Quarterly / Earnings Reports | Third Quarter (3Q) Update

Cabot Oil & Gas Reports Q3 2019 Results

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   |    Friday,October 25,2019

Cabot Oil & Gas Corp. reported financial and operating results for the third quarter of 2019.

Dan O. Dinges, Chairman, President and Chief Executive Officer, said: "In the third quarter of 2019, Cabot increased free cash flow by over 150 percent compared to the prior-year period, driven by higher production volumes, lower per unit operating expenses, improved basis differentials, and reduced capital spending, despite a 23 percent reduction in NYMEX benchmark prices. Our results highlight the resiliency of Cabot's business model and our ability to deliver strong financial results even in the lows of the natural gas price cycle, while continuing to return capital to our shareholders."

Third Quarter 2019 Highlights

• Net income of $90.4 million (or $0.22 per share); adjusted net income (non-GAAP) of $119.7 million (or $0.29 per share)
• Net cash provided by operating activities of $270.9 million; discretionary cash flow (non-GAAP) of $275.5 million
• Free cash flow (non-GAAP) of $72.4 million
• Return on capital employed (ROCE) (non-GAAP) for the trailing twelve months of 25.2 percent
• Returned $227.8 million of capital to shareholders through dividends and share repurchases
• Daily production of 2,399 million cubic feet equivalent (Mmcfe) per day, an increase of 18 percent relative to the prior-year period
• Improved operating expenses per unit to $1.43 per thousand cubic feet equivalent (Mcfe), a 15 percent reduction relative to the prior-year period
• Previously announced an agreement to sell Cabot's 20 percent ownership interest in Meade Pipeline Co LLC for $256.0 million, or over 13 times expected 2019 EBITDAX (non-GAAP), which is expected to close during the fourth quarter of 2019
• Announced an 11 percent increase in the Company's quarterly cash dividend to $0.10 per share

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 ROCE.

2019 Guidance Update

Cabot has provided its fourth quarter 2019 production guidance range of 2,375 to 2,425 Mmcfe per day. The Company has also updated its full-year 2019 production growth guidance to 17 percent, which is the midpoint of the prior guidance range of 16 to 18 percent. This represents 25 percent growth in production per debt-adjusted share for the year. Cabot has also reaffirmed its 2019 capital budget range of $800 million to $820 million.

Additionally, the Company has updated its full-year 2019 NYMEX price assumption to $2.60 per Mmbtu, which reflects the ten months of actual NYMEX settlements to date and the current forward prices for the remaining two months of the year. The Company has also reaffirmed its estimated key financial metrics for the year based on this NYMEX price assumption in the table below.

For further disclosure on Cabot's expected fourth quarter 2019 natural gas pricing exposure by index and cost guidance, please see the current Guidance slide in the Investor Relations section of the Company's website.

Preliminary Full-Year 2020 Guidance

In the Company's second quarter 2019 earnings release, Cabot provided a preliminary 2020 plan ("growth scenario") that is expected to generate full-year production growth of five percent (seven to eight percent growth in full-year production per debt-adjusted share) based on a preliminary capital budget range of $700 million to $725 million, including non-drilling and completion capital. This plan was predicated on a 2020 NYMEX price assumption of $2.50 per Mmbtu. Subsequent to the second quarter earnings release, the 2020 NYMEX forward curve continued to decline to levels below the Company's original budget price assumption. As a result, in addition to its initial preliminary 2020 guidance, Cabot is also evaluating a maintenance capital plan ("maintenance scenario") that holds fourth quarter 2020 production levels flat to the midpoint of the fourth quarter 2019 production guidance range (two to three percent growth in full-year production per debt-adjusted share) based on a $575 million capital program, including non-drilling and completion capital. The growth scenario delivers a fourth quarter 2020 exit growth rate of five percent and is designed to position Cabot for continued growth in 2021, while the maintenance scenario is designed to position the Company for a continued flat production profile in 2021. Both scenarios assume a moderate amount of curtailments during the shoulder seasons based on an expectation of normal pipeline maintenance, higher line pressures, and weaker spot market prices. Cabot will continue to evaluate both scenarios and assess the impact of the winter withdrawal season on the Company's 2020 natural gas price outlook before issuing formal 2020 guidance in the year-end earnings release in February. "We continue to maintain a cautiously optimistic outlook for the natural gas markets in 2020, driven in large part by our expectation for a pronounced decrease in operating activity across North American natural gas basins due to continued price weakness," said Dinges. "However, we are prepared to modify our 2020 plan early next year in response to lower anticipated natural gas prices, if necessary, with a continued focus on delivering a combination of strong free cash flow generation, high return on capital employed, consistent return of capital to shareholders including our recent dividend increase, low financial leverage, and growth in production and reserves per share-all of which are provided by both of the 2020 scenarios we are currently evaluating."

Third Quarter 2019 Financial Results

Third quarter 2019 daily production was 2,399 Mmcfe per day (100 percent natural gas), exceeding the midpoint of the Company's guidance range and representing an 18 percent increase relative to the third quarter of 2018.

Third quarter 2019 net income was $90.4 million, or $0.22 per share, compared to $122.3 million, or $0.28 per share, in the prior-year period. Third quarter 2019 adjusted net income (non-GAAP) was $119.7 million, or $0.29 per share, compared to $108.9 million, or $0.25 per share, in the prior-year period. Third quarter 2019 EBITDAX (non-GAAP) was $283.6 million, compared to $291.6 million in the prior-year period.

