Good day. And welcome to the Cabot Oil & Gas Corporation Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dan Dinges, Chairman, President and CEO. Please go ahead.

Thank you, Shaun, and good morning to all. Thank you for joining us for today's Cabot third quarter 2018 earnings call. We do have a number of executive management team with me at the table. I would first like to emphasize that on this morning's call, we will make forward-looking statements based on current expectations. Also, some of our comments may reference non-GAAP financial measures. Forward-looking statements and other disclaimers, as well as reconciliations to the most directly comparable GAAP financial measures are provided in this morning's earnings release. For the third quarter of 2018, Cabot generated net income of $122.3 million or $0.28 per share, compared to $0.04 per share for the prior year comparable quarter. Adjusted net income for the third quarter of 2018 was $108.9 million or $0.25 per share compared to $0.07 per share for the prior-year comparable quarter. For the third quarter of 2018, Cabot's cash from operating activities was $242.2 million compared with $189.1 million in the prior-year comparable quarter. Discretionary cash flow for the third quarter 2018 was $298.8 million compared to $207.2 million in the prior-year comparable quarter. Cabot returned to free cash flow generation during the third quarter of 2018 delivering $28.6 million of free cash flow compared $4 million in the prior-year comparable quarter. We've now generated positive free cash flow for nine of the last 10 quarters and expect this trend to be the new normal given the inflection point we find ourselves at today. As previously reported earlier this month, daily equivalent production for the quarter was 2.029 Bcfe per day which represents a 10% increase relative to the prior-year comparable quarter, and a 7% sequential increase relative to the second quarter of 2018. On a divesture adjusted basis, third quarter 2018 daily equipment production increased 19% relative…

[Operator Instructions] Our first question comes from Leo Mariani with NatAlliance Securities. Go ahead Leo.

Just wanted to follow up a little bit on your comments regarding guidance for 2019. Just trying to get sense obviously you’re targeting slightly lower CapEx, slightly lower production growth you explained some of the rationale. But just big picture is there kind of concerted effort by Cabot here to spent a little bit less money and just kind of generate more free cash flow with the thought of returning much higher percentage of that to shareholders. So a lot of this just kind of part of a master plan and a shift to return more of that capital just wanted to get some of the thinking behind that.

Well it’s exactly that Leo we have - the last couple of years been directing our attention to a value model versus a growth model. Our efforts to become the lowest cost producer out there I think is certainly realized and our efforts to return capital to shareholders and also a return on capital has been highlighted in our prior comment. So our plan is a laser focused on having a value model coupled with modest growth. And I think in this environment particularly in an environment that has a healthy supply component to it, I think it's the prudent way to go and we're one of a few companies out there that can manage with superior assets, manage a return of cash to shareholders, return on capital that competes favorably with not only our space but also the broader S&P 500. And it’s our objective to continue along these lines we put benchmarks in our release of returning a 50% of our free cash flow to shareholders. And we're doing everything we can to balance both the capital spend and be able to react if you will to what the macro market does in the space. We see absolutely zero reason to grow into an environment if in fact the commodity price does not provide superior returns.

So I guess just to that end assuming that gas prices stay strong as you work into 2019 and your free cash flow goals are materialized. And I guess should we continue to expect to see potential bump up in the share repurchase program in consideration for even higher dividends as we work our way in next year?

No, we're putting in there if in fact you do have the commodity price improvements we think this winter is going to be an interesting period with the supply and storage being where it is. If we do have a winter event I think it's going to and certainly we've been shutdown in a couple of areas to be able to get needed pipelines to the Northeast area. We haven't been able to get a pipeline across New York, but we think that some of those customers are going to suffer a higher energy cost up there if we do experience a cold winter in light of our ability or lack of ability to be able to get the natural gas into areas that they certainly the market is needed and has asked for. And with that improvement in pricing, we do plan on delivering as we laid out a return of our cash flow to shareholders.

And I guess just lastly can you folks just talk about progress on sort of the new generation frac design on some tests in the Upper Marcellus?

While we have said in the past that our design we’re landing on for the most part is our gen-5 design which we talked about in the past. We've also indicated that we are - as part of our 2018 program we have a number of Upper Marcellus test that we are also completing. We've indicated that the early look at the Upper Marcellus meets with our or exceeds our expectation of what we put out as far our production curve. And we don't see anything that is going to deter from our position that the Upper Marcellus is a distinct and accretive zone different than the Lower Marcellus. So we're comfortable with that position everything we've seen and what we’ve done with our completions out there supports that position. And once we have more production to be able to represent the production curve and the curve fit we will be adding more clarity and support and be more open with what we see early time.

