Q2 2020 Cabot Oil & Gas Corp Earnings Call
[music].
Good day, and welcome to the Cabot oil and gas second quarter 2020 earnings Conference call all participants will be in listen only mode.
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At this time I'd like to turn the conference over to Dan Dinges, Chairman, President and Chief Executive Officer. Please go ahead.
Thank you Alex and good morning to all budget for joining us today for [noise] Cabot second quarter 2020 earnings call as a reminder, on this call.
We will make forward looking statements based on our current expectations. Additionally, celebrate comments, we'll reference non-GAAP financial measures forward looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures were provided in yesterday's earning release.
Despite the ongoing global Pandemics impact on natural gas demand during the second quarter, which contributed to the lowest average quarterly Nymex price since the third quarter of.
1995, Cabot was still able to generate positive net income of $30.4 million or eight cents per share. These results demonstrate our uniquely advantaged low cost structure that we have continued to improve upon year after year, allowing us to deliver profitability.
And positive returns on capital, even the very trough of the natural gas price cycle, which is where we believe we are today.
While we are seeing green shoots emerging in the natural gas market, which I will get into in more detail later in the call I want to commend our team for delivering another profitable quarter in the face of the recent headwinds across our industry operationally our team delivered another strong quarter with our.
Early production to 2.229 Bcf per day exceeding the high end of our guidance range, our realized prices before the impact of derivatives represents a 30 said differential to Nymex, which is in line with the low end of our full year guidance range and is a significant in.
Approvement relative to a 44 cents differential in the prior year comparable period. Additionally, all of our operating expenses were in line with or below.
Our guidance ranges for the quarter, demonstrating our continued focus on cost control and the second quarter, we generated our first quarterly free cash flow deficit since the second quarter of 2018, but it's the only our second free cash flow deficit in the last 17 quarters given the history.
Shortly low natural gas price environment during the first half of this year.
In addition to the combination of our first half way to capital program and a second half weighted production profile. Our plan for 2020 was expected to generate a slight free cash flow deficit. During the first six months of the year before turning to a free cash flow positive program.
And the second half the year ultimately at the current strip, we still expect our capital program for the year to be fully funded within cash flow and to generate enough free cash flow to cover the majority of our regular dividend.
Our balance sheet remains exceptionally strong with a net debt Detroit trailing 12 months EBITDAX ratio of 1.2 times at the end of the quarters subsequent to the quarter end, we used cash on the balance sheet to repay our $87 million tranche of senior notes, which.
Matured this month.
It is important to note that while we have seen a moderate expansion in a leverage metrics. This year as a result of trough natural gas prices, we anticipate a significant compression in our leverage ratio next year at the current strip. This compression is driven not only by the expectation for higher EBITDAX, resulting.
From improved price realizations, but also from lower absolute debt levels as we continue to pay down our near term maturities with free cash flow in yesterdays release, we reaffirmed our full year production guidance range of 2.35 to 2.37.
Five Bcf per day with the midpoint of the range, implying a flat production levels year over year. Additionally, we have reaffirmed our capital program of $575 million. We also initiated our third quarter production guidance range of 2.4 to 2.4 or five Bcf.
Per day, which represents a 9% sequential increase in daily production the midpoint of our guidance range for the third quarter and full year imply that production volumes in the fourth quarter will be roughly flat to the fourth quarter of last year on the capital side, we expect spanning two sequentially.
The decline in both the third and fourth quarters driven by reduction in our completion activity during the second half of the year in macro outlook for natural gas markets is obviously top of everyone mine.
Especially given the Stark contrast between the current market conditions, and where we believe these dynamics could be during the winter withdrawal season on the demand side, while LNG exports have continued to disappoint. This summer we believe that July and August will likely mark the trough for the export levels real.
Helping in a gradual improvement in LNG utilization rates beginning in the latter part of the third quarter as us experiences fewer cargo cancellations. Our base case expectation is that as we move into the winter higher global gas prices will put us LNG back in the money.
