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Good morning and thank you for joining us. I'm excited to share the progress we've made in a short period of time and what we believe we can accomplish moving forward. I'll provide an update on the Day Plan and our preliminary outlook. I will also provide a brief update on our negotiation with Equitrans to amend our gathering agreements before turning the call over to Kyle to discuss third quarter results our initiatives to improve leverage and liquidity and some quick thoughts on the gas macro.
As a reminder the goal for Day Plan was to kick-start our evolution and deliver the foundational elements needed for us to achieve the cost-saving targets that we discussed in our campaign. October 18 marked day and I'm pleased to share with you that we have successfully executed on our plan. Slide six of our presentation lays out some of the key milestones we achieved starting with the organization.
Following the annual meeting in July we quickly added key leaders needed to complement the existing EQT team. These leaders have a proven track record of operating EQT's assets to generate basin-leading operational performance and they're off to a great startOver a dozen new leaders are offering fresh perspectives and best practices toward achieving our goals.
These changes enabled greater communication accountability and have led to a much more nimble proactive organization. As it relates to our technological initiatives we have made significant progress. Silos are being knocked down and interdepartmental collaboration and transparency are accelerating. We prioritized the 90 most critical workflows needed for our modern technology-driven business and have successfully revived them within our digital work environment. These workflows empower our employees allow management to monitor the business spotlight inefficiencies and optimize our planning efforts to maximize shareholder value.
We are currently working through the remaining workflows and expect to have those turned online in the coming months. Lastly as it relates to our operational initiatives. We've successfully laid the tracks for large-scale combo development by establishing a stable master operations schedule.
As a reminder combo development consists of properly spaced large-scale projects to develop 10 to 25 wells for multiple pads simultaneously. This is the key to delivering consistently low well costs while maximizing the potential of our undeveloped acreage position.
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We've also had some quick wins in the field. On slide seven we are highlighting the step change in drilling efficiency in the third quarter. This is the result of an experienced team offering fresh perspectives and leveraging technology in the field.
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Additionally all of our wells are being completed using the proven well design and choke management program that led to basin-leading well productivity at Rice Energy. This decrease in base decline will result in less future capital required to achieve certain volume targets. To summarize the Day Plan has been a massive success in kick-starting our evolution. We are on track to deliver on the well cost savings we promised during the campaign and we are doing it faster than we thought which sets EQT up for success in and beyond. The formal budget will be approved by the Board in December but we are excited to share our preliminary outlook.
Our capital allocation philosophy has not changed. And in this gas price environment we plan to get there by reducing absolute debt through free cash flow generation and asset monetizations rather than outspending cash flow to grow EBITDA. Further as we discussed on the 2Q call we evaluated EQT's existing development plan and removed inefficient development and replaced it with large-scale combo development projects to ensure all capital allocated to the drill bit generates attractive cash-on-cash returns.
This philosophy of maximizing capital efficiency while generating free cash flow was the primary driver of our budget. Turning to slide 10 our capex budget is broken down into 4 main areas. We further break down our reserve development budget by our 3 operating areas: Pennsylvania Marcellus West Virginia Marcellus and Ohio Utica. We plan to operate 2 to 3 top-hole rigs 3 to 4 horizontal rigs and 3 to 4 frac crews.
It's worth noting these horizontal rig counts are half the number of rigs EQT used in largely due to efficiency gains realized during the implementation of our Day Plan. On slide 11 you'll see a breakdown of our development plan by operating area. I'd like to call out the increasing lateral lengths in all 3 operating areas which will contribute to lower well cost per foot.
I'd like to highlight West Virginia in particular. EQT's average lateral length for wells turned in line in is feet but is expected to increase to feet in and jump to feet in This is driving West Virginia well costs down faster and lower than we originally expected. As we look at our long-term master operations schedule West Virginia will become a much larger focus area in the coming years.
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The asset maintenance bucket represents spend related to site compliance well tubing installations road repairs and other general maintenance projects. This capex is generally unrelated to current development and is therefore not shown in our reserve development category and is excluded from our well cost calculations on a dollar per foot basis. These costs consist primarily of employees and overhead that can be allocated directly to our development projects. On the left we are showing Pennsylvania well costs per foot. However this is all baked into our capex guidance.
