EQT Corporation

Ladies and gentlemen, thank you for standing by and welcome to the EQT Q2 2020 Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to your speaker today, Andrew Brees, Director of Investor Relations. Thank you. Please go ahead.

Good morning, and thank you for joining today's conference call. With me today are Toby Rice, President and Chief Executive Officer, and David Connie, Chief Financial Officer. The replay for today's call will be available on our website for a seven-day period beginning this evening. The telephone number for the replay is 1-800-585-8367 with a confirmation code of 6066685. In a moment, Toby and David will present their prepared remarks with a question and answer session to follow. During these prepared remarks, they may refer to certain slides that have been published in a new investor presentation, which is available in the investor relation portion of our website. I'd like to remind you that today's call may contain forward-looking statements. Actual results and future events could materially differ from these forward-looking statements because of factors described in today's earnings release and in a risk factors section of our Form 10-K for the year ended December 31st, 2019, and in subsequent filings we make with the SEC. We do not undertake any duty to update any forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to this morning's earnings release for important disclosures regarding such measures, including reconciliations of the most comparable GAAP financial measures. And with that, I'll turn it over to Toby.

Thanks, Andrew, and good morning, everyone. Today, I'm particularly excited as we have recently eclipsed our one-year anniversary at the company. I plan to provide an update on the business and our strategic initiatives, as well as provide a brief review of the quarter. But first, I would like to quickly reflect on the previous year and what it means for the future of our company. We were called into service by the shareholders last July with a mandate to transform the way that EQT operated while at the same time addressing legacy governors on the business that were preventing EQT from realizing the full potential of its world-class asset. Today, I am proud to say that EQT stands firmly on stable ground and we are primed to take this company to the next level as we unlock the full potential of our premier assets. We've leveraged our experience with these assets to fast-track operational results. We've leveraged technology and maximized the value of our human capital to retool EQT into a modern, digitally-enabled organization with vision and purpose. This was accomplished not only by doing what we said we were going to do, by hitting our cost targets, streamlining the organization, implementing our digital work environment, but also going above and beyond our promises. We have significantly improved EQT's financial position by creating a clear path to maturity management and absolute debt reduction, enhancing our future cash margins and free cash flow through the renegotiation of our long-term gathering contracts, coupled with substantial near-term fee relief, rebalancing our hedge portfolio to protect our business against a volatile 2020 commodity landscape while positioning for an improved forward curve, rationalizing our FT portfolio, which looks even more promising with the cancellation of ACP. All of these actions proved that we can be nimble and creative while at the same time providing strategic flexibility. These decisions were only able to be accomplished from a position of strength unique to this company. EQT is truly a rate of change story being written by an aligned, highly motivated management team and executed by an equally motivated workforce and network of stakeholders. As evident in the second quarter results announced earlier today, our efforts have translated into a step change in operational performance. at a faster pace than originally projected. Our operational improvements have come organically and not by sacrificing long-term efficiencies for short-term benefits. As such, and in alignment with our corporate mission, every day we are getting closer to being the natural gas leader that we all hope for and achieving our mission to realize the full potential of EQT and becoming the operator of choice for all stakeholders. Our company mission is inclusive of all stakeholders. We believe that it's not just about producing great results for shareholders. It's also about how you produce those results. Recognizing the needs of all stakeholders emphasizes the critical role that natural gas plays in our future energy mix. How we operate is shaped by our commitment to ESG. We believe that performance on ESG issues is a critical component for long-term sustainable value creation. Today, Appalachia provides the power source for one out of every eight households in America, one out of every 60 for EQT alone. The ability of the shale revolution to meet the growing energy demand of the United States while simultaneously replacing coal power generation not only reduced the cost of power for Americans, it also resulted in drastic declines in CO2 emissions. With respect to methane emissions, the primary focal area for oil and gas producers, Appalachia has the lowest intensity of any basin in the United States, representing 16% of the energy supply while generating only 4% of the methane emissions. As we look to the future of the natural gas industry, we believe that companies like