Ladies and gentlemen, thank you for standing by and welcome to the EQT Corporation, Q4 2019 Quarterly Results Conference Call. At this time all participant lines are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Andrew Breese, Director of Investor Relations. Sir, please go ahead.

Good morning and thank you for joining today's conference call. With me today are Toby Rice, President and Chief Executive Officer; David Khani, Chief Financial Officer; and Kyle Derham former Interim Chief Financial Officer. The replay for today's call will be available on our website for a 7-day period beginning this evening. The telephone number for the replay is 1800-585-8367, with a confirmation code of 7185478. In a moment Toby and David will present their prepared remarks with a question-and-answer session to follow. During these prepared remarks Toby and David will reference certain slides that have been published a new Investor Presentation, which is available on the Investor Relation portion of our Web site. I would like to remind you that today's call may contain forward-looking statements. Actual results and future events could differ materially from these forward-looking statements, because of factors described in today's earning release and the Risk Factors section on our Form 10-K for the year ended December 31, 2019. We do not undertake any duty to update any forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to this morning's earnings release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. And with that, I'll turn it over to Toby.

Good morning. Today I will discuss the execution of certain strategic initiatives, provide an update on our evolution and discuss our 2020 plans. I'll then pass the call to Dave Khani to discuss our balance sheet, liquidity and the philosophy that he brings as our newly appointed CFO. Since our election in July and only six months, we've taken decisive tactical steps to overhaul the strategy and execution at this company. We've removed over $400 million or 25% of annualized controllable costs across the business from the office to the oil field, and today we've released a 2020 CapEx budget that is $150 million less than our guidance in October. This reflects $50 million that was removed as a result of our base production volume enhancement initiatives, which we announced in January as well as an additional a $100 million resulting from the continued optimization of the operation schedule. We continue to find new ways to reduce our costs and create value for our shareholders. EQT has pure leading G&A and LOE costs marching towards the lowest well cost and our recent focus has been on reducing our gathering and transportation costs. We are pleased to announce that we will be strengthening our partnership with EQM through the successful renegotiation of our gathering contracts, which is a big step towards our goals. At a high level, this deal provides EQT with meaningful fee relief in the short-term and favorable rates for the long-term. This resulting rate structure represents a significant reduction from the legacy rate structure today. In exchange for lower rates, EQT will provide EQM with long-term contract extensions and increase in our minimum volume commitments and a dedication of essentially all of our on-dedicated acreage. Realizing the true potential of our partnership rests on EQT's ability to efficiently…

Thank you, Toby. I'm excited to have joined this team that has demonstrated past success in building a company from scratch and has already made significant progress in extracting value out of this business. This is a familiar territory for me. I've been through extensive corporate transformations and cost-cutting initiatives before. I look forward to continuing their progress and will leave no stone unturned to find incremental cost savings to drive sustainability. Today, I plan to address a quick snapshot of fourth quarter results, year end reserves, liquidity, our balance sheet focus and hedging. Overall, during the fourth quarter, we outperformed in many of our key metrics including adjusted free cash flow. In the fourth quarter, we achieved sales volumes of 373 Bcfe which came in at the high-end of our guidance range of 5% below last year. Adjusted operating revenues were 947 million down 23% compared to fourth quarter 2018 as realized prices were $2.54 or approximately $0.60 per Mcfe below last year. We intend to implement a more thorough hedging program that will minimize this volatility which I will talk to in a little bit. Total operating expenses for the quarter increased 658 million compared to the fourth quarter 2018 primarily due to increased impairments on long live assets of 775 million in the fourth quarter of 2019. The 1.6 billion in non-cash impairments recorded in the fourth quarter of 2019 were primarily related to the press natural gas prices and changes in our development strategy, including the contemplated divestiture of certain of our non-strategic asset. At the unit cost level, fourth quarter 2019 total unit costs were $0.16 lower than the fourth quarter 2018 primarily driven by an increase in litigation expenses in the fourth quarter of 2018. We paid approximately $100 million in the fourth quarter…

