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    EQT Corp (EQT)

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    Business Description

    EQT Corporation is a leading natural gas production company in the United States, primarily operating in the Appalachian Basin with a focus on the Marcellus and Utica Shales. As the largest producer of natural gas in the country, EQT holds approximately 27.6 Tcfe of proved natural gas, NGLs, and crude oil reserves as of December 31, 2023 . The company generates revenue through the sale of natural gas, NGLs, and oil, and operates through three main segments: Production, Gathering, and Transmission . EQT's operational strategy emphasizes combo-development projects to enhance operational and capital efficiencies .

    1. Production - Involves the sale of natural gas, NGLs, and oil, contributing significantly to the company's revenue.
    2. Gathering - Includes pipeline revenues and volumetric-based fee revenues, supporting the transportation of natural gas.
    3. Transmission - Facilitates the movement of natural gas through transmission pipelines, adding to the company's service offerings.

    Q2 2024 Summary

    Initial Price$37.33April 1, 2024
    Final Price$36.69July 1, 2024
    Price Change$-0.64
    % Change-1.71%

    What went well

    • EQT is experiencing significantly higher pricing at Station 165, averaging $0.50 to $0.70 above M2 pricing, compared to the $0.20 premium they had modeled, indicating strong demand and positive market dynamics.
    • EQT's Estimated Ultimate Recoveries (EURs) are improving, while peers' EURs are declining due to core inventory depletion, giving EQT a competitive advantage with high-quality inventory depth.
    • Reshoring of manufacturing and energy security concerns are expected to drive industrial demand growth, particularly for in-basin natural gas products, benefiting EQT's long-term demand outlook.

    What went wrong

    • EQT's decision to significantly reduce hedging beyond 2025 exposes the company to heightened commodity price volatility risk, which could negatively impact cash flows if natural gas prices decline.
    • Political discussions around banning hydraulic fracturing present a significant regulatory risk, as 98% of wells in the U.S., including EQT's operations, rely on this technique; a ban could lead to substantial production declines.
    • Ownership of regulated assets like MVP may present challenges, and EQT acknowledges that they may reevaluate the ownership of such assets in 5 to 10 years, indicating potential uncertainty in long-term strategic asset management.

    Q&A Summary

    1. Capital Spending Reduction
      Q: Will run-rate capital drop below $2B with synergies?
      A: Yes, with the synergies and compression benefits, our run-rate capital spending could fall under $2 billion, simplifying our capital needs.

    2. Hedging Strategy Post-Acquisition
      Q: How will E-Train deal affect hedging plans?
      A: In the near term, we're focused on debt reduction through 2025. Beyond that, the E-Train acquisition provides a structural hedge, reducing the need to hedge at all. If we do hedge, it will be minimal, perhaps 20% at most.

    3. Production and Curtailment Outlook
      Q: Will you maintain current production levels?
      A: We plan to keep production in maintenance mode, targeting 550 to 600 Bcfe per quarter, depending on the quarter, assuming no significant curtailments due to market conditions.

    4. Debt Reduction Plans
      Q: Will you reduce gross debt with asset sales?
      A: Yes, proceeds from selling minority interests in our regulated assets will be used to reduce debt. Our initial target is to reduce debt to $7.5 billion by the end of 2025.

    5. Capital Budget and Compression Projects
      Q: How does compression spending affect capital budget?
      A: We plan to invest a few hundred million dollars in compression projects over the next couple of years, starting in about 12 months. These projects offer superior returns, potentially 2.5× to 3× at $3 gas.

    6. Impact of MVP Pipeline
      Q: How is MVP affecting market dynamics?
      A: With MVP online, we've seen stronger pricing than expected, with premiums of $0.50 to $0.70 above M2 and periods over $1. Production remains flat, with no signs of increased activity from other producers.

    7. Supply/Demand Outlook for 2025
      Q: What's the gas market outlook for 2025?
      A: We are monitoring production levels and LNG developments. If production surges or LNG projects are delayed, it could create headwinds. However, at $2.75 gas prices, we still generate over $1 billion in free cash flow.

    8. Expansion of MVP Pipeline
      Q: When will you expand MVP?
      A: We aim to pursue the MVP expansion as soon as possible, aligning with market demand and necessary regulatory steps. The net cost to EQT would be around $200 to $250 million.

    9. Cash Flow Profile Post E-Train Sale
      Q: Will midstream cash flow percentage change?
      A: Selling down interests may reduce the midstream cash flow percentage slightly, but it's already factored into our leverage outlook. Gas prices will also influence this percentage.

    10. CapEx Guidance and Operational Efficiencies
      Q: Are completion efficiencies reflected in CapEx?
      A: We've included some efficiency gains in our 2025 plan, but many benefits are not fully baked in yet. As we see more results, we expect capital costs to potentially decrease further.

    11. Ownership of Regulated Assets
      Q: Why retain regulated assets ownership?
      A: Owning regulated assets like transmission and storage systems is integral to managing our gathering systems and maintaining operational control, which enhances our ability to capture value.

    12. Risks of Future Curtailments
      Q: Could shut-ins return next year?
      A: We don't plan for shut-ins proactively; it's a response to market conditions. If prices fall, we may curtail production to optimize value.

    13. Industrial Demand Outlook
      Q: What's the outlook for industrial gas demand?
      A: Reshoring of manufacturing should continue, supporting steady industrial demand growth. However, we don't see major catalysts that would dramatically increase demand forecasts.

    14. Political Risks
      Q: What election issues concern you?
      A: Energy policies that threaten operations, like banning hydraulic fracturing, are concerning. Such policies could reduce U.S. production by 35%, leading to negative impacts on consumers and the economy.

