Expand Energy - Q4 2025

Transcript

Operator (participant)

As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Colby Arnold. Sir, please begin.

Colby Arnold (Investor Relations Manager)

Thank you, Howard. Good morning, everyone, and thank you for joining our call today to discuss Expand Energy's 2025 Fourth Quarter and Full Year Financial and Operating Results. Hopefully, you've had a chance to review our press release and the updated investor presentation that we posted to our website yesterday. During this morning's call, we will be making forward-looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections, and future performance, and the assumptions underlying such statements. Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our press release yesterday and in other SEC filings.

Please recognize that, except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements. We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers. For any non-GAAP measure, we use a reconciliation to the nearest corresponding GAAP measure and can be found on our website. With me on the call today are Mike Wichterich, Josh Viets, Dan Turco, and Brittany Raiford. Mike will give a brief overview of our results, and then we will open up the teleconference to Q&A. With that, thank you again, and I will now turn the teleconference over to Mike.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Thanks, Colby, and good morning. I'd like to start out by talking about 2025. I think we had a really phenomenal execution year. I mean, we have 15% reduction in our breakevens in the Haynesville. That is very difficult to do. The team should be sort of congratulated on that. It's sort of phenomenal. It doesn't just help our reinvestment rate, it also helps our inventory. You'll notice in the deck, we've moved locations over to the left, getting closer to the lower breakevens. I think that is a real tribute to the team. When we did the Southwestern merger, we focused on reducing debt. We're fulfilling that promise this year. We've reduced debt, but we also returned a lot of money to our shareholders, and we've continued to think that's a good, a good way for the company to continue. Volatility.

Look, we're seeing volatility in gas prices today. You've seen it all quarter. We believe in hedging, and our hedging program has been effective. We have $200 million in gains this year, but I mean, just look at today's prices, and we're glad we have them. You'll see we're very active this quarter. What I like about the 15% break-evens in the Haynesville is you know they're real, and they know they're real, because when we talk about 2026, we've reduced our maintenance capital. That absolutely is a proof positive that the team is working, and it's working well. 2026, we'll continue to do our buy-down of debt. We'll also consider shareholder returns, as we always have. Big news, of course, is the change that we made last week.

That is really a reflection of the changing natural gas business. We believe the world has fundamentally changed in natural gas. We're seeing a tremendous growth in demand. We're seeing 35%-40% in the next five years. This move is absolutely trying to address, address that reality. Today, our marketing business, while we think about it, is in sort of three buckets. The first bucket that we consider is: how do we get our gas to premium markets? This has been a goal for the company, from the very beginning last year. When we started in Chesapeake in 2021, we had our goal of moving these numbers. It was, at the time, we're almost all in basin sales. Today, we're close to 50%. We feel good progress has been made.

The second leg of marketing is we need to take care of volatility. We live in a very volatile gas market. We know that. So by hedging, by doing storage transactions, this helps us capture, help us in the low price environments, which we always are concerned about. It's about discipline. Hedging is about that. Our third, which we have not made as much progress and we're disappointed in and we expect to do better, is we need to capture and facilitate new demand. We need to get our fair share of this market. Our team has done some good stuff. We saw the LNG deal this year, but we have not done enough, and we're sort of taking that challenge, and that is really some of the fundamental reasons why we're moving to Houston.

In order to participate in that market, you can see you have to sort of compete on our trading side of our business or our marketing side. We're not the only ones who are saying this. I mean, you see, wellhead to water, you see wellhead to watts. We have to think beyond the wellbore. We have to say it's not good enough anymore to just drill great wells. We have to compete on the marketing side of our business. What is the size of the prize? Been asked many times about that. I think the size of the prize we're chasing is $0.20. We're looking for improved realizations across our business. We think that will make us competitive and a better energy company. These changes, as all changes, you have some things that are unfortunate. Obviously, our senior leadership has changed.

That does not change our mission. It does not change our strategy, but what you're seeing is a change in tactics and focus. That we have a new business, we have to spend time on that business. What's not changing? Our operations have been great. Look at the results. We're not changing our leadership. We're not changing even our location. We plan to stay in Oklahoma City with our ops team. Josh is still leading that group, and we don't expect to have changes there because, frankly, it works. And so we don't do things that don't work. So when you think about us, our sort of mantra is: our foundation is in place, our strategy is clear, opportunity set is huge.

It is time for us to act, and so we're talking about urgency, we're talking about competitiveness, and so all we need to do to be successful is execute. With that, we'd like to turn it over to questions.

Operator (participant)

Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star one one again. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Neil Mehta from Goldman Sachs. Your line is open.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

Yeah, good morning, Mike. Morning, team. Thanks for taking the time. Mike, appreciate some of the color that you provided around management change. Maybe you could talk about the characteristics you and the board are looking for in that next CEO and any thoughts on, on timing, how long you think the search could take?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Sure. Thank, thank you for the question. We're looking for a leader who has a bigger view of energy, will be an energy person, but someone who's going to continue our mission to look beyond the well head. That is, someone who thinks about the whole value chain, and including we need to get closer to customers, not just here in the U.S., we need to get customers—closer to customers in Europe. So it's someone who's a sort of a bigger, bigger view of the energy industry as a whole. How long does it take? Well, we've done the search before for a CEO. It took about six months. This is a bigger, more complicated company. I wouldn't be surprised if it went to nine months, but call it six is sort of the goal.

