EQT Corporation

Thank you for standing by. At this time, I would like to welcome everyone to the EQT Q2 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Cameron Horowitz, Managing Director, Investor Relations and Strategy. You may begin your conference.

Good morning, and thank you for joining our second quarter 2023 results conference call. With me today are Toby Rice, President and Chief Executive Officer, Jeremy Canote, newly appointed Chief Financial Officer, and David Connie, outgoing Chief Financial Officer. In a moment, the team 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. A replay for today's call will be available on our website beginning this evening. 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 yesterday's earnings release. In our investor presentation, 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 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, Cam, and good morning, everyone. Before speaking to second quarter results, I want to say thank you again to Dave for being a great colleague and friend over the past three years. Your knowledge and experience during a unique time in EQT's history, combined with a thoughtful approach and heart, made you a favorite of all who had the pleasure of working alongside you. I want to thank you for your tremendous contributions to EQT, and we are excited to see your continued success into the next phase of your life. I also want to introduce Jeremy Knope, who is taking the reins from Dave as our new Chief Financial Officer. Jeremy joined EQT in 2021 as the EVP of Corporate Development and has extensive experience in strategic decision-making, investment management, capital allocation, M&A, and transaction execution from his time at EQT and previous roles at Blackstone and as an investment banker. Jeremy's strategic value-oriented mindset and deep understanding of our business instills great confidence that he will continue to drive value creation, strengthen our balance sheet, and ensure the realization of our long-term vision. His exceptional leadership skills and unwavering focus on value creation make him the ideal candidate to steer EQT toward continued success. Jeremy's proven track record and dedication to leading purpose-driven teams make him an invaluable asset to our executive group and we look forward to the meaningful impact and contributions he will undoubtedly make in his new role. Now turning to Q2 results, our operation teams built upon the momentum we achieved in the first quarter with notable execution on both drilling and completions. As shown on slide six of our investor presentation, our drilling team recently set an EQT record by drilling 12,318 feet in 24 hours on our SGL 8H well in Greene County. and followed this up, setting a new world record by drilling 18,200 feet in 48 hours on the same run. This is not just one-off execution. However, as we recently ran a benchmarking exercise that shows EQT is consistently achieving best-in-class drilling results. Specifically, we found that EQT's recent southwest Appalachia wells were drilled at a rate of penetration greater than 60% faster than Pierce. which means that even with materially longer laterals, our average spud to TD days are 20% less than nearby operators. To further put this point in context, one horizontal EQT rig can drill roughly 300,000 more lateral feet per year relative to our peer average, which is why we can maintain greater than five BCFE per day of net production running just two to three horizontal rigs. A few contributing factors to this performance include diligent landing zone targeting, best-in-class geosteering, and innovative use of rotary steerable tools. It's all about people, planning, the right equipment, and execution. Turning to completion, slide 7 shows our team replicated the solid efficiency gains achieved in Q1, with first-half 2023 frack crew pumping hours up roughly 20% year-over-year and in line with peak levels experienced in early 2021. Not to be outdone by our drilling performance, our completions group set two records of their own in Q2. First, our team completed and drilled out 20,818 feet of lateral on our Michael 4H well, which at nearly four miles is one of the longest completed laterals in the history of U.S. shale development and an internal EQT record. Our completion team also beat our previously set world record during the quarter by drilling out 262 frac plugs, with a single roller cone bit, which was 90% above the prior peer record. I want to give a big shout out to both our drilling and completion teams for the excellent performance and continuing to push the envelope when it comes to achieving peak performance. This stellar execution allowed us to achieve the midpoint of second quarter production guidance, even in the face of lower than expected liquids volumes from downtime at the shell ethane cracker and fewer than expected non-operated tills which negatively impacted our production by a combined 12 BCFE relative to our forecast. After a challenging 2022 environment where operations performance was plagued by third-party issues, our teams have resumed peak execution, driving best-in-class performance. Another highlight of the quarter was LOE, which came in at just 8 cents per MCFE and averaged 7 cents per MCFE in the first half of the year. A contributing factor to EQT's peer-leading LOE is our ability to efficiently handle water, which speaks to the benefits from the West Virginia water system that we've invested capital into building over the past several years. As a reminder, our West Virginia water system currently comprises 28 miles of installed water pipes and 250,000 barrels of water storage. Alongside the LOE benefits are percentage of produced water recycled, continues to climb as we target 90% this year, up from roughly 70% in 2020. Our West Virginia water system is an example of our ability to invest capital into projects that have strong risk-adjusted rates of return and add structural resiliency into our free cash flow generation. Specifically, we have invested $80 million into our West Virginia water system to date and have realized $20 million of associated annualized cost savings. implying this investment is generating a highly attractive 25% free cash flow yield. We are currently finalizing plans for similar projects that will facilitate water connectivity between our West Virginia and Pennsylvania assets, which should provide further resiliency and LOE reduction opportunities moving