EQT Corporation (EQT) Q4 2022 Earnings Call Transcript

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EQT Corporation (NYSE:EQT) Q4 2022 Results Conference Call February 16, 2023 10:00 AM ET

Company Participants

Cameron Horwitz - MD of IR and Strategy

Toby Rice - President, CEO and Director

David Khani - Executive VP, CFO and Principal Financial Officer

Conference Call Participants

Umang Choudhary - Goldman Sachs

Sam Margolin - Wolfe Research

David Deckelbaum - Cowen

Neal Dingmann - Truist

Roger Read - Wells Fargo

John Abbott - Bank of America

Noel Parks - Tuohy

Paul Diamond - Citi


Good morning, and convey you for attending today's EQT Q4 2022 Quarterly Results Conference Call. My sanction is Jason, and I'll beryllium nan moderator for today's call. All lines will beryllium muted during nan position information of nan telephone and opportunity of mobility and answers astatine nan end. [Operator Instructions]

I would now for illustration to walk nan convention complete to our host, Cameron Horwitz Managing Director, Investor Relations & Strategy. You whitethorn begin.

Cameron Horwitz

Good morning, and convey you for joining our 4th fourth and year-end 2022 results convention call. With maine coming are Toby Rice, President and Chief Executive Officer; and David Khani, Chief Financial Officer. The replay for today's telephone will beryllium disposable connected our website opening this evening. In a moment, Toby and Dave will coming their prepared remarks pinch a question-and-answer convention to follow. An updated investor position has been posted to nan Investor Relations information of our website, and we will reference definite slides during today's discussion.

I'd for illustration to punctual you that today's telephone whitethorn incorporate forward-looking statements. Actual results and early events could materially disagree from these forward-looking statements because of nan factors described successful yesterday's net release, successful our investor presentation, successful nan Risk Factors conception of our Form 10-K and successful consequent filings we make pinch nan SEC. We do not undertake immoderate work to update forward-looking statements. Today's telephone whitethorn besides incorporate definite non-GAAP financial measures. Please mention to our astir caller net merchandise and investor position for important disclosures regarding specified measures, including reconciliations to nan astir comparable GAAP financial measures.

With that, I'll move nan call complete to Toby.

Toby Rice

Thanks, Cam, and bully morning, everyone. 2022 proved to beryllium a twelvemonth marked by tremendous geopolitical and earthy state value volatility. That said, done nan ups and downs, EQT ne'er took its oculus disconnected nan shot successful our relentless thrust towards improving efficiency, lowering our costs structure, reducing our emissions strength and generating meaningful worth for our shareholders. I americium highly proud of nan affirmative milestones we achieved past twelvemonth and want to concisely bespeak connected our accomplishments. On nan financial broadside of our business, we generated almost $2 cardinal of free rate flow, achieved investment-grade in installments ratings. EQT banal was added to nan S&P 500 Index and we executed our superior return strategy pinch $1.7 cardinal of shareholder returns via indebtedness retirement, a guidelines dividend and stock repurchases.

On nan operations front, contempt a challenging lipid section work and infrastructure environment, we successfully implemented soil hauling and flowback initiatives that will structurally amended rhythm times achieved meaningful completion ratio gains successful nan second portion of nan twelvemonth that person continued into early 2023, eclipsed nan basin grounds for drill retired capacity by a facet of almost 2 times and reduced apical spread drilling costs connected our Northeast Appalachia position by 30%, leveraging lessons learned from Southwest Appalachia.

On nan M&A front, we announced nan accretive acquisitions of Tug Hill and XcL Midstream which checks each of nan boxes of our guiding M&A principles, including accretion connected free rate travel and NAV per stock while strengthening nan free rate travel durability of our business done a worldly simplification successful our costs building and improved operational power done midstream integration.

As it relates to nan affirmative societal effect of our business, EQT paid retired complete $1.8 cardinal successful royalties past twelvemonth to astir 39,000 mineral owners successful astir each authorities successful nan country. Our statement besides made almost $5 cardinal successful puerility donations past year, and our labor volunteered complete 13,000 hours during 2022. Building connected our activity among decarbonization efforts, we completed our pneumatic instrumentality replacement initiative, a afloat twelvemonth up of schedule, received a golden modular standing from nan Oil and Gas Methane Partnership, aliases OGMP carnivore headed nan motorboat of nan business to reside world emissions successful nan Appalachian methane initiative, and we announced nan collaboration to shape nan Appalachian Regional Clean Hydrogen Hub aliases ARCH2.

Our 2022 achievements correspond yet different affirmative measurement of nan travel we've been connected since taking complete nan helm of GT successful 2019. Over this period, our squad has improved plus productivity, strengthened our equilibrium sheet, evolved our hedging strategy and added to our successful M&A way record, creating a durable free rate travel focused business exemplary that will thrive successful each earthy state value scenarios. These efforts will inevitably show done successful 2023 and beyond and position EQT to create differentiated through-cycle worth for each of our stakeholders.

As antecedently mentioned, 2022 marked a important milestone connected our way to nett 0 emissions arsenic we eliminated 100% of our astir 9,000 earthy state powered pneumatic devices from our accumulation operations. The effect of this effort is important arsenic we reduced our methane emissions by 70% compared to 2021 levels and lowered our yearly c footprint by astir 305,000 metric tons of CO2 balanced which is balanced to taking complete 66,000 rider vehicles disconnected nan road. The coordinated effort covering 3,000 wells successful astir 550 pad sites is different testament to EQT's expertise to efficiently technologist and execute projects astatine scale. Our squad completed this effort a afloat twelvemonth up of schedule astatine a costs of $28 million.

This equates to a c abatement costs of conscionable $6 per ton, highlighting our position astatine nan lowest extremity of nan c abatement costs curve globally.

The successful execution of our pneumatic instrumentality replacement programme materially derisks our way to nett zero by 2025. And astatine which point, EQT will beryllium nan first power institution successful nan world of meaningful standard to execute nett zero GHG emissions connected a scope 1 and 2 basis. We position nan emissions floor plan of our earthy state arsenic a strategical plus for our shareholders ensuring that EQT's molecules will stay among nan astir coveted successful nan world for decades to come.

