Expand Energy Q3 2026: adjusted EPS up 50% to $1.46 as hedges and liquids offset cheaper gas

Expand Energy, the largest US natural gas producer, earned $519M ($2.24 per diluted share) in Q3 2026, down from $547M ($2.28) a year earlier. That small dip is an accounting effect: a year ago the company booked a much bigger paper gain on its hedges. On the company's adjusted basis, which strips those paper gains out, EPS rose 50.5% to $1.46. Cash payouts from hedges, much higher oil and NGL (natural gas liquids) prices and 2.8% more production more than made up for a weaker gas price. The quarter also closed the Twin Eagle gas-marketing acquisition, paid for largely with borrowed money, and management raised its 2026 spending plan to about $3B.

This analysis is based on the earnings release (Exhibit 99.1 to the October 27 8-K). The full 10-Q, with management's discussion of each line item, has not been filed yet, so some explanations below are our own reading of the release's tables and are labelled as such.

Results

Some terms: Bcfe/d is billion cubic feet equivalent per day, with oil and liquids converted into their gas-equivalent energy. Mcfe is a thousand cubic feet equivalent. Operating margin is the share of revenue left after running the business, before interest and tax. Adjusted EBITDAX is the company's measure of cash earnings before interest, tax, depreciation and exploration costs, excluding paper hedge gains and one-off items.

Takeaway: Expand's gas sold for less than a year ago ($2.44/Mcf before hedges vs $2.58), and its cash earnings still rose 14%. Hedges and liquids did that work. Hedge payouts of about $0.50/Mcf covered the price drop, and oil and NGL sales rose by roughly $77M. Gas-only sales fell by about $43M. The weak spot is cash: operating cash flow fell 2% and free cash flow 20%, while the company kept buying back stock and borrowed for Twin Eagle.

What drove the quarter

Gas prices fell; hedges and liquids filled the gap. The NYMEX gas benchmark averaged $2.95 vs $3.07 a year ago, and Expand's own unhedged gas price fell to $2.44/Mcf from $2.58. Including hedge settlements, it received $2.94, up from $2.81. A hedge is a contract that locks in a price ahead of time. The ones settled this quarter paid Expand $311M in cash (total derivative gains of $464M minus $153M of unrealized gains), more than double last year's $142M.

Liquids carried more weight than their size suggests. Oil and NGLs make up only 8% of production, all from Southwest Appalachia. Oil sold for $77.05/bbl vs $53.50 and NGLs for $25.95/bbl vs $21.40. By our arithmetic from the release's volume and price table, oil and NGL sales rose about $77M to roughly $328M. Gas sales fell about $43M to roughly $1.55B. The release itself credits operating cash flow to "operational performance and liquids revenue."

Production grew in Appalachia, not Haynesville. Southwest Appalachia rose to 1,767 MMcfe/d from 1,571 and Northeast Appalachia to 2,593 from 2,556. Haynesville slipped to 3,178 from 3,206 MMcf/d. Haynesville still fetched the best gas price ($2.68/Mcf vs $2.15 in Northeast Appalachia). The company ran 11 rigs, drilled 46 wells and brought 59 into production.

Revenue growth is mostly marketing pass-through. Total revenues rose $320M. Of that, $261M came from marketing revenue (gas bought from others and resold), which rose to $927M from $666M. Marketing expenses rose almost as much, to $888M from $659M. Marketing adjusted EBITDA was $35M for the quarter, vs $7M a year ago. Twin Eagle was only owned from September 16, so its full effect starts in Q4.

Why the operating margin fell to 19.5% from 24.4%. Marketing revenue grew with little margin attached, which dilutes the percentage. Unrealized hedge gains, included in revenue, were $156M smaller. And "other operating expense" swung to a $29M cost from $37M of income a year ago. Gathering, processing and transportation (GP&T), the fees paid to move gas through pipelines and processing plants, rose 11.5% to $678M. By our calculation that is about $0.98 per Mcfe produced, up from about $0.90. Per-unit production expense fell slightly, to about $0.24 from $0.25.

What the headline numbers hide

Paper hedge gains in both years. GAAP EPS of $2.24 includes $0.66 per share of unrealized hedge gains: the rise in value of hedges not yet settled, which can reverse if gas prices rise. A year ago that item was $1.30. That one difference explains why GAAP EPS fell while adjusted EPS rose. The company's bridge from $2.24 GAAP to $1.46 adjusted also removes non-cash contract amortization (-$0.17), a $37M deferred tax benefit (-$0.15) and a $14M gain on asset sales (-$0.06). It adds back $22M of other operating expense (+$0.09) and the tax effect of these adjustments (+$0.17).

