Q4 2020 Cabot Oil & Gas Corp Earnings Call
Thank you.
For the remainder.
Thank you for.
Net.
Dan.
[music] continues.
Good morning, and welcome to the Cabot oil <unk> gas Corporation fourth quarter and year end 2020 earnings call and webcast. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw your question press the pound key I'd now like to turn the conference over to Dan Dinges, Chairman, President and Chief Executive Officer. Please go ahead.
Thank you Doron and good morning. Thank you for joining us today for Cabot is fourth quarter and full year 2020 earnings call.
Minor on today's call, we will be making forward looking statements based on our current expectations. Additionally summer comments will 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.
Our results for fourth quarter and full year 2020 highlights the resiliency of Cabot business model, which is a direct result of our industry leading cost structure. Our continued track record of debt.
Disciplined capital allocation and the expert exceptional efforts from our employees, especially in the face of the challenges presented.
In the ongoing pandemic, despite the headwinds we faced throughout the year due to historically low natural gas prices, we delivered positive net income and our fifth consecutive year of positive free cash flow generation.
The company recorded full year, adjusted net income of $214 million or <unk> 54 per share positive free cash flow of $109 million.
And a return on capital employed of approximately 8% despite the lowest natural gas price realizations, and our 31 year public company history.
Excuse me.
During 2020, we returned $159 million of capital to shareholders through our current dividend, which represents our fifth consecutive year of exceeding our minimum capital return target of 50% of annual free cash flow. We also repaid $87 billion of debt that matured.
During the year, our balance sheet remains one of the strongest in the industry with a year end net debt to EBITDAX ratio of one for Wow. This is modestly higher than our target leverage ratio of one term, we have clear visibility to deleveraging well below our target ratio and <unk>.
21, giving the.
Improvement in natural gas prices relative to our 25 year low average Nymex price, we experienced in 2020 and our plan to repay our debt that matures. This year with a portion of our excess free cash flow for the fourth quarter Cabot generated 100.
$5 million of adjusted net income or <unk> 26 cents per share and $123 million positive free cash flow. We also exceeded our high end of our production guidance range, despite significant strategic price related curtailments throughout the quarter.
Our operating expense per unit improved 3% relative to our prior year period, and our capital expenditures were in line with our guidance highlight.
Highlighting our continued commitment to disciplined cost control throughout our operations, we pre released our.
Our year end proved reserves updated three weeks ago, which included the following highlights 6% growth in total proved reserves, 7% growth improve develop.
Reserves and a year over year improvement in all source, finding and development costs driven by record low drill bit finding and development cost of 28.
Per Mcf the growth in our reserve base is especially impressive when considering.
Our transition to a maintenance capital program in 2020 that resulted in a 27% decline in capital spending relative to the prior year on the operational front in yesterday's release, we highlighted the significant improvement in our greenhouse gas emissions metric in 2020, we realized a 50%.
8% reduction in our greenhouse gas emissions intensity from 312 to 131 metric tons of Cotwo equivalent per thousand barrels of oil equivalent.
And a 70% reduction in our methane emissions intensity from 0.08, 320.0% to 5% our industry, leading efficiency highlights our continued focus on safe responsible and sustainable operations, which support the goal of reducing <unk>.
Total greenhouse gas emissions, while achieving energy independence in the United States staying on the operations for a moment.
B of Cabot oil and gas conference call.
Upper Marcellus was not mentioned in our third quarter 2020 earnings release, we highlighted five upper Marcellus wells that were placed on production in 2020 and at the time were exceeding our expectations.
An average EUR per thousand lateral feet of two seven Bcf. These five wells were ultimately book with an average EUR per thousand lateral feet of two nine Bcf at the end of 2020, reaffirming our conviction and the productivity and economic off.
Opportunity across the upper Marcellus reservoir, we continue to plan to allocate only a modest amount of capital for the upper Marcellus annually for the foreseeable future as we focus our capital allocation efforts first on the prudent development of our lower Marcellus reservoir before moving to full development of our upper Marcellus.
Inventory towards the end of this decade, we remain encouraged by these recent well results and the future development program that our team has put together cross the upper Marcellus at an average lateral length greater than 10000 feet, which will provide significant well cost savings and further improvements to the.
Economics.
This inventory moving to our program for 2021 in yesterday's release, we reaffirmed our plans to deliver an average net production rate of 2.35 Bcf per day from a capital program of $530 to $540 million, our capital program for <unk>.
