EQT Corporation

Ladies and gentlemen, thank you for standing by and welcome to the EQT Q4 quarterly 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 the session, you will 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 hand the conference over to Mr. Andrew Brees. Thank you. Please go ahead, sir.

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 518-8472. In a moment, Toby and Dave will present their prepared remarks with a question and answer session to follow. An updated investor presentation has been posted to the investor relation portion of our website, and we will refer to certain slides during today's discussion. I'd like to remind you that today's call may contain forward-looking statements. Actual results and future events can materially differ from these forward statements because of factors ascribed in today's earnings release, in our investor presentation, in the risk factors section of our Form 10-K, 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 today's earnings release and our most recent investor presentation for important disclosures regarding such measures, including reconciliation to the most comparable GAAP financial measures. And with that, I'll turn the call over to Toby.

Toby Lowe Thanks, Andrew, and good morning, everyone. Today I will briefly touch on some of the key items we executed on in 2020 that reshape the trajectory of this business, why natural gas and EQT in particular present a compelling investment thesis, review our operational and financial plans for 2021, and provide a free cash flow forecast of our base plan. Our team has been pushing hard to bring our vision into reality. While 2020 brought many accomplishments, there were a handful of critical actions that have set us up for long-term sustainable success. First, we entered 2020 staring down $3.5 billion in debt maturities due through 22. We now sit with roughly $600 million, which can easily be managed with expected free cash flow, and we are on a glide path to sub-two times leverage. Second, we drastically reduced our cost structure. We did this by slashing well costs by over $250 per foot, increasing our production uptime from 85% to 98%, and renegotiating our gathering contracts with Ecotrans. All tolls? are unhedged free cash flow break-evens, which is the Henry Hub price needed to generate positive free cash flow under a maintenance production plan decreased from a legacy cost of over $2.80 in 2019 to $2.40 in 2021, and is expected to decline to approximately $2.15 by 2026. Much progress has been made in a year, and we are looking forward to continuing this trend in the future. Lastly, we demonstrated the impact that our modern operating model can have to rapidly evolving our business and enhancing operational, financial, and cultural performance while securing sustainability with respect to ESG. We continue to believe that there is a symbiotic relationship between these goals, and we've established an ESG committee focused on implementing company-wide initiatives to drive continuous improvement across all facets of our business. Like many companies across the globe, we have navigated a challenging and unprecedented year. Along the way, we were aligned with our mission to be the operator of choice for all stakeholders. On slide three, we highlight key elements of our mission. We strive to be the security that investors want to own, the operator that service providers want to work for, the employer that employees want to work with, the lessee that landowners want to lease to, and the industry partner that our local communities embrace. Our core values of trust, heart, teamwork, and evolution guide us along this path and remind us that it's not just about what we do, but how we do it. We hold the fundamental belief that success is driven by our people, and we strive to produce a team that is completely aligned with what we do and how we do it. I'm proud to announce that ETT was recently recognized as a top workplace in the U.S., demonstrating a clear linkage between cultural and operational excellence. As we sit here today, BQT presents a compelling investment story, which we have highlighted on slide six. With 710,000 core net Marcellus acres and well over 15 years of low-risk core Marcellus inventory in hand, BQT's dominant asset position is primed to deliver long-term value to stakeholders. Eighty percent of our inventory is set up for combo development. which provides high confidence and predictability and well performance, avoids parent-child interference, and will lead to sustainable free cash flow generation. This will increasingly be a differentiator for ETT relative to its peers. We have proven that we are disciplined capital allocators, and our 2021 plan demonstrates our commitment to a maintenance program. Under this maintenance mindset, we expect our base business to generate approximately $3.5 billion in cumulative free cash flow through 2026 at strip pricing. This base plan offers material upside opportunities, and our track record of delivering speaks for itself. On top of this, due to our tremendous scale, every NYMEX increase of 10 cents above current strip pricing generates an incremental $170 million of free cash flow. And importantly, given the structure of our gathering agreements and the continued improvement in our operating efficiency, we expect 2026 free cash flow to be approximately $800 to $900 million, 55% higher than 2021 despite a 4% lower natural gas price. Our current free cash flow and balance sheet projections highlight the achievements over the last year, significantly accelerating our ability to execute on shareholder-friendly actions while also achieving investment-grade metrics. Lastly, we believe