Q2 2021 Cabot Oil & Gas Corp Earnings Call
And.
[music].
Okay.
Good morning, and welcome to the Cabot oil and gas Corporation's second quarter 2021 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.
Theyre session. If you would like to ask a question. During this time simply press star followed by the number 1 on your telephone keypad. If you would 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 Philip and good.
Good morning, Thank you for joining us today for Cabot second quarter 2021 earnings call. As a reminder, on today's call. We will make forward looking statements based on on our current expectations. Additionally, some of our comments.
Comments will reference non-GAAP financial measures or looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures were provided in this morning's earnings release.
Our results from the second quarter 2021 reinforced.
Force the positive theme from our first quarter results with a significant increase and realized prices year over year, driving exponential growth and our financial metrics. Our adjusted net income for the quarter was $105 million or 26 cents per share which represents over a 5.
And the bold increase and adjusted earnings per share relative to the prior year period, driven primarily by 35% increase and our realized natural gas prices. During the quarter. We also delivered positive free cash flow of $64 million, our 18th quarter of positive free cash flow.
Over the last 21 quarters, resulting in a $127 million improvement and free cash flow relative to the second quarter of 2020 during the second quarter. We returned over 2 thirds of our free cash flow to shareholders through our base quarterly dividend as we continue to emphasize our.
Our strategic focus on returning a majority of our free cash flow to shareholders.
We continue to improve on our industry, leading cost structure during the quarter as demonstrated by 2% year over year improvement of all in operating expenses $2.41 per.
Mcse, excluding a $6.2 million of expenses during the second quarter related to the pending merge with Cimarex energy our unit cost improved by 4% relative to prior year period production for the second quarter of 2021.
It was 1% below our guidance range due to longer than anticipated maintenance related midstream downtime, primarily resulting from 1 of our third party providers compression station and operational delays during the quarter that pushed the timing of certain wells gone on.
Production to later in the second quarter and into the first part of the third quarter.
Production volumes for the third quarter to date have averaged approximately 2.3 bcf per day, a 4% increase relative to our second quarter production levels, we incurred 166.
<unk> million and capital expenditure during the second quarter, and 5% reduction relative to the prior year period on capital for the quarter was in line with our prior guidance for higher activity levels, and the second and third quarters, which are expected to resolve and sequential production growth during the second half of this.
Primarily during the fourth quarter and it just.
Patients of higher realized natural gas prices and the in service of our Leidy South expansion project. We also drilled 5 more net wells and completed 121 more stages than originally planned during.
And the second quarter, highlighting continued efficiency gains and our operations.
Our balance sheet remains as strong as ever with less and $900 million.
Net debt as of quarter, and resulting and a net leverage ratio of less than 1 times trailing 12 months EBITDA.
This year, we expect to continue to reduce our absolute debt levels during the third quarter third and repayment of $100 million tranche of debt maturing in September.
On the pricing front are bullish thesis for natural gas prices entering this year has continued to materialize and we resolved.
Resulting in significant year over year gains and natural gas prices across North America through July 2021, Nymex prices have written.
And 61% compared to the same timeframe in 2020, while <unk> prices have increased by 43% over the same period.
EBITDA transitory pipeline maintenance and outages that resulted in wider regional basis differentials. During the second quarter of 2021, we have recently witnessed forward prices and cash prices across Appalachia sales locations, beginning to compress and trend back to their historic price.
Pricing relationships.
We have updated our full year differential guidance of 55 to.
And the 55 to 70 to 75 cents per.
Primarily as a result of the impact of higher anticipated Nymex prices relative to our fixed price sales agreement and to a lesser extent.
Splatter regional basis differentials.
Our prior differential guidance from our first quarter earnings release in late April was based on a 275 Nymex for the year, while our updated guidance is based on an average nymex price of approximately $3.35 implied by actual.
Year to date and the future curve for the balance of the year at the midpoint over our updated guidance range on a pre hedge natural gas price realizations are now expected to be 18% higher than our prior guidance from late April and 60% higher than.
Our actual 2020 price realizations third quarter of 2021 differentials are expected to widen relative to the second quarter with a tightening expected in the fourth quarter. We are extremely encouraged by natural gas prices for the balance of the year, where the current Nymex futures are averaging over $4.