I'll tell you, I'm committed to find the right person, and I will be here until that occurs.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

Okay, that's, that's really helpful. And then as you talk about marketing, can you talk about the quantification of the uplift in cash flow or realizations that you think could happen if you optimize the commercial side of the business? And one case study could be Fern. Did you guys capture all the upside that you think you could have in that event? And if you had a more robust marketing effort, do you feel like you would have done even better?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Well, I think all energy companies and gas companies are moving towards more marketing because we can no longer give away margin to the guys in between us, the marketers. So number one, our first goal is premium markets. We're starting to see a little bit of results this year on that. I expect that to be the near-term catalyst for us to increase our realizations across our portfolio. That will move into 2027. I think volatility, I mean, especially when prices are low, storage is phenomenal. Volatility is high. Storage, it will be very helpful. Moving our gas to premium markets, whether it be Gillis or to Perryville, has been very helpful. Those are sort of the near-term ways to help our margins right away, to go get that $0.20.

A little bit longer, let's call it three-five years, we have to do more LCM deals. I mean, to facilitate demand, generally, that has to do with building something, building a plant, building a facility of some sort. So they take a little bit longer, but that is really the future. We're really fighting for years three-five. Again, goal is $0.20. $0.20 improved realization is obviously very material to our margin, and we think we can make it there.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

It's about $500 million in EBITDA, right?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

That's what we're talking about.

Josh Viets (EVP and COO)

Yeah. And then, Neil, hey, just on... You asked about, you know, Winter Storm Fern. I mean, I think your question around, you know, what are you going to be able to do with the integration of, you know, the operations that we have with the marketing commercial business, and all those things have to work in tandem. But, you know, I think just, you know, talk about that entire value chain and starting with the operations. You know, those operations have to hold up, you know, when you have these types of weather events. And of course, it really is going to depend on the, you know, the type of weather that we incur.

You know, in the Northeast, really across our entire Appalachian region, the operations held up incredibly well and performed, you know, incredibly strong, you know, through the weather events. In fact, the other thing I'll just point out, in Northeast Pennsylvania, we were actually peaking out on our production levels, as we headed into January. So, you know, again, just thinking about the flexibility of our business there. You know, in the Haynesville, you know, that was a little bit different of a challenge. We had over an inch of ice accumulate on roads, and that simply was detrimental to the power infrastructure, as well as our ability to manage water across the asset.

So definitely a little bit of a different situation there that had some impact on our volumes across that time period. But we absolutely know that in order for us to you know realize these aspirations, the entire value chain has to work, and that includes our operations that has to include our marketing commercial business. And then it also implies that we have to you know gain additional access to infrastructure you know further down the value chain.

Operator (participant)

Thank you. Our next question or comment comes from the line of Matthew Portillo from TPH. Mr. Portillo, your line is open.

Matthew Portillo (Partner and Head of Research)

Good morning, all. Maybe just to follow up on the marketing front, it feels like, and I know you lay it out in your slide deck, but it feels like there's been a pretty significant shift in a constructive way in the supply-demand balances for natural gas on the Gulf Coast. I was curious if you might be able to discuss at a high level, how you think the demand, dynamics have been changing, and if there's any shift in your conversations for contract tenor, but also pricing dynamics for offtake agreements, whether it be LNG players, utilities, or industrial consumers around Louisiana and Texas.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yeah. I'll start and let Dan finish. You know, really high level, we're definitely seeing the Gulf Coast be very active. It is a unique area. Of course, it's 50% of our production where it is. We're seeing gas on gas demand. We're seeing that end-use customers want to be closer to wellhead, and so we think that is going to go into our favor. And you can see others talking about this as well. We're not the only ones. You know, in the Northeast, of course, that's a power market, and it's a little different. It's actually having some. Of course, with Virginia and the data centers built, it's a little bit different market. Generally think that there's more diversity in the Gulf Coast, but Dan, you should add additional color.

Dan Turco (EVP of Marketing and Commercial)

Yeah, thanks, Matt. I think you've nailed it. The Gulf Coast is a place where we're seeing growing demand. If you look at the entire United States, we're seeing about 25 billion cubic feet a day of gas demand coming online. A lot of that, half of that is coming from the LNG, and that sits right in our backyard, right where our Haynesville asset is and right where our pipeline capacity gets down to Gillis. And, somebody asked me the other day: How do I feel about this market? And I said, "I've been around this market for, like, 25 years, and the first time we're getting tons of imbalance, people looking for that security supply that you referenced." So the team is out there working, working all these deals, trying to do something better.

As Mike pointed out, you know, this opportunity set is huge, and we're accelerating what we're trying to do here and grow and further expand down the value chain. And where we're set up, our Haynesville asset, Gillis, and that demand is quite unique for us. Not only the Louisiana side of the border, the Texas side of the border is growing as well. There's a unique aspect going on between Texas and Louisiana, just with the amount of demand growth. People talk about the Permian a lot. The Permian will grow into these markets, but of course, Texas is growing substantially as well as Louisiana, and the ability to get from interstate pipelines across the border to meet that demand is also a little bit challenged. So we're set up quite well here to go and capture all this demand.

Matthew Portillo (Partner and Head of Research)

Great. And then maybe a question for Josh. One thing we've noticed on the macro side is the industry has continued to accelerate kind of the rig count in the Haynesville, but more of those rigs are making their way to East Texas, and then in the core of the basin, some of your peers are starting to face degradation on their well results. I guess, Josh, as we look at your well data, and then also, I guess, the slide you laid out on page 12, just curious how you think about Expand's productivity trends in the Haynesville over the next few years and how that might contrast to the industry as a whole?

