Expand Energy Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Matt Portillo - Tudor, Pickering, Holt & Co. Securities - Analyst : Just a quick question. slide 9, very helpful laying out your thoughts on maximizing free cash flow at mid-cycle pricing. Just curious, maybe if you could speak to that slide? And specifically, if we're in kind of a $3.50 to $4 world, should we be thinking about kind of your productive capacity once you get to the 7.5 Bcf a day in 2026 to hold around 7.5 Bs? Or do you think you could continue to see growth from that point forward?

Question: Matt Portillo - Tudor, Pickering, Holt & Co. Securities - Analyst : Perfect. And then maybe just a follow-up. You mentioned LNG. I was just curious if you can maybe touch on your updated thoughts on the marketing strategy? I know it's a diversification for you all. And there's obviously some puts and takes and views on global incremental supply versus demand over the next few years. So just curious, how you guys are thinking about the LNG market and your strategy moving forward?

Question: Douglas Leggate - Wolfe Research - Analyst : Nick, I've got 2, if I may. I guess the synergy number, we're all kind of watching that evolve a little quicker than you had originally planned. But if I go back to when you announced the deal back in January of last year, you put a kind of a two-year time line on building a marketing business, and you obviously made a very high profile higher here recently. So I just wondered if you could give us a quick refresh on what you think the timing looks like now to achieve what you think is possible and maybe quantify what that number looks like, again, 2.5 Bcf a year, more or less. What's the -- is that $0.10 number? Is that $0.20 number? What's the ambition? Because obviously, I don't think that's in a lot of people's numbers at this point. That's my first one. I've got a quick follow-up, please.

Question: Douglas Leggate - Wolfe Research - Analyst : So just to be clear, is that a $400 million annual business? Or is that stretching the -- you said the marketing model. I'm thinking $0.15.

Question: Douglas Leggate - Wolfe Research - Analyst : Got it. So my follow-up is you've kind of certainly slipped into the presentation, 20 years plus of inventory. And I think you used to have the Southwestern, the Chesapeake standalone saying, we've got a 15-year backlog. I think -- when you think about -- we're telling you, you can hold this at $3 billion of capital, 7.5 Bcf a day. It seems you're making life pretty simple for everybody to kind of lay out what the value proposition is. My question is, what commingling Bossier, Haynesville Upper, Lower Marcellus, what's extending the inventory? What is the relative economics look like of the portfolio today versus what you were seeing before? And -- because I was obviously an impression that Bossier and Haynesville had very different returns, but now they're both part of the story. So if you could help us understand that a little bit, if that 20 years is an apples-for-apples comparison, that would be great.

Question: Scott Hanold - RBC Capital Markets - Analyst : Let's stick on that same topic, if we could. And specifically with the Upper Marcellus and Bossier, can you talk about how -- what percentage of that is in the activity over the next couple of years? And just give us a sense of the relative economics of those zones comparatively. And are you seeing the ability to kind of what things are you seeing that can maybe improve those economics and you get closer to sort of the Haynesville Lower Marcellus?

Question: Scott Hanold - RBC Capital Markets - Analyst : Appreciate the context. And as my follow-up, just talking about the productive capacity increase that you have planned into 2026. And -- to me, it was interesting on -- I guess you're calling up productive capacity versus "just regular growth." So that does -- correct me if I'm wrong, tell -- indicates to us that there's some optionality if the market is not there. But can you give us some sense of, as you get into the back half of '25 -- obviously, it's a very sensitive time coming into the winter every year with the gas market. If you start building this productive capacity in these wells to bring on -- and let's say, the winter doesn't pan out. What happens in 2026 now that you've already spent those $300 million of extra capital? What do you do?

Question: Scott Hanold - RBC Capital Markets - Analyst : Thank you for that.

Question: Devin McDermott - Morgan Stanley - Analyst : So I wanted to dive in first on the 2025 activity in a little bit more detail, I definitely agree with the constructive outlook for gas prices this year. Looking back about a month ago, we were flirting with $2 on Henry Hub. So I was wondering if you could talk a bit more about the decision process to pull forward the deferred TILs and then also give a little bit more color on the cadence of that productive capacity throughout this year? I know you have the 1Q guide and the full year number, but how are you thinking about the volume trajectory as we move through 2025 for the business?

Question: Devin McDermott - Morgan Stanley - Analyst : Got it. That's really helpful. And my follow-up is on that productive capacity. slide 8 has the building blocks of capital and also some breakdown of where that incremental $300 million of spending would go. And I think it's notable that it's actually split across Appalachia and the Haynesville, you have some going to each of your core assets. So I was wondering if you could just talk a bit more about how you think about allocating growth capital across the different assets in your portfolio? And maybe as part of that, if you could just address the takeaway situation in Northeast Pennsylvania and how much room there actually is to boost volumes there?

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : It's Neil Mehta here. Can you hear me okay?

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : All right, Nick. I just wanted to spend some time just talking about return of capital and capital allocation and those three tranches that you outlined in the deck and your objective here in 2025 as you transition from delevering to focusing potentially on shrinking your share count too?

