Expand Energy: Western Haynesville Steals The Show (Rating Upgrade)

Oct. 28, 2025 https://seekingalpha.com

Excerpt, link to full article: https://seekingalpha.com/article/4834371-expand-energy-western-hayn...

Summary

• Expand Energy Corporation is poised for improved profitability due to its strategic move into the Western Haynesville basin.
• EXE has a successful discovery well in Western Haynesville that could significantly lower its corporate breakeven point.
• The Western Haynesville offers much lower production costs per unit than legacy Haynesville acreage.
• EXE investors should expect ongoing acreage acquisitions and a shift of operations to Western Haynesville.
• The Western Haynesville situation could dominate earnings reports for some time to come.
• This idea was discussed in more depth with members of my private investing community, Oil & Gas Value Research. Learn More »

Expand Energy Corporation (EXE) reported Q3 earnings today. But it is very likely that the profitability prospects of the Western Haynesville could have a material effect on the company, far in excess of current prospects.

Rerating

The Western Haynesville discovery and accompanying "land grab" has so much potential that it causes me to rerate this company to a Buy consideration compared to the last article. Every now and then, there is a discovery like this that has the potential to change the future outlook dramatically. As a result, much of the conclusions of the last article no longer holds.

It does depend upon the company getting a lot more acreage. It also depends upon the successful de-risking and high-grading of the acquired acreage. But such steps are fairly routine in the upstream industry.

It will take some time for this acreage to become material to the company's results. But I suspect when those results become material, they will be a pleasant surprise to investors in this stock.

Western Haynesville

The Haynesville itself is one of the highest cost dry gas basins in the business (on average). However, through my coverage of Comstock Resources (CRK), I have reported on the discovery of the apparently far more profitable Western Haynesville that could improve the future of Comstock Resources considerably.

Expand Energy Low Cost Acreage Acquisitions In The Marcellus And Western Haynesville (Expand Energy Corporate Presentation Third Quarter Earnings 2025)

Now, Expand Energy appears to be confirming the profitable notions of the much smaller Comstock Resources by grabbing a sizeable acreage position in the Western Haynesville (and drilling a discovery well) very quickly.

Such a strategy could materially remake the company's profit situation in the Haynesville by essentially moving the production operations to materially lower cost acreage that is not that far away from existing operations. As a result, the corporate breakeven point would drop as the strategy is executed.

Obviously, for this strategy to be material, it will take a fair amount more acreage than shown above. But that seems to be reasonable for a fairly new basin. The Western Haynesville is now (apparently) coming online with competitive costs that are likely to drift lower as exploration and development continues. Production is not yet material, of course.

But it appears to be very reasonable to assume a significant amount of production in the near future, as the cost per unit differences may already be material. That is kind of unique for a new discovery. But the advancement of technology keeps allowing new acreage to become competitive with existing acreage "all the time." This is just the latest example.

North America is one of the most explored areas of the world. As a result, oil and gas reserves are known. But the challenge has long been producing those reserves competitively. Now, apparently, one more basin, the Western Haynesville, can be added to areas that have become lower cost over the last few decades.

It is actually so much lower cost, that it may well put the legacy acreage in the Haynesville "out of business" literally "overnight" as the cost difference appears to be that dramatic initially. Then again, advancing technology may eventually enable the Haynesville acreage to remain competitive in the future. It would not be the first time that happened, either.

But for now, the Western Haynesville appears to be the "place to be" rather than the Haynesville. Therefore, investors can expect a lot of acreage acquisition in the future, combined with a gradual migration of operations to the Western Haynesville from the Haynesville.

As a result, the future profitability prospects of Expand Energy have improved considerably. A dropping corporate breakeven point now appears to be a future certainty, as long as the Western Haynesville continues to produce profitable results along the lines of the preliminary "discoveries" made by the industry.

Earnings

In the meantime, the latest quarter benefitted from continuing natural gas pricing improvements compared with the year before.

Expand Energy Commodity Prices Received Comparison For The Third Quarter (Expand Energy Third Quarter 2025, Earnings Press Release)

The big thing about the sales price increase is that the increase heads straight to the bottom line with only a few deductions because production costs remain largely the same regardless of the selling price.

As a result, small changes in the selling price can have some rather dramatic net income and cash flow results. That was clearly the case this year and in the latest quarter.

Notice that the Western Haynesville acreage is not yet reported because production there is not yet material to current results. The promise of that acreage could produce better cash flow at various pricing points in the future. That could mean a stock price outperformance due to a dropping corporate average breakeven point as that acreage becomes more material to company results.

Earnings Per Share

Of course, it goes without saying that recovering natural gas prices (NG1:COM) will boost earnings and cash flow to give the company time to take advantage of the superior profitability of the Western Haynesville.

Expand Energy Adjusted Quarterly Earnings Per Share Calculation (Expand Energy Third Quarter 2025, Earnings Press Release)

Clearly, natural gas has begun a recovery phase that is likely to last for a few years. This recovery should benefit from the expanding ability of North America to export natural gas, as well as the growth of Data Centers that will use natural gas to generate electricity.

The increase in demand from these two ideas, as well as other possibilities, may enable North American natural gas prices to join the much stronger world pricing market. This would benefit the company in addition to the boost that the Western Haynesville promises in the future.

Investment Grade

Expand Energy is an investment-grade idea. As such, it should perform better throughout the business cycle than is the case for ideas that are not investment grade.

Expand Energy Advantages Of Investment Grade Balance Sheet (Expand Energy Corporate Presentation Third Quarter 2025)

The company clearly has the balance sheet and the advantage of the investment grade rating to lower the cost of additional debt. So, there is considerable financial flexibility depending upon how the future unfolds.

Summary

No one was more worried about the company's expansion into the higher cost Haynesville than me. Now, the rather fortunate discovery in the Western Haynesville may offset at least some, if not all, of the high-cost worries.

That Western Haynesville discovery has the ability to bail management out of a high-cost situation into a lower-cost situation that should drop the company to the breakeven point over time.

Much depends upon the continued expansion into the Western Haynesville. Right now, that appears to be a reasonable assumption, as the discovery of this new basin appears to be in the early stages. Therefore, a successful strategic, high quality "land grab" appears to be a reasonable assumption. There are no guarantees of success, though.

The whole situation makes this company a buy choice. This management got very lucky with the Western Haynesville discovery. But that does not mean that this management does not require above-average supervision. Luck does not change management quality. But it does increase profitability to the point that luck is sometimes as good or better than skill.

Risks

This company probably needs 500,000 or more acres to successfully migrate the Haynesville production to the more profitable Western Haynesville acreage over time. There is no assurance that the whole operation will be completed successfully as envisioned. This is true even though the company reported the acquisition of roughly 75,000 acres in the third quarter alone.

There is a lot to be done in terms of de-risking the acquired acreage and building supporting infrastructure. As such, this new discovery could disappoint in terms of future materiality at any time. Given the relatively recent nature of the discovery, the assumptions above seem reasonable. But they are far from guaranteed.

The unfolding recovery in natural gas prices can abort at any time, or even reverse with little to no notice. Future commodity prices are both volatile and have low visibility.