Expand Energy EXE2025년 Q2 Earnings Transcript

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DATE

수요일, 2025년 7월 30일 오전 9시 ET

CALL PARTICIPANTS

- President & Chief Executive Officer — Domenic J. Dell'Osso

- Executive Vice President & Chief Financial Officer — Mohit Singh

- Executive Vice President & Chief Operating Officer — Joshua J. Viets

- Executive Vice President, Marketing & Commercial — Daniel F. Turco

- Executive Vice President, Corporate Development — Chris Ayres

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Full Conference Call Transcript

Domenic J. Dell'Osso: Good morning, and thank you all for joining our call. When we combine Chesapeake and Southwestern to create Expand Energy, we did so with the intention of creating long-term value through reducing costs and developing a deep geographically diverse portfolio serving premium markets. Our business continues to deliver and outperform every expectation pegged at merger onset. We now expect to recognize approximately a 50% increase to annual synergies realizing $500 million and $600 million in 2025 and 2026, respectively. Relative to our expectations at the beginning of the year, this directly translates to approximately $425 million more free cash flow in 2025 and $500 million more in 2026 before accounting for NYMEX price changes.

Capturing synergies do not simply happen in a spreadsheet. We're drilling faster and smarter than ever before. Our team's innovative utilization of AI and machine learning is supporting record-breaking performance, as we drill the most productive wells in our collective company's histories. In Southwest Appalachia, we drilled the longest lateral well and measured depth by a single bit in U.S. land history. In Northeast Appalachia, our team improved its drilled footage per day by 62%. And in the Haynesville, our team improved footage drilled per day by 25%. Setting individual well records is nice, but delivering actual financial results that highlight these improvements is especially gratifying and is what creates sustainable value.

These tremendous efficiency gains, combined with the successful implementation of our productive capacity strategy, has allowed us to hit our production and well count targets with fewer rigs than originally forecasted. Overall, we've reduced our 2025 capital investments by approximately $100 million, while maintaining production of approximately 7.1 Bcfe per day and building approximately 300 million cubic feet equivalent per day of productive capacity to deploy in 2026 should market conditions warrant. Simply put, we're spending less while producing more, the very definition of capital-efficient operations. We're encouraged by the long-term demand outlook for our industry, and we're excited about the opportunities provided by our diversified portfolio.

We retain operational leverage to the largest gas demand center in North America through our Haynesville position. Within a 300-mile radius of our assets, there is more than 12 Bcf per day of LNG demand under construction to be in service by 2030. No other operator is better positioned to deliver gas into this demand complex, driving meaningful value creation over time. Next to LNG, power generation is the most attractive growth prospect through the end of the decade, especially for constrained basins like Pennsylvania, where we produce over 5 Bcf gross per day.

Our deep multi-basin portfolio with close access to demand centers and investment-grade balance sheet make us a preferred partner to deliver the energy needed to supply the growing LNG market and support data center power demand. We expect to have a meaningful portion of cash flows linked to lower volatility pricing over time, and we'll continue to assess all opportunities through a simple lens of making us better and creating a more attractive cash flow profile. We remain actively engaged with many parties today and any agreement we announced, whether LNG or power-related, will be accretive to our shareholders for the long term. In the short term, we expect market volatility to remain a prevailing theme in the space.

We view our investment-grade balance sheet as one of our most important strategic assets. Like any asset, we will periodically utilize capital to enhance and fortify its strength to perform through cycles. Our balance sheet can withstand cycles today, but we believe opportunistically using a portion of near-term cash flows will put us in an even greater position of strength in the future. With our improving cash flow profile, we're electing to increase our 2025 net debt reduction to $1 billion. In addition, we will be returning $585 million to shareholders in the first half of the year through our quarterly base dividend, variable dividend and share repurchases.

Should near-term cash flow ultimately retract, we retain the option to redirect and utilize our balance sheet's current strength to enhance returns. We firmly believe that our attractive and connected portfolio, diverse and agile production and resilient financial foundation equip us to thrive in today's macro landscape. We look forward to continuing to update you on our progress. And operator, we'll now open the call up for questions.

Operator: [Operator Instructions]. And it comes from the line of Scott Hanold with RBC.

Scott Michael Hanold: Yes. A few of your peers have signed gas contracts related to power growth opportunities. Can you talk about Expand's strategy? And what are your goals that you're looking for in a commercial agreement? And how do you think about the pricing mechanism for that?

Domenic J. Dell'Osso: Yes. Great question, Scott. So we're really excited about the opportunities in this space, and we have had a lot of conversations with a lot of folks. I would say our goals are really, like I said in my comments, about making our business better. And one of the things we believe we can do with contracts like this is try to reduce the costs and developing a deep geographically diverse portfolio serving premium markets. Our business continues to deliver and outperform every expectation pegged at merger onset. We now expect to recognize approximately a 50% increase to annual synergies realizing $500 million and $600 million in 2025 and 2026, respectively. Relative to our expectations at the beginning of the year, this directly translates to approximately $425 million more free cash flow in 2025 and $500 million more in 2026 before accounting for NYMEX price changes.