Thanks David. I am very proud of the hard work and results that this team has delivered in such a short period of time despite external challenges. We continue to have constructive dialogue with all of our stakeholders as we set EQT up to be a sustainable and durable E&P business. The direction of the gas production declines combined with the call on gas from increased LNG demand can set us up for a compelling gas price that is not currently reflected in the forward curve. While we are optimistic about the future gas price, we recognized the need to run this business in a sustained low gas price environment. We are fully committed to withstanding commodity lows by aggressively pursuing our cost reductions, improving efficiencies and executing upon our asset sales to improve our balance sheet. With that, I would like to open the call up for questions.

[Operator Instructions] Our first question comes from Arun Jayaram with JPMorgan.

The first question I have is wondering, Toby, if you could help reconcile the rate release that you guys have identified over the next three years. You've highlighted 270 million, 230 million and 35 starting from 2021. The question I'm getting from the buy side is, can you reconcile this relative to what EQM put in their slides of 125 million, 140 million and 35 million in their deck, Slide 5.

Sure. So the 535 million is just two components there. There's what I would consider base fee relief of about $300 million. And then there's the fee relief that we get from the exchange of our each reign stake, which we make up the remainder $235 million. And so that's how it's sort of broken out.

Got it. Got it. That's helpful. Second question is, I wanted to see if you could maybe give us a little bit more color on what you're seeing in the asset sales market. I think you reiterating your expectation to deliver 1.5 billion of asset sales by mid-year. Just wondering if maybe you could give some insights on the Ohio, Utica process as well as the minerals process that's underway?

Sure. So, I'd ask you to flip to Slide 18 and I think this sort of shows all of our initiatives and the progress that we've made to-date. We've certainly made some good progress so far with the free cash flow we've been able to generate and the monetization of our ETRN stake. I'm sorry that we get with fee relief. As far as minerals in Ohio, in Ohio, E&P assets go, we see strong interest in those assets. We're in the process right now of collecting feedback from potential parties there. I'd say that the thing that that gives us confidence to the fact that while commodity prices have come down a little bit, the one thing that stays, that hasn't changed is, the assets are still core. And so that gives us some confidence. The other thing is, we've got with our refinancing that we've been able to do, it gives us some more time and I think that time can be used in negotiation to maybe be a little bit more flexible in some terms, if there's any value gaps that we perceived. So, all to say we're able to be a little bit more creative in the deals that we do. And that's sort of what gives us the confidence of being able to reach our goals.

And your next question comes from Josh Silverstein with Wolfe Research.

A couple of questions for you. I was wondering on the debt reduction target, you have 1.5 billion in new started to put in there, the 4Q '19 free cash flow and then some of the rate relief from the ETRN deal. I just wanted to look at it the other way. Do you want to get your net debt down to 3.5 billion or is it still going to be somewhere kind of around that 4 range after all?

No. I think we'd like to get it down to 3.5 billion. We'd like to get our debt leveraged on down to 2x or under. So we're looking at both absolute debt reduction as well as the leverage metric.

Got it. And then, in the October update that you guys gave us, you had '20, '21 CapEx down $200 million versus 2020, is the $150 million that you have now reduced your 2020 CapEx by relative to the October update, is that incremental to 2021 or is that an acceleration? Because I'm just wondering if based on the 235 outlook for natural gas, if now this -- the rate relief that would allow you to maintain volumes flat next year and still generate positive free cash flow.

Yes. Josh, this is Toby. So just to put some more color behind the $150 million that we've reduced from our 2020 budget since our October guidance, the 50 million it was -- was due to operational efficiencies that we outlined in one of our slides. That's just optimizing our base production that allows us to get more production from the existing assets we have which allows us to spend less capital on new activity to replace those volumes. And then the $100 million and we announced that in January, the $100 million is really just a optimization of our schedule. We've taken out some of the slack in our schedule as a result of just getting better confidence in hitting our deadlines. And the other piece which I think is probably more meaningful is just a little bit of shifting of activity and capital allocation. With our ETRN renegotiation we're able to move some of our activity from West Virginia into Pennsylvania, Marcellus, that gives some combos and that obviously the lower cost well site for us to develop. So that's also a portion of the reduction and when we talk about schedule optimization.

