Market Commentary: Creating a Natural Gas Major

FIRESIDE CHAT WITH EQT CFO, JEREMY KNOP

On August 6th, we hosted a fireside chat with Jeremy Knop, Chief Financial Officer (CFO) of EQT Corporation (NYSE: EQT), to discuss the outlook for natural gas and EQT’s transformation from a traditional exploration and production (E&P) company into a vertically integrated natural gas company designed to generate durable cash flow across commodity cycles. The conversation reinforced a central theme of our natural gas thesis: near-term commodity prices may remain volatile, but the longer-term demand outlook is strengthening. Knop believes growing LNG exports and power demand—supported by electrification, coal retirements and data-center growth—should create a more favorable structural setup beginning in 2027 and accelerating into 2028.

Since the current management team arrived in 2019, EQT has deliberately assembled the pieces of what Knop calls a modern natural gas major: low-cost operations, a stronger balance sheet, deep long-duration inventory and, following the Equitrans acquisition, vertical integration. The goal is not simply to become larger, but to create a business capable of generating durable cash flow across commodity cycles.

Source: EQT Q2 2026 Investor Presentation, July 21, 2026

WHAT THE CHART SHOWS: The chart places the current energy transition in a longer historical context. Oil became the dominant fuel during the Age of Transportation, while natural gas steadily gained share as the U.S. economy became more electrified. EQT’s argument is that the next phase—the Age of Electrification—should further increase the importance of natural gas because rising electricity consumption requires large amounts of reliable, dispatchable generation. In that framework, natural gas is not simply a bridge fuel; it becomes a critical complement to renewables as power demand grows.

WHY IT MATTERS FOR EQT: This growing demand for reliable natural gas supports EQT’s strategy of building a low-cost, integrated natural gas company with long-duration exposure to U.S. electricity demand.

• Being a low-cost producer is the key to success in a cyclical commodity business. EQT focuses on free cash flow breakeven and returns on investment rather than production growth. Management estimates its Henry Hub free-cash-flow breakeven at roughly $2/MMBtu, positioning EQT at or near the low end of the industry cost curve. Knop believes that as the industry's most economic drilling inventory is depleted, higher-cost producers will increasingly set the marginal price of natural gas. Those producers will require higher prices simply to hold production flat, and still higher prices to justify incremental growth. At the same time, EQT’s continued focus on lowering costs should improve its relative position on the industry cost curve, allowing the company to capture wider margins and higher returns as the marginal cost of supply rises.

  
  

• Near-term caution, long-term conviction. Knop anticipates that the next several quarters could remain challenging as new Permian takeaway capacity brings additional associated gas to market and a potential warm winter weighs on demand. He views these headwinds as transitory. Longer-term fundamentals are strengthening as LNG exports continue to grow in 2027 and rising power demand— from electrification, coal retirements and AI/data-center growth—becomes increasingly important into 2028.

  
  

• Appalachia is shifting from a supply story to a demand story. Historically, Appalachian gas was constrained by insufficient pipeline takeaway and sold at a persistent discount to Henry Hub. Much of the excess pipeline capacity built last decade has now been absorbed, while power generation and datacenter development are bringing incremental demand closer to the basin. Knop expects the next wave of pipeline infrastructure to be increasingly underwritten by utilities seeking reliability rather than by producers pursuing volume growth—a meaningful shift from supply push to demand pull.

Source: EQT Q2 2026 Investor Presentation, July 21, 2026

WHAT THE CHART SHOWS: Appalachia is shifting from a supply-push to a demand-pull market. Historically, producers needed new pipelines to move surplus gas out of the basin. Going forward, growing power and data-center demand should bring more customers closer to the region’s abundant natural gas supply. The improving supply-demand balance is also reflected in Appalachian basis, where the forward discount to Henry Hub has narrowed. More demand within the basin should support better regional pricing and improve the value of EQT’s production.

