Expand Energy Corporation (EXE) Q1 2026 Earnings Report, Transcript and Summary

_Good day, and welcome to Expand Energy 2026 First Quarter Earnings Teleconference. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Brittany Raiford, Vice President, Treasurer and Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining our call to discuss Expand Energy's 2026 First Quarter 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 that can be found on our website. With me on the call today are Mike Wichterich, Josh Viets, Marcel Teunissen and Dan Turco. Mike will give a brief overview of our results, and then we will open up the teleconference to Q&A. So with that, thank you again. I will now turn the teleconference over to Mike.

Thanks, Brittany. Good morning, and thank you for joining our call. The team delivered another solid quarter. Honestly, they make great execution look easy. Over the past 2.5 months, I've had the opportunity to work with our team and spend time with our customers, speak to potential domestic and international counterparties. I got to tell you, I'm more optimistic today about our industry and company than ever. There is no disputing our industry is in the midst of a major demand growth. The big 3 drivers of demand, AI power, the reshoring of heavy industry and global LNG growth are converging to make the future bright for natural gas. All of this was happening even before the recent events of the Middle East. So now in addition to structural demand growth, energy security has pushed the U.S. natural gas to the forefront. Expand is uniquely positioned to take advantage of these events. Simply put, we have positioned ourselves to be in the right place at the right time. For example, our Gulf Coast assets sit at the epicenter of LNG. In fact, our largest customers today are LNG facilities, and there is an increasing recognition of the strength and competitive advantage of our Haynesville position. According to third-party reports, today, we own 72% of the lowest breakeven inventory in the basin, allowing us to deliver certified natural gas directly to LNG facilities with minimal risk of basis bloods. Fundamentally, we see LNG as a natural extension of our business. Demand in the region is not just LNG, AI-driven power and industrial demand is rapidly growing in the region. When you combine structural demand growth in energy security, we believe the Gulf Coast is well positioned to become a premium price market. Our Appalachia assets sit at the core of AI power demand. We believe the Northeast will soon see demand growth of 4 to 6 Bcf per day. In-basin demand growth will unlock pipeline-constrained production. We're also seeing a renewed optimism to build infrastructure to serve more Americans in the Northeast and Southeast markets. In-basin demand growth, combined with new infrastructure, will unleash our low-cost inventory and create substantial value for both Expand and our shareholders. Now let's turn our attention to the first quarter. Financially, we did well. We generated $1.7 billion of free cash flow inclusive of working capital inflows. True to our word, our strong cash flows were used to reduce gross debt by $1.3 billion and returned over $290 million to our shareholders through base dividends and buybacks. Operationally, like our peers, we kept Appalachia assets running with an impressive 98% uptime during Winter Storm Fern. Our Gulf Coast assets were impacted by the storm, resulting in some shifting of CapEx from first quarter to second quarter. Importantly, our full year production and capital guidance are unchanged. A lot of you, and frankly, a lot of our peers are anxious to hear about the progress in the Western Haynesville. Early production results from our first well have been encouraging. We are pleased with our execution and cost competitiveness on the well and have more wells planned this year. So stay tuned. Last year, we made tremendous operational improvements, but we see room for continuing operational improvements across the portfolio. and are excited about the early impact of machine learning and AI is having on lowering cost, enhancing well productivity. I see this as our own self-help program. Marketing and Commercial has been our primary focus for the quarter. As promised, we have attacked this opportunity with discipline and urgency. The time is now for us to improve our margins, grow cash flow per share. Our goal this year was to increase the number of commercial opportunities evaluated to ensure that we are achieving the best risk-adjusted returns for our shareholders. I'm happy to say we've made great progress on this front. On our last call, we stated the size of the prize of this effort is about $0.20 of margin improvement, which equates to approximately $500 million of repeatable incremental free cash flow per year. We do not believe that we have to swing for the fence searching for one transformational deal. We will be disciplined and create value by stacking singles and doubles across 3 general categories: First, reaching premium markets. Our expansive footprint across 3 different operating areas gives us access to more customers and options to optimize our flows. To be clear, we are changing our mindset to be a more customer solution-focused company. In the past 6 months, we've added a combined 0.5 Bcfd of term sales and firm transportation to end users, extending our reach to premium markets. Second, monetizing volatility. In the first quarter alone, we generated nearly $90 million incremental value, a greater example of how we can capture and monetize the volatility we see in the market. While this was primarily driven by unique events, these are the types of gains we're looking to achieve more sustainably. Finally, facilitating and capturing new demand. Today, we announced a new offtake SPA with Delfin LNG for 1.15 million tons per year, extending our market reach to global demand centers. We see great value in this transaction as it's bigger, reaches market sooner and cheaper compared to our previous agreement, which has been terminated. Our LNG strategy will be dynamic and shape of the economic merits of each agreement partnership or joint venture. We will take a portfolio approach, continuing to add to our LNG opportunities over the next several years with different types of contracts. In parallel, we'll continue to pursue opportunities to broaden our power sector customer base. supplying natural gas to a growing number of power generators, load-serving utilities and increasing our exposure to data centers and hyperscalers. We have no doubt that Expand is built for this moment. Why? We're the largest natural gas producer in North America. Counterparties want to do business with someone who's going to be around for the next 20 years. The depth of our portfolio, combined with our investment-grade balance sheet, provide that confidence. We are in the right place at the right time. Nearly 90% of expected U.S. demand growth can be served by our assets. Lastly, we have a team that can execute. We reset the economics of our Haynesville position last year. And today, we continue to see opportunities to strike more value from every dollar of capital we deploy across our portfolio. Before we take your questions, I would like to take a moment to thank Brittany for her service as interim CFO. She did a terrific job. I'd also like to welcome Marcel Teunissen to the team as Executive Vice President and CFO. Marcel is the kind of leader who can elevate our entire organization. He brings deep experience that aligns perfectly with the opportunities we've highlighted today. I'd also like to note our CEO search is progressing well and remains on target for the time line I presented on our last call. However, the team is not waiting around. The Board and management team are fully aligned. We are executing our plan today, and we see numerous paths to reaching more markets and improving our margin. Thank you. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Matthew Portillo with TPH.

