Ladies and gentlemen, thank you for standing by and welcome to the EQT Third Quarter 2020 Quarterly Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today Andrew Breese, Director of Investor Relations. Thank you. Please go ahead, sir.

Good morning and thank you for joining today's conference call. With me today are Toby Rice, President and Chief Executive Officer and David Khani, Chief Financial Officer. The replay for today's call will be available on our website for a seven day period beginning this evening. The telephone number for the replay is 1-800-585-8367 with a confirmation code of 8971226. In a moment Toby and David will present their prepared remarks with a question-and-answer session to follow. An updated investor presentation is available on the Investor Relations portion of our website, which we may reference certain slides during this discussion. I'd like to remind you that today's call may also contain forward-looking statements. Actual results and future events could be materially different from these forward-looking statements because of the factors described in today's earnings release and the Risk Factors section of our Form 10-K for the year ended December 31, 2019 and in subsequent filings we make with the SEC. We do not undertake any duty to update any forward-looking statements. Today's call may also contain certain non-GAAP financial measures; please refer to this morning's earnings release and our most recent investor presentation for important disclosures regarding such measures, including reconciliations of the most comparable GAAP financial measures. With that, I'll turn it over to Toby.

Thanks, Andrew, and good morning everyone. Today I look forward to providing an update on the business and how we've progressed with our strategic initiatives. But first I'd like to jump right into the positive results of the third quarter. The momentum that we experienced during the transformation of our first year of managing this company has continued in the third quarter, which was another impressive quarter both operationally and financially. We delivered sales volumes of 366 Bcfe, which was in line with our original guidance range, despite 15 Bcf that we strategically curtailed at the beginning of September and through the remainder of the quarter. On the well cost front, we continue to realize improvements in operational performance delivering well cost of $660 per foot on our Pennsylvania Marcellus asset. Third quarter well costs were $20 per foot lower than last quarter, 10% lower than target and 22% lower than just one year ago. This continued progression gives us increasing confidence and makes our future development plan that much more compelling, as we continue to find ways to increase performance and enhance results. We continue to do more with less, and that is apparent in our third quarter CapEx spend of $248 million, which is $227 million below the same period last year and $55 million below last quarter. The efficiencies that we continue to see in both drilling and completions substantiate the CapEx improvements. With less than 20% of the year-to-date cost improvements being attributable to service cost inflation, these are truly sustainable cost reductions. On the drilling side, we've seen roughly 20% improvement in horizontal drilling speeds quarter-over-quarter and roughly 60% year-over-year, which was accomplished through the continued application of best practices executed by the same crews guided by a stable operation schedule. On the completion side, our electric frac fleet is really hitting their stride, improving pumping hours and stages per month by approximately 15% respectively quarter-over-quarter. In addition to our electric frac fleet accomplishments, our teams have continued to find ways to streamline our operations. These efforts include automating processes that were previously manual, employing new technologies to increase the reliability, efficiency and safety of our operations, utilizing centralized operating systems, taking data that was once siloed and fragmented and turning it into easily accessible and usable data to drive better decision making and improved performance. Put simply, we are leaving no stone unturned to find ways to improve the performance of this business. The continued outperformance has resulted in positive revisions to certain full-year 2020 guidance at the midpoint, including an increased production of 15 Bcfe and a decrease in capital expenditures of $50 million. This represents, for the fourth time, we have reduced our 2020 capital guidance for a total of $275 million or 20% of the original budget, all while delivering more volumes, even considering strategic curtailments. After accounting for a slight widening in expected