A lower tax rate helped GAAP. The effective tax rate fell to 14.6% (pre-tax income $608M, tax $89M) from 20.3%, partly because of that $37M deferred tax benefit. The adjusted figure excludes it, so the 50.5% adjusted growth is not driven by tax.

Buybacks explain a small slice. Diluted shares fell 3.4% to 231.7M. Holding last year's 239.9M share count, adjusted EPS would have been about $1.41. So roughly $0.05 of the $0.49 rise came from the smaller share count and the rest from higher earnings. The company paid $320M in cash for buybacks this quarter (the release cites $305M repurchased) and about $900M year to date, around 4% of shares.

Cash conversion is weaker than earnings. Operating cash flow was $1,177M against adjusted EBITDAX of $1,229M. But it fell 2% while adjusted EBITDAX rose 14%. One visible reason: current (cash-basis) income tax was a $4M expense this quarter, while a year ago it was a $47M benefit (total tax $139M minus $186M deferred). Working-capital changes added $29M, down from $72M. Free cash flow, after $838M of cash capital spending, was $339M.

Shareholder payouts outran free cash flow. Buybacks ($320M) plus dividends ($132M) came to $452M, about $113M more than free cash flow. Cash and restricted cash fell to $221M from $764M at the start of the quarter. The $1.4B Twin Eagle purchase ($1,395M net cash, plus $141M to repay Twin Eagle's credit line) was funded with $499M of new senior notes, a net $450M drawn on the credit facility, $86M of receivables financing and that cash. Net debt rose to $4,656M from $4,409M at year-end 2025. Leverage (net debt to trailing-twelve-month adjusted EBITDAX) is 0.8x. Dividends paid fell to $132M from $349M a year ago. That matches the $0.575 quarterly base dividend on about 231M shares; the release does not break down last year's larger payment.

Balance-sheet changes from the deal. Goodwill of $349M and intangible assets of $1,082M appeared for the first time, along with a jump in accounts payable to $1,179M from $753M at year-end. Expect the 10-Q to explain how much of that came with Twin Eagle.

On balance the quarter is understated at the GAAP line. EPS fell 1.8% only because last year's paper hedge gain ($1.30 per share) was twice this year's ($0.66). On the company's adjusted basis EPS rose 50.5% and adjusted EBITDAX 13.6%. The caveat: hedge settlements, not higher gas prices, did much of that work, and cash flow did not grow.

Did last quarter's read hold up?

Our Q2 report flagged three things. First, per-unit transport costs were creeping up; they did again, with GP&T at about $0.98/Mcfe vs $0.90 a year ago. Second, buybacks were running ahead of free cash flow; they did again ($452M of payouts vs $339M of free cash flow). Third, buying Twin Eagle with borrowed money would push net debt up from $3.1B. It did: net debt is now $4.66B and leverage is 0.8x, up from 0.5x. The other call, that hedges would cushion weak gas prices, also held: they added about $0.50/Mcf.

Outlook

• Capital spending raised to about $3B for 2026, from $2.75–2.95B. Nine-month spending was $2.36B accrued ($2.30B in cash). The release does not say which basis the guidance uses, but either way it implies roughly $0.6–0.7B in Q4.
• Production guidance narrowed to 7.45–7.55 Bcfe/d, from 7.4–7.6, with the midpoint unchanged at 7.5. Nine-month output averaged 7.49 Bcfe/d.
• Rigs: 11–12 for the year, unchanged.
• Marketing: about $80M of marketing EBITDA expected in Q4 with Twin Eagle, vs $150M for the first nine months combined.
• Returns: $1B of buyback authorization remains, and the $0.575 quarterly dividend is payable December 3.

The release quotes Danny Brown as President and CEO; the Q2 10-Q had Michael Wichterich as interim CEO.

Our read: Expand earned more this quarter despite cheaper gas, but mostly because it had sold gas forward at higher prices and because oil and NGLs rose in price. Neither lasts forever: hedges roll off, and liquids are only 8% of output. The capex raise came without a higher production range, so the extra spending buys no extra 2026 volume. For Q4, watch three things. First, whether Twin Eagle delivers the promised ~$80M of marketing EBITDA, more than double Q3's $35M. Second, whether buybacks slow now that cash is down to $118M and net debt is back above $4.6B. Third, whether GP&T per unit keeps rising. Higher winter gas prices would help the unhedged volumes but could also cut into the $889M of current derivative assets now on the balance sheet.