Prepared remarks
Good day, ladies and gentlemen, thank you for standing by. Welcome to the Expand Energy Corporation's Second Quarter 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Ms. Brittany Raiford. Ma'am, please begin.
Thank you, Howard. Good morning, everyone, and thank you for joining our call today to discuss Expand Energy's 2026 second quarter financial and operating results. Hopefully, you've had a chance to review our press release and updated investor presentation that we posted to our website yesterday. During this morning's call, we will make 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 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 Daniel Turco. Mike will give a brief overview of our results and then we will open up the line for Q&A. So with that, thank you again. I'll now turn over the conference to Mike.
Thanks, Brittany. Good morning, and thank you for joining our call. It's now been 6 months since taking the role of Interim CEO. I told you last quarter that I couldn't be more optimistic about the future of Expand. Today's quarterly results are a testament to why I was optimistic then and why my optimism today continues to grow. Let's talk about why. First, the Expand team has earned a well-deserved reputation for operational excellence and execution. This quarter was no exception. Our Southwest App team had a particularly good quarter. The team has consistently delivered tremendous operating results conducted with a safety-first mindset. Our employee and contractor safety is job #1. Second, we embrace that to be a great company, we need to be a disciplined allocator of capital. This year has been a clear reflection of that commitment. In the first quarter, our free cash flow surged as a result of high natural gas prices. We were able to capture this volatility and prudently chose to pay down $1.3 billion in gross debt. This was intentionally done to put us in a position to capitalize on times when commodity prices are soft. Prompt-month natural gas prices dipped after the first quarter, and we were prepared to act decisively when our stock price dislocated from our mid-cycle price view of $3.50 to $4. As our peer companies focused on paying off low-interest debt, we repurchased $850 million or 4% of our outstanding shares. This is a great example of how we allocate capital to generate superior returns through the cycle. Our Board also sees the value of this type of thinking and has authorized an additional $1 billion for future buybacks so that we can continue to act decisively when market conditions dictate. Third, we believe an upstream company must replace and build its drilling inventory to be successful over the long term. Organic leasing, when done well, is the most accretive and effective way to extend inventory. This year, we have been active in each of our operating areas, adding high-quality locations that are either accretive to our near-term drilling plans or give us the ability to grow production when natural gas prices rise. We also believe in inorganic transactions. However, I will remind you, our bar is high. Any transaction must do more than add scale. It must create long-term strategic value and position the company to become something stronger and more impactful over time. These opportunities are rare and must meet our nonnegotiables. Fourth, we are positioning Expand for the long-term as North America's leading integrated natural gas company. In February, I mentioned on our earnings call that we had a renewed focus on our marketing and commercial efforts. We laid out a 3-part framework: one, facilitating and capturing new demand; two, reaching premium markets; and three, monetizing volatility. In the first quarter, we announced the LNG transaction with Delfin, extending our reach globally and advancing our goals on both capturing new demand and reaching premium markets. The team is hard at work on additional transactions. We look forward to sharing details as they're finalized. On Monday, we announced the purchase of Twin Eagle, which immediately accelerates our marketing and commercial strategy and puts us in the driver's seat to reach premium markets and monetize volatility. Before I talk how Twin Eagle is a game changer for Expand, I would like to welcome the Twin Eagle employees to the Expand team. Jeremy Davis, CEO of Twin Eagle and his team have built an incredible business and brand over the past 15 years plus. We believe this acquisition is a transformational opportunity to unite Expand's industry-leading diverse supply and financial strength with Twin Eagle's premier physical marketing platform, creating the leading integrated natural gas company. We will soon be the undisputed largest independent natural gas producer and leading gas marketer, scaling our business from a regional player to a coast-to-coast heavyweight across the United States and Canada, reaching customers that none of our domestic peers can touch. Rather than relying on directional commodity price exposure, Twin Eagle's business is built around linking customers to physical supply by using transportation and storage assets to create value. The model is unique, repeatable and scalable. It is an origination and optimization company benefiting from customer relationships with an average retention rate of 90%. This provides Twin Eagle with lower earnings volatility on their base business while preserving the upside during supply disruption events. Simply put, this repeatability, which starts with deep customer relationships is why they have been profitable every year since inception. Together, we are strategically positioned to benefit from a new era of demand pulled from power, industrial and LNG consumers across North America. We will more effectively monetize regional volatility and reach high-value markets, providing us with a unique value creation opportunity that will differentiate us from our peers. We expect Twin Eagle will contribute more than $200 million of EBITDA in year 1 and grow to $350 million per year as we capture synergies over the next 2 years. Important to note, our estimates assume normal market conditions and do not reflect the potential upside associated with periods of elevated volatility. With our confidence in this deal, we are raising our incremental marketing commercial free cash flow target to $750 million. We look forward to working with Jeremy and the entire Twin Eagle team to maximize the value of every molecule. Finally, before taking your questions, a quick update on the CEO search. We originally said that we expect the process to take 6 to 9 months. We're at the 6-month mark, and we will meet our goal. With that said, in the last earnings call, we told you that Expand team would not stop focusing on creating long-term value for our shareholders during the CEO's transition. I hope today you will see that we were serious. If there is one thing I have learned about the Expand team, it's that it plays to win. We attack our business with urgency, maintain our disciplined approach to value creation and keep our promises. I could not be more impressed with the enthusiasm and professionalism of this team nor optimistic for the company's future. With that, we welcome your questions. Operator, please open the line.