Got it. So you still think a budget next year for 101 at this point is okay, just the whole volume slide? I just want to -- is it there or is it actually a little bit lower than that?

Josh, I think we're looking forward to providing more color to everyone on what our 2021 plans are going to look like. I would say that we are -- with our ETRN renegotiation affords us an opportunity to sort of retool our schedule, understand the well types that we're going to put on the schedule, which will result in the CapEx that we'll be able to report back to you guys.

And the goal with every year is that we at least be cash flow neutral to free cash flow positive.

And our next question comes from the line of Brian Singer with Goldman Sachs.

You talked in your prepared comments on what some of the drivers of the movements improved undeveloped reserves and bookings were. Can you talk a little bit about any changes and how you booked proved developed reserves and how the wells and well performance in EURs from the 2019 program compared and what your expectations are for 2020?

Yes. This is Toby. On our PDP, we improved -- that has risen and that was partly due to just better performance from some of the wells. So the revisions we had really were on the pud side. I think that was the story that we want to make sure people understood. We're still developing in what we consider to be the core areas that will be where performance will be consistent with the performance we have with our existing PDPs. It's just from just the rules that we are not able to book those as puds. And the other thing I would say is, this is a good example of our commitment to capital efficiency and making the best choices for where we spend our dollars and letting the capital efficiency drive where we spend our dollars, not trying to just book reserves.

Great, thanks. And then my follow-up is on Slide 8, you talked about getting to post 2023 peer leading gathering rates. Can you talk about where that was coming from, where those rates were prior to the renegotiation?

Sure, so we talked sort of high level what our rate structure was around $0.60 as sort of what our legacy gathering costs were and we were saying that market rates were somewhere in the $0.35 to $0.40 range. And so that's -- I think that's what we've been able to achieve with this negotiation with ETRN is we're able to get some near-term fee relief that accelerates the step down into those long-term market rates that we're pretty excited about setting us up for the future low cost aspect of our gathering in this business.

And in many cases, particularly within Appalachia, we're probably below I would say market rates when we get down there.

Our next question is from Michael Hall with Heikkinen Energy.

Thanks, good morning. I appreciate the time. I got a couple I guess a little bit of follow-ups on some of the prior questions, but I guess first on the gathering rate that you show for 2023 steps up a bit, is there any dynamic at play there or is that just kind of feathering in some of the old legacy contracts. And then second, the big step down in 2024 through 2035, is that at all contingent on and any I guess production thresholds. Is it assuming you have good clearance of the MVCs, how does that play through in the forward guide?

Sure. In your first question I think we looked at sort of the short-term, the fee relief that we were going to get. Instead of using that as sort of like a normal step rate over time, we were able to shift that to earlier years, which in 2021 is really important for our business. And so that was more of a negotiated point. On the 2024 to 2035, it's really not contingent on us growing volumes I think one thing that is important for us to note and gives us a lot of confidence in this deal is, when you think about MVCs, we have the coverage to meet those MVCs today and that was something that we were thoughtful about pairing that up with our operation schedule with our inventory and making sure that we can deliver the volumes to get these rates and meet our MVCs over time.

Okay.

The interesting dynamic here though is, we've set this business up if there was an opportunity to grow with this over run rate concept, we'd be able to deliver those molecules and gathering rates at an over-run rate, which is significantly lower than what the blended rate was shown here on this page.

Okay. Yes, that was kind of a follow-up I had. So, yes, that green bar is not assuming any substantial over run rates.

No.

Okay. And then, I guess maybe can you just frame your perspective around MVP inservice timing and kind of how you're thinking about the potential risks around that and how you got comfortable with the Jan 1?

