The Super Gods Of Gas

Issue #128, Volume #2

Natural Gas + Data Center Energy Needs = Huge Opportunity

This is Porter’s Daily Journal, a free e-letter from Porter & Co. that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.

Here at Porter & Co., we celebrate great entrepreneurs – not communists.

It’s entrepreneurs who take risks, who invest capital, who heroically create new products, and who massively expand production. Entrepreneurs create the wealth that we all enjoy.

So while the sheeple continue to vote themselves your wallets (via communist politicians), we thought we’d turn our attention to something that’s far more useful and far more American than a communist being elected.

We direct your attention to the “Gods of Gas.”

If you’re a long-time subscriber, you might remember that the very first issue of my newsletter The Big Secret On Wall Street featured the incredible story of the Rice brothers and how they’d built, from scratch, America’s leading producer of natural gas.

And what they’ve done since then is even more incredible…

Their company, EQT (NYSE: EQT), is in the process of becoming America’s leading wellhead to liquefied natural gas (“LNG”) energy export providers. Shares of EQT are up about 50% over the last year, in part because of these developments. And over the next seven years, this transformation will continue to generate enormous returns – 500% -plusfor shareholders. The full story is below.

If you’re not yet a paid-up subscriber to my newsletter, I hope the quality of this research convinces you why you should become one today. Also I hope you’ll share today’s Journal with any other investors who you think would appreciate the quality of what we do at Porter & Co.

Why are we giving away some of our most valuable insight? The best way to grow our business is to earn your respect. This is exactly the kind of information you need to grow your wealth safely and reliably. If you want more research like this, you know where to find us.

One more thing… today’s Journal is certainly longer than usual. But if you make it to the end, you’ll find I’ve got something very special to share with you. It’s the answer to the biggest artificial intelligence (“AI”) puzzle of all.

Who Are The Gods Of Gas?

The Rice brothers (Toby and Derek) along with their father, built one of America’s greatest success stories, Rice Energy, starting in the early 2000s.

While most of the financial world was still talking about “peak oil” – the fallacy that oil production had peaked and would only decline going forward – the Rice brothers knew about massive technological improvements to drilling and fracking and figured, correctly, these innovations would once again make the Marcellus shale one of the world’s most important sources of energy.

They started acquiring leases across the Marcellus Formation, which stretches across most of Pennsylvania and into Ohio and West Virginia. And they became best-in-class operators, using technology to monitor their wells in real-time to enhance production and drive down cost. Finally, in 2017, they sold their empire to a large (and very old) public company, EQT, for $6.7 billion.

That’s where the story would normally end. But the Rice brothers aren’t normal guys. They could see how the scale of their production could continue to grow, how they could continue to drive down prices, and how, in time, America could become the world’s leading energy export economy. To make this happen, they needed to take control of EQT – the company that had just bought them!

The Rice brothers launched a proxy contest for control of EQT in 2019. Backed by T. Rowe Price and D.E. Shaw and on the back of their vision to transform EQT into the world’s leading energy company, the Rice brothers won control on July 10, 2019. They quickly remade EQT’s entire operating model: digitized field operations, improved capital discipline, slashed costs, and instilled a rigorous culture of entrepreneurial ownership.

The Rice engineered transformation at EQT has been one of the greatest success stories in American energy history.

• Production surged from around 1,460 billions of cubic feet equivalent (“Bcfe”) in 2019 to around 2,536 Bcfe this year (+73%)
• Earnings per share (“EPS”) swung from negative $2.30 to $3.07
• EQT’s market value exploded from $7 billion at the proxy win to $34 billion today

The first crucial step was gaining world-class scale. And to do that they needed to acquire vastly more acreage in the Marcellus. They doubled the size of their footprint through the late 2020 acquisition of Chevron’s entire Marcellus position – 335,000 net acres and hundreds of high-quality wells producing 450 million cubic feet equivalent per day (MMcfe/d). Chevron wrote off $8 billion at the time of the deal, but the Rice brothers only spent $735 million.

