管理層發言
Hello, everyone. Thank you for joining us and welcome to the EQT Second Quarter 2026 Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Cameron Horwitz. Cameron, please go ahead.
Good morning, and thank you for joining our second quarter 2026 Results Conference Call. With me today are Toby Z. Rice, President and Chief Executive Officer and Jeremy Knop, Chief Financial Officer. In a moment, Toby and Jeremy will present their prepared remarks with a question and answer session to follow. An updated investor presentation has been posted to the Investor Relations portion of our website and we will reference certain slides during today's discussion. A replay of today's call will be available on our website beginning this evening. I would like to remind you that today's call may contain forward-looking statements. Actual results and future events could materially differ from these forward-looking statements because of factors described in yesterday's earnings release and our investor presentation, the Risk Factors section of our most recent Form 10-Q and subsequent filings we make with the SEC. We do not undertake any duty to update any forward-looking statements. Today's call also contains certain non-GAAP financial measures. Please refer to our most recent earnings release and presentation for important disclosures regarding such measures including reconciliations to the most comparable GAAP financial measures. With that, I will turn the call over to Toby.
Thanks, Cameron, and good morning, everyone. Our second quarter results are another powerful demonstration of the value of EQT's integrated platform. While our operating teams were busy setting more industry records in the field, we continued to build on our strategic momentum through a series of transactions. Our success this quarter underscores how EQT is uniquely positioned to capture a substantial amount of Appalachia demand growth and continue to improve realized pricing. Our operational performance remains the foundation of everything we do. And this quarter, our teams once again pushed the boundaries of what is possible. During the quarter, we drilled the longest lateral in the history of shale development at more than 29,000 feet while staying 100% in Zone 1 with zero safety incidents. We also set a new basin 24-hour drilling record and a new EQT 48-hour drilling record in the process.
While the success of our large-scale operations is defined by averages, it is records like this that redefine what is possible. These achievements are not isolated accomplishments. They reflect the culture we have created, the direct result of years of relentless operational focus and evolution aimed at improving our capital efficiency, lowering our cost structure, and enhancing the returns we generate for shareholders. This strong operational execution, along with robust well performance, is leading to significant production outperformance, which is evident in our second quarter volumes coming in well above the high end of our guidance. A significant portion of this outperformance is coming from our base production, reflecting better-than-expected results from our midstream compression projects, which are extending flat times on new wells and shallowing base declines on older wells. As a reminder, these projects were a key piece of the synergies we projected when we acquired Equitrans, and they continue to exceed even our upside forecast.
We expect strong performance to continue throughout the year, and as such, we are raising our 2026 production guidance by roughly 90 Bcfe at the midpoint. Another important milestone this quarter was the receipt of FERC authorization to begin construction activities on MVP Southgate. With all key regulatory approvals now in hand, we have elected to pull forward capital spending and accelerate construction timing of MVP Southgate into 2026 to de-risk project execution. The project will provide critical infrastructure needed to connect low-cost Appalachian natural gas supply with one of the fastest growing demand regions in the country. Bringing additional supply into the Carolinas will help utilities meet growing energy needs, support system reliability, and help keep energy costs affordable for consumers. MVP Southgate enhances the strategic value of EQT's integrated platform, expanding market access for Appalachian natural gas while providing an attractive combination of long-term contracted cash flow visibility and compelling risk-adjusted returns.
As a reminder, neither MVP Southgate nor the MVP Boost expansion were included in our Equitrans underwriting case. Alongside this performance we are seeing from our compression projects, these successes demonstrate how our vertically integrated platform and aligned teams continue to unlock value across both our upstream and midstream businesses and drive incremental returns for shareholders. Turning to Appalachian fundamentals: momentum continues to build for power generation and pipeline projects throughout the region, with an opportunity set in front of EQT today that is significantly larger than it was even six months ago. As illustrated on Slide 22 of our investor presentation, our analysis suggests there are over 45 Appalachia demand and pipeline takeaway projects under construction or in evaluation totaling nearly 20 Bcf/d of potential demand. The success of even a fraction of these projects is expected to lead to significant strengthening of in-basin supply-demand fundamentals.