Yes. I think that ETRN will certainly provide some more color on their call today on that, but I think we look at -- we will be consistent with 2021, I think some of the fact that the pipe is 90% complete. I think is definitely positive. I think it's a little bit of a unique situation compared to ACP. The ones that we just heard last week would give people indications that the Supreme Court will overrule the Fourth Circuit. With that happening, there will be a direct read through toward resolved and one of MVP's, one of the issues that's keeping MVP from crossing and getting inservice. I think that this pipe is going to get built and we're pegging Jan '21 is our best guess.

And your next question comes from Welles Fitzpatrick with SunTrust.

Obviously, the revolver is in good shape, but could you talk to your thoughts about the potential impact of that 600 million a day E&P sale, what that might do to the revolver and also, would you sell any hedges in conjunction with that divestiture?

Yes. So, just understand, we do not have a reserve base revolver and so very different, we don't have semi-annual redeterminations and so we're good through let's call it end of July of 2022. So, that's the time period we'd have to go refinance it. And so, any asset sale would have no impact on the revolver today. It's really about our ability to generate free cash flow, retire the rest of the '21s and try to retire the rest of '22s. So, that's really what the goal is. And the second part of your question, just the impact on our hedging. I mean, we're sitting at 87% hedged right now. Obviously, if we sold that asset, it would improve our percentage hedged.

Yes. And whether we sell the hedge or not, I think that's probably a decision that we would make depending on each independent asset sale that we go through.

Okay, perfect. Makes sense. And then for the follow-up, you guys updated Pennsylvania cost per foot, obviously, looking strong. Could we get an update on West Virginia?

Yes. The operational efficiencies you're seeing is one part of driving our cost improvements. I mean, you're seeing that both in Pennsylvania and West Virginia. To be honest, there hasn't been a tremendous amount of activity in West Virginia. So really it's looking at what we're doing in Pennsylvania has a read through to West Virginia. I will say that being able to ship more activity into Pennsylvania in 2020 that affords us more time in West Virginia to install the necessary water infrastructure that will lower our cost on the completions front. So that will certainly help to maintain -- ensure that West Virginia can be on par with Pennsylvania Marcellus.

And our final question comes from Holly Stewart with Scotia Howard Weil.

A lot to digest here between the two companies. So I thought maybe I would just sort of dumb it down here, but looking at that or I guess eyeballing that bar chart on Slide 8, it looks like your long-term rate would go down to maybe what you're kind of talking about as market rates of roughly $0.40 and then if you hit above those MVC levels, that rate would fall to roughly $0.30. Is that the right way to think about this over the long-term?

Probably somewhere in the high-30s is where I think we'd shake out.

Over the long-term?

Yes.

Okay. And then Dave, you mentioned several times like revised hedging strategy, I know you all are pretty fully hedged for this year. Can you just sort of talk through what you're doing differently from a revised hedging strategy perspective?

Yes, so one is duration. We talked about four years. We didn't have a four-year hedge strategy. We will probably enter into the next year at a much higher hedge position, I'll call it somewhere in the same vicinity as we started this year. And then, third is, we'll be more thoughtful on how we add basis hedges, so we have more visibility on really that differential will use our FT portfolio really to help us with that as well because it gives us I think a lot of flexibility to pick and choose which of those locations we want to do and what we're trying to isolate. So I think those are really the three major things.

And then, maybe just one final one for me, I mean given the magnitude of MVP, this is probably one of the last major greenfield projects at least, it feels like right now to go into service in the Northeast. Is there an appetite to sort of monetize any of that firm transportation associated with that project, either maybe both speaking from your standpoint as well as that demand pull side up there?

Yes, Holly. I'd say that optimizing our FT portfolio is, I think one initiative that we're going through that would lower our cost structure. So, yes, certainly that MVP would be included in that. I think when we look sort of high level at the basin about 33 Bcf a day being produced in Appalachia. We've got about 35 Bcf a day of local takeaway in demand and then you couple MVP and ACP would add about another 3 Bcf a day on top of that, so I mean there is pretty decent pipe capacity in the basin right now and that -- when you think about that and realize that there's only about 49 rigs running in the basin, we think you could see Appalachia start to decline, that's only going to widen the gap and allow us to sell more of our gas in basin.