WHY IT MATTERS FOR EQT: More local demand and improving basis should allow EQT to sell more gas closer to home at better realized prices—an increasingly favorable setup for a large, low-cost Appalachian producer.

• Equitrans is the most strategic acquisition in EQT’s history. In 2018, EQT spun off Equitrans as an independently traded pipeline company, reflecting the prevailing industry view that E&P shareholders would be better served by focusing on production while separating midstream assets could unlock value. The current management team came to believe that conventional reasoning overlooked the strategic benefits of vertical integration. Knop said, “Looking back ten years from now, I honestly believe the Equitrans acquisition will prove to be the single most important strategic decision we’ve made.” Reuniting the businesses lowered EQT’s consolidated free-cash-flow breakeven and, importantly, gave it direct customer relationships, greater control over infrastructure development and the ability to combine gas supply, midstream and commercial capabilities into integrated customer solutions.

  
  

• Capital allocation focuses on free cash flow and returns. The industry's historical focus was on drilling returns and production growth rather than corporate returns and free cash flow. EQT compares upstream and midstream investments on the same basis, allocating capital to the opportunities that offer the best risk-adjusted corporate returns and free cash flow.

  
  

• A stronger balance sheet turns hedging into an offensive tool. With an investment-grade balance sheet, a lower free-cash-flow breakeven and substantially fewer third-party midstream commitments following the Equitrans acquisition, EQT can use hedging opportunistically. For example, management has selectively added 2027 hedges against the risk that a warm 2026-27 winter, compounded by additional Permian gas supply, temporarily pressures natural gas prices.

EQT views the possible weakness in natural gas prices as transitory rather than a change in the long-term thesis. The strategic purpose of the hedges is to preserve cash flow and balance-sheet capacity. If weaker gas prices pull EQT's stock down with the broader natural gas group, the company can lean in and repurchase shares aggressively rather than pull back. In effect, the hedges protect EQT's ability to use a short-term, commodity-driven valuation dislocation to retire more shares ahead of the structural demand inflection management expects in 2028 and beyond.

OUR STANCE: SAM Partners is bullish on the secular growth in natural gas demand, a view again articulated in our fireside chat with EQT CFO Jeremy Knop. EQT’s strategy resonates with us. Knop described the objective as building a natural gas business that investors can “comfortably own through the cycle.” We believe EQT’s combination of cost leadership, balance-sheet strength and long-duration exposure to growing natural gas demand provides an attractive way to participate in that secular growth.

ENERGY STOCKS SURGE AS MIDDLE EAST TENSIONS ESCALATE

Energy stocks were already moving higher before the Iran war began. By the end of February, the energy sector had materially outperformed the broader market as investors responded to improving industry fundamentals and a more constructive commodity backdrop. The February 28 start of the war then introduced a much larger geopolitical risk premium. WTI surged as flows through the Strait of Hormuz were disrupted, retreated as the June memorandum of understanding (MOU) raised hopes for normalization, and moved higher again as the agreement unraveled and the 60-day negotiating window ended on August 17 without a durable resolution (see our June Market Commentary, The Devil is in the Details). The following chart separates those two phases—the pre-war rally in energy equities and the subsequent repricing driven by the conflict.

Source: U.S. Energy Information Administration; S&P 500 Energy Sector (S5ENRS Index), daily closing prices supplied by SAM Partners. Both series indexed to 100 on December 31, 2025.

The futures market is sending a message about the expected duration of the disruption. As of August 21, WTI was about $87 per barrel, but prices fall quickly for later delivery: December 2026 trades near $83, and the 2027 calendar strip—the average price of the twelve-monthly futures contracts—is approximately $75 per barrel. In other words, the shape of the futures curve is consistent with the market expecting the current physical disruption and near-term tightness to ease over time. Before the war, Goldman Sachs expected Brent to average roughly $65 per barrel in 2027.