Josh Viets (EVP and COO)

Yeah, thanks for the question, Matt. I mean, the reality is the inventory that we carry in the Haynesville is just simply unmatched. It's both in terms of depth and quality. You know, you see that, you know, show up in a number of different spots. And then you combine that with, you know, what is a, you know, 15-plus-year history of operating the basin, and so that simply leads to operational excellence. And then at the end of the day, you know, that's gonna show up in the break-even of our inventory. You know, we're just in one year alone, we've been able to add the five years of inventory below $3.50.

And so, yes, though we've seen, you know, roughly 10 rigs added to the Haynesville, you know, those 10 rigs that are being added, you know, by no means, you know, make any comparison to, you know, a rig that we might choose to add. In fact, if you reference slide 30, you know, you'll, we've, you know, characterized there, you know, what over a two-year time period of production of our rigs able to generate relative to an average rig in the industry. So, you know, the things that we're continuing to be focused on, of course, is operational excellence and continuing to, you know, manage the, you know, the way at which we drill our wells, and that's primarily around, you know, how we manage temperature. And then the other differentiator for us is, of course, how we source sand.

Not only that, that is lowering the input cost, but it's simply allowing us to optimize a better economic outcome by increasing profit intensity and driving our well productivity higher. That's not about IPs. I'll just note, that's really about, you know, changing the decline parameters of the well, which again, translates to value at the end of the day.

Operator (participant)

Thank you. Just a second. Our next question or comment comes from the line of Doug Leggate from... so he's standing by. Here we go. Doug Leggate from Wolfe Research. Mr. Leggate, your line is open.

Doug Leggate (Managing Director and Senior Research Analyst)

You had me on pause there for a minute. Thank you so much. Good morning, guys. Mike, I wonder if I could ask two quick things to the extent you're able to answer them. There's a lot of focus, obviously, on your break-even. When you and I have chatted, it's been. It's almost like you've kind of laser-focused on how you get this break-even down. Some of your peers have obviously taken different routes on this, whether it be greater liquids mix, introducing midstream, deleveraging. I'm wondering, to the extent you can share your vision for how Expand gets that break-even down, given the proportion of dry gas you have. That's my first one.

My second one is you've called the 2029 bonds and big note, obviously. I'm wondering if this is defining a different priority for the use of cash in terms of balance sheet over buybacks, and I'll leave it there. Thank you.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yeah. Great. Thanks, thanks, Doug. A couple things. I do think we focus a lot on breakevens, but we also need to focus on our total financial picture, including earnings per share. Obviously, we're making a big dent in our debt. We think that actually helps. That's one way to do it. But we're also thinking about marketing. It's a top line. You know, we have to have the margin get better. And so I think we're trying to squeeze this number anyway. We're fighting for pennies. We know we're fighting for pennies as an industry, and so you sort of have to use the whole tool chest to get that done. And so between debt reductions, between...

I think you've noticed this last couple of years, we've made pretty good synergy adjustments and like G&A and not just our business, and so, we hope marketing will be the next leg of that. As far as, you know, paying down debt versus buyback shares, of course, we like to do both. We've done both this year. We continue to do both, but we're in a very volatile commodity business, and with that, having a non-negotiable of a fantastic balance sheet comes first. And so that's why you're seeing our priority to pay down debt. I think we'll lean into that. We'd like to be a little bit less prescriptive on our buybacks. I think it's a terrible policy to tell the market exactly when we're buying back shares and when we're not. We want to be smart about it....

So but first, first deal is balance sheet first, and so that's why you'll see us focus on that. And I think that's also, again, great for EPS, which is important.

Doug Leggate (Managing Director and Senior Research Analyst)

Mike, well, if I could just add a quick follow-up there. I wonder, does M&A come into the picture here in terms of resetting that breakeven? Again, midstream and liquids-

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yeah.

Doug Leggate (Managing Director and Senior Research Analyst)

is kind of what I'm driving at here. What, what would you say to that?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Well, I'd say we're very actively look at every potential party in it, the basins that we operate, and some of those have liquids. But the more important part of that question is you have to have discipline. I'd say this year we looked at a lot of transactions, and we passed on a lot because it starts with our non-negotiables. Our non-negotiables is balance sheet, it's accretion, and sometimes, you know, this year, gas price was pretty high, and so those deals weren't that attractive. But if you were asking about liquids and helping margin, is that a possible answer? It is. It is.

Doug Leggate (Managing Director and Senior Research Analyst)

Great. Appreciate the comments. Thanks so much.

Operator (participant)

Thank you. Our next question or comment comes from the line of Kevin MacCurdy from Pickering Energy Partners. Mr. MacCurdy, your line is now open. Mr. MacCurdy, you may need to unmute your phone.

Kevin MacCurdy (Managing Director in the Research Team)

Sorry about that. Good morning, and thank you for taking my question. I wanted to ask about your maintenance CapEx, and specifically slide six. It looks like there were some improvements to your maintenance capital, compared to last quarter, although the guidance didn't change, if I'm reading that correctly. And I also noticed that there were three production levels bolded on the left-hand side there, 7.25 Bcf-7.75 Bcf. A range a little bit wider than your 2026 guidance. Is there anything to read into that, as well?

Josh Viets (EVP and COO)

Yeah, Kevin. I mean, I think the first thing is, I think, just to reemphasize the improvement that we've seen in our maintenance CapEx. I mean, if you were to go back to a year ago and look at this slide, it would've been $225 million higher to deliver the 7.5 Bcf a day. So first, I think just acknowledging that the business has gotten stronger, and that's reflected here. So you know, you will see that, you know, our, our program does have the ability to still be incredibly efficient from a free cash flow generation standpoint, up to 7.75 Bcf a day.

