Good morning or good afternoon, and welcome to the EQT Q1 Results Conference Call. My name is Adam, and I'll be your operator for today. [Operator Instructions]. I will now hand the floor over to Cameron Horwitz, Manging Director of IR and Strategy. Cameron, ready when you are.

Good morning, and thank you for joining our first quarter 2023 results conference call. With me today are Toby Rice, President and Chief Executive Officer; and David Khani, Chief Financial Officer. The replay for today's call will be available on our website beginning this evening. In a moment, Toby and Dave will present their prepared remarks with a question-and-answer session to follow. An updated investor presentation has been posted to the Investor Relations portion of our website, and we will reference certain slides during today's discussion. I'd like to remind you that today's call may contain forward-looking statements. Actual results and future events could materially differ from these forward-looking statements because of the factors described in yesterday's earnings release and our investor presentation, in the Risk Factors section of our Form 10-K and in subsequent filings we make with the SEC. 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 our most recent earnings release and investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. With that, I'll turn the call over to Toby.

Thanks, Cam, and good morning, everyone. While the current natural gas macro environment has created some headwinds for U.S. natural gas producers at large, the price pullback is reinforcing EQT's confidence in our corporate strategy and illuminating several facets of differentiation relative to our peers. A key pillar of distinction has been EQT's M&A strategy where we have taken a disciplined approach to acquisitions specifically focused on assets that lower our cost structure. The current gas price environment underscores the benefits of this strategy with enhanced free cash flow durability through the bottom parts of the commodity cycle allowing for accretive capital allocation decisions, resiliency and corporate returns and greater consistency and operational cadence. Our pending Tug Hill acquisition further builds on this M&A strategy as it is expected to drive an additional $0.15 decline in our corporate free cash flow breakeven price, providing even greater resiliency to our business moving forward. Another area where EQT is differentiating itself is through our evolved hedging strategy. While we no longer have financial needs requiring hedging, given material improvements in our balance sheet, we have evolved into opportunistic hedgers, predominantly using glide college to derisk free cash flow at the bottom part of the cycle while maintaining material upside exposure to natural gas prices. This strategy is paying off in real time as EQT has among the best hedge books of any natural gas peer in 2023 with 62% of our production covered via floors with an average strike price of $3.38 per MMBtu. In conjunction with our M&A and cost reduction efforts, our hedge book is a key factor driving our full year 2023 corporate NYMEX free cash flow breakeven down to less than $1.65 per MMBtu A third pillar of EQT's strategy driving distinction among peers is our opportunistic capital…

Thanks, Toby, and good morning, everyone. I'll briefly summarize our first quarter results before discussing our balance sheet, the macro landscape, hedging, 2023 guidance and use of our free cash flow. Sales volumes for the first quarter were 459 Bcfe or 2% above the midpoint of our guidance range. Our per unit adjusted operating revenues were $4.11 per Mcfe and our total per unit operating costs were $1.34, resulting in an operating margin of $2.70 per Mcfe. Capital expenditures, excluding noncontrolling interests were $464 million or 7% below the midpoint of our guidance range as operational efficiencies exceeded expectations. Adjusted operating cash flow and free cash flow were $1.24 billion and $774 million, respectively. We also had a $426 million working capital tailwind during the quarter, largely driven by declining accounts receivable from decreasing prices with a further tailwind expected in Q2 and Q3. Our capital efficiency for the quarter came in at $1.01 per Mcfe, which was approximately 10% better than what was implied by the midpoint of our guidance ranges, driven by outperformance on both production and capital spending. Note that as we complete the excess pills that were shifted from last year, our second half capital efficiency should improve by double digits relative to the first half. Turning to the balance sheet. Our strong credit profile and ample liquidity remain a core tenet, underpinning our operating philosophy and will provide differentiated value for opportunities for EQT moving forward. Our balance sheet position continued improving with trailing 12-month net leverage exiting the quarter at 0.9x, down from 1.2x last quarter and 1.9x a year ago. We exited the first quarter with $3.3 billion of net debt and $2.1 billion of cash on hand, inclusive of the $1 billion in proceeds from our notes offering. This week, we extended…