Despite wider differentials in the northeast during the second quarter, we are optimistic about a strong improvement and local pricing and second half of the year driven by our expectation for continued strength and regional gas demand flat production profiles across the Appalachian basin and a significantly.
Second reduction and east storage levels, which are currently 17% below 2020 levels and 8% below 5 year average of equal importance. We are very optimistic on the impact of the leidy southeast expansion project that is projected to be placed in service during the fourth.
Quarter of 2021, and will deliver 580 million cubic foot per day of northeast, Pennsylvania production volumes to the net Atlantic market area, while further improving Cabot realized pricing. Additionally, the Penn East and regional East access expansion projects.
Dan.
Fourth quarter are projected to be and service between 2020, 2 and 2024, which will move even more supply out of the basin and into growing demand markets.
Look forward to 2022.
We are extremely encouraged by the improvement and the Cal 'twenty 2.
Nymex futures to approximately $3.50, or 34% increase since the beginning of the year. We are currently unhedged in 2022, providing significant exposure to a strong natural gas price environment that supports and improving cash flow profile.
And this morning's release, we reaffirmed our full year Standalone 2021 plan to deliver and average net production rate of 235 Bcf per day from a capital program of $530 million to $540 million capital guidance.
And range for the year remain unchanged, despite the increase and our expected net well drilled.
And net wells drilled from 80 to 85, resulting from our continued drilling efficiencies and we also provided our third quarter 2021 production guidance range to $2.75 to.
0.325 Bcf per day third quarter guidance range imply sequential production growth of 4% relative to the second quarter at the midpoint, while we anticipate approximately 10% of sequential production growth from the third quarter to the fourth quarter coincide.
2 with higher winter natural gas prices and the in service of our Leidy South expansion project third quarter capital expenditures are expected to decrease slightly relative to the second quarter with a greater sequential decline anticipated in the fourth quarter driven by lower activity levels.
<unk> as we enter the winter season operationally, we continue to execute our program in line with guidance, while financially our outlook for 2021 is much stronger as a result of higher expected realized prices.
Just on the current strip our stand alone free cash flow for the second half.
And the year.
<unk> to be approximately 2 times, our first half free cash flow, excluding the impact of merger related expenses.
And I also want to provide a brief update on our pending merger with Cimarex is weak.
As we are excited as ever about the competitor.
Compelling strategic and financial benefits of our merge and we continue to make progress towards closing the fourth quarter of 2021 as I noted when announced the transaction.
And may we carefully study long term benefits of expanding geographically beyond.
Astellas shale and adding more scale and balance to operations pending merge we will accelerate our strategy and create an industry, leading operator with geographic and commodity diversity scale financial strength to thrive in today's market and over the long term and Cros.
And on the market commodity price cycles with the addition of Cimarex oil assets in the Permian and Anadarko basins to our natural gas assets and the Marcellus shale will be a more resilient company with scale and strong positions and the premier oil and gas basins and the United States together, we will have top quality.
And the lowest cost of supply profile relative to our upstream peers, which will facilitate free cash flow generation shareholder value creation, and and accelerated return of capital to shareholders with our increased footprint, we will have complementary oil exposure with low cost.
Cost high margin asset and we will be positioned to capture opportunities from both near term oil demand and long term natural gas transition fuel demand compared to Cabot Standalone and combined business will be able to return substantially more capital to shareholders, especially in light of the improvement.
<unk> and natural gas prices and to a lesser extent oil prices since the deal was announced in late May and this best in class capital profile.
Return will be driven by a high quality portfolio that delivers significant free cash flow through cycles.
Very low cost of supply through consolidation of Cabot and <unk> top tier teams and assets and a reduced cost of capital due to increased scale, a strong balance sheet and increased liquidity and short combining dissimilar it with cimarex will create a clearly differentiated.
And energy company with a strong financial foundation, and the right asset exposure and capital allocation flexibility to deliver peer leading capital returns, while maintaining a strong balance sheet and.
As a stronger more resilient company, we will be well positioned to generate substantial free cash flow.
And in body cycles to facilitate.
Best in class capital returns and deliver enhanced shareholder value I would like to acknowledge and incredible work and dedication of our employees.