Our next question comes from Charles Meade with Johnson Rice. Please go ahead Charles.

This is another question. I think maybe it's an attempt to kind of simplify some of the detailed thoughts you gave us. Can you give us an idea of what data points will be on, kind of, your internal dashboard or the kind of the dashboard of management there as you guys decide to dial up or dial down on CapEx? I imagine, NYMEX is part of it but also your local basis where you'd be delivering incremental volumes and also, share price? But are there other items there? Or is that the right way to think about it?

It’s all the above Charles, if you have a say, we have a disastrous winter season and you get softness in the price. You have overpressure pipelines up there where they have restrictions on pressures and it hits the price point for our natural gas pricing well. It’s not going to make sense to just continue to ramp up as our asset would allow a bunch of gas into that environment. On the other side if in fact as forecast there is going to be the possibility of a colder winter and there would be a strong support through the winter on the commodity price which would challenge the market to supply the demand that might be anticipated. We will we will be part of that demand equation, spend the money. Phil Stalnaker is here, who runs our North region. His group will move forward expeditiously to continue to execute their program in a very efficient manner and we will be able to ramp up our deliveries in what we think would be a timely fashion. Now it's not instantaneous when we start ramp up spending capital but it does support the back end of 2019 rolling into the 1920 winter season where if in fact the storage is similar to what we see and we want to enhance our possession rolling into that winter season all macro points considered NYMEX and some of the points you brought up Charles we will be fully capable of upping our 2019 exit and our expected 2020 production levels.

And then following up a little bit on that point. You gave some interesting color in your prepared remarks about the local basis up there before and after Atlantic Sunrise came on. And then, obviously, those - that was - those numbers that you gave, I believe, you said above 40 before and 290 after, that seems pretty dramatic to me and better than I would have guessed. But could you talk about how that - how it did versus your expectations, what you guys were going to see before and after, and if anything has surprised you?

Well, we certainly have - always had the expectation that Atlantic sunrise was not only going to take out of basin and that's the supply basin. Our 850 million that we had committed to that pipeline but it was also going to be an incremental 850 million to get to the Atlantic Sunrise full capacity of 1.7 Bcf a day that is being taken out of basin. I think a direct result of the enhanced position of the basis and in the improvement in the basis is a direct result of 1.7 Bcf a day being evacuated from the supply base. So to tell you how quick it happened for us, Jeff has mentioned being a little granular that at 10 AM the Atlantic Sunrise project was commissioned on October 6, and a little more than two hours later we had already transferred out of the supply basin 850 million cubic foot a day to the market basin where we were getting and receiving different price points. So that's how quick we moved it out of basin and others I don't know they're coming that others for the other 850 million, I'm sure it was done in a timely basis because we were going to be reaching the bread a better price point but along with his evacuation certainly the dynamics of the storage and the early predictions of winter has had an effect on the local basis. But it is reflected in our guidance of having 2019 expectation of our realizations being $0.30 less NYMEX is a significant improvement where we have been in the last four years.

Our next question comes from Brian Singer with Goldman Sachs. Please go ahead, Brian.

There is a glass half - empty glass half full way of looking at greater than 50% commitments to returning free cash flow or the commitment to returning greater than 50% of free cash for the shareholders. Certainly I think people can look and say, wow look here as a company that is committing to share repurchase and dividends and then the other side would be what's going to happen to the other 50% or slightly or less than 50%. Can you add some color on how you're thinking about the remainder of that free cash flow the extent that that would be - that paydown acquisition expiration and then maybe give us an update on the expiration side well as part of that.

