EQT Corp Q2 2024 Earning Call Summary

1. Production and Curtailments:

   • EQT Corporation reported operational outperformance with increased efficiency in drilling and completion activities, leading to lower-than-expected well costs. Despite price-related curtailments, the company achieved higher-than-anticipated production levels in Q2 2024, producing 508 Bcfe, which was above the high end of their guidance.

   • EQT curtailed 1 Bcf per day of gross production during most of Q2 due to low natural gas prices. The management anticipates continuing strategic curtailments, with 90 Bcfe of expected curtailments in the second half of 2024. These curtailments are expected to impact storage levels in the Eastern U.S. as the injection season ends.

2. Forecast and Inventory:

   • The company has improved its efficiency in well completions, with some pads showing significant reductions in drilling times and costs. This efficiency, combined with a deep inventory of high-quality drilling locations, positions EQT favorably for future production. Management noted a nearly 40% improvement in average EUR per lateral foot since 2019.

   • EQT's acquisition of Equitrans Midstream has enhanced its integrated model, providing additional capacity through the Mountain Valley Pipeline (MVP), which began flowing gas in June 2024. This pipeline is expected to provide low-cost gas to the Southeast U.S., potentially tightening local Appalachian pricing due to reduced supply to Eastern storage.

3. Hedging and Financial Strategy:

   • Management highlighted that their low-cost structure, enhanced by the Equitrans acquisition, reduces the need for defensive hedging, allowing them to capitalize on higher price environments. However, to support their deleveraging plan, they have hedged approximately 60% of their production for the second half of 2024 and the first half of 2025 at average floor prices of $3.30 and $3.20 per MMBtu, respectively.

   • The company is focused on deleveraging its balance sheet, with plans to reduce long-term debt to between $5 billion and $7 billion. This is supported by asset sales and increased hedging to manage financial risk.

4. Pipelines and LNG Projects:

   • The Mountain Valley Pipeline (MVP) is a critical infrastructure asset that is expected to generate significant benefits for EQT, including enhanced market access and reduced pressure on Appalachian gas pricing. Management is exploring the possibility of expanding MVP to meet growing demand, particularly from the Southeast U.S.

   • The company is also considering the sale of a minority interest in Equitrans' regulated assets, which could generate additional capital while retaining operational control.

Q&A Session:

1. Production and Curtailment Strategy:

   • During the Q&A, management reiterated that production remains in maintenance mode, with expectations for continued strategic curtailments based on market conditions. They emphasized flexibility in response to natural gas prices and noted that recent improvements in operational efficiency support their ability to adjust production levels dynamically.

   • There was also discussion about the potential for reduced capital spending once the current round of compression and system optimization projects are completed, which could further enhance production efficiency and reduce costs.

2. Hedging Approach:

   • The Q&A highlighted that beyond 2025, EQT may not need to hedge aggressively due to its low-cost structure and integrated model. The company plans to adopt a more opportunistic hedging approach, potentially hedging up to 20% of production if necessary, but with a preference to capture upside in a volatile market.

3. Pipeline and LNG Expansion:

   • Management discussed the timing and strategy for expanding MVP, indicating that while they are eager to pursue this expansion, it will be aligned with broader market demand and infrastructure readiness. They also acknowledged the strong pricing dynamics in the Southeast U.S., which could accelerate plans for expansion.

   • The potential sale of a minority interest in MVP was discussed, with management noting that while this would reduce EQT's cash flow from midstream operations, it would also support their deleveraging goals.

4. Impact of Macro Factors:

   • Management was questioned about the impact of macroeconomic factors, including LNG project timelines and potential changes in natural gas demand due to economic shifts. They acknowledged the importance of these factors in their planning but emphasized their focus on maintaining flexibility and operational efficiency to navigate potential market fluctuations.