    15. Impact of Ownership Change on Curtailments
      Q: Does owning midstream change curtailments?
      A: Owning the midstream gives us more flexibility to curtail when market pricing doesn't meet our thresholds, without concerns over midstream obligations.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Toby Z. RicePresident and Chief Executive OfficerJuly 10, 2019Toby Z. Rice has been serving as the President and CEO of EQT Corporation since July 10, 2019. He was previously a Partner at the Rice Investment Group and held executive roles at Rice Energy Inc. .
    Jeremy T. KnopChief Financial OfficerJuly 2023Jeremy T. Knop was appointed as CFO of EQT Corporation in July 2023. He previously led EQT's mergers and acquisitions strategy and worked at The Blackstone Group in various roles on the energy credit team .
    Todd M. JamesChief Accounting OfficerNovember 2019Todd M. James became the Chief Accounting Officer of EQT Corporation in November 2019. He was previously the Corporate Controller and Chief Accounting Officer at L.B. Foster Company and held roles at Rice Energy Inc. .
    Tony DuranChief Information OfficerJuly 2019Tony Duran has been the CIO of EQT Corporation since July 2019. He founded PH6 Labs and was the CIO at Rice Energy Inc. before joining EQT .
    Lesley EvanchoChief Human Resources OfficerJuly 2019Lesley Evancho has served as the Chief Human Resources Officer at EQT Corporation since July 2019. She previously held roles at Westinghouse Electric Company and Thermo Fisher Scientific .
    William E. JordanExecutive Vice President, General Counsel, and Corporate SecretaryJuly 2019 (General Counsel), November 2020 (Corporate Secretary)William E. Jordan was appointed as EVP and General Counsel in July 2019 and became Corporate Secretary in November 2020. He was an advisor to the Rice Investment Group and held roles at Rice Energy Inc. .
    Vicky A. BaileyBoard MemberJuly 22, 2024Vicky A. Bailey is a director on the board of EQT Corporation, appointed as one of the Equitrans Designees following the merger between EQT and Equitrans .
    Thomas F. KaramBoard MemberJuly 22, 2024Thomas F. Karam is a director at EQT Corporation, appointed as one of the Equitrans Designees following the merger between EQT and Equitrans Midstream Corporation .
    Robert F. VagtBoard MemberJuly 22, 2024Robert F. Vagt was appointed to the EQT Board of Directors as part of the merger agreement between EQT Corporation and Equitrans Midstream Corporation .

    Questions to Ask Management

    1. With the Equitrans acquisition increasing your pro forma gross debt to approximately $13.5 billion, how do you plan to manage and reduce this significant debt level while balancing operational investments and shareholder returns?

    2. You mentioned plans to curtail approximately 90 Bcf of production in the second half of the year, primarily in September and October; how will these curtailments impact your cost structure and long-term production strategy, and what factors might lead you to adjust your curtailment plans?

    3. Given your projection of an unlevered free cash flow breakeven price at $2 per MMBtu post-acquisition, can you elaborate on the assumptions underlying this projection and how sensitive it is to potential increases in operational costs or changes in natural gas prices?

    4. You've stated that beyond 2025, you do not anticipate the need to hedge due to the structural hedge provided by the Equitrans acquisition; can you explain how this structural hedge effectively mitigates your exposure to natural gas price volatility, and what risks might still exist?

    5. As you integrate Equitrans' regulated assets and plan to maintain operational control while pursuing a minority equity sale, what challenges do you anticipate in operating these regulated midstream assets, and how will you address potential regulatory and operational risks to ensure synergies are fully realized?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateDecember 13, 2021
    End Date/DurationDecember 31, 2024
    Total additional amount$2 billion
    Remaining authorization$1.4 billion
    DetailsOpportunistic approach to shareholder returns, aiming to generate returns well in excess of the weighted average cost of capital.

    Past Guidance

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Second half of 2024 (Q3 2024 and Q4 2024)
    • Guidance:
      1. Capital Expenditure:
        • 2025 capital budget: $2.3 billion to $2.6 billion.
        • Long-term capital spending: $2.1 billion to $2.4 billion per annum .
      2. Production Guidance:
        • Second half of 2024 production assumes 90 Bcfe of curtailments .
      3. Operating Expenses:
        • Cash operating expenses: $1.10 to $1.25 per Mcfe .
      4. Debt and Deleveraging:
        • Long-term debt target: $5 billion to $7 billion .
      5. Free Cash Flow:
        • Cumulative free cash flow (2025-2029): $16.5 billion .
      6. Hedging:
        • Approximately 60% hedged in the second half of 2024 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024
    • Guidance:
      1. Production Guidance:
        • Curtailment of 1 Bcf per day through May 2024 .
      2. Hedging:
        • 40% to 50% hedged for 2024, floor price: $3.40 per MMBtu .
      3. Cost Structure:
        • Cost structure improvement: $0.50 per Mcfe .
      4. Free Cash Flow Breakeven Price:
        • Breakeven price: $2 per MMBtu .
      5. Debt Reduction:
        • Use cash balance and Equinor deal proceeds for debt reduction .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Production Guidance:
        • Annual production: 2,200 to 2,300 Bcfe .
      2. Maintenance Capital Budget:
        • Budget: $1.95 billion to $2.05 billion .
      3. Strategic Growth Projects Investment:
        • Investment: $200 million to $300 million .
      4. Transmission Expense:
        • Expense: $0.42 to $0.44 per Mcfe .
      5. Gathering Rates:
        • Rates: $0.52 to $0.54 .
      6. Corporate Differential Guidance:
        • Differential: $0.50 to $0.70 .
      7. Hedging:
        • Hedged production with floor prices ranging from $3.39 to $3.87 per MMBtu .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain information from the Q3 2024 earnings call for EQT, so the guidance metrics and period are unavailable.