Capturing synergies do not simply happen in a spreadsheet. We're drilling faster and smarter than ever before. Our team's innovative utilization of AI and machine learning is supporting record-breaking performance, as we drill the most productive wells in our collective company's histories. In Southwest Appalachia, we drilled the longest lateral well and measured depth by a single bit in U.S. land history. In Northeast Appalachia, our team improved its drilled footage per day by 62%. And in the Haynesville, our team improved footage drilled per day by 25%. Setting individual well records is nice, but delivering actual financial results that highlight these improvements is especially gratifying and is what creates sustainable value.

These tremendous efficiency gains, combined with the successful implementation of our productive capacity strategy, has allowed us to hit our production and well count targets with fewer rigs than originally forecasted. Overall, we've reduced our 2025 capital investments by approximately $100 million, while maintaining production of approximately 7.1 Bcfe per day and building approximately 300 million cubic feet equivalent per day of productive capacity to deploy in 2026 should market conditions warrant. Simply put, we're spending less while producing more, the very definition of capital-efficient operations. We're encouraged by the long-term demand outlook for our industry, and we're excited about the opportunities provided by our diversified portfolio.

We retain operational leverage to the largest gas demand center in North America through our Haynesville position. Within a 300-mile radius of our assets, there is more than 12 Bcf per day of LNG demand under construction to be in service by 2030. No other operator is better positioned to deliver gas into this demand complex, driving meaningful value creation over time. Next to LNG, power generation is the most attractive growth prospect through the end of the decade, especially for constrained basins like Pennsylvania, where we produce over 5 Bcf gross per day.

Our deep multi-basin portfolio with close access to demand centers and investment-grade balance sheet make us a preferred partner to deliver the energy needed to supply the growing LNG market and support data center power demand. We expect to have a meaningful portion of cash flows linked to lower volatility pricing over time, and we'll continue to assess all opportunities through a simple lens of making us better and creating a more attractive cash flow profile. We remain actively engaged with many parties today and any agreement we announced, whether LNG or power-related, will be accretive to our shareholders for the long term. In the short term, we expect market volatility to remain a prevailing theme in the space.

We view our investment-grade balance sheet as one of our most important strategic assets. Like any asset, we will periodically utilize capital to enhance and fortify its strength to perform through cycles. Our balance sheet can withstand cycles today, but we believe opportunistically using a portion of near-term cash flows will put us in an even greater position of strength in the future. With our improving cash flow profile, we're electing to increase our 2025 net debt reduction to $1 billion. In addition, we will be returning $585 million to shareholders in the first half of the year through our quarterly base dividend, variable dividend and share repurchases.

Should near-term cash flow ultimately retract, we retain the option to redirect and utilize our balance sheet's current strength to enhance returns. We firmly believe that our attractive and connected portfolio, diverse and agile production and resilient financial foundation equip us to thrive in today's macro landscape. We look forward to continuing to update you on our progress. And operator, we'll now open the call up for questions.

Operator: [Operator Instructions]. And it comes from the line of Scott Hanold with RBC.

Scott Michael Hanold: Yes. A few of your peers have signed gas contracts related to power growth opportunities. Can you talk about Expand's strategy? And what are your goals that you're looking for in a commercial agreement? And how do you think about the pricing mechanism for that?

Domenic J. Dell'Osso: Yes. Great question, Scott. So we're really excited about the opportunities in this space, and we have had a lot of conversations with a lot of folks. I would say our goals are really, like I said in my comments, about making our business better. And one of the things we believe we can do with contracts like this is try to reduce the volatility of our cash flow. So there's a couple of things that you could accomplish with a long-term contract like this.

You could achieve just better pricing than you otherwise would expect to receive because you can deliver gas in a way that is more reliable to a location that might be constrained or you can structure something that can be a win for both parties that reduces volatility. All of those things remain on the table and things that we're interested in. Dan, do you have anything else to add there?

Daniel F. Turco: Executive Vice President of Marketing & Commercial Yes. Thanks for the question, Scott. I'm personally excited about this area because we start with a great footprint. Obviously, we have the size, we have the balance sheet and we have a very interconnected portfolio. And so I'm trying to do multiple things to bring picture value and realizations that I believe are there and truly add bottom line value to our company. And one is just increasing that optimization at scale. I think Page 13 of our deck did a good job of showing how we are positioned to these premium markets. It's really around Haynesville and LNG focus, but that's also in Appalachia and power.

And as Nick alluded to, we're looking at some of these longer-term tenured deals that provide some more structured terms, again, trying to lower the cash flow volatility, but also participate in the upside. And then the third thing I'm trying to do with that is make sure it's accretive to that portfolio we already have. So we're building more scale, integration and optionality. So we can do things like move molecules to the best price market on any given day. So it's about getting to premium markets, structuring it to lower that cash flow volatility, but also increasing on any day where we can add just daily optimization value to increase realizations in the bottom line.

Scott Michael Hanold: Yes. And my follow-up question is still going to be on the same line because I think it's important, obviously, for a lot of gas companies, how they structure these deals going forward to maximize the value to the company. But can you talk about like 2 things here additionally? Number one, I alluded to the fact that a lot of your gas peers have done a few deals here. Do you feel there's a need to be -- do you have some urgency in signing deals?