This demand backdrop creates upstream growth optionality for EQT, thanks to our low-cost, peer-leading inventory depth, and strong balance sheet position. However, any future growth will be measured and directly tied to demand underpinned by our commercial agreements. We have no interest in growing for growth's sake, as that is a strategy that has historically resulted in poor returns and value destruction in this industry. Instead, our focus remains on growth with durable, contractual demand in a manner that is accretive to corporate returns, expands free cash flow per share, and creates long-term shareholder value. Wrapping up, the broad takeaway is clear: EQT is delivering at a high level across every part of our business, stacking up wins operationally and strategically. We continue to drive operational excellence, execute commercial agreements that catalyze in-basin demand, and improve price realizations for years to come, and also advance infrastructure projects that connect our low-cost supply to premium markets.
As Appalachia continues to emerge as one of the epicenters for secular power-driven natural gas demand growth in North America, EQT is uniquely positioned to capture an outsized share of this opportunity. With a differentiated integrated platform, industry-leading execution, and a growing portfolio of demand-driven projects, we have a clear path to creating durable long-term value for our shareholders. With that, I will turn the call over to Jeremy.
Thanks, Toby. The second quarter was another outstanding one for EQT. We again exceeded expectations across virtually every financial metric, including production, price realizations, operating costs, and capital spending. This resulted in $330 million of free cash flow attributable to EQT in Q2 despite natural gas prices averaging just $2.89 per MMBtu during the quarter, underscoring our advantaged position at the low end of the cost curve. Operational execution is leading to sustained production outperformance, and as a result, we are raising 2026 production guidance by 90 Bcfe while also lowering full-year CapEx by $25 million. As Toby mentioned, we have also decided to accelerate MVP Southgate's construction timing and are thus pulling forward $85 million of capital contributions to equity method investments from 2027 into 2026. During the quarter, we continued to build momentum across our commercial platform.
We recently signed a 10-year definitive agreement with Competitive Power Ventures to provide 325 million cubic feet per day of natural gas to a new 2-gigawatt power generation facility planned in Doddridge County, in the heart of West Virginia, which will pull gas south from EQT's core production base. This facility is expected to enter service in early 2031. Note this marks the second new combined-cycle gas turbine project in West Virginia that EQT has helped catalyze following the Wolf Summit project we announced last year. Importantly, the CPV contract pricing is linked to PJM power pricing, rather than a gas price index, and represents EQT's second deal incorporating that structure. At the forward strip, we expect this agreement to provide EQT a material premium to local index pricing while also enhancing the project's ability to secure financing. This structure provides us direct exposure to strong PJM power pricing fundamentals without any capital commitment.
This transaction is yet another example of how EQT is uniquely positioned to directly capture a material amount of demand growth in Appalachia and the associated pricing benefits. Our integrated platform, investment-grade ratings, commercial expertise, and reputation allow us to craft solutions that deliver superior value for customers while also improving returns for EQT shareholders. As power developers, data centers, and industrial customers look to secure gas supply, EQT is the clear partner of choice throughout the Appalachian region. We also announced the acquisition of BlackLine Midstream for approximately $77 million. BlackLine owns and operates two strategically located propane storage and distribution terminals in New England, representing the largest propane storage facility in the region with both rail and waterborne access. Collectively, the assets provide 46 million gallons of storage capacity, with EQT currently supplying approximately 60% of BlackLine's propane volumes.
This transaction is particularly attractive as it requires essentially no incremental capital investment while creating multiple opportunities for value creation. The assets provide physical optionality for EQT's propane production, improved flow assurance, enhance our ability to optimize pricing, and create additional commercial optionality through domestic and international supply channels. We also see opportunities to leverage our commercial relationships to drive growth and optimize costs over time. From a financial perspective, we project a 20% free cash flow yield under our base case underwriting with upside optionality that would roughly double this metric. BlackLine is a natural fit within EQT's integrated platform as the acquisition complements our existing upstream and midstream businesses, expands our commercial reach, and allows us to capture additional value from our existing production.