Leading to significant improvements in utilization rates and a corresponding increase in export related demand for natural gas, while we anticipate some reduction in power burn this winter due to re deuce coal to gas switching we would expect stronger residential and commercial demand year over year assume.
During normal weather, which should offset any power related demand loss on the supply side.
We continue to see potential for over six Bcf per.
Per day reduction in production.
Year over year this winter driven only.
Driving not only by the sizable activity cuts in natural gas focus basins, which we think is good but also from deep steeper declines in oil focused basins, resulting in the expectation for continued structural declines in associated gas production, giving the ongoing focus cross industry.
Capital discipline, including the prioritization of capital allocation on debt reduction and return of capital to shareholders over growth, we believe any future recovery in natural gas supply will be much slower than in prior cycles and ultimately the market will need to be need to see higher.
Prices to either incentive ties more production or two disincentive to as LNG exports and economic coal to gas switching while there are certainly risks to this faces we remain cautiously optimistic mystic about the natural gas market heading into into this winter we remain acute LIFO.
Focusing on executing.
On a risk management strategy for 2021 that optimistically locks in hedges to protect against potential downside risk while also.
Remaining exposed to potentially one of the most favorable set ups, we have seen for the commodity in years, while we have yet formulate official plans for 2021.
In our release yesterday, we highlighted that based on 2021, Nymex price assumptions to 75 per M. MBT view, which is roughly in line with the futures current futures, we can deliver similar production levels as 2021 from a modestly lower capital program.
While delivering a free cash flow yield of approximately 8% and a return on capital employed between 19 and 20% as we disclosed previously every 10 cents improvement in Nymex natural gas prices are expected to increase our 2021 free cash flow bye.
Approximately $55 million highlighting the upside potential if the natural gas market does in fact reach a point of inflection. This winter as we anticipate a significant expansion in free cash flow in 2021 remain we remain committed to disciplined capital allocation with a focus.
On balancing the deployment of our free cash flow next year between returning capital to shareholders and repayment of our $188 million of senior notes maturing in 2021, our capital return focus will be grounded in our base quarterly dividend of 10 cents per share or.
40 cents annually and further supplemented by optimistic returns of capital, including special dividends and or share repurchases. While 2020 may ultimately deliver the lowest average nymex price on record since 1995, I am proud of cabbage rolls.
Let's see highlighted by our ability to deliver positive free cash flow and positive corporate returns, while maintaining a strong balance sheet, even in the trough the commodity price cycle, we will continue to execute deliver on our plans for this year, which was formalized in February before the.
Spread impacts of the global pandemic, and we remain optimistic about potential far an inflection point and natural gas markets. This winter and the corresponding expansion in our free cash flow return on capital employed and return of capital to shareholders in 2021, and Allison with that.
Yeah.
Comment I will be more than happy to answer any questions.
We will now begin the question and answer session to ask a question Press Star then one on your telephone keypad.
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Cost there.
Our first question today.
Well come from.
I've JP Morgan Chase. Please go ahead.
Yes. Good morning, Dan I was wondering if you could give us a little bit more color around your thoughts on modestly lower capex for 21.
Maybe give us a little bit of thoughts on that.
Well you know we have indicated that our 2020 program was.
Frontloaded the remainder of 2020, we're not going to spend as much capital.
We're also in the meds.
Negotiations with rigs and Frac crews and looking at the efficiencies we've developed in our program operationally and what we're seeing in what we think will occur with our execution.
Current contracts in the 2020 want bar 2021 program.
We think we will see that modest reduction in that program.
Great.
Yes, he wanted to have a ballpark, 5% to 10% as a as a number right now.
Might be.
A useful number.
Got it got to something maybe in the 540 type range something like that.
Yes, yes that would see that would seem reasonable.
Got it I didnt want to.
To maybe if you could elaborate on call some of the outlook comments and 21, obviously assuming.