differentials, this will drive an expected improvement of $25 million in free cash flow. As we continue our financial and operational transformation, we do so with a heightened focus on our commitment to corporate responsibility and transparency. We recently launched our revamped ESG report focused on our evolution as a company, enhanced leadership directives, our operational strategy and the implementation of our mission, vision and values, all aimed at becoming the operator of choice for all stakeholders and the clear ESG leader in the natural gas industry. Before I get into highlights of the report, it's important to spend a little time on the criticality of natural gas in the energy mix of the future. You will see on Slide 24 of our investor presentation EQT's operations have the second-lowest emissions intensity of nearly 40 surveyed domestic and global E&P companies during the period. Our peers in Appalachia perform at similar levels. Looking specifically at gas producers, you'll see on Slide 25 that of the top 10 U.S. natural gas producers, Appalachian players produce approximately 60% more gas with 70% lower emissions intensity. What excites me about this data is the differentiation of natural gas, and in particular Appalachian natural gas. The reliability, availability and cost benefits of natural gas are unquestionable, and we think as people start to look at the data, there will be a decoupling of natural gas from other fossil fuels as it pertains to environmental and socioeconomic benefits. Turning to our ESG report, you will see that we have provided a detailed framework on how we think about our business and how all the pieces are aligned to execute on a cohesive operational, corporate and ESG strategy. Our impacts on the ESG side of things are principally an output of operating in an informed, supported and purpose-driven manner. In our report, we highlight among other things the significant environmental benefits of our combo development strategy, how integrating ESG into our digital work environment improves data collection, analysis and reporting, our commitment to operating safely while utilizing the highest standards to protect and mitigate impacts on the environment, investments made in our local communities including over $29 million in contributions in the form of infrastructure improvements, grants, scholarships and sponsorships, and steps we are taking to reduce greenhouse gas emissions, which have decreased 23% compared to 2018. I encourage you to review our report, which can be found on our Investor Relations website. Shifting gears, I would like to talk about the compelling macro and natural gas setup. There are several main points that drive our multi-year bullish thesis. In the near-term, supply and demand will continue to tighten as weather demand overcomes the storage overhang. Core acreage within the gassy regions are continuing to be drilled up, leaving Tier 2 and Tier 3 inventory that can only be economically drilled at materially higher strip, and lastly, total U.S. rig counts and completion crews have fallen by approximately 65% since the beginning of the year. In Appalachia, there need to be about 30% more rigs to keep production flat and in the Haynesville that number is about 15% more rigs. In the medium term within the industry, there was approximately $115 billion of debt due from now until 2023, which has forced producers to focus on corporate returns and fixing their balance sheets rather than growing production. In the long term, we believe there will be a sustainable and long-term global call on U.S. natural gas. We anticipate that long-term U.S. demand will increase driven by coal and nuclear retirements, partially offset by renewable builds and long-term global demand will increase driven by economic development in developing countries. The favorable macrodynamics as well as continued execution of our operational and financial strategies optimally positions EQT to capitalize on the setup and outperform peers. The forward curve for '21 has moved up into the $3 level and the '22 curve is now in the low $2.70s. Although important indicators, this will not cause EQT to add growth in 2021, as the curve is still too low and backwardated. We are focused on running an efficient business plan aimed at increasing NAV per share driven by efficiency gains and not growth. We believe that one of the most important drivers of value creation for our shareholders is getting our asset valued at a long-term price deck that is closer to $3 as opposed to $2.50, and looking at the strip, there is clearly a need for more discipline from EQT and all other operators to achieve this. I'd now like to pass the call over to Dave to further discuss some of our financial and strategic highlights.