Questions and answers
Our first question or comment comes from the line of Arun Jayaram from JPMorgan.
Mike, I wanted to get your thoughts on how you think the Twin Eagle acquisition aligns with Expand's overall strategy?
Thank you for the question, Arun. Overall, in my first call here in February, we said we're going to focus on our M&C business. That focus has evolved into becoming an integrated gas company, and that is the bigger vision for how to serve customers going forward because we think the future will be demand-pull rather than supply-driven. Our number-one goal is to get customers. Twin Eagle has that: it has over 1,000 customers. The business is built on those relationships; they've had them for eight years, so we know it's repeatable. So when you think about an integrated gas supplier, we believe Twin Eagle, with a national footprint and 1,000 customers, is a perfect fit for us.
Great. And just my follow-up, Mike, just in terms of the broader landscape. One of your peers in the Appalachia Basin, which also has an integrated model, similar scale has been able to ink several natural gas supply deals with utilities power projects for data centers, et cetera. I want to get your thoughts on whether you view the Twin Eagle acquisition with your expanded transportation portfolio, customer intimacy, do you view this as an enabler to get supply deals for Expand called over the line?
I absolutely do think that. Of course, we have a large position in Appalachia. We will absolutely look for deals there as well. But what Twin Eagle gives us is it gives us the whole United States as our playground. There are utilities all over the country, near population centers. We're building data centers. We don't think data centers will only be in the East. We think they'll be all over. Twin Eagle already has long relationships with utility companies. They will ultimately be the big winner here, in my opinion. And so the footprint is what will make us special.
Our next question or comment comes from the line of Josh Silverstein from UBS.
A question on capital allocation between the balance sheet and shareholder returns. You clearly bought back a significant amount of stock and just authorized another $1 billion buyback. But now you're buying Twin Eagle with the balance sheet and cash on hand. So how do you flex between the 2 going forward?
Josh, Marcel here. When you think about our overall capital allocation framework, our number one priority is to reinvest in the ongoing business to keep that engine running, which is our D&C capital. Our second priority is the dividend; we have a healthy dividend and will continue to pay it. Our third priority is the balance sheet, and we made great strides there in Q1, which gave us flexibility as we entered Q2, as Mike mentioned. Remaining cash will be allocated to the highest-return opportunities, which could include buying back our own stock alongside other opportunities. The cash used to acquire Twin Eagle is a large amount, but we can absorb it within our facilities and we have ample liquidity. I expect that over the next quarter we can both strengthen the balance sheet and pursue other opportunities that deliver good returns for shareholders.
Got it. And then maybe sticking on the cash flow statement. The CapEx trajectory was obviously a bit elevated this quarter. The 3Q guide was higher versus expectations. Can you just talk about the trajectory of this maybe into what's implied for the fourth quarter? And how much of it was service inflation versus just a good opportunity to step up the leasing efforts because it looks like you added a lot in the Haynesville and Appalachia?
Josh, we would expect that the capital will tail off as we go through the second half of the year. The first thing I would just note is that we do have a little bit less D&C activity in the second half of the year, primarily across our Appalachia business. On the second quarter specifically, we continue to find great opportunities to go out and add organic leases. This is, of course, we're able to leverage our operational and subsurface expertise, identify opportunities to get in early at a lower cost, which simply preserves our ability to generate premium returns off of that acreage in the long run. In addition, we like the acreage that we're getting because it's also providing real growth optionality for us as a company as we're looking at a pretty significant demand growth as we exit the decade. There has been an element of realized inflation in the second quarter. And so just depending on where we see crude prices go, that will impact what we pay for fuel. And so that's all accounted for within our full year guide. The fourth quarter as a whole also, I would just note that you do tend to see leasing activity ramp down in the fourth quarter. And that's really just you simply lose working days with the holidays. And so that does tend to lend itself to lower overall spend. But I would just note that we want to continue to be opportunistic. Financially, we're strong enough to be active out acquiring organic leases. We think it's a fantastic investment for the company. And if we continue to find these new opportunities, that would end up pushing us towards the higher end of our capital range for the full year.