A to 75 strip.
Cited an 8% free cash flow yield, which would suggest on our mats call. It 580 million in free cash flow your annual dividends about 160 million.
I think theres a desire as the company to return at least 50% of free cash flow to shareholders. So that would suggest maybe another 130 million, but just maybe want to get your thoughts on let's assume to 75 as a good number next year.
What kind of magnitude of cash return could we see to shareholders.
Above your dividend again, which is around 160 year.
We have.
No I think we've set a pretty good clear track record of what our desire is and that is to return.
As we catch 50% of our free cash flow back to shareholders. We have our our debt we're going to take care of next year, we have the.
Dividend also.
And some of our decision and what we elect to do.
We would.
I'm speculating here, a little bit, but we would probably maintain a our dividend where it is we'll talk about it throughout the year and we'll look at the macro market as we look out forward.
But.
We've also had talked internally about special dividends and.
We haven't changed off of our position to return cash to shareholders.
Great. Thanks, a lot Dan.
You bet.
Our next question will come from Jeffrey Campbell of Tuohy Brothers. Please go ahead.
Good morning.
Now ill or injured.
I wanted to ask for a little help onto ideas from the press release together first.
Cabot said that it can maintain the flattish production in 2020 wireless lower spend we're just discussed.
And then as with your preamble there was the note that improving demand in diminishing supply.
Imply tailwinds for Nat gas pricing in 2021, Columbia seems quite conservative and the other one is more bullish. So I was wondering how do we put these two.
Casting dues together to think about.
What may be more probable or loss probable for Cabot and 2021.
Well.
Still early.
Weve.
As as you read are typically as we do we release and February what are our outlook on 2020 one's going to be we have the advantage at that point in time to be able to see what the winter has done look at what the strip is at that point.
Secular time and will forecast.
Then a much clear definition of what our 2021.
Period are our Capex will be in what were how we're going to set our mark our expectations.
No.
When we when we look at the market and at this time, we are conservative by nature.
We have a.
What I think is a great set up.
For our shareholders too.
Deliver.
Deliver a great deal of free cash flow will deliver that free cash flow to our shareholders versus the banks and I think that is going to be attractive and we have a conservative program, which hopefully it turns into that conservative program with the commodity price expectation.
The stated plus or minus 275, and we're comfortable with that right now if we if we see.
Continued discipline in the market and we see continued increases in demand the LNG market comes back.
Strong.
We do have the ability to increase our program, but we're comfortable right now messaging that that.
Our lower Capex program in 2021 is going to deliver the same volumes.
And just to follow that up real quick analog billboards and mouth, but it sounds like what you're saying as we've got a conservative program set up though is already going to generate attractive free cash and if the market.
Goes our way, we get better pricing first and foremost we're going to make more free cash and then maybe at some point depending on signals, we might increase activity.
The follow on is that fair I am I reading too much into.
I wish I could just added as well as you did Jeffrey.
Okay, Great and I'll ask a follow up this a lot more specific I just want to get your view on the cancellation of the Atlantic Coast pipeline, the likely completion of the mountain Valley pipeline and how you see that affecting the Nat gas market in 2021, both macro maybe on Appalachian basis as well. Thank you yes.
Thank you, Jeff Rand, Jeff Hutton is on the edge of his seat and good morning Jeffery.
Morning.
There's a lot picky.
On that project.
Thanks.
And the Grand scheme of things on loan pipeline development.
And also on specific projects, we always felt like that project was.
Fairly long recall, though.
600 mile away, how many states they went through et cetera et cetera.
And.
Quite frankly of our costs that project, but also.
Project Lam.
It does tie in the Transcode works down station Onesixty Bob.
We felt like.
Thats quite a bit of gas market. Obviously, there were some shippers that were.
Optimistic that.
That would be able to adults more gas fired generation down there I still think that's the case.
I think theres also ample supply on Transco system too.
So from a demand.
So.
Initially.