<unk> thousand 21 includes 80 net drilled and completed wells at an average lateral length of 7500 7600 feet I think the most important thing to highlight from our program. This year is a 6% reduction in capital expenditures year over year, which is a 32% reduction in spending relative to nine.
<unk>, despite despite production levels being revenue relatively flat from 2019 to our guidance in 2021.
On the pricing front. Despite the late start to winter, we are optimistic about the backdrop for natural gas prices in 'twenty, one on the supply side dry gas production is still well below prior year levels and we do not currently expect a significant rebound in volumes throughout the year as producers.
Cross industry are focused on free cash flow generation balance sheet repair and capital returns to shareholders over production growth natural gas demand continues.
Continues to be strong led by robust U S. LNG exports a trend we expect to continue throughout the year as global storage continues to be drawn down due to colder winter weather and demand recovery as economies continue to reopen this week's storage.
Withdrawal is expected to be the largest weekly withdraw since January of 2018, which would put current storage levels, 8% below the five year average and 12% lower than the prior year. This is a dramatic turn of events relative even a month ago when storage levels for <unk>.
9% higher than the five year average storage levels at the end of the winter season are currently forecast to be approximately $1.
Five Tcf, which is 17% below the five year average and 26% lower than the prior year. We believe the tighter market conditions. This year will require higher nymex prices.
Summer to drive incremental gas for coal switching in order to balance the market and could result in the lowest end of October storage levels. Since 2018 net year lower storage levels resulted in a significant spike in winter Nymex prices to levels materially higher in the cash.
Current forward curves on a regional pricing front year to date, the average leidy cash price and our average power netback prices are approximately 70% higher than same period last year.
East storage levels at the end of the winter season are currently projected to be significantly lower than our prior year, which reduces the likelihood of experiencing the wider basis differentials we realized during the last for months at 2020, the weighted average differential guidance, we issued for 2021.
On a 50 to.
For 55 cents is slightly wider than the 44 since differential we realized in 2020. This is primarily driven by the for prices in several of our long term sales agreement, which are now realizing less of a premium in this considerably higher Nymex price.
As compared to last year. However, the most important demand dynamic to consider is a significant year over year improvement in our expected realized natural gas prices.
Implied by the year to date pricing and the forward curve Yesterdays release, we updated our capital return framework to include a base plus supplemental dividend strategy.
We plan to continue to deliver a regular quarter base dividend supplementing these regular quarter base dividends with an annual supplemented supplemental dividend in order to achieve our minimum capital return target of at least 50% of our annual free cash flow given the ball.
<unk> and seasonal.
Ality.
Natural gas prices are free.
Our cash flow throughout the year any supplemental dividend expected to be declared and paid in the fourth quarter beginning this year.
Any excess free cash flow above the 50% minimum capital return target will be utilized for enhancing the balance sheet additional supplemental dividends or optimistic share repurchases, depending on the market conditions. This year, the first priority for excess free cash flow above.
Our minimum capital return target will be the repayment of $188 million at current debt maturities, which includes $88 million tranche, we pre prepaid in January and a $100 million tranche.
Excuse me that matures.
In September our new.
New capital return framework.
Our continued focus on returning a significant portion of our free cash flow to shareholders. While also preserving our balance sheet strength. The supplemental component of this dividend approach allows us to focus on sustainable capital returned as approximate appropriately tailored for where we are in the natural.
Gas price cycle. We also expect to continue to grow our base dividend over overtime as we have done five times since 2017, I believe our track record to returning far exceed.
Returning.
Returning far in excess of our minimal capital return targets should reinforce our commitment to enhancing shareholder return over time with that nor I'm happy to open it up for any questions.
At this time, ladies and gentlemen, I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Yes.
Comes from the line of Leo Mariani with Keybanc. Your line is open.
Hey, guys just a question on the differential guidance on the 50 to 55.
I saw on slides there was kind of a footnote that said that was.
February for <unk>, Inc, which was kind of.
Polar vortex weather conditions.
Here in the U S. Just trying to get a sense that may have improved.
So quite a bit in the last couple of weeks since you've got to put that guidance together.
No it Hasnt had an improved.
At this stage I'll, let Jeff make a comment also on the on the differentials and what we see going forward, yes, so on the <unk>.
No.
As laterals.
<unk> have not changed.
<unk> rolled out.
Improved so we are still looking at a somewhat at the same levels that we experienced in 2020.
But on our corporate differential.
The answer.
Reason.
It has increased slightly from the previous year really has impact.