In summation to our individual emissions simplification success, we besides precocious spearheaded nan motorboat of nan Appalachia Methane initiative, aliases AMI, to further heighten methane monitoring passim nan Appalachian Basin. AMI will beforehand greater ratio successful nan recognition and remedy of imaginable fugitive methane emissions to a coordinated outer and aerial surveys pinch monitored results done transparent publically disposable reporting. This basin-wide assemblage agnostic attack to methane monitoring will not only let accountability for methane emissions from each emitters, we judge it will destruct immoderate uncertainty that Appalachian earthy state is nan cleanest shape of accepted power successful nan world.

Turning to our reserve report. When taking nan scope of EQT successful 2019, our squad implemented aggregate initiatives aimed astatine creating consistent, predictable good capacity successful systematically minimizing parent-child impacts via large-scale combo development. These initiatives person laid nan instauration for our squad to make a coagulated way grounds of forecasting accuracy pinch good capacity projections regularly wrong accuracy. This consistency is reflected successful our 2022 reserve study arsenic our proved reserves were up modestly year-over-year to much than 25 Tcfe Included successful this number is much than 350 Bcfe of affirmative capacity revisions, underscoring nan beardown productivity trends we person achieved complete nan past respective years and a semipermanent repeatability from our heavy halfway inventory.

We besides statement nan halfway Lower Marcellus statement accounts for 99% of our proved undeveloped reserves, meaning we person fundamentally nary early bookings associated pinch secondary targets. At nan year-end 2022, SEC NYMEX value platform of $6.36 per cardinal Btu, our after-tax proved reserve worth is $40.1 billion, which equates to $100 per stock aft subtracting our existent nett debt.

As shown connected Slide 6 of our investor presentation, after-tax proved reserve worth ranges from $14 cardinal astatine $3.50 state to $41 cardinal astatine 650 Gas, which equates to $28 to $101 per stock aft deducting nett debt. We judge this underscores nan highly favorable risk/reward setup for EQT banal arsenic our proved reserves ascribe worth to conscionable 300 nett locations aliases astir 15% of our consequence inventory of greater than 1,800 and halfway remaining locations.

Looking to 2023, we are mounting a superior fund of $1.7 cardinal to $1.9 cardinal this year, excluding our pending Tug Hill acquisition. This contemplates turning successful statement 110 to 150 nett wells, which is up from 74 successful 2022 arsenic third-party constraints shifted astir 30 kills into 2023. Reserve improvement accounts for astir 82% of our 2023 spending forecast.

Land and lease is 7% successful other, including facilities, midstream and capitalized items comprises 11%. Our fund assumes 10% to 15% of year-over-year oilfield work ostentation includes $100-plus cardinal for TIs that person shifted from 2022 into 2023 and astir $50 cardinal for caller good creation science, $40 cardinal for midstream and astir $15 cardinal for caller ventures.

Our 2023 accumulation guidance is 1.9 to 2 Tcf which is accordant pinch our anterior commentary of getting backmost to nan 500 Bcfe per 4th of tally complaint accumulation by nan mediate of this year. We've seen coagulated completion ratio trends successful Q4 and passim January giving america assurance successful our operational execution early successful nan year.

That said, nan debased extremity of our guidance scope contemplates a script wherever we slow our accumulation cadence for nan twelvemonth should earthy state prices proceed to deteriorate. At nan midpoint of our guidance ranges, our implied all-in 2023 superior ratio equates to astir $0.90 per Mcfe. Given nan catch-up superior associated pinch kills shifting from 2022 into 2023 will beryllium nonrecurring connected a go-forward basis, we expect our superior ratio to amended by 5% to 10% successful 2024 and beyond, arsenic our till count normalizes and CapEx declines to tally complaint levels.

On Slide 31 of our investor presentation, we provided a scope of 2023 adjusted EBITDA, operating rate travel and free rate travel outlooks astatine various earthy state prices. We task adjusted EBITDA will scope from astir $2.9 cardinal astatine $3 state to $3.9 cardinal astatine $4 state and free rate travel from astir $900 cardinal to $2 cardinal astatine a akin value range, implying a free rate travel output scope of 8% to 17%. Recall our hedge book provides important downside rate travel protection this twelvemonth arsenic we person 62% of our 2023 accumulation hedged pinch a weighted mean level value of astir $3.37 per cardinal Btu.

As highlighted connected Slide 10 of our presentation, EQT offers nan astir compelling risk-adjusted vulnerability to earthy state pinch nan highest 2023 free rate travel procreation among nan GACE peers crossed each reasonable commodity value scenarios. With nan reductions successful our firm costs building and our well-positioned hedge book, EQT's free rate travel breakeven value successful 2023 is astir $1.65 per cardinal Btu, which is astir 40% beneath nan adjacent mean and among nan lowest of each earthy state producers successful nan country.

I'd besides statement this number assumes nary effect from nan low-cost Tug Hill and XcL midstream assets, which is expected to further little our breakeven threshold. Even pinch nan caller diminution successful near-term earthy state pricing, our cumulative free rate travel procreation from 2022 to 2027, astatine portion is forecasted astatine greater than $12 billion, excluding Tug Hill which equates to astir 110% of our existent marketplace capitalization and underscores nan important worth proposition embedded successful EQT shares. The resiliency of our free rate travel procreation positions america to make worth countercyclically for our shareholders, and we will proceed to opportunistically do truthful via our stock repurchase and indebtedness repayment programs. We are capitalizing connected nan existent situation arsenic we person repurchased astir 6 cardinal shares aliases $200 cardinal of banal since nan opening of nan twelvemonth astatine an mean value of little than $34 per share. Since initiating our buyback programme successful precocious 2021, we person retired 20.4 cardinal shares astatine an mean value of astir $30 per share. Along pinch nan 5.7 cardinal shares we retired via convertible statement repurchases, we person reduced our afloat diluted shares outstanding by much than 6% successful a small complete a year.