To the extent EQT resumes production growth in the future these savings would grow accordingly. Turning to slide This is purely illustrative but highlights what we expect and capex would be if we wanted to maintain production volumes. Ultimately our long-term activity levels and free cash flow profile will be dictated based on gas prices but will also be influenced by the outcome of our negotiations with Equitrans our primary midstream service provider to lower our gathering and transportation costs.
Achieving meaningful fee relief is the next step in lowering EQT's cost structure. EQT's goal in this negotiation is straightforward: simplify the structure and reduce gathering fees to enable EQT the ability to grow volumes through Equitrans' systems and generate free cash flow in a lower gas price environment. Over the last couple of weeks we have made good progress with the Equitrans team toward a solution that we believe would be a win-win for both parties. Second EQT can offer an extension of the contract term and a substantial increase in the minimum volume commitments to provide long-term cash flow certainty for Equitrans shareholders.
Our recent success in extending laterals executing acreage swaps and lowering well costs show this area is competing for capital. I'm encouraged by the progress we have made and both sides are working diligently to have an agreement in place in the next few months. With that I'll turn it over to Kyle. Thanks Toby. I'll briefly touch on a couple of notable items in the third quarter provide updates on our guidance discuss our initiatives to improve leverage and liquidity and then touch on the gas macro.
In the third quarter we achieved net sales volumes of Bcfe at the high end of our guidance range.
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Adjusted operating cash flow and adjusted free cash flow for the quarter were negatively impacted by 2 items worth noting that could not be adjusted out of the metrics. We feel that our improvements in operational planning and partnering with land owners will translate to lower litigation spend in the future. Turning to fourth quarter guidance. This is driven by changes to the operations schedule and implementation of our choke management program. Turning to leverage and liquidity. Leverage is expected to increase from current levels at strip pricing. This is largely due to lower commodity prices but also due to our commitment to not grow production until gas prices show improvement or until we see gathering fee relief.
As Toby mentioned in the current commodity price environment we are focused on absolute debt reduction to manage leverage rather than outspending cash flow to increase EBITDA. We remain committed to maintaining our investment-grade ratings and believe it's a strategic differentiator among our peers. This is not merely lip service.
On slide 16 we outline the levers we can pull. We have multiple options for divesting this stake to go beyond a simple block trade on the open market. We are not long-term holders and will likely divest this stake in the next 9 months.
We are actively marketing certain of these assets today and are in discussions with multiple parties. Lastly we are evaluating various structures to potentially monetize EQT's core mineral interest. As our peers have shown these monetizations of these types of assets can be highly deleveraging. Given EQT's relatively higher net revenue interest larger production base and the undeveloped acreage position we are confident this strategy could generate significant proceeds that can be used to delever without a significant impact on development returns.
We are actively exploring this opportunity and believe a transaction could be effectuated in a matter of months. Delevering is a strategic priority for EQT. We believe execution of this debt reduction plan is achievable in the near term and will allow EQT to maintain investment-grade metrics. While we believe the rating agencies will give us time to execute this plan to the extent we are downgraded we have laid out the impacts to liquidity on slide To cut to the chase we have a plan in place and do not believe the impact of a downgrade would materially change our current liquidity position.
Unlike most of our peers the facility size is not subject to semiannual borrowing base redeterminations and would not be in a downgrade scenario. Exercising the accordion does require bank approval but our discussions with lenders give us confidence in our ability to execute on this. We are currently in advanced discussions with various counterparties to utilize these agreements to transfer some of the posting requirements in exchange for a small fee.
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Many of our peers utilize these arrangements to manage liquidity today. Ultimately we do not believe these will be called for a variety of reasons but we have shown the impact of liquidity as a further downside scenario.
To be clear we recognize EQT has upcoming bond maturities but we have multiple options to both retire and term out the debt even in a downside rating scenario. We have market access today we have set up a development plan to generate free cash flow and we are highly focused on executing our debt reduction plan by midyear which will only serve to enhance our leverage and liquidity per well to improve terms on potential future bond issuances. A quick note on the gas macro. We have been encouraged by the decrease in rig count over the last few months. Appalachia rigs have declined from 80 rigs at the beginning of the year to 52 today.