Our next question or comment comes from the line of Charles Meade from Johnson Rice.
I wanted to ask another question on Twin Eagle and maybe there are two parts to this. Can you describe for us what relationships you may have had with Twin Eagle in the past, for example whether they were marketing some of your volumes and if there is any history between Expand and Twin Eagle? Also, when you look at the assets you acquired, of course the people are a big part of it, but one of the biggest tangible pieces, it seems to me, is this 44 Bcf of storage. Could you talk about how you valued that, whether you valued it separately or whether it was just part of the overall evaluation?
Sure. Thank you, Charles, for the question. Twin Eagle has been around a long time. This is the original Dynegy team that spun out, and they've been doing this exact business for 30 years. The Twin Eagle team today is about 15 in the latest iteration. Interestingly, at one point Chesapeake was one of the equity owners of Twin Eagle, which was sold in the past. So we've had a long relationship with them. We don't sell a lot of gas to them historically, so there's not a lot of overlap. They focus a little more downstream from where most of our sales have been, which is what we like. We want to extend our reach and they provide that reach. We've known them for a long time. We have a perfect culture fit; they're in our Spring complex, actually in our complex, and they'll be moving to our building ultimately. It's the same type of people, their kids go to the same schools our employees' kids go to, so it's a great cultural fit. Regarding storage specifically, we thought about how they achieve their returns, not just the storage assets themselves. It's about how that translates into earnings and their ability to generate repeat earnings. That's the same way we looked at their FT and their AMA: what they do with it more than the specific asset.
That is great detail. And then my follow-up is perhaps for Josh. The 33,000 acres that you guys picked up, I think it was in Sabine in Natchitoches Parish in Louisiana and the Natchitoches Fault Zone. Can you talk about what you're seeing differently or what you're doing differently that now makes that acreage prospective for you where presumably, since it was sitting there unleased and open, it wasn't prospective for you or other Haynesville players so far?
Yes. Charles, thanks for the question. I think this really comes down to, if you think about the Southwestern merger, it puts us in a position to deliver a tremendous amount of synergies through continued operational excellence. We continue to establish ourselves in the Haynesville as the best operator in these deep, high-pressure gas wells, and that's exactly what we find in this NFZ, which we refer to as the NFZ extension. We are stepping down deeper into the Haynesville and Bossier, moving down another 2,000 feet in true vertical depth. We are built to operate and develop these deep, complex, high-pressure reservoirs, and we also have a ton of subsurface information we've built up over the last 1.5 decades of operating in the basin. That puts us at a technical and operational advantage to get into these plays early before others fully value them, and in this case we acquired over 100 locations at less than $0.5 million a location. We feel really great about the position we're building. Our goal is always to look at rock that may today look like Tier 2 and make it Tier 1, and we see that same type of upside with this opportunity.
Next question or comment comes from the line of Matthew Portillo from TPH.
I just wanted to start out on the Gulf Coast, specifically hearing more from the industry around Southeast demand from utilities and the interplay between that demand pull and the start-up of LNG facilities that's really starting to create an interesting dynamic. So I'm curious if you might be able to comment on how you all are seeing the marketing opportunity set evolve as it relates to utilities. Does this potentially down the road between utilities and LNG create a premium market strategy for you all in terms of pricing or the ability to lay off FT? Just hoping you could give us an update on how the market is evolving around the Haynesville given that you are the largest producer.