Along pinch nan equity repurchases, we person besides retired an incremental $283 cardinal of indebtedness main since our past update astatine an mean costs of 95% of par. This takes our full indebtedness status to much than $1.1 cardinal since nan opening of 2022 and underscores our committedness to a bulletproof equilibrium sheet.

Looking ahead, our crippled scheme for shareholder returns remains accordant arsenic we will methodically advancement towards our extremity of achieving 1 times to 1.5 times leverage astatine a blimpish $2.75 state value and we will opportunistically thin into equity repurchases to maximize returns for shareholders. As we mentioned previously, we task greater than $12 cardinal of free rate travel done 2027 astatine existent strip, truthful we person worldly firepower for shareholder returns supra and beyond our existent equity and indebtedness repurchase authorizations. As it relates to nan pending Tug Hill acquisition, we are presently successful nan process of responding to nan FTC's 2nd petition and stay committed to closing nan acquisition.

Recall, arsenic we highlighted pinch nan announcement nan woody building successful Tug Hill's low-cost assets make greater free rate travel per stock accretion to EQT shareholders astatine little earthy state prices. Our latest study shows nan Tug Hill woody is much than 10% free rate travel per stock accretive and successful 24 done 2025 earlier factoring successful synergies compared pinch astir 5% astatine nan clip of announcement demonstrating nan value of EGT's attraction connected acquiring nan lowest costs astir durable free rate travel done well-structured transactions.

We besides statement pinch nan renegotiation of nan acquisition statement precocious past year, Tug Hill layered connected hedges covering astir half of its 2023 state volumes pinch floors astatine $5 per cardinal Btu. The use of which will travel done to EQT via nan acquisition value accommodation astatine closing. We scheme to update nan marketplace pinch much specifications astir timing of closing nan transaction arsenic we attack midyear and will supply afloat pro forma guidance upon closing. To sum up, I americium highly proud of our 2022 accomplishments arsenic we made important advancement successful our pursuit to go nan lowest cost, astir reliable and cleanest power shaper successful nan world.

Our operational and financial and acquisition efforts complete nan past respective years person deliberately sculpted our business specified that it tin thrive done nan ups and downs of each parts of nan commodity value cycle. Notwithstanding nan caller earthy state value pullback, we person ne'er been arsenic bullish connected nan early of earthy state and nan worth proposition of EQT arsenic we are today, and we will proceed our relentless efforts to crystallize this worth for our stakeholders.

Before turning nan telephone complete to Dave, arsenic you whitethorn person seen earlier this week, we announced Dave will beryllium transitioning retired of EQT later this year. Dave has been an integral portion of our squad since 2020, and we are grateful for his contributions to our company. Dave came into EQT astatine a pivotal clip and had clear objectives to thief america move astir EQT and he delivered. We successfully positioned nan institution pinch a promising early done galore efforts, see designing and executing a indebtedness repayment strategy, improving our in installments ratings and facilitating our superior allocation plans. Dave tackled these projects pinch bosom and urgency and his activity contributed to our institution moving from a challenging equilibrium expanse position backmost to finance people successful grounds time. He not only achieved his goals but did truthful pinch professionalism and thoughtfulness. I'm immensely thankful for him arsenic a workfellow and a friend and I'm excited to spot him move connected to nan adjacent shape successful his life.

I'll now move nan telephone complete to you, guys.

David Khani

Thanks, Toby. It has been an grant having spent nan past 3 years moving pinch you and nan EQT team. I've been amazed astatine really overmuch this statement has accomplished successful specified a short play of time, and I americium grateful to person been portion of that evolution. EQT is genuinely a unsocial institution pinch a world-class plus guidelines and exceptional culture, a proven improvement exemplary and a beardown equilibrium sheet. I americium proud to person near my people connected this institution and will beryllium leaving we tin spot connected nan trajectory that will create shareholder worth for years to come. As mentioned successful nan announcement this week, I will enactment afloat engaged pinch APP for nan adjacent respective months arsenic I thief facilitate a soft transition, and I look guardant to seeing galore of you astatine upcoming investor events.

Now turning to results. I'll concisely summarize our 4th fourth and afloat twelvemonth numbers earlier discussing our equilibrium expanse hedging and 2023 guidance. Sales volumes for nan 4th fourth were 459 Bcfe, astir successful statement pinch nan midpoint of our guidance scope contempt weather-related effect of astir 10 Bcfe. Our adjusted operating revenues for nan 4th were $1.32 cardinal aliases $2.87 per Mcfe, and our full per portion operating costs were $1.39 and resulting successful an operating separator of $1.48 per Mcfe.

Capital expenditures, excluding noncontrolling interests were $396 cardinal successful nan 4th quarter, somewhat beneath nan midpoint of our guidance range. Full 2022 superior expenditures came successful astatine $1.43 billion, excluding acquisitions, successful statement pinch nan midpoint of our $1.4 cardinal to $1.475 cardinal guidance range. Fourth 4th adjusted operating rate travel was $622 million, and free rate travel was $226 million, which takes our full 2022 free rate travel procreation to astir $1.94 billion.

We besides saw a $442 cardinal moving superior tailwind during nan quarter, which was driven by a receipt of our rate predetermination action from E-Train, declining accounts receivables from decreasing prices and little separator requirements. Our superior ratio for nan 4th came successful astatine $0.86 per Mcfe, up from $0.72 per Mcfe successful nan 3rd 4th driven by little production. This was expected owed to third-party infrastructure limitations earlier successful nan twelvemonth that negatively impacted our 2022 TIL count.

For nan afloat twelvemonth 2022 our superior ratio averaged astir $0.74 per Mcfe, which is astir 30% beneath nan state adjacent group mean contempt nan conscionable noted third-party issues impacting accumulation past year.

Turning complete to nan equilibrium sheet. A halfway tenet to our company's operating accuracy is to person a beardown in installments floor plan and ample liquidity. We judge this will create differentiated worth opportunities for GT moving forward. Recall, we saw respective affirmative equilibrium expanse milestones past year, including achieving investment-grade in installments ratings.