Leave we have the best employees and the world and avid.
Dan inspired by their commitment over the last year.
Through our Cabot employer.
Employees, you have my deepest appreciation.
Looking ahead, we remain on track to close the transaction and the fourth quarter of 2021. Shortly after receiving shareholder approval, we look forward to continuing to engage with our shareholders and the weeks ahead regarding the benefits of the pending merger this transaction builds.
Builds on and accelerates the strategy, we have been executing and I hope you will share our excitement and enthusiasm for the future together with <unk>, we intend to deliver superior long term value creation for our shareholders and other stakeholders and fill us with that I'll be more and happy to answer any questions.
Yes.
At this time I would like to remind everyone in order to ask a question Press Star then the number 1 on your telephone keypad.
And what pause for just a moment to compile the Q&A roster.
Yeah.
Your first question comes from the line of Leo Mariani.
With Keybanc.
Your line is open.
Yes.
Hi, guys.
I was hoping you could talk a little bit to the mechanics of the 10% production increase and the.
Fourth quarter seems like a really big jump here, just trying to get a sense and whether or not maybe there Ben.
And then some some volumes held back here and in <unk> or QQ just on the wider gifts just trying to get a sense make mechanically if youre just opening up the wells a little bit more or maybe a lot of this is timing and turn in lines, but just kind of help us get to that 10% and <unk>.
I appreciate the question.
With the cadence of that.
The North group has setup and Phil stall Accor's here with US this morning, but with the cadence that had been set up.
Our our 2021 program, which was done.
And certainly a while back.
The timing of just when we bring on those locations is what.
Enhances that.
Fourth quarter production growth and keep in mind, it's by design.
On somewhat to be able to.
Take advantage of the anticipated fourth quarter.
The increase and pricing.
It was also designed and anticipation of the leidy, south coming online and commissioning so by design, but keep in mind.
When we have.
So.
<unk> pads that we bring on during the year.
And you've seen it in the past how if you delay.
3 or 4 or 5 days, bringing on a big pad.
It can either enhance your production on at any given quarter on.
Slightly reduced.
Production on any given quarter, but it is a very very narrow period of time that debt disrupted.
1 way or the other but this fourth quarter increase was.
It was somewhat by design on the cadence.
<unk>.
And accelerating our capital this year.
Year upfront.
A reduced up and kind of dissipating a little bit towards the backend into the winter months.
Okay. That's helpful and maybe just to follow up on your expectations. There. So can you just update us on on kind of when do you think that the leidy South expansion comes on is that going to be earlier in the fourth.
Upfront or maybe a little bit better and can you talk a little bit to the benefit that you're expecting in terms of local pricing around that and then lastly, you mentioned you're still on hedged for 422, despite the ability to hedge at I guess, the $3.50, right now so maybe just provide any thoughts around that.
Okay very good I will.
I will just.
Mentioned first day.
Hedge kind of out of the way I'll, let Jeff weigh and also on the Leidy, South but we're not.
Looking at we're looking at the market, we're looking at the macro environment.
We keep a close eye on the store.
Quarter to as we mentioned storage levels up and the Easter drawn down significantly from last year and below the 5 year average that's all constructive too.
And a 2022 pricing and.
So we're keeping a close eye on that.
Do I think.
We will have some hedge volumes and 2020.
<unk> 22 at some point, yes, I do and.
And our hedge committee meets on a fairly regular basis to have that discussion, but we've been bullish for the for the reasons. We're all aware.
Where natural gas prices have.
<unk> been buying where we're also.
We're also aware that the.
On capital constraint that is being demonstrated by industry is constructive to the macro environment and.
And we look forward.
To that.
On a continuing certainly for Cabot.
With that ladies and Leidy, South Jeff I'm going on which you talked about noon and what's your expectations on.
Thank you.
Alrighty per office.
And on the drawing board from number of years and for Cabot.
It's an incremental 2 and a 50000 per day.
And based on area and personal care and the other shipper on the project is 330000, a day from the western side of the northeast.
And for Cabot expansion involves.
A couple on compressor stations and.
Some.
2 from them.
And expansions those projects are per the most complete.
A little bit of testing will be done on them from.
On.
Net regulatory approvals too.
Right.
And do you anticipate on April and service on December <unk>.