Yes, you can look at the past Brian and you followed us for a long time. We have always managed in - what I would couch as a conservative method and a conservative management of our balance sheet. We did not have any problems keeping close to $1 billion of cash on our balance sheet when we sold our Eagle Ford and closed on that. We had cash on our balance sheet right now with $1.8 billion undrawn on our facility and that position just that we sleep well, at night I think our shareholders sleep well with that at night and if in fact we found an opportunity to utilize that additional 50% of our free cash flow in a prudent way the way we manage the rest of our business. We would think about that and we would have a ability to execute on an opportunity if in fact we see it. The issue is with our tremendous capital efficiency how we allocate our capital. What we expect when we allocate our capital sets a high bar and that high-class problem makes it rather difficult to find a competitive area to allocate that incremental 50% but at this time we're comfortable having it on our balance sheet. Scott's referencing, I didn't answer the expiration side. We’ve been delayed up there because of the construction build out, some weather slow down permitting issues to try to get to the data gathering point we need to drill and complete tasks that slowdown has pushed into where we think the completion of what data gathering that we had set out when we first started this effort that we need to evaluate the project. We think we’ll have gathered in the middle to the latter part of the first quarter and then have an evaluation certainly subsequent to gathering that data. We will make the appropriate call just as we have in the past on whether or not we want to allocate capital further or we do - will begin with our refill project and with that, we don't see it can compete for capital we’ll call it a day on that project and move on. Between now and gathering that data or in 2019 we expect that they - and we budgeted about $10 million for 2019 to accomplish that.

And then my follow-up is with regards to any type of constraints that maybe impacting production currently. Can you talk about whether there's any flexibility without meaningful incremental spending, should the pressure situation be right in that and in the Marcellus to bring more production online? So what degree is there - what level is there production heightened. What is the environment in which you would bring that on?

Our guidance is a - what I would couch is a conservative guidance from the standpoint that we are ramping up into our gathering system. Our guys in the field along with the Williams personnel continues to look at the most efficient way to ramp up production into the system. We look for all different kinds of ways to make our gathering system efficient. We scheduled where we complete well, when we bring on wells in a way that balances the current production within a particular pod area of the gathering system to compare to another area in the gathering system in the field area that would allow us to bring on completed well into an area that the production is kind of trended down where we would not have as much inner pod pressure issues associated with our new production and its effect on old wells. So we balanced that way out in advanced as we schedule drilling and completions and the number of wells we drill off a pad. As we go through this completion operation and you look at having to offset, shut in offset wells so we would mitigate any of the frac hits or pressure sensitivities that's been done throughout our industry. Everywhere that you have laterals that are in close proximity to new laterals are in close proximity to old production that’s happening across the entire industry space. And everybody is dealing with how you manage bringing on completions and bringing on new wells and its effect on offset production. So our guidance we think is conservative in that respect on how we have sensitized that impact and mitigated that impact and we made our best guess forecast on how many days we’ve had certain wells or pad shut in as we bring on new wells. And that again just a balancing act but I can assure you every opportunity we have to bring a well back on that's been shut-in and to expedite or reduce the shut in period but we’re going to do that. But we feel like we've managed through our guidance the effects of that process.

Our next question comes from Doug Leggate with Bank of America/Merrill Lynch. Please go ahead Doug.

On the quarter I wonder if I could just touch by kind of couple of the comments you made about in base and capacity. And the line of sight you have for you’re basically the constraints on your growth as you go forward. Obviously you've laid out 4 Bcf a day gross today. Realistically when do you think you’ll get there given all of the above in terms of capital allocation piece of growth market conditions and so on what do you think is the timeline when we see you lift your production to that level?

Well Doug - it’s a great question and I'm sure one that everybody would like to see us lay out a three-year, four year, five year forecast. But there is so many variables that go into laying out that forecast I’d first start by saying that if in fact the market will allow the macro market would allow us to ramp up production even beyond 4 Bcf a day in the earliest possible timeframe. Our assets and our efficiencies would allow us to do that. We might bring on another rig, we might bring on another frac crew, we might schedule it out a little bit different, but we could stage in a reasonable timeframe a tremendous ramp up and production with our – asset base that we have. With that being said to guide to a ramp up it would be a timeframe that takes into consideration all the variables whether it's NYMEX pricing, whether it is the storage impact on pricing, whether it's the weather, whether it's the supply side by other operators up there and is it is going to be – and a growth for the second growth out there by others. If that happens and it's going to have I would think a negative effect on the capital efficiencies of those companies that grow for the sake of growth. And we all kind of looked at what is prudently and rationalizations of the market that oversupplied at any given time and I think at some point in time the market and those participating in the market are going to make a rational decision that say that growth is not everything in this business that you better be able to create a significant value become a low-cost producer and participate and giving back some to the…

Well appreciate the long answer Dan and I think the debt adjusted metric is the right one to look at your point. My follow-up hopefully a quick one I really just wanted to take a more holistic view as to the free cash flow story here because just obviously extraordinary. I just wonder first of all if and when you get to that 4 Bcf a day what is the sustaining capital look like and [indiscernible] to hold that it seems to me that in your pursuit of obviously trying to create shareholder value may be the market is not looking at you the right way. Perhaps the free cash annuity story is a very different valuation metric than the E&P story if you like so I’m just curious would you ever consider in some way changing the company structure MLP comes to mind something of that nature not exactly in our form obviously but you get the idea as free cash annuity how do you feel about the current company structure to meet your goal and what would that sustaining capital look like if and when you did get the 4 Bcf gross production number?