Our equilibrium expanse improvements to proceed successful nan 4th fourth pinch trailing 12-month nett leverage exiting nan twelvemonth astatine 1.2 times and down from 2.3 times a twelvemonth ago. We exited 2022 pinch $4.2 cardinal of nett indebtedness and $1.46 cardinal of rate connected manus inclusive of nan $1 cardinal successful proceeds from nan notes offering successful nan 4th fourth that will beryllium utilized to thief money nan rate information of our pending Tug Hill acquisition.

As Toby mentioned, we proceed actively advancement towards our indebtedness status initiatives. We've retired an incremental $283 cardinal of elder statement main since our past update via unfastened marketplace purchases astatine an mean value of $0.95 astatine par. Since unveiling our superior returns framework, we person now retired much than $1.1 cardinal of indebtedness principal, which has eliminated astir $40 cardinal of yearly liking expense.

Moving to hedging. Our 2023 hedge book underscores our evolving hedge accuracy that seeks to supply investors pinch nan champion risk-adjusted vulnerability to earthy state prices. We presently person 62% of our 2023 state accumulation covered pinch 4s, an mean weighted value of $3.37 per MMBtu, which provides important rate travel protection and downside pricing scenarios while maintaining our backstage exposure. Since our past update, we person besides added to our 2024 hedge position pinch 10% of our 24 volumes now hedged astatine a weighted mean level value of $4.20 per MMBtu and a weighted mean ceiling of $5.40 per MMBtu.

As it relates to basis, we person astir 90% of our 2023 Appalachian accumulation covered via ground hedges, providing important protection against immoderate imaginable worldly widening of differentials. Over nan mean to agelong term, we spot reasons for structural optimism arsenic it relates to section basis, astir notably driven by incremental powerfulness request maturation successful PJM and coal-fired powerfulness retirements.

We person besides benefited from expanding patient proscription portfolio arsenic we've been capable to vessel state further westbound and seizure associated favourite pricing dynamics. Recall, we person added an incremental $300 cardinal a time to our FT portfolio past year, including $200 cardinal to nan Gulf Coast and $100 cardinal to nan Midwest.

Looking ahead, we expect further opportunities to grow our FT position arsenic our peer-leading inventory extent allows america to capitalize connected nan inclination we've seen of different Appalachian operators releasing existing patient proscription capacity. For 2023, our marketplace operation is expected to beryllium astir 37% section 28% Gulf Coast, 20% Midwest and 15% eased. Note we now exemplary an MDP start-up successful nan 2nd half of 2024, which astatine nan midpoint will return our section basin vulnerability to astir 30%. As a reminder, our gathering rates contractually statesman declining successful 2025 independent of MPC's success, providing a further tailwind to free rate travel arsenic our margins wide.

Turning to guidance. We expect 2023 accumulation volumes to scope from 1.9 Ts to 2.0 Ts pinch nan midpoint astir level compared pinch 2022. As we bring online nan incremental pills that were delayed past year, we expect sequential maturation successful nan 2nd 4th and accumulation achieving our 500 Bcfe quarterly attraction tally complaint by midyear. Note that we contemplate a assortment of scenarios successful our 2023 readying pinch nan debased extremity of our accumulation lines tied to nan imaginable of moderating activity should earthy state prices proceed to decline. We are mounting nan 2023 superior fund of $1.7 cardinal to $1.9 billion, excluding nan pending Tug Hill acquisition.

Our fund successful beds, 10% to 15% year-over-year lipid work inflation, pinch our proviso concatenation contracting strategy, providing beardown entree and costs position. With nan apt diminution of gas-directed drilling activity this year, we spot nan opportunity for immoderate value alleviation successful nan 2nd half of 2023. This has not been factored into our outlook.

As Toby mentioned, $100-plus cardinal of our fund is associated pinch turning successful statement wells that slipped from 2022 into 2023 to third-party constraints and frankincense we not expect to transportation guardant into periods. This dynamic, on pinch nan shallowing of our guidelines PDP diminution is anticipated to thrust 5% to 10% betterment successful our superior ratio successful 2024 and beyond. On Slide 31 of our investor deck, we provided adjusted EBITDA, operating rate travel and free rate travel outlook for 2023 astatine various NYMEX earthy state prices. Aided by insulation from our hedge book and worldly costs improvements we person achieved complete nan past respective years, our projected 2023 free rate travel ranges from astir $900 cardinal astatine $3 state to $2 cardinal astatine $4 state implying a free rate travel output of 8% to 17%.

As it relates to rate taxes, we had astir $1 cardinal of national NOLs arsenic of nan extremity of 2022 and astatine existent portion pricing, we expect these NOLs to offset nan bulk of our 2023 rate taxes. Our 2024 rate taxation complaint would beryllium astir 7% to 9% of operating income aliases $150 cardinal to $200 cardinal astatine existent portion pricing expanding to nan debased 20% scope successful 2025 and beyond, which is afloat captured successful our cumulative free rate travel outlook.

Turning to superior allocation. We person now retired complete 20 cardinal shares of our buyback authorization astatine an mean value of $30 per share. Recall that we person eliminated further 5.7 cardinal shares via convertible statement repurchases past year. So successful total, we've lowered our afloat diluted stock count by much than 6% since opening of 2022. We still person important firepower to discontinue shares pinch $1.4 cardinal remaining nether our existent $2 cardinal authorization.

As mentioned previously, we've besides made important advancement to our indebtedness status pinch $1.1 cardinal of indebtedness main retired since initiating our superior return framework. We proceed to target absolute indebtedness of $3.5 cardinal pro forma for nan tug acquisition, which will further bulletproof our equilibrium expanse by taking our debt-to-EBITDA to 1 times to 1.5 times, assuming a $2.75 NYMEX state price.

Looking ahead, our low-cost building and hedge book supply differentiated downside protection for 2023 free rate flow, which we will allocate towards our guidelines dividend further indebtedness status and opportunistic equity buybacks pinch an anticipated greater than $12 cardinal of cumulative free rate travel from 2022 done 2027 and we person plentifulness of firepower to execute and transcend our indebtedness status extremity and equity buyback authorizations.