And then with respect to, again, the commercial side of the agreement, if I look at, like, say, an LNG opportunity, would you be willing to kind of -- how do you want to structure the deal? Would you be willing to sell it to like an end user overseas or to a middleman? How do you see the best way to optimize that price?

Domenic J. Dell'Osso: Yes, thanks. I would start with -- there is no real urgency, right? We take a long-term look especially at the LNG and this power markets. And there is no set what we wanted to structure. We're looking at everything down the value chain. So we're looking at selling gas domestically and internationally in all kind of different forms. The key to me in all this is, again, the risk reward. And how do we protect the downside and make sure we're participating in the upside. And again, there's many ways to structure those deals. We can do them, as you said, direct sales. We can do them through partnerships or tolling.

But we're looking at a wide lens of these deals at the moment and continue to work and talk with many people at the moment, and we're in different areas and different time frames of those discussions.

Operator: Our next question comes from Doug Leggate with Wolfe Research.

Douglas George Blyth Leggate: So Nick, there's a lot of detail in the report, obviously, to talk about today with synergies and everything else. But I would like to focus, if I may, specifically on cash taxes. I think we've looked at you on a discounted cash flow basis for a very long time. And 70% deferred cash tax is the guidance for 2026, I believe. My question is, what's the duration of that? Because that strip on our numbers at least that could be pretty material. So any color you can offer on duration and how you get there would be appreciated.

Mohit Singh: Doug, this is Mohit. I'll take that. The preface, I'll say is, we are very excited about the passage of the Big Bill, which restores incentives for domestic capital investment. So the tax savings that you get they're generally impacted by their function of relative capital spend that we will make. So with regards to your question around the longevity of that saving, as long as we keep investing at a similar cadence, we forecast bigger tax DD&A due to better tax planning and also the impact of the bill itself. So for all practical purposes, Doug, I would say the duration of the tax savings is fairly long.

Douglas George Blyth Leggate: I appreciate it, Mohit. I know it's complicated, but I think you've tried to distill it down to a fairly simple message, so thank you for that. My follow-up, Nick, this probably is for you, and it's a question of cash returns. Obviously, there was a variable dividend thrown in this quarter, but you also doubled the net debt reduction. So my question is, what's your appetite to continue doing that, reducing net debt; or put differently, putting cash on the balance sheet to the obvious benefit of your equity volatility?

Domenic J. Dell'Osso: Yes. Great question, Doug. And I like the way you phrased that question, right? We do think it's absolutely to the benefit of our equity volatility and our equity holders over time to create a stronger balance sheet. So our appetite to do it really is a function of where we are in the market. We believe that during strong markets, you should be strengthening your balance sheet, and you should be willing to use that to the benefit of shareholders when markets soften. The most obvious way, of course, is that you're prepared to buy your stock.

And we think that right now, we're seeing really nice market conditions that are giving us the opportunity to accelerate the improvement in our balance sheet, relative to probably where we would have modeled it a year ago, and that's a great opportunity for us to create equity value through the reduction of leverage. We can keep doing that. And we will keep doing that until there is an opportunity to do something better with the cash.

But as we all know, that have followed this industry for a long time, a strong balance sheet is one of the most important assets that you'll have and one of the most unique ways that you can position yourself to create lasting value for shareholders through cycles.

Operator: Our next question comes from Zach Parham with JPMorgan.

Benjamin Zachary Parham: You highlighted some significant increases in footage drilled per day over the last 6 months. Could you give us a little more detail on what's driven those increases? Maybe talk about where you could see those numbers going over the next few quarters? Do you see the ability to continue to increase that footage per day number going forward?

Joshua J. Viets: Yes, this is Josh. We've had some just tremendous performance, of course, really just since the merger closed. And I would say a lot of that was, we really prioritized upfront the integration of our data sets across the combined companies and getting all of our rigs coming into a common platform in which we could then assess individual performance of each rig. And from there, it's really about in connecting the team. And this is a highly collaborative effort for us. It starts with the -- with our contractors, the people on the well site, our engineers, our operation support center and our data scientists, really all working together hand-in-hand to create better outcomes.

And then probably one of the things that continues to mature and maybe to kind of address how we think about upside going forward. It really centers around data analytics. And we've included a slide in the slide deck that talks a little bit about that. But we have 15 years of history of drilling in a place like the Haynesville and then also in Appalachia. So you think about combining that data set and using AI agents to go out and do the research effectively on your behalf, to be able to provide intelligent insights and provide better opportunities to optimize the assets in real-time.

And we think we're just scratching the surface with where we're at today, and we think we'll continue to find ways at which we improve the parameter optimization that's occurring by the minute. So pretty excited about what we've accomplished. But again, we think there's more to be done in the future.

Benjamin Zachary Parham: My follow-up, in the slide deck, you provided an update on Haynesville well productivity that I think clears up some things on the state data. It also looks like you've seen better -- a little bit better productivity year-over-year in 2025. Anything specific you'd highlight that's driving that increase? Do you expe