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Cabot Oil & Gas Second Quarter 2020 Results

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   |    Thursday,July 30,2020

Cabot Oil & Gas Corp. reported financial and operating results for the second quarter of 2020.

CEO Dan O'Dinges said: "Cabot Oil & Gas demonstrated its continued ability to deliver profitability during this global pandemic, which has contributed to a historically-low natural gas price environment, resulting in the lowest quarterly average NYMEX price on record since the third quarter of 1995. We anticipate that the improving demand outlook for natural gas, in conjunction with accelerated structural declines in supply resulting from significant activity cuts across all onshore basins, will provide tailwinds for natural gas prices this winter."

Second Quarter 2020 Financial Results

Second quarter 2020 daily production was 2,229 million cubic feet equivalent (Mmcfe) per day (100 percent natural gas), exceeding the high-end of the Company's guidance range. During the second quarter of 2020, the Company drilled 14.2 net wells, completed 31.2 net wells, and placed 25.0 net wells on production.

Second quarter 2020 natural gas price realizations, including the impact of derivatives, were $1.52 per thousand cubic feet (Mcf), a decrease of 33 percent compared to the prior-year period. Excluding the impact of derivatives, second quarter 2020 natural gas price realizations represented a $0.30 discount to NYMEX settlement prices compared to a $0.44 discount in the prior-year period. Second quarter 2020 operating expenses (including interest expense) were $1.44 per thousand cubic feet equivalent (Mcfe).

Second quarter 2020 net income was $30.4 million, or $0.08 per share, compared to $181.0 million, or $0.43 per share, in the prior-year period. Second quarter 2020 adjusted net income (non-GAAP) was $18.0 million, or $0.05 per share, compared to $150.6 million, or $0.36 per share, in the prior-year period. Second quarter 2020 EBITDAX (non-GAAP) was $136.9 million, compared to $311.1 million in the prior-year period.

Second quarter 2020 net cash provided by operating activities was $136.4 million, compared to $326.7 million in the prior-year period. Second quarter 2020 discretionary cash flow (non-GAAP) was $119.2 million, compared to $301.9 million in the prior-year period. Second quarter 2020 free cash flow (non-GAAP) was ($63.3) million, compared to $72.7 million in the prior-year period. "Lower realized prices during the second quarter, coupled with our decision to sequentially decline production volumes into a lower price environment associated with the spring shoulder season, resulted in our first free cash flow deficit since the second quarter of 2018," commented Dinges. "Based on the current NYMEX futures, we anticipate a significant expansion in our free cash flow during the second half of 2020 driven by an improvement in realized prices, higher production volumes, and lower capital expenditures, allowing Cabot to deliver positive free cash flow for a fifth consecutive year."

Cabot incurred a total of $175.3 million of capital expenditures in the second quarter of 2020 including $171.8 million of drilling and facilities capital, $0.5 million of leasehold acquisition capital, and $3.0 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).

Year-to-Date 2020 Financial Results

Daily equivalent production for the six-month period ended June 30, 2020 was 2,296 Mmcfe per day (100 percent natural gas). During the six-month period ended June 30, 2020, the Company drilled 36.2 net wells, completed 44.2 net wells, and placed 34.0 net wells on production.

Natural gas price realizations, including the impact of derivatives, were $1.62 per Mcf for the six-month period ended June 30, 2020, a decrease of 42 percent compared to the prior-year period. For the six-month period ended June 30, 2020, operating expenses (including interest expense) were $1.45 per Mcfe.

For the six-month period ended June 30, 2020, net income was $84.3 million, or $0.21 per share, compared to $443.8 million, or $1.05 per share, in the prior-year period. Adjusted net income (non-GAAP) was $72.0 million, or $0.18 per share, compared to $458.4 million, or $1.08 per share, in the prior-year period. EBITDAX (non-GAAP) for the six-month period ended June 30, 2020 was $325.8 million, compared to $824.7 million in the prior-year period.

For the six-month period ended June 30, 2020, net cash provided by operating activities was $341.3 million, compared to $911.9 million in the prior-year period. Discretionary cash flow (non-GAAP) for the six-month period ended June 30, 2020 was $317.7 million, compared to $807.7 million in the prior-year period. Free cash flow (non-GAAP) for the six-month period ended June 30, 2020 was ($13.5) million, compared to $381.1 million in the prior-year period. "Our modest free cash flow deficit during the first half of the year was a result of our capital program being heavily weighted towards the first half of the year, while our production volumes are more heavily weighted towards the second half of the year," noted Dinges. "We expect that our planned sequential increase in production during the third and fourth quarters, in addition to a declining capital spending profile, will allow for a return to positive free cash flow generation during the second half of the year."

Cabot incurred a total of $335.6 million of capital expenditures during the six-month period ended June 30, 2020 including $329.9 million of drilling and facilities capital, $1.3 million of leasehold acquisition capital, and $4.4 million of other capital.

Financial Position and Liquidity

As of June 30, 2020, Cabot had total debt of $1.2 billion and cash on hand of $117.2 million. The Company's net debt-to-adjusted capitalization ratio (non-GAAP) and net debt-to-trailing twelve months EBITDAX ratio (non-GAAP) were 33.7 percent and 1.2x, respectively, compared to 32.2 percent and 0.7x as of December 31, 2019. As of June 30, 2020, the Company had no debt outstanding under its credit facility.

Subsequent to the end of the second quarter, the Company repaid $87.0 million of maturities associated with its 6.51% weighted-average senior notes.

Third Quarter and Full-Year 2020 Guidance

Cabot has provided its third quarter 2020 production guidance range of 2,400 to 2,450 Mmcfe per day, resulting in the reaffirmation of the Company's full-year 2020 production guidance range of 2,350 to 2,375 Mmcfe per day based on a capital program of $575 million. "Despite our expectation for the 2020 average NYMEX price to be the lowest on record since 1995, we expect our capital program for the year to be fully funded within cash flow and to generate enough free cash flow to cover the majority of our dividend," said Dinges. "While we do not plan to provide our official 2021 guidance until early next year, based on a 2021 NYMEX price assumption of $2.75 per MMbtu, which is roughly in line with the current NYMEX futures, we can deliver similar production volumes as 2020 from a modestly lower maintenance capital program, while generating a free cash flow yield1 of approximately eight percent and a ROCE between 19 and 20 percent. Our prioritization for the deployment of our free cash flow in 2021 is funding our regular quarterly dividend, repayment of our 2021 debt maturities, and additional opportunistic returns of capital to shareholders."

For further information on Cabot's 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.


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