Thanks, Dave. To conclude today's prepared remarks, I want to reiterate a few key points: One, first quarter results were robust across the board at EQT, underscored by strong operational efficiencies and lower-than-expected capital spending and higher price realizations from our Advantage firm transportation portfolio; two, the solid performance facilitated $774 million of free cash flow, underscoring our cash generation potential even in a lower natural gas price environment; three, we built upon our track record of thoughtful opportunistic capital returns during the quarter with nearly $550 million of returns via share repurchases, debt retirement and our base dividend; four, our commitment to a bulletproof balance sheet is evident as net debt declined by roughly $900 million during the quarter, and we exited Q1 with over $2.1 billion of cash on hand; and finally, the current natural gas macro environment is giving us even greater confidence in our differentiated corporate strategy underpinned by efficient large-scale combo development, a disciplined M&A focus on low-cost assets, a risk-adjusted hedging strategy and opportunistic capital returns. I'd now like to open the call to questions.

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

My first question regards the differential guide. You guys reduced your full year differential guide relative to the 4Q press release by about $0.15 per Mcfe, which obviously is nearly $300 million tailwind to cash flow. So I was wondering if you could talk about what actions you've taken to support the lower or the narrower differentials? We did see that you have a little bit more takeaway to the Midwest and Gulf Coast. And maybe help us think about how much of that lower differential is related to the FT versus maybe some basis hedges that you've set up? And what is the potential impact beyond this year as we think about longer-term differentials for EQT?

Yes. So it's a great question, Arun. So we've added about 500 Bcf -- I'm sorry, $500 million a day of FT capacity over the last 18 months, mostly to the Midwest and some to the Gulf Coast. These are definitely higher value regions that give us exposure to improve realization. So -- and we continue to expect to add more this year and make that better. So that was definitely a piece of it. The other piece of it was our hedging strategy and how we had certain areas and leave certain areas open. M3 was a very strong region for us this quarter. As a nuclear facility in New York went offline, we're seeing higher and higher values up in that M3 area as winter shows up. So winter is a very positive M3 area. And then like the third piece is, as natural gas NYMEX prices come down, our local basis narrows as the correlation is about 80% to 85%. So NYMEX goes up. Our basis widens NIM has come down or basis narrows. So those are the 3 impacts of which I'd say the first 2 will probably long-lasting, and we'll improve -- keep doing it. And the last one is going to be obviously subject to what NYMEX prices do.

Great. And my follow-up is for Toby. Toby, it's been just a little bit over a year. I think you announced your unleash LNG initiative at Serra week last year. But I was wondering if you could maybe talk about some of the wins that you think you've had, maybe some of the things that haven't developed as quickly as you'd like. I mean, we do note that we do have now 10 Bcf a day or so of projects, which have been FID-ed. So there is going to be a lot more demand for feed gas for LNG. But I wonder if you could give us a sense, after a year, some of your thoughts on just the overall initiative.

Yes, Arun, let's look at where people's heads are at around the world when they're thinking about energy. I think there's a couple of classes where people sets are at. We've got some people that still have their heads in the sand, thinking that just focusing on the United States and fixing emissions here is going to somehow solve the global emissions issue that they're concerned about. They need to pick their head up. We've got other people that have their heads in the clouds and thinking that some of these solutions that are being proposed, the 5 physics and are only addressing 1 part of the energy ecosystem, and they may be a little bit too optimistic. What we need is people to have a level head talking about deploying proven, scalable, truly sustainable solutions like unleash U.S. LNG that will have the biggest impact on lowering global emissions that will have the biggest impact on providing more energy security to the world. Now I'm excited about where the world has moved. We've moved away from a world that is a sum of the above approach towards energy, only solar only wind. We've seen that strategy play out in Europe and the world has taken notice that, that may not be the best solution, and it may not be capable solution. So the world has moved back towards a more realistic and more practical approach in all of the above approach towards energy. That's where unleash U.S. LNG sits. But if we want to meet the environmental ambitions and the time line needed to get there. If we want to accelerate pulling the 3 billion people around the world that live in energy poverty, if we want to protect the 60% of Americans who live paycheck to paycheck, we…

The next question comes from Umang Chaudhry from Goldman Sachs.