I'll reason by highlighting Slide 11 of our investor deck, which underscores nan economical effect of nan costs building improvements of EQT has achieved complete nan past respective years from 2019 to 2021, we generated an mean ROCE of antagonistic 8% astatine an mean realized earthy state value of astir $2.50 per MMBtu, inclusive of hedging.

Over this period, we've reduced yearly costs by astir $700 million, pinch outpouring loads our firm return floor plan into an improving earthy state value environment. This was exemplified successful 2022 arsenic our ROCE jumped to astir 17% pinch conscionable a $0.50 betterment successful realized earthy state prices astatine $3 per MMBtu. At existent portion pricing, our ROCE should amended complete nan coming years, highlighting nan sustainability of our operating exemplary and nan worth creation imaginable of our business.

I'll now move nan telephone backmost to Toby for immoderate concluding remarks.

Toby Rice

Thanks, Dave. To reason today's prepared remarks, I want to reiterate a fewer points. One, done our relentless costs simplification efforts, balanced hedging strategy and execution connected accretive M&A opportunities, we person purposely positioned EQT to thrive successful each earthy state value scenarios; two, EQT is connected way to go nan first power shaper of meaningful standard to execute nett 0 Scope 1 and to GHG emissions, and we judge nan marketplace is only scratching nan aboveground of recognizing nan strategical worth of nan emissions floor plan of our earthy gas.

Three, our 2022 reserve study underscores nan consistency of our combo improvement strategy affirmative good capacity trends and nan tremendous worth inherent successful our proved reserve guidelines pinch important upside based connected our peer-leading inventory depth. Our opportunistic superior return strategy has positioned america good to capitalize connected impermanent state value weakness up of a structurally bullish earthy state outlook complete nan coming decades.

And lastly, EQT offers among nan champion risk-adjusted vulnerability to earthy state prices and arsenic 1 of nan lowest 2023 free rate travel breakeven NYMEX prices of each U.S. earthy state producers, which underscores nan sustainability of our business done each parts of nan commodity cycle.

I'd now for illustration to unfastened nan telephone to questions.

Question-and-Answer Session


[Operator Instructions] Our first mobility is from Umang Choudhary pinch Goldman Sachs. Your statement is now open.

Umang Choudhary

First, Dave, convey you for everything and wish you nan champion arsenic we statesman nan adjacent aft release, and dream to enactment successful touch and besides look guardant to engaging wrong nan adjacent quarter. I conjecture for nan first question, fixed your debased free rate travel breakeven this year, and you person immoderate options. So really would you deliberation astir rate travel allocation opportunities betwixt stock repurchase and indebtedness reduction?

Toby Rice

Yes. Great question. So I deliberation you'll spot america proceed our attack towards our superior allocation plans. What you've seen successful nan past has been a prioritization of indebtedness paydown. That's going to displacement plus worth into nan hands of our equity holders. And past you'll spot america proceed to beryllium opportunistic pinch nan buybacks. And obviously, nan fixed dividend that we put successful spot is durable and will beryllium a communicative that will proceed to look to turn that complete time.

David Khani

Yes. And I'd conscionable adhd to that arsenic we deed our indebtedness targets, you could spot nan percent of our free rate travel expanding towards equity time.

Umang Choudhary

And past would emotion your latest thoughts connected nan earthy state outlook. On nan -- what are you expecting from a proviso response, really are you reasoning nan marketplace is shaping up and past really does that alteration nan measurement you attack your strategy astir hedging? And past immoderate update connected nan -- immoderate thoughts astir M&A to nan grade you tin you tin prosecute it fixed nan -- fixed what's going connected pinch age.

David Khani

Yes. So state volatility has tripled since early 2021. And truthful we deliberation that's going to continue. And truthful our hedging strategy -- our Edge 2.0 strategy really encapsulates that volatility. So everybody has to remember, volatility moves successful some directions. And truthful that's why we put our benignant of nan risk-adjusted upside successful nan measurement we building our hedges pinch achromatic collars. As acold arsenic state correct now, state is correct now oversupplied, and we benignant of anticipated that and why we put arsenic overmuch of a hedge successful spot and sewage a small much fierce mid-year we evidently spot nan higher costs producers starting to trim backmost connected activity. It's going to return a small while to get there. You're besides seeing ember pain coming down and absorbing immoderate of this arsenic well.

We'll spot immoderate business request prime backmost up arsenic nan chemic manufacture destocking and that will commencement to prime up and sorb immoderate of nan ethane that's successful nan strategy arsenic good arsenic good arsenic expanding immoderate of nan powerfulness request arsenic well. So it's going to astir apt group nan shape wherever it's going to return immoderate clip to get done this twelvemonth to get to that balanced market. But I deliberation if we expect producers reacting nan measurement we do, we should get to benignant of a much balanced marketplace and group nan shape for a amended 2024.

Toby Rice

Yes. And specifically, successful regards to our strategy, I deliberation Dave's comments connected our hedging strategy is designed to springiness america nan downside protection while besides giving america awesome vulnerability to commodity prices. So you'll spot america proceed to execute that approach. As it relates to our activity levels, what you're seeing pinch america this twelvemonth is putting a scheme successful spot that will get our accumulation capacity backmost to 500 Bcf per 4th tally rate. We consciousness for illustration that's prudent to get that capacity back. But that will springiness america nan expertise to respond successful much existent clip if we proceed to spot state prices diminution aliases we'll beryllium happy to person that accumulation capacity if state prices move backmost to our position of wherever we deliberation prices will beryllium successful nan future.

So connected an M&A basis, we're going to continue. You'll spot nary alteration connected nan attack there. One of nan cardinal characteristics of our M&A attack hasn't conscionable been connected making judge we spot nan financial accretion connected deals pinch rate travel per stock NAV per share. But nan different factor, which is really showing up is our committedness to buying low-cost, high-quality assets and successful a debased costs debased value situation today, you're seeing nan benefits of that. And truthful we'll proceed to reenforce that constituent of our M&A strategy.


Our adjacent mobility comes from Sam Margolin pinch Wolfe Research. Your statement is now open.

