EQT Corp (EQT) 2017 Q4 法說會逐字稿

Greetings, and welcome to the EQT Corporation year-end earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce Pat Kane, Chief Investor Relations Officer for EQT. Please go ahead, Pat.

Thanks, Kevin. Good morning, everyone, and thank you for participating in EQT's conference call. With me today are Steve Schlotterbeck, President and Chief Executive Officer; Rob McNally, Senior Vice President and Chief Financial Officer; David Schlosser, Senior Vice President and President of Exploration and Production; Jerry Ashcroft, Senior Vice President and President of Midstream. And in addition to the normal group, Blue Jenkins, who is our Chief Commercial Officer. Blue is responsible for marketing our produced natural gas and managing our pipeline takeaway portfolio. Blue joined EQT in September of 2012 from BP and has more than 18 years of industry experience. The replay for today's call will be available for a 7-day period beginning at approximately 1:30 Eastern Time today. The telephone number for the replay is (201) 612-7415. The confirmation code is 13650786. The call will also be replayed for 7 days on our website.

To remind you, the results of EQT Midstream Partners, ticker EQM, EQGP, RMP, are all consolidated into EQT's results. Early this morning, there was a separate joint press release issued by EQM and EQGP. EQM and EQGP will have a joint earnings conference call today at 11:30, which requires us to take the last question on this call at 11:20. The dial-in number for that call, if you're interested, is (201) 689-7817. In a moment, Rob, Dave and Steve will present their prepared remarks. Following these remarks, Steve, Rob, Dave, Jerry and Blue will all be available to answer your questions.

I'd like to remind you that today's call may contain forward-looking statements. You can find factors that could cause the company's actual results to differ materially from these forward-looking statements listed in today's press release and under risk factors in EQT's Form 10-K for year ended December 31, 2017, which will be filed with the SEC later today.

Today's call may also contain certain non-GAAP financial measures. Please refer to this morning's press release for important disclosures regarding such measures, including the reconciliations to the most comparable GAAP financial measures.

And now I'd like to turn the call over to Rob McNally.

Thanks, Pat, and good morning, everybody. As you've read in the press release this morning, EQT announced 2017 adjusted income of $1.47 per diluted share compared to a $0.33 loss in 2016. In the fourth quarter, EQT recorded a deferred tax benefit of $1.2 billion to revalue existing net deferred tax liabilities to the lower 21% tax rate, which is excluded from adjusted EPS. A year-over-year mark-to-market swing of $639 million and other items that affect comparability are detailed in this morning's press release and are also excluded from adjusted EPS.

Adjusted operating cash flow attributable to EQT was $1.2 billion in 2017 compared to $833 million in 2016. The increase in both earnings and cash flow were primarily due to an increase in commodity prices and sales volume. As a reminder, EQT Midstream Partners, Rice Midstream Partners and EQT GP Holdings results are consolidated in EQT Corporation's results.

EQT recorded $350 million of net income attributable to noncontrolling interest in 2017, including $99 million in the fourth quarter.

There were several highlights in 2017, including the acquisition of Rice Energy, the receipt of the FERC certificate for Mountain Valley Pipeline, production volume growth of 17%, average realized price improvement of 23% and a successful $3 billion debt issuance with part of the proceeds used to refinance Rice debt, saving EQT approximately $45 million in interest expense in 2018.

Now taking a look at the fourth quarter, which included Rice starting on November 13. Fourth quarter 2017 adjusted EPS was $0.76 per diluted share compared to $0.25 in the fourth quarter of 2016.

Adjusted operating cash flow attributable to EQT was $416 million in the fourth quarter compared to $332 million for the fourth quarter of 2016. Fourth quarter production sales volumes were 48% higher than the fourth quarter of 2016, while commodity prices were 4% higher than the fourth quarter of 2016.

Moving on to the results by business segment. It is important to note at this time that, following the Rice merger, EQT now reports through 5 business segments: EQT Production, EQM Gathering, EQM Transmission, RMP Gathering and RMP Water. More details about these business segments can be found in our 10-K, which we expect to file later today.

So starting with the production results. I'll keep my comments on production volumes light as David is going to go into the details a bit in his comments.