Third quarter 2019 net cash provided by operating activities was $270.9 million, compared to $242.2 million in the prior-year period. Third quarter 2019 discretionary cash flow (non-GAAP) was $275.5 million, compared to $298.8 million in the prior-year period. Third quarter 2019 free cash flow (non-GAAP) was $72.4 million, compared to $28.6 million in the prior-year period.

Third quarter 2019 natural gas price realizations, including the impact of derivatives, were $2.11 per thousand cubic feet (Mcf), a decrease of 11 percent compared to the prior-year period. Excluding the impact of derivatives, third quarter 2019 natural gas price realizations were $1.89 per Mcf, representing a $0.34 discount to NYMEX settlement prices compared to a $0.54 discount in the prior-year period.

Third quarter 2019 operating expenses (including interest expense) decreased to $1.43 per Mcfe, a 15 percent improvement compared to the prior-year period. All operating expenses per unit decreased relative to the prior-year period except for direct operations and taxes other than income, which were both flat to the third quarter of 2018.

Cabot incurred a total of $197.5 million of capital expenditures in the third quarter of 2019 including $190.5 million of drilling and facilities capital, $2.0 million of leasehold acquisition capital, and $5.0 million of other capital. Additionally, the Company contributed $3.8 million to its equity method pipeline investments. See the supplemental table at the end of this press release reconciling the capital expenditures during the third quarter of 2019.

Year-To-Date 2019 Financial Results

Daily production for the nine-month period ended September 30, 2019 was 2,342 Mmcfe per day (100 percent natural gas), representing a 21 percent increase relative to the prior-year period.

For the nine-month period ended September 30, 2019, net income was $534.1 million, or $1.27 per share, compared to $282.0 million, or $0.63 per share, for the prior-year period. Adjusted net income (non-GAAP) for the nine-month period ended September 30, 2019 was $578.0 million, or $1.38 per share, compared to $295.3 million, or $0.66 per share, for the prior-year period. EBITDAX (non-GAAP) for the nine-month period ended September 30, 2019 was $1,108.3 million, compared to $802.3 million for the prior-year period.

For the nine-month period ended September 30, 2019, net cash provided by operating activities was $1,182.8 million, compared to $788.9 million for the prior-year period. Discretionary cash flow (non-GAAP) for the nine-month period ended September 30, 2019 was $1,083.2 million, compared to $775.6 million for the prior-year period. Free cash flow (non-GAAP) was $453.5 million for the nine-month period ended September 30, 2019, compared to $55.2 million for the prior-year period. ROCE (non-GAAP) improved to 25.2 percent for the trailing twelve months ended September 30, 2019, compared to 10.8 percent for the trailing twelve months ended September 30, 2018.

Natural gas price realizations, including the impact of derivatives, were $2.56 per Mcf for the nine-month period ended September 30, 2019, an increase of 10 percent compared to the prior-year period.

For the nine-month period ended September 30, 2019, operating expenses (including interest expense) decreased to $1.44 per Mcfe, a 16 percent improvement compared to the prior-year period. The decrease in operating expenses per unit was primarily driven by a reduction in exploration and depreciation, depletion, and amortization, in addition to improvements in direct operations, transportation and gathering, taxes other than income, general and administrative, and interest expense.

Cabot incurred a total of $622.1 million of capital expenditures during the nine-month period ended September 30, 2019 including $605.9 million of drilling and facilities capital, $5.3 million of leasehold acquisition capital, and $10.9 million of other capital. Additionally, the Company contributed $9.0 million to its equity method pipeline investments during the nine-month period ended September 30, 2019. See the supplemental table at the end of this press release reconciling the capital expenditures during the nine-month period ended September 30, 2019.

Dividend Increase

Cabot's Board of Directors has approved an 11 percent increase in its quarterly cash dividend to $0.10 per share on the Company's common stock, resulting in the fifth dividend increase since May 2017. The dividend will be paid on November 15, 2019 to all shareholders of record as of the close of business on November 6, 2019. "We remain committed to increasing our return of capital to shareholders through the combination of a growing dividend and opportunistic share repurchases," highlighted Dinges. "Our outlook for the continued generation of significant free cash flow over the coming years, even at natural gas prices that are materially below the current forward curve, will allow Cabot to remain a sector leader in returning capital to shareholders."

Share Repurchase Program Update

As previously announced in its September 30, 2019 press release, Cabot repurchased 10.5 million shares at a weighted-average share price of $18.21 during the third quarter of 2019. Since reactivating the share repurchase program in the second quarter of 2017, Cabot has reduced its shares outstanding by over 12 percent to 407.9 million shares. The Company currently has 21.0 million remaining shares authorized under its share repurchase program (or approximately five percent of its current shares outstanding).

Financial Position and Liquidity

As of September 30, 2019, Cabot had total debt of $1.2 billion and cash on hand of $82.3 million. The Company's net debt-to-adjusted capitalization ratio and net debt-to-trailing twelve months EBITDAX ratio were 33.9 percent and 0.7x, respectively, compared to 37.0 percent and 1.0x as of December 31, 2018. The Company currently has no debt outstanding under its credit facility, resulting in approximately $1.6 billion of liquidity.