Matt, this is Dan. We remain very constructive around demand. We put a page together. I believe it's on Page 15 of our deck, looking at demand. And this is really a historic wave of structural demand that's coming at us. You hit many aspects there, power, industrial, LNG. On the power side, we tend to be more conservative than others, but still significant demand and really electrification is growing. Data centers is a big story, but there's also microgrid solutions and just balancing of markets. This is evidenced in the last few weeks. We've seen record demand prints for the U.S. We hit an all-time high a couple of weeks ago of 101 terawatts. So this is growing and real. Again, we are kind of on the conservative side. Industrial, same thing. This is often part of the market that's missed and it's really in our backyard down in the Haynesville area, the amount of expansions happening at manufacturing sites. And then we're under some confidential conversations with new sites being contemplated for the back half of the decade. So we're excited about that. And then LNG, this is real and it's real structural. We actually updated our demand. So we're a bit more bullish on LNG. We've seen some accelerated projects happening. We've seen more FIDs taking place. So really the confluence of all these demands coming together right in our backyard in Haynesville and Appalachia really sets up nice for our business. And again, Mike said it earlier, this is a demand pull. So we have a lot of customers coming to see us being able to offer them different products, structural products, long-term products. That's something the Expand footprint allows. And then adding Twin Eagle to this just makes us even integrated and more strong and enhanced. Having that coast-to-coast footprint and being able to offer different types of products is going to be real beneficial for us and a differentiator.
Great. And then the second question, just on broader capital allocation trends. Obviously, the 2027 strip has come under pressure and maybe some of the smaller privates and smaller publics have been a bit more growth focused in the near term. Just curious, given how large your footprint is across the U.S. being the largest gas producer kind of across the U.S. and as you guys think about capital allocation, if the market does require growth from Expand down the road, is it still fair to think about with the slide you guys laid out on Slide 6, that you probably need to see something in the $3.75 to $4 mid-cycle case for growth to return from a larger producer like yourself?
Yes. The view on mid-cycle price is absolutely driving how we think about capital allocation back into our business. We think the $3.50 to $4 range still fits. We think that's the prices that will be required to balance the market ultimately. And so as we think about heading in towards the end of the decade, where you start to see larger demand growth, Dan just referenced specifically the LNG, power and industrial demand growth that we see. And so if we start to adjust up that view on mid-cycle price, this business is positioned to grow. And it's not just in the depth of our inventory, but it's also the access to infrastructure that the company maintains specifically across the Haynesville asset. We've talked about the NFZ extension earlier, that's adding locations that creates a real growth option with unconstrained infrastructure. We have our East Texas position that we're building. We are well positioned, especially where we sit on the cost curve to be out in front. And if, again, the supply-demand fundamentals support it, we are in a position to go grow.
Our next question or comment comes from the line of Doug Leggate from Wolfe Research.
Guys, I've got two questions, if I may. I'm looking at Slide 7, which is the drilling efficiency; the improvement is obviously pretty impressive. But my question is, at some point should we expect the improved capital efficiency to translate to a lower CapEx number? It seems you have the capacity to do more with less, given that you haven't changed your production guidance. That's my first question. My second is a follow-up on Twin Eagle. The $200 million and the synergies are obvious, and you have a track record, forgive me, of being somewhat conservative on your synergies. So I'm curious how you would frame the risk of delivering the $250 million. I'm excluding the extra $100 million because you already had $500 million in your own numbers. My point is, what is the trajectory and what is the impact on your breakeven?
Doug, this is Josh. I'll take the first part of your question. I think what you're getting at is whether our maintenance CapEx will adjust given some deficiencies we're seeing. At a corporate level, we still see our maintenance CapEx, excluding growth leasehold and growth D&C spend in the East Texas position, sitting around the $2.8 billion level. There have been headwinds on the CapEx front, primarily from higher fuel costs this year, which will offset some of the efficiency gains. We continue to find ways to improve our capital efficiency. The strong execution we've seen in Southwest Appalachia is one example. We also highlight on page 8 of the slide deck what we're achieving with enhanced completions in the Haynesville, which can increase per-well production by about 5% to 10%. Most importantly, that work is aimed at flattening the year 2 and year 3 decline rates. Those initiatives will ultimately translate into our 2027 maintenance capital level, and I do expect modest year-over-year improvements in maintenance CapEx as we head into next year.
Dan, let me pick up on your second question. The first point was the $200 million of acquired EBITDA from Twin Eagle. That's essentially their base EBITDA, and they've consistently delivered that over the past couple of years in a low-volatility part of the market. When there's volatility, that number can be 1.5 to 2 times higher, but we have guided to a normal volatility range. On the $250 million of synergies, you're right. We have a track record of over-delivering and being conservative, and we'll do everything we can to realize and accelerate those synergies. We're excited about combining our supply and financial strength with Twin Eagle’s capabilities, relationships, and infrastructure and about what that can unlock. On the breakeven question: on an excluding-dividend basis, which is most comparable to others, we're around $2.70 today. The acquisition itself will reduce that breakeven by about $0.05 to $0.10; with the synergies, that's about $0.10 to $0.15. If you include the full $750 million of M&C delivery we showed in our deck, the overall breakeven improvement is roughly $0.30. Those are the numbers.