For the year, EQT Production achieved production sales volumes at 887.5 Bcfe, a 17% increase over 2016. The average realized price was $3.04 per Mcfe for 2017, which was $0.57 or 23% higher than last year. Full year adjusted operating revenues at EQT Production were $2.7 billion, a 44% improvement year-over-year, primarily attributable to increased production and improved prices.

Total operating expenses were $2.5 billion or 19% higher year-over-year, primarily due to increased volume growth. Note, more details about full year operating expenses can be found in our press release and our 10-K filing.

Now on to quarterly results. As mentioned, sales volumes were 48% higher than the fourth quarter of 2016. The majority of this increase is related to the acquisition of Rice producing wells after closing the deal on November 13. The fourth quarter 2017 average realized price was $3.04 per Mcfe, a 4% increase compared to the fourth quarter of last year.

Adjusted operating revenue for the production company totaled $896 million for the fourth quarter, $318 million higher than the fourth quarter of 2016. Operating expenses were $781 million, $204 million higher than the fourth quarter of 2016, which is consistent with increased volume growth and expenses associated with recent acquisitions.

Now moving on to Midstream results. Full year 2017 operating income for EQM Gathering was $334 million, up $45 million year-over-year, primarily due to increased gathering volumes, partially offset by increased operating expenses.

Operating revenues were $455 million for the year, up $57 million over 2016. Total operating expenses for the year were $121 million, up $13 million over 2016.

EQM Gathering fourth quarter operating income was $91 million, $20 million higher than the fourth quarter of 2016. Fourth quarter operating revenues were $124 million, a $23 million increase over the fourth quarter of 2016, while operating expenses were $33 million, a $3 million increase over the fourth quarter of 2016.

EQM Transmission full year 2017 operating income was $247 million, up $9 million year-over-year. Total operating revenues were $380 million, $42 million higher than in 2016, while operating expenses for the year were $132 million, $22 million higher than in 2016, excluding the $10 million noncash charge to depreciation and amortization expense. Fourth quarter income was $58 million, down $6 million from the fourth quarter of 2016. Operating revenues were $101 million for the quarter, a $6 million increase over the fourth quarter of 2016, while operating expenses were $43 million, a $1 million increase over the fourth quarter of 2016. Again, excluding the $10 million noncash charge to depreciation and amortization expense.

Now shifting gears to RMP Gathering and RMP Water results. The results included in our press release and 10-K filing are for the period of November 13, 2017 through December 31, 2017. RMP Gathering reported an operating income of $21.8 million, while RMP Water reported an operating income of $4.1 million.

Lastly, I would like to discuss our cash flow and liquidity position. As of December 31, 2017, EQT had $1.3 billion of borrowings and $159 million of letters of credit outstanding under our $2.5 billion credit facility. We closed the year with about $134 million of cash on the balance sheet, excluding EQM and RMP. We currently forecast $2.65 billion to $2.75 billion of adjusted operating cash flow for 2018 at EQT, which includes approximately $325 million to $375 million from EQT's interest in EQGP and RMP. This represents an increase of $300 million from our December forecast. The change is primarily due to the impact of the new tax laws. In December, we expected cash taxes of about $70 million. We now expect a cash refund of about $200 million. This forecast assumes a NYMEX price of $2.77 and an average differential of negative $0.27. With our forecasted adjusted operating cash flow, we expect to fully fund our forecasted 2018 capital expenditure plan, which is about $2.4 billion.

So with that, I'll turn the call over to David.

Thanks, Rob, and good morning, everyone. I would like to start by providing some color around the 2017 sales volume and our guidance for 2018. Immediately after close of the Rice transaction, we began operating the combined assets as a single entity, utilizing our resources to optimize overall development plans, regardless of their legacy. We ended 2017 with pro forma sales volume of 1,317 Bcfe, which was consistent with the guidance we provided on the pro forma company. In December, our first full month as an integrated entity, we averaged approximately 4 Bcfe per day, also in line with our expectations, despite facing some operational challenges from the extreme cold snap late in the month. Based on our turn-in-line schedule for the year, we expect the quarterly volume profile for 2018 to look like this: Q1 will average approximately 4 Bcfe per day, consistent with our first quarter guidance of 350 to 360 Bcfe. We then expect to see sequential quarterly increases in Q2, Q3 and Q4. We are reiterating our full year volume guidance of 1,520 to 1,560 Bcfe, which will result in volume growth of 17% over pro forma 2017.