Transactions like this demonstrate how our vertically integrated platform and strategic and commercial expertise can unlock unique value creation opportunities while enhancing the long-term earnings power of our business. Turning to our LNG portfolio, we recently executed a five-year offtake agreement with a large Asian integrated energy company for approximately 0.5 million tons per annum of LNG sourced from various Gulf Coast LNG facilities beginning in 2028. This deal allows us to accelerate our LNG exposure and develop capabilities while reducing execution risk ahead of the planned commencement of our larger portfolio in 2030. Notably, the agreement was executed at a similar cost to our term deals rather than current market economics. At recent strip pricing, we expect the contract will increase EQT's 2028 free cash flow by roughly $45 million. This deal demonstrates our steady progress in developing our LNG business and the relentless hustle of the team on the front lines as we develop important relationships around the world and improve EQT's access to premium markets.
Turning to capital allocation, we are on the doorstep of achieving our long-term net debt target of $5 billion, a milestone that represents the culmination of years of commitment toward bulletproofing our balance sheet. During times of turbulence, our balance sheet will become a fortress and cash on hand a strategic tool to fund aggressive share buybacks and long-term growth investments even in low price environments. To that end, in the near term, we intend to accumulate cash, which we plan to aggressively deploy into share buybacks during the industry's episodic down cycles. As we look ahead, we believe the next chapter of value creation at EQT will be driven by the combination of disciplined growth and capital returns, primarily through share buybacks. High-return midstream investments provide visible cash flow growth today and connect our production to new demand, while future upstream growth is supported by both announced supply agreements and a growing number of new demand opportunities.
When combined, the ability to repurchase meaningful amounts of stock along the way provides a clear pathway to driving significant alpha due to the compounding nature of this strategy. And with that, we will now open the line for questions.
分析師問答
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your heads when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joshua Silverstein from UBS. Your line is open.
Yeah. Thanks. Good morning, guys. Jeremy, I wanted to start with just the last comments that you had made there. Clearly, the balance sheet continues to improve. The stock price has gone back towards a 52-week low. How much cash do you want on hand to take advantage of periods of stock price weakness versus continuing to just build cash? And what is the right level of cash for you guys to have on hand? And then on the new LNG updates here, I want to see if you could provide a little bit more detail on how you are implementing the strategy and the 2028 offtake agreements here. How are you sourcing the LNG? Is infrastructure in place and kind of capacity already lined up for this?
Yeah. Good question. I think we are going to be patient with it. We are not opposed to accumulating at certain points in the cycle up to a few billion dollars of cash. Given where the stock price is right now, I think we would look to be more aggressive in the buybacks. But it just depends on what is going on in the market. Again, I think we will be opportunistic and aggressive when we see those opportunities. We certainly want to be countercyclical rather than procyclical. On the new agreement specifically, we are able to pick the capacity up from, as we said in prepared remarks, an integrated Asian buyer that is dealing with some tariff-related issues. So we worked with them to craft a win-win deal where that is in the money for us today and adds meaningfully to our 2028 cash flow. Those are volumes that will be coming from two facilities that are nearing completion right now, so I would expect those to come online in early 2028. Contractually, it is January, but there is potential for slippage in project timing. It could be a bit delayed, but we have high confidence in that coming online during that year and contributing to uplift in realized pricing.
Your next question comes from Doug Leggate from Wolfe. Line is open. Please go ahead.
Thank you. Good morning, everybody. Toby, I wonder if I could maybe this is for you. The idea that you have laid out this extraordinary volume potential, obviously, a lot of it is post-2030. Excuse me. But I am curious: when you talk about you are only going to grow on contract when you have contractual agreements, I am curious why, if these are premium priced deals in your backyard, why would you grow at all? Why would you not reallocate existing volumes and get a premium price without having to incur the additional capital and ultimately the growth? That is my first question. And then on the compression, I am curious how much better you think your sustaining capital can become as a consequence of those compression projects?
