Joe Coletti
Welcome to Powering Sustainable Ideas, a podcast series from RBC Capital Markets, where we interview the leaders and companies powering the sustainable future. I'm your host for this episode, Joe Coletti. Today we're broadcasting from RBCs Global Energy, Power and Infrastructure Conference in New York, and we're joined by Jeremy Knop CFO of EQT Corporation, one of the largest producers of natural gas in the United States. We'll unpack EQT's latest $3.5 billion midstream joint venture with Blackstone, explore the company's approach to capital strategy, and discuss how it’s positioning for growth in an evolving energy landscape. Jeremy, welcome to the podcast. Great to have you here.
Jeremy Knop
Good to be here.
Joe Coletti
So EQT has delivered strong performance amid structural shifts in the energy sector and rising global demand for low carbon energy. From your vantage point, wearing your CFO hat, can you talk about what you think is driving that momentum, but also how you're shaping capital allocation to support your long-term growth?
Jeremy Knop
Everything that drives us, our North Star, as we call it, is cost structure. There's a lot that goes into cost structure. We think about our business as a commodity producer. We're a price times volume business. We control volume. We don't control price. But the way we make money is push that cost structure as low as possible, and the delta between that and the price is our profit margin. Every single decision we've made since really the takeover when Toby became CEO and in 2019 has really been driven by that. It first commenced with what we called evolve EQT. That was about fixing the operating machine, the way we do things at EQT, and setting the stage with that platform, the scale and the assets we have.
From there, in 2021 really late 2020, we embarked on what we've called, like our consolidation wave, beginning with buying Chevron out of Appalachia, Alta, Tug Hill. We made a pretty gutsy decision, in 2024, to actually reintegrate. There's been a trend for the past 15 years of splitting midstream and minerals. All the high multiple cash flow out of, out of upstream businesses is a as an effort to financially engineer value. What we observed in that over time was, you paired, what was, the remaining company was a very low margin, very volatile business model that for a time period also had a lot of leverage. We've really taken a step back and a fresh perspective and said, ‘What would make energy investable again, especially upstream, and in particular natural gas, which is a much more volatile commodity than oil.’ And I think a lot of people are very structurally bullish gas, that is our view. But how do you own exposure to that, but not worry about what's happening this winter? What's happening this summer? So, we made the decision to reintegrate. We bought back Equitrans, which was spun out of EQT in 2018. And effectively what we did with that, when you boil it down, is we reduced our cost structure to about $2 on a Henry Hub basis. And what I mean by that is, we only need about $2 gas at Henry Hub to start producing our first dollar of free cash flow. So the ability to really, in any environment, sustainably support a base dividend and have capital left over for other things opportunistically, or to return to shareholders, is really uniquely advantaged now, structurally and allowed us to have a lot more sort of duration to our business than, I think, really, anything else that's comparable in the upstream landscape. So we now have a combination of stable cash flow and that gas price exposure with which so many investors want. You see that business model in Canada, they own infrastructure, they own production. It's easy to own. And finally, the US has a company with gas exposure that's easy to own. And so it's created a lot of positive momentum for us. Shareholder base is outstanding right now. We have, I mean, from my perspective, a vantage point, probably $5 billion of additional shareholder buying power waiting in the wings, from really high-quality investors.
So it's been it's been a journey. It's been one, I would say, has been led by like first principles and conviction about what makes just a great company, whether it's energy or not. And really, a lot of the money that's coming to the stock in the past year has actually been generalist money. So it's been a really cool transformation. And I think it's really important right now, as gas is diverging from oil in the energy landscape, especially with the perception of long term duration well beyond that of oil, gas power, LNG is increasingly kind of in a different bucket than the legacy business of businesses of the oil majors.
Joe Coletti
You know, you talked a lot about EQT's transformation. I have two quick follow ups, and then I want to get to the to the JV with Blackstone. But can you talk about some of the lessons that you've kind of personally learned going through EQT's transformation, how they're kind of influencing your approach to guiding the financial strategy today?
Jeremy Knop
I mean, to pick on myself and Toby a little bit, we're younger than the average team. We take a longer term view as a result because we can. We try to think about the business as owners, like perpetual owners. If we never could sell a share of stock, are we making the right decision? We're not trying to be the heroes for the next quarter, for the next two quarters. We're trying to, we're trying to do the right thing and create value. And, it's sometimes hard to do that, but I think in the long run, we've gained the respect of a lot of people. I think Equitrans was like feather in our cap when it came to that. Initially, when we started consolidating, we had T. Rowe Price fully exit their position, and our stock just said, ‘We're not into consolidation. We don't agree with what you're doing. We're out.’ And it put pressure on the stock for like, six months, while they sold down. They then came back in after our share price had doubled, and said, ‘We love what you're doing. We want to own a ton of stock.’ And they became our top shareholder again. So it's been, it's been an interesting evolution.