The impact for.
Our contract.
<unk>.
Our contract for fixed prices and floors.
Lower price mix, we experienced in 2020, so let's say it differently as you increase non its prices there for.
Virtual will sprint slightly just due to the <unk>.
Cost of those floors and fixed prices.
And we don't have as much premium in those.
With a higher Nymex price.
I think the other takeaway is that.
With a day.
Yeah.
Improved net Nymex, we certainly are seeing the.
Better realizations in our realized price.
Yeah, absolutely, okay, but that's helpful color and then just.
A question on the supplemental dividend.
And to make sure I'm sort of clear on the mechanics here.
So it sounds like you'll you'll make for displays in the fourth quarter.
21, and is that going to be sort of a look back where you say hey look.
All of the excess cash flow we had in 2021.
And then we're just going to pay it out.
Let's call. It in early 'twenty two after you've seen the fourth quarter result was kind of a one time.
Annual payment or might you take that cash and say paid quarterly in 2000. So I'm just trying understand a little bit more behind the mechanics of how the cash flow back to shareholders.
This is Scott Schroeder, the thought behind it.
As you know we're in a very cyclical industry and things can change as evidenced by how 2020 startup for pricing and where it went.
And again Nobody's planning on another pandemic, but our view of this and is to keep it within the year of debt our measurement period. So that's the thought around the fourth quarter.
Other words by did.
Bid week in November as last week in November where we know what our December pricing is and we know where our expenses are we now mostly where our investments are we're going to have a pretty good idea of where the report card is going to fall out and what we may need to do in an estimation format in that supplemental bucket to get to the 50% return.
Level and that keeps it in the same year as the measurement period, that's the rationale that we're following.
And different people or different companies are going to do it different ways. We did not want to carry it into the following year and half or quarterly payment that.
If gas prices went.
Waste out in the market was on its heels all of a sudden that we've got some commitment was created on in better times that we now have to borrow money or do something and it hurts for next year, we want to keep it.
The measurement period, so right now the initial plan is to always do it in the fourth quarter late in the fourth quarter handle it within the year. Obviously, there is always the optionality that if the year is setting up and it's just very robust mass example to me as if we had $7 gas prices for half of the year would you wait until the fourth quarter.
Not in that scenario, but the account right now is a very methodical end of year kind of a true up of that 50% target.
That's incredible clear very helpful for sure and just quickly on the stock buybacks that you guys mentioned I was.
Median firming a little bit from your comments, but it almost sounded like you guys wanted to take care of the second debt maturity is in September. So we're looking at the buyback is that what you're kind of saying with debt is number one priority or it can be opportunistic throughout the year in 'twenty one.
Again, we're always up opportunistic around buybacks, but right now the priority that was laid out in the script is truly this kind of supplemental and base cash dividend in the 50% followed by again, we've always been leverage averse in this organization and that puts us in the best position, particularly in the market. We're in so the next 100.
Tranche payoff in September as the next priority.
Clearly if there is a huge disconnect.
It makes a whole ton of sense to go buy back shares we will do it but that's not.
That's not on the forefront of our mind at this point in time, but it is still an arrow in the quiver.
Okay. Thank you very much.
Yes.
Your next question comes from the line of Hollister, what we'll discuss a whole leg Weil. Your line is open.
Good morning, gentlemen.
Holly.
I think yes.
Dan Scott you hit on my question is on the supplemental dividend and the buyback.
Clear at this point so.
And maybe just.
Maybe moving on gas to.
Maintenance and stuff on basis.
We were supposed to have a portion of your leidy south capacity come online.
During the past quarter I thought maybe you could help us by just sort of outlining.
The portfolio impact I'm not sure if that runs through the revenue line or the midstream line to just a little help on on.
Thank you for micro and <unk>.
Sure.
Correct.
Oil itself is 580000 per day project.
For this place in service early 125000 and Cabot.
Picked up a 100000.
That early service, where rig count pretty much for the calendar year 'twenty.
One pick up the remaining.
Sure.
Cash capacity of the 250000 on December one.
And of course 330 value.
Coming from the west replacing reserves December purposes.
Total property in terms of pricing, we went ahead and fixed price.
Volume about 100, thousands a day for is included in our price.
Volume and pricing.
And our current one guidance.
In terms of online in December 'twenty, one will be reaching new.
New markets some of that will be Nymex based pricing some of it will be non New York.
Pricing.
Okay.
That's great and then maybe Scott just some.
Just some thoughts on.