But one of the things that I think is incredibly important to, you know, recall, and really what is underwriting this slide, is a view on mid-cycle price, and that view on mid-cycle price remains unchanged from $3.50-$4. $0.50 for us is a pretty big range. And so one of the things we really want to continue to be, you know, focused on is maintaining a level of flexibility in the business and therefore, how much we produce in any given month or across a given year based upon how we see those prices trend. And so in certain instances, that might cause us to push volumes a little bit higher.

But as we see, you know, the market, maybe there, you know, turn a little bit bearish, whether that's shorter term or even longer term, you know, we wanna have the ability to flex that, you know, flex those volumes.

Kevin MacCurdy (Managing Director in the Research Team)

Thank you for that. For my second question, your budget outlines $75 million for the Western Haynesville this year. Can you talk a little bit about how that program will progress, when you'll be drilling, and what you're looking for in results?

Josh Viets (EVP and COO)

Yeah, Kevin. Josh, this is Josh again. On that, you know, we have roughly 2.5 wells scheduled. There's a little bit of carry-in and carry-out capital, though, you know, take place across the year. We've just finished drilling the first well that was a horizontal well. Those operations went incredibly well. In fact, when we benchmark our performance, both in terms of days and cost, we're at the very low end of what we've seen from some of the bigger competitors in the Western Haynesville, so feel really good about that. That well is being completed as we speak, and we expect first production, you know, sometime in late Q1, early Q2. You know, really there, you know, we're obviously gonna be interested in longer-term decline parameters there.

You know, there, we know the reservoir is there. We know it's, you know, highly saturated with overpressure gas, but understanding those decline characteristics will be really important. For the rest of the year, we have, again, roughly, you know, two additional wells that we plan to drill, and those are really gonna be, you know, centered around helping us appraise kind of the full extent of the acreage position that we've put together there.

Kevin MacCurdy (Managing Director in the Research Team)

Thanks, Josh.

Operator (participant)

Thank you. Our next question or comment comes from the line of Scott Hanold from RBC Capital Markets. Mr. Hanold, your line is open.

Scott Hanold (Senior Energy Equity Research Analyst)

Yeah, thanks. You know, I'd like to maybe key off something, you know, Mike, you had said in your overview, and one of the things you kind of mentioned is that, you know, you wanna look to just can't give away margin to the middleman. As you step back and think about that, would that also contemplate looking at more of an integrated operations, you know, such as going out and actually owning midstreams to be more integrated? Does that help the effort? Is that a possible avenue you'd be willing to look at?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yeah, I think generally speaking, we're focused more on partnerships with midstream companies. We are looking at stuff like momentum that we've done in the past. We're looking... And actually, and, LNG deal has a momentum component on it. So I imagine this is more partnerships. We have to get our gas to premium markets. It's unrealistic to think we're not going to have to deal with some sort of transportation to get there. We'd like to be part of that equation. So I think it's that, more than just going out and buying gathering systems. I'm not sure that would be really helpful for us. So we have to get to end-use customers. So yes, integrated, but maybe think about that in a partnership way.

Scott Hanold (Senior Energy Equity Research Analyst)

Okay, understood. Appreciate the context. And then if I could ask, you know, on cash taxes, surprised that, you know, the minimum model cash tax that you're looking at this year. Can you give us a sense of, you know, what drove that? Is that part of the OBBBA from last year? And, you know, do you have any kind of visibility over the next couple of years where that cash tax rate might go?

Brittany Raiford (VP, Treasurer, and Interim CFO)

Yeah, Scott, this is Brittany. So you're absolutely right. It is the benefit of the OBBB, and we saw that last year and seeing the benefit of it this year. So we do expect to be a full cash taxpayer probably in the back part of the decade, and so I'd expect us to stairstep our cash tax increase, you know, throughout the next couple of years to be a full cash taxpayer, probably later, closer to 2030.

Scott Hanold (Senior Energy Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. Our next question or comment comes from the line of Zach Parham from JPMorgan. Mr. Parham, your line is open.

Zach Parham (Executive Director and Equity Analyst)

I wanted to follow up on Matt's question earlier. In the slide deck, you highlighted an increase in your first year CUMs that you expect from the Haynesville in 2026. Can you talk about that a little bit? What drove that expected increase, and if you see that as sustainable going forward?

Josh Viets (EVP and COO)

Yeah, good morning, Zach. Yeah, it is sustainable. Absolutely. Again, and tie back to my earlier comments, you know, we've really been able to reset the economics of the Haynesville with improvements in drilling efficiency, you know, self-sourcing our own sand. And, you know, we've been able to drive this higher productivity largely through enhancing the completion designs. On the call, during the third quarter, I talked about, you know, at the merger onset, we came together, we put together what we've referred to as our Gen One completion design. You know, we're already now progressing to what's considered our Gen Three completion design and seeing really improved results from that. And so, you know, we expect that this type of trend that you're seeing, you know, continues forward.

And again, I'll just kind of bring it back to, you know, we have an unmatched inventory, quality and depth in the Haynesville, and that, you know, combined with, you know, our history in the basin, you know, there's a good reason why we're delivering these outsized results relative to peers.

