EQT Corporation

Thank you for standing by and welcome to the EQT second quarter 2024 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 the star one. Thank you. I'd now like to turn the call over To Cameron Horwitz, Managing Director, Investor Relations and Strategy, you may begin.

Good morning and thank you for joining our second quarter 2024 earnings results conference call. With me today are Toby Rice, President and Chief Executive Officer, and Jeremy Knope, Chief Financial Officer. In a moment, Toby and Jeremy 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 of 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 the factors described in yesterday's earnings release and our investor presentation, the risk factor section of our most recent Form 10-K and Form 10-Q, and then subsequent filings we make with the SEC. We do not undertake any duty to update forward-looking statements. Today's call also contains 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. This week marked a significant milestone in the history of our company as we closed the acquisition of Equitrans Midstream, transforming EQT into America's only large-scale, vertically integrated natural gas business. To put the significance of our combined companies into perspective, EQT's assets now encompass nearly 2 million acres of leasehold, producing more than 6 BCFE per day with almost 4,000 low-cost remaining drilling locations, more than 2,000 miles of gathering lines with greater than 8 BCF a day of throughput. Nearly 500 miles of water lines, 43 BCF of natural gas storage, 800,000 horsepower of compression, almost 950 miles of critical transmission infrastructure, plus the newly commissioned 300-mile Mountain Valley Pipeline, all of which are located at the Gateway of Appalachia and ideally positioned to serve growing U.S. and international natural gas demand for decades to come. This combination creates a differentiated business model among the U.S. energy landscape, as EQT is now at the absolute low end of the North American natural gas cost curve. A low cost structure is the only competitive advantage one can have in a commodity business. And with the closing of Equitrans acquisition, EQT's unlevered free cash flow break-even price is projected to be $2 per million BTU, with further downside potential upon synergy capture. This cost profile structurally de-risks our business in the low parts of the commodity cycle, which in turn eliminates the longer-term need to defensively hedge, thus unlocking unmatched upside to higher price environments. We believe this sustainable cost structure advantage, combined with our scale, peer-leading inventory depth, low emissions profile, and world-class operating team, offers the best risk-adjusted exposure to natural gas prices of any publicly investable asset in the world. I also want to welcome Equitrans employees and shareholders to the EQT crew. We're excited to get to work unlocking the full potential of our combined company's asset base. With the acquisition closing a full quarter ahead of our original timeline, we estimate savings of nearly $150 million relative to our initial underwriting assumptions, even before synergies. We are also able to more rapidly mobilize our integration team, which has a proven track record of turning around EQT and efficiently integrating three large-scale acquisitions over the past several years, including seamlessly onboarding an entire midstream division with the XEL acquisition last fall. This accelerated closing amplifies our momentum and pulls forward our timeline to synergy capture. We have continued to study synergy potential since announcement and have identified further upside potential driven by completion efficiency gains through water asset integration, which is on top of early compression uplift results that are exceeding our high-end synergy assumption. And we plan to share additional details as our teams work through the integration process. Shifting gears, June 14, 2024 marked a historic moment of progress for our country as natural gas began flowing through Mountain Valley Pipeline. The gas moving through this critical infrastructure will provide low-cost, low-emission energy to millions of Americans while strengthening our national security. The upstream development underpinning flows on MVP will generate hundreds of millions of dollars of royalties every year to local communities in the Appalachian region while supporting well-paying private sector jobs. Downstream, the delivery of low-cost Appalachian gas will strengthen the competitiveness of American manufacturers whose energy input costs will be a fraction of the price paid by global competitors, which should further support a manufacturing renaissance in America. MVP will also provide utilities access to cheap, reliable fuel to power America's data center and artificial intelligence build-out, which is one of the strongest secular growth stories in the world. Since announcing the Equitrans acquisition earlier this year, we have fielded significant inbound interest from end users of gas in the region, underscoring the depth of demand in the value of EQT's MVP capacity. MVP's volumes alone are estimated to reduce carbon emissions by up to 60 million tons per year via displacement of legacy coal generation. which, to put in context, is five times the emission reductions associated with Tesla's electric vehicles. In fact, thanks to MBP's completion, EVs in the Southeast region can now run on low-emission EQT gas delivered through MBP, rather than the coal generation powering many