Even today, we still think the there was too much gas in that region. We were so more concern that it would.
That's right the market to the point that would lead upstream into the DC area. We're we're actively marketing gap.
Quite frankly cancellation that project.
Gives us more of an optimistic view right into that region.
Okay, Great. That's very helpful. Thank you and module and we'll see you next week.
Very good.
Our next question today is from Bryan singer with Goldman Sachs. Please go ahead.
Thank you good morning.
And Brian.
I wanted to follow up on a couple of points raised here earlier first on that mechanism to return cash to shareholders. How are you thinking you talked about the spend the.
Special dividend, but how are you thinking about more of a tumor codify variable dividend versus special dividends versus share repurchase when that time comps.
Yeah, we're we're socializing that now internally, Brian we have not.
We have not put a framework around a formulaic.
Delivery.
That special.
Dividend or.
Variable dividend.
As you've seen in the past we have.
As similar to our buybacks. We've we've made those decisions when we feel comfortable about the market, we see the near term.
Support in the market that allows us to generate out in front of us X amount of incremental free cash so we're comfortable delevering.
Certain portion of that and in some cases all of it back to shareholders. So.
Im sorry, I am not specific on the the formula, but we have not we have not gotten to that formula internally.
Understood. Thank you and then my follow up is with regards to in basin gas demand can you give us the latest on what your expectations are for that market and how that also sets here view more broadly on what the outlook is for us domestic gas demand, particularly from the power and industrial sectors.
No I'm I'm wanting to make a comment then I'm going to.
Turning to Jeff brine, because it is an area that.
We are spending a great deal of time and focus on in basin demand projects, but.
One of the one or the most recent.
Impetus and catalyst.
That is.
Thank driving now more attention to northeast PA as a location far.
Demand projects has been the the.
Agreements.
Yes.
Credits that.
That Pennsylvania will allocate to at least for projects.
That brings a large large manufacturing or.
Natural gas demand project to.
State and spend.
X amount of money employ X amount of people.
Then they would receive.
Hundreds of millions of dollars.
Over the next 10 years of tax credits.
That is a tremendous opportunity it is out there and now in the bugs with the Governor's signature and we have had discussions with.
In basin demand projects, and we have had far a while a business development group that is.
Working this.
This opportunity for us.
We like the idea of in basin projects, and we look that up on the tailgate of our gathering system.
And it is an incremental.
Realizations to Cabot.
I'll, let Jeff talk a little bit about his thoughts in this regard.
Hi, good morning, Brian.
The.
Just a quick recap in basin demand.
In the northeast corner PJ, its picked up quite a bit of load over the last four or five years somewhere in the neighborhood of 1.5 Bcf a day.
Demand.
As you spread.
Look across the entire state of Pennsylvania.
Projects that are being built.
Or have them bills that are utilizing.
Natural gas from the Pennsylvania area. So that's all good whether or not because cabin.
Link project or with others, but specifically we've talked about this in the past what we've identified a number of sites and locations.
With with different acreage.
And training.
So.
With water with rail power and obviously with our gas supply.
We continue to top industries that are located in the northeast already have markets in northeast.
There's been some new technology developed for some very unique projects that are that are good your room loads and so nothing to announce today, obviously we have.
A huge amount of activity.
With differ manufacturing associations.
Associations throughout that region.
Including local and county market development people, so its ongoing process.
Bounce them.
We have some ideas and will that were working toward.
Definitive, but we're really happy with the with the happen.
Load that we currently have up there.
And most of those deals of course.
Our long term in duration because of the nature of.
Their locations.
Great. Thank you.
Thanks, Brian.
Our next question will come from.
Keybanc. Please go ahead.
Hi, guys was hoping to fall a little bit more on the kind of risk management slash hedging strategy.
As we sit here today it looks like futures curve in 21 is offering a little bit north of 265, which seems like.
Very robust price compared to where we sit today and certainly one might think cabot's economics would be outstanding.