that access to energy is the most important factor driving human progress. We are proud of the work that we do to make low-carbon energy accessible to all, and we believe that natural gas will play a key role in meeting the growing demand for reliable, low-cost energy, helping reduce CO2 emissions globally, and serving as the long-term, low-carbon baseload fuel source, which is attracting new long-term investors. Further supporting the favorable outlook for EQT are the improvements we continue to see in the natural gas macro trends. Both dry gas and associated gas producers have demonstrated strong conviction to maintenance volume production. Record cold temperatures in the eastern hemisphere have buoyed global LNG markets, which should drive a more robust 2021 U.S. LNG export market, as there is growing sentiment that summer LNG demand will soon surpass expectations. Coal production and deliverability issues have further increased an already robust gas power generation market, and industrial demand, specifically chemical output, has started its recovery to pre-COVID levels and should continue to climb as the economy improves. We believe that the most efficient, wide-reaching, and environmentally responsible way to satisfy the growing global demand for energy is by utilizing natural gas. Natural gas produces significantly less CO2 compared to oil and coal, and the Appalachian Basin in particular is one of the lowest emitting shale plays in the United States. At EQT, our goal is to be a differentiated producer of a differentiated commodity. Our ESG program will differentiate our business, and every aspect of our corporate strategy is underpinned by sustainable ESG goals. This program is more an embodiment of our intrinsic drive than a reactionary response. I'll remind you that in our first year of leadership, we transitioned to exclusively electric frack crews, have utilized hybrid drilling rigs, and are now using electric pneumatics on all new sites. Furthermore, our board recognizes the importance of alignment and has established a greenhouse gas emissions intensity skip target reduction of 4% in 2021 alone. Today, EQT has one of the lowest greenhouse gas emission intensity scores relative to our U.S. E&P operators. EQT also has one of the lowest methane emission intensities. But this is just the beginning. We plan to release our 2020 ESG report this summer, at which point we intend to publish net zero emissions and other targets. Until then, we continue to evaluate ways in which we can provide more timely, transparent, and meaningful ESG performance disclosures to our stakeholders. In early 2020, we established a cross-functional ESG committee, which includes both executive management participation and board oversight. To date, some of the initiatives that the committee has focused on include developing our proprietary ESG technology to bring transparency of our program to every member of our team, evaluating the most effective use of our resources to improve our emissions performance, which drove our pneumatic valve installation program in 2021. and working towards obtaining responsible gas certifications, leading to our announced partnership with Project Canary in early 2021. This focus is integral in not only making sure we set the right targets, but that we capture and report the most relevant information. We are confident that our vision and actions will make EQT a clear ESG leader. This is a great segue into our 2021 operational and financial plans. Our strategy remains unchanged. Execute a maintenance program, enhance margins, grow free cash flow, and de-lever the business. I will point you to slide 9 and 10 for an overview of our 2021 program. We plan to spend $1.1 to $1.2 billion of capital expenditures to deliver net production volumes of 1,620 to 1,700 BCFE. At $131.21 pricing, we expect to generate $1.85 to $1.95 billion in adjusted EBITDA and $500 to $600 million in free cash flow. On slide 10, we further break out our capital program. We plan to spend between $800 to $850 million on reserve development. We plan to direct more activity towards our expansive West Virginia assets in 21, resulting in capital allocation of approximately 65% to Pennsylvania, 30% to West Virginia, and 5% to Ohio. Further details, including expected well counts and lateral lengths, can be found on slide 11. We also plan to spend $125 to $140 million on land-related projects, made up of approximately $85 million on leasehold maintenance, $50 million on infill leasing and mineral purchases. We plan to spend $85 to $100 million on other CapEx, which is largely comprised of our asset maintenance projects and capitalized interests. Due to the capital program in 2021, we plan to construct a 45-mile mixed-use water system in West Virginia, which will serve as the backbone for optimizing West Virginia development and is a key element in reducing well costs in the future. We plan to spend between $45 to $55 million in 2021, and the system is expected to serve its first pad in the third quarter of this year. Further details regarding this water infrastructure project can be found on slide 12. When normalizing for the water system, which is new to the 2021 program, year over year capital expenditures are essentially flat, while production is expected to be approximately 160 BCFE or 11% higher due primarily to the Chevron acquisition. Going forward and assuming maintenance level production, we expect capital efficiency to trend favorably with total capital expenditures dropping by 50 to $100 million per year over the next several years. Our expectations for 2021 are high, and I'll now pass it to Dave County to discuss some of the other financial aspects of the business.