My first question was on the -- on your plans. On the outlook, I mean, you appreciate your thoughts around the natural gas macro outlook. I was wondering if you can give any color in terms of like what levels would you look to adjust your completion activity? And any color you can provide on your choke management plans.

So we'll continue to measure the current commodity price. I think the default plan for EQT is to continue a steady pace operationally even given what we see in the commodity outlook. We have the luxury of keeping a steadier plan because of the fact that we are the low-cost operator. And so we'll be able to capture some of the efficiencies that come along with with that steady activity plan. As far as production is concerned, if we see local prices get below the cost it takes for us to produce, then you're going to see us curtail volumes. So that will be a game time decision and we'll watch how the setup continues to evolve and operate our business accordingly.

Yes. And I'd just add, due to the water line issue last year, our production has not -- is below maintenance levels normally by, we'll call it 2% to 3% already. So we've actually contributed, I would say, our share a little bit of the reduction in gas to help balance the market as well.

Got you. That make sense. And then I guess, more for a longer-term question. As you highlighted in Slide 29, we are probably going to be in a volatile gas price environment going forward given you have not built up our gas storage capacity here in the U.S., even as demand has grown. Would love to revisit your thoughts around around the optimal long-term leverage and also on your hedging levels, acknowledging that obviously, your free cash flow breakeven is low, and it's probably going to even reduce going forward.

Yes, it's a great question because you're right, with lack of coal-fired generation as baseload with some nuclear coming offline and then replacing it with gas and renewables, you're going to have more and more volatility going forward. And so as a producer, how do you handle that One, you have to have a very, very strong balance sheet. So having investment grade, having onetime leverage. Maybe over time, we'll build up cash as well. So our net leverage might even below that 1x. The second is you have to have the low-cost structure, right? So if you notice, we've taken our cost structure down from from we'll call it, $2.85 to $2.90 down into the 220s, right, over time. So very important to be a low-cost producer in a commodity business. And then third is we're using our hedging strategy with collars. If we do something on the LNG front, we'll do stuff with collar. So we'll try to manage that volatility. And so I think that's the 3 ways we'll do it. And I'd say the fourth way is probably also to have very low to no emissions because that means the end market demand will stay very strong for your product on a relative basis.

The next question comes from John Abbott from Bank of America.

Apologies for the sirens in the background here. It sounds like something is going on. Our first question is related again to the Tug Hill and Excel Midstream acquisition. It looks like you're still suggesting those are going to close around midyear. It sounds at that time, we'll have potentially some sort of update to guidance. Just sort of thinking about that, could you remind us what is included in the $80-plus million of synergies that you had initially suggested? And at this point in time, where do you see potential upside versus that?

Sure. So the $80 million in synergies that we identified primarily came from some midstream synergies, connecting our -- building some pipelines that would connect our asset base from Ohio, West Virginia and Pennsylvania. Another synergy that's fairly large is connecting our water systems. So there will be a synergy there. I'd say all these things, when we look at the synergies, we tried to be really practical in outlining what those are. Those will be additive to the accretion numbers that we put out. And given the fact that these are largely infrastructure related, they're typically lower risk in nature. Some of the upsides that we look at, we have a track record of improving operations on the assets that that we ultimately inherit. Our drilling team is a really great example. Look at the drilling performance that we -- the uplift we've seen in performance on the Alta acquisition, -- we do think there is an opportunity for us to repeat that. We've got a very strong drilling team. So those will be some of the upsides to that. And when we look at that $80 million of synergies, how does that compare to the $0.15 that the Tog Hill transaction will impact by lowering our free cash flow breakevens, these $80 million would be an additional $0.04 and on top of that $0.15 just shows you the impact of adding this asset under our belt will be very impactful in lowering our costs.