EQT will lead the way. Aside from being purpose-driven, we believe we have an opportunity in front of us that is unique in the industry. Our extensive combo development inventory, coupled with the technological and human capital needed to execute on it, has led to a step change in operational performance, with well costs declining by over 30% in just one year. The outputs of combo development are not just financial, but are also beneficial to emission levels, water recycling rates, and diesel usage, among other ESG-related metrics. To that end, we expect to see similar favorable step changes in environmental impacts as we continue to execute EQT's unique combo development strategy. This transitions nicely to some operational highlights that were achieved during the quarter. I'd like to direct you to slide 10 in the investor presentation that we published this morning for reference. We continue to push the operational, technological, and engineering boundaries to drive value creation. And in June, EQT reached an industry first in the basin by horizontally drilling 10,566 feet or more than two miles in a 24-hour period. We continue to see improvements in efficiencies. Year over year, our horizontal drilling speed has increased by 63%, while our horizontal days per thousand feet drilled has decreased by 36%. What this means for EQT, as we were able to achieve our target drilling costs with higher confidence and an accelerated pace. Our utilization of electric track crews and hybrid drilling rigs exemplifies our commitment to improve operational and environmental performance. As highlighted on slide 11 in our presentation, The use of next generation frac technology has driven a 20% improvement to both pumping time and frac stages per crew since July of 2019, while lowering our carbon footprint by eliminating over 9 million gallons of diesel consumption. These drilling and completion efficiencies are very encouraging, but only represent a subset of the operational efficiencies being realized across the organization, which drove a 10% decrease in our wealth costs quarter over quarter. During the quarter, we developed our PA Marcellus wells at a cost of $680 per foot, well below our first quarter execution of $745 per foot and our target well cost of $730 per foot. While we will be patient in establishing a new well cost target, our confidence is growing and we are excited about the opportunities in front of us. Consistent well execution is driven by a strong schedule design, proven and consistent well design, and efficient drilling and completion operations in the field. all of which translate into sustainable and consistent cost performance. Our entire organization is acutely focused on these measures in the pursuit of optimal operational execution. Shifting gears, I'd now like to provide an update on the production curtailment we announced in May. We ended the quarter with all our previously announced volume curtailments shut in. Earlier this month, we began a moderated approach to bringing these volumes back online and have seen no degradation to well performance. As of today, all curtailed production has returned to sales. Having executed this curtailment strategy, we now have a highly informed, data-driven, analytical understanding of how these actions impacted all aspects of our business and can say with confidence that these actions were value accretive. Moving forward, we will continue to monitor the market and look for opportunities where economics may justify further curtailments. On the macro front, the effect of COVID-19 has created near-term uncertainty in the U.S. natural gas markets. Already battling excess supply from a warm winter, we saw about four BCF a day of demand destruction from COVID-19 in the industrial, LNG, and residential commercial markets. Power, on the other hand, was a bright spot, even with lower electricity usage as natural gas has taken market share away from coal. We are fortunate to be protected from these short-term pricing pressures through our robust hedge portfolio in 2020. Looking forward, we believe the market will be much more supportive as the rapid decline in oil-directed activity and uncertainty around future oil pricing reduces the material amount of associated gas from the market. Additionally, With Appalachia rig counts dropping from 52 to 33 and Haynesville rig counts dropping from 49 to 32 since the beginning of 2020, both premier gas basins sit well below maintenance production activity levels. We anticipate that these factors, combined with normal winter weather and rising industrial and LNG demand, will cause gas supplies to be short heading into 2021, and as a result, we believe the natural gas strip is undervalued. Because of this view, we have been patient hedgers leaving upside in 2021 and have reduced exposure to the Equitrans Henry Hub price escalator embedded in our previously executed gas gathering agreement, which Dave will talk to in a moment. While undervalued, we base our business plan on strict pricing rather than our more bullish internal pricing view. Based on the current price environment, we expect to run this business at a maintenance level for the next several years. If our offside commodity thesis plays out for 2021, All incremental free cash flow generation would be utilized to further reduce our debt profile and enhance our leveraged position. There are a lot of great things happening at EQT. We're excited about another strong quarter, and I'll now turn the call over to Dave.