However, even if the conflict is ultimately resolved and physical flows through the Strait of Hormuz normalize, we do not expect oil prices simply to return to their pre-war trajectory. The conflict has demonstrated the vulnerability of one of the world's most important energy chokepoints, and the threat of another disruption is unlikely to fade quickly. As a result, in our view, a more durable geopolitical risk premium of perhaps $5 to $10 per barrel could remain embedded in oil prices. The need to rebuild depleted commercial inventories and strategic reserves could provide additional support.

More importantly, the tightest part of the system may not be crude oil itself, but refined products. Disruptions to Middle Eastern and Russian refining and product exports have pushed refining margins sharply higher. The U.S. diesel crack spread exceeded $100 per barrel in August for the first time, while U.S. distillate inventories fell to their lowest August level since 1996. In other words, finding enough crude is increasingly different from producing and delivering enough gasoline, diesel and jet fuel.

The futures curve appears to be pricing a relatively orderly normalization. That may ultimately prove correct, but depleted strategic inventories, the eventual need to rebuild stocks, uncertain Chinese buying and tight product markets suggest that the path back to normal could be less straightforward than deferred crude prices imply.

JULY: ENERGY AND OIL PRICES REBOUND

The rundown:

• In July, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 1.5% compared to -0.1% for the S&P 500 and -1.3% for its customized benchmark. The performance relative to benchmark reflects our overweight in midstream and lower weights in the utilities and clean energy sectors.

• In July, SAM’s Energy Transition Portfolio generated a return (net of fees) of -0.2% vs -6.2% for its customized benchmark.

• SAM’s portfolios are more heavily weighted in Midstream, which outperformed relative to the clean energy sector and utilities in July.

• Midstream outperformed the overall market and was up in July with a total return of 3.1% as measured by the AMNAX.

• In July, the clean energy sector underperformed the overall market, generating a total return of -14.1% as measured by the S&P Global Clean Energy Index (SPGTCLTR). For the month, utilities also underperformed the market with a total return of -1.6% as measured by the Philadelphia Stock Exchange Utility Index (XUTY).

• Seven of the eleven S&P 500 sectors delivered positive performance in July. Information Technology was the worst performer and Energy was the best. Energy delivered a 12.6% monthly total return. July month-end WTI crude oil and Henry Hub natural gas prices were $86.16 per Bbl and $2.59 per MMBtu, up ~22% and down ~22%, respectively, from last month.

Source: Bloomberg, NASDAQ and S&P Global

RESULTS: SINCE INCEPTION & ONE YEAR

SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 197.6% and 23.7% for the periods since 11/10/20 inception and 1-year, respectively. This compares to a total return of 198.3% and 25.4%, respectively, for its customized benchmark and 129.4% and 19.6%, respectively, for the S&P 500 as of 7/31/26.

SAM’s Energy Transition Portfolio generated a return (net of fees) of 54.3% and 19.1% for the periods since 4/29/21 inception and 1-year, respectively. This compares to a total return of 63.8% and 27.8%, respectively, for its customized benchmark and 91.8% and 19.6%, respectively, for the S&P 500 as of 7/31/26.

Sam Partners’ Infrastructure Income and Energy Transition Strategies seek to provide sustainable income and growth with capital preservation. This is accomplished by investing in a concentrated portfolio of high-quality midstream energy companies, utilities and clean energy companies that are well positioned to participate in the energy transition to a net zero carbon future. A diversified approach to investments across these sectors should optimize risk-adjusted returns, in our view. Our Infrastructure Income Strategy offers investors a current yield of ~4% and growth potential of ~5-7%; while the Energy Transition Strategy that is more heavily weighted with clean energy stocks and aligns with favorable ESG ratings, offers investors a current yield of ~3.0%. In a world searching for yield, we believe these Strategies offer a compelling value proposition.

IMPORTANT DISCLOSURES

Siegel Asset Management Partners is a registered investment advisor located in Plainview, New York. The views expressed are those of Siegel Asset Management Partners and are not intended as investment advice or recommendation. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. Third-party economic, market or security estimates or forecasts discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates or forecasts. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, Siegel Asset Management Partners' returns reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.