EQT Corporation

Greetings. Welcome to EQT Corporation's Q1 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Blake McLean. Senior Vice President of Investment Relations and Strategy. Please go ahead.

Thank you. Good morning, and thank you all for joining today's conference call. With me today are Rob McNally, President and Chief Executive Officer, Jimmy Sue Smith, Senior Vice President and Chief Financial Officer, and Blue Jenkins, Executive Vice President, Commercial, Business Development, IT, and Safety. In addition, it's a pleasure to have Gary Gould, our newly appointed Executive Vice President and Chief Operating Officer, join us today. The replay for today's call will be available for a seven-day period beginning this evening. The telephone number for the replay is 201-612-7415 with a confirmation code of 13685068. The call will also be replayed for seven days on our website. In a moment, Rob, Gary, and Jimmy Sue will present their prepared remarks. Following these remarks, we will take your questions. I'd also like to remind you that today's call may contain forward-looking statements. Actual results and future events may differ, possibly materially, from these forward-looking statements due to a variety of factors, including those described in today's press release and under risk factors in our Form 10-K for the year ended December 31, 2018, as updated by our subsequent Form 10-Qs, which are also on file with the SEC and available on our website. may also contain certain non-GAAP financial measures. Please refer to this morning's press release for important disclosures regarding such measures, including, when able, reconciliations to the most comparable GAAP financial measures. I'd now like to turn the call over to Rob.

Thank you, Blake, and good morning, everyone. Before we jump into the quarter, I'd like to take a minute and thank our employees for their continued hard work, dedication, and ongoing enthusiasm for EQT's transformation. I know change can sometimes be challenging, but when you have a group of talented professionals committed to doing what's right, we're already a step ahead and that much closer to achieving our goals. On our earnings call in February, we discussed the company's ongoing transformation into a leading pure play natural gas producer. As part of the transformation, we reconstituted our leadership team, simplified our corporate structure from four public entities down to one, and consistent with feedback received from shareholders, worked to address EQT's some-of-the-parts discount through the midstream simplification transactions and the spinoff of Equitrans. We also shifted our focus with a new emphasis on low-cost operations, efficiency, and free cash flow generation. Adding fresh perspectives and additional talent to both the board and executive team has been and continues to be instrumental in helping drive this shift in EQT's corporate culture. The strong financial and operational results we delivered in the first quarter are tangible signs that these positive changes are directly benefiting shareholders. Put simply, cultural change is driving positive operational momentum, which is leading to strong financial results. I'm excited to update you on the significant progress that we've made in executing on the rigorous bottoms-up operational plan that we announced in January. That plan is in action now with real operational momentum building, and it provides the best path forward to capitalize on EQT's world-class asset base and generate substantial and, importantly, sustainable free cash flow. We operated with a high level of focus and efficiency during the first quarter. resulting in improved performance over what we outlined in our fourth quarter earnings call. Production sales volume were 383 BCFE, which is above guidance, and up 13% from the first quarter of 2018 when adjusted for divestitures. The beat on production was largely driven by improved winter operations and was specifically attributable to more collaborative and proactive approach to water handling. The remote locations of many of our wells coupled with dangerous winter weather and road conditions, often leads to safety stand downs on our water hauling fleet. This year, due to improved planning and advanced logic embedded in our water optimization model, we were able to proactively target critical production tanks and minimize the impact to production and frack crew operations. We continue to reduce drilling days through the simplification of our wellboard geometries, the fine-tuning of procedures, mud properties, and bottom hole assembly design. We have also incorporated a 24-hour engineering support from our real-time operations center that has assisted in identifying issues and allowed us to prevent future problems while drilling. In the fourth quarter of 2018, we averaged 1.11 days per thousand foot drilled. We brought that down to 0.87 days per thousand foot in January. 0.83 days in February and 0.79 days in March. Said another way, first quarter performance was 25% better than that of the fourth quarter of 2018. On the FRAC side, our stages per crew per day also continued to improve. For the quarter, we averaged 30% more stages per crew than we did in the first quarter of 2018. This is largely due to improvements in PAD and logistics planning that were implemented late last year. Additionally, we partnered with our vendors to identify inefficiencies that have historically slowed down operations. As a result, we have achieved significant improvements in operating uptime. A 30% improvement year over year is fantastic progress. We are particularly proud of our operational improvements in drill-outs. We improved our average drill-out plugs per day by 71% in the first quarter of 2019 versus the first quarter of 2018. and we cut nearly three days off drill-out times per 100 plugs. This was accomplished by working collaboratively with our contractors to optimize and simplify our bottom-hole assembly design, as well as by refining the rigs, bits, and fluid dynamics being utilized in the process. These improvements have continued, and just last week we set an all-time EQT record by drilling out 43 frac plugs and cleaning out over 7,500 feet in a 24-hour period. Really great progress. I'd now like to discuss some operational scheduling changes that we strategically implemented during the quarter as a result of our increased efficiencies. Going into 2019, we had more rigs under contract than we needed to achieve our near-term operational and volume growth targets. As part of our ongoing effort to increase operational efficiencies and reduce costs, we were able to successfully negotiate a penalty-free early reduction to our horizontal rig count, which will result in approximately 30 fewer horizontal wells being drilled in 2019. As a result, we will also spud approximately 15 fewer wells in 2019. Additionally, due to the operational efficiency gains that have been achieved within our completion operations, we now plan to frack approximately 10 more wells in 2019 with the same frack crew count. And finally, seven fewer wells are expected to be turned in line during 2019 as a result of non-operated activity by joint venture partners and a bit of timing. This is all good news from a capital efficiency point of view. These operational changes will not impact our four-year 2019 volumes or capital expenditures, but they will move us closer to an optimal resource count and development cadence and will enhance our capital efficiency as we move into 2020. Over the last three months, we've talked a lot about our Target 10% initiative, which is aimed at driving incremental cash costs out of the system. Since this new team was appointed in the fourth quarter of 2018, we have already identified and are now capturing $150 million in annual cost savings, $50 million of which fall under our Target 10% initiative. In addition, as an organization, we have identified and are pursuing over 100 projects that will further drive down costs. These projects vary in scale, but are largely centered around process optimization, elimination of redundancies, enhanced engineering designs, and the procurement of goods and services. As you all know, in March, we announced the appointment of Gary Gould as our Chief Operating Officer. Gary is a great addition to our leadership team as he is a seasoned operator with a proven track record and is ideally suited to help us achieve further cost reductions and accelerate free cash flow generation. With Gary officially joining this week and the continued work of our existing team, we are confident that we will identify additional opportunities to operate more efficiently and further reduce costs to achieve our target of removing $800 million in costs from the business over the next five years. As we identify and quantify these cost-cutting measures, we are committed to keeping you updated on progress as we go. Before Jimmy Hsu provides additional detail on our strong first quarter financial results, I would first like to turn the call over to Gary to share his thoughts on the company and what drew him to EQT.