Thanks, Toby. First I'd like to start by briefly providing some color on the production curtailment that we implemented during the quarter. The curtailment was initiated on September 1st, and remained shut-in for the entire month. We began a phased approach to bringing these volumes back online at the beginning of October and all production has returned to sales. The driver for the curtailment program was a material price arbitrage between September and winter 2020 pricing and beyond. As we continue to outperform operationally, we're able to defer those extra volumes to be monetized in a much more attractive future price environment. Additionally, we hedge this production to lock in favorable pricing and the attractive economics, which provides a triple-digit IRR. In all, the impact of the curtailment was 15 Bcf that came out of our third quarter, while we were still able to deliver volumes near the midpoint of our guidance range. Going forward, we will continue to use curtailment strategically to capture incremental value when the opportunity presents itself. This segues nicely into the hedging activity that we recently completed. During the third quarter, the 2021 strip saw increased volatility, but ultimately moved higher, currently sitting just above $3. As prices were rising, we were opportunistically adding 2021 hedges during the period to lock in value and protect downside risk, with two key goals in mind. First, the ability to pay off our remaining $900 million of 2021 and 2022 debt with free cash flow and our ETRN equity stake, and secondly to lock in investment grade metrics. With this hedge position and a strong 2021 and rising 2022 strip we believe we've achieved these key milestone goals. As a large producer of natural gas, our hedge program in a broad sense is set to provide downside protection while capturing the upside. While it would be better to capture 100% upside from rising prices, it is prudent for us to take the risk away associated with a warmer-than-normal winter, longer lasting impact from COVID, and higher than expected oil prices. While initiating forward hedges, we take a surgical approach aimed at targeting the higher risk seasonal periods, resulting in more risk protection in the volatile summer months, while leaving more upside in the winter months to be hedged over time. Since June 30, we have added approximately 350 million dekatherms of 2021 swaps at $2.90 and 155 million dekatherms of 2021 collars with a $2.75 dekatherms floor and a $3.15 dekatherms ceiling. As a result, we now have approximately 72% of our 2021 expected production hedged assuming maintenance level production, up from 40% at the end of the second quarter. During the quarter, we also experienced some regional price volatility and widening of local bases. Our strong fundamental team saw this coming back in May and as a result, we put on a robust basis hedge position for the fall of 2020 for Dominion South and TETCO M2 at a spread of approximately negative $0.90 to Henry Hub. Ultimately differentials blew out to over negative $0.55 and we were insulated for much of that exposure. Although heavily protected, the significant basis widening during the period did push our third quarter differentials towards the weaker end of guidance coming in at a negative $0.48 per Mcf. This takes me to a quick overview of our third quarter financial results. As mentioned before, we were within our guidance range for both sales volumes and average differentials at 366 Bcfe and a negative $0.48 per Mcf respectively. Our adjusted operating revenues for the quarter were $853 million and our total operating cost per unit were $1.44 per Mcfe. Operating cost per Mcfe were negatively impacted during the third quarter by the strategic volume curtailments. In addition, for the third quarter of 2020 adjusted SG&A per Mcfe increased as compared to the same period in 2019 due to the higher incentive compensation expense resulting from changes in the value of equity awards, which exceeded the favorable impact of our personnel costs from reduction in workforce. As Toby mentioned earlier, we came in below our internal expectations on the tax rate and capital expenditures were $248 million due to continued operational outperformance. Our adjusted operating cash flow for the quarter was $295 million, which led to a positive free cash flow of approximately $47 million. Shifting gears, I'd like to update everyone on the progress we have made on the debt front. In July, we received a $202 million tax refund, including interest that we used to repurchase approximately $102 million of our 4 and 7/8 senior notes due in 2021. As of September 30, our net debt was $4.7 billion, which is roughly $100 million higher than the second quarter. This increase was driven by roughly $245 million of borrowings on our revolver for margin deposits associated with the over-the-counter derivatives and exchange-traded gas contracts. These deposits are reported as a current asset in our balance sheet. Importantly, these margin posting requirements change with commodity price movements and with respect to the over-the-counter derivatives, our credit ratings. Accordingly, our margin deposits will significantly decrease with just a one-notch rating increase, which we are aggressively pursuing and will naturally improve with rising natural gas prices. We do this as more of a temporary liquidity item rather than a matter of truly impacting our leverage. When adjusting for these margin postings, our net debt decreased quarter-over-quarter by approximately $145 million to approximately $4.47 billion, implying a 2.81 net debt to adjusted last 12 months EBITDA leverage ratio. To add one more aside to our liquidity position, we have seen increased bank competition to participate in our credit facility, which we view as a testament to our financial strength and its commitment to our responsible capital allocation. Further enhancing our debt reduction plan is another $48 million in tax refunds we expect to receive in the fourth quarter related to the successful appeal of certain prior year federal taxes paid. Additionally, we are forecasting $85 million to $135 million of free cash flow in the fourth quarter. The new tax refunds, fourth quarter free cash flow, remaining ETRN stake and a material level of 2021 free cash flow, give us high confidence in our ability to achieve our $3.5 billion to $3.7 billion total debt goal by year-end 2021. This plus an improving strip all begs the question about our current credit ratings. Our recent discussions with the rating agencies were positive. We believe we currently sit with investment grade metrics using the forward curve, which provides us incentive to lock those prices in through hedging. We will continue to pay down debt and hedge more over time, as those are two important things we need to do to reach investment grade. We firmly believe the macro factors that Toby discussed along with our continued execution lay the groundwork for positive rating actions over the next 12 to 18 months. To further support this thesis, I'd like to point you to Slide 19 in our investor presentation, which shows EQT's debt trading performance against various investment and non-investment grade indices. As you can see our debt trades in line with investment grade peers signaling investors also think of EQT as an investment grade company. I'd like to conclude our remarks today by touching on a plan to rationalize our firm transportation portfolio. Constructive conversations continue to take place regarding offloading some or all of our MVP capacity. We do not believe that striking a deal is dependent upon MVP being in service and feel that the viability of executing a transaction continues to improve. This is a very important financial catalyst for the company, one which will drive material improvements in margins and free cash flow. Our team is very focused on this opportunity, and we continue to strive to have something in place at the end of the year. Now, I will turn it over to Toby to wrap things up.

