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Cabot Oil & Gas IDs 2021 Capex; Plans 25% Boost to Drilling Activity vs. 2020

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   |    Wednesday,February 24,2021

Cabot Oil & Gas Corp. reported financial and operating results for the fourth quarter and full-year 2020 and provided its updated capital return framework.

2021 Plan

• Capex: $530-540 million - down 4% vs. full year 2020 levels
  

• Production: 2,250 to 2,300 Mmcfe/d - flat from Q4 2020 exit output

• Wells Spud: 80 net wells - up 25% vs. 2020
  

Q4 / Full Year 2020 Results

CEO Dan O. Dinges said: "Our results in 2020 demonstrated Cabot's ability to continue to generate profitability and positive free cash flow, even in the face of historically low natural gas prices, which is a testament to the tireless work of our dedicated employees who continue to deliver strong results from our safe, responsible, and sustainable operations in northeast Pennsylvania. Strong secular tailwinds from an improving natural gas supply and demand outlook are expected to drive a significant improvement in our financial performance in 2021, as we continue to focus on improving our financial returns, increasing our positive free cash flow generation, and further enhancing our capital return to shareholders."

Fourth Quarter 2020 Financial Results

Fourth quarter 2020 daily production was 2,375 million cubic feet equivalent (Mmcfe) per day (100 percent natural gas), exceeding the high-end of the Company's guidance range. During the fourth quarter of 2020, the Company drilled 15.0 net wells, completed 15.0 net wells, and placed 7.0 net wells on production.

Fourth quarter 2020 net income was $131.2 million, or $0.33 per share, compared to $146.9 million, or $0.36 per share, in the prior-year period. Fourth quarter 2020 adjusted net income (non-GAAP) was $104.7 million, or $0.26 per share, compared to $120.8 million, or $0.30 per share, in the prior-year period. Fourth quarter 2020 EBITDAX (non-GAAP) was $229.8 million, compared to $300.3 million in the prior-year period.

Fourth quarter 2020 net cash provided by operating activities was $307.8 million, compared to $263.0 million in the prior-year period. Fourth quarter 2020 discretionary cash flow (non-GAAP) was $220.3 million, compared to $277.5 million in the prior-year period. Fourth quarter 2020 free cash flow (non-GAAP) was $122.9 million, compared to $109.5 million in the prior-year period.

Fourth quarter 2020 natural gas price realizations, including the impact of derivatives, were $1.90 per thousand cubic feet (Mcf), a decrease of 12 percent compared to the prior-year period. Excluding the impact of derivatives, fourth quarter 2020 natural gas price realizations were $1.89 per Mcf, representing a $0.77 discount to NYMEX settlement prices. "While a warmer start to the winter heating season and higher storage levels resulted in wider than anticipated differentials across the Appalachian Basin during the fourth quarter, we remain optimistic that the improving outlook for lower end-of-season inventories will provide tailwinds for regional natural gas prices during 2021," commented Dinges. Fourth quarter 2020 operating expenses (including interest expense) decreased to $1.39 per thousand cubic feet equivalent (Mcfe), a three percent improvement compared to the prior-year period.

Cabot incurred a total of $105.8 million of capital expenditures in the fourth quarter of 2020 including $97.6 million of drilling and facilities capital, $2.6 million of leasehold acquisition capital, and $5.6 million of other capital.

See the supplemental tables at the end of this press release for a reconciliation of non-GAAP measures including adjusted net income, discretionary cash flow, EBITDAX, free cash flow, net debt to adjusted capitalization ratio, and return on capital employed (ROCE).

Full-Year 2020 Financial Results

Full-year 2020 daily production was 2,344 Mmcfe per day (100 percent natural gas), exceeding the Company's full-year guidance range. The Company drilled 64.3 net wells, completed 77.3 net wells, and placed 69.2 net wells on production for the full-year 2020.