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : Yes. Nick, and that kind of brings us to the follow-up, which is you guys have done a great job of hedging the wedge or taking advantage of the constructive forward gas curve. Can you just talk about how you're thinking about the hedging strategy on a go forward? Does hedge the wedge still makes sense? Or have you gotten to an optimal level at this point? And just how you're thinking about that part of risk management?

Question: John Freeman - Raymond James & Associates, Inc. - Analyst : The first question I had is -- just following up on an earlier question. Josh, when you were kind of going over the accelerated pull forward on the deferred TILs, just to sort of level set kind of the model since I know that the plan is that, as you said, all the TILs basically get exhausted first half of the year, and I believe the plan assumes about 85% of the DUCs get bottom line this year as well. Where did the deferred TILs and the DUCs stand at year-end?

Question: John Freeman - Raymond James & Associates, Inc. - Analyst : That's great. And my follow-up, when looking at that slide 9, it would appear that going from kind of 7.5 Bs a day to call it, 8-plus Bs a day, it looks like just trying to back into what you've got for the CapEx, that it doesn't look like there's like a material kind of increase that's needed on infrastructure spend. It looks like you'll can handle that without any big step change on that front. Is that the right read on that?

Question: Paul Diamond - Citigroup Inc. - Analyst : Apologies, the line cut out there for a second. I just wanted to talk about slide 15. You guys talked about having made some good progress on the -- good progress on the drilling activity. I just wonder if require -- if there was there any opportunity there or the timing of such? Like I guess, how much meat is left on the bone there?

Question: Paul Diamond - Citigroup Inc. - Analyst : Understood. And just one quick follow-up. Thinking about the rig adds in second half. How should we think about the timing and cadence? Or is that purely reactive? Or is there a plan for July 1 and then October 1? Just kind of how to think about the timing there?

Question: Paul Diamond - Citigroup Inc. - Analyst : Understood. Appreciate the clarity. I'll leave it there.

Question: Charles Meade - Johnson Rice & Company, L.L.C. - Analyst : Good morning, Nick, to you and Josh and the rest of the Expand team there. Nick, I wanted to ask a question about page 10. Really, this graph on the left side of the page. And my first reaction when I see this is, it reminds me of my son's high school trigonometry homework. It makes me think maybe whoever came up with this slide is looking at something similar recently. But I think what this is -- this is the -- this is trying to describe the dynamics around the baseline kind of scenario that you're outlining on page 9. And if that's the right interpretation, I look at this, and I think the message that you're trying to send is that you will be increasing CapEx when you're underproducing, presumably when prices are low and that you'll be kind of maximizing CapEx and starting to draw down when prices are higher. But I wonder if you could guide our interpretation of that -- this dynamic that you've laid out here?

Question: Charles Meade - Johnson Rice & Company, L.L.C. - Analyst : That is helpful, Nick. That adds to my understanding. And then one other thing, Nick, as a follow-up. Twice now, I think you've mentioned marginal breakeven for the industry. Can you share what you think that is and where Expand sits vis-a-vis the industry on that marginal breakeven?

Question: Zachary Parham - JPMorgan Chase & Co - Analyst : First, Josh, you mentioned some meat on the bone left on driving D&C costs lower. Have you built any of those incremental D&C declines into the CapEx budget? I mean, you've been consistently coming in at the low end or below on CapEx over the last several quarters. So just trying to get a sense on if that trend could be set to continue?

Question: Zachary Parham - JPMorgan Chase & Co - Analyst : That's helpful color. And then just wanted to follow up on a couple of the earlier questions. So you currently talked about anchoring to that 7.5 Bcf a day level in 2026, which -- in the slide in the deck, that's based on a mid-cycle price of $3.50. The strips above that level over the next couple of years, do you see any scenarios where you would move production higher from that 7.5 Bcf a day level in 2026? Just trying to get a sense of how flexible you could be there, both going higher and lower?

Question: Zachary Parham - JPMorgan Chase & Co - Analyst : Thanks, Nick. That makes a lot of sense.

Question: Bertrand Donnes - Truist Securities, Inc. - Analyst : On potential data center agreements, maybe what are your thoughts on how involved you need to be in the project? I guess where on the spectrum do you fall if maybe all the way on one side is you need to be a part of the upfront spend or maybe all the way on the other side where you just provide the gas and get a fixed price or a premium? And do you think there's room for a consortium of names to provide the gas supply? Or should it be more siloed with each producer having kind of their own individual agreement?

Question: Bertrand Donnes - Truist Securities, Inc. - Analyst : Got you. Very clear. And then just shifting gears a little bit. You outlined most of the potential growth in the productive capacity scenario would come from the Haynesville, but I assume maybe some growth happens in Appalachia at higher prices? And a few of your peers outlined growth plans in Appalachia that I think assume in-basin demand is going to materialize. But could you maybe talk about if you're seeing availability of transportation pickups? I mean, is -- are there roll-offs of other operators that aren't growing? Or just maybe how you think about if there is Appalachian growth, where do those incremental volumes head?