It was the best energy deal of this century.

By the end of 2022, EQT had integrated the Chevron assets, vastly increasing the company’s scale. Production grew 43% in two years. The stock tripled. And virtually overnight, EQT was America’s leading natural gas producer.

Today, EQT is producing more than seven times its pre-Rice brothers’ output. The company also boasts industry-leading well completion rates and among the highest operating margins. That translates into annual free cash flow of more than $2 billion. And that means growing dividends and a recently initiated share buyback program that will add billions in value to shareholders.

But that’s not the story. That was only the beginning.

Dominating The Global Market For Energy

For much of the past decade, the bottleneck for Appalachian gas abundance was not geology or technology.

The Marcellus is an enormous energy resource – well over a trillion cubic feet of natural gas. It’s currently producing almost half of all the “dry” gas that’s made in the U.S., and that’s likely to increase. This is a resource that will be a primary energy source for the next 100 years.

The problem isn’t finding or producing the gas. The problem is moving it to the markets that offer the best prices for energy – especially to the export markets along the Gulf Coast, where the world’s biggest LNG terminals are being built.

No public company has done more, or taken more operational risk, to solve this bottleneck than EQT. The first step was building the Mountain Valley Pipeline (“MVP”).

The MVP is a 303-mile interstate natural gas “superhighway” that connects the Marcellus fields of northern Appalachia to America’s existing pipeline infrastructure in southern Virginia. There it ties into both the Transco and Columbia pipeline systems, both of which run to the Gulf of Mexico. Equitrans Midstream is the lead developer, anchor shipper, and holds an approximate 48% economic interest in the MVP. EQT’s previous management team sold Equitrans Midstream just before the Rice brothers proxy fight. Re-acquiring Equitrans Midstream was a major strategic goal of the Rice brothers, an acquisition they completed in 2024.

MVP weathered 300 or so federal and state legal challenges and work stoppages from 2019–2023. It cost more than twice as much to complete as was forecast. But it began service in June 2024 and has completely changed the competitive landscape for EQT. The MVP doesn’t just relieve basin takeaway constraints. It lets EQT optimize flows between local, power market, and Gulf export options.

As the U.S. transitions to LNG as the marginal price-setter, EQT’s physical route control, long-term contracted access, and participation in next-generation projects like Mustang Express make it not just America’s largest gas producer, but its most strategically situated.

As a result, both the amount of natural gas that EQT can sell and, even more importantly, the prices it can realize on its gas sales, are going higher. Over the last year, EQT’s total volume sold in the third quarter increased almost 10%. But… the realized price was also 15% higher because it was able to deliver gas to where it is needed most.

But that’s not the best thing that’s happening at EQT.

For many years, EQT was forced to hedge 90% of its natural-gas production because it didn’t have investment-grade credit. It couldn’t afford to reduce production during gluts: it needed the cash flows to make interest and debt payments.

In years like 2023, when gas prices fell, those hedges paid off, protecting the company’s margins and profits. But, most of the time, the hedges lead to massive losses.

Over the last five years, EQT has lost over $6 billion on a net basis through its hedging operations. That’s a major cost of production and it limits the company’s flexibility to reduce production during weak pricing environments.

Today, however, EQT has become a powerhouse both in terms of its own balance sheet and its cost structure, allowing it to produce profitably in virtually any market environment. As a result, it announced it will not hedge any production going forward after 2025.

That means its margins are going to be much higher going forward.

What’s Going To Power AI?

My good friend Cactus Schroeder just texted me information about the massive Lancium Stargate campus that’s being built in Abilene, Texas – huge data centers are being constructed by OpenAI, Oracle, and Softbank.

What’s going to power all of these computers? They’re building a dedicated 360 megawatt power plant onsite. And this week, Energy Transfer Partners (“ETP”) just hooked up a 24-inch natural-gas pipeline to the power plant. The same thing is happening all across the U.S.: pipelines are being built directly into data-center campuses. AI data centers’ direct U.S. natural gas demand is projected to rise from zero to 6 billion cubic feet per day by 2030.