I would now like to provide an update on our overall Rice integration efforts. Rice employed an outstanding team of oil and gas professionals, and EQT retained more than 150 of them for our upstream operations. This influx of talent has brought fresh ideas and perspectives to help refine processes and implement new technical approaches. We have hit the ground running with our increased lateral lengths. And in 2018, our Pennsylvania Marcellus spuds are expected to average over 13,600 feet. This is 1,000 foot longer than what we announced in December and is a direct result of collaboration between land professionals from both companies. In fact, 60% of our Marcellus wells in Pennsylvania will be comprised of wells that share legacy EQT and Rice acreage.

On the operational and technical front, we are combining best practices and have already captured value. For example, Rice had a significant frac sand sourcing and logistics effort, which we leveraged to improve efficiency -- pricing and efficiency across our frac crews.

On the drilling side, we have set new footage records by combining the data, experience and practices of both companies, more specifically related to rotary steerable systems and drill pipe rotation. And finally, we've seen promising results from early testing of new concepts around the landing point of our Marcellus laterals. So far, I am extremely pleased with the progress we have made during just 3 short months, and I look forward to continue to blend best practices, promote innovation and deliver best-in-class economic returns. We will keep you updated during the year on the progress of these initiatives.

Now let's move on to year-end reserves. EQT year-end 2017 proved reserves increased 59% to 21.4 Tcfe versus year-end 2016. Obviously, the Rice acquisition in November and several smaller acquisitions throughout the year had significant impact on our reserve growth, adding 6.3 Tcfe in proved reserves. EQT's drilling effort added an additional 2.2 Tcfe to the proved total through extensions and other additions. As you would expect, development cost continued to improve as we lengthened laterals. Our 2017 Marcellus program had a development cost of $0.60 per net Mcfe, a 17% decrease when compared to the 2016 figure of $0.72 per net Mcfe. Excluding acquisitions, we replaced 245% of our 2017 production. And when we include the impact of acquisitions, our replacement percentage increases to 974%. We have stressed the capital and economic synergies of the Rice acquisition, and our PUD reserves reflect the impact of these synergies. As you know, the SEC limits PUD reserves to those reserves we expect to develop in the next 5 years. The Rice acquisition allowed us to reprioritize our 5-year development plan in order to focus on developing longer, more economic laterals first. Many shorter locations were removed from the plan but remain economic, and we expect to develop those locations outside of the 5-year -- required 5-year window.

Finally, driven by acquisitions and pricing, probable and possible reserves have also increased significantly, with probable reserves up 40.3 Tcfe and possible reserves up 4.9 Tcfe. The Marcellus accounts for 80% of those increases.

With that, I'll turn the call over to Steve.

Thank you, David. Good morning, everyone. Our last earnings call for the third quarter 2017 was just a few weeks before the shareholder vote to approve the Rice transaction. With this being our first call since completing the acquisition, I want to thank our shareholders for their support and reiterate the commitments that we made to you. We committed to establishing a board committee to evaluate options for addressing the sum-of-the-parts discount and to announce a plan by the end of the first quarter 2018. The committee's work is ahead of schedule, and we will announce a plan by the end of February. And we intend to implement the plan on an accelerated basis. We committed to adding 2 new independent directors to the board with midstream experience and to include these new directors on the committee tasked with the sum-of-the-parts review. On November 13, we added Tom Karam and Norm Szydlowski to the board, both of whom had extensive midstream experience, are active board members and are on the committee reviewing the sum-of-the-parts. We committed to moving the director nomination deadline to after the sum-of-the-parts decision announcement. We will move the 2018 nomination window to follow the sum-of-the-parts decision and announce specific dates by the end of February. And we have removed volume growth as a metric from future compensation plans and have replaced it with return on capital and operating and development cost metrics.