You know why not try to maybe with some kind of color structure in place to protect.
Some of that downside.
At this point.
Certainly recognize your bullish view on macro but as you guys now you're always kind of not mhm warm winter away from potential challenges in the gas market. So any thoughts you kind of have on that'd be great.
Leo.
Certainly.
Discussion regularly and internally with our our hedge committee and.
The the price we see out there in 2021.
It is.
Actually north of the the to 65 that we see.
Today.
It is our intent to mitigate as you say the downside.
The of the macro market, we have all been disappointed.
In the past more so disappointed in the recent past than pleasantly surprised.
We do think that there are some fundamental.
Uh huh.
Points that we made in my my remarks that well are constructive to a supportive.
Underpinning the market and.
Yes, it can go down and as I mentioned that.
The the risk of that type of a downside we're fully aware of that we thank our program would deliver very well at 265. It is our intent to participate in the 2021.
Financial hedge market, and we'll do that appropriately with the vehicles.
Once we.
Make the decision amongst the committee to do that so.
We're banking alike, Leo we're pleased with where the market is right now.
And we are again.
Looking forward to participate in.
In the hedge market I can't I cant tell you win in advance we plan to do something but we do look at it every day.
Okay. That's not that's great color I just wanted to follow up on your comments regarding 2020, why now it's not guidance and just sort of an outlook, but I guess.
Flattish year over year production next year on my math kind of implies around a 4% decline versus fourth quarter.
20 levels I know you guys certainly said that you think about this in a conservative way.
I guess would that end up being a similar shape, what we signed 20, where your production was down a little bit early in the year due to lack of winter fracking and then maybe pick up.
From there just trying to understand the dynamic is telling you now why you kind of be down versus four key with gas is strong next year.
Yes, where were ER, that's fairly granular to be able to give you the cadence quarter to quarter right now layout I'm sorry.
But.
Overall right now im comfortable just with our with our outlook being what it is and it's a.
Flat with lower capital and 2021 and the cadence.
We do try to to manage the cadence and it resolved.
Just a number of different things the size pads, we have.
We have not nailed down exactly the cadence for the quarter. One thing I would would say that right now if you look out and this this summer we had dollar 60 gas dollar 70 gas in the.
Say the April to October and if you look out in 2021, if it were even partially right about the lower supply higher demand running through this winter than you ought to be able to look out at the period between the eighth.
Well in October and say that that market right now might be about a 260 market. So there is an effect almost a dollar difference during that period of time. So the cadence is still we still have a discussion going internally.
But those are some other things that we look at.
Okay, that's great color. Thank you.
All right.
Our next question will come from Charles made up Johnson Rice. Please go ahead.
Good morning, Dan do you, what you're seeing there.
Charles.
And I wanted to.
This isn't something you guys really made a point this quarter, but I wondered if you could give us an update on the evolution of your.
Of the upper Marcellus in your views and I think the last time you guys really.
Stope into it you were talking about the wars that we're about 90% what what the lower Marcellus is and so I wonder if you could just give us an update on on the abuse evolve anymore and if you're if you have any plans for.
Yeah. It a rating on that is older doing so mom some more extensive testing that zone either back half of this year or 21.
Yeah and and.
We have drilled some.
Some upper wells this year, the the number though Charles far comparison between the lower is more 70 plus percent you are not 90.
And that and Thats in our.
Yes, that's been our material and that's always been the case.
But the wells that we have.
During this year and we actually drilled uppers all three different pads.
And the.
Wells and in different locations in the field and collectively I'm not going to get granular on it because.
Couple of wells have been on longer than.
The other wells that have come all more recently, but collectively what we have seen is that our type curve on the upper is running slightly above collectively the type curve that we're using as our risk type curve out there in the.
In the field for the upper.
Do you want to say might say something is basically.
With the and saying is that when you look at those pads currently.
They've been on for a short period of time, but they are outperforming our projection.