Thanks, Dave. EQT is uniquely positioned to demonstrate the true value natural gas can and will bring to the future energy mix of this country. As we continue this transformational journey to realize the full potential of EQT's premier shale assets, our focus will not only be on the financial and operational results we deliver, but on how we achieve those results. Our strategic approach is centered around the culture we create, the technology we utilize, the people executing the plan and the ultimate impact we have on the environment and communities in which we operate. All of these elements create a cohesive operational, corporate and ESG-focused strategy being executed with vision and purpose. These foundational elements that we have put in place guide our daily processes and will be what separates EQT from our peers, creating a clear natural gas leader and operator of choice to all stakeholders and ensuring sustainable long-term value creation. I'd like to thank all our employees for their continued hard work and dedication and everyone in attendance today for their continued interest and support of EQT, and with that, I'll turn the call over to the operator for Q&A.

Your first question comes from Josh Silverstein of Wolfe Research. Your line is open.

Hi, thanks, good morning guys. Just continuing the thought that David had there on MVP. Right now, it certainly makes sense for you guys to get rid of the whole position given the current basis differentials, but would that potentially be in the last types out of the basin in the Marcellus, like we have the supply pull on it. Is there any thought to keeping some of the capacity there or is it still try to get rid of it all at this point? Also, on the M&A side two things here. You guys continue to reference asset sales as part of the debt reduction strategies and then is there any thought there, and then obviously you guys have been rumored to be in discussions with the Chevron asset or you might not be able to share much there. If there is any detail you can provide around the production base of the acreage footprint that would be helpful.

Yes. Hi, this is Dave, Josh. Yes, we're studying that and I think just one thing to be careful about—I know basis really blew out a little bit wider than normal, but let's remember that we had a warmer-than-normal winter, and then we were sitting with COVID, and so I think we had a little bit unusual circumstances. We are studying that and trying to decide whether we want to keep some of that capacity, and just also remind everyone, we can probably also replicate that to some degree with sales agreements as opposed to owning all the pipe too. So there are multiple things we're thinking through here.

That's it, thanks for that. And then on the M&A side, you mentioned non-strategic asset sales as part of the debt reduction strategy—any additional color there would be helpful, and any detail you can provide around the production base or acreage footprint related to the rumored Chevron discussions would be helpful.

Sure, Josh. On the non-strategic asset sales, we've been pretty consistent on messaging there. I mean, the biggest gap for us was the bid-ask spread, largely driven by commodity prices used to value the assets. So, we've said if the strip materializes to our view, which is closer to where we're at today, that bid-ask spread closes on those non-strategic assets. So we'll continue to evaluate any potential offers on those as they come in. Then on the M&A front, yes, we're not going to speak about specific deals, but continue to believe that anything we would ever look at would have to be a good strategic fit at the right value and accretive on a free cash flow per share basis.

Great, thank you.

Next question comes from Arun Jayaram of JPMorgan Chase. Your line is open.

Yes Toby and Dave. I was wondering if we could start maybe with an update on the Hammerhead system and if you've exercised your option to purchase the system—the agreement called for a 12% discount—and maybe just give us some thoughts on where you stand with ETRN on this dispute?