Wanted to start out on LNG. Could you perhaps discuss why the Delfin LNG project was attractive to Expand? And then maybe more broadly, could you talk about your thoughts on the global gas market as it relates to supply-demand balances and how this might play into your LNG marketing portfolio from a time to market perspective.

Great. Thanks, Matt. This is Mike. Number one, our LNG strategy is really an extension of our Haynesville. We think about it more broadly than I believe most, which is we think about first, delivering gas to Gillis, which we think will ultimately be a premium market because it's connected to all of the LNG facilities. In fact, LNG facilities are our biggest customers today. When we start to think about on the water, of course, LNG, we think about that as international pricing. We want exposure to the prices, whether it be JKM or TTF or others. Delfin is the start, and we'll call it a foundational sort of contract in order to start to capture the LNG market opportunity and the premium pricing. It kind of flows into our bigger marketing plan. When I think about the 3 different sort of categories, we want to be in premium markets. We think LNG will do that as we move into Europe and to Asia. Two, of course, volatility. It's a different volatility sort of shape than our Henry Hub exposure. And then, of course, new demand, that's a new facility that's getting built. And so it is actually helping new demand in the area. And in fact, that gas will come from both Sabine Pass and [indiscernible] pass. Dan, why don't you tell them a little bit more about the details?

Yes. Thanks, Matt. So as you know, we originally had an agreement with Delfin in Vessel II, and we had this opportunity where our conditions precedent date passed, and we terminated that contract. And as Mike said, we believe in the global LNG demand here. And so we had the opportunity to look at Vessel I and take out a larger position. And important to that as we terminated the back-to-back contract as well. So as Mike alluded to, this gives us all the integrated strategy that we're trying to do, facilitate that new demand through that SBA reach premium markets, get that asymmetry and importantly, we have some of the control on the water, either ourselves or through long-term partnerships where we can create more value and take a portfolio approach to our supply position and our sales position downstream offered different terms and tenures of sales and also different indexations. The other important aspect I'd point out here is, we're trying to integrate this through our value chain. So we have a long-term partnership with Delfin. We're negotiating with them right now to be the gas supply managers. So we're integrating it right through our value train. That differentiates us and brings more value to us. And we think bringing more value to the customers, we'll be able to offer different solutions.