Joe Coletti
So when I jump to the JV next. So for those who don't know, EQT recently announced the $3.5 billion joint venture with Blackstone Credit Insurance. Can you talk a little, a little bit about this partnership, what made it the right move at the right time? I also understand there was a there was a novel structure included in it. Can maybe elaborate on that for our audience?
Jeremy Knop
Yeah, so it was really born out of the Equitrans deal. Equitrans had gotten their balance sheet in a in a really tough spot, not due to really anything they did wrong, it's due to the pushback against Mountain Valley Pipeline, when that was being built. It was supposed to be a project that took three to four years and about three and a half billion dollars. It took nearly double that amount of time and about $8 billion so naturally, they took on a lot of leverage. When we acquired them, between the debt and preferred equity they had on the balance sheet. They had about $8 billion that we had to absorb. We had about $5 billion of debt prior to that. So on the backside of this, I mean, we actually ended up probably at the peak, at about $14 billion of debt. It was a lot. I, in my seat, it was something that kept me up at night. I stared at the ceiling thinking about how I had, we had to take care of it as possible. You're only one macro event away from the markets closing. So we moved incredibly quickly. We sold, really in two transactions, assets to Eqinor, a value that really is a win-win for both us and them.
The biggest nut that we had to solve is, you buy all these really high-quality midstream assets, there's so much opportunity and synergy capture. We don't really understand them as well as we should yet, because we haven't operated them. And we see a lot of growth potentially in them, the power data center theme being probably one of the biggest. So, going back to my days when I worked at Blackstone for a long time, I kind of said, ‘What is the most efficient capital solution in theory for these assets.’ So naturally, we look towards the more regulated assets, the long term contracts. And we looked at what was called the transmission and storage business of Equitrans. We said, effectively, the contracts we have on a 10 to 20 year basis with companies with a 5-5.5% bond yield, there's no reason we should go sell these cash flows at a 9-10% yield to global infrastructure partners, that's giving money away. That's ridiculous. And then I was actually at an event in Houston, one of the partners at Blackstone I used to work for happened to be there. He said, ‘Well it just so happens my new role is managing like $80 billion of insurance and infrastructure credit right now. We should talk about this. This is, there's something interesting to solve here and create.’ And so, I would say, between working with him, working with all the other big investment houses, we actually just kind of went back and forth and sculpted this proposal. But it was, honestly, it was a phenomenal deal for us. Honestly, it was a phenomenal deal for Blackstone too, right? Like, typically, I might have to sell that stuff down at like a 10 times multiple. What they effectively paid us was like a 12 and a half, 13 times multiple.
The reason it was still a great deal for them is they said we're going to get 8% return backed by the credit of EQT and Duke with a 5% bond yield. We're effectively buying bonds in their businesses for two to 300 basis points of free spread. They love that. It was no brainer for them. They levered it up, they get a good equity return, right? So it was truly one of those win-win type of deals that are really fun to work on, because you do something new, really invent a lot. I can't tell you how many roadblocks we ran into with you do this JV, that kind of looks like debt, but you got to get full equity treatment from the rating agencies, and you got to document it the right way. We carved out the growth rights on it. So expanding Mountain Valley Pipeline, anything to do with like, these data centers and like build new pipeline. And the beauty of having partners like we have now with Blackstone is, it's more of a passive investment. And so the beauty of this is it's almost like we took a super high quality asset. We preserve the ability to capture synergies. They have a capped return if multiples expand. So we effectively took these assets, put them on the shelf, and said, ‘We'll buy this back later in time, or have the option to and is treated as equity’ We accomplished the sale at a high multiple, and we kept all the long term option value. So it is actually, it was a really cool solution. We actually had some of your bankers at RBC work on it with us and help us get the final structuring and rating agency work across the finish line.
Joe Coletti
It was a really interesting backstory. And as you said, it's a really creative, innovative solution to what you're trying to solve there. So if you look beyond the JV a little bit, and you think about the areas of your portfolio, whether it's upstream infrastructure, tech that you think offer some of the most compelling growth opportunities, particularly in the next, say, three to five years, what would you kind of point to?
Jeremy Knop
We're looking at a lot of what's happening in the power space right now, especially in basin or in Virginia, where mountain valley delivers a lot of gas into the Ohio market. We sell a lot of gas to these downstream utilities. As it is, we're seeing a lot of interest in basin and Appalachia, especially to like retired old coal plants, there's an interconnect to the grid. Build a new gas plant there, build an adjacent data center, and EQT being investment grade, fully integrated, we can provide infrastructure, water solutions, gas solutions. We have phenomenal state, local regulatory relationships to really be like, the partner of choice. We're looking at this not only from the standpoint of maybe we can replicate what we've done with some of the big utilities in the southeast, perhaps, where we get paid a premium to index, but we can create captive growth that we build a pipeline to. We get a great return on the infrastructure at a very low risk. We open up the ability to grow volume into that, without disrupting market balances. We think there could be up to six, seven BCF a day of growth in a market that today is about 36 BCF a day. That's the equivalent of adding a whole other EQT to Appalachia, right? That is a tremendous amount of growth at where you are in the lifecycle of shale.