Yes, great question Doug and certainly directionally, how we try to operate first the maintenance capital that’s required to get to our expected you know our growth trajectory and pick your number of what we have in our guidance or what we have in our current infrastructure capacity of 4 Bcf. Our maintenance capital which is always critical when you talk about an MLP is extremely low when I would venture to say our maintenance capital compared to any other assets out there is unparalleled on what it takes to maintain a level of production. But it is probably you know here's a swag $650 million to $750 million as a maintenance capital number out there. With that maintenance capital you can use your own back of the envelope numbers of 4 Bcf production profile throw in whatever commodity you want, commodity price you want. We're going to generate a lot of free cash and to get back to your MLP consideration that cash flow that distribution if you will is something that we are guiding towards in the future. It’s our expectation that we will deliver that return of capital to shareholders and it's our expectation that we are going to manage to a return on capital that we think will - in the long term compete very favorably with the S&P 500 benchmarks that are used out there. And I think, one, a generalist looks at Cabot and it sees that even in a commodity based environment that we would be able to still deliver on a return of capital return on capital, a yield that is competitive and consistently at or above other industries in the 500. I think then we will get a multiple credit that we would all enjoy. And that is kind of our longer term vision that we have.

Yes, I guess - again, I appreciate the long answer, Dan. I guess my consideration was more - as you move into a more sustained cash tax-paying position, the free cash story speaks for itself on this. Maybe if I may just one very last quick one. Given how strong everything is in the Marcellus, how do you kind of slowdown or given up on your diversification ambitions, are you quite obvious with what you've got or should we still anticipate updates on the exploration front?

Well, yes. You could expect expiration updates and behind the gathering of data that I've referenced in the first quarter of 2019. And as far as our ongoing vision and what we do with our capital, it's compelling and I think incumbent upon myself and the Management team to look at any way that we can continue to enhance shareholder own value. That is a broad open ended what you might do. However, I think from a street perspective, investor perspective, look back historically on how we made decisions in this Company and I think that you would have to have a little bit of faith that if we do make decisions that we're going to make prudent decisions on how we might spend or allocate available capital. But it is continuously our effort to not only enhance our lot on shareholder value and how we create value in the future, it's also our obligation to mitigate any kind of risk that we might see out there as far as diversity or one base in consideration. Again, we've always had that though. We've always had and we've that now for years that consideration because that's how Cabot's been viewed. Again, we haven't jumped to just jump. We have to look at the value consideration, value proposition.

Our next question comes from Michael Hall with Heikkinen Energy Advisors. Please go ahead, Michael,

Congrats on a solid update. I was curious on a few things, maybe first on the payout side of things has been covered a good bit but how should we think about the relationship to payout of that free cash flow relative to gas prices? Is there any connection there, meaning, as gas prices increased so are you more willing to pay out even higher - materially higher than 30% or lower gas prices environment you hold onto more of it? Is that a reasonable way to think about it or any color on that?

Well, there's options available for that. We've kind of guided on a percentage of free cash flow generated and we'll stick with that guidance. You have available if you wanted to speculate, which this is speculation. If you wanted to say, okay, we had a period of time where the commodity prices went up 450 and generated a lot of free cash. Maybe there'd be discussion of a special dividend. But that speculation again on my part, but that's one way you could look at it. But I think we would still as far as sideboards guide towards a 50% of our free cash flow and work within those parameters. But, I think speculation to talk better otherwise.

And in terms of the payout, like, I mean how about the split between dividends and buybacks, what's your current thought process on that? Obviously one requires a little more maybe commitment than the other I guess from a long term standpoint. What's - like if we were to split the payout, I mean how might that look dividend draw buyback?