Great. And then maybe as a follow-up on the marketing side. If we look out over the medium term, at least to us, it feels like it might be a bit of a challenge given the inventory exhaustion for smaller producers around the Gulf Coast to maintain a supply level that can keep up with demand growth over the next few decades. And I was just curious if you see an evolution in Gulf Coast supply-demand balances? And specifically, do you think we need to see more pipeline capacity coming out of the Northeast to help bolster supply on the Gulf Coast over the medium to long term?

It's Mike again. Generally, we agree. We agree. We have a lot of demand coming to a very small area. That's, of course, near our Haynesville asset. So we feel pretty well positioned, and we're fortunate to have a deeper inventory than most. And so we'll be able go a lot longer than everyone else. Long term, when you start thinking about 20-year contracts, of course, you need to find other supply in different basins. That, of course, can come from the Northeast. We're always worried about can it be done or not should it be done? We definitely think it should be done. So more gas will have to come from Appalachia. And of course, we'll benefit from that on our own assets. And of course, everyone knows that there's going to be more gas that's coming from the Permian as well.

Our next question comes from the line of Doug Leggate with Wolfe Research.

Marcel, I welcome, first of all, I wonder if I could take advantage of this being your first call. You obviously joined from a retail company, but you have a tenure at Shell, long tenure at Shell before that. So I wonder if you could maybe just share with us why did you take this position? What do you think you bring to the table? And if I may, on that last point, we know Mike is very keen on getting the breakeven down in market is a big part of that. So I wonder if you could share your thoughts on how you think you fit into that strategy. And I guess my follow-up is on one of my favorite topics, which is cash return on balance sheet, you appear to have inherited a pretty stellar balance sheet in the first quarter. My question is, when you think about hedging, when you think about volatility what is the right capital structure in terms of balancing things like cash returns versus continuing to delever.

Well, great. Thank you, Doug. Thank you for the question. It's a pretty long run. So it's good to get out there. So maybe just by way...

Part in Part B.

Yes. Okay. I'll take them all. So my -- just by way of my background, so I've been in the energy sector for almost 3 decades, and I've worked in the upstream, the midstream, the downstream on the oil side, the gas side. And also in every part of the world, so I bring an international perspective on that. And I've done finance jobs, obviously, but also commercial, corporate development strategy, jobs and operations. The last 5 years, as you mentioned, I've been in the Canadian downstream company, really on the customer demand side working on optimizing the integrated margin, capital allocation and the likes. And prior to that, I spent almost 25 years at Shell, which the last many years, on Shell's integrated gas business. So that's how I kind of come to the job. And then to Expand, I think most of it has been said by Mike, right? I think the Expand platform is just incredible in terms of its size, in terms of its positioning here within the U.S. And it's at a time that the energy market is really -- both in the U.S. and globally is going to transform fundamentally and we're well positioned. And then you look at the strategy where we are we want to capture more value by being integrated into that value chain, and that's why I bring a lot of kind of experience and background. And so I'm excited about the opportunity and what we can do here with the team, incredible people and as is an incredible business and platform to kind of grow from. So that's kind of the background and why I joined and the opportunity I've seen. In terms of breakeven prices, right, you asked a question what I believe around breakeven prices. We are kind of leading there within the industry, well below $3 now on a breakeven price. And that breakeven price by capturing margin will just create more value for our shareholders when we do that. So we'll continue to work on the cost side as Mike also alluded to with Josh and his team but also by capturing more of that upside on the margin, we will just improve our relative position even further. So that's an important part. The balance sheet. Made incredible progress on the balance sheet. And the way I look at that, it's important for us to be investment grade. We're a big company. We are a counterparty. People need to be able to rely on us. And of course, we're in a very cyclical business. So we want to be investment grade, not just in the good times, but through cycle, and that's important. You've seen after Q1 that we now have peer-leading kind of leverage, and we reduced most of the free cash flow we generated in the first quarter to reduce our gross debt and, of course, to put some additional cash on the balance sheet as well. And then going forward, this continued -- our strategy continues to be anchored on that balance sheet as we think of the opportunities that we have. Now having said that, I think given the allocation of free cash in the first quarter and the progress that we've made relative to what we laid out at the start of the year, we can rebalance a little bit the pace of that and also kind of lean a bit more on the shift that kind of balance to shareholder returns in the form of buybacks. So that's kind of how we think through this. Let me pause there unless, Doug, there was a part of the question that I...