So just to be clear, does combo development factor into those synergies?

Combo development does factor into the synergies the dual development also will take place. I'd say the only other logistical impact that will present itself is -- the frac activity that's taking place on the Tolko assets will become another location for our water team to use for recycling. And water recycling is a big needle mover on efficiency gains. Our water recycling team is -- our water recycling rates have gone from 80% to over 90%, and we're going to continue to focus on increasing our water recycle rates in the Tuck Hill assets will give us a little bit more flexibility on how to achieve that.

Appreciate it. And then I want to go back to Arun's earlier question on differentials. So Dave, it sounds -- as you said, you've had about $500 million of FT over the last 18 months. How do you describe the opportunity set sort of going forward to improve on realizations going forward at this point? What is -- how do you think about available FT coming up? What is the opportunity set there for you to improve realizations at this point?

Yes. So I would just say there are other producers in the basin that are letting FT go. And so as that comes available, we'll pick it off I don't want to get too specific because, obviously, we want to execute on first and then we'll talk about it. But there -- I'd just say there are pieces out there over time that we will pick up and continue to grow that number. And I'd just say as producers have less and less inventory in the basin, those opportunities just grow.

The next question comes from David Deckelbaum from Cowen.

Perhaps I just wanted to go back on a couple of points that you had already made. But if you could provide any color on what your expectation is in terms of crews and rigs perhaps leaving Appalachia if you give us a sense of magnitude and timing when we might expect to see some incremental softening around the service side as you think about getting into the back half of '23 here?

Sure. Just to level set what we've seen, we've seen a 10% reduction in rigs that were focused on gas. It's about 17 rigs have come off. We expect that trend to continue down -- and we're also looking at some of the commentary. The big focus really needs to be on the completion activity -- and from the earnings with Halliburton next year Liberty, they are signaling that they're seeing a mobilization of frac crews moving away from gas towards oil. So that will be something else that we're looking at throughout the course of the year in addition to the rig reductions. .

Yes. And I'd just say Yes. I'd say logistics items like sand, falling, steel, those are things that we're looking at probably in the second half of the year to probably soften -- and -- but we obviously didn't put that into our numbers because we need to see it happen before we make that move. .

You brought up, I think, if there are some ongoing headwinds here before we get to a lot of the LNG egress that comes on in -- and obviously, the coal retirements looking for some displaced gas there. How do you think about managing a like short-term curtailment profile? And you highlight at a corporate level now your free cash breakeven this year are $1.65 with the benefit of the hedge book. Do you think about curtailing things at a corporate level? Or is this still calculated at a field level of sort of an individual area or a bad basis? .

Yes. We look at it at a field level. We look at it both, but -- and we could tell things, I'd say, at moments in time, we don't really talk about it much. So there might be a weekend here, we can there -- but when we want to do like a broader, larger, then we'll look at the overall rates of return. We'll look at the forward curve. And make a decision about are we -- can we create value by moving gas into the, future as opposed to keeping it producing today. So -- you know we've shut in production in 2020 a couple of times, but we also shut in production in '21 that we didn't really talk much about. Those are shorter term in nature. So we'll do it both field and corporate.

I appreciate that, David. And if I could just ask a little bit more on just Umang's question earlier around the hedge book. The curve for '24 is kind of sitting in and around the area where you guys had hedged out for '23. You don't have much hedge volumes in '24 now. I guess how do you think about that dynamic just given the fact that your realizations could look pretty attractive if you hedged out 24 at this point? Is that more a sort of a commentary or reflection on your confidence in hitting deleveraging goals this year and requiring less of a hedge profile next year? Or is that more of taking this wait and see into what ultimately might be a volatile spike for the '24 curve?

