Jeremy Knop: Yes. I mean I think one of the key things to remember as you think about how to actually manage the business in that environment comes down to like how do you see that distribution of outcomes. And so remember, our cost structure being – call it, mid-2s now headed towards low-2s. If we think about like what’s the worst that’s happened in the last couple of years, which was 2020, and you had gas settled at about $1.99, let’s call it $2. In an environment like that, even if we at EQT weren’t hedged and we have like a $2.30 breakeven, our free cash flow outflow would be in the – I don’t know, $500 million to $700 million range. So, a lot, and you can certainly hedge to protect that. But imagine being a producer in that environment and your breakeven is $3 and you are at scale, I mean you would have multiple billions of dollars of cash outflows, you just can’t survive for more than a year of that because your liquidity gets drained.
So, for us, I think one of the things we have realized at scale is that one of the risks that is created is if you pair scale with a really volatile environment and your cost structure is too high, even if your balance sheet is clean, you can put yourself in a pretty precarious position pretty quick. So, that’s why we sort of – that’s why we focus so much on driving that cost structure down because for us, if our downside, call it, $0.50 and that’s pretty low, but if the upside is you have a year settling at $6, $7, $8, I mean you are talking about $10 billion type of cash flow to our business. So, we want to be in a position where we don’t have to hedge and inherently having a low cost structure like a structural hedge. And I think that really is what positions us to, again, not only just kind of survive in cruise through those down periods, but not have to defensively hedge so much of your production that you really missed out on the price.
And the price is that sort of asymmetric upside. So, again, I think at a high level, you might – some people might say, well, it’s a little dilutive to just focus on cost structure so much near-term. I think that’s easy to see if you run a static model at like $3.50, $4 gas. Well, that doesn’t capture those is the element of volatility. And if you talk to any of the producers, any of our peers, I think the theme of volatility is well understood. I just – I think EQT is unique in how we position ourselves to, again, be structurally defensive towards that for long-term investors and then provide the best risk-adjusted upside to that theme and capture that every 3 years to 4 years when that sort of windfall period shows up. And again, I mean think about it, we had a little bit – you had a warm winter this year, you have an extra 275 Bs in storage.
It could have gone the other way. And we will have winters that go the other way. You could have pricing at $5 just as quickly as you have pricing at $1.50. And that amount of cash flow at our scale is just an absolutely tremendous amount of value. So, we are trying to position ourselves to be able to capture it and not – again, like the last couple of years where we lost so much on hedging, continue to give that upside up. So, that’s again, why we just sort of philosophically focus on running the business the way we do.
Josh Silverstein: Thanks. My last question was just on hedges. You mentioned a lot in there, but it looks like you didn’t add anything for 2025. I definitely get the constructive outlook that you guys have. But clearly there is the factor of weather, which you have mentioned as well that we just don’t know how that will play out. Why not at least look to add in something for 2025 at this point, just to have a base level in there? It looks like you added something for second half or fourth quarter for this year below where the strip is next year. So, I thought that would be great. Thanks.
Jeremy Knop: Yes. So, I think we think about hedging going forward, just with our balance sheet and credit ratings where we are. I think you will see us start to hedge at a level that effectively drops our – I mean look, if you think about what hedging does in a low-price environment, it effectively synthetically drops your breakeven price. And so if our breakeven price, call it, is headed towards $2.30, we might long-term hedge between like 20% and 30%. And so if you do get that $2 a year on average, that’s kind of your free cash flow breakeven point on a hedged basis. We are kind of towards that with our hedging in 2024 right now. That’s that $2.20 level that we talked about. I think – look, we don’t plan to go into 2025 totally un-hedged.
I think we are just willing to be patient. And I think some of the bearish narrative in positioning in the commodity markets has really pushed pricing really below where it probably needs to be. So, look, we don’t need to hedge defensively right now. I think we are – we want to be opportunistic, and we just think there is so much asymmetric called SKU that should show up in that market in 2025. I think we are willing to be patient on that. But I mean look, we will take off risk at the right point in time, but we are going to continue to be patient on that.
Josh Silverstein: Thanks.
Operator: Our last question will come from the line of Paul Diamond with Citi. Please go ahead.
Paul Diamond: Hi. Good morning. Thanks for taking my call. I just wanted to touch base real quickly on – you talked about LOE and some of the savings have been driven by water handling. I guess my question is how much more, I guess meat on the bone you think there is there? How much further do you think you can drive it lower?
Toby Rice: Yes. I would say that we had a big step change. I think if you look at the water recycling rate, that’s a big driver on a large portion of our LOE. Obviously, water is the biggest portion. So, the goal for us is to stay in that 95% plus range on water recycling. I think the other benefits that the water system will come through just more efficient logistics to service our completions team and allow to give these guys the space to continue to run hard and continue to capture the operational efficiencies they are seeing there.
Paul Diamond: Understood. And then I have just kind of one final quick one. As the prop market sits right now on the curve, how should we think about kind of the operational cadence through the year with that 140 – or 110 to 140 TILs, should we think about that as pretty steady throughout the year, and more back half loaded, or how should we think about it as the market sits down?
Jeremy Knop: Yes. Look, I would call it pretty steady throughout the year. I mean when you are running the size of spreads we are and the size of logistics operations, it’s not something you start to stop quickly or easily. The bar is pretty high for that. I think the range we give is just based on some shifts in timing that can happen. I think in terms of the macro environment, I mean look, we – the quickest thing that’s going to balance the market is not having operators in Appalachia, which have a pretty shallow base decline cutting activity and are drilling big pads that are hard to slow down. I mean that’s base load supply as we think about it. When we think about really the production that needs to come out of the market, the fastest way to balance the market, it’s taking Haynesville activity even further downward.
They are drilling two wells to three wells at a time on the pads, becoming more and more infill wells and you have a 50% to 60% base decline. A cut in that activity would balance the market a lot faster. And that’s also the marginal producer today and will continue to be in the future. So, we expect that’s really where the volatility of production and variances and production cadence will show up and will continue to show up, I think in the backdrop of volatility that we have talked about.
Paul Diamond: Understood. Thanks for your time.
Operator: I will now hand the call back to Toby Rice for any closing remarks.
Toby Rice: Thank you everybody for your time. We are looking forward to executing for you in 2024. Thanks a lot.
Operator: That does conclude today’s meeting. We thank you all for joining and you may now disconnect.
