $2 to $4. The CEO emphasizes the importance of having a low-cost structure and being flexible in response to price volatility. The COO adds that the company's low cost structure allows them to run consistent programs and be responsive to price changes. He also mentions that the worst-case scenario in the past was gas settling at $1.99, so the company's current cost structure can withstand low prices.

The speaker discusses the challenges of operating in a volatile environment, where even a small difference in the breakeven point can result in significant cash outflows. They emphasize the importance of having a low cost structure to mitigate this risk and take advantage of potential price increases. They also mention the common understanding among producers about the impact of volatility on the industry.

EQT is unique in its approach to positioning itself for long-term investors and capturing the upside of the natural gas market. They focus on running the business in a way that allows them to capture the benefits of both high and low pricing periods. The company is not currently adding hedges for 2025, but may start hedging at a level that drops their breakeven price and reduces risk in a low-price environment.

The speaker discusses the company's free cash flow breakeven point and their hedging strategy for 2024 and 2025. They also mention their patience in taking off risk and their belief in the potential for asymmetric SKU in the market. The last question is about the company's water handling and the potential for further cost savings.

The speaker explains that the prop market will likely remain steady throughout the year, with a range of 110 to 140 TILs. They also mention that the quickest way to balance the market would be for operators in Appalachia to cut activity, as they have a shallow base decline and are the marginal producer. The speaker concludes by thanking the listeners and ending the call.

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