Yes, one, I think we're not going to comment much on that. I think we might put some comment out in our 10-Q at the end of the day today. So you can take a look at it, but I think we're going to be very more silent on this and just know that our goal is always to work with our partner ETRN and I think we've had disputes in the past and we'll come to some sort of resolution in the future. So I just say—stay tuned.

Yes, fair enough. Just my follow-up would be, I was wondering if you could maybe help us unpack the free cash flow guide a little bit. I know there's some moving pieces between organic free cash flow generation and the notable tax proceeds, but can you help us unpack how much of that $325 million free cash flow is kind of from the organic base business versus taxes?

Sure. So if you use $325 million as the midpoint here, there is about roughly $100 million of tax refund baked in there, so take it down to $225 million of organic. And just remind everybody, we've shut in about $65 million of value for this year, roughly, and so that would have been another $65 million or probably more of free cash flow. And then we are going to get about—we'll call it $450 million of tax refunds on top of that. So that gives you a sense of the total free cash flow plus tax refunds that we're able to use to pay down debt.

Okay. If I could sneak one more in, David—you mentioned the collateral postings this quarter—if you did get a one-notch upgrade, could you just maybe help us think about the magnitude or the improvement in liquidity you get from that?

Yes, I would say it's probably about two-thirds improvement of that number, and so there are some moving parts in there. We post collateral with different banks; different banks have different credit levels and some of the banks have unlimited credit levels, so we move things around a little bit and then we also use the exchanges. So the rough number you should think about is about two-thirds.

That's helpful, thanks a lot guys.

Your next question comes from Scott Hanold of RBC Capital Markets. Your line is open.

Yes, thanks. Appreciate also your comments on MVP and the status of those negotiations, but can you just—help me a little bit—what are the key discussion points between you and the counterparties right now and what really is holding it up from getting some kind of a decision? These are very complex negotiations. If you can help me understand some of the back-and-forth points?

Yes. I'd just say it's hard to—we won't get into a lot of things because we are in negotiations, but I'll just say we have been negotiating with like four or five parties right now. And just understand this is a long-term contract, so everybody wants to make sure they understand their needs. In some cases, parties who were part of ACP had a shock to the system. So, they're just understanding again what their long-term needs are. So I think it's multiple parties, multiple views and long-term contracts in play, and so it just takes some time. I think the last piece is we just want to make sure we understand from our standpoint how much that we want to keep and owning, and so it all plays into the timing.

Okay. And you still think year-end 2020 is a good time to have something in place?

Yes.

Okay. And my follow-up is just, there has been a flurry of consolidation in this space, and obviously you gave high-level comments on asset sales in the market, but Toby maybe if you can give us just a view of where you think the Appalachian gas market goes from here, in terms of consolidation. Do you think something similar to the oilier players is going to happen with the gas players and how quickly could that evolve?

Sure. I think investors certainly have an appetite for companies that can operate at a larger scale, not just simply for the sake of scale, but because there is real value to be created. I think you look at what we've done at EQT—taking advantage of our scale, there is real value that we're creating whether that means we get more reps in the wells that we execute, which gives us more opportunities to improve operational performance, being able to have access to really cutting-edge technology like our electric frac fleets that you can only deploy if you have a stable operating schedule. The benefits of scale you get from having a large operating footprint and a large gathering system that ETRN provides us give us access to a lot more markets and then also from the balance sheet side of things having an investment grade credit rating is something that's going to be a differentiator as well. So I think investors are right in having the desire for larger-scale companies and companies like EQT that can take advantage of that scale and create value for shareholders. I think it's going to be a theme to look forward to.

Thank you.

Your next question comes from Holly Stewart of Scotia Howard Weil. Your line is open.

Thank you. Good morning, gentlemen. Maybe just a couple of quick follow-ups on some of the previous questions—on MVP, Dave, can you remind us what your letter of credit postings are for that project?

Yes Holly, we don't break it out by pipeline. We have basically $800 million of credit in place, and again, we don't give it by project.

Would it come down materially if you optimized that whole portfolio?

It would come down. Yes, I guess it depends on what you define as material. I think more importantly as our credit ratings improve it will come down and I think that's probably the bigger driver between the two.