Doug, I think your first question hits on something that we spend a lot of time thinking about. The first step and our first focus is to get direct connections to this demand, and I think we are showing a lot of progress on that front. But the next question that we are going to have to ask ourselves is what part of that demand are we actually going to grow organically into? As you mentioned, strengthening basis is going to be one of those considerations, and that is going to have an impact of lifting all EQT volumes, not just the volumes that would be exposed to growth. So our first focus is to capture as many of these opportunities as we can, and then we will step back and make that evaluation. There will be a portion that we will consider growing, but it would not be the full amount of demand.
Doug, just to add to that and then address your second question: we have a disproportionate amount of our gas sold into first month today on a short-term basis. I think roughly 30% of our volumes are sold on more medium- and longer-term contracts. So there certainly is the ability to reallocate. Effectively, less volumes sold into that first-month market drives a little more scarcity in that market and, all else equal, would lift index pricing. Most of those longer-term deals being indexed to first of month would get that price benefit. So there certainly is flexibility around that, and the way you structure those and where you index it back to liquid hubs is really critical to make sure you have the flexibility in supplying those volumes over the longer term. It is something we are very focused on. If you look at Slide 22, which I would encourage everybody to look at, it is really the culmination of a lot of the analysis we are doing and the opportunities we are tracking in Appalachia today.
We do not have to grow one-for-one day one. You do see a bit of a hockey-stick ramp around the end of this decade. A lot of that is due to the fact that it takes three to five years to build most of this large-scale infrastructure. We are not looking to add any sort of step change in production. If you see 2 Bcf/d added in a given year, we might grow a fraction of that. Over time, we fill it. If the market is a little tighter in the intermediate term, there is ample gas; the market will balance. But I think we benefit because we are in a price-and-volume business. On your second question around midstream and compression, candidly, we are working with our reservoir team and our finance team to recalibrate how we forecast some of this stuff. Our original expectations on the impact on well performance and type curves from lower pressures have been kind of blown away. We are trying to recalibrate our hydraulic models and how we forecast type curves and base declines.
That could lead to further outperformance. It is still in the middle of the process right now, but we are seeing quarter after quarter these big beats that continue to surprise us. If that trend continues, which it feels like it is, that will lead to continued capital efficiency in the years ahead.
Operator, we have the next question.
Yes. Your next question comes from Betty Jiang from Barclays. Your line is open. Please go ahead.
I want to start with a bigger picture question speaking to that Slide 22. Given where this market is going and the number of midstream pipeline projects, how do you guys see these projects ultimately get supplied? How do you think about the competitive tension to fill these incremental egress projects and how that is creating tension against the in-basin power projects? And related to EQT, your ability to leverage better pricing in these supply agreements that you are talking to?
Betty, when we look at Slide 22, one of the bigger moves that has become a lot clearer over the past few months, as we referenced in our last quarterly update, was the number of pipeline takeaway opportunities showing up largely in the Clarington area. Those are going to be large potential projects and will require supply to be brought from M2 or basically our core production region to fill those projects. That will give us an opportunity to build infrastructure, and with infrastructure I think we have an edge in ensuring that we supply those projects as well. So that is the dynamic that is really exciting to see materialize, and I think EQT will be able to continue to play a role in creating win-win solutions for our customers while giving our shareholders access to some premiums in the meantime. Those will come in the form of midstream fees as we do anticipate these large egress projects' capacity will be taken by utilities downstream.
And a question to Jeremy on the CPV contract being linked to power price: how do you think about the upside downside risk around that contract structure? Is there a floor price for EQT to protect you if there is downside risk?
Great question, Betty. To frame it, hypothetically, if this contract came online for the full year and flowed at full capacity, it would improve our free cash flow by about $100 million a year and improve corporate overall differentials by roughly five cents. So it is a material contract and a material premium. We can hedge it if we would like to, but if you look at the way electricity prices and gas prices in PJM are correlated due to where gas is in the dispatch stack, they are tightly correlated. As the cost of building new generation continues to rise, I would expect that spark spread to widen. There needs to be more of a market signal long term for more generation to be built, so we actually think we are on the right side of the bet having that long exposure into power. To some degree, it is almost like what you are seeing in the liquids markets today where you have a lot more tightness in refined products.