So we're having a lot of really cool conversations with hyperscalers, with utilities and private equity and everybody involved in trying to make this thing happen, whether it's brownfield expansions, greenfields, there's a lot to do, huge capital projects, so they don't happen overnight. But I think the way we're positioned, with our 2 million acres or 3000 miles plus of pipeline infrastructure, one of the biggest water networks in that part of the country. It's going to be really cool to see what we unlock. And, I'm excited to try to get some of the stuff across the finish line.
Joe Coletti
Continue to think about your portfolio for a second. We've talked a little bit about M&A. How do you think about the role of M&A? What signals are you looking for when you're thinking about, do we acquire, do we divest, do we partner?
Jeremy Knop
We try to keep it based on first principles. It's all about cost structure at the end of the day. And then how do you effectively acquire a bunch of cheap call options? A lot of optionality, you don't pay for. One of our acquisitions of business called Alta in 2021. We effectively bought 100,000 acres of development production. Got 200,000 acres effectively for free. Lower quality. Gas prices were in the twos. Huge call option value. Equitrans is another great example. 3000 miles of irreputable infrastructure in a part of the world where it's really hard to build stuff anymore. There's multiple layers in Appalachia, beyond the Marcellus to develop. You reuse that infrastructure over and over. Olympus, another acquisition that we announced with earnings last quarter, we expect to close around mid-year. I look at it as a value buy, right? You know, we got to call it mid-teens, free cash flow yield, mostly equity deal, relative value style structure. It's right next to a lot of the biggest power projects that we're talking we're talking to right now. If, one of these many deals done, you grow that position, you could probably save yourself money in the cost of getting directly connected to a given power plant. It's just totally free upside.
So, if you rewind five years, the US market was so fragmented. Every basin, there needed to be consolidation. It was uninvestable for the reasons I said before, it’s also subscale. So I think it's part of just the maturity of the shale wave, all this consolidation happening. I don't think it's done in gas. I don't think it's done in oil. It's made it more investable. It's helped bring a lot of quality investors back. It's bringing, it's brought more level headed decision making to management teams, because now you have the best assets with the best teams and real values now being created. We see it at the end of the day, as a way to accelerate value creation. If we can do something that's relatively low risk, expand our reach, make our scale a little bit bigger, and create value at the same time with as high quality or better cash flow quality, we'll do that all day long, right? I think there's a lot of good tailwinds to keep that train rolling.
Joe Coletti
We always talk about the energy transition, presenting both strategic opportunity but financial complexity. If you think about the role of CFO and how it's continuing to evolve, how it may continue to evolve as you sit in this seat, especially at a company like EQT that's balancing scale, innovation, sustainability all at the same time. Where do you think this kind of role may change? How may it change moving forward?
Jeremy Knop
It's become a role increasingly, of where you need to have a strategic skill set. Understanding capital structure and risk and how to mitigate that, understanding M&A, really understanding how to allocate capital. If you’re EQT, that's between two and $4 billion a year, right? The best way to create long term values, is reinvest it and compound the capital and over a long period of time, consistent compounding with long duration is what will drive share price creation and a ton of value creation for shareholders.
Joe Coletti
So we have one more question for you. As you look ahead, what kind of milestones or metrics do you think investors should be paying most attention to when it comes to EQT that they need to understand to figure out whether your strategy is delivering?
Jeremy Knop
Look for us, it's all about free cash flow. I couldn't care less what EBITDA is, right? EBITDA, in our business, especially in shale, disappears overnight if you're not reinvesting cash flow. And, so we look at everything on a free cash basis. What comes in to pay the dividend, to fund a buyback, to pay down debt, it's all that matters. And then how risky is that cash flow? What's the quality of it? Again, that's why we focus so much on that, on that break-even level. When do we start producing the first dollar of it? So that's like the foundational piece of it. And secondarily, it's, what do we do with it? So as we think about what to do with that capital, every year, it's, are we generating enough opportunities organically to reinvest and compound that capital? That's why we love infrastructure so much, paired with upstream. But you have to do a lot of work. You have to be pretty relentless in your approach to shake loose those opportunities, because the market is competitive. I continue to learn a ton every day from all my colleagues across all of our different departments in terms of how to identify those opportunities and how to pursue them.
Joe Coletti
I think that's a great point to end on. Jeremy, we really appreciate you being on the podcast, and good luck to you.
Jeremy Knop
Yeah, good to be here.
Joe Coletti
Thanks again for listening to powering sustainable ideas. Brought to you by RBC Capital Markets. This episode was recorded on June 3, 2025. Please remember to subscribe to get more great content and be alerted about future episodes. See you all next time.
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This content is based on information available at the time it was recorded and is for informational purposes only. It is not an offer to buy or sell or a solicitation, and no recommendations are implied. It is outside the scope of this communication to consider whether it is suitable for you and your financial objectives.