No, I think you've given -- I just want to -- maybe just on that last point. So at the end of the day, your breakeven is still above where the gas price is right now. So is share buybacks more of a -- I mean, do you think about that as opportunistic? Do you think about it as ratable or when you're theoretically at a gas price, which is burning cash, by definition, below breakeven. Is now the right time to back your stock? Or is now the right time to put cash on the balance sheet. I'm just trying to understand where buybacks fit in the seriatim of priorities?

Yes. So I think we do both, right? And we can walk and chew gum. We're still generating cash. Of course, our hedging program means we are realizing prices well above what you see in the spot markets at the moment as well. So I think that's important. And think of our buyback program is opportunistic, right, relative to the value we can get in buying back. And so it's a capital allocation question, and it's a balancing act, and I think you highlight that well.

Our next question comes from the line of Kevin MacCurdy with Pickering Energy Partners.

Maybe to start off with an operational question. You guys made tremendous progress on well cost last year. CapEx also came in lower in the first quarter, but you also had kind of lower turn in lines I wonder if you had any comments on leading edge well costs are you still making progress on efficiencies? And maybe any comments on increased competition for services or higher prices you're seeing out there?

Kevin, yes, we continue to make progress on our operational efficiencies. Just just in the last couple of weeks, we've drilled the fastest well ever within our Utica program in Southwest Appalachia. So the teams continue to do a phenomenal job and finding ways to unlock new value. I think we'll continue to see those strides. An area of focus right now is for us perfecting how we drill our 3-mile laterals in the Haynesville. And so I still see upside there. As far as pressure on services, of course, we've seen an uptick in rig counts in the Haynesville. We really haven't seen the impacts of that show up in our business yet. Our costs have been stable I would say, outside of some near-term inflation around diesel prices, which is largely tied to the conflict in Iran. But beyond that, I would say the cost structures have been relatively stable.

Great. I appreciate that detail. And then maybe for my second question, I'll move to the Western Haynesville. And I realize that program is still pretty early. But is there anything you can share with us on what you saw in the first well in terms of -- where you think well costs are going to go, where you think you can take your expertise from the legacy Haynesville and translated over to the Western Haynesville? And any thoughts on production on that first of all?

Yes. So the well has been online for the last couple of months now, came online in early March. And so we're still monitoring well performance there. I would say we've been very pleased with what we've seen to date. We liked what we saw when we initially drilled the pilot well there. So we knew we were getting into a really good overpressured reservoir there. But again, it's still early. We want to be methodical about how we appraise those results. We've also, just here recently in the last week, spud our second well about 50 miles to the north of our first producing well. And I do think on the cost side that I have every expectation that we will continue to work ourselves down the cost curve. We're by far the most proficient operator in the Haynesville. We've built up a lot of history drilling our deep hot wells in the southern part of the Louisiana core. So of course, we're going several thousand feet deeper, but there is a lot of learnings that we can translate into the Western Haynesville position. In fact, when we just look at our first well that we drilled in the area last year, we're already on the lower end of the cost curve relative to what we've seen from competitors. And again, that's on one well. And I have every expectation that we'll continue to leverage those learnings and continue to work ourselves down the cost curve.

Our next question comes from the line of Neil Mehta with Goldman Sachs.