For what the type curve would be for in that area. So we're very pleased with those results.
Got it got that's the chemicals into four I guess I was Mr memory Im just calibrate how about the strict you out.
Dan.
Recognize that there maybe this is a bit of a long shot but is there anything any any comments you would you care to make about the.
The the case that the Pennsylvania, EG Uncorked earlier this year with you guys.
Well you know they are.
The AG as as.
A number of companies have now been recognized by the AJ.
And through their investigations.
As you're aware that.
The charges are a course disputed matters, but nonetheless cabot is cooperating with the AG.
And we're we're.
Provided his staff with facts and data addressing the allegations directly.
We are certainly telling cabot side of the story.
It's.
Undisputed up there that natural gas is naturally occurring and all the areas northeast, Pennsylvania.
And the methane was up there in the rock prior but prior to the oil and gas industry ever going up there you know when we moved up there was it was a greenfield operation no drilling it taken place no production, then and there was natural gas in the water systems up there so.
So we'll continue to work with the AG.
We're always employing our best practices.
Protect environment and its operations and continue to be a leader in that regard we do.
And tend to be able to resolve this matter that's that is positive.
For all stakeholders.
Thanks for that Golar Dan.
Thanks Charles.
Our next question today will come from Josh Silverstein of Wolfe Research. Please go ahead.
Yes. Thanks.
Good morning, guys just following up on a question before about upper and lower Marcellus.
You talked about two decades of inventory I just wanted to see how you could split that right now between the upper versus the lower and at what price deck that that would be isn't.
Well you know on our on our.
Our our drill cadence if you look at kind of how we've laid out our long term program and we have shown in a deck in the past we've shown our production and drilling going out into the 2040 period.
We have go out into the latter part.
2020 decade, with our lower drilling and then subsequent to that we move into the upper Marcellus drilling.
And we and we have that drilling.
Out into the 2040 period.
Got it so it's kind of 10 years for though for the below or that doesn't right now kind of it does maidens cadence. It. So it's slightly less John then a than 10 years, but it goes out you know towards the end of the 2020 decade.
Gotcha, Okay, and then maybe just.
Talking about that.
It's cadence one of the benefits of staying at this lower level not growing that that you can actually lower your your base decline rate.
Wanted to see where it was the end of last year, where you think it might be at the end of this year and if you were just kinda holdings flat where that might be you know at the end of next year.
Yeah, we have.
Our decline rate right now is.
29% to 30%.
And.
No I don't have.
I don't have the number and Steve lindeman might be able to get made towards the cadence of our decline.
As he is looked at our reserves.
Towards the end of 2021 right. So what you like Dan said right now we're kind of running in the 29, 30% range as you go out three or four years and add to the base will probably be running in the 25% 24, 25% range.
Got it understood. Thanks, guys.
Yes.
Okay next question will come from Kashy Harrison well with Simmons. Please go ahead.
Hi, Good morning, and thank you for taking my questions you bet.
So so Dan.
You highlighted the 8% free cash flow yield in 2021 or 275.
I was looking or your 2019 financials looks like you guys are able to do 1.35 billion of discretionary cash flow at about 260, I know that had about a 150 of hedge gain but you know just doing the simple math there.
I would get you to about 1.2 billion and then if I took your.
The implied Capex that was discussed earlier and Mccall feels like we should be much higher than.
8% to 75, and so I guess my question is.
Is that conservatism on your part or should we be thinking about.
Basis expansion or maybe cash income taxes, as you look toward a higher price environment.
Yeah, I'm going to I'm, a pitch the ball to Matt Hey, guys. Yes, I think you nailed you nailed it with the cash tax fees.
Obviously last year, we also had the benefit of.
Higher so significantly higher deferred tax advantage because of.
So now that perform et cetera.
So as we move forward now that we maximized all utilization of our into wells and AMC Woodward is not going to see those same.
Tax benefits of future.
And are not add.
There is always conservatism in our guys as well as you know.