Full-year 2020 net income was $200.5 million, or $0.50 per share, compared to $681.1 million, or $1.64 per share, for the prior-year period. Adjusted net income (non-GAAP) for the full-year 2020 was $214.0 million, or $0.54 per share, compared to $698.8 million, or $1.68 per share, for the prior-year period. Full-year 2020 EBITDAX (non-GAAP) was $719.3 million, compared to $1,408.6 million for the prior-year period.

For the full-year 2020, net cash provided by operating activities was $778.2 million, compared to $1,445.8 million for the prior-year period. Full-year 2020 discretionary cash flow (non-GAAP) was $685.0 million, compared to $1,360.8 million for the prior-year period. Full-year 2020 free cash flow (non-GAAP) was $109.1 million, compared to $563.1 million for the prior-year period. Full-year 2020 ROCE (non-GAAP) was 7.6 percent, compared to 22.2 percent for the prior-year period.

Full-year 2020 natural gas price realizations, including the impact of derivatives, were $1.68 per Mcf, a decrease of 31 percent compared to the prior-year period. Excluding the impact of derivatives, full-year 2020 natural gas price realizations were $1.64 per Mcf, representing a $0.44 discount to NYMEX settlement prices. Full-year 2020 operating expenses (including interest expense) decreased to $1.43 per Mcfe, a one percent improvement compared to the prior-year period.

Cabot incurred a total of $569.8 million of capital expenditures in 2020 including $546.7 million of drilling and facilities capital, $5.8 million of leasehold acquisition capital, and $17.3 million of other capital.

Financial Position and Liquidity

As of December 31, 2020, Cabot had total debt of $1.1 billion and cash on hand of $140.1 million. The Company's net debt-to-adjusted capitalization ratio and net debt-to-trailing twelve months EBITDAX ratio were 31.0 percent and 1.4x, respectively, compared to 32.2 percent and 0.7x as of December 31, 2019. The Company currently has no debt outstanding under its credit facility, resulting in approximately $1.6 billion of liquidity.

Subsequent to the end of the year, the Company repaid $88.0 million of 5.42% senior notes that matured in January 2021.

2020 Emissions Intensity Reduction

"We are proud of our position as a leading supplier of natural gas, focused on supporting the goal of reducing total greenhouse gas (GHG) emissions while achieving energy independence in the United States. As the world moves to a low-carbon electric economy, the importance of natural gas-which is 100 percent of our production-should continue to steadily rise," noted Dinges. "From 2019 to 2020, we realized a 58 percent reduction in our GHG emissions intensity from 3.12 to 1.31 metric tons of CO₂e per thousand barrels of oil equivalent (Mboe) and a 70 percent reduction in our methane emissions intensity from 0.083 to 0.025 percent, highlighting our industry-leading efficiency."

Capital Return Framework

Cabot also announced its updated capital return framework. The Company intends to implement a "base plus supplemental" dividend approach. Under this updated capital return framework, Cabot plans to continue to deliver its regular quarterly base dividend on the Company's common stock and to supplement its regular quarterly base dividends with an annual supplemental dividend to achieve its minimum capital return target of 50 percent of annual free cash flow. Any supplemental dividend is expected to be declared and paid annually, with the first payment expected to occur in the fourth quarter of 2021. Any excess free cash flow above the minimum capital return target of 50 percent of annual free cash flow will be utilized for balance sheet enhancement, additional supplemental dividends, or opportunistic share repurchases, depending on market conditions. In 2021, Cabot plans to retire its $188 million of current debt maturities (including the $88 million tranche that was repaid in January) with a portion of its excess free cash flow.

"Our capital return framework reaffirms our commitment to returning a significant portion of our free cash flow to shareholders, while also preserving our balance sheet strength," said Dinges. "The supplemental component of this dividend approach allows us to focus on sustainable capital return that is appropriately tailored for where we are in the natural gas price cycle. We also expect to continue to grow our base dividend over time, as we have done five times since 2017. Our track record of generating positive free cash flow for the last five years, while far exceeding our annual target of returning at least 50 percent of free cash flow to shareholders, highlights our continued focus on disciplined capital allocation and enhancing returns to shareholders over time."