Sam Margolin

I wanted to inquire astir nan remark connected Slide 12 astir looking astatine caller good designs. And possibly conscionable talk a small spot astir for illustration immoderate circumstantial outcomes you're going for pinch this approach, whether it's for illustration a PDP hold type of result aliases if it's to negociate declines? Or what precisely is going connected pinch that comment?

Toby Rice

Yes. I mean nan eventual attack successful immoderate of nan subject activity we do is amended nan economics of nan projects that we're developing. The subject that we're doing is going to person nan effect of lowering our F&D done expanding nan capacity connected an EUR per ft basis, but that does travel pinch immoderate associated summation successful costs. So for america to make a afloat determination connected nan economics that we'll person pinch this good design, we really request to proceed done nan monitoring play of nan signs that we person successful nan crushed correct now. And also, we'll brace that up pinch work costs ostentation expectations and make a decision. Insight day for that is towards nan mediate portion of this year. So we'll travel backmost to you pinch an update arsenic we get this information.

Sam Margolin

And past conscionable arsenic a follow-up that you conscionable mentioned pinch respect to inflation. And you mentioned you thought that nan existent marketplace would thrust immoderate activity levels lower. And I wonderment if you could conscionable qualify a small much of your outlook here, if it's conscionable -- do you deliberation that benignant of portion costs connected nan work broadside are nearing a plateau aliases if possibly nan activity levels were truthful overheated, that we could really spot services benignant of springiness backmost immoderate value correct now conscionable because of nan severity of nan marketplace conditions?

Toby Rice

Yes, it's been a basking marketplace nan past 6 months, specifically. But I deliberation pinch nan pullback successful commodity prices, we do expect to spot immoderate activity reductions. You're already seeing it from what we see nan marginal shaper present successful nan U.S. and nan Haynesville. So I deliberation successful nan adjacent -- complete nan adjacent fewer weeks, we'll person a amended position connected activity levels and really they're coming down. And ultimately, that should construe to little work costs successful nan future, and we'll beryllium monitoring that closely.


Our adjacent mobility is from David Deckelbaum pinch Cowen. Your statement is now open.

David Deckelbaum

Congrats, David, champion of luck successful nan adjacent chapter. I was hoping to conscionable inquire erstwhile you thought astir 2023 planning, you evidently envision a ample ramp successful nan backmost half of nan year, which I suppose is conscionable a usability of nan timing of TILs. I'd for illustration a small spot of colour really you're reasoning astir nan risks astir that ramp. But besides conscionable funny really nan closing timing of Tug Hills benignant of informs what you're doing this twelvemonth connected benignant of bequest EQT aliases halfway EQT, wherever location mightiness person been incremental activity that would person different possibly been allocated towards West Virginia.

Toby Rice

Yes. As it relates to our hitting our accumulation capacity targets by Q3, nan point we're really looking astatine is completion efficiencies and really stages per time footage completed per day. And 1 of nan slides we showed really we've gotten backmost to benignant of humanities capacity levels there. So we'll beryllium watching that, and that will really beryllium nan guiding facet connected nan gait of reaching that target. As it relates to nan activity levels comparative to toil acquisitions, we were ever readying connected moving this activity level, and we weren't readying connected changing our activities pinch nan Tug Hill transaction that was astir apt going to beryllium thing that would beryllium incorporated successful '24. So we're executing benignant of arsenic we planned, and we'll set erstwhile that woody gets closed.

David Deckelbaum

And is nan anticipation connected everything you're seeing that if this were to close, let's say, successful nan extremity of nan year, is $800 cardinal a day, still nan correct accumulation level. And I presume if it's not, location would beryllium a acquisition value adjustment?

David Khani

Well, yes. So nan acquisition value was group astatine midyear past year. And truthful immoderate alteration successful free rate travel efficaciously will little nan value each period that will -- that this takes to close. So if they alteration -- if they determine to alteration activity and nan consequence to this marketplace, past immoderate impacts to free rate travel that will use to us. But we don't cognize that they're changing activity. We do cognize that they did adhd hedges astatine $5 connected half of their state accumulation to fastener successful that a bully information of nan free rate flow. So -- and our anticipation correct now is that this will adjacent midyear.

David Deckelbaum

And conscionable a speedy one. Just to confirm, nan only quality betwixt your 165 firm level breakeven this year, and your 30 position conscionable for EQT only longer word aliases through, I guess, nan adjacent respective years, is conscionable nan use of nan hedges successful '23, right?

David Khani

Correct, yes, we're conscionable trying to show that we and a overmuch little state value earlier we don't make free rate flow.


Our adjacent mobility comes from Neal Dingmann pinch Truist. Your statement is now open.

Neal Dingmann

First, Dave, acknowledgment for each nan time, decidedly been a awesome help. And astir apt my first mobility is connected cost, specifically. What's your comfortableness level pinch -- erstwhile you spot ostentation and different imaginable incremental pressures this twelvemonth -- and conscionable really wondering really delicate is that to your D&C plan? You mentioned really you perchance would alteration D&C based connected what state prices. But I'm conscionable wondering really does that subordinate to what you're reasoning connected costs arsenic well.

Toby Rice

Yes. When you look astatine nan sensitivity that you sewage to look astatine is what percent of services we person locked successful and what vulnerability do we person to nan spot market. Looking astatine nan large image items from rigs and frac crews, those are locked in. We person astir 100 frac days that would show up successful nan backmost half of this twelvemonth that we're looking to procure. So there's a small spot of vulnerability location to spot, but we're readying for it -- and we've sewage immoderate clip to spot really nan marketplace shakes retired earlier that. On steel, which is different large point for us, we're beautiful bully from a procurement position done nan first half of this year. And we deliberation that nan alloy markets hopefully are showing immoderate signs of loosening location connected price. So I consciousness for illustration we're positioned location to procure nan remainder and hopefully, a amended work value situation for steel. And past arsenic acold arsenic soil and h2o is concerned, those are mostly locked successful and consciousness good.