I think you will see similar dynamics in power where the market gets tighter and tighter and it will trickle through to gas, though not on a one-for-one basis. Being able, without putting any capital in, to get direct exposure to the other side of the generator is really interesting. It is our second deal like that, and I would be open to doing more deals like that. It speaks to the structural creativity of our team to provide solutions for these types of projects and play many different roles to make them come to fruition.
Your next question comes from Arun Jayaram from JPMorgan Securities. Your line is open. Please go ahead.
Good morning, team. I wanted to go back to the CPV project. Toby and Jeremy, could you discuss what has given EQT perhaps the right to win on this project? You mentioned Wolf Summit as maybe an enabler. Also, could you talk about timing? You mentioned as early as 2031. What are some of the gating items for this project to achieve that startup time including permit approvals, which have been a question from investors on some of these large data center or power projects in the basin?
In terms of competitive dynamics, we are close on other projects including in West Virginia and I think you will probably see at least one more, maybe more, before the end of the year. It is really the power of the platform we put together and the quality of the team here at EQT working in a collaborative, aligned way, starting with our commercial team and commodity traders structuring this stuff, the depth of relationships and the trust we have, the balance sheet and the integrated platform. We do not have to do every piece of the midstream or other parts, but we can. Understanding the whole value chain adds a lot of value. Being comfortable doing things like pricing linked to electricity rather than gas and showing flexibility because it's best for the customer is what wins deals. Starting with a mindset of what is best for the customer is how you create win-win solutions. When you put all those pieces together, we are in a unique spot and that has allowed us to continue building momentum. I do not think we are done; there is a lot more to come.
Arun, I would add that we have a mentality to help customers and be creative and we have a number of capabilities as an integrated producer. We have strong governance and board support which allows us to work through tough questions and stretch strategically to make high-quality decisions. This organization is firing from top to bottom and it takes that to produce these types of wins. It is worth noting that EQT continues to put up results and seems to be winning most of the deals we pursue, but it is a lot of work and we are really putting the customer first.
Arun, one more point: when we rewind a couple years to the end of 2023 when we first announced sales deals to some of the big utilities in the Southeast, those deals start to come online now at the end of next year and into 2028. Those deals alone are roughly $300 million a year of uplift in value. At the time, and I would argue today, we are still not fully getting credit for that. We keep stacking up these deals—LNG deals, power deals—and that value continues to build. EQT is really the only platform with this breadth, and as that momentum grows, we will continue stacking margin while a favorable macro backdrop provides further tailwinds.
Got it. A quick follow-up: I want to refer to Slide 7 where you highlighted your first-half 2026 TIL performance beating your type curve by 8%. Could you unpack what is going on? Are you drilling better rock? Different flowback procedures? Help us determine what may be driving this outperformance.
With the TIL accelerations we put in place, this comes down to extending flat times and is a byproduct of producing into more optimal pressures on the gathering side. This is another benefit from the compression projects—not just improving our base production but also improving new well (TIL) performance. Those operational wins create other opportunities. We are also looking at wells that could benefit from workovers that may not have made sense in a high-pressure system, but now with pressures lowered those workovers make sense. All of these things are incremental and continue to strengthen the operational story at EQT.
Your next question comes from Neil Mehta from Goldman Sachs. Your line is open. Please go ahead.
Good morning, Toby and Jeremy. Thanks for all the updates. I wanted your perspective on hedging strategy here. You have layered in a little bit more—how are you thinking about optionality of running more hedges? How are you being opportunistic around your hedging strategy?
Good question. We see some near-term risks others are seeing around Permian growth potential and some El Niño weather patterns. For us it is about ensuring the balance sheet is strong and that we can execute on buybacks. Our hedging has been focused specifically on next summer where we would expect more weakness to show up, making sure that through a cycle like that we can be aggressive on offense. Looking into late 2027 and beyond, we see an inflection again. We think this may be a very short-term soft spot and the structural case for gas into 2028 and 2029—given power and LNG demand—looks strong. We want to be aggressive buying back stock ahead of that potential recovery. I don't know if you'll see us add many more hedges at current strip levels; we don't think there is a lot more downside, but we want to put protections in place so we can be aggressive on buybacks if a down cycle presents itself.