The hedge book, where where we are today is there a targeted level that you'd like to see you all get to for the.
'twenty one portfolio.
As you look into 'twenty, one strength what are your thoughts on kind of adding at this level.
Yes, we're always looking to be opportunistic and again to add to our level. One thing I think that there is a disconnect and a lean on Jeff to give you exact percentages, but the fixed price.
<unk> when we look at that as part of our hedge book is not completely clear the market looks at kind of the hedge slides with the Nymex hedges and things like that but where traditionally we always like to go into a year minimum 25% hedged and as high as 75% hedged and obviously the midpoint are there as well.
We'd like to be in general and then look to add to it when we see disconnects I think for close to that 50% number Jeff.
Yes.
Just below that Holly.
When you combine physical fixed price sales with financial hedges.
And the reason we use the two pronged approach as we do have some long term index batesville that we're able to convert for fixed pricing.
Sure.
Again using existing Nymex.
Faces locations.
Bye for financial hedge book.
Either.
The conversions book with your customers on a physical basis than to go out into the market that could be a little bit of illiquid refinery.
True.
So we're right at right at 50%.
Rob.
For those numbers too in terms of.
Okay.
If you took the for right.
The swaps on our financial.
Average about 270, so we still have a lot of upside on the financial side.
In our fixed prices are closer to the same level.
Okay, Great and then Scott any color on where the strip it day in and thoughts around adding here.
As Holli I would just say we look at it constantly you've got the hedge committee on the phone here.
Just update us continually on pricing there is nothing.
Debt pressing us too lenient strong at this point in time, but where we did.
Make a big effort was to cover summer, which can tend to move against you.
Big way, so a lot of what Jeff referenced on the physical and on the.
Financial side cover summer with kind of November and December still open so oil.
And unlike historically, if we're going to lean in more.
Start we're going to start looking at 'twenty two earlier than we have in the past.
Finally, I might add also.
That is.
Consensus remains that the October storage number will get down to one five tcf.
Think that does set us up for a a.
Or possibly higher.
Nymex price.
Than the current strip is delivering so we're watching that close.
But.
There is a.
Our case that says that we would see higher nymex prices a little bit later if in fact.
There is rationalization.
By the natural gas space.
And the LNG continues to.
Deliver.
As they have.
We do think there is a good chance that that number will be reached and it sets up for higher future Nymex prices in the strip.
Yes.
Thank you guys.
Okay.
Your next question comes from the lineup, Ireland, Jay, Iran with J P. Morgan Chase your line is open.
Hey, good morning, gentlemen, I hope you and the team is doing okay for some of the inclement weather power issues et cetera.
Houston.
I appreciate it.
A few stone Ian.
I can share.
If everything is going okay.
I had a couple of questions.
One other questions Dan we get on the story is just thinking about long term capital efficiency of the program.
As the mix shift changes to a little bit more upper Marcellus, particularly in the back half of the decade. So I was wondering if maybe you could help center the market on the relative economics.
Lower versus upper and how.
How does the upper compared to.
Tier one.
Marcellus outside of outside of.
Your area.
In Susquehanna County.
Well we have.
Outlined a little bit that our team is working on our development plan for the.
Upper Marcellus that plan is.
To lay out and do a.
Geographic evaluation all the sticks.
That.
That we have and we have done that for the majority of the field are continuing to vet.
Charles for all issues picking pad sites and all that.
The objective is going to be clear and I don't see anything getting in the way the objective and that is to lay out significantly longer average lateral lengths greater than.
What we are drilling in the lower Marcellus right, now and certainly going to be greater than the upper Marcellus.
I mean greater than the lower Marcellus in greater than 10000 feet.
So when you look at the efficiencies from that drilling perspective, you can kind of do the math today I would also add debt.
Yes.
I would hope that we continue as an industry to develop.
Efficient techniques best.
Best practices that will allow the drill curve to get better completion techniques to improve and as we allocate a small portion of our capital.
Moving forward to the.
Upper Marcellus.
We continue to learn and enhance our our anticipated completion techniques for the upper Marcellus.
We've always indicated that the upper Marcellus is about 75% of the.
<unk>.
Upper Marcellus.
I mean, the lower Marcellus.
And we don't see anything that would take from that from a.
Reservoir perspective, we think we can close the gap the differential in the and what the deliverables from a reservoir perspective in the.
Upper Marcellus would be to the lower Marcellus by longer laterals more efficient completion techniques and all the things we're learning as we go we do.