Our next question or comment comes from the line of Scott Hanold from RBC Capital Markets.
My first question is also on Twin Eagle. And I'd be interested to see if you all could compare and contrast the advantages of this more commercial strategy for integration versus owning midstream assets, so more of the asset-heavy kind of opportunity. So can you compare and contrast the 2 kind of the advantages and disadvantages of those strategies?
Maybe I'll start, and I'll let Marcel jump in. Generally, we consider this a capital-light opportunity. We are reaching premium markets with a bigger footprint for a lot less money upfront, which generally leads to superior returns. That was part of the thesis for why we wanted to do this particular transaction. That said, it doesn't mean we won't do things like NG3. If we can pursue midstream deals and partnerships that help us get our gas to better markets and use Twin Eagle to market around that, we would do those things. Being a midstream company is not what we are; we are not trying to be one. We think there are a lot of great midstream companies out there. Williams does a great job, and Kinder Morgan does a great job, so that is a hard place for us to compete. We prefer to compete on a customer basis and on an upstream basis. But if we have opportunities to unlock our gas to go further and increase our prices, we are going to do that. Anything to add?
And my follow-up is just on the Western Haynesville. Can you give us a sense of what you've seen from the first well so far and on the cost side? And at some point in time, do you think this can compete with the greater portfolio?
Thanks, Scott. Josh here. We've been really pleased with what we've seen both from an execution and early productivity in the Western Haynesville. It's incredibly complex. It's deep. You're over 17,000 feet deep there, and so costs are high. We absolutely see line of sight through improved drilling techniques, better completion designs, not just to drive down cost over time, but also to further enhance well productivity. That play for us. I would just note this is truly considered exploratory in nature. There are still a lot of things that we have to learn. But what we love about it is the upside of growth that it provides for the company. We do have ways to go, I would say, to further appraise it. We just finished drilling our second well in the play in the second quarter. That was just a vertical test well to further delineate the reservoir. Pleased with what we've seen there, and we'll drill a third well later in the year. The first well is on production. That data is now in the public domain. I've been pretty pleased with the productivity, high pressures. And so it does have the making. But again, this is something for us that we put in the appraisal stage. And we really have that luxury simply because of the depth of inventory that we have across our Louisiana position, over 2,000 locations, roughly 20 years of inventory. And the fact that we own 75% of all Tier 1 inventory really puts us in a position of strength and simply not as dependent upon the Western Haynesville. But again, I would just note this creates a great growth option for the company as we head into the back end of the decade.
Our next question or comment comes from the line of John Freeman from Raymond James.
I wanted to follow up, Josh, on some of your comments on the Haynesville, where you talked about the success you’ve had with the enhanced completions shown in the slide deck. Could you elaborate a bit? I understand the one trade-off is somewhat longer cycle times, which pushed some Haynesville TILs into next year. Can you discuss that dynamic?
Yes, sure. We've really put ourselves in a competitive advantage in the Haynesville. For one, scale gives us additional opportunities in how we source certain components of the supply chain. For example, our sand procurement is roughly one-third the cost of our competitors', and that's one of the items unlocking the better well performance. We can pump larger, more complex completions, and that's ultimately delivering increased production, but most importantly improved returns and lower breakevens. Specifically, on your point about cycle times, bigger fracs lead to longer pump times and longer drillout periods, so the knock-on impact is that it starts pushing out some of our TILs. We'll end up with roughly 10 fewer TILs this year than we anticipated. There are opportunities to accelerate those, but the current environment doesn't really need that incremental gas, so we're happy to allow these turn-in-lines to float into 2027.
Great. And then just my follow-up question, sticking with the Haynesville: can you discuss what's being evaluated with the GenX testing that's underway? It looks like the initial results are promising, but please remind us what you're testing there.
Yes, sure. One of the things about the Haynesville is you end up producing roughly 70% of the EUR in the first couple of years of production. And so what we're trying to unlock is to create a structural change in how we drain the reservoir and therefore, how those longer-term decline rates show up. We simply want to access more of the reservoir from a common wellbore. And so we are experimenting with some various completion techniques that allows us to enhance that stimulated rock volume with the goal of increasing EURs, which we believe ultimately will lead to better returns in the asset, lower reinvestment rates and lower breakevens. And so we've been pleased with what we've seen to date. It's a little bit too early for us to talk about it. We think there's a real competitive advantage with what we're doing. And so we'll hopefully be in a position to talk about that in the year to come.
