EQT Corporation

Good morning, ladies and gentlemen. Thank you for attending today's EQT Q2 2022 quarterly results conference call. My name is Tia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to your host, Cameron Hortz. You may proceed.

Good morning and thank you for joining our second quarter 2022 earnings results 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 beginning this evening. 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 relations portion of our website and we will reference 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 could materially differ from these forward-looking statements because of the factors described in yesterday'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 our most recent earnings release and investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. With that, I'll turn the call over to Toby.

Thanks, Ken. Good morning, everyone. This is our first quarter call. We have seen significant commodity price and equity market volatility. However, one thing that has not changed is the growing recognition that the world needs more clean, low-cost U.S. natural gas supply in order to achieve its climate goals, drive down inflation, and provide energy security both domestically and to our allies abroad. We're seeing this recognition play out on a global stage, with positive signposts of support for natural gas as a key fuel source for decades to come. One such example is the recent vote from the EU Parliament to include natural gas investments as climate-friendly under the European taxonomy starting in 2023. The systems like this highlight the global shift toward embracing pragmatic energy solutions that can address climate change by attacking the largest source of global emissions, which is foreign coal. In short, at a time when the world is being forced to determine what the best option is for affordable, clean, and reliable energy, it is overwhelmingly turning to natural gas as the solution. Here at home, recent nationwide polling data shows the U.S. public is speaking loud and clear in support of more domestic natural gas development. Specifically, the polling data shows nearly two-thirds of voters rank strengthening U.S. energy independence and reducing energy costs as their top priority today. Nearly 70% of voters support increasing U.S. natural gas production, and a similar amount support building new natural gas pipelines, with majority support running across all party lines. and voters are more likely to support a candidate that supports natural gas development by a 33-point margin. Put simply, the American public is demanding that U.S. natural gas play a leading role in providing affordable and reliable energy to the world while also addressing climate change by replacing foreign coal. In a world that recognizes and acts on the need to unleash U.S. natural gas, EQT will thrive for several key reasons. First, We have the largest producer of natural gas in the U.S. with a multi-decade high return inventory. As shown on slide 12 of our investor deck, we highlight break-even pricing of our entire 1800 core Marcellus inventory with every location generating a 10% or higher return at a natural gas price below $3 per MCF. We note this core inventory has very rigid inclusion criteria and a de-risk view of our portfolio shows more than two times upside to this location count's across our broader acreage position. We believe this combination of depth and quality of our inventory is unrivaled among peers and gives us significant confidence in our ability to generate strong shareholder returns for as far as the eye can see. Second, our investment grade credit ratings underscore the strength of our balance sheet, which we see as a key tenant for the long-term sustainability of our business and allows us to opportunistically lean into value creating investments across commodity cycles. Year-to-date, we have repurchased approximately $830 million of debt principal, and we plan to further fortify our balance sheet as we are raising our year-end 23 debt reduction goal by $1 billion to $2.5 billion to tactically capture the market discount currently available. Third, we have among the best ESG credentials across the entire energy sector, which is backed up by the progress highlighted in our recently released 2021 ESG report. As shown on slide 14 of our deck, we have lowered our Scope 1 and Scope 2 GHG emissions by 36% on an absolute basis and reduced our methane intensity by a similar amount in just three years. Our track record gives us tremendous confidence in achieving our net zero goal by or before 2025, and we highlight the credible path it will take to get there on slide 15 of our deck. We have what the world needs, a leading inventory of low-cost, low-emissions natural gas with the balance sheet in scale to support long-term development. These characteristics position EQT at the tip of the sphere to meet the growing natural gas needs of both domestic and international end users via LNG. As highlighted in our last call, we continue to have discussions with LNG end users across various geographies. As a reminder, our firm transportation portfolio delivers approximately one beast gas per day of production to the Gulf Coast. And we are looking at various paths to unlock energy opportunities along the East Coast. Turning to second quarter results, we executed on the midpoint of our production guidance as we were able to ameliorate the logistical issues that slowed down frac times in Q1. As shown on slide 13 of our deck, pumping hours per frac crew during the quarter increased by 25% sequentially and were up 7% year over year despite a significantly tighter oil field service backdrop. We tip our hat to our operations teams here as they have enabled continued efficient execution of our carbon development strategy, even in the face of a challenging operating environment. We continue to make progress on the evolution of our new completion design with several key projects successfully executed in Q2 and several more planned for Q3 and Q4. While we are still in various phases of assessing our science work, Recent indications give us incremental confidence in the productivity uplift associated with our new design, and we plan to make a decision in 2023 as to broader implementation across our asset base. As a reminder, full implementation of this new design would be expected to both reduce annual long-term well count and capital needed to produce the same level of volumes. Turning to capital returns, as shown on slide 9 of our investor deck, we are augmenting the framework we originally laid out to the market last December. First, we recently raised our base annualized dividend by 20% from 50 cents to 60 cents per share, which is a sign of the growing confidence we have in the sustainability of our business and longer-term natural gas prices. We believe a strong and growing base dividend is one of the best read-throughs to the long-term value proposition of an organization, and this adjustment reflects exactly that. We plan to continue reassessing our base dividend at least annually and see material room for long-term sustainable growth. Second, we are increasing our debt reduction target by $1 billion to $2.5 billion by year-end 2023. While we have planned incremental debt retirement beyond 2023, given our long-term leverage goal of 1 to 1.5 times, we are taking the opportunity amid robust commodity prices to accelerate delevering and unequivocally fortifying our balance sheets. The recent rise of broader interest rates has created a unique opportunity as our bond prices have declined, despite our strengthening underlying credit quality. Taking this action ensures long-term business sustainability, drives asset value to our equity holders, and gives us significant flexibility to invest throughout cycles. We are keenly focused on deploying capital to the best risk-adjusted return opportunities available to us, and a pristine balance sheet is a key enabler for us to compound value for our shareholders over time. On share repurchases, recall we rolled out our $1 billion authorization last December, noting we would be opportunistic with deployment. After aggressively repurchasing $230 million of stock in Q1 at an average cost of $23 per share, our stock more than doubled in value at certain points during the quarter. At the same time, we saw some early warning signs of recessionary risk, and as such, we temporarily tapped the brakes on our buyback, highlighting that we will remain disciplined on all forms of capital deployment and firmly focused on earning the best risk-adjusted return for our shareholders. As our stock pulled back toward the end of Q2, we started opportunistically retiring our convertible notes, which are trading virtually in parity with our common shares. With the $213 million we spent repurchasing convertible notes during and subsequent to the end of Q2, we lowered our fully diluted share count by almost 6 million shares at an effective equity price of approximately $37 per share. while simultaneously eliminating a debt obligation and simplifying our balance sheet. In total, our updated framework allocates roughly $4 billion towards shareholder returns by year-end 23 and leaves approximately $3.5 billion of retained free cash flow flexibility on recent SRIP. With the continued resiliency of longer-dated natural gas prices, we now see approximately $22 billion of cumulative after-tax free cash flow from 2022 through 2027 at current strip. This is up from the prior $17 billion we highlighted last quarter and equates to approximately 140% of our current equity market cap, underscoring the tremendous value opportunity embedded in EQT shares. I'll now turn the call over to Dave.