of them today. Given the regional exposure, upstream inventory depth, and counterparty quality, we believe MBC is among the most valuable natural gas pipelines in the world, and EQT is honored to be the operator and steward of this critical infrastructure. Turning to second quarter results, we experienced yet another quarter of operational outperformance marked again by incremental efficiency gains. A tangible example of this on a recent Mallory C pad in Lycoming County, Pennsylvania, where our top hold rigs recently drilled the fastest well to kickoff point in EQT history. With the overall average drilling time to kickoff point across the pad being 25% faster than the offset wells we drilled in 2022. This efficiency improvement is resulting in tangible well-cost savings as the average top-hole drilling costs on the Mallory CPAD came in 14% below our pre-drill estimate. Within completions, recent improvements in logistics planning and water throughput have driven materially faster completion times on our latest wells. Our average footage completed per day is up 6% year-over-year thus far in 2024, but our most recent pads implementing new logistics techniques have outpaced our average 2023 completion speed by more than 35%, indicating the potential for material future capital efficiency improvements. Notably, this average excludes a pad we are currently fracking, which to date has seen completed footage per day that is a whopping 120% faster than our 2023 program average and set a new EQT record with more than 3,200 feet of lateral completed in a single day. As I mentioned previously, we believe the integration of EQT and Equitrans water systems can help sustain these completion efficiency improvements as streamlining water logistics is one of the most imperative elements to systematically increasing completed footage per day. Despite efficiency gains accelerating activity into Q2, our second quarter capex still came in below the midpoint of our guidance range, highlighting how operational efficiency gains are driving tangible per well cost savings. Alongside well-cost savings, we are also seeing strong well performance across our asset base, which drove upside to our second quarter volumes despite price-related curtailments. As shown on slide six of our investor deck, this represents a continuation of the track record of productivity gains that have been a hallmark of EQT since new management took over in 2019. Over this period, third-party data shows we have seen a nearly 40% improvement an average EUR per lateral foot, while most of our peers have seen productivity degradation as core inventory is exhausted. As a result, EQT is now generating the highest average EUR per foot of any major operator across the Appalachian Basin. I also want to highlight this productivity improvement has come despite a material increase in field pressures across Equitrans' gathering system over the same period, which essentially makes it more difficult to flow our wells. We see significant upside from investing in compression to lower system pressures, which in turn should further improve well productivity and further reduce our upstream maintenance capital requirements in future years. On slide 7 of our investor deck, we highlight data from three recent infield examples showing how impactful adding compression and lowering line pressure can be on existing wells. After lowering system pressures by approximately 300 psi, we saw per-well production rates immediately jump by roughly 50% on average across the three projects. Over the first 12 months post-pressure reduction, we forecast cumulative production gains ranging from 18% to 27%, which in effect lowers our base PDP decline rate and we believe will translate to higher EURs per well. Notably, the average production uplift from these projects is approximately two times more than what we assumed in our $175 million per annum of upside synergies with the E-Train deal, indicating potential for even more positive benefit than we originally expected. These concrete examples underscore the impact of adding compression to lower system pressures on thousands of producing wells that comprise EQT's base production. This uplift on base volumes should in turn allow us to drill and complete fewer wells to maintain production, driving sustainable improvements in long-term capital efficiency. We are currently in the process of identifying optimal compression locations across the E-Train system and expect the tailwinds from lower maintenance capital to begin accruing in 2026. Turning to our recent ESG report, I am proud to highlight that we took another material step forward towards our ambitious environmental goals as our 2023 Scope 1 and 2 legacy production segment greenhouse gas emissions declined by 35% year-over-year to approximately 281,000 tons. We have now reduced our historical scope one and two production emissions by nearly 70% over the past five years and are squarely on track to achieve our ambitious and peer leading net zero goal by 2025. From an emissions intensity perspective, we achieved our 2025 greenhouse gas emissions intensity goal of 160 tons per BCFE, a full year ahead of schedule. Looking at methane, after significantly outperforming our pneumatic device replacement timeline, the methane intensity from our production operations is now 0.0074%, which is more than 60% below our 2025 goal and 97% below the one future 2025 target, making EQT among the lowest methane intensity producers of natural gas anywhere in the world. With that, I'll now turn the call over to Jeremy.