Zach Parham (Executive Director and Equity Analyst)

Thanks, Josh. And then my follow-up, just on D&C costs in the Haynesville. You all have done a lot to bring down costs over the last several years. You've got a slight reduction in your numbers for 2026, but can you talk about your ability to potentially drive that number even lower going forward?

Josh Viets (EVP and COO)

Yeah, you know, my expectations are pretty high for the organization, our ability to do that. You know, we continue to find opportunities to improve tool reliability. You know, the bigger issues you fight in the Haynesville is temperature, and so we continue to partner with some of our service providers to increase tool reliability. In addition, we're seeing some pretty significant advancements with artificial intelligence to help us refine in a more optimal way our well designs, but more importantly, a faster real-time optimization of drilling parameters. We think, you know, those two items there are really gonna allow us to unlock further savings from a D&C standpoint.

Zach Parham (Executive Director and Equity Analyst)

Thanks, Josh.

Operator (participant)

Thank you. Our next question or comment comes from the line of Josh Silverstein from UBS. Mr. Silverstein, your line is now open.

Josh Silverstein (Executive Director and Senior Research Analyst)

Yep. Hey, good morning, guys. Mike, you talked about the challenge to get expanded volumes to the demand growth areas. Can you just talk about what the biggest challenges are in doing so? Is it, you know, getting the customer to actually just agree to supply? Is it price, concerns over inventory duration? And just I'm just curious. Thanks.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yeah. Well, there's sort of two challenges for our team, and one is on us and one is just the facts of the world. The first is our team needs to be more aggressive to review more transactions or potential transactions. We'll build more generators. We'll add to the team to be in the room more often. A big part of moving to Houston is to be in that room, and so we have to get out of our own way. The other side is just real, which is you need to get your gas to them physically, and so you always are thinking about transportation, how to get it there, how to service those clients, and that's gives advantages to companies, frankly, like Williams, who have been connected to them for a generation.

We have to compete by having assured production that they do not have, and so that's our competitive advantage. But we definitely have to - we have to partner. That's why we want to partner with midstream companies, because that's the biggest thing to overcome.

Josh Silverstein (Executive Director and Senior Research Analyst)

Got it. And then you talked about, you know, trying to get an incremental $0.20 of, you know, realizations or margins there. What’s the cost to get it there? Because you are gonna have to start to build out a bit more. Is this gonna cost you more upfront to then have benefits later? Just some sort of sense of that would be great. Thanks.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yes, I think that's a great question, and the first thing is we talk about our culture of discipline. We talk about rate of return, and we think of ourselves as how do you grow long-term shareholder value, and that means you have to talk about the cost as well. So you know, generally speaking, we have the lowest sort of returns are gonna be on... Or not the lowest returns, the lowest dollar change will be on just trading to premium markets. Those will turn into commitments at FT. Those are not debt necessarily, but let's call it commitments. Everything else, if we have to put more capital to work or risk our balance sheet, has to have a higher rate of return, has to have a bigger payout because we're, we are returns.

So do I think we'll probably spend some money, you know, over the next three-five years? Undoubtedly. Undoubtedly, we have to, but we'll, we'll put it in context of our rate of return framework. We have to have a decent ROE in our program, and so these, these things will have to have discipline around that.

Josh Silverstein (Executive Director and Senior Research Analyst)

Yeah. Thanks, Mike.

Operator (participant)

Thank you. Our next question or comment comes from the line of John Freeman from Raymond James. Mr. Freeman, your line is now open.

John Freeman (Equity Research Analyst)

Good morning. It was nice to see the Haynesville productivity improvements continue, but it does look like, you know, the upside on production in the quarter was actually from the Appalachia region. Maybe looks like I don't know if it's quicker, you know, turning lines, but just any color you could provide on that relative to y'all's guide for the quarter?

Josh Viets (EVP and COO)

Yeah. Yeah. So John, this is Josh. I mean, just to, you know, address that, really, it's really about our returning our production from curtailments in the fourth quarter. That was a big piece of it, you know, coming to the end of the year. And of course, most of those curtailments would have been taking place across Northeast Appalachia. And then, of course, in Q1, we would have had a little bit more weather-related downtime in the Haynesville as a result of Winter Storm Fern, where we, you know, again, you know, saw, you know, roughly an inch of ice, you know, show up at the end of January. So that had some, you know, modest amount of impacts.

But across the full course of the year, you know, we do, you know, anticipate to be averaging in and around 7.5 Bcf a day.

John Freeman (Equity Research Analyst)

Got it. Thanks, Josh. And then, Mike, sorry to belabor the marketing topic, but just it seems like, and I don't want to put words in your mouth, but you're a lot more focused, it appears, on sort of the LNG-type agreements, as opposed to maybe like long-term sort of LNG supply agreements. Is that, like, a fair characterization?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

I don't think that's fair. I think we're looking at both.

John Freeman (Equity Research Analyst)

Okay.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

We're looking at both. We're chasing margin. We have to participate in the value chain downstream of us. That's definitely LNG. That's definitely, you know, manufacturing. It's power. I think it's all. And so all of the above. I just want to be more aggressive because to get in the room, we have to hustle. It's competitive space. I mean, it's a super competitive space. We'll have to focus.

John Freeman (Equity Research Analyst)

Thanks. Appreciate it.

Operator (participant)

Thank you. Our next question or comment comes from the line of Neal Dingmann from William Blair. Mr. Dingmann, your line is now open.