Yes. Marcel, congratulations and looking forward to working with you again. And Mike, you gave us a little bit of an update on the CEO process. It sounds like you're tracking for a Q3 or Q4 event, but just any mark-to-market on how you're progressing through it, how you're attacking this process and what you're looking for in timing?

I like the way you said that mark-to-market. Look, number one, the team is not waiting for a new CEO. I think you should see from our behavior and our quarter results here and efforts on marketing that there's no waiting for a CEO to show up before we do something. So #1 job is just to continue to create value for our shareholders. With that, of course, we're looking for our leader, and we still expect to be on the same time. The mark-to-market, I'd say, is still kind of at the money on my 6-month sort of prediction of when this person would show up. We don't think that we'll find the perfect person. We think we're trying to build the perfect team. And so with that team, you'll hear about Marcel's background. Of course, we have marketing with Dan, Josh, and so we're thinking it very holistically. We expect to have an energy person, not someone from Starbucks or Chipotle to come into this job, something more closer to our business. But on path, on strategy, I think that's fine. And now today, it's just about execution that we continue until this person's arrival.

Okay. That's really helpful. And then -- just the follow-up on the hedge to wedge strategy. You have a good slide in the deck just talking about how volatile the gas environment has been. We've been living in this $2 to $6 range. Obviously, in the shoulder, we're below the midpoint of that range. And so the hedging strategy has worked out pretty well for you guys. But do you have some competitors out there that are running a much more unhedged program. As you guys think about the balance sheet being where it is, what's the right approach to hedge the wedge? And just while we're talking about hedging just any comments on the gas macro broadly as we set up for '26.

Well, thanks, Neil, and good to hear your voice and looking forward to working with you. It's Marcel here. Let me answer the question on hedging, and then I'll pass it on the macro back to Mike. So coming in from the outside, and obviously, risk management is a critical part of how we manage the business. So -- and I've studied the hedge to watch program and all of that, and it is the right approach for our company. And I think if you look at it, really the volatility of the market, which you point out, it's just much faster than how we can plan for capital. So by hedging the wedge, we really create that kind of -- we protect the downside while we preserve the upside, and that creates consistency in the cash flow generation as well as predictable returns. So for where we are with the balance sheet as well, I think it's the right approach. It's not a static approach, and you've actually seen that in the first quarter, right? So we kind of lay out what we want to do, and then we optimize around that position in a way, not in a speculative way, but really from an approach of risk management and then optimization -- and I think the last thing I would say is that being the largest player in the market, we have a lot of information on what is moving around there, and that allows us to just capture a bit more, make the program more efficient, and you can expect that we continue to do that.

Yes. On the macro front, when we think strategy, we don't think this year, it's like trying to predict the weather, of course, and even next year. We're thinking much longer term. We think that large macro program -- macro demand is sort of amazing. Generally, I think that, that macro shows up bigger in the Gulf Coast before the Appalachia because LNG is on the schedule that you can see, you can see massive sort of growth in Calcasieu Pass and Sabine Pass. So think that will be a premium market. That's not to say Appalachia won't get its fair share with AI demand in power generation, but definitely it feels like Gulf Coast is positioned to be impacted first.

Our next question comes from the line of Scott Hanold with RBC Capital Markets.

Yes. I'd like to kind of go to some of the commercial stuff you all laid out in Slide 8 on your presentation deck. It seems like you've defined what the LNG, the industrial side, the power side is as catalyst. How do you think about the ideal allocation reaching to those various end users? And do you think one area is under, I guess, underlooked by other companies. It feels like industrial is an opportunity you all have that I don't hear others talking about as much.

Yes. I mean, I think about it in timing more than anything. I think the Gulf Coast, when I think about what's going to show up, LNG is going to show up first. That makes the Haynesville particularly valuable. What people that are missing, of course, is the rest of the world, International actually are much, much more optimistic about the demand, the world's demand and the need for LNG. And so if we overperform, I feel like it will be in that area. When we get to industrial, industrial will come, but those are always big projects. We haven't seen the FIDs yet like we see on LNG. Power is just all over I mean it's every -- whether it be in Louisiana or Texas or in Appalachia, we're seeing tremendous sort of discussion about power. But when that generation equipment comes on is a little bit to be [indiscernible] . And so it feels like that's secondary right now. It's not that we're not chasing it. We chase it every day. But LNG is here, and so you can plan for it and you can start building your asset to serve it.