That makes sense. As a follow-up, on M2 and local Appalachia pricing strengthening due to in-basin demand, can you talk about your conviction around that story and how you see the moving pieces through the curve?
This is a story we've talked about for years and the market is much more aware of it now. Even if some projects do not happen or get delayed, I don't see a way for basis not to continue to strengthen materially as demand grows. We're in a perfect position to benefit from that. If we modestly add mid single-digit growth between now and the end of the decade, the market can absorb multiples of anything we could add. Our top line is price and volume; modest volume can still benefit us through higher prices, which will drive improvement in the bottom line, especially while we buy back stock.
Your next question comes from Phillip Jungwirth from BMO. Your line is open. Please go ahead.
Thanks. Coming back to the Appalachia growth wave slide, I know this is unrisked, but is there a way to think about risking a project? You list many of the parties behind these projects, but what do you see as the biggest challenges to this demand materializing? And from EQT's side, what are the things you look for when deciding who to partner with on some of these?
Phillip, good question. We've taken an intentional approach listing these projects out and having direct dialogue with most of these customers to understand needs and obstacles to FID and financing and to come up with solutions. When we assign probabilities across the projects, we come up with high single-digit Bcf/d growth as a realistic number—so a small percent of the total potential. To increase the odds, our role is using EQT's tools—midstream, volumetrics, downstream customer work—to help improve odds of success. Being a partner of choice helps. The reputation we've built and the talent we've attracted makes us better positioned to be that partner, which is why we're stacking wins.
On the supply side, is there an upper limit on what Appalachia production can grow in any given year given inventory depth and logistics like gathering water? Top operators talk about growth but the total may still be less than 1 Bcf/d if you add it up. Have you looked at an upper limit assuming demand materializes in outer years?
We are confident in Appalachia's ability to meet these volumes, but you will see price sensitivity from operators. Larger operators typically have inventory to support growth; that is not the case for many other operators in Appalachia who will be more disciplined and sensitive on price before growing. The molecules will show up, but price will be a determination.
When we analyze inventory depth of peers, specifically in Southwest Appalachia where most demand is showing up, we think about one-third of the basin's total supply will be challenged to hold flat by the end of this decade. Operators in certain areas will struggle to hold flat while demand shows up, creating an inflection point toward the end of the decade. That is the paradigm shift we refer to: long-term infrastructure projects coming online at the same time operators who cannot hold flat create scarcity. Operators like EQT who can meet the moment and have falling cost structures over time, not rising, will see significant margin enhancement as marginal producers push pricing up while our pricing falls and we grow volume. That drives outsized value and alpha.
Next question comes from Neal Dingmann from William Blair. Your line is open. Please go ahead.
Morning, guys. Toby, maybe for you or Jeremy: on the power side, given your integrated status, when you look at future contracts you have been discussing, is there potential for these contracts to be structured where you would think about participating in some of the future data center upside? I'm wondering on the contract structures going forward.
Neil, that would be a bit of a jump to go from spark spread exposure to participating in data center upside or token-based structures. It is a concept we have thought about, but I do not see that market opportunity right now. We will keep an eye on it.
Perfect. And then quickly, what's your current reinvestment rate? It seems incredibly low. Given that, does that imply more potential for M&A given how low your reinvestment rate is?
It has been about two years since we did any sort of big M&A. Our focus right now is on the fact that the stock price is somewhat dislocated relative to the quality of our business. That is our M&A target right now. Buybacks are a big part of that strategy—buying back the best company available in the market every day makes sense.
Your next question comes from Sam Margolin from Wells Fargo. Your line is open.
Hey, good morning. I want to talk a little bit about MVP Southgate. This is an interesting delivery point between in-basin demand Appalachia and LNG capacity coming south. It also has its own load growth from the Southeast. As you have demand spikes happen on either side of the MVP Southgate delivery point, what is going to happen to this market? Does it have the same effects as in Appalachia, just a bit extended, or could it develop a unique deficit given that EQT seems particularly focused on it?