Neal Dingmann (Research Analyst in the Energy and Power Technologies Group)

Morning, Mike. Nice quarter. Mike, my question, you know, I talked about a little bit this last night, was on your upstream position. It's just looking at your share price, it certainly doesn't seem to me that you all are getting credit for the massive, you know, what is the 2 million-plus acres position on top of your material production. So I'm just wondering: is there something you all would consider doing with, you know, I don't know if it's either monetizing a bit of the inventory or drilling carry to something - somebody or, or, you know, something to unlock some of this value given, you know, it just seems like, you know, given that sizable position, your investors are just not recognizing this.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Well, first of all, thank you for saying that we're not getting full credit. We would love to get full credit. We hope you all are paying attention. We think we have a good business. Generally speaking, you know, we're not actively looking to do what you're talking about, but I would say it's always on the table. It has to be. You know, just to say no for the sake of no is the wrong answer. If we see something that's attractive and part of our portfolio that someone wants to overpay, you know, we're a public company, that can happen in any day, and so nothing's off the table. But I don't think we're actively doing that right now.

Neal Dingmann (Research Analyst in the Energy and Power Technologies Group)

Makes sense. And then just secondly, look like on the, the guide, you're going to run about the same rig count. Do you assume... You know, I'm just wondering if you, if you're running, if you continue to have the efficiencies that you've recently seen, would you see yourself potentially, you know, let's say you are running ahead of schedule by, I don't know, second, third quarter, would you pull back on the rig count and just sort of, you know, continue to bank that, that free cash flow? Or would you continue to potentially, you know, boost the, the production a little more than suggested?

Josh Viets (EVP and COO)

Well, I mean, I think, Neal, we'd have to take a look at the fundamentals and understanding, you know, where supply-demand balances sit. You know, we really take great pride in maintaining a high level of flexibility within our business. You know, we've noted today that, you know, we see this business being efficient, you know, up to that 7.75 Bcf a day number. But at this point in time, you know, we feel really good about the program that we've laid out, you know, delivering those 7.5 Bcf a day at the $2.85 billion of CapEx. And, you know, until the market fundamentals, you know, start to shore up, that's the plan that we, you know, expect to execute this year.

Neal Dingmann (Research Analyst in the Energy and Power Technologies Group)

Well said. Thanks, guys.

Operator (participant)

Thank you. Our next question or comment comes from the line of Charles Meade from Johnson Rice. Mr. Meade, your line is now open.

Charles Meade (Research Analyst)

Yes. Good morning, Mike, to you and the whole Expand team there. I'd like to ask a question about maybe drilling down on one piece of your marketing push, and that's on storage. You guys, in your presentation, say you have 5 Bcf of storage that you own now. Can you talk about the nature of those assets and what the trajectory has been for building that position? And is storage an area that you expect to be, I guess, competitive in acquiring more?

Dan Turco (EVP of Marketing and Commercial)

Yeah. Hey, Charles, this is Dan. I'll take that question. Yeah, this year we added about 3.5 Bcf of storage in the last quarter here to our 1.5 we already had. So we like this storage, and we like it for many reasons, right? You go back to our M&C strategy. One of the key components is managing volatility. This market is highly volatile, as we've seen over the last few months, not only from, like, time movements, but geography movements. So we're actively using that storage. We like that storage, and we've made money on it already, and we plan on turning that storage a lot more. We would like to grow that storage position, but it is a very competitive market.

The total demand of this market has grown substantially and storage has not caught up. That's why you are seeing a lot of volatility. So it's highly competitive to actually get more capacity, but we continue to actively look at it. And back to our disciplined approach here, we're only going to take that capacity we feel is going to make us value and help us manage that volatility and create more margin ultimately.

Charles Meade (Research Analyst)

Got it. Thank you. And then, if I could ask a question about the West Virginia Utica. You guys also in your presentation talking about bringing the potential of bringing some Ohio Utica development concepts towards West Virginia, and a lot of upside there. Can you elaborate on what that is and how big the upside might be?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yeah, Charles, I mean, we're, you know, pretty excited about, you know, our Southwest App program. I mean, the reality is there's not been a lot of Utica development as you move across the Ohio River, and I can assure you the geology does not stop at the river. And so we think there's, you know, quite a bit of upside with that. It's something that the teams have been working for some time. It's just really about, you know, kind of getting into the right environment, which that inventory development makes sense.

There will be some infrastructure requirements to be able to process it, but it's something that, you know, we think we can take, you know, some of the learnings that we've built up of drilling deeper gas wells in the Haynesville and leverage those learnings in the Utica and expect it to be, you know, a highly profitable part of the business, going forward.

Charles Meade (Research Analyst)

Thank you, Josh.

Operator (participant)

Thank you. Our next question or comment comes from the line of Mr. Philip Jungwirth from BMO. Sir, your line is open.

Philip Jungwirth (U.S. Energy Analyst and Managing Director of Equity Research)

Yeah, thanks. Good morning. With the NG3 pipeline now flowing volumes, can you talk through how this will benefit Expand this year? Also, as Golden Pass starts up, and is there a benefit to maintaining ownership in the project long term, or at least through a potential expansion?

Dan Turco (EVP of Marketing and Commercial)

Yeah. Hi, Philip, this is Dan. I'll talk about the market dynamics. So yeah, NG3 came out October last year, and that's providing us just, again, more market optionality, and that's bringing our gas to Gillis, which over time is gonna be a pretty premium market. At the moment, we're getting about even on where we are and the capacity payments we get and the uplift we're getting. But over time, back to the structural demand of this market, LNG is growing significantly, and we see Gillis become an even more premium. So it's providing us two things. It's getting us to premium wholesale market, and it's providing us market optionality, where we can move between Gillis and Perryville on any given day.