And when you think about the LNG opportunity, obviously, you signed the Delfin agreement. But given what's happened in the global LNG market right now, how competitive is it? Is it tough to be able to contract in this market given the heightened nature of it? It's my analogy would be if your house is on fire that's not the time you call your insurance agent for more coverage, right? So how is that LNG market? Can you actually get things done?

This is Dan. In terms of contracting on this -- I'll talk about it on the supply side and the sales side, right? On the supply side, this Delfin contract is a long-term SBA. So that's priced at a cost of liquefaction. So it's easy to get those kind of deals done at the moment. There's a few more in the market that are available that we're looking at. And then on the sales side, this is, again, a longer-term business driven by long-term relationships. LNG doesn't trade like really any other market in the world. It's really driven by long-term relationships, fundamentally underpinned by long-term contracts. And we've been in discussions with counterparties already on how we could end up supplying them, supplying them different. So in the real near term, yes, the markets are priced to perfection. So if you're going to get a short-term strip in this year, you're going to have to pay up for it on the U.S. Gulf Coast, but we're setting up this business for the long term. So we expect to add supply positions and have a sales portfolio on the other end, where we can market differently and a mix and a real portfolio approach to longer-term contracts and shorter-term contracts and spot exposure.

Our next question comes from the line of John Freeman with Raymond James.

I wanted to go back on the marketing side on that. Slide 13 that you've got sort of you show sort of the 3-pronged sort of strategy to achieve this $0.20 uplift. And the first one, the facilitating and capturing new demand like Delfin is obviously, longer term, back in we test are 4, 5 years or more. So you sort of get to realize those versus the other 2 which are already underway, the premium markets and the monetizing volatility, where you're just trying to kind of ratably expand those. I'm curious like if the ultimate prize, the $0.20 kind of uplift, like how much of that can you all achieve with just those other 2 kind of buckets, the premium markets and the monetizing volatility.

Of course, it doesn't matter where it comes from. And ultimately, our ability to execute will determine exactly where it is. In our view, today, we think this is about 50-50. 50% on facilitating and capturing new demand and 50% in the other 2 categories. Between those categories, they're a little bit intermingled. So exactly how they're broken out, we don't, and we don't think about it that way necessarily because they're often combined, but think about the bottom 2 of those things is sort of near term and about half in the top -- the very top one about half and a little bit longer.

That's great. And then the you'll remove the heat map slide in the presentation this time. I'm just making sure there's nothing changed in the way that you all sort of think about that relationship between kind of production CapEx in the natural gas price.

Yes, John, this is Josh. That's right. I mean it's not in the deck, but it's absolutely helping us formulate our views on production and therefore, CapEx and it all centers around taking a 3- to 5-year view on a mid-cycle price. And of course, there's been a lot of volatility. Mike talked about this earlier. -- in the near-term gas markets. But as we think about the business over the next couple of years, we think delivering that 7.5 Bcf a day given the current price outlook makes sense. If we see those fundamentals change, of course, like we've done in the past, we'll be responsive to those changing market conditions.

Our next question comes from the line of [indiscernible] with JPMorgan.

Maybe just to follow up on John's question, are you starting to think about your activity levels changing at all where current natural gas prices are, the 27 strips fall into below $3.60. Are we getting closer to a price where you would consider moderating some activity or at least maybe building some deferred productive capacity as you've done in the past?

Yes. We're obviously looking where the strip is landing and we'll always be responsive to pricing. That plan that we laid out and as the heat map that was referenced earlier is predicated on that $3.50 to $4 price range. Of course, we're still in that today, but we're not stuck to it. And so just like we've done in the past, 2024 and 2025 was a great example of this. Our toolkit is there, and we know how to leverage flexible operations. And if we see markets soften further we'll absolutely be in a position to defer turn in minds, slowed out our completion activities as we see those the best measures to better align our production with price.