However, there could be.
Volumes were available prior to that.
B.
Once we finally on about some funds are in August.
For the rest of the.
Projected to include some pipe replacement.
On schedule, we do have.
And by monthly updates with Williams and transparent and.
Thank.
Staying on schedule.
So incrementally speaking for Cabot and it does move quite a bit of volume.
And based on price being down to the.
And <unk>.
Mid Atlantic area.
For the most part we've already procured markets we have.
From some opportunities and some options yet.
On a wait and see on that.
And we'll pick up.
Alright.
Primarily the difference between mid Atlantic price and the new based on pricing, although our expectations with winners and based on pricing will flow.
Materially improve would be.
And the eastern storage levels and other.
Fundamentals.
Okay. Thanks, Scott.
Yes.
Okay.
Thank you Liam.
Your next question comes from the line of Arun <unk> with J P. Morgan Chase Your line is open.
Good morning, maybe a follow up to <unk> question and kind of on the Leidy South.
Dan could you give us maybe your thoughts on how this would influence your <unk>.
Your views on differentials.
And 2022, and you get that expansion.
And also just wondering if you could maybe remind.
And us have the transport costs on that on that pipe.
And <unk>.
Yes, I'll, just make a color commentary and.
And then let Jeff a follow up.
My My view the differentials is.
There's going to be very constructive.
We realized.
Yes.
The reason for this.
And having higher differentials is.
Just the gas oil and gas competition and exasperated by.
Too much.
And.
Production too little takeaway.
And as half a bcf greater than a half a bcf.
A day.
Into other.
Other markets and out of.
The basin and.
And essentially just.
Right out of our net to the woods is going to be constructive.
And we feel.
Very good about it and.
And I think we'll see improvements and you're already seeing out there some improvements from today.
As you move out so.
And we're constructive and look forward to the other and my my commentary, we look forward to the other.
Pipeline.
And then.
And.
And between the 2022 to 2024 period also to be constructive for the differentials up and the northeast.
Great Great and just as my follow up.
Dan.
Getting a call it a near term kind of a price signal on natural gas the backend of the curve still.
It kind of remains.
Below $3 and obviously, it's maybe a different decision with the with the similar ex merger, but I just wanted to get your thoughts on what type of price signal.
Do you need to think about.
Adding a little bit of growth.
On the market because obviously the.
Prices today are well above your and your hurdle rates and terms of getting an adequate rate of return.
Yes.
Have.
And we have a program that lined out and we've as we've discussed.
And the past as.
Pretty close to maintenance are very low.
Growth.
And right now our plan is to stick with that.
You can you can look at a.
You can look at.
Impact.
And on on differentials.
And you can look at the program.
And it makes sense for us.
To deliver into a.
A market that is as well.
And ill tuned on.
On supply and demand versus 1 that's oversupplied and we think that makes more sense, we think.
Is.
And more value to the.
And the shareholders.
Not moving.
Much gas.
Out of your inventory.
<unk> your asset base.
For for a better price point and then.
And moving more gas out of your inventory for a less price point. So we're pleased with with what were.
How we are programming going forward.
The increased price.
And is not going to be the driver we look at the depths of realizations.
And more importantly.
And we look at the.
Takeaway, that's coming and then measuring its effect on the bps going forward, but I'll, let Jeff make a comment also.
Zone.
Yes, Mark.
To your first question.
Would not argue that.
Fundamentals have driven.
On the.
Differentials to to a point, where and shoulder months and.
Other factors.
And a disappointing this year.
And.
And I spoke earlier about the P.
And placement on the lighting system for their lifestyle expansion revenue.
Huge issue and.
And this year did not affect Cabot operationally, but in the basin.
We saw.
Differentials have dropped from about 80 down from $1.80.
And really for any good reason, but.
And the markets.
Anticipate.
Duration of the.
On the pipe replacement about Transco.
All that said.
Back to your original question the rate and it's 50 per M and Btu for Cabot and on our end.
Not yet on the basin and the mid Atlantic market that compares to a 60 profit oriented and we currently have on the Atlantic Sunrise project, which was the of course the.
The original.
Foundation pipe volume.
Great. Thanks for your color and congrats on your team for not hedging.
And the bottleneck.