Well, when we hedge and we use collars, okay, we like to see SKU in the -- when we do that. And so the best times to add collars is when you have an upper movement in gas. If we wanted to do swaps, which we could do and lock in some of this and protect some of the 2024 picture. But what we're also seeing is we're seeing activity slowing on the gas side. We're seeing activity starting to slow on the coal side, and we're heading into the summer months here, which is a catalyst. And we're also seeing some incremental LNG come on in the first quarter of next year with Golden Pass. So I think the worries about storage levels getting to 4 Tcf or 4.1 TCF. One, we don't think it's going to get there. I think you're going to see it come in short of that. And then the second is, if you think about storage, even at 4 Tcf, that's basically 30 days of cover which if you understand the commodity business, I know you do, you really need 60 days to really provide any buffer in a peak demand period. So we see if you get normal winter, you could see spike in gas and you really need about 400 Bcf of incremental storage in 2024 to be able to support that incremental LNG that's coming online in '24. So I think we're seeing a very positive setup here. The big negative could be if summer doesn't show up and we do on show up. And that's why we like to hedge is to manage those risks. So we're going to try to figure out the right time to jump in and add those hedges and try to derisk it. But we see a lot of moving parts, both positive and negative and trying to make sure that we get from a timing perspective and how we hedge right.

The next question comes from [indiscernible]. Your line is open. Please go ahead.

You touched on the [indiscernible], could you talk about your current volumes that were able to get down to the Gulf Coast? I see the 28% you have on Slide 20. But I wasn't sure if some of that was financial exposure and maybe not actual volumes. And then maybe how you're thinking about your options to increase takeaway specifically to the Gulf Coast? Are you looking to do something similar to that $200 million you picked up last year? Or are there -- are you comfortable with your mix? Or are you looking at M&A or midstream partnerships?

Yes. So the volumes down to the Gulf, that's all physical. That's not financial. And so -- and we are looking to add more over time, and there is more pieces that will come up over time. It's very episodic, as you can imagine. So we will look to continue to grow the FT position to all the higher-valued areas, including the Gulf. And I think it's important to note that as you see a lot of volume growth down in that area. It's important to have hedging will play more of a role in the Gulf Coast as Haynesville tries to grow and Permian tries to growth. So you need to have Gulf Coast and hedging as a strategy now. Once you get tied up into the LNG market, then that will actually alleviate some of the need to hedge basis down there, too. So there's a lot of things that you need to do to manage the complexity down there.

Got you. Very helpful. And then maybe could you talk about the allocation of free cash flow in future periods. If we see a significant call on gas prices from LNG demand, do buybacks compete with acceleration? Do you look at them independently? Or do you compare them on kind of an IRR level? Or is it maybe you guys have an internal NAV on your company? And if your shares trade below or above, that's how you decide what activity level to do?

Well, right now, until we have all LNG off the East Coast, we're going to be running in a maintenance of capital perspective. So right now, the buybacks are competing probably more with our debt retirement and maybe a little bit on the margin with dividend. If we were to get access to East Coast LNG and be able to grow, which we're talking -- we'll call it several years into the future, then it will be a rate of return exercise, and we'll have a view of what we think our NAV at a, we'll call it mid-cycle price, and then we'll compare it against the value we can get to lock in that growth with LNG pricing.

The next question comes from Harry Matti [ph] from Barclays.

Circling back to Tug Hill, the bonds you issued last year had some SMR conditions in them linked to a deal closing by June 30. And I appreciate you still think you're on track to close by midyear, but clearly, it's going to be a little bit closer to that date than you originally envisioned. Dave, maybe you can talk a bit about how you're thinking through those mechanics and what your contingency is of closing so last June.

Yes. So I think if you listen to the comments we made, we purposely made the comment that we're sitting with a lot of cash and we have the term loan extension that we just did. We effectively don't need any of the bonds if we cross over into past June 30.