And my follow-up, just on the balance sheet and how you're thinking about capital allocation. You paid down $1.3 million in debt in April, that meets your commitment to reduce debt by at least $1 billion this year. How do you think about allocating the incremental free cash flow after the dividend for the remainder of the year? Should we think about that going mostly to buybacks at this point?

I think the way that we look at it is that having achieved the goal that we set out at the start of the year, we can now look at night allocation, whereas in Q1, it went primarily to debt reduction, right? In the rest of the year, we can rebalance that with share buybacks and shareholder distributions.

Our next question comes from the line of Phillip Jungwirth with BMO.

Can you come back to the Delfin gas supply manager comment from earlier in the call? Just what all does this entail this imply that you'd look to take additional offtake from the project? And if you look at other LNG opportunities, what all goes into the assessment as to whether that's an ideal project for Expand to participate in to partner with.

Phillip, the gas supply manager, that's something that's under negotiation with Delfin at the moment, and that's supply from upstream, where we would be managing all the gas into the facility, manage that capacity. It sets up naturally for us given our footprint and how our growth and what we're doing versus Delfin building that out that capability on their own. So it's kind of a win-win for both of us. So it's the opportunity to supply to them and to manage the capacity into the facility. And then we're creating a long-term partnership. They're looking to do other vessels later on. And again, we'd be in the mix of supplying -- supporting that new demand, getting after our strategy of facilitating capturing new demand. And then when we look at all the other projects, we're looking at similar aspects. We like the integration through our Haynesville asset. We think we're well positioned to be able to supply to these facilities. We already are supplying around 2 Bcfd to these facilities. So we have conversations with them. And then we look at all these projects in terms of value and economic risk. And we believe in the long-term demand both in the U.S. Gulf Coast and globally in LNG. So we're going to look at all these projects individually in terms of their economic merit. But essentially, we're trying to build a well interconnected portfolio on our upstream and through to the LNG market.

Okay. That's great. And then can you talk about what kind of role you see Expand playing in the Northeast for new power demand projects? I mean you clearly have the dominant position in the Haynesville, but there's certainly a larger competitors up there in Appalachia. So just how do you see the opportunities for Expand here versus the Gulf Coast considering the different competitive dynamics?

Yes. Thanks for that question. This is Mike. In general, when I think about the Appalachia, I think about it in 2 buckets because we have Northeast PA, which we actually are dominant in that particular area, and that's where our competitive advantage is on power generation, which is actually PJM, and that's the right market for it. And so we're definitely in negotiations and discussions with power providers in that area in particular. And again, we feel like we have a competitive advantage there. In Southwest App, location to the western side of that. And so we think we can be competitive on that side of the basin as some of our other competitors are further east. But the overall strategy is to focus on where we're the best. And so we're thinking about Northeast PA in that market.

Our next question comes from the line of Neal Dingmann with William Blair.

My first question just, Mike, simply on your strategy. I'm just wondering specifically, I know you've mentioned really taking a full integration focus. And I'm just wondering, could you give us some details of what specific transactions make the most sense in the coming months? Would it be just simply like those -- the Delfin agreement? Or maybe what else should we be looking for as part of your strategy?

Sure. We're a producer. And as a producer, we think of 2 things: Sell more gas at higher prices. And so that's what we do. And so our focus is really pushing towards new demand and better pricing. And therefore, we're focused on our marketing. We think the time is now. That's where the opportunity is. And so number one, we want to sort of continue to look at the LNG value chain and push that because it's nearer term, and it's close. And of course, we can actually provide our actual gas in the Haynesville. I like the -- I think the word we just used interconnectivity, I really like that, Dan. So that's sort of the first deal. But doesn't mean we are competing heavily, of course, for power generation in Northeast PA, like I already mentioned.

Got it. And then just on the -- my second question, just on the incremental free cash flow on the $0.20 NIM that you continues through there to capture. Am I correct I'm thinking this is still -- I mean, what are you thinking around timing around that? Is it a couple of years? Or could it be even longer if some of the agreements are not FID-ed? Or how should we think about schedule of this?