Thanks Erin.
Your next question comes from the line of Josh Silverstein.
Wolfe Research your line is open.
Hey, Thanks, good morning, guys and.
Just wanted to talk about the stock price and.
And the forward curve your stocks down.
12% over the past year and while the 2022 curve is now up about 35% over that time period.
And I tried to get aggressive given that dislocation that <unk> had and thats out there right now buyback your stock.
And trying to really take advantage of this environment it seems like.
That's probably the only way to get this to close right.
Right now given some of the uncertainty around the transaction. So just curious around that.
Yes, I'll add.
Scott and respond to that but we still have.
And all the arrows in our quiver.
And we are also and has certainly been disappointed.
Fifth where our stock lending is but.
I'll, let Scott handle that Josh and I think it's a very good point and I think under normal circumstances. When I read my normal circumstances will be Cabot standalone that would be higher on the discussion list, particularly on would've been this week and our board room and our.
Our board meeting, especially with.
Mass modeling looking at the fact that we're looking at double the free cash flow generation and the second part of the year, our standalone commitment to return, 50% and cash still plenty of availability to make that what changes that dynamic is that the announcement of the merger but also.
So all the things that we've laid out in anticipation of the closing of the merger of the special dividend and.
And those aspects, we want to make sure and manage our capital in this transition aerie period, so that when we come out.
Gather by the end of the year.
Early fourth quarter close, but by the time, we report at the end of the year.
Here, we're still as rock solid on the balance sheet. This is Dan <unk> will still be and arrow and the quiver.
<unk> had a couple of shareholders talk to us about this and Investor calls more recently as you'd know when you look back at us.
Has been part of our dynamic and will continue to be part of the dynamic going forward as you know and you.
Announcement I am still on the same share in the combined organization. So I appreciate the question.
Not the right time at this moment, but.
Past all the noise of the merger and I think it's definitely on the table for a big discussion.
Got it.
Thanks, Dan.
And I agree and I think it could be higher without the uncertainty of the transaction there and.
And then just on the the free cash flow and get that you've outlined for between now and 2020 to $24.5.7 billion can you just talk about some of the assumptions behind that how much comes from the <unk> asset base versus your asset base or 1.
What are the assumptions around that are you guys basically and maintenance mode and in northeast P..8 Poseidon.
And you sort of assumptions, there and that would be helpful.
Well, Josh higher fire.
Free cash flow as we mentioned banking second half of the year is going to be.
Say double our first half of the year.
And it's just looking at what our capital program allocation is.
And looking at what we anticipate.
The realizations are going to be and.
And.
Debt.
And I know your models out there are starting to.
To pick up on on that also.
We still have.
Certainly a significant and hedged.
Volume and rolling into 'twenty to looking at.
Sure.
On the.
2020.
And to free cash flow, which from our internal models.
<unk> is significantly better than the than.
And then we had started.
Looking at it earlier in this year so.
But right now our cash flow.
Designed on our expectations and design on the macro and our capital program that we've given guidance for.
Alright, thanks, guys.
Thanks, Josh.
Your next question comes from the line of debt.
On the gain with Bank of America. Your line is open.
Thanks, guys I appreciate youre getting on.
And this fall.
I've got 2 questions. The first 1 is on we could possibly.
On a ways out.
Albeit and Mike.
State the merger, but you'd wait.
<unk> is enough for your inputs and.
Strongly against but if we don't.
Takeaway capacity expansion, we expect over the next couple of years.
Does that move Capex box too.
Expansion and move on the Standalone offsets on this.
If so what would you what would you see is Europe.
Sure.
Doug.
Let me interrupt 1 second if I could.
And.
And I'm talking to fill a salt <unk>.
Is is cutting in and out and I am having a very difficult time.
Receiving your question.
On a picked up the phone is on any better done.
Yes.
Let's try that okay outside with my headset, obviously, putting up today sorry about that.
So my question is on takeaway capacity and what it means for capex longer term.
Total production level, what do you think you can get 2 albeit.
Youre obviously.
And the chair longer term and a lot of eyes on volume, but what do you think the ultimate.
Production capacity could be for Cabot longer term, probably just simple part of the question.
The ultimate production together with.
With a line of sight you have on <unk> capacity to date, what do you think you can get to over the next.