We think it'll be towards the before.
Before we shift to the upper Marcellus development, we think it is going to be towards the end of the.
This decade.
And we think we have drilling locations that will carry us.
Beyond the 2040 period for the upper Marcellus.
Oh.
We're confident that we're going to be able to improve the economics of the upper compared to the.
The lower.
<unk>.
Standby.
Great and just maybe a quick clarification. So the way we should think about it this year is a lateral lengths.
Going to be around 7500 foot for the lower Marcellus or is that kind of a go forward kind of lateral length and then.
The upper Marcellus you expect to develop that over longer laterals, yes.
Exactly you starting with the upper Marcellus, we definitely are laying out the development of <unk>.
Really a clean piece of paper for the upper Marcellus will be we'll be looking at at that without complications.
Of drilling or prior formed units or anything of that nature.
Our lower Marcellus.
We continue to try to lay in our lower Marcellus.
In the entire developed area that we currently have there'll be some areas that bring our average down just simply by us.
Going back into really early drilling areas, where we didn't have long laterals are pads were a little bit closer together that those type of say, if we drill a six or eight well pad in an area, where we have to drill reduced lateral length, just by virtue of it fitting in between.
Some older drilling locations that will keep our lower.
Lateral lengths are lower Marcellus lateral lengths are lower than we anticipate in the upper.
Great great.
And then my follow up.
And this is more of an industry question, Dan and team as there has been.
Some of your peers have been talking about.
Call it tier one.
Inventory exhaustion and the broader Marcellus.
Appalachia Basin pardon me.
And one of your peers today didn't talk about it being maybe a bit more of a buyer's market.
For assets, but how do you how do you think about balancing Dan.
The steps we took for today in terms of increasing.
Signaling increased return of cash to shareholders versus portfolio renewal.
Yeah. That's a great question, we balance that all the time and our strategic discussions within our board.
Hey.
The fact remains from a.
Evaluation.
Asset take take that as a for.
First step we evaluate everything that's out there. So we know the valuations that are being placed by industry on assets, we have done that ever since I've been here.
And we will continue to do that and we'll continue to that.
What's out there we look at our pool our assets.
We have we look at the.
EUR per thousand.
The margin that we are able to obtain with our assets and we we like.
Exactly the assets, we have we look out there and compare the Appalachian assets and other areas and we still see cabot assets, including the upper Marcellus.
As being a.
A a better asset from the standpoint of what the deliverables are in the in the in what the reserves can.
Can provide.
I mean.
Reservoir can provide so.
When you think about how we would look at an asset outside of Cabot footprint.
We do kind of an accretion dilution analysis.
Instead of for example, our last five upper Marcellus Wells, we booked at two nine Bcf per thousand foot.
We see assets out there that are and you all can do the numbers you can look at the type curves you can look at the.
The.
Peer numbers on there their reserves per thousand foot of lateral.
And youre not going to get in general you are not going to get that same quality of rock we've been blessed by it that's not a it's not a slam on peers at all I think peers do a great job with their operation, but nevertheless, when we look at how.
How we allocate capital and the efficiency of our capital allocation, we take all of this into consideration for we spend money out there someplace else versus our capital allocation program back to shareholders.
Thanks, a lot Dan.
Yes.
Your next question comes from the line of Brian singer with Goldman Sachs. Your line is open.
Thank you good morning.
Morning, Brian.
To follow up on Rins question, but do it more from the perspective of the reserves. The reserve report and then there were some moving pieces around the timing of infill locations.
How that impacts the neighbor neighboring wells, but I wondered if you might have mentioned one of the data points here.
I was hoping to hear what you booked upper versus lower Marcellus location debt.
And the reserve reported how that compared year on year.
Any implications debt.
Debt you'd see for the underlying for the underlying supply cost.
Where do we want to start on that.
When we look at.
When we look at how we book our reserves.
And I assume you're talking about.
Maybe on a revision question.
And how we how we how we handled our PDP revision question.
So let me let me just start there Brian and then just if I don't fully answer your question by time.
Ill get back to you but.
As you are aware on our revision.
30% of our revision was related to the pricing and five year Pud.
Development rule.
And when we look at the parent child mitigation efforts and its impact on our revision.
Not it's not unique to cabot to industry wide.
Jack give on.
Mitigation on parent child in 2020 day impact on Cabot was about one 6% of our PDP, which was down 45% from our parent child impact in 2019.
I think we will continue to improve significantly in 2021 with our mitigation efforts some of those efforts we've talked about in the past.