Our next question or comment comes from the line of Neil Mehta from Goldman Sachs.
Mike, thanks for the color on the CEO process. Can you unpack that a bit more? You said 6 to 9 months; we’re six months in and you expect it to be completed by nine months. At this point you probably have some visibility. Could you describe the characteristics the Board is looking for? Are you satisfied with how the process is progressing, and do you have any updates for the market?
Sure. The process is progressing well. We're definitely in the back third of this, which is why I'm confident we'll meet our goals. The person we're looking for has a long career in energy. We've talked about how it won't be someone from outside the industry. That person will have a successful track record on their resume that we hope to capture and bring to our company. They'll have to believe in the integrated gas story model that we've been working on. I don't think that's very controversial in what we're trying to do. That person will like that and will have an opportunity to make it even better. But this company is not made on one person. It's made on the team, and I think we've spent just as much time working on our team. If you think about the last six months, of course we have Marcel here, who's been an amazing addition to the team as the CFO. We've also added a Chief Risk Officer, and now we have a CHRO with us today. We've done other things that are actually super helpful to the team. In the last six months, we've rebuilt our business development team in Houston, Texas. Why is that important? You do not have Twin Eagle without building a phenomenal team to work it, and so that is one of the benefits we talked about and a reason we're going to move from Oklahoma City. That team has really outkicked the goal on this one. So it's about team first because there's no perfect CEO, but the CEO will definitely have success, and they'll definitely be in energy.
And one of the things I took away from the slide is growing confidence around the Southwest part of the Appalachia business. And just talk about as you think about where you want to be deploying dollars, Haynesville versus the Northeast versus Southwest? Is Southwest continuing to move up the pecking order? And if so, why?
Yes. Credit to the team again for the work that we've been doing in Southwest App. I think it's worth just noting, if you go back to the integration of Chesapeake and Southwestern, really, it was the Haynesville was the focus of that integration. And of course, we delivered a tremendous amount of synergies from that asset. But one of the advantages that we have as a company is that being multi-basin, running large development programs, we will drill roughly 200 wells a year, we have plenty of opportunities to test new tools, equipment, designs and then go export those rapidly across the other business units. And that's exactly what we've seen happen in Southwest Appalachia, just leveraging all the learnings that we've been able to put in place from across the company. Specifically on the capital allocation front, this is the power of our portfolio being across 3 distinct operating basins that each have their own production characteristics and cost characteristics associated with them. One of the great things about Southwest Appalachia, of course, is you have liquid exposure. And so I've talked earlier about the realized inflation associated with higher fuel costs. Well, that's been more than offset by about 3x of increased EBITDA associated with higher liquid costs in the year. And so as we think about capital allocation across the business, we're always going to be tuned into the fundamentals. And as we see movements in mid-cycle price, as we see movements in cost structures, we're in a position to reallocate capital differently to generate the best return on capital for our shareholders.
Our next question or comment comes from the line of Kevin MacCurdy from Pickering Energy Partners.
I wanted to dive into the EBITDA forecast for Twin Eagle a little bit more and how you arrived at that estimate. When you forecast that $200 million a year, is that driven by kind of historical EBITDA, storage and transport spreads? Or is the value really in the origination agreements? And then maybe you could add on what kind of variability you anticipate on that EBITDA number for a good year and a bad year.
Okay, thanks for the question, Kevin. The $200 million is what we have seen quite ratably over the last couple of years, and we have used that as the basis; it's a ratable business, so we use it as a basis looking forward as well. In a normal volatility year that's the number, and in high volatility years you should think about upside of roughly 1.5 to 2 times. The business does start with origination from customer contracts into the infrastructure and supply, but the real value comes from optimizing the logistics of the business. The Twin Eagle team is very good at that, and that is what drives most of the value. As Mike mentioned, there are over 1,300 customers in the Twin Eagle book, with many support agreements for both supply and infrastructure. It has been quite repeatable, and the team has been profitable every single year for the last 15 years. That $200 million number has been the underlying base for the last couple of years, and we feel comfortable with it. I also mentioned the upside and synergies we can deliver through integration. With Twin Eagle, our financial strength and long-term supply allows them to add customers and pursue longer-duration agreements they haven’t been able to reach so far. Combined with the Expand portfolio, Twin Eagle’s capabilities, customer relationships, and coast-to-coast access into Canada will help unlock value from the roughly 9 Bcf a day we are moving today. That’s how you should expect the deal to work.
