Morning Note: Market News and an Update from EQT.
Market News
Risk assets moved higher after the US and Iran reached a tentative deal to extend their ceasefire by 60 days, pending President Donald Trump’s signoff. Scott Bessent reiterated Trump’s three ‘red lines’ — reopening the Strait of Hormuz, Iran surrendering highly enriched uranium and ending its nuclear program — remain necessary for any pact. Brent Crude fell to $91 a barrel, down around 20% over the last month.
The April PCE index, the Fed’s preferred inflation gauge, came in at 3.8%. This was a slight uptick from 3.5% in March but in line with market expectations. The core figure (ex food and fuel) was 3.3%. Treasuries held their gains from the US session, with the yield on the benchmark 10-year holding at 4.44%. Gold moved back above $4,500 an ounce but is still set for a third consecutive month of decline.
The ECB’s April meeting minutes make a 25bp rate hike in June nearly certain, according to Bloomberg Economics, with the possibility of another move in the second half, most likely in September.
US equities continued to drive higher: S&P 500 (+0.6%); Nasdaq (+0.9%). SpaceX is now targeting a valuation of at least $1.8tn in its IPO, lower than an initial estimate above $2tn, people familiar said. Meanwhile, Anthropic’s valuation climbed to $965bn after its latest funding round, eclipsing OpenAI’s for the first time. A rally in tech shares lifted Asian stocks this morning: Nikkei 225 (+2.5%); Hang Seng (+0.6%). The FTSE 100 is currently a touch higher at 10,438, while Sterling trades at $1.3425 and €1.1530.
Company Update
EQT Corporation is the largest producer of natural gas in the US. It provides relative protection from commodity price volatility, coupled with secular growth upside. It possesses a multi-decade asset footprint, an unrivalled cost structure anchored by full vertical integration, an investment-grade balance sheet, and direct exposure to the two largest catalysts in modern energy: the global LNG export boom and the domestic AI data centre power expansion.
EQT controls more than 1m undeveloped core net acres across the world-class Appalachian Basin (spanning Pennsylvania, West Virginia, and Ohio). This asset base yields production exceeding 6bn cubic feet equivalent per day (Bcfe/d) and leaves the company in control of a massive 30-year de-risked drilling inventory in the highest-margin windows of the Marcellus and Utica shales. The focus is on dry gas, rather than the natural gas liquids (like propane and ethane) that peers like Range and Antero also produce.
As the world electrifies, natural gas is currently the only scalable, dispatchable fuel that can meet the sudden surge in demand. While renewable energy sources like wind and solar continue to grow, their intermittent nature means they cannot provide the guaranteed, 24/7 baseload power required by a modern digital economy. Battery storage technology remains too expensive and limited in capacity to bridge long multi-day gaps in generation, while nuclear power will take years to come onstream. This leaves natural gas-fired turbines as the essential, reliable anchor for grid stability. As Europe continues to move away from Russian piped gas and Asia pivots from coal to gas for air conditioning and industrial use, the US gas molecule has become a critical global strategic asset.
The primary risk associated with upstream energy investing is commodity price exposure. US natural gas markets are notoriously volatile, with extended periods of sub-$2.00 gas caused by unseasonably warm winters. The price is also frequently suppressed by cheap associated gas that is a byproduct of oil drilling in the Permian Basin (in Texas and New Mexico). Even if gas prices crash, oil companies will keep producing if there is a high oil price on offer, flooding the market with ‘free’ gas that forces prices lower for others in the market. Permian producers frequently experience negative pricing – i.e. they literally pay people to take their gas away so they can keep pumping profitable oil. Low prices compress near-term margins and cause share price volatility.
In response to industry dynamics, EQT has fundamentally transformed its business model through industry-leading cost structures, vertical integration, and a pivot toward global LNG export markets and domestic data centre demand.
EQT is the lowest-cost dry gas producer in the US, with an unlevered free cash flow breakeven price of approximately $2.00/MMBtu. As a result, even in severe market downturns where regional spot prices plummet, EQT can maintain profitability and sustain its operations. In addition, the company opportunistically uses programmatic NYMEX hedges to lock in price floors for 2026 and 2027 volumes. This active hedging programme acts as an immediate insurance policy, ensuring that even if the gas price experiences severe short-term distress, EQT’s free cash flow remains partially protected.
Historically, Appalachian gas producers faced a severe bottleneck: a lack of pipeline takeaway capacity out of the northeast, which led to painful regional price discounts relative to Henry Hub. EQT solved this structural issue through its transformative acquisition and integration of Equitrans Midstream, which includes a majority stake in the Mountain Valley Pipeline.