Some are new placement.
Placement.
Where we land.
In our in our new drilling relative to the offset is.
Being scrutinized very closely now the reduction of fluid and proppant levels as is being implemented.
All of the wells that had the offset drilling we're setting the Retrievable bridge plugs.
<unk> and cap strings in the offset wells and that has helped considerably most recently and we feel like this is making a significant difference.
We have increased the number of clusters by two to three times per stage and we're seeing a fairly dramatic increase in example, several examples really would be.
The results from our most recent.
Design that we've used all for pads saw only two out of 30 wells directly offset from these new completions slightly impacted so that's a significant difference from what we were seeing.
Previously Additionally.
You're aware of this but we do have planned.
Workovers for our 2021 program.
For the affected wells and we do anticipate that this work will.
To reestablish impacted reserves.
And we have taken care and take into consideration.
All of what we're currently seeing Brian and our current Pud booking and.
Our booking across the field.
Great. Thanks.
Part of the question also is what do you actually book the lower.
Marcellus EUR per.
<unk> thousand at.
I missed it if you mentioned that so sorry.
Go ahead, Steve Yes, so Brian again this is a risked number that we apply for our proved reserves, but for 2023.
Three four Bcf per thousand again, it's a risked number and thats.
Taking into consideration as Dan had mentioned.
Our future development with with parent child in.
Offset.
<unk>.
Great. Thanks, and then my follow up is you guys are usually very very open on these calls with regards to the various different.
Opportunities to stimulate demand.
Within the region and different projects that are going on in Appalachia and I wondered if you could if you could provide the latest update on and how that impacts the growth optionality.
That you may have over the next couple of years.
Yes, Brian.
As Youre aware, we talked about the ongoing effort to bring in basin demand to particularly the northeast fixed accounting area.
It's Ben.
A lot of work in that regard.
Sure.
I mean process we were pumping.
And are close to signing up some new business.
It wasn't.
Huge volumes.
Every little bit helps us there.
We have the pandemic.
Hello.
Industry is just waiting and seeing how things are playing out and what other opportunities as they might have.
All that said, though we are still.
We're focused on that.
Industries that are very strong.
Yes.
Arent necessarily affected.
Degree some of the smaller or we're continuing to push with them.
And we have some opportunities I'm anxious to.
For the dust to settle in.
See what else, we can grow into up there.
Great. Thank you.
Your next question comes from the line of Josh Silverstein with Wolfe Research. Your line is open.
Hey, Thanks, good morning, guys.
For the downturn.
Good morning, Dan trying to gas prices have kept year around the kind of thing.
Q3, Q4 level for for three years running.
Just wondering if the long term game plan is for you guys to stay around this level and optimize inventory and.
Inventory.
And then I know this is a couple of years ago. We used to have this chart showing your production base relative to the capacity.
You guys have I'm, just wondering where that stands today.
The underutilization of capacity might be hurting margins right now.
Yes, I'll turn that to Jeff in one second but in regard to our near term plan.
I think youre, saying, Josh cross industry that maintenance capital is being allocated.
We're staying at our maintenance capital some of that is obviously a result of.
Yes.
<unk>.
Effect that putting a significant growth component into the basin.
Effects, the differential and our realized pricing.
We're a strong believer that that.
With a maintenance program that it yields the.
Best opportunities for Cabot.
As we as we go forward.
And.
We would think that the.
The phenomenon of Overstressed system supply demand is.
Is.
Is apparent when you look at when you look at how we look at the future.
There are Jeff didn't provide any numbers he'll make a comment here shortly adjusted but there are.
A couple of significant projects.
And north East PPA that have the opportunity to.
Two.
Not only see some of our lower Marcellus gas.
Maybe help with the growth in demand.
Between now and the.
The end of the decade.
But going forward I feel strongly about.
Beyond that debt there the majority of our if not all of our upper Marcellus development is going to see enhanced growth with in basin demand projects.
And up.
I'll, let Jeff.
Color to that yes, so we did move away from that particular slide you referenced.
Australia.
Those projects have been completed and learning services or to talk about the in basin demand projects with the power plants and Atlantic Sunrise.
Now we have the expansion of Atlantic Sunrise, we've done a number of things.
To.
Be able to create capacity in the systems up there there are some existing capacity available too.
<unk> currently.
Not all of the money for their space.
Life's too.
Production.
Alan that space to maximize price realizations.
We do have some other projects on the drawing board.