A couple of years.
Well im not going to speculate out that far.
We have a.
Hey.
And enhancing takeaway capacity.
In the basin.
Bye bye, the leidy, south and the <unk>.
And just in that regional access so we're pleased to see additional takeaways there Doug.
We have a.
Long long runway.
Premier locations and in front of us.
We've managed our program right now to.
Glide on.
Our maintenance capital and.
In light of the macro and so right now the.
Shareholders like to see a significant amount of free cash flow and.
And we also like to see a strong balance sheet.
It will to deliver both of those but I would I.
And I would only be speculating as far as maybe the timing of those lines when they would be commissioned and.
And what the macro market is.
Is way out in front of us.
And to answer that I can say this.
And if you just if you just wanted to drill wells and drilling from a long time and.
And and bring in the equipment and frac crews to be able.
To get that done.
To increase production.
It could increase significantly from where it is today.
And I mean significantly but.
And I'm not going to speculate on a on the amount where it might go and the next couple of years.
From a pretty good job.
Job, explaining how you guys kind of led the charge on capital discipline. During your tenure, Dan So I'll congratulate you on that.
My second question, if I may is really on the merger.
And again for Cabot. This is clearly achieved a lot of things the S..4 as.
We'll see what happens, but I'm just curious to.
To the extent you can share from the discussions you've had with your shareholders.
<unk> total concerned about the pushback from Cimarex shareholders.
Our going on on a much gas heater company and as the selling company did not run a process are you concerned.
And that that could get and the way of this closing I'm just curious on your perspectives on that.
Well I on kind of constrained somewhat on the.
The day.
Details.
The merge but I will say this.
And that we're combining these companies for the reasons that are out.
Outlined and my my comments, it's going to be.
Much stronger company more resilient.
And.
Company and positioned to drive significant free cash flow across.
On the cycles.
We're saying cycles.
And right now where natural gas is.
And having it another day and the Sun and and.
And it's enhancing.
<unk>.
The cash flow.
Cabot and.
And I think it's a benefit to both.
Cabot.
And in a combined world it would be a benefit so long term and you look at the natural gas as a dynamic.
Energy product.
The future I don't know how you can.
Not embrace a combination that creates the resiliency and the type of company that we're going to have going forward with our extremely strong balance.
Balance sheet and with a disciplined objective delivering significant free cash.
Cash flow back to shareholders.
And I don't know how any shareholder could not be excited about the future of this combination.
I think the issue and lots of industrial and move them up.
Dan as I'm sure you know, there's always a bump could've been achieved with a lot more synergies I think is the issue.
But I appreciate your comments.
And thanks, so much on the answer.
Thank you.
Your next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open.
Yeah. Good morning team just wanted to follow up on from the slides.
And following.
And then up the acquisition you talked about a variable dividend and then you put out.
Oh reasonable P 50 estimate of what you think the special or dividend could be can you talk about as you look at the forward curve into 2020 to give us an estimate of what you think that variable dividend could look like.
Got it.
Yes, I will I will say this I think.
And that.
Variable dividend is going to look.
Very good and particular compared the way look at.
At the beginning.
This year, however, I'll, let Scott.
Give us some color also.
Thanks, Neil and remember the variable dividend or we call the supplemental and ours was to return at least 50.
Percent of the free cash flow in cash back to shareholders and that is memorialize going forward and the new company. So obviously in the new company going forward with.
And the broader base the broader commodity mix, Scott, obviously, the higher realizations on the oil side, it's going to be fairly robust in terms on.
Yes.
Not only what's part of the variable and the increase in the base dividend.
To the 50% level.
And also.
Pretty announced for the transaction so again.
Got to come together put the models together put combined guidance out and the new year, but I think it's safe to say that remember the key point and that message was a minimum of 50% of free cash flow being returned and cash.
Okay, Great and then the follow up is just on the Henry hub gas market here as you think about overall gas flat price. If we do have a cold winter you can start to really design some some real.
Upside scenarios can you talk about what you ultimately think creates.
Our ceiling.
Ceiling on natural gas and that scenario.
Historically, we've thought about gas to coal substitution as the balancing items, but with as much.
Coal fired capacity having been shut.
Has.