Good question. We see Z1-5 or that market region as one of the most lucrative in the Continental U.S. because you have demand pull south from LNG down Transco pulling gas out of that market while you also have local demand dynamics. That creates dual benefits, which is why we are so attracted to it and why we're building Southgate to get more gas into the Carolinas to Duke and the PSNC. Long term, it is a tremendous market to have access to, and I think we are one of the few producers that do at this point.
Given the dynamics we are seeing, we have announced accelerating Southgate. We are not seeing commercial benefits automatically today, but the commercial team is out there working to pair up accelerated construction and service date of the project with commercial terms. We may have progress on that in the future.
On the LNG market, last quarter there was concern for a multiyear glut, and now geopolitical conditions have changed that outlook. Has anything changed in the past three months regarding the shape of the LNG market or the long-term addressable market?
What has changed in the last three months: coming into this pre-conflict our view was that 2028-2030 could be a bit of a glut. That view has changed with the current conflict; the recovery scenario is delayed which deepens the supply hole. Europe is sitting at storage levels roughly 10% below last year, and you are seeing international spot prices north of $17. A large spread is forming. When we look at 2028 pricing, pre-conflict to today we have seen the Henry Hub-to-TEF spread lift over $2, and that is another reason why the LNG deal we signed for 2028 is attractive to us.
Your next question comes from Gabe Daoud from Truist. Your line is open. Please go ahead.
Thanks. Morning. Maybe going back to the West Virginia comments about signing a couple more deals by year-end: one of the campuses 60 miles west is the Monarch Campus. Is your understanding that campus is still on track for 2 gigawatts operational next year and has construction started on that Prosperity Gas Line? Also, any more comments around the BlackLine acquisition: strategically, how does that make sense for you guys?
We are in discussions with them. There is a lot of work to be done on that campus, but progress continues. We are focused on the gas supply portion and do not see any obstacle to EQT being at least one of the gas suppliers for a site like that. We are very close on other projects down in West Virginia and Southwest Pennsylvania and will provide updates as definitive documents are signed.
On BlackLine, think of it kind of like Equitrans in a way where we are their largest customer and saw an opportunity to buy that contract in at an attractive rate. The person who ran BlackLine is actually a former EQT employee from our NGL trading business, so we have great relationships there already. We see an opportunity to give them access to investment-grade support, our relationships, volume, and capital to help them move from being capital-constrained to being able to think more broadly about optimizing the facility. There is a lot of value to be created and that is what we have done with Equitrans. This is smaller, but shows what you can do with a platform like EQT: build through adjacencies as they become core competencies and generate value.
Quick follow-up: regarding Southgate, Toby, did you say you are working on accelerating in-service date to 2027? Is that what I heard?
Construction should be available by the end of this year, and the question is when we can start the commercial arrangements on that project. Those are the conversations we are having right now to take advantage of the acceleration of construction. Any acceleration would be upside for our 2027 plans.
Your next question comes from James West from Melius Research. Your line is open. Please go ahead.
Thanks. Good morning. The momentum is extremely solid in the base business and strategic momentum continues. How are you thinking about balancing capital allocation between accelerating midstream and storage acquisitions like BlackLine versus buybacks? And what are additional opportunities to pull forward midstream spending or other small tuck-in M&A?
Our journey to grow free cash flow per share has been handicapped by our relentless focus on paying down debt, which prevented buybacks. With strong strategic momentum, we are excited about ramping buybacks. That will be top of mind and help drive free cash flow per share. The organic opportunities we capture, like these high-quality midstream projects, provide healthy free cash flow yields and are effectively an all-you-can-eat opportunity for us. When thinking about those relative to buybacks, we can look at our stock and the free cash flow yield embedded. Deals like BlackLine can present strong free cash flow yields. We want to get as many high-quality projects as we can and have the ability to finance them in the most accretive manner possible for the business.
We look at a lot of opportunities—power, LNG, gas storage, and propane storage in this case. We always ask: would we rather own or rent? Would we rather buy or be a customer? For LNG the returns are in the high single digits and the projects are well capitalized; we can get exposure via offtakes rather than investing directly. BlackLine was small with strong returns, so we bought it and plan to optimize it like we did with Equitrans. We look at everything through the lens of reducing capital base while improving profitability and driving return on capital higher. Being a public company with stock for sale every day gives us a unique opportunity to buy that back ahead of time and get benefits without putting in cash, which we believe will drive better share price performance long term.