Finally, we committed to delivering on our synergy targets established for the Rice acquisition. As you read in our December capital budget news release, we've hit the ground running and have started capturing the various synergies related to the transaction. As Dave said, we currently expect to average 13,600-foot laterals in Southwestern Pennsylvania Marcellus acreage, which is 1,600 feet or 13% longer than we anticipated when the deal was first announced. This places us ahead of schedule for achieving our capital synergies. In addition, I'm pleased to say that our G&A savings began on day 1. Our integration team had a detailed staffing plan and were able to retain many talented Rice employees while still achieving our staffing targets. As we continue blending the best of 2 cultures, we are confident that the exchange of ideas will result in continuous improvements to our programs and practices.

Finally, I strongly believe that the current share price does not reflect the tremendous value we have created and will continue to create going forward. We've built an E&P business that can grow production an estimated 15% per year, utilizing funds within cash flow. The E&P business has an industry-leading cost structure and controls over 680,000 core acres in the premier gas basin in North America. We've also built a premier midstream business that continues to deliver tremendous capital-efficient growth. Our midstream business has a solid balance of long FERC-regulated pipelines and a network of gathering assets sitting atop the lowest-cost natural gas reserves in the U.S. The financial leverage metrics at both our E&P and midstream businesses are extremely low, amongst the best in the industry in each case. Over the past 10 years, we've created tremendous value through the growth of both of these businesses. However, this value has not been reflected in EQT's share price. Our plan to address the discount will be designed to deliver this value to shareholders and to create the opportunity for value creation at EQT into the future. To reiterate, the committee is ahead of schedule, and I expect to announce our plan by the end of February. And we will implement the plan on an accelerated basis.

With that, I'll turn it over to Pat for Q&A.

Thank you, Steve. Kevin, please open the call for questions.

(Operator Instructions) Our first question today is coming from Holly Stewart from Scotia Howard Weil.

Maybe just quickly on the announced acceleration of -- what's driven the faster time line?

Well, I think -- it's hard to predict how much work will be involved, and the committee has been working very diligently and has been able to evaluate the various options and come to conclusions a little faster than we predicted, which I think is good. So still a little more work to do, but we're zeroing in and very comfortable saying that we expect to be done by the end of February rather than the end of March.

Great. And should we expect a conference call with that announcement?

Yes, I think there'll be a conference call, for sure.

Okay. Great. And then maybe Steve, just on Ohio, now that you've had a little bit of time at least to kind of see that asset base firsthand, any comments at this point on the position there?

Holly, this is David. I'll answer that. I think, yes, we had a little time, but it is -- has been a little time. I mean, we're going to drill the 45 gross wells that we've talked about end of December. And I think 2018 is going to be a year that we really formulate our understanding of the assay -- asset and then figure out how we're going to move forward. So that's really all I got to say, I guess.

Okay. And then just one final one for me. Maybe since we've got Blue on the call this time, just your thoughts around your exposure to the southeast market. Seeing in the deck you've got, it looks like, a $0.01 premium to NYMEX. I wasn't sure if that's just strip forecast if you're locking that in or planning to lock that in somehow?

Yes, Holly, it's a combination of both. So as we look forward to the supply-demand in that area and we look, of course, at the premiums that exist across part of that region, that what you see is a netted-back result of transactions that we have in place as well as the combination of the balance of forward strip. So it's a bit of both.

Our next question today is coming from Drew Venker from Morgan Stanley. (Operator Instructions)

I was just hoping you could speak to any further progress made on MVP in the last outstanding (inaudible) required to get to notice to proceed?

MVP update.

Yes. So on the MVP, we basically put it in a -- instead of a bundle, we went with 10 different notices to proceed. We've put in all 10. As of this morning, we've gotten 8 of those. That's allowed us to do both West Virginia and Virginia work. We started the construction process last week. And before that, we were able to get FERC to kick us off 2 weeks ago with their help. So we feel really confident about the pipeline schedule, and we feel really confident about our December 31, 2018 start-up date.

Our next question today is coming from Michael Hall from Heikkinen Energy Advisors.

I guess, as it relates to the "accelerated implementation of the sum-of-the-parts plan," can you provide any context as to how we should think about that time line?

I cannot. All I can say is we'll provide more details when we get to the announcement. All I really intend to convey at this point is we are committed to taking care of the sum-of-the-parts discount as quickly as possible. So we see no reason to delay. Once we announce the plan, we can talk more details about the time line.

