Good morning, and welcome to the Cabot Oil & Gas Corporation First Quarter 2020 Earnings Conference Call. Please note, this event is being recorded. I'd now like to turn the conference over to Dan Dinges, Chairman, President and Chief Executive Officer. Please go ahead.

Good morning. Thank you for joining us today for Cabot's first quarter 2020 earnings call. Before I get into our performance for the first quarter, I'd like to say that our thoughts are with those who have been affected by COVID-19. I want to thank those individuals on the front lines, especially the healthcare workers who have been working to keep us all safe during this pandemic. Additionally, I want to thank all of our employees for their tireless efforts to keep our operations running efficiently. While we are navigating through truly challenging times, I would never bet against the resiliency of the human spirit and I do expect us to re-emerge from this period even stronger. As a reminder, on this morning's call, we will make forward-looking statements based on our current expectations. Additionally, some of our 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 earnings release. During the first quarter, Cabot generated positive net income of $53.9 million or $0.14 per share and $49.8 million of positive free cash flow, despite a 49% decrease in realized prices relative to the prior year period, highlighting the company's ability to deliver profit and free cash flow even in the most challenging of markets. We returned approximately 80% of our free cash flow to shareholders during the quarter through our dividend, which currently yields approximately 2% on an annualized basis. We remain fully committed to our dividend, and based on current NYMEX futures for 2020, our program for the year is expected to generate enough free cash flow to fully cover our dividend. Our balance sheet remains ironclad with a net debt-to-trailing 12 months EBITDAX ratio of 0.9 times. Our lenders group recently unanimously reaffirmed our $3.2 billion borrowing base under our revolving credit facility. Aggregate bank commitments under our credit facility remain at $1.5 billion, which results in approximately $1.7 billion of liquidity at the end of the first quarter, including over $200 million of cash on the balance sheet. We have an $87 million tranche of debt maturing in July of this year, which we plan to pay off with a portion of our cash position. On the operational front, our production for the first quarter was 2.363 billion cubic feet per day, which was inside our guidance range for the quarter. We placed nine wells on production during the quarter, all of which were turned in line during February. We are currently operating two rigs and utilizing two completion crews. As previously disclosed, we expect a sequential decline in production during the second quarter, driven in large part by a lighter turn-in-line schedule during the first 4.5 months of the year with only 13 wells expected to be placed on production between the beginning of the year and mid-May. This is primarily a result of long cycle times for large pads with long laterals during the first and second quarters. Additionally, our forecast assumes modest price-related curtailments during the natural gas shoulder season. Our second quarter production guidance range also reflects the impact of unplanned downtime related to remedial work on one well on a large pad that resulted in the deferral of over 230 completed stages from the first quarter to the second quarter, which led to lower capital spending levels in the first quarter. We have updated our full-year production guidance to a range of 2.350 billion cubic feet to 2.375 billion cubic feet per day to reflect the previously mentioned operational changes. The midpoint of this range implies flat production levels year-over-year. Additionally, we have reaffirmed our capital program of $575 million. We do expect a significant sequential increase in production during the third quarter based on expectations of placing approximately two-thirds of our wells on production between mid-May and late August while our fourth quarter production is expected to be flat with the fourth quarter levels from last year. We use the recent rally in 2020 NYMEX futures to layer in additional hedges for the summer months to protect against the potential for more prolonged demand disruption this summer related to the global pandemic. However, the outlook for natural gas prices later this year and into 2021 has drastically improved since our year-end call in February, with a 2021 NYMEX future increasing by almost $0.50 to approximately $2.75 per Mmbtu. This has been driven by the expectation for significant gas supply declines in 2020 and 2021 from the substantial reduction in activity levels we have seen in legacy gas producing basins like the Marcellus, the Haynesville, and Utica, in addition to sizable cuts in activity we are seeing in oil basins like the Permian, Eagle Ford and Mid-Continent, which were expected to result in significant declines in associated gas production. It is premature to disclose any formal guidance for 2021 at this point. However, I would highlight that a maintenance capital program next year would deliver a free cash flow yield over 6% and a return on capital employed of approximately 20% at the current strip, all while maintaining a net leverage ratio below one time EBITDA. As of today, we remain unhedged for 2021 as we continue to assess the natural gas market outlook for next year. While the recent increase in the forward curve for 2021 is extremely positive for us, we believe the market is currently underestimating a potential undersupply of natural gas entering into 2021, providing us optimism that the forward curve for 2021 will need to move higher to incentivize increased activity levels to address the undersupplied market. For reference, every $0.10 improvement in the annual NYMEX price in 2021 results in approximately $55 million of incremental free cash flow under a maintenance capital scenario, highlighting the opportunity for significant free cash flow expansion and increased levels of capital returned to shareholders next year. While 2020 will likely prove to be a tough year for our free cash flow and a return on capital employed due to the lower price environment we are managing through due to the oversupplied market exiting last winter, our outlook for this year and next year is markedly improved. We plan to remain disciplined with our capital spending with an acute focus on delivering on the strategic objectives we have laid out previously, including focusing on financial returns, demonstrating continued cost control, maintaining our financial strength, generating positive free cash flow, returning capital to shareholders, and increasing our proved reserve base. I would like to stress that our thoughts are with anyone who has been impacted during this difficult time, including our employees and shareholders. Cabot remains extremely healthy financially and given the current outlook for natural gas markets in 2021, we believe we will emerge from this period stronger than before. With that, I'm happy to open it up for any questions.