Stay tuned, Holly.

Yes. Maybe I would just follow-up on that and see Toby if you think about all that's going on with producers in the basin and let's just say we have to enter some sort of bankruptcy from perspective from some of the producers in some of those FT contracts are to be thrown out, how do you think about in basin basis responding to that.

Well, the pipe is going to be there already. If the question is, what the rates will be. That's another equation. I guess if producers go and sort of break contracts, but if the pipe is built already and if produces go into bankruptcy, the ability to spend capital gets harder and so, there will probably be even less production and so their pipes will be less filled and so local basis might be better, but that's probably what would happen.

I look at that, Holly, I think that there is, when you look at one of the benefits with Equitrans is they've got such a expansive gathering system coverage across a lot of interconnects. So as that capacity frees up on those pipes, it gives our commercial team more optionality to optimize our production and access to the markets that we sell to. So, I see that could be a net positive.

And our next question comes from Sameer Panjwani with Tudor Pickering & Holt.

Just a couple of follow-up questions on the hedging commentary. I think you just mentioned that the goal is to have the 2021 profile hedge book kind of in a similar position to 2020 as you kind of get to the end of this year. And so I guess I just wanted to kind of reconfirm that you guys feel comfortable hedging at the current 2021 strip to kind of bolster that position.

Yes, I'd just say we're going to be a combination of programmatic as well as an active hedge process and it's a process that takes a lot of time to do. So, think about it in some cases dollar-cost averaging, think about it as being very tactical in certain areas where we can actually hedge at prices we like. We're not going to force and lock in the bottom here. We're going to walk in I'd call commodity as it rallies up over time and for example, we did some basis hedges recently that effectively give us a $2.50 NYMEX kind of floor and so we're able to do certain things in different locations to be able to take advantage of what the market gives us at a moment in time.

Yes, but Sameer, I mean high level our activity levels, the returns that we're generating on our operations, understanding our -- what we need to do to take care of our balance sheet and coupled with our macro perspective on what gas prices will be -- our own that we're weaving together to generate the right hedging strategy. I think the progress we've made over the past six months have given us a really good handle on what the operations, the activity levels, the balance sheet looks like. Now it's really just figuring out what our view is on the macro and how much we need to hedge.

Okay, got it. That definitely helps clarify that and I guess the second question, as it relates to kind of hedge book and activity as you kind of referenced, you guys mentioned earlier, you have about 87% hedged right now and if you sold some assets that would help the percentage, but if we kind of put a what if scenario out there, maybe you don't get any asset sales done, would you think about kind of pulling back on the production for this year to better match the hedge book versus the production profile given where prices are today or do we need to think about it from a longer-term perspective as you think about the leverage profile as well?

We will always optimize so and so activity can move in and around one year to the other, but we're going to make sure we do everything like on a pure return and economic basis and we obviously have to take into consideration levered metrics and ability to generate free cash flow and paying down debt. So there is a multitude of things that go into it.

Okay and I guess, kind of within that, I mean would you guys consider curtailing production without necessarily kind of impairing maybe the 2021 profile from an activity standpoint or anything, but just trying to be a little bit more accommodative of the price on unhedged volumes?

Yes. I mean we could because if the commodity basically doesn't give us the return that we want, absolutely.

And with that, I will turn the program back over to Toby Rice.

Thanks everybody for your time today. Stepping back just looking over the past six months, we've made some very big strides on the transformation and evolution of EQT, starting with the organization, bringing in a dedicated team of leaders to complement the existing staff here. We've aligned the operations with our schedule and evolved well design. We've now with this ETRN negotiation we've aligned our infrastructure to our strategy. All of this is going to allow us to be better capital allocated to create more value for our shareholders. In closing, I'd just like to thank the ETRN team and all the work they've done. I know the EQT team were excited about the partnership and excited about delivering on the results that our shareholders deserve. So with that, thanks everybody and have a good day.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.