EQT(EQT) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2025, EQT generated $2.5 billion of free cash flow, significantly outperforming both consensus and internal expectations, with NYMEX natural gas prices averaging approximately $3.40 per million BTU for the year [9][17] - The company exited the year with net debt of just under $7.7 billion, including $425 million of working capital usage during the quarter [17] - Free cash flow attributable to EQT in the fourth quarter was nearly $750 million, approximately $200 million above consensus expectations [17] Business Line Data and Key Metrics Changes - Production consistently exceeded expectations throughout 2025, driven by compression project outperformance and robust well productivity, with compression projects generating a 15% greater than expected base production uplift [7][8] - Average well cost per lateral foot was 13% lower year-over-year and 6% below internal forecasts, while per unit lease operating expenses (LOE) were nearly 15% below expectations and approximately 50% lower than the peer average [8][9] Market Data and Key Metrics Changes - The natural gas market has tightened significantly, with winter to date being 5% colder than normal, driving significant demand and reducing inventories below the 5-year average [21] - Eastern storage levels are now 13% below the 5-year average, indicating a structural demand growth in the market [22] Company Strategy and Development Direction - EQT's strategy focuses on capital efficiency and cost structure while making smart investments at the right time to maximize per-share value creation [6] - The company plans to allocate the first $600 million of post-dividend free cash flow to high-return growth projects in 2026, including compression projects and strategic leasing [15][16] - EQT is investing in infrastructure to connect low-cost natural gas supply to demand centers, emphasizing the need for more pipeline infrastructure [11][12] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of reliability and operational strength during extreme weather events, such as Winter Storm Fern, which showcased the company's integrated operations [10][27] - The company anticipates generating approximately $6.5 billion in Adjusted EBITDA and $3.5 billion in Free Cash Flow attributable to EQT in 2026, with a projected cumulative free cash flow of over $16 billion over the next five years [15][16] Other Important Information - EQT's position as the second-largest marketer of natural gas in the U.S. is expected to have recurring positive impacts on financial performance due to persistent price volatility [8] - The company is focused on maintaining a disciplined maintenance capital program while investing in growth projects to strengthen its platform [14][15] Q&A Session Summary Question: Can you provide insight into the trend in your portfolio breakeven and sustaining capital for 2026? - Management indicated that the levered breakeven cost structure is around $2.20 and is rapidly decreasing as debt is repaid [32] Question: Can you quantify the uplift associated with Winter Storm Fern and lessons learned? - Management noted that uptime during the storm was 97.2%, showcasing a two-times factor outperformance compared to peers, and emphasized the importance of being opportunistic during volatility [36][38] Question: How do you see your strategic growth CapEx evolving over the next couple of years? - Management highlighted a focus on Mountain Valley projects and emphasized the importance of creating structural demand for volumes before considering upstream growth [52][56] Question: What is your gas sales strategy in light of market volatility? - Management explained that they aim to sell a significant portion of gas at first-of-month pricing to de-risk operations while maintaining flexibility to capture value during volatile periods [60][66] Question: When do you expect to see growth emerge in your production? - Management suggested that sustainable upstream growth discussions may begin around 2027, contingent on infrastructure development and demand visibility [81]