Our first question will come from Leo Mariani with KeyBanc. Please go ahead.

You're on mute Leo.

Leo, please go ahead with your question. Your line may be muted. Okay. We will just go to the next question. Our question will come from Kashy Harrison with Simmons Energy. Please go ahead.

Dan, in the event, and I know you're considering what you can face physically over 2021, but let's just say over a medium term, pick a number of years, the mid-cycle price for gas moves meaningfully higher from here. I'm just wondering how we should think about your medium-term growth rate in a more - in a higher price environment and how we should think about the level of capital required to deliver that growth?

Well, it's a good question. And there is a lot thinking about growth with the anticipation of 2021 prices maybe getting a little bit of a tailwind. We're looking at all scenarios; our focus is on our current program and 2020 being as efficient as we can possibly be. Just commenting on growth in general, if you look at our industry and you take a step back, we are dealing with the carnage out there right now. You have a number of stressed balance sheets, oversupply in the market, and low commodity prices in both oil and gas. It seems that every time there’s a little bit of growth or increase in price, everyone jumps in and tries to take advantage of that increase. The issue for us is we would make a decision for growth only if we feel comfortable that there are fundamental changes that are sustainable in the long term, versus having a few months of an increase and trying to spend capital for that. You participate for a little bit better pricing for a short period of time, and pricing rolls off, so you still haven't recaptured all your excess capital. That has been played back over and over again and that’s why there's such stress and distress in our market. If you look at the strip right now, it is still somewhat backwardated, which is a concern. If we had a contango market, we would feel comfortable about participating in the growth side of that story. Our program has built in flexibility to dispense more capital if we choose and to complete a few more stages to build up into 2021 if we elect to do so. We're comfortable where we are. Our maintenance capital will remain consistent. Our focus will continue to be on generating free cash flow and the financial metrics that have guided us for years. This is our fifth year of generating free cash flow in a historically depressed market, and we don't plan to change that approach. We'd love to have a higher sustainable commodity strip and to grow into it, but we're cautious with our balance sheet and capital exposure.

That's great color, Dan. Certainly, hope this rally has some legs as this goes around. But I guess, then maybe it's still sticking a little bit with that general same topic. I guess, I was wondering if your thoughts on capital returns to shareholders may have evolved over time. Specifically, I know you in the presentation you still highlight wanting to return at least 50%. But do you have a bias for buybacks moving forward? Or do you have a buyback or maybe more of a special dividend strategy moving forward?

Yeah. And you got the tag line there on returning at least 50% to shareholders. Even right now, we've returned about 80% or so. In the past, we've returned more; we've bought back about 14% of our shares and increased our dividend about five times since 2017. We feel good about what we can deliver with our program. We referenced a maintenance program for 2021 to illustrate that we're focused on financial metrics; our plan is to return at least 50%. Historically, we've delivered more back to shareholders. Maintaining our operations is a priority, and maintaining the dividend is another important consideration. We are also considering growing the dividend where possible. After maintaining the dividend, growing it is a strong consideration. If we saw a sustainable commodity environment and felt comfortable layering in a bit more capital for growth, we would do that. We've always been interested in opportunistic buybacks if there's a disconnect in the market.

Our next question comes from Josh Silverstein with Wolfe. Please go ahead.

We, like you, are bullish on the natural gas price for next year. But I'm wondering about why, philosophically, you aren’t layering in some hedges for next year just to protect some of the downside, where it's $2.5 in the curve. You guys can get plenty of free cash flow at that level. So why not just start layering in at least just an incremental amount?

Well, yeah, great question, Josh. This has been a discussion point for our hedge committee. We have met recently and are focusing on protecting the summer months, which we've done with some hedges. We also had significant discussion about 2021 during our Board meeting yesterday where we talked about the hedge program, what we would like to protect, and where we think the market is today. At this stage, we're actually quite pleased that we're unhedged in 2021. I think we're going to be able to couch the hedges we place in 2021 as offensive hedges. We'll continue to take market considerations into account as we layer in hedges. So I understand your position; there have been a lot of discussions about how to address these market variables.

Got you. Okay. And maybe just a follow-up to that. How should we think about the differential that would occur in the higher Henry Hub price for you guys? This year, your guidance is around $0.30 to $0.35. Do you think that that would hold true as we go up to $2.75 and $3 next year? Obviously, the capacity in the Northeast region has probably loosened up a little bit. So, any sense as to how differentials can move relative to this year?