Your next question comes from Bob Brackett with Bernstein Research. Your line is open. Please go ahead.
Good morning. I'm intrigued by the laterals. Is there a limit to growth where stage length gets too long and you are not fracing effectively or perhaps an operational limit? Are you thinking of super long laterals going forward?
We define these records to showcase what is possible. We always ask whether it makes sense to roll something out across the organization. The team has proven they can drill 30,000-foot laterals. At EQT we will probably increase normal lateral lengths to north of 15,000 feet, maybe targeting 15,000 feet. There are other considerations: we want to maximize recovery from every acre and we do have some confines from an acreage perspective. The benefits of having large contiguous acreage that EQT has eliminated many constraints, but we will continue to look for ways to optimize operationally. Pushing technical limits gives us optionality to access reserves we may not have been able to access from certain site locations.
Your next question comes from Jacob Roberts from TPH and Company. Your line is open. Please go ahead.
Good morning. Starting on the CPV deal, you've done two electricity-linked deals now. As you think about managing spark spread risk over these long-term contracts, is there a desire to have a mixed portfolio of perhaps fixed premium deals alongside these electricity-linked deals?
We look at this like a portfolio. Electricity-linked pricing gives uplift because power markets have peak demand in both summer and winter, which should improve seasonal pricing. In PJM, gas and power are correlated due to where gas sits in the generation stack, so that correlation is favorable. Right now our bias is to keep this exposure open and use it as diversification. We can hedge it financially if we want to, but at present we prefer leaving some of that exposure open. If opportunities to duplicate this arise and they are best for the customer, we are open to doing more.
Earlier you mentioned that compression investments are beneficial to base and new well volumes. Regarding strategic growth capital for this year, what is the timeline in terms of new wells or wedge volumes that this year's spend could theoretically handle before you'd need to add more compression spend going forward? Also, how does this translate to lower maintenance capital going forward?
Thanks for rephrasing. For our compression program, we have evaluated over 99% of our wells for compression potential. We have six compression projects underway this year and have identified roughly another 30 projects of different sizes and scopes. On average over the next few years, we anticipate deploying compression on wellbores that would add about 0.5 Bcf/d of production each year, and we will space that out over time. Timing depends on well vintage and when those wells will benefit from compression and create space for new wells. We have a pretty integrated approach looking out through 2029 and aim to continue the capital efficiency gains we are seeing. The returns on compression are among the best bang-for-the-buck opportunities we can spend on, and our recent outperformance has surprised us to the upside.
Your next question comes from Kevin MacCurdy with Pickering Energy Partners. Your line is open. Please go ahead.
I appreciate you taking my question. Coming back to Slide 22, that wedge in late 2029 looks massive. At your 40% risk case, how early would you expect prices to react to increased demand? The futures don't seem to reflect it yet; do you have a rule of thumb on when markets start to price that in?
We talk about this with our traders a lot. Because we are in these discussions with downstream and midstream customers and developers, we have a lens into it others may not. In our view, you'll see a wide divergence across basis points in Appalachia relative to other points. In the next year or so this will become more real as what we see behind the scenes becomes public and you see where demand sinks show up. Commodity markets may be slow to reflect it and the equity market may be slow to react, but you may see a more visceral reaction when it becomes obvious. The big projects to watch are those out of Clarington—Ohio market—which is ground zero in our mind where a lot of this gas will leave the basin. Those are multiple-Bcf/day demand projects if they come to fruition. Developers like Borealis and PTTG are making progress to turn these into reality, and we are focused on ensuring we can get EQT gas to those receipt points. Stay tuned and we'll do our part to help make these projects successful.
We have reached the end of the Q&A session. I will now pass the call back to Toby Z. Rice for closing remarks.
Thank you, operator. It was another fantastic quarter for EQT. I just want to thank our shareholders for your support and really thank the crew for all the great work they are doing in putting these numbers up. We are certainly excited about the path forward and will look forward to updating you on what looks to be a pretty bright future in front of us. Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.