Got it. Okay. And then my follow-up there is just, I mean, given the strong start to free cash flow this year, would your preference actually be to have even more short-term prepayable bank debt and the financing mix. you originally envisioned just to provide even more short-term debt reduction runway?

We'll think about that. That's more of a, I'll call it, maturity management exercise. So that's something we'll think about as we get closer to midyear.

The next question is from Paul Diamond from Citi.

Just a quick circle back. I mean given the -- kind of looking beyond 2023 and given structural takeaway constraints, -- how do you guys think about opportunities for in-basin growth, whether that's through industrial or other means?

Are you talking about the demand growth? Or you're talking about us growing production?

Demand growth in [ph] basin.

Yes. So you'll have coal retirements as part of that. As you know, the Shell cracker has come on as well. And -- and I would say probably in the neighborhood of 1 to maybe 2 Bcf per day over the next several years is probably a good sort of ballpark number.

Understood. And just kind of a more 30,000-foot question. As you look kind of beyond Tug Hill on the M&A front, -- should we think about your guys' potential use of any cash flow in a longer term, still focusing on costs? Or will any of those -- any of those goals kind of shift, whether it's to inventory or filling production? Or how do you guys think about that kind of beyond [indiscernible] in '24 and beyond. .

On an M&A basis, our strategy will stay the same. Obviously, a commitment to making sure the financial accretion is there. But the differentiating aspect is looking for opportunities that will lower our cost structure. And the new dynamic is really the competition is competing with the value from buying back our own stock. So I mean, that ultimately is going to be the thing that changes given where our stock trades, but we're going to stay committed with this strategy that we've laid out. We think it's created a lot of value and we'll stay disciplined.

The next question comes from Noel Parks from Tuohy Brothers.

I just wanted to talk a bit about when we're thinking about expansion of nat gas into industrial uses, microgrid reduces and so forth. I sort of have in mind your your project with Bloom Energy that is been underway for a while now. In a lot of these type of installations, what becomes evident pretty quickly is the whole sort of grid integration type of issues that can come up, especially when you're looking to sort of resiliency type issues. And I was just wondering, in the sort of EMS management -- energy management system software technology market, I'm hearing more and more about that being a focus as people look at projects. I just wondered, is that something that you could protect potentially see yourself making an investment in sort of the software, energy integration software. Is that something you could picture yourself doing under the EQT umbrella?

For us, we do -- are very big supporters of electrify the world. Doing that is going to present a lot of challenges that you mentioned, the resiliency of the grids are they capable of handling extra load presents some serious problems. I think you look at -- see what happened with California where the are going to ban ICE engines and then a week later tell their citizens to not plug in their electric vehicles and the to charge them. This going to present some big changes but they're also going to present some big opportunities. One of the investments that we've made on our new ventures front has been an investment in a company that is going to address the behind the grid power generation company called what fuel cells is creating basically a fuel cell that runs off natural gas and generates power for the size of a microwave can power your house. These are the type of solutions that are going to strengthen our grid but it's going to be the decentralized smaller scale opportunities that will exist and at price points that retail consumers can get into. So that's sort of what we're looking at and that falls into our promoting natural gas demand while supporting the electrification theme that's taking place.

Great. Not something I've heard of before. So it's interesting. And just taking another stab at sort of the macro picture. If we look at sort of this incredibly volatile year we've had sort of spurred off by Russia, Ukraine and then sort of the downward move you saw on weather. Do you think that we are I mean the software a long time was that LNG and that export demand, if anything, might sort of contain volatility a bit. But I'm wondering if it may be -- the reality is that we're going to see from geopolitical pressures and seasonal variances. Is it conceivable you think that we're headed towards maybe a permanent level of this sort of volatility I mean, I looked back over the past year, there's maybe only 1 or 2 months that haven't seemed to then like a $2 swing intra month on pricing. So yes, I guess I just interested in your thoughts on is -- is this the new norm we're going to get used to? Or do you look at the past year as being more an aberration that will indeed get smoothed out by.

