Expand Energy Corporation (EXE) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reflects a positive sentiment with strong financial performance and optimistic future guidance. The company is reducing capital investments while maintaining production, increasing net debt reduction targets, and returning significant value to shareholders. Additionally, the Q&A section highlights improvements in breakeven levels, productivity, and strategic resource expansion. Although there are some uncertainties and conservative approaches mentioned, the overall sentiment is positive, with potential for value creation through strategic deals and market opportunities.

Key Financial Performance

Well Costs Reduced by greater than 25% since 2023, with year-to-date costs 30% lower than peers based on third-party well proposals. This reduction is attributed to optimized development and completion design.

Average Well Productivity Approximately 40% greater than the basin average since 2022. This improvement is due to optimized development and completion design.

Gross Debt Eliminated $1.2 billion since the merger. This reduction strengthens the underlying business and cash flows.

Shareholder Returns Returned nearly $850 million to shareholders since the merger. This is a result of efficiency gains and savings.

Production Efficiency Achieved the same production with 7 rigs in 2025 as it took 13 rigs in 2023. This improvement is due to efficiency and performance enhancements in the Haynesville position.

Breakeven Costs Average less than $2.75 across the basin. This is a result of sustainable efficiency gains.

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Operating Highlights

Haynesville Efficiency Gains: Production efficiency improved significantly, reducing the number of rigs needed from 13 in 2023 to 7 currently, while achieving the same production levels. Well costs have been reduced by over 25%, and average well productivity is 40% greater than the basin average since 2022.

NG3 Online: The NG3 system is now operational, enabling tracking of production from the wellhead to the end user and offering lower carbon gas.

Lake Charles Methanol Supply Agreement: Expand Energy will serve as the sole supplier to a new industrial facility expected to commence operations in 2030. The agreement is at a premium to NYMEX and demonstrates a strategic connection to high-growth markets.

Global Natural Gas Demand Growth: Natural gas demand is expected to grow 20% by the end of the decade, driven by LNG, power, and industrial growth. Expand Energy is positioned to capitalize on this with its diverse asset portfolio and market connectivity.

Cost Reductions and Synergies: Achieved 50% more synergies than the original target, eliminated $1.2 billion in gross debt, and returned nearly $850 million to shareholders. Costs are 30% lower than peers, and breakevens average less than $2.75 across the basin.

2025 and 2026 Production Efficiency: Expect to spend $150 million less to deliver 50 million cubic feet per day more production in 2025 compared to initial guidance. Prepared to deliver 7.5 Bcf per day of production in 2026 with the same CapEx as 2025.

Marketing Strategy Evolution: Shifted from value protection to value creation, enhancing the marketing and commercial organization to capitalize on the position as North America's largest natural gas producer.

East Texas Acreage Expansion: Added attractively priced acreage in East Texas, providing an option to develop volumes and reach additional markets.

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Risk or Challenges

Market Conditions: Potential risks associated with fluctuating natural gas demand and prices, especially as the company plans to expand production to meet growing demand by 2026. Market conditions may not align with expectations, impacting profitability.

Regulatory Hurdles: The company’s plans to supply lower carbon gas and expand into new markets may face regulatory challenges, particularly in securing approvals for new projects like the Lake Charles Methanol supply agreement.

Supply Chain Disruptions: While not explicitly mentioned, the company’s reliance on innovative efforts and operational efficiency could be impacted by supply chain issues, which may disrupt production or increase costs.

Strategic Execution Risks: The company’s ambitious plans to deliver 7.5 Bcf per day of production by 2026 and expand into premium markets require flawless execution. Any missteps in operational or marketing strategies could adversely affect financial outcomes.

Economic Uncertainties: Broader economic conditions, including inflation or recessionary pressures, could impact the company’s cost structure and demand for natural gas.

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Guidance & Outlook

Production Efficiency: The company expects to spend $150 million less to deliver 50 million cubic feet per day more of production in 2025 compared to the beginning of the year guidance. Efficiencies will carry forward to 2026, with the potential to deliver 7.5 Bcf per day of production for approximately the same CapEx spent in 2025.

Natural Gas Demand Growth: By the end of the decade, natural gas demand is expected to grow 20%, driven by LNG, power, and industrial growth. The company is positioned to capitalize on this growth with its diverse asset portfolio and market connectivity.

Lake Charles Methanol Supply Agreement: Expand Energy will serve as the sole supplier to a new industrial facility expected to commence operations in 2030, with global investment-grade offtake already secured. This agreement is expected to connect molecules to high-growth markets at a premium price.

Marketing Strategy Evolution: The company is enhancing its marketing and commercial organization to capitalize on its position as North America's largest natural gas producer, focusing on long-term value creation and meeting growing consumer demand.

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Shareholder Return Plan

Returned nearly $850 million to shareholders: The company has returned a significant amount of capital to its shareholders, amounting to nearly $850 million, as part of its shareholder return initiatives.