Philip Jungwirth (U.S. Energy Analyst and Managing Director of Equity Research)

Okay, great. And then, besides the capacity going to Gillis, you also have 2 Bs a day going to Perryville, so it's further away from the LNG corridor. So can you just talk about the advantages of selling gas to this hub, and how would the go-forward marketing strategy be tailored here versus volumes going to Gillis?

Dan Turco (EVP of Marketing and Commercial)

Yeah. Perryville is also a great market. There's a strong pull from the utilities down in the southeast. A lot of that's coming from the dynamics of Gillis. You know, more gas is being redirected to Gillis for the LNG demand, and the historic gas that would come across over to Perryville is being less. And there's more demand that's gonna be taken away from Perryville. There's, I think, 3 Bcf/d of new pipeline capacity coming online, pulling further down to the southeast. So this market is also a premium, and a lot of utilities are looking for that longer-term reliable supply. So our advantage here is actually the ability to go to both markets, not only structurally selling to these markets, but any given day, being able to move molecules between the two markets.

If we sell down in Gillis and the Perryville market changes, we can buy back that position at Gillis or buy gas into that position and move gas to Perryville. We've been doing this quite a lot and quite proud of the team, how they're capturing that optionality value, and we're just gonna continue doing more of that.

Philip Jungwirth (U.S. Energy Analyst and Managing Director of Equity Research)

Thank you.

Operator (participant)

Thank you. Our next question or comment comes from the line of Betty Jiang from Barclays. Ms. Jiang, your line is open.

Betty Jiang (Senior Equity Research Analyst)

Hello. Good morning. Mike, I'm completely with you on the scale of the marketing opportunity and sort of the need to think bolder. I'm just curious on your $0.20 uplift that you talked about, just how you came up with that target, and do you see that as a reasonably achievable number, or it's more of a stretch goal for the organization?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

I don't think it's a stretch. Let's just start with that. I think it's something that we'll have to be aggressive to do. It's something that we'll have to invest time and energy into, but it—I don't think it's a stretch. We'll definitely have to pull all three of our levers. Lever one is premium markets, two, we need to work on our storage, and three, we're gonna have to participate in the value chain, you know, beyond the wellbore, and that means LNG or industrial. And so I, I don't think that. I think this will be a big part of our business going forward. And I also think that will help our breakevens. That will help our downside protection, because those tend to be a bit more, fixed, closer to a fixed fee concept, if you think about it.

So, I don't, I don't think it's a stretch. I sure hope that we make it really quick, so that y'all can be comfortable, and then I hope to expand that over time.

Betty Jiang (Senior Equity Research Analyst)

Great. No, that makes sense, and a lot, definitely a lot of opportunity to fill in the hopper. My follow-up is on M&A. A lot of talk already on the Gulf Coast, but we have also seen just rising deal-making in Appalachia. What's your appetite for M&A in the Northeast? Is there value to having more in-basin exposure, in order to capture that growing power opportunity, up north?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Yeah. I think M&A has been something that we've done a lot of over the past five years. You can see, we, I think we've done over $15 billion of transactions, so it's in our DNA to continue to look at everything. And Appalachia, of course, and the liquids concept that y'all mentioned earlier, of course. The question is: Can you do it disciplined? Can you do it to protect the balance sheet? Can you do it with the non-negotiables? This year, we weren't able to. I mean, some of these deals went for premium prices that we didn't think were fair value. So, the answer is, we'll look at everything in our basins. Of course, that's our job. But, you know, M&A is a tricky market. You just kinda have to think about your base business first.

So, and we'll do that.

Betty Jiang (Senior Equity Research Analyst)

Great. Appreciate your comments. Thank you.

Operator (participant)

Thank you. Our next question or comment comes from the line of Kalei Akamine from Bank of America. Your line is open.

Kalei Akamine (Senior Equity Research Analyst)

Hey, good morning, guys. Thank you for taking my question. Mike, going back to your comments about marketing, you expressed the desire to be more commercial around your volumes. When you look at your portfolio, I'm curious how much gas you have committed to long-term sales agreements. Trying to get a sense of how much flexibility you have in the portfolio to ship gas to higher value markets. And is it fair to think that the more flexible molecules in that portfolio is in the Haynesville?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

I think, I think it's two things. You're, you're right to point out, of course, that we make commitments every day, and some of those commitments would have to be rolled off. I don't, I don't think we have a set number in my mind as, as exactly, and Dan may be able to answer that question. But I do think the Gulf Coast is where we can build, it's where we can grow. We can add volumes to there, and so to the extent we get demand, more demand, we can increase production to fulfill that demand. And so I think that's always a great answer. In Appalachia, you have less ability to, to do that, and we're talking about growing there, but the Gulf Coast is, is where it is, and we feel it's our competitive advantage.

When we have three basins, everyone else has one. We have a bigger market area, we have to take advantage of it. But the ability to grow and frankly, strength to Haynesville gives us a lot of marketing opportunities.

Josh Viets (EVP and COO)

I would just add that we, we do stage those commitments, and on page 19, we laid out a couple of commitments we just made, right? And over a five-year time, we have commitments that go out 15 years, but over a five-year timeframe is really we're looking at doing a lot of our sales, and we just added a couple of sales to premium markets here. So these aren't the big deals that we're going to announce, but these are the singles and doubles that we're doing every day, adding more sales to end users and, and just getting that premium uplift. And a sale becomes an asset as well. As I pointed out in the last point here, is if you make a sale and markets move, you can still fulfill that sale with other gas and move your molecule to higher price markets.