Okay, that's helpful. And then Toby, a follow-up to some of the M&A type of questions—you highlighted in your prepared remarks how Appalachia stacks up on an ESG perspective. Do you think that this ultimately starts moving through the mindset of producers, as we look at the oil M&A market here?

I mean I think that ESG could just be another barrier to some of the smaller private companies. It's just another thing you need to bolt on to your business. Certainly at EQT, with the number of employees and specialists that we have to focus and improve performance across all these metrics is a benefit you get from a large organization and scale. So I think larger companies have the resources needed to dedicate to improving ESG performance, and ESG performance we think is going to be a differentiator and something that investors care about. We certainly believe the benefits of a strong ESG performance are going to be a key to long-term value creation for shareholders.

Okay, great. And then maybe one final one for me. You've now come in, I think, below your well cost target two quarters in a row and obviously now your full-year average is well below that. Can you just talk about sort of your well cost trends and then any potential update to those targets that you see coming?

Sure. I think just looking at Slides 9 through 12 sort of tells the story. Where we're at right now is we continue to produce results that actually drive value by lowering our well cost. We are in the 'fix the business' phase at EQT and we are now in the 'innovate and optimize' phase. What you're starting to see is the innovative approach that we have at EQT driving operational efficiencies. We've made some pretty big strides on the drilling side and on the completion side, and really what's driving that is the continued application of new technology and leveraging our technology to drive operational efficiencies, which drive well costs. On top of that, we've been able to lock in some of the service pricing—we have about 50% of our services locked in—so that provides some sustainability in the well cost performance that we've been able to demonstrate. We'll see how much more we can innovate and continue to drive the performance and I'm encouraged to have an organization that has the ability to evolve and innovate.

Great, thanks guys.

Your next question comes from a Morgan Stanley analyst. Your line is open.

Hi guys, thanks for taking the question. I just wanted to build on Holly's question thinking about sustaining capital for 2021. So I think it was a year ago you gave a $1.5 billion kind of preliminary number. Just curious, any early thoughts on spending or sort of how much of the savings that you realized are built into that prior target?

So, I would just say that we continue to walk down our 2020 CapEx and planning for 2021 CapEx numbers and we're going to continue our maintenance program. We would say that probably starting with what we're at in 2020 for our maintenance CapEx is going to be a good starting point for 2021.

Okay. And then just a follow-up on that—the 80% of the cost savings are sustainable. Can you just comment on that remaining piece—what scenarios would that come back into the cost structure? How long do you have these service costs locked up for?

In terms of sustainability, the operation schedule that we have, the lateral lengths that we're putting out there, the percentage of combo development—those things are all increasing. That's very sustainable and sets the operational teams up to really drive operational efficiencies which drive cost. From a service price perspective, about 50% of our spend is locked in, and those locked-in agreements provide the sustainability in cost. The bigger needle-moving items like frac fleet availability are more sensitive to activity levels. However, with activity expected to remain at relatively low levels nationally, we don't anticipate service pricing to rise materially. So we feel like we're in a really good position from a cost perspective to make these savings sustainable.

Great, thanks so much guys.

Your next question comes from Brian Singer of Goldman Sachs. Your line is open.

Thank you and good morning. I want to follow up on the last question there, but really a bit more from a production activity perspective. You mentioned you want to see more long-term price expectations at $3 or so versus $2.50 to increase activity or have more confidence in doing that. Is the implication then we should assume you would be producing around fourth quarter type levels at maintenance capital and if the gas prices are longer dated futures going to $3, that's when we would expect more of a ramp up in activity?

Yes, I would say for us maintenance CapEx is tied to the annual production levels as opposed to a specific quarterly target. You can take that at roughly 1,480 Bcfe to 1,500 Bcfe for the year, with the possibility of some shut-ins occasionally if we want to take advantage of arbitrage. As far as when we would think about growth, we're going to stay consistent with prior messaging. There are a couple of things we want to see first. Number one, we want to get our balance sheet to our leverage targets, which we're well on track to doing by year-end 2021. The other thing is we want to see a sustainable strip, probably more than just the next 12 months out. And then the third part is that any growth for us would be modest—probably in the 0% to 5% range—not the more aggressive growth from the past.

