EXPAND ENERGY Corp Q1 FY2025 earnings call

• Recent market volatility reinforced the importance of the company's strategy, which includes building scale in gas assets, reducing costs via merger synergies, strengthening capital structure, and investing in marketing. - Integration efforts are on track to achieve ~$400 million in synergies in 2025 and $500 million by year-end 2026. - Joined the S&P 500 index and were upgraded to investment grade by Moody's. - Productive capacity strategy has provided a free cash flow benefit, with volumes from productive capacity wells generating ~$225 million more in free cash flow over 12 months compared to turning wells in line last year. - Plan for and allocate capital around a mid-cycle gas price of $3.50 to $4, with macro fundamentals for natural gas remaining constructive due to growing LNG and datacenter demand.

No specific detailed breakdown of product segments' financial performance with absolute terms and revenue contribution % provided in the transcript.

• Expect to achieve approximately $400 million in synergies in 2025 and $500 million by year-end 2026. - Anticipate free cash flow inflection in 2026 with production growing to 7.5 Bcfe per day. - Capital allocation is around a mid-cycle gas price of $3.50 to $4, and the company continues to use a disciplined hedging approach, having added about 740 Bcfe of new hedges in Q1 2027 with specific floor and ceiling prices.

• Market volatility remains a risk, but the company's resilient financial foundation, deep market-connected portfolio, and low-cost efficient operations help mitigate this. - Impact of tariffs on costs, particularly on casing costs, with ~80% of casing sourced domestically but exposure to tariff-related impacts somewhat muted due to contracts being through the third quarter. - Potential pullback in Permian rig count affecting associated gas supply dynamics in the Lower 48.

Q: Good morning, Nick, Mohit and team. I'd love your updated thoughts around hedging. You guys did layer in a lot of those hedges for 2026. Just talk about the way you're thinking about the plan going forward and why you elected to do that?

A: Good morning, Neil. This is Mohit. We will continue our disciplined approach towards hedging. It allows us to utilize and capitalize on commodity price volatility, increase downside protection at attractive levels while retaining some upside participation. Since the start of the year, we have added about 740 Bcfe of new hedges of various tenors into Q1 2027 with an average floor price of $3.75 and an average ceiling of $5.10. Last year, we recognized $1.6 billion of hedge gains in a soft price environment.

Q: Yes. Thank you. And then Nick, the follow-up is just on your perspective on the gas commodity. We have had a pretty dramatic move in the front. In fact, it's been pretty well bid still, but in the front, do you think that's supply or demand? And then you may just talk about your perspective on balance of the year and how we move how we progress from here?

A: Yes, absolutely. The front has been volatile. We've seen supply be a bit robust through the first part of the year due to deferred activity brought online into the cold winter, and demand has been light. The near-term volatility is something we plan to absorb within our capital allocation framework, focusing on a two to three year forward look of mid-cycle prices.

Q: Thanks for taking my question. I wanted to ask on the cash return program. In this first six month period of the new framework, you're going to have some free cash flow that falls into Tranche 3. Can you just give some detail on how you're thinking about cash return from that bucket? Do you plan to be active buying back the stock or will you lean more towards a variable dividend or maybe a combination of both?

A: Yes. Thanks, Zach. We're pleased with our return framework. We'll start to determine how Tranche 3 will be applied over the coming weeks. We view a strong balance sheet as a competitive advantage. We've returned about $3.7 billion to our investors through a combination of base dividends, variable dividends and buybacks historically. At current prices, we should be active in the market if the stock is trading in the right levels with Tranche 3 waterfalling in.

Q: Hey, thanks for taking my questions. So you had a slide in the deck, I believe it's Slide 8, just highlighting some of the trends you're seeing on well costs and the fact that there's no material impact from tariffs. I was wondering if you could just talk through in a bit more detail some of the different buckets there, the trends you're seeing and how the overall number that 0% to 2% deflation compares versus your expectations going into this year?

A: Good morning. It's Josh. We've seen some weakness in the OFS market and successfully renegotiated key contracts due to the merger, providing a tailwind. Costs are expected to be flat to slightly down from 24% to 25%. We'll continue to work with service providers, and the outlook in oilier basins like the Permian could provide additional deflation if there's a material pullback in activity.

Q: Hey, good morning, guys. Nick, I wanted to maybe touch on there's been some discussion from the President about the Constitution Pipeline as one of the larger producers in the Northeast Marcellus. You are positioned to be benefiting from that. So could you maybe talk a little bit about what do you think the chances are of that pipeline being built? What might the timeline or the commitment required look like? And then maybe just generally like are you seeing other opportunities for expanded demand for gas within the Appalachia?

A: Hey, Nitin. This is Dan. Infrastructure discussions are ongoing, including pipelines, compression, and storage. Appalachia has a need for takeaway, and we're supportive of these discussions. Williams is working on specifics, and we'll evaluate opportunities when more details are available. We're in active discussions with power demand producers and datacenters in Appalachia.

Q: Thanks. Good morning. When you think about your $3.50 to $4 mid-cycle view, just with the lower crude price, I was wondering how associated gas plays into your outlook and generally what type of -- what level of oil production does that assume from the Lower 48? And if we undershoot that over the next couple of years, how would you think about upside in terms of incremental call in the Haynesville?

A: Associated gas is complicated. Our approach has been based on pipeline capacity coming online and being filled. If there's a material pullback in Permian rig count, it could change Lower 48 supply dynamics. We'll watch rig count changes closely.

Q: Good morning, everybody. Nick, you mentioned you expect free cash flow inflection next year, which is interesting, given how capital efficient 2025 is with the return of the deferred TILs in the DUCs. Can you talk about the drivers for that inflection next year? Is it primarily due to just the way the strip price is or how much of that depends on further efficiency gains?

A: Yes. The biggest driver is reaching production levels of 7.5 Bcfe a day. Efficiency gains will come from final realization of synergies. We're hedging for the higher price environment.

Q: Yes, I wanted to follow up a little bit on sort of price synergies. So you guys talked a lot about this when the Chesapeake Southwestern merger was announced. You certainly mentioned that you're engaged in a lot of discussions. You hit your investment-grade ratings. Clearly, production is up, I know you can't comment on specific projects, but maybe just talk about your kind of level of confidence on getting some of these gas price-related synergies today versus when you announced the Chesapeake Southwestern merger?

A: Hey, Leo. I'm quite excited. The team has done well bringing portfolios together. The new M&C organization has had early wins, and we're confident in continuing to optimize the portfolio, including with the NG3 pipeline coming on.

Q: Good morning. I have another question on the marketing side. Slide 13 of your deck details your marketing contracts and talks about a Bcfe a day of going to Gillis in 4Q '25. Do you have any color or expectations for how that market at Gillis is shaping up and how that could impact your margins?

A: Hey, Kevin. Thanks for the question. This is Dan. We're excited about capacity coming online to Gillis due to growth in LNG under construction like Plaquemines, Golden Pass, and Louisiana LNG. This market is expected to be a premium market, increasing basis and benefiting margins.

Q: Good morning, Nick, to you and your team there. I just have one short question on TILs. I think it will be a short question. Have you guys seen anything that surprised you either positive or negatively as you brought on these deferred TILs that we're kind of sitting to bottled up for whether two, three, four months. And is there any kind of difference in that answer, variation between what you've seen in the Haynesville, Southwest App or Northeast App?

A: Yes. Thanks for the question, Charles. I've been incredibly pleased with the overall execution. We've brought on 130 wells over the last two quarters. Well performance is as expected with some variability depending on well location in the Haynesville, but overall pleased with the productive capacity strategy execution.