forward. Lastly, we retired $800 million of incremental debt during the second quarter, taking another material step forward towards achieving our balance sheet objectives. We have now retired a total of $1.9 billion of debt since initiating our shareholder return framework in late 2021, which has driven a meaningful reduction in our leverage and was a key enabler of achieving our investment grade credit ratings. Moving forward, we will continue to prioritize debt pay down until achieving our leverage targets as a bulletproof balance sheet ensures that EQT can maximize value creation through all parts of the commodity cycle and provide investors the best risk-adjusted exposure to natural gas. Turning to LNG, as highlighted in our press release, we recently signed an HOA with Lake Charles LNG to supply 1 million ton per annum, or 135 million cubic feet per day, under a 15-year tolling agreement. This deal aligns with our strategy of allocating a portion of the 1.2 BCF per day we have covered via FT to the Gulf to international markets and gives us the flexibility to sell our gas directly to end users globally. We have spent the last year and a half studying the nuances of LNG export opportunities and believe the strategy we are pursuing provides the best combination of upside exposure with downside risk mitigation. Relative to the net back structures that are commonly being signed, EQT is pursuing a more integrated approach with direct connectivity to end users of our gas. This strategy allows us to creatively structure deals with downside price protection, obtain visibility into global downstream markets, and interact with a wide array of potential customers. We plan to pursue signing one or more SPAs with prospective international buyers and have additional opportunities to increase our tolling exposure, though we will remain measured in our approach as we ensure the best risk-adjusted outcomes for EQT. As America's largest natural gas producer, we have played a critical role in providing energy security to the United States while driving significant emissions reductions via coal displacement. Our scale, peer-leading inventory depth, and environmental attributes uniquely position us to facilitate these objectives both domestically and abroad, and we are excited to begin unleashing EQT's reliable, low-emissions natural gas on the global stage. Turning to our recently released ESG report, We received multiple accolades highlighting our ESG leadership over the past year and made continued material progress toward our goal of net zero scope one and scope two emissions by 2025. Some of these accolades include being just one of 14 upstream companies globally to achieve the UN's OGMP 2.0 gold standard, receiving an A grade rating from MIQ for our peer leading methane intensity increasing our msci rating to double a reflecting our esg risk mitigation actions and being named one of the top workplaces in the u.s by energage for the third consecutive year looking specifically at emissions our 2022 scope one and two production segment ghg emissions totaled just 433 000 metric tons which was 20 percent lower year over year and 50 percent below 2018 levels prior to new management taking over at eqt it's worth noting that the bulk of our pneumatic device replacement was completed in the second half of 2022 so 2023 emissions should see a further benefit from this initiative we expect the completion of our pneumatics replacement to further lower our methane intensity from 0.038 percent in 2022 near our 2025 target of 0.02% this year, which is 90% below the one future 2025 target and makes EQT one of the lowest methane intensity upstream producers on the planet. Between increasing operational efficiencies and replacing our pneumatics, we have now reduced our absolute emissions to essentially as low as possible under current technologies. From here, we are preparing multiple nature-based projects to generate our own carbon offsets that will leverage cutting-edge soil probe technology to ensure the quantification of these offsets is accurate and transparent. These projects will help offset our remaining emissions and be a key enabling factor for EQT to become the first energy company in the world of meaningful scale to achieve verifiable net-zero scope one and two emissions. Turning to slide nine of our investor presentation, we commend the House and Senate for passing the Fiscal Responsibility Act, which included the approval of the Mountain Valley Pipeline and begins to address critical permitting reform components. We see the completion of MBP as imperative to addressing increasingly unaffordable and insufficient electricity in the Southeastern United States, while simultaneously allowing the region to achieve its climate goals. Its inclusion in this bill shows that permanent reform is not a political bargaining chip, but instead a necessity recognized by a bipartisan government acting for the good of all Americans. While the recent stay from the Fourth Circuit Court creates some timing uncertainty, we still expect MVP to enter service by the first half of 2024. As it relates to EQT, our capacity on MVP has limited impact to our free cash flow in the near term, assuming current futures strip pricing. That said, the pipeline brings much needed breathing room to Appalachian infrastructure and should lower high line pressures in certain parts of the field that can in turn lessen the risk of system outages moving forward. Longer term, the completion of MVP should catalyze multiple southern expansion projects that will bring gas further into the southeast demand centers where it is critically needed to replace coal-fired power generation and meet the region's climate goals. We believe this will in turn drive better price realizations and materially enhance the value that MVP brings to EQT over the coming years, while simultaneously lowering energy prices for consumers in the Southeast. I'll conclude with a few comments on our pending Tug Hill acquisition. While the transaction has taken modestly longer than we anticipated to close, we continue to work constructively with the FTC and expect we will complete the transaction in Q3. As a reminder, Tug Hill and XCO Midstream bring low-risk, high-quality assets, offsetting our existing acres that should drive an additional 15-cent decline in our corporate free cash flow break-even price, providing even greater resiliency to our business moving forward. I'll now turn the call over to Dave.