Okay. Is it reasonable to expect that it's something that could be done by year-end?

I can't comment on that at this point.

Fair enough. Understood. I guess, on the topic of returns and shifting the compensation metrics, I was wondering if you got a look at the upstream-only business return on capital employed and how that looks in '18? And what you think a reasonable target for that might be in 2020?

I don't have those figures at my fingertips, Michael, so -- but we could -- you want to get with Pat after the call, we could probably get that to you.

Okay. Is that something you might be willing to target formally with -- in the context of the sum-of-the-parts plan as you guys announce that? Or is that on your mind? Or is that...

I'd rather hold off on anything related to the sum-of-the-parts plan until we announce it, and then I think that would be an appropriate question that I could answer at that time. It's not a (inaudible).

I'll try something that might get...

Maybe if you rephrase it.

(inaudible)

How about just cash tax benefits from the tax policy change? 2018 is provided pretty clearly, but just make sure we're thinking about the full impacts of that through 2020 or 2021. What -- how much total cash benefit are you getting from that?

Yes. I mean, I think we've said it in the release, but it's somewhere in the neighborhood of $400 million that we think could be refunded over the 2-year period.

Okay. It's what it seems. Great. I'll leave it at that.

Our next question today is coming from Sameer Panjwani from Tudor, Pickering, Holt.

As you look at the weakness in the equity over the past few weeks, and I think you guys have previously highlighted line of sight to over $1 billion of proceeds from the drop-downs, the retained midstream assets from the Rice acquisition and then kind of layering in the $300 million of free cash flow it sounds like you're going to generate this year given the tax benefit, how do you guys think about share repurchases in the near term?

Yes, I think that's probably a better topic to discuss after we get through the sum-of-the-parts announcement. I don't think there's really any color that we can give you right now that will make sense without that context.

Okay. And then I guess, second question. So it seems like your peers are starting to bifurcate on their school of thought a little bit on growth versus takeaway capacity. We've seen some of them provide some long-term guidance on growth beyond what their contracted capacity is and others who are more closely matching the 2. You guys obviously have line of sight to Mountain Valley and the expansion potential there. And our model would kind of give you a growth runway through 2020. So a few questions kind of come out of that. So first, once you fill your pipeline capacity, how do you think about incremental growth? And then secondarily, what's your appetite for contracting additional greenfield takeaway capacity? And then last one. How much running room do you think there is basin-wise via brownfield expansions or by adding compression?

I'll take the first part of that, Sameer, regarding growth. I think we feel pretty comfortable with our takeaway position a bit beyond 2020. So probably into 2022 or '23 before we think serious consideration needs to be given to particularly greenfield takeaway projects. But beyond 2023, for sure, that's going to be a big part of the focus. Obviously, we have to start thinking about that years before that date. But I think, at this point, we feel like we've got a little time to get the Rice integration done, get the sum-of-the-parts plan behind us, assess the situation and then take a hard look at what is the next wave of takeaway capacity out of the basin. But again, I think from our perspective, we're good for a few years beyond your 2020 date. Blue, do you want to add any color to that?

Yes. Happy to add a couple of thoughts. I agree with Steve's comments. A couple of things that I might suggest that touched on your other questions. You had asked how much incremental might be available. When we look across the basin from pipes that are in the ground or going in the ground, we'd suggest there are probably 3 to 4 Bcf a day that could be incremental takeaway with capacity or a small looping project, given the slate of pipes that have gone in or are going in. You also mentioned -- you talked about greenfield. I think Steve touched on that. I think the next wave of greenfield presents a unique set of challenges from both the regulatory environment as well as the cost environment. But what is out there that we're actively doing is we're putting a portfolio in place with long-term markets to ensure that, that gas moves as well as we are picking up pieces in the open market of available capacity actively from current capacity holders who don't have as much clarity as you get out in the future. So we're doing all of those things.

Our next question today is coming from Vikram Bagri from Citi.

I apologize if I missed that. I was wondering if we should expect changes in corporate governance at sponsored entities as well, if ROIC, the total shareholder return and other metrics linked to midstream performance will be included in the comp structure. Is that part of the review as well?

Vikram -- did you get it?