We see long term price improvements will be addressing those.
Thanks for that book for that color and then just.
Curious on the variable dividend and thinking about net debt.
Net debt levels I know the game plan for this year's debt pay down the 100 day maturities debt.
We're thinking about looking at a couple of years and having the next maturities for 'twenty three 'twenty for window are you trying to build up enough cash to pay those.
As well or.
Would you be thinking about refinancing those because your net debt levels start to get pretty low.
You're looking at a couple of years.
Josh This is Scott Great question for 2023 maturity is $62 million. So that would fall in the same kind of bucket is what we're doing this year, we plan to repay that 2020 fours in excess of $500 million and then two years. After that there is another $300 million as much as I can get teased.
About it.
I'm not trying to take us to zero debt, we will look to refinance.
Into probably into the public market for the first time these things.
It's a market makes sense for us in 2020 for and just have something sub $1 billion in the permanent capital structure at that point in time.
Hey, Josh.
Exactly to that point.
We plan on managing the 24 and beyond Troche moved.
Moving that out Scott, saying with the refinance of debt.
It is our intent, though to maintain and to continue to enhance the delivery.
Our.
Return to shareholders by virtue of us really having after this $100 million charge and a small one in 'twenty three we have clear sailing and 'twenty two 'twenty three.
Certainly with a refinance 'twenty four 'twenty five that is going to be absolutely pristine for delivery of what we would hope as significant free cash flow back to shareholders.
Great Thanks for that.
Your next question comes from the line of thought she Harrison with Simmons Energy. Your line is open.
Good morning, and thanks for taking my question.
Maybe just a quick follow up Scott for the last question.
Just given that we're in such a low interest rate environment.
The yield to worst on some of these larger maturities to 'twenty for as you know 26, they seem pretty low just curious if you have any thought on.
What kind of coupon you could get on those notes if you refinance then state.
This year end.
Why you wouldn't just try to refinance that sooner rather than later given your excellent barrel.
Although cash the one thing in terms of our debt makeup as you know or may or may not know.
The private placement market.
The one challenge with the private placement market, while we've always been able to get a lower coupon in that market to the tune of 100 to 150 basis points every time, we entered that market.
It comes with a.
Prepayment penalty of treasuries, plus 50, and with the interest rate environment, where it's at today to make up that coupon. It is just a non economic decisions.
Kind of refi that now from from that perspective, and it doesn't make sense to go get debt right now at a low rate interest parking on your balance sheet and cash. So that's one dynamic the other thing I would add.
And Matt can fill in here, but our last private placement was done in 2014, and we did some seven year money, which will pay off this year, we get some 10 year money, which is debt.
2020 for tranche and into 2026th tranche and when you look at that that was all 3% money. So it's very competitive, whereas maybe we can get slightly better now, but it is very competitive rates at which we have at the one that's kind of out of market as is the 2023.
$62 million still has that prepayment penalty. So thats the guidance that dynamic that's going on as it relates to our debt.
Got it that makes sense and thanks for that added color.
And then maybe just one for you Dan.
In the prepared remarks in the press release, you talked about raising the dividend as you've done a few times over the past several years I was just wondering if you could help us think about targeted growth rate for the base dividend over time, and maybe just some color on what kind of framework are you using to determine what a sustainable growth rate looks like and I'll leave it there. Thank you.
Yeah.
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We look at the the market itself as we've indicated.
We are going to get past these debt maturities.
And that certainly bodes well.
With our balance sheet, where it is today bodes well for our opportunity to return cash to.
Shareholders.
We also have a high expectation that the industry will continue to be rational.
And that comes into consideration when we think about.
The available cash that is being generated and our price realizations that we achieved.
So with that being.
Consideration.
We'll look at a day.
Go out to the general lesson go out to general industry and you look at some of the dividend levels that are that are.
Base dividend yields and we do anticipate to be competitive.
Across the board.
And looking at the.
With our balance sheet allows us to look at those higher yields as we move forward in our and our board has been quite.
Quite proactive in supporting.
The increased base dividend level.
I would.
I would just say from from a conservative perspective, that's why we added the supplemental.
Dividend.
From a conservative perspective, we don't want to get caught whipsaw into.
An irrational market that has blown out the basis.
And all of the basins.
And our realizations are punitive.
That would require us to dig into our facility to P.
Pay dividends again, I think industry has learned its lesson from the past I think shareholders have made it clear what the expectation is for.
Prudent operations and managing capital allocation.
If we continue to see that rationalization.