Yes, always focused on realizations. I'll turn this to Jeff and let him make a quick comment. Right now, we feel good about where our dips are in our forecast, which you outlined at around $0.35 plus or minus, and we feel confident about where the dips might go even with the higher prices. But, Jeff, I would like you to comment on this.

Yes. Josh, this is Jeff Hutton. We're looking at that, of course, daily on the outlook for the basis differentials. Quite frankly, we've been very pleased with the differentials, which have fallen in line with our expectations and the current basis differentials. If anything, if we see a move upward into the $3 area, which we are hopeful for, you might see a few cents widening on the differential for the total company. But the outlook so far at the $2.75 strip is not too far off from the current differentials.

Our next question will come from Brian Singer with Goldman Sachs. Please go ahead.

You've highlighted your low-cost structure, strong balance sheet, and healthy cash flow at maintenance levels. I wanted to see if you could touch a little bit on your latest thoughts on consolidation. There's a lot of stressed companies out there that could open up assets, like can come for sale over the next year if they aren't already. Can you give us your latest thoughts on the risk-reward of gaining scale in Appalachia versus diversifying versus none of the above?

Yes, the M&A conversation is ongoing. As I've said in the past, Brian, we have that conversation in our executive sessions and at every Board meeting. The market still needs to consolidate; it's been our position for a long time that consolidation would be healthy. The difficult part is that the debt levels and the significant debt load associated with our Appalachian peers is considerable. Many companies have a large percentage of debt compared to equity. This complicates any potential combinations. We have what we think are extremely good assets, and we remain cognizant of any dilution that might occur with a combination. It's always hard to get everything lined up, but quality assets that make sense would be something we would always look at.

Great. Thank you. I totally understand. My follow-up is with regards to the Upper Marcellus. You provided an update on that in your last call, and I know it hasn't been all that long since then. But wonder if there is any update just on well performance in Upper versus Lower Marcellus?

We have only five Upper Marcellus wells scheduled in our program this year. I'll let Phil Stalnaker make a quick comment here on the performance of the Upper. Our plan is to remain as is with our current operational program while evaluating additional Upper Marcellus wells when it fits operationally. One key piece of information is that we're looking to develop the Upper Marcellus with longer laterals, extending beyond our current average of approximately 8,000 feet. I'll turn it over to Phil for his insights.

Yes, Dan. This is Phil Stalnaker. We're pleased that really, there is no change from what we laid out at the end of last year. The wells have been performing as planned and predicted so far. We're closely assessing the performance of the Upper Marcellus and looking at the optimal lateral length with plans for longer laterals to ensure economic efficiency moving forward.

Our next question will come from Jeffrey Campbell with Tuohy Brothers. Please go ahead.

Good morning and congratulations on the performance in a tough quarter.

Thank you, Jeffrey.

You bet. In former tough markets, Cabot has increased its ability to sell its natural gas closer to home. Do your selling dynamics look any different? Is it moving to the better price environment in 2021?

Yes, it's a good question, Jeffrey. I know Jeff Hutton is waiting to answer that. Jeff?

Good morning, Jeffrey. As you mentioned, we have been successful in moving some of our in-basin supply into better markets, particularly through infrastructure improvements like Atlantic Sunrise, allowing access to better pricing in the D.C. area and New Jersey. With the increasing in-basin demand over the last couple of years due to new power plants and other customers, we have been able to exceed historical in-basin supplier prices. Moving into 2021, with improving prices and tighter differentials, our in-basin supply should perform well.

Okay. Got it. That's very helpful. Thank you. My other question is a lot of the optimism for 2021 seems to be based on lower supply from gas and oil activity. What do you think about demand for 2021, particularly in a recovery period from COVID-19? Thanks.

Yes. Thanks for the question, Jeffrey. We believe that the reduction in supply, including shut-ins, frac holidays, and capital allocation decreases, are constructive for price support. Conventional wisdom suggests supply will decrease by around 8 to 10 Bcf per day this year. Prior to the pandemic, healthy demand was noted, and we'll continue to monitor that. Demand numbers vary, and I’ll let Jeff add more to that.

Jeffrey, as you noted, the current situation is troubled due to the virus and local demand destruction. However, we have positive indicators like record exports to Mexico and robust LNG export averages despite a few delays. As we move into the shoulder months, we expect industrial demand to pick up during Q2. The potential for 8 to 10 Bcf a day reduction in supply year-over-year paints a favorable picture for 2021.

This concludes our question-and-answer session. I would like to turn the conference back over to Dan Dinges for any closing remarks.

I appreciate everybody calling in today. I know everyone is trying to get through this slow period. It has been wonderful to watch our team execute almost flawlessly through this difficulty. The efficiency of Cabot will continue, and we're looking forward to the upcoming period. I look forward to the call next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.