Got it very very helpful. I guess this high class problems and then.
As you as you think about you know capital spending.
Or as you look at your capital spending or is that as I was looking at your capital spending. It seems like you guys have spent just under 60% of the budget, but you've completed well over that proportion of your over your targeted wells for the year and so I guess my my follow up question was are you guys seeing some sort of them some efficiencies or cost improvements and.
Is there anything to read through for implications to the full year budget or is this just more so timing related.
Well we have.
We have efficiencies at our program or we decided to maintain our 575 million dollar capex.
It's mid year right now.
Might be a conservative position, but we wanted the least noise in the release as we could deliver and we thought that was appropriate.
Got it that's very helpful and if I could just sneak one more and then just follow up on.
Some earlier question on the upper Marcellus.
I was just wondering.
We've always talked about 70% of the upper 70% of a lower on the well performance front have you guys ever talked about just how to think about the difference in well cost between the two zones.
Well, we havent.
We've talked about it may be more indirectly, but we have made comments regarding our.
Full development case of our upper Marcellus.
And to to not make this a long winded answer Scott is totally sometimes that I've talked to long on my answers.
But when you look at the full development of the Marcellus you can really upper Marcellus you can really look at the upper Marcellus is a blank piece of paper for the most part.
We intend to.
Particularly with the legislation that has been passed.
Recently about longer laterals, and how you drill within or across units.
It is our intent to lay out the sticks for the upper Marcellus with longer laterals on average than we've been able to drill in the lower Marcellus program with the drilling longer laterals and I'm talking about kind of the 12000 foot.
Type laterals and the upper Marcellus, there's efficiencies inherent and drilling longer laterals thing shorter laterals.
With our currently even in the lower [laughter] excuse me.
Even in the lower and our longer laterals, if we drill 11 or 12000 foot laterals.
And you look at our completion efficiencies or some some represent there the cost of development and.
What the cost is per foot.
And our and our even in our lower we have a.
Say, a 700 slightly over 700 dollar per foot cost in our 11000 foot type of lateral that we drill and the lower and we have those as actual cost that we have seen in and first.
And second quarter.
Of this year.
Theres another thing on the efficiencies that we see in those in that cost.
Cabot also loads and of those of our of our cost per foot. We also load in our all our facilities.
And that cost and we load in all the construction associated with our pad sites into those cost.
That is again all in cost for us and the other thing we do.
As we have what we thank our very efficient efficient completions we.
Have 2500 pounds of proppant, we used in our in our completions versus I know some other.
Companies might use less profit so their cost for proppant is going to be maybe slightly less than ours, but we do like the amount of gas that we have coming at our out of our wells and so our recipe. We think we have dialed in is very efficient. So there is going to be overall.
Considerably less cost attached to the development.
Our upper Marcellus, including use of roads reuse of a pad sites.
We hope reuse of some of the equipment. So we would take even though the it might be a 70 plus percent comparison to the lower we think on return profile basis, because of what I am just mentioning.
Our upper development is going to be it a extremely good return profile.
Oh, that's excellent color thanks for all that.
Okay.
Ladies and gentlemen, this will conclude our question and answer session.
As Tom I'd like to turn the conference back over to Dan Dan just for any closing remarks.
Hi, Thank you I'll send and once again I would just like to.
Great. Thanks, again to those dedicated to shareholders a of Cabot, but also a.
Data gratitude to cabot's team.
They have been out there through this very difficult environment many of our.
Field operators have been going to work every single day.
Even though some of the corporate headquarters in office in Pittsburgh Kev.
I have honored they stay at home edict because of this pandemic, but those guys and girls out there in the field have have gotten up everyday to head out and do the the work and as you can see bar numbers, we've been able to deliver.
On our program and I'm very proud of the group. So thanks again for the attention look forward to next quarter's call. Thank you.
The conference has now concluded we thank you for attending today's presentation.
And you May now disconnect your lines.