Yes. Yes, I think that, that -- again, that's a question that would be better answered in the context of sum-of-the-parts announcement. But what Steve was talking about including return metrics in the comp packages, that is really focused on the upstream business.

Okay. Okay, understood. And I understand there are a number of possible outcomes from the ongoing strategic review, but it is sort of reasonable to assume that EQT's interest in midstream entities should probably get reduced over time. Does that change your hedging strategy at EQT in any way? Would you look to hedge more and -- or longer term instead of hedging less and -- will there be any change in your hedging strategy going forward?

Well, Vikram, this is Steve. I think -- not -- I'm not going to answer in relation to potential outcome of the sum-of-the-parts. But I think regardless of that, we are rethinking our hedging strategy given this shift to a business model where we expect to live within cash flow and trying to take some volatility out of the business. So we're looking at how should we hedge on the commodity side and also starting some discussions with our key suppliers about new ways to contract for the services we need that can potentially provide a cost hedge as well. So trying to find ways to lock in margin a little better than we've been able to in the past.

Understood. And then just one last one for me. It looks like the new Hammerhead Pipeline project runs parallel to Sunrise Pipeline -- or traverses the same path. I believe Sunrise volumes must have been lower due to AVC coming online. Is it possible to reverse that pipeline? And if Hammerhead gets -- once you build Hammerhead, what happens to Sunrise after the contracts expire on that pipeline?

Sure. I mean, the Hammerhead pipeline, as we've talked about, is kind of that Q3 time frame in 2020. And so we'll be able to use Hammerhead to move Pennsylvania volumes into West Virginia to really feed Mountain Valley Pipeline. Sunrise Pipeline is -- basically gives us optionality in the Appalachian basin. You will also see other projects. We've got an organic backlog. Working with Blue and his team, we always are looking at how do we take volumes, whether it's North, East, West or South, to the best markets. So you'll see both of those pipelines fully utilized.

Our next question today is coming from Scott Hanold from RBC Capital Markets.

Just a question on some operational stuff. There was some indication, I guess, in the prepared comments about seeing better results and defining new landing zones on the horizontal laterals. Can you give a little color on what sort of occurred to see that improvement or what -- exactly what's going on there?

Yes. So a little color. I mean, first -- this is David. What occurred is exactly what we had always thought would happen and hoped would happen. As we get the 2 technical groups together and discussing how they have approached their development and we approached ours, we came up with this concept or we took this concept and tested it even further. And it's very early in the process. We're very encouraged by the early results. But generally, it is staggering the Marcellus landing point across the pad, and we're feeling that it's increasing our frac efficiency and basically touching more of the rock. There are subtle changes. It's early in the progress -- process, and we'll keep you posted during the year. But there's a handful of wells right now that we're looking at.

Okay. And was this an initiative that was brought forward by the Rice, I guess, employees or is this something you all saw and kind of further confirmed with, obviously, some of the data or the processes that they've gone through?

So it was brought forward by Rice employees, and then getting our engineers working with theirs, and seeing the data that they were looking at prompted us to continue testing it. So it was definitely a Rice idea.

Yes. Are there any other initiatives similar to this that has been brought forward that you're looking at? Or is this kind of the -- one of the bigger ones?

It's one of the bigger ones as far as affecting reserves right now. I mean, the other things I mentioned on the call, Rice, their -- the drilling parameters of increasing our RPMs on our rotary steerable systems, that was really brought forward by Rice. We had data that didn't look as positive. When we got to see their data and discuss the nuances of it with them, we decided to try it. And on our first well, we increased ROP by [8%]. So I mean, that was another Rice idea that we've brought forward and implemented on our own assets.

And Scott, I would say, the ideas actually go both ways. So there are some techniques that EQT was previously doing that we can apply now to the Rice acreage and yield benefits as well. So it's as we expected. Both groups have tested different things and tried different techniques. So we have different databases of results. And we're going to yield value from having both of those databases available for the technical folks to evaluate.

Okay. Understood. And then my last question, on the sum-of-the-parts decision, and just curious if you could just broadly provide a comment on this. I mean, would this also encompass a strategy on the upstream business long term? For example, how you plan to grow -- like, what's the appropriate growth rates and what's the appropriate amount of shareholder returns, be it buyback and/or dividends? Is that expected to be part of this discussion by the end of February?