Great. I appreciate that answer. And maybe as a follow-up, I wanted to ask about the production cadence. It looks like 3Q guidance is kind of flattish, but the implied 4Q is higher. So I just wanted to confirm your intentions to kind of ramp into 4Q. And if so, is that really the new run rate? Or is that just maybe a run rate for the winter months?
Yes, Kevin, so we do anticipate at this point in time to have a modest ramp of volume into the fourth quarter. This is showing up primarily across our Appalachia business units, where we would anticipate winter-driven demand to start to tighten basis. And so we think growing production into that demand pool makes a lot of sense for the company. Now I will say that if we start to see demand soften, weather is not showing up, I think we do reserve the right. We've proven over time to be active managers of production. That's both with curtailments through shoulder seasons as well as how we think about our turn-in-line schedule. So we do expect to be up over 7.6 Bcf a day in the fourth quarter, but we give a range for a reason, and that's because we want to maintain flexible with how we deliver volumes and best align those volumes with price. Now as we think about that run rate coming out of the year, right now, again, our business is built around delivering that 7.5 Bcf a day. And you will see us move above and below that, of course, across the course of the year, again, trying to best align our production with price.
Our next question or comment comes from the line of Gabe Daoud from Truist.
Maybe just a quick one for me on Twin Eagle. Maybe a question for Marcel. On the $200 million of EBITDA, maybe more of an accounting question, but how should we think about that showing up in Expand's P&L over time? Is that all just kind of dump into the marketing line? Or would that impact Expand upstream realizations over time?
Yes. We expect it to show up in accounting in 3 different lines, and we'll work out the details and provide some more clarity kind of as we kind of complete the deal and into the next year, right? So the first line, you would see it in realizations. Clearly, it's integrated to our business. The second line is marketing as you do. And then the third line in derivatives, we also expect to see some of that. Kind of we're working now to plan our integration as well as kind of completion of the transaction. And once we get to that point, we'll be able to help you guide into 2027 as well.
Okay. Okay. Great. That's helpful. And then another quick follow-up on Twin Eagle. So you mentioned the magnitude of outperformance during a period of dislocation. So I'd imagine 1Q Twin Eagle probably put up a number significantly higher than what the quarterly run rate would imply. Is that right? Is it that 1.5 to 2x number that you cited?
I think you'll see when we post our financials that they absolutely outperformed this $200 million.
Our next question or comment comes from the line of Betty Jiang from Barclays.
I want to start with a macro question first. It speaks to the Slide 15. I think one of the key investor debate these days is just reconciling this longer-term very structural high growth. But at the same time, there's the near-term bearish gas headwinds. So longer-term, if this demand growth materializes, how do you guys think about ultimately filling that demand? How much do you think will be coming from the Haynesville versus Appalachia, which now seemingly will be a growth driver as well and associated gas? And then in the near-term, given where gas prices here, do you think we could see some slowdown in the Haynesville, whether that's coming from Expand or other Haynesville more broadly until there is a stronger gas price signal?
Yes. Betty, this is Josh. So I think in the near-term, specifically in the Haynesville, I think there's an expectation that you do see some additional production growth in the back half of the year. There's probably 0.5 B to 1 B a day of additional growth. But I think I would just note that, that's really dependent upon the actions of one operator in the basin. Clearly, the market sits in a modestly oversupplied position right now. You're also faced with additional Permian egress that's coming on to the tune of 3.5-or-so Bcf a day of additional egress by year-end. And so that will keep the markets, I would say, in an oversupply position through at least probably the first half of '27. I think as we get into the second half, we do anticipate some structural tightening in the markets where we would anticipate 5.5 to 6 Bcf a day of new demand showing up. And so as we think about that demand, not just through '27, but again, I think you have to think a little bit longer term than that, looking at 19 to 24 Bcf a day of incremental demand by the end of the decade. Our business is built to be able to grow into that demand. Specifically, we think about the Haynesville with our deep inventory, the access to infrastructure, now the business being further enhanced combining with Twin Eagle, we are very well positioned to meet the needs of customers heading into the end of the decade.
That's helpful. And actually that ties into my Twin Eagle follow-up. So some Northeast producers do talk about growing into contracted demand. That's historically not the same stance for Expand. With Twin Eagle's marketing capabilities, do you think there's more appetite if these contract opportunities materialize that you will tie your volume growth with that?