We're not going to get granular on that. As we've said before, we like both of those vehicles equally as well. What we don't want to find our self in is being a little too aggressive over a period of time on the dividend and then get caught in a down market that we will periodically have in this industry somewhere out in the future. So it's a measured approach on the dividend. As you can see, a year ago or so we made a big step change and then we've had a couple smaller increases. We'll be methodical in those increases with the dividend and continue to be mindful of the underlying, what I'll call, firm commitment, that the dividend payment presents before - as we go forward in the future. As our cash flows continue to expand you could see more dividend increases. But the highlight yesterday is the fact that with this inflection point with all the new pipelines, the infrastructure projects, we're very comfortable moving to the $0.07, which is $0.28 per year right now.

And then there's some views out on longer dated on the gas market around. Some potential challenges in supply-and-demand that may emerge, call it 2020 plus. As continued supply growth particularly that as a basin Northeast but also in the Northeast potentially overwhelms demand. You guys have a view kind of broadly on long dated supply-and-demand dynamics and then what's the kind of sense or how should we think about that in the context of the free cash flow outlook?

I think the supply-and-demand function is going to remain as a topic of conversation. There's going to be a number of impacts I think on both sides. Supply side, I've referenced already at some point, once you get this near term infrastructure build out on the pipelines that have been recently commissioned and the allocation and direction gas is allocated, I think the basin and certainly the Appalachian basin is the largest supply area in the country. I think there will be some rationalization of how you grow into the future. I don't think there's going to be growth for the sake of growth. And I think there'll be rationalizations. I've said in the past, I think there'll be opportunities for consolidation in the basin. I think to become a lower cost producer I think some are going to maybe require some synergies to be able to get to a point where they deliver acceptable returns to their investors. But from a demand standpoint, there's going to be demand inflections. The LNGs approval even though there's been delay on LNG, we think that is certainly coming. There's projects that are under construction right now, that's going to have the impact. We think the exports are going to be part of the equation. Not on everybody's radar screen, we think in-basin demand opportunities are going to be in the future. And when gas is allocated in basin, it kind of doesn't get out there in the market the fact maybe the macro pricing. It's priced maybe as - maybe what we have done with our power plant, priced on a power benchmark versus a NYMEX benchmark. But there are 26, I think in-basin projects that are being discussed in the Ohio, Pennsylvania area. If you look at all of those 26 projects and you kind of get them up to speed and you commission them along the levels and size that are forecast up there, that's greater than 3.5 Bcf of in-basin demand, that I don't think a lot of people talk about. And I think that is going to be impactful particularly if you have the rationalizations that we're looking at. So I think the supply-demand balance and being able to manage that is something that industry if acting prudently and accepts the value model a little bit more than growth, I think we'll manage well and I think it'll be managed at a price point that will certainly be attractive for Cabot investors.

Our final question comes from Jane Trotsenko with Stifel. Please go ahead, Jane.

My first question is regarding free cash flow. Does your free cash flow guidance include any cash tax refund proceeds, and if it's an organic free cash flow or post dividend free cash flow?

Jane, this is Matt. So our Q4 and 2018 guidance does assume that refund of the empty credit carry forwards. As far as cash taxes in 2019, the current guide assumes that we just have 100% of our income taxes differ but there's no refund.

And you guys don't include the dividends in that free cash guidance?

We do not.

It's pre-dividend, right?

That's correct. It's a discretionary cash flow less capital.

That's perfect. And then the second question is regarding Atlantic Sunrise and its impact on transportation gathering and processing line. I saw that you guys are guiding to kind of flattish per unit transportation gathering and processing expense quarter-over-quarter for 4Q, despite that Atlantic Sunrise has been online since early October. So I'm kind of curious if we should see a pickup in per unit expense in 2019? I was surprised that we didn't see it in 4Q 2018.

No, we're guiding for next year for 2019, $0.66 gathering transport. The reason you don't see that pick up in our gathering transport line is that we are netting transportation costs for the sales on Atlantic Sunrise against the realized pricing. So if you go and look for instance in our guidance slides for Q4, you'll see that the volumes that are reaching trans goes on $0.69 New York, they're actually deducting around $0.65 from those to account for the transport deduct. So it's already accounted for in our $0.30 differential guidance for 2019.

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

Thank you, Shaun, and thanks for the questions. And I am pleased that there are a number of questions that we've received directed towards the value model that Cabot is putting forth. Again to reiterate we do look forward to continuing our same style of managing our balance sheet and how we allocate capital. We'll have a focus on value and what it does for our shareholders. So, thanks again and look forward to catching up on the next quarterly teleconference and year-end teleconference. Thank you, Shaun.

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