Eliminated $1.2 billion in gross debt: The company has reduced its gross debt by $1.2 billion, which strengthens its financial position and supports its ability to return capital to shareholders.

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Key Q&A

Q:What is the outlook for gas demand in Texas, Louisiana, and Arizona, and how are downstream counterparties responding to long-term contracts?

A:Management highlighted the growing demand for gas in the Gulf Coast, including Louisiana and LNG in Appalachia. They emphasized the importance of long-term contracts (10-15 years) and their ability to meet demand with low-carbon intensity gas. They cited the Lake Charles Methanol project as an example of their ability to provide reliable supply for new demand facilities.

Q:What are your views on mid-cycle gas prices, particularly in the Haynesville region?

A:Management is focused on $3.50 to $4.00 gas prices, centering on $3.75. They believe mid-cycle prices could go higher over time but are cautious due to uncertainties in demand growth timing and bottlenecks. They emphasized their conservative approach compared to other forecasters.

Q:Where do you see your breakeven trending with continued synergy delivery, and what inning are you in regarding marketing uplift?

A:Management stated their breakeven is now below $3, with over $0.15 improvement since the merger. They described their marketing uplift as being in the 'pre-game warm-ups,' with significant potential for value creation through their marketing team and new deals like the Lake Charles Methanol transaction.

Q:What does the growing gas marketing opportunity mean for your gas realization over time?

A:Management expects to add significant margin through optimization of their portfolio and customer solutions. They have already added tens of millions of dollars to realizations and anticipate more value creation through deals like Lake Charles Methanol and other inbound opportunities.

Q:What are your goals with recent resource expansion in Appalachia and Western Haynesville?

A:The Appalachia acquisition was opportunistic, extending lateral lengths and improving returns. The Western Haynesville position was strategically built over years, focusing on low-cost entry and geologic simplicity. Management sees it as a long-term option with significant resource potential.

Q:What did you find in the vertical well drilled in Western Haynesville, and what are your plans for this area?

A:The vertical well confirmed a thick, dense shale reservoir with characteristics similar to other productive areas. Management plans to drill a horizontal well in Q4 and take a measured approach to development, given the uncertainty in long-term decline rates.

Q:What are the drivers behind the CapEx savings and production outperformance in the Haynesville?

A:Savings are driven by drilling efficiency, investment in a sand mine, and optimized completion designs. Management has implemented successive generations of completion designs, each improving productivity and reducing costs.

Q:What is your CapEx outlook for 2026, and what are the moving pieces?

A:Management expects 2026 CapEx to be similar to 2025 at $2.8-$2.9 billion, with flexibility to adjust based on market conditions. They highlighted structural demand growth and potential supply changes as key factors.

Q:What is your approach to hedging and the 'hedge the wedge' program?

A:Management maintains a disciplined approach, hedging over an 8-quarter rolling period. They are 47% hedged for 2026 and 15% for 2027, focusing on downside protection while allowing upside participation.

Q:What are your breakeven levels in the Haynesville, and what improvements have been made?

A:The Haynesville breakeven is now $2.75, down from $3 earlier in the year, due to improved productivity and cost reductions. This includes corporate items like dividends.

Q:What are your plans for the Western Haynesville appraisal program in 2026?

A:The 2026 CapEx includes appraisal costs for Western Haynesville. Management plans to take a measured approach, focusing on operational validation and reservoir performance.

Q:What motivated the Lake Charles Methanol (LCM) deal, and how does it compare to other potential agreements?

A:The LCM deal aligns with their guiding principles, providing long-term security of supply and a premium price. Management is also exploring LNG, power, and industrial deals, taking a portfolio approach to value creation.

Q:How does your experience in the Nacogdoches fault zone (NFZ) apply to the Western Haynesville?

A:Management believes their experience in the NFZ positions them well to handle the complexities of the Western Haynesville, including deeper depths and structural challenges.

Q:What are the drivers of productivity improvements in the Haynesville, and what role do completion designs play?

A:Productivity improvements are driven by optimized completion designs and low-cost sand sourcing. Successive generations of designs have increased productivity and reduced costs.

Q:What is your approach to debt reduction and shareholder returns in 2026?

A:Management plans to prioritize debt reduction while maintaining flexibility for shareholder returns. They highlighted their ability to balance both objectives effectively.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the timing and scale of Western Haynesville development, citing the need for further assessment. They also used vague language regarding the pace of demand growth and the impact of potential bottlenecks, emphasizing uncertainty and a conservative approach.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary and Q&A indicate strong financial performance with notable synergies from a merger, debt reduction, and production growth plans. Management's optimistic guidance and strategic focus on long-term fundamentals, despite market volatility, are positive indicators. However, some concerns were noted regarding unclear management responses on specific issues. Overall, the sentiment leans positive, supported by expected shareholder returns and strategic positioning in response to market demand.

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