I think I'd rather not comment on that at this time, Scott. Just -- you're going to have to wait a few more weeks.

Our next question today is coming from Brian Singer from Goldman Sachs.

Can you give us a little bit more color on the synergies plan and implementing the synergies from the Rice transaction over the course of -- or over 2018, just the areas of focus and potential benefits here now relative to where you expect to be at the end of the year?

Yes. So Brian, so we announced 2 primary synergies that drove the deal, one on the G&A side. We are at or a little bit ahead of the plan that delivered on that synergy. So I think the annual savings is going to be a bit better than we anticipated.

Yes, what we had said was we expected about $100 million of annual G&A savings or overhead savings. And we think that number is going to be more like $110 million or maybe a little more than that for 2018.

And on the capital savings, the model assumed 12,000-foot laterals in the acquisition area. And we now expect to average 13,600 feet. So that's a pretty dramatic acceleration of those synergies. And I don't have the PV benefit of that difference with me, but it's...

It's several hundred million dollars higher.

Got it. Okay. And then on the Marcellus, you mentioned then -- you've talked about it before, the acreage acquisitions that are more on an ongoing basis, and I think the number was about $740 million last year, excluding the Rice deal. Can you just talk about how we should think about acreage acquisitions over the course of 2018 and what that would add and just the market in general right now?

This is David again. I think it's really consistent with the number we've already put out there. We expect around $150 million per year needed to acquire these small pieces of acreage to continue to lengthen laterals and fill in some blank spots, and so that's what I would expect for 2018.

Okay. So $150 million is the need, but that should also be our expectation for what you actually do as opposed to something...

Yes. Yes, I would think so.

Our next question is coming from Arun Jayaram from JPMorgan.

I guess just 8 trading days until the big decision. My question really regards to the upgrade to your 2018 operating cash flow guidance. It's about $300 million. I assume that's primarily taxes. But I was wondering if you could go through that, Rob.

Yes, it is primarily taxes. In December, prior to the tax legislation change, we expected to pay about $70 million of cash taxes in 2018. Now we actually expect to get a refund of about $200 million. So that's $270 million of the $300 million. There's some other odds and ends, which is really more around realized price and differential that makes up the balance. And I guess I should note that the $200 million that we -- refund that we expect to get, we won't actually receive that cash in 2018. That'll be on the 2018 tax filings. We won't receive it until 2019.

Got you. And just my follow-up question. Steve, as you think about kind of the integration of the technical teams. You've obviously highlighted some recent benefits of that. What are some future things that you can -- you think about in terms of the ability to harness more synergies and improvements in terms of well productivity as you put the teams together?

What -- specifically regarding well productivity, that's always hard to project. If we knew the answers, we...

We'd be doing it.

We'd be doing it. But I think we've really only begun to scratch the surface of having the technical teams working together and really working the data from both sides. And it is as we expected. It makes sense that each company tested different techniques. Some work, some don't, but the data from all of those tests is very valuable. And then when you can combine it with another set of tests, it can really yield some insights. So I'm very optimistic that we will continue to find some opportunities as a result of the integration of the 2 teams that improved recoveries from the wells. And I think another area of focus for us over the next year or so, and it's also driven by the consolidated nature of the operation now, is around logistics. So we have a lot of rigs running. We have a lot of frac crews. We produce a lot of gas. We have a lot of people in a small area. And finding ways to make those logistics as efficient as possible I think also will deliver some value. And that will be on the operating cost side, not on the productivity side -- the well productivity.

And just my final question. You guys are getting a pretty nice sizable tax refund over the next couple of years. Steve, how do you think about prioritizing kind of free cash flow generation? Could you contemplate a buyback irrespective of what's going on with the strategic options that you're evaluating today? And how does a potential buyback fit in to your longer-term plans?

Yes. This is Rob. I think as we move forward and we're generating free cash flow, that returning cash to shareholders, whether that's in the form of dividends or buybacks, would certainly be a topic that we spend a fair amount of time on. And I suspect that there'll be a combination of the both -- of both alternatives as we move forward.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you, Kevin, and thank you all for participating.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.