Debt that mechanism might not be as pronounced but you also have the potential for Canadian gas flow for example.
Or shutting down the LNG arbs. So how do you think about what is the mechanism debt on.
The natural gas side that can offset.
And.
And potential demand impact of a very cold winter.
Thanks, Neil and I am sorry.
Net to digest, our gas expert.
Yes.
Intriguing questions because we have we thought about that here too.
And the impact of.
Demand.
Across the country firms.
Exports into Mexico and.
Obviously a very.
<unk>.
Robust LNG export market and is fairly consistent day in day out you've got a few hiccups here and there.
Volume and maintenance and things like that but it's been.
Fund over the last couple of years and watch this demand increase even in the Pacific.
Northwest Human had mentioned.
On the Canadian imports.
Sure.
Interest and we'll watch as we see.
Hydro up there.
And the commission again.
And more exports from Canada headed in that direction moving to the upper Midwest and FX.
It's actually influenced force levels and the upper Midwest and I think they are.
Somewhere well over 100 Bcf loans. This time last year some of the storage levels.
So your question about.
How high can it go.
Good question and our hedge committee meetings of course.
And we think about that or and with that I wish about that and it's.
Fundamentally we're set up for.
Good year every year capital and place and.
Yes.
Winner and certain parts of the country this year and we'll talk.
Thanks.
System and there will.
Increases.
Sure.
And prepared to.
And our commitment from our customers.
Gas storage levels will not be able to see when they were this time last year as well moving back.
So contact and ago as.
And is relative.
And particularly again.
We price the work market, the Boston market and Chicago market and.
And other areas that do like the amount of storage.
That we had last year so it's on.
And now.
From a gambler or speculator.
I don't know if there is.
Our cash.
GAAP.
Necessarily flow.
And.
And the $4.5 $6 between $8 and.
Non New York market and the path.
So I think it's all on the table at this point.
Thanks, Ken.
Thanks, Dan.
And.
Your next question comes from the line of debt, David Hannah Kim with Pickering Energy Partners. Your line is open.
Good morning, all and thanks for taking my question I wanted to make sure that I'm thinking about.
1 of the synergies of the merger correctly, So stand alone Cabot we had your.
Cash taxes, increasing over time, just given where you are and now, particularly with the increase in commodity prices just wanted to get some of your thoughts on.
Tax percentage.
And then once you're merge and you get the benefit of the Cimarex Nols and <unk>.
If you could talk a little bit about how how cash.
So this change and the Cabot Standalone and.
And then the new company.
And just be helpful to kind of quantify that benefit deal.
Well I have.
And I have both Matt and Scott here, and we have all kinds.
And tack on.
Modeling run on.
And all of that getting into the details David.
And we can do once we get.
All of the shareholder approval, but.
And maybe what would your net cash taxes have been just stand alone would.
And would be helpful.
And with us.
Gross margin yes.
Okay. Thanks, Dan David It's Matt.
Yes, we're currently 30% deferred this year, 70% current.
And that's and that continues to be the case, even with its ironic environment that we're looking at today as we roll forward to 2022 and beyond if we were standalone and we would see that number.
Deferred starts ticking down a little bit, especially in the $3.50 environment.
That's point and 45% next year something on and 1 with 350.
For the double going and be very sensitive to movements in pricing and obviously, what we're doing on the capital front and we were able to take advantage of ITT.
Yes that does.
Just moving commodities makes me feel even better for you all as you're as you get that benefit. So I was just trying to quantify it and that's helpful. Thanks Joe.
Thanks, David.
This concludes our question and answer session I would like to turn the conference back over to Dan Dinges for closing remarks.
Thank you Philip and thank you all for.
Tuning in and.
We look forward to the future, our Cabot and shareholders and we are extremely excited about the combination.
With that Cimarex.
The quality of people they have.
On the asset.
Quality they have.
It's a bright bright opportunities for the future for both shareholder groups and.
And we are certainly committed to be able to deliver on.
And all that we have represented to us.
And deliver if not.
Lot more once we obtain the shareholder approval and get closed and the early fourth quarter. So thanks again for your.
Your interest and we look forward to the next meeting we have thank you very much.
Yes.
This concludes today's conference call.
You may now disconnect.
[music].