Yes. So we're in a world where natural gas is becoming a global commodity and what happens in the world will influence prices here in America. So that could introduce more volatility, but we have the opportunity to reduce the volatility and provide more stable, lower prices for Americans and also for the world. Our ability to export natural gas, our potential is here in this country is 60 Bcf a day is what we think we have the production potential to put that amount to bring that amount of energy into the world, put it on the water and provide energy security for the world. that amount of energy is equivalent to 10 million barrels a day. It's equivalent to adding a Saudi Arabia of clean energy to the world stage. That's going to be a decarbonizing force and exports mean surplus and surplus means less volatility. Stores levels will stay fuller and the commodities, I think, ultimately will be underpinned in the economics to the people participating in LNG will be set with long-term contracts. So the certainty on pricing and the economics of the investments that we're making will be shored up. So we think it's a tremendous opportunity. The world will be volatility. We do not need to accept it. We can respond in America and energy producers like EQT are the key to reducing the volatility.

Yes. And I'd just say we need more storage capacity and we need more pipelines to be able to do it because if you keep taking coal-fired generation, which is baseload offline and don't replace it with the ability to add more baseload kind of fuel. You're going to increase volatility.

The next question comes from Josh Silverstein from UBS.

Great. SP249079218's You guys mentioned some flexibility in the program for this year, obviously, depending on price. Can you just elaborate a little bit more what that might mean? Would you reduce rigs? Would you just build up DUCs for next year or thoughts and any shut-ins. Just curious what you guys would think about as far as flexing activity. . Josh, the simple way to think about it is EQT is.

Going to continue building our production capacity. Whether we deliver that production capacity into the market will be -- at what levels will be determined by the price that we're receiving for the product. So that means rigs are going to continue to roll roll forward the development plans, same thing with frac crews, but whether we put that production into the market will be something that we determined at the time where those -- where that decision will be made.

Yes. I mean we're not running 15 rigs we're running 2 put in perspective -- so we don't have a lot of cutting 50% of our rigs would be more damaging to us. We can manage the production in other ways if we have to. .

Got you. Yes. And you guys had rolled some 2022 capital into into this year as well, so I wasn't sure. And then just another question on free cash flow allocation. Europe you extended the thoughts on debt reduction and buyback out, obviously, because of the delay in closing the Tokyo transaction. But relative to your targets, you have about $2.9 billion left in debt reduction, $1.4 billion left in the buyback. So pkind of a 2:1 ratio there. How do you think about the allocation of and hit those targets, and obviously, depending on the deal, but just as far as how you're thinking about the -- wanting to tackle both of those.

Yes. So we are -- we're actually further along on the debt buyback is the amount of free cash flow that we generate. And so I think we could see ourselves getting to a target somewhere around midyear next year. That gives us flexibility to buy back stock as well in that. So I'd say Q1 is probably still a good ratio. And then once we hit our debt targets, we could then effectively change that ratio be much more equity if you want to, assuming we're going to be opportunistic, right? But we have -- we'll have a lot of flexibility. And then just beyond that, you think about it, we really only allocated about 1/3 of our free cash flow. So you think about that as a longer term -- how do we deploy that capital. And again, that will be and the next guy sitting in my seat role to figure out how to allocate capital properly.

And Dave, the next guy is going to be leveraging the capital allocation framework that you put in place, the modern hedging strategy put in place. So there'll be a lot of continuity in the strategic decisions that are made in this organization.

So I'll hand back to the management team for concluding remarks.

Thanks for joining our call today. thanks for joining the call today. We are in a world that is struggling with energy security. It's been compromised and the ambitions to lower global emissions has never been stronger. Fortunately, EQT is a company that provides energy security to Americans and the world. And has the capability of significantly lowering global emissions by using our natural gas to replace coal. So we're excited about the opportunity set in front of us, and we will keep our heads down executing on our business. Thank you.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.