One point I'd opportunity astir sand, that's important to statement because that's thing that has really been backers successful different parts of nan country. Appalachia, nan ample portion of nan soil that we procure is not is it a different marketplace than what group are seeing successful basin soil successful nan Permian. A batch of nan soil that we're getting is coming from Wisconsin, Northern White. So it's a small spot it's not -- hasn't been arsenic exposed arsenic overmuch work value ostentation arsenic different places successful nan country. So that's benignant of really we spot nan work costs sensitivities and consciousness for illustration we're successful a bully position and tin beryllium elastic and hopefully return advantage of a amended work costs situation successful nan 2nd half of this year.

Neal Dingmann

Yes, definitely, it seems for illustration nan applicant guys are successful amended value aliases amended area there. And conscionable possibly lastly, conscionable connected housekeeping. I'm conscionable wondering -- you mentioned astir nan $50 cardinal accommodation per period colour connected nan acquisition value for nan adjusted to included successful Tug Hill. I'm conscionable wondering, is that included successful nan Tug Hill hedges? Or is that incremental?

David Khani

The $50 million, is that what you conscionable said?

Neal Dingmann

Yes. You mentioned astir isn't location -- pinch that, you mentioned that $50 cardinal per period regarding nan acquisition value adjustment, I'm conscionable wondering, is that included successful nan Tug Hill hedges? Or is that incremental?

David Khani

Well, truthful I deliberation successful nan first 6 months of past -- truthful past year, we fundamentally judge it was astir apt make astir $300 cardinal to $350 cardinal of excess free rate travel that would little nan acquisition price. Roughly half of it goes to cash. Half of it goes to reducing nan stock count. And truthful pinch their hedges, if you thought nan free rate travel still trends on that aforesaid pace, you mightiness have, we'll telephone location successful that aforesaid vicinity successful nan 2nd half of nan year. So you could -- possibly you talk astir 600 positive of acquisition value adjustments that will thief little that acquisition price. So nan hedges will conscionable solidify that.


The adjacent mobility comes from Roger Read of Wells Fargo. Your statement is now open.

Roger Read

Yes. Just 1 speedy mobility astir apt for you, Toby. Just connected -- arsenic you deliberation astir state prices, do you deliberation successful nan end, it's much astir nan absolute diminution consequence successful state prices? Or do you deliberation it's going to beryllium much astir long of, let's conscionable say, thing beneath nan mean breakevens retired location that yet forces activity and accumulation little and past possibly creates a small headroom for you connected work costs by nan second portion of this year.

Toby Rice

Yes. I deliberation there's a mates of things that are happening from an activity level, arsenic these mature basins -- aliases nan shale plays proceed to mature, nan magnitude of activity levels will little complete clip that should person an effect connected lowering work costs. But besides nan different point that's taking spot is nan breakevens successful nan United States is rising arsenic operators are moving to Tier 2 earth science and some successful surface science and besides successful nan zones that they're completing. That will person nan effect of expanding nan marginal breakeven value of gas. That will thief solidify price.

The different point I'd opportunity is, arsenic acold arsenic long is concerned, I mean nan 1 point that we're seeing is nan telephone for inexpensive reliable cleanable energy. And if we learned 1 point successful 2022, looking what happened successful Ukraine and Russia, nan instruction learned location is power information matters. And without power security, you cannot transition. Europe has gone backwards connected their emissions targets because of nan deficiency of power security. And nan astir important takeaway from each of this is wherever did Europe move for power security. They move to earthy gas. And truthful we deliberation that nan telephone for this merchandise is only going to fortify complete clip because earthy state is nan cardinal to providing power information to Americans successful nan world.


Our adjacent mobility is from John Abbott pinch Bank of America. Your statement is now open.

John Abbott

Dave, acknowledgment for each of nan full Bank of America squad who wants to echo champion your champion wishes successful your adjacent chapter. Our first mobility is going to beryllium connected nan Tug Hill and XcL Midstream acquisitions. So erstwhile you look astatine -- truthful nan guidance that you provided backmost successful September of past twelvemonth and erstwhile you benignant of deliberation astir these acquisitions perchance closing successful nan mediate of this year. First, is nan midstream walk that you laid retired successful September still connected way astatine XcL? And past second, really does your existent thoughts connected nan imaginable effect of nan breakeven see updated thoughts connected ostentation heading into this year.

David Khani

So you return nan second. I'll return nan first. Okay. Go ahead.

Toby Rice

So arsenic acold arsenic -- what was nan 2nd portion of nan mobility there?

David Khani

Inflation into our breakeven.

Toby Rice

Yes. So I mean, nan cardinal point pinch Tug Hill and nan logic why those assets had specified a debased breakeven cost, was really owed to nan truth that they ain their midstream and besides nan liquids percent of their programme that they're moving there. So yes, they're going to beryllium salary pinch ostentation for illustration each different usability and we'll recast what that looks for illustration from a CapEx perspective.

The 1 point I'd opportunity is these are beautiful high-quality assets. So nan activity levels needed to support accumulation will mitigate immoderate of nan work costs ostentation effects. But hopefully, by nan clip we return over, we've seen a small spot much equilibrium travel from work costs.

David Khani

Yes. And past moreover incorporated -- if you look astatine our semipermanent breakevens that we springiness you, that does incorporated immoderate ostentation embedded successful there. So that does -- and past arsenic acold arsenic nan midstream projects are concerned, immoderate of those projects we were moving connected together were this M&A and immoderate of those projects will perfectly proceed through. As acold arsenic nan rest, I deliberation we'd person to hold and spot until this closes to get an update from Tod connected that.

John Abbott

And past our 2nd mobility is benignant of connected nan earthy state macro. Despite spot weakness, nan guardant curve is astir 50% supra year-ago levels pinch erstwhile storage, albeit aft losing Freeport exports. What do you deliberation is going on?