Well, absolutely. One of our fundamental principles is that we want to facilitate new demand so we can grow into it. The value of Twin Eagle is that if they can help us identify and assemble that demand, we'll grow into it.
Our next question or comment comes from the line of Phillip Jungwirth from BMO.
Curious what the dynamic is across Twin Eagle's producer network and purchase agreements at the wellhead. And this part of the strategy evolve at all given the combination with Expand? And separately, just how has customer feedback been so far to the deal? And when you hear from them, what are they most excited about around the combination?
When we talk to the Twin Eagle team, they describe this as a three-legged stool: customers, credit, and supply. We're taking care of both credit and supply, so they're excited because customers drive transactions and want certainty of supply and assurance that partners are in business for the long term. That really makes them and their group super excited. They're also enthusiastic about contract term. They currently have a pretty short-term credit facility, and by having a long-term one they're starting to think about extending term and what types and sizes of customers to target. So absolutely, the team is ready to go.
Okay. Great. And then the marketing and commercial strategy started around $500 million, $0.20 an Mcf. With Twin, we've raised that to $750 million or $0.30. Is there any reason you wouldn't look to keep pushing this higher even if it requires additional inorganic investment?
Yes. We'll continue to push that higher and look for opportunities. The way we've structured this is that, of the original $500 million target, about half was expected to come from new demand, primarily LNG, and the rest from premium demand markets and volatility management. With the Twin Eagle acquisition we retained some of that business, delivered synergies and accelerated what we had identified, and we believe we can move faster now. The LNG adds on top of that to reach $750 million. As Mike began to say, we are the leading integrated gas company, so we will continue to expand into that customer base and look for more value on that side. We prefer to pursue that capital-light, as we've said.
Our next question or comment comes from the line of Michael Scialla from Stephens.
Your leasing, you mentioned came in higher than expected. I just want to see what the opportunity set looks like there going forward. And if you maintain the pace of leasing activity that you had in the first half, is it fair to assume that you might be pushing towards the high end of your CapEx guidance for the year?
Yes. Mike, yes, Q2 was definitely, I think, a highlight for us. I think we've been working very, very hard to bring forward some interesting opportunities for the company. Case in point, the 3,000 acres that we acquired in the core of Bradford County, that's something we've been working for well over 2 years to bring to fruition. So we have a very capable and active land organization working in concert with the subsurface teams to turn up new opportunities. And so we do remain heavily focused on identifying new opportunities. They're simply hard to predict. And so we do anticipate across the second half of the year that spending will wind down a little bit. But if there's good opportunities, the company is well positioned financially to go action these accretive transactions.
Got you. And Mike, last quarter you said on the marketing side you thought you could stack a lot of singles and doubles together and you didn't really need to do a large deal, but you did one, obviously, with Twin Eagle here. How do those opportunities change now? Are they still part of the plan or do those go away with the Twin Eagle deal?
No, we're still chasing those transactions. We'll end up stacking those singles and doubles, and that will continue. We'll just have a bigger footprint to put them across. And so you'll see us have plenty of activity in both sort of our original strategy as well as Twin Eagle strategy.
Our next question or comment comes from the line of John Annis from Texas Capital.
For my first one, with pro forma storage increasing to 49 Bcf, how much of that capacity is currently committed to existing customer arrangements versus available for optimization? And is the opportunity more about seasonal spreads, physical reliability or creating structured products for customers?
Well, sure. So we're not prepared to disclose exactly the customer relationships we have in storage. We think about it more holistically and we back up. We like to think about margin across the value chain, particularly around seasonal opportunities. Of course, they add gas in low-price environments and in the winter, they take it out. So you should just think about like this cycle.
Makes sense. And then maybe taking a step back, does the expanded marketing and storage platform increase the value of maintaining spare productive capacity in the upstream business? I guess, in other words, does the integrated platform make you more willing to build productive capacity, curtail or grow production depending on market signals than you were on a stand-alone basis?
Yes. John, we actually love that concept. Of course, we've been proponents of actively managing production. And I think as we get closer to customers, have better insights on supply and demand trends, that just puts us in a stronger position to actively manage production, both up and down.
Ladies and gentlemen, this concludes our Q&A session. At this time, I would like to turn the conference back over to Mr. Mike Wichterich for any closing remarks.
Thank you, everyone, for joining the call. We're excited about this transaction, and we're excited about our team that we're building here. We expect to have a big quarter next quarter. So please stay tuned. Thank you for your time.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.