Great, thank you. And then my follow-up goes back to the topic of M&A and the last call you talked about that you would need to have confidence in M&A free cash flow per share accretion and you mentioned that again here today. You also mentioned that you would need any M&A to contribute to deleveraging the business; I realize you can't talk specifically, but can you characterize the market broadly on whether those opportunities are available to achieve both those goals? You also mentioned NAV per share earlier in the call.

So, historically it's been a buyer's market; we think that's still the market we're in, so it all comes down to those metrics that we talked about—getting assets at the right price. That will determine whether we can achieve the accretion and deleveraging metrics we look for.

And on the question of the use of equity—philosophically—if the goal is to contribute to deleveraging, that would suggest not using equity. Any thoughts on that?

Yes. One thing to think about: a few weeks ago when we were at a conference we mentioned that given the strip moving higher, we could already see ourselves at around two times leverage or less. So the need for equity to fund an acquisition has significantly dropped. It doesn't mean we wouldn't use equity, but I think the market's view that we'd have to do a lot more equity is less accurate now. If we buy an asset at the right price, and given that we're already sitting near investment grade metrics, the need for equity is much reduced.

Thank you.

Your next question comes from Nitin Kumar of Wells Fargo. Your line is open.

Thanks for taking my question. I'll start with—you've talked a little bit about the long-term growth and I think you mentioned 0% to 5% growth. One of the legs to the investment case today is the cash return strategy. How are you thinking about gating factors to start returning some of this extra free cash flow to shareholders?

Hitting our leverage targets by year-end 2021 is going to give us the ability to make that decision. All things being equal, when our balance sheet is where we'd like it to be, growth or returning capital to shareholders—we're most likely going to be returning capital to shareholders.

Got it. My follow-up is actually on Slide 15—you've kind of alluded to this that the Appalachian region seems to be under-investing in supply. I want to particularly touch on what you see around you right now, because I think your comment there is that you're not incentivized and the industry is not incentivized to provide a supply response. Does that mean people are reticent to bring back activity?

Yes, I think if you look back at history, any time we see a price signal the industry has increased activity and grown production, which then offsets the price signal. The industry gets that right now. Operators are looking to organically deleverage their balance sheets by reducing absolute debt rather than growing EBITDA through production increases, and I think that is keeping people disciplined on growth. Also, while '21 has come up, looking further out at '22 and '23 the strip still leaves room for commodity prices to improve before many would add more activity.

And to add—if you want to use return on capital employed as a long-term return metric for investors that want to come back and really invest in this space—the industry really needs $3.50 gas over the next five years to really generate attractive returns on capital employed.

That's what I was looking for.

Your next question comes from Jeffrey Campbell of Tuohy Brothers. Your line is open.

Good morning. My first question is on M&A. Toby, since you've said that you think much of the Tier 1 Appalachian acreage is being drilled up, what would really be the benefit of having more scale with lots of attractive resource?

Sure. I think it comes down to the points I made earlier about the benefits of scale. Being able to leverage technology at scale is one benefit. Being able to achieve lower well costs across a larger asset base is another. Having a larger, more robust gathering network and access to more markets is a third. And on the balance sheet side, having an investment grade credit rating is a differentiator as well. Strategically, having more scale gives you a bit more control over supply. With a disciplined approach, that helps stabilize the commodity. As we said earlier, the biggest impact to value for our shareholders is getting our asset valued at a higher long-term price, closer to $3 versus $2.50, and more discipline in the industry is key to achieving that.

Okay. Following on your last point regarding oil pricing, your desire to keep associated gas out of the market—what sort of oil price do you think is required over the next couple of years to keep sufficient volumes of associated natural gas out of the market, which in turn would help the natural gas fundamentals?

I would say roughly $50 oil.

Okay, perfect. Thank you.

There are no further questions at this time. I will turn the call over to Toby Rice for closing remarks.

Thanks everybody for your time today. We spent a lot of time over the past year talking about the results that this organization has been able to produce, but I would urge everybody to take a minute and go to our CSR report at esg.eqt.com. I think it's a great example of how we don't just care about the results we put up but also how we generate those results, and I'm proud of the great work the team has done on putting that report together and hope everybody can check it out. So thanks everybody, thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.