Yes. Like we just talked about, we think about it in 2 general buckets. We have 3 categories, but 2 generally buckets. We have our near-term bucket that's happening now. I mean that's what you're seeing in our marketing that we just saw this quarter in the $90 million. And so that is a now answer. Let's chase, of course, long term, LNG, power, those are 3 years. And so -- but we have a lot of value to capture and to execute in this moment here in time.

Our next question comes from the line of Charles Meade with Johnson Rice.

And your whole team there. My first question, I think, is probably for Josh, but you guys will fill it as you choose. It's specifically about the cadence of CapEx and activity in '26. If we look at your 2Q, volumes are essentially going to be flat and CapEx is up. And I'm curious, is that just some activity sliding from 1Q into 2Q? And -- or is that -- is perhaps already -- does that reflect some decisions you've already made to maybe defer tills or build some DUCs in 2Q is that's the low part of the curve for '26?

Yes. Charles, thanks for the question. Q2 will end up being the high point of our CapEx for the year. Just the way the program was set up. It is a little bit more front-end loaded D&C activity is going to be just slightly higher in Q2 relative to the second half of the year, we'll actually have a couple of rigs across the Appalachia region coming out in the second half of the year. So that will leave CapEx just a little bit lower. And the other artifact in Q2 is just on our non-D&C CapEx. So it shows up in the guide. That's a little bit higher than what we'll see in other quarters in the year. That's really just timing of our leasehold acquisition program. We have several things that have been in the work, works over the first quarter of the year. We expect those to close in Q2. And then also Q1 tends to be a little bit lighter with our capital workovers, just because the weather conditions where as we get into the spring, it's much more favorable. So workover activity also picks up in Q2. But again, as we get into the second half of the year, activity will moderate just slightly. Production will grow modestly across Q3 and Q4, again, assuming the market is there. But really, I think the main thing there is that we are in a position where we expect to deliver 7.5 Bcf a day at $2.85 billion of CapEx.

Got it. And then Mike, my follow-up is probably for you. It's really about your financial approach to pushing further down the value chain with these commercial opportunities. It looks to me that for the most part, what you guys have done is decided to sign up for capacity or transport rather than take equity stakes in projects. But an exception that seems to be your approach to storage where you guys actually have spent money to get equity stakes in those facilities. So can you kind of tell us about how you evaluate looking at signing up for capacity versus buying equity stakes? And if that if that approach is either changing over time or changes between the kinds of opportunities you're looking at?

Sure, sure. Happy to take the question. Thank you. Generally speaking, we think about our capital allocation from a sort of a disciplined financial view. And then we think about it long term. Our first goal is always sell more gas, higher pricing. So I want to repeat that about 10x. So we're on the same page. But when you think about how to facilitate that, how do we facilitate it? We've facilitated it with NG [indiscernible], our ownership there because we wanted to move more gas to Gillis. We thought about it in FT to move our guests further east into the Southeast market. We think about it on a long-term value accretion basis, and that's our first threshold. Well, first is strategic then discipline on financials. So when we think about any sort of capital that's not in what we'll call it, the commitment side. It's got to be accretive, and that's long-term accretive. So I don't think we've changed our opinion on how we think about value. We have our nonnegotiables that's still in place today. So we will act when we can achieve our strategic goals and certainly create long-term value.

Thank you. Ladies and gentlemen, due to the interest of time, I would now like to turn the call back over to Mike for closing remarks.

Well, thank you, everyone, for joining our call. I'd like to leave you with 3 things today. Number one, our industry has experienced unprecedented structural demand growth. We are excited about the future as I'm sure you are. Second, we are in the right place at the right time. Our assets are are reaching 90% of the expected demand growth in this country, and our Haynesville is sitting on the epicenter of growth because of the LNG market. We think we are in the best position to take advantage of that. And third, our strategy is clear. We are not waiting for a new CEO to show up before we act. We are acting now. We are chasing value now. So we look forward to updating you about the progress, and thanks for joining the call.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.