Cabot Oil & Gas Corporation (NYSE:COG) Q4 2019 Earnings Conference Call - Final Transcript

Feb 21, 2020 • 09:30 am ET

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Cabot Oil & Gas Corporation (NYSE:COG) Q4 2019 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning and welcome to the Cabot Oil & Gas Corporation Fourth Quarter and Year-End 2019 Earnings Call and Webcast. [Operator Instructions]I would now like to turn the conference over to Dan Dinges, Chairman, President and CEO. Please go ahead.

Executive
Dan O. Dinges

Thank you, Gary, and good morning all. Thank you for joining us today for Cabot's fourth quarter full year 2019 earnings call. I do have the management team here with me today.

I would first like to remind everyone that on this call, this morning, we will make forward-looking statements based on our current expectations. Additionally, some of our comments will refer to 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 earning release.

For 2019 Cabot reported its best year in company history while posting record levels of net income, operating cash flow, free cash flow production, proved reserves and operating expense per unit. Some of the key highlights for the year include 41% growth in adjusted earnings per share, 90% growth in free cash flow, a return on capital employed of 22%, a return of $665 million of capital to shareholders through a combination of share repurchases and two increases in our quarterly dividend per share. This represented a return of 118% of our free cash flow, far exceeding our target of returning at least 50% of our annual cash flow, an 18% increase in production and a 11% increase in year-end proved reserves and an 18% reduction in all-in operating expenses per unit to a $1.44 per 1,000 cubic foot equivalent, and a reduction in net debt to 0.7 times EBITDAX. By all standards, a very good year.

Specific to the fourth quarter of '19, despite declining natural gas prices, we still generated $121 million of adjusted net income or $0.30 per share and $110 million of free cash flow while returning over 190% of our free cash flow for the quarter to shareholders. We ended the fourth quarter with $200 million of cash on the balance sheet which coupled with our expectations for a fifth consecutive year of free cash flow and 2020 will allow us to continue to return a meaningful amount of capital to shareholders, while also providing financial strength in a challenging market.

On the operational front in yesterday's release, we provided the results of our Upper Marcellus test from the last two years, which delivered an average EUR per thousand of approximately 2.7 Bcf. We believe these results highlight that our Upper Marcellus as a distinct incremental interval and generate returns that exceed the majority of assets across the basin. We plan to continue to test a limited number of Upper Marcellus wells annually to further optimize lateral placement and completion designs. However, our recent results are relatively in line with the average EUR of 2.9 Bcf per 1,000 foot across all of our Upper Marcellus drilled to date, which is a much larger sample size of over