I think the shareholders are going to rewarded handsomely.
Helpful. Thank you.
Your next question.
Your next question comes from the line of Charles Meade with Johnson Rice. Your line is open.
Good morning, Dan do you and your whole team there.
Hello Charles.
Dan I appreciate all the detail you gave.
In response to.
Brian singer's earlier question on the on the Reserve report and the reserve provision I was wondering if you could just dig in a little bit more on that.
Obviously the headlines there.
Fabulous.
Drill bit F&D and a great reserve replacement, even though.
So you didn't spend as much but the part that I wanted to dig in a little bit is the is.
Is the PDP.
Reserve provision and I think I believe I heard you say debt.
Your your parent child related revisions were one six.
Of your of your PDP reserves.
That can be worked out to be about 140 bps is that does that in the ballpark.
Yes.
Okay.
So I'm looking.
Is that versus the.
Versus the number of wells you turned online this would be a net basis. So you turn on 70 wells and so that would be.
Assuming each one was <unk>, which is probably not exactly right, but it puts a upper limit you have got about 140.
Possibly affected wells and so.
I guess, what I'm really driving that is that every well were affected that would be.
B book, but it's probably not every well effective so I'm just kind of wondering particularly with respect to your comments about.
About workovers going going to remediate so busy.
Am I getting reasonably reasonably accurate MRO by wildly off base with banking debt whats happening here is that you've got a couple of your.
You've got you've got some fraction of your of your also wells that are that are old.
Older vintage PDP wells that are just getting completely knocked off with water hits and if thats. The case it will swing back probably not that big a deal because you are able to go back in with the work over just get the water off and the and the wells come back in the <unk>.
<unk> come back is that.
And the right quadrant.
Sure.
And to that specific.
Question about remedial work, yes, we do feel like that.
Remedial work will reestablish some of these impacts.
Okay I recognize that was a long winded question, but I guess, that's the that's the important thing.
Is there are more workovers planned in 'twenty, one and so and so.
Presumably those revisions could flip back around.
'twenty one reserve reporting.
With the success of those Workovers.
Absolutely and Charles one other thing you are.
I appreciate your rearview mirror map.
Kind of how it how it happened, but keep in mind I think going forward I think you need to maybe focus more on what we saw in our last for pads.
That we drilled.
By stretching out the cluster spacing.
Stretching out the cluster spacing, adding more clusters to a stage.
How we landed the wells and how we have been able to.
All along the entire track.
A lateral will lay out.
We don't think it's going to affect the entire lateral length of any given well.
Because.
We have the offset.
Landing zones, and we are mitigating the new wells, we drill with the landing zone that they offset wells and we will in areas, where we feel like we have a fairly direct offset by in the landing areas. We are implementing this new technique.
Two or three times greater clusters in a stage reduced fluids.
And proppant in those particular stages and in the last for pads that added the 30 direct offset wells that we saw with the number of completions.
We had we only saw two wells impacted.
So I think rolling for I don't think you can use historic math too.
Calculate what we would see as the impacts rolling for we think it is going to continue to be reduced like we did from 19% to 20, we think we're going to say a significant decrease from 'twenty to 'twenty one on PDP.
Revisions has resolved.
What I'm talking about.
I did catch that but so so if I understand it.
The only two out of a possible 30 affected the message we should be taken from that as you guys. You guys were watching what was happening.
Maybe mostly or maybe even entirely kind of adjusted issue going forward. So is that the right message.
Absolutely the right message.
Alright, Thank you Dan thank.
Thank you Charles.
This concludes our question and answer session I would like to turn the conference back over to Dan Dinges for closing remarks.
Well I appreciate it.
Our focus was on our inventory.
A highly economic drilling.
Inventory, it's going to provide long term visibility for robust free cash flow like I mentioned in our capital return strategy demonstrates our commitment to improving cash returns to our shareholders throughout the natural gas price cycle, while we maintain what we think is.
As an industry leading balance sheet.
Our missions calculations youre going to see a lot of that coming out and reported it industry.
I think.
<unk> debt when you look at how prudent cabot's operation is and the.
Greenhouse gas.
And methane intensity is I think youll see that Cabot is going to be.
Top of the metric that so many are focused on right now so I appreciate your attention.
<unk>.
Yearend earnings.
Conversation and look forward to the next thank you very much.
This concludes today's conference call you may now disconnect.
Yes.
[music].
Cash.
Okay.
Yes.
Dan.
[music].
Okay.
Yeah.