As a result, the company now controls its own gathering, processing, and transmission infrastructure – today, over 90% of EQT’s produced volumes flow through its midstream assets. They generate steady, annuity-like revenue, acting as a natural financial buffer when natural gas prices dip. This allows the company to run the business for long-term value creation – this was explicitly demonstrated by management’s recent decision to strategically curtail 10–15 Bcf of production to avoid low shoulder-season pricing. The company also has the flexibility to dynamically optimise system pressures and reroute gas to premium pipelines, bypassing depressed local hubs to sell directly into higher-priced delivery points along the Gulf Coast and Southeast.
While standard utility demand remains stable (albeit seasonal), the rapid deployment of AI and hyperscale computing infrastructure has triggered an unprecedented power demand shock. The zero-downtime requirements of massive AI data centres require reliable baseload energy that can be supplied by gas-fired turbines. The proximity and scale of EQT’s assets leave it uniquely positioned to secure lucrative, long-term ‘behind the meter’ supply contracts directly with hyperscalers (Amazon, Google, Microsoft, etc) and utilities. For example, in July 2025 the company signed a historic agreement in principle to serve as the exclusive natural gas supply partner for Homer City Redevelopment (HCR) from 2028.
The massive valuation delta between US domestic gas (Henry Hub, currently $3.25 MMBtu) and global benchmarks, like Europe’s TTF ($15.70 in US unit terms) or Asia’s Platts JKM ($18.25), is entirely an infrastructure and transportation bottleneck. Because gas cannot be simply loaded on to standard cargo ships, it must be cooled to -162C at complex liquefaction terminals to become Liquefied Natural Gas (LNG). Because US LNG export terminals are currently running at maximum physical capacity, the US market is structurally isolated. Surplus domestic gas (especially associated gas from the Permian Basin) gets trapped within North America, depressing domestic prices, while global markets are forced to pay a massive premium for whatever seaborne supply they can secure. Clearly, with 20% of global volume passing through the Straits of Hormuz, the Middle East conflict has exacerbated this issue.
In order to gain exposure to premium, higher-priced European and Asian gas prices, EQT is actively constructing an international marketing portfolio, signing binding long-term LNG tolling and offtake agreements with Gulf Coast export facilities that are currently under construction or in late-stage development. The portfolio will come online in phases between 2028 and 2030. At the time of the Q1 2026 results in April, the company explicitly stated that if its international LNG marketing portfolio were fully operational today at current global price spreads, EQT would be generating $6bn in free cash flow annually. This compares to $684m and $2.5bn in 2024 and 2025, respectively.
The main operational risk is that the expected demand growth from AI, data centres, and power projects may take longer to come through than anticipated, particularly if infrastructure or pipeline developments are delayed by regulatory and political opposition. In the meantime, the group’s low cost base and hedging ensures that even if the gas price experiences severe short-term distress, its free cash flow remains insulated while the company waits for its LNG/AI business to kick in.
The company’s most recent results were released in April. They highlighted that in the first quarter of 2026, sales volume rose by 8% to 618 Bcfe, above the high-end of guidance due to strong well performance, system pressure optimisation, and exceptional execution during Winter Storm Fern. The storm also has a positive impact on the commodity price – during the quarter the company generated a realised natural gas price after the effect of hedges up 35% at $5.08 per Mcf as it re-routed gas to benefit from local price spikes.
Total per unit operating costs of $1.09 per Mcfe were 2% below the low-end of guidance driven by lower-than-expected SG&A, lease operating expense, and operating & maintenance costs. As a result, adjusted EPS almost doubled to $2.33.
Capital expenditure rose by 22% to $608m, but was 4% below the low-end of guidance, benefiting from operational efficiency gains and lower-than-expected infrastructure spending. The company generated record quarterly free cash flow attributable to EQT of $1,832m, up 77%.
Cash flow is currently being used to reduce the borrowing taken on at the time of the Equitrans acquisition. At the end of Q1 2026, net debt had fallen to $5.7bn (1.0x net debt to EBITDA), rapidly approaching the company’s long-term maximum target of $5.0bn, driving a credit-rating upgrade to Investment Grade (BBB) by Fitch Ratings. The company will soon direct its excess cash flow back to shareholders via buybacks and dividend growth. The current baseline dividend is 66c, equating to a yield of 1%.
Looking to the second quarter, the company expects total sales volume of 570–620 Bcfe, which includes the impact of 10–15 Bcfe of strategic curtailments highlighted above. For the full year, the company expects total sales volume of 2,275–2,375 Bcfe.