For the next several years, as both AI pipelines and the enormous expansion of America’s LNG export capacity continues to grow, prices for natural gas in America will become more tied to the price of energy globally. That’s incredibly bullish for EQT. Today the Henry Hub spot price for natural gas is $4.25 (per million BTU). Absent its hedges, that’s what EQT should be getting for its gas today. But that same energy is worth $11 in Japan or the Netherlands. And, over the next few years, thanks to LNG and growing demand for natural gas in data centers, those prices will converge.

Here’s what I think that will mean for EQT shareholders:

Right now when I look around the investment landscape, I see very frothy markets and very high prices for just about every high-quality asset: stocks, bonds, Bitcoin – even gold. But energy remains as cheap as ever.

That won’t last forever.

Horse, meet water.

---

Gold Dethrones The Euro… Is The Dollar Next?

Presented by Golden Portfolio

Gold recently surpassed the Euro to become the world’s #2 reserve asset. Central banks are buying record amounts — and yet, gold miners are still dirt cheap.

This is your chance to ride gold’s return to the monetary system – and make a potential generational fortune.

Click here for details on Garrett’s top 30 miners, already handing investors gains of 441%, 446%, 618%, 784% and more since January 2024.

---

Three Things To Know Before We Go…

1. The U.S. government shutdown is now the longest on record. The shutdown that started on October 1 has now gone on for 36 days, surpassing the previous record of 35 days in December 2018-January 2019. A continued shutdown could have significant repercussions for the upcoming holiday travel season, with the U.S. Department of Transportation warning yesterday that parts of U.S. airspace could be closed as early as next week due to a shortage of air traffic controllers. However, the Washington Post reported this morning that a handful of moderate Senate Democrats are now ready to stop their holdout, suggesting an end to the shutdown may be near. According to prediction betting platform Polymarket, the shutdown is now most likely to end next week, on November 13, moved up from December 1 as recently as Monday.

2. Corporate profits surge, employment sags. Since 2020, corporate profits have soared to record highs, while payrolls lag below their pre-pandemic annual growth trend of 5%. AI-driven efficiency gains are enabling large corporations to produce more with less, shedding headcounts and boosting margins. The result is a growing divide – big corporations and high-income consumers thrive, while lower- to mid-income households face financial strain.

3. Franco-Nevada reports record operating results. Precious metals royalty company Franco-Nevada (NYSE: FNV) reported its third consecutive quarter of new record highs in revenue and earnings yesterday. Q3 revenue increased 77% year-on-year to $488 million, and 6% ahead of the $462 million analysts expected. Earnings per share for this Big Secret On Wall Street holding rose 89% to $1.43, or 4% better than the estimated $1.38. The gains were driven by a 29% increase in royalty volumes and a 40% rise in gold prices. Shares are up 60% so far this year, and we see more upside ahead as the company continues growing its royalty volumes while also benefitting from higher metals prices.

And One More Thing… Analyzing An AI Bubble

There is much debate about whether or not there is a bubble in artificial intelligence (“AI”) stocks. In tomorrow’s Tech Frontiers, Erez Kalir delivers insightful, data-driven analysis to help answer that question – focusing on valuations of AI companies as well as explaining how to get the right share price once you find a good opportunity to invest in. But the real value Erez produces is his recommendation for subscribers… an unknown “picks and shovels” company that does business with nearly all the big players in its region.

Tell us what you think of today’s Daily Journal or anything else that is on your mind: [email protected]

Good investing,

Porter Stansberry
Stevenson, Maryland

Please note: The investments in our “Porter & Co. Top Positions” should not be considered current recommendations. These positions are the best performers across our publications – and the securities listed may (or may not) be above the current buy-up-to price. To learn more, visit the current portfolio page of the relevant service, here. To gain access or to learn more about our current portfolios, call Lance James, our Director of Customer Care, at 888-610-8895 or internationally at +1 443-815-4447.