Toby Rice: Yes. Scott, I think there is two factors that we think about that would cause us to curtail. One is preserving the ability to not lose money. And so that certainly would look for us to curtail. And the other one is we are looking in 2025, where you see a $1 higher pricing, and that is even – that’s going to be further intensive for us to pinch back and deliver those molecules into a higher-priced market. So, yes, it’s something we are watching and thinking a lot about.
Jeremy Knop: Yes. Scott, I would just underpin too. I mean you have to remember, I mean certainly for a business like EQT, where we are drilling 15 wells, 20 wells a pad, the CapEx we spend this year has no real impact on our production this year. It really has an impact on production next year. And so when we are thinking about that sort of rate of return and you save yourself $100 million this year, what’s the impact on free cash flow next year. Certainly, with where pricing even is today after pulling back and I think our expectation is probably significantly higher than the strip today. It’s really hard for us to justify that, especially just given the financial position we are in, the amount of liquidity we have in our credit ratings.
We are just not under the same pressure that most of our peers are. So, that allows us to be a little stickier and plan for the long-term and not be as reactive. But look, we – as we have said before, our production guidance gives us flexibility to reduce as needed. But reducing CapEx activity this year is not – I mean it would be window addressing this year at the expense of next year, and it’s just not how we run the business.
Scott Hanold: Yes. And Toby, I appreciate the fact that, obviously looking at the forward curve, we do all see, obviously that improvement. But one could argue if we step back several months ago, I mean certainly, 2024 looked significantly better than it is right now. So, like as you step back and think about the macro, like what do you think the big risks are that this gas price trend remains what we have been seeing outside of, obviously weather. But more on, I guess the political front and everything else that’s out there? And then how do you react as a company of this persists into 2025?
Toby Rice: Yes. It’s a great question. Listen, I think on the political front, I mean I think political force can override market forces for so long. And our job is to align with the market is to make sure the energy we produce is the cheapest, most reliable, cleanest form of energy that’s out there. And I think eventually, the demand for this product is going to overweigh, I think the political short-term gains that people are thinking that they are helping by doing this. So, I mean long-term, we feel even more optimistic about the large role natural gas will play in the commodity mix going forward. But yes, I mean in the short-term, we need to be sensitive to the market that we are in. Activity reduction is going to be a big thing.
I mean a key part of our thinking is we positioned our business to be a low-cost operator in the U.S. I mean our breakevens are significantly lower than what we think is the marginal cost of production. And we are going to see if those marginal producers reduce activities. We have already seen that start to happen. But that’s something we are going to be monitoring and then it’s – eventually, we will have a normal winter. But even without that, with just normal weather, we should be balanced coming into 2025.
Scott Hanold: Yes. I appreciate that.
Jeremy Knop: And Scott, with all the bearish narratives out there, I think it’s really important to remember that with these data revisions that came out of Genscape a week or so ago, I mean production levels were not at 107, pushing this bearish narrative, production levels today are like 104.5. And so if you look at where we are at today with normal weather, the market is actually balanced. And so the extra, call it, 275 Bcf that’s in storage right now is really just a result of, again, a really warm El Nino winter. If we had just had normal weather, the market would be balanced right now. So, I think this sort of overarching view of the market is just so out of balance, production is way too high. LNG is delayed. I think when you step back and kind of cut through the noise, it’s really not the case, which is I think why we are being a little more patient and disciplined here.
And as it relates to a lot of the LNG headlines and some of the politics playing into that, I mean there is really no impact through – at least the end of 2026. So, as we look at the market today, we don’t really see any change in the LNG build-out timeline. I mean we expect in Q3, Q4, those facilities start to come online. And again, I think that the work the market needs to do is just to clean up that excess overhang in storage coming out of winter. But the market is really not that far out of balance. I mean it’s a difference of 1% to 2% kind of change in your fundamental model. And it can flip back pretty quick too. So, I think if you are running a long-term business, you just have to – you have to keep that in focus. We are really not that far out of whack on the fundamentals.
Scott Hanold: Yes. No, I appreciate that. And Toby, we all appreciate your – obviously, your insights into the political side. So, just kind of curious if I can extend the question. Like what are some of the major push-backs you are getting when you go to Washington and try to fight for kind of the gas companies? What is the main push-back, and how do you address it?
Toby Rice: Yes. I mean it’s really just asking people to step back and see. It seems like we are in violent disagreement – violent agreement here on what we want from our energy system in the future, like Republican and Democrat, everybody wants more affordable energy. Everybody wants more reliable energy. Everybody wants cleaner energy. And I think the work that we are doing is highlighting, I mean I would say the biggest difference that we are doing, the hump that we need to get people over is to understand that natural gas is a cleaner form of energy. And the good news is we don’t have to play with theories. We don’t have to rely on literature. We have case studies at big scale that show that natural gas is a decarbonizing force, whether that’s simply putting the spotlight in America and showcasing why we are the number one leader in lowering emissions in the world, it’s because of natural gas.
And also, I would say the other narrative we need to address is the fact that some people think that America is the largest producer of oil and gas, the regulations or pipeline blockages can’t be that bad. But I think the simple response to that position is yes, we might be the largest producer of oil and gas in the country. We are the largest exporter of LNG in the world. But the question that needs to be asked is, is that enough, we have got ramp of inflation, wars in Ukraine, global emissions still skyrocketing, energy poverty is growing, energy security is crippled. Clearly, the United States needs to do a whole heck of a lot more because the world can only contain so much chaos before it starts spilling over and impacting Americans. So, the world security is our security.
And these are simple points that we can make. It is a little bit of a different perspective that people haven’t thought too much about. You lay that common sense approach underneath the framework from climate leaders around the world that recently gathered at COP and came out with a very simple punch list of what needs to happen. Transition fuels are going to be necessary to meet the climate ambitions that we have. That’s a fancy word for natural gas is going to play a role. Carbon capture is going to be a part of those solutions. And then I think also the recognition that solar and wind as great as they can be, they are not the complete solution, and you need a heavyweight solution, and that is natural gas to meet the goal. So, we have got cover from the environmental front, but it’s really just getting this common sense message out, and that’s where we spend a lot of time working the megaphone.
Scott Hanold: Appreciate that.
Operator: Your next question comes from the line of Josh Silverstein with UBS. Please go ahead.
Josh Silverstein: Yes. Thanks. Good morning guys. You mentioned previously that you think we are in an environment where natural gas could be $2 or it could be $4. How do you operate in that environment? Does your production stay relatively flat through all of this? Do you build DUCs when we are at $2? Do you release them when we are at $4? How are you kind of thinking about your development plans going forward in that kind of framework? Thank you.
Toby Rice: Yes. I would say at a very high level, I mean keys to success is to have a low-cost structure so that we can weather the storm. And that also is going to position us to be opportunistic to play some of the volatility. Operate – and I will let Jeremy expand on that a little bit. But operationally, one of the things that we have looked to build into our business is the ability to bring some surge capacity. So, understand whether that’s choke management and pension volumes back so we can respond to higher price environments or in some cases, just holding back some TILs and building some DUCs. I think having a flexible program is going to be something that’s needed. But that’s going to be more around the edges. Having a low cost structure is going to allow us to run consistent programs and be responsive, but not be completely whipsawed by the commodity price.