So there's a double combination here of premium market and capturing the volatility.

Kalei Akamine (Senior Equity Research Analyst)

I appreciate that. This next question is on the LNG exposure. Pre-Southwestern, the desire was for exposure to be somewhere between 15%-20%. Post-merger, that commentary shifted a bit. What does desired exposure look like today? Is it a quarter of gas? Is it a third? And do you think it's necessary to physically match the molecule at the wellhead to take away on the water, or is there some synthetic way that you could go about it?

Brittany Raiford (VP, Treasurer, and Interim CFO)

Yeah, Kalei, great question, and, you know, I'll start, and Dan can jump in here as well. You know, that commitment that Chesapeake had made prior to close, the 15%-20% on LNG, if you think about it, really, the gas markets have changed quite a bit since then. You know, back then, we probably weren't talking near as much about, you know, power and industrial demand growth. And so really, when you think about it, and we've mentioned this several times, we're interested in reaching premium markets. We're agnostic, really, to exactly what those premium markets are. We think the opportunity set is broad, and so we're going to look for the highest return way for us to diversify our sales exposure. So we're not going to be overly prescriptive on exactly how much we want to go to LNG.

Kalei Akamine (Senior Equity Research Analyst)

Got it. I appreciate that, Brittany. Thank you.

Operator (participant)

Thank you. Our next question that comes from the line of Leo Mariani from Roth. Mr. Mariani, your line is open.

Leo Mariani (Equity Research Analyst)

You guys talk about this a lot, but just on the goal of the $0.20 uplift on gas, is there kind of a rough timeframe for that? You kind of mentioned trying to get some deals kind of over three-five years. Just trying to get a sense if that's kind of like a five-year goal. Any other color on that?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

I would say yes, it's three-five, and I'm giving five to give us some room. I certainly hope to make that in three, three and a half, and so we want to be aggressive here.

Leo Mariani (Equity Research Analyst)

Okay. And then just following up on the buyback. You guys kind of spoke about this. I don't want to put words in your mouth, but it sounds as if it's really gonna be times of dislocation in the stock, and the priority is really gonna be just to make this balance sheet even more rock solid here.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Agreed. We totally agree with your statement right there.

Leo Mariani (Equity Research Analyst)

Okay, thanks.

Operator (participant)

Thank you. Our next question or comment comes from the line of John Annis from Texas Capital. Mr. Annis, your line is open.

John Annis (Senior Equity Research Analyst)

Good morning, all, and thanks for taking my questions. For my first one, you noted around 20% of the 2025 TILs exceeded 1 Bcf per thousand foot, and you expect that to rise above 30% in 2026. I wanted to get a sense of what's different about those top-performing wells. Is it geology, lateral placement, completion intensity, or some combination? And then is there a ceiling on how high that percentage can go given your acreage mix?

Josh Viets (EVP and COO)

Yeah, I mean, it's definitely a mix, John. You know, completion design is really gonna be the biggest driver for us, you know, moving forward. But, you know, clearly, where you drill, is gonna matter as well. So typically, we see the best performing wells in the southern part of our, you know, acreage position, within the NFG. And so you are gonna be limited in the number of wells you can drill in any one gathering system. You'll just simply hit, you know, capacity constraints. So yes, you know, to answer your question, there would be some constraints, but we just see, you know, continued upside across the entire acreage position. We've had a lot of success this year, drilling three-mile laterals. We're gonna continue to get better and see, you know, bigger portion of that, showing up going forward.

As I mentioned earlier in the call, yeah, I don't think we've reached what we really deem to be optimal from a completion design standpoint. Again, we continue to reset those economics as a result of having access to a cheaper sand source.

John Annis (Senior Equity Research Analyst)

Makes sense. For my follow-up, you mentioned supplying microgrid solutions in Appalachia with flexible volume contracts. How large is this opportunity today, and how would you compare the attractiveness of these smaller volume deals with some of the larger supply commitments announced in the basin?

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Hey, John, thanks for the question. Yeah, we went live with this microgrid solution. It's relatively small, to be fair, but we're excited about these because a bunch of these small deals adds up, and this actually commands up quite a premium by having a reservation fee behind our gathering system, where this microgrid solution can pull volume for us and capturing a higher price. So we're getting the dual effect here of a reservation fee and a higher price. It's small, but these singles are gonna add up over time, and we're gonna do a lot more of these types of deals.

John Annis (Senior Equity Research Analyst)

Thanks, guys.

Mike Wichterich (Chairman of the Board and Interim President and CEO)

Great. Thank, thank everyone for their questions today. We want you to ask tough questions. We want to, to be responsive to it, so thank you for them. I'd like to close with just a few sort of big-picture comments. Number one, our execution has been amazingly solid. That is our foundation. We are not changing it. We expect it to continue, and we continue to expect our teams to perform better in the future. Two, we, we are definitely thinking beyond the wellbore. Obviously, we've talked a lot about marketing today. That is actually not a strategy change. We've we had that strategy. What we're talking about changing today is urgency, attention, discipline. We want to be more aggressive, but always know that we are rate of return, and to build shareholder value, you have to, have to have that.

Third, the opportunity is huge. We see it. We finally feel like gas has got its moment. We wanna take advantage of it. The demand is amazing. And now it's just time for us to sort of not talk and execute, and so that is our focus here at the company, and we'll continue. So with that, I think that's the end of our call. And hope you have a good day.

Operator (participant)

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, standby.