David Khani

I mean you person fundamentally an oversupplied marketplace heading into ‘23 successful and I'll telephone very humble oversupply successful '24. And past you've virtually had Freeport and upwind not show up, knocking nan beforehand extremity of nan curve down and caused nan humble oversupply increase. And truthful it's fundamentally sending a awesome to nan producers commencement to trim accumulation because pricing is forcing your activity off-line. So and it's besides going to nonstop request up. And truthful it's going to create a guidance to effort to get to that balanced market, which you're going to spot from a operation of proviso coming disconnected aliases proviso maturation slowing, which will astir apt extremity up being astir B a time of impact. You'll besides spot astir an incremental B positive of request being forced backmost into nan strategy betwixt powerfulness from ember going distant successful nan stack and past besides business request coming online. So those will beryllium nan things that will equilibrium nan marketplace and if it doesn't hap sooner, it will happen, it will return longer. That intends that nan remainder of nan '23 curve will travel down some, and that will origin quicker reaction, nan later action.

So it will get there, and that's what nan pricing awesome ever does.


Our adjacent mobility comes from Noel Parks pinch Tuohy. Your statement is now open.

Noel Parks

A fewer things. Wondering, successful nan reserves, did you acquisition immoderate upward revisions connected type curves, either conscionable from wide ratio aliases thing you'd beryllium capable to spot from your redesign?

Toby Rice

Yes. So nan type curve revisions resulted successful an summation of astir 350 Bcf and that's benignant of what we're referring to erstwhile we said capacity revisions. So we person seen an summation to capacity didn't cook successful thing connected nan subject activity that we're doing. It's conscionable excessively early to facet that in.

David Khani

Yes. You request to person much humanities accusation for Netherlands instrumentality to beryllium comfortable pinch america booking immoderate uplift successful type person. That's astir apt much of a, we'll telephone it, '24 and beyond benignant of benefit.

Toby Rice

Yes. And I dream that investors look astatine this pinch a taxable that you're starting to spot astir this manufacture wherever good capacity is benignant of degrading crossed manufacture to beryllium assured to spot that high-quality assets are translating to dependable performance, and you're seeing affirmative improvements successful nan good results that we're putting out, I think, is -- should beryllium very reassuring for investors.

Noel Parks

Great. And I conscionable wanted to, astatine this point, looking up to services, of course, wholly funny astir what nan work consequence is going to beryllium if we do spot activity continuing to caput down. But conscionable benignant of arsenic a reference point, erstwhile is your adjacent important renegotiation up either connected nan rig broadside aliases nan frac side?

Toby Rice

Yes. So rigs were bully done nan extremity of nan twelvemonth pinch nan frac crews, 2 retired of nan 3 frac crews aliases -- sorry, we person 2 retired of 3 factories locked up. We've sewage a frac unit that will beryllium joining benignant of mediate portion of this twelvemonth that we're presently nether negotiations for correct now. So I'd opportunity astir apt that's nan biggest large assets we person that we're moving on. And arsenic I mentioned, alloy is nan different large factor, which we'll screen done nan first half of this year, and we'll proceed to activity done that. unit for nan 2nd half.

Noel Parks

And conscionable 1 more. Thinking astir nan Tug Hill acquisition, erstwhile that closes, tin you conscionable springiness a unsmooth consciousness of possibly really galore quarters of benignant of deal-related onetime effect we mightiness person connected G&A and erstwhile G&A mightiness get backmost to much of a dependable authorities connected a portion ground aft nan close.

David Khani

Sure. So correct now, we're dealing pinch other G&A tied to nan FTC and it will propulsion an unclosed process. So if we were to efficaciously adjacent by midyear, I would opportunity astir apt nan past of what we would woody pinch is astir apt each hitting astatine nan extremity of nan 2nd quarter. It could immoderate deed successful nan 3rd quarter. But I would opportunity that's astir apt your champion stake from what we cognize correct now.


Our adjacent mobility is from Paul Diamond pinch Citi. Your statement is now open.

Paul Diamond

Perfect conscionable a speedy mobility for you connected 2023 guidance. The numbers springiness you immoderate optionality astir immoderate maturation versus immoderate reductions conscionable wanted to benignant of get you guys sensed connected nan strategy. And should we beryllium reasoning astir that successful yearly pinch pricing? Or is it much -- aliases is location benignant of [indiscernible] connected nan precocious broadside and past it will measurement alteration if pricing drops beneath a definite level?

David Khani

Yes. So it will beryllium a operation of pricing and long and reasoning astir erstwhile we walk money and commencement to nutrient it's not going to each travel retired successful 1 quarter. It's going to beryllium complete astir apt a 2-, 3-year play that advertisement matters from a returns perspective. So we'll look astatine nan guardant curve and we'll look astatine nan driblet and we'll effort to expect what we deliberation nan effect will be. And truthful we'll exemplary out. And truthful it will beryllium a game-time decision. We're not going to make a determination today, but it's going to beryllium value and long that will thrust it.

Paul Diamond

And conscionable 1 speedy follow-up. As we benignant of move to a much semipermanent supportive fundamentals of $24 cardinal and $25 cardinal has location been immoderate displacement successful benignant of your priorities from Southwest PA versus nan Northeast versus West Virginia? Or is that still benignant of Southwest PA still beautiful overmuch nan benignant of nan beforehand runner arsenic acold arsenic priorities go.

Toby Rice

Yes. I mean, our schedule is designed to create nan champion complaint of returns sooner. So that operation is benignant of set. And what you spot present for this twelvemonth is astir apt going to proceed into nan future. So that's benignant of really we person our schedule laid out. And besides nan aboveground impacts and wherever we tin do combos, longer lateral lengths, much wells per combo is different facet that could move to facet into nan schedule.


There are nary further questions. I'll walk nan telephone backmost complete to nan guidance squad for closing remarks.

Toby Rice

Thanks, everybody, for your clip today. Certainly, a batch of volatility successful these environments. I deliberation it's a really bully clip for group to look astatine nan differentiation that exists wrong nan power space. And I deliberation nan activity that we've done astatine EQT really is showing up here, moreover successful a downside scenario, we built a business that still is going to make double-digit free rate travel yields. And pinch our debased costs structure, we'll beryllium capable to and look to a very promising early for earthy state and EQT. So we'll proceed to activity and our labor present astatine EQT are going to beryllium really focused connected delivering highest capacity successful 2023. So acknowledgment for your time.


That concludes nan convention call. Thank you for your participation. You whitethorn now disconnect your lines.

Editor: Naga

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