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Edited Transcript of COG earnings conference call or presentation 25-Oct-19 1:30pm GMT

Q3 2019 Cabot Oil & Gas Corp Earnings Call

Houston Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Cabot Oil & Gas Corp earnings conference call or presentation Friday, October 25, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dan O. Dinges

Cabot Oil & Gas Corporation - Chairman, President & CEO

* Jeffrey W. Hutton

Cabot Oil & Gas Corporation - SVP of Marketing

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Conference Call Participants

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* Andrew Elliot Venker

Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production

* Brian Arthur Singer

Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst

* Charles Arthur Meade

Johnson Rice & Company, L.L.C., Research Division - Analyst

* David Adam Deckelbaum

Cowen and Company, LLC, Research Division - MD & Senior Analyst

* Holly Meredith Barrett Stewart

Scotiabank Global Banking and Markets, Research Division - Analyst

* Jeffrey Leon Campbell

Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services

* Leo Paul Mariani

KeyBanc Capital Markets Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Cabot Oil & Gas Corporation's Third Quarter 2019 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Mr. Dan Dinges, Chairman, President and CEO. Please go ahead.

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [2]

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Thank you, Aily, and I appreciate everybody joining us this morning for the third quarter 2019 earnings call. I also have the Cabot management team with me today.

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

Cabot's third quarter results solidify our position as the leading natural gas producer in the United States as we continue to consistently deliver strong financial results even in this challenged natural gas price environment that experienced the lowest quarterly average NYMEX price on record since the second quarter of 2016.

Despite these lower NYMEX prices, we were able to successfully execute on our strategic goals by delivering the following improvements relative to the prior year comparable quarter. They are as follows: 16% growth in adjusted earnings per share; over 150% growth in free cash flow; a 21% increase in return of capital to shareholders; an increase in return on capital employed of over 1,400 basis points to 25%; 18% growth in daily production; a 15% reduction in operating expenses per unit, including interest expense and G&A to $1.43 per 1,000 cubic foot equivalent; and a reduction in net debt to 0.7x EBITDAX.

Additionally, during the third quarter, we announced the divestiture of our noncore interest in the Meade Pipeline for $256 million, representing an accretive transaction multiple of over 13x expected 2019 EBITDAX. This transaction remains on track to close during the fourth quarter and will provide additional available funds to further support our continued return of capital to shareholders over the coming quarters.

Year-to-date, we have generated $454 million of positive free cash flow, of which we have returned approximately 100% to shareholders through opportunistic share repurchases and dividend, including the repurchase of 10.5 million shares during the third quarter at a weighted average share price of $18.21, reducing our shares outstanding to 407.9 million shares. I'll get that straight.

This represents a 12% reduction in shares outstanding since we reactivated our share repurchase program in the second quarter of 2017. We currently have 21 million remaining shares authorized under our share repurchase program or approximately 5% of our current shares outstanding. We also announced an 11% increase in our quarterly cash dividend, the fifth increase in our dividend since May 2017, which is underpinned by our expectation for continued free cash flow generation even under NYMEX price assumptions materially below the current forward curve.

I fully anticipate continuing to be active on our opportunistic share repurchase program while also evaluating further increases to our dividend, which currently delivers a 2.2% yield based on current share price.

In yesterday's release, we adjusted our 2019 production growth guidance to 17%, which is in the midpoint of our prior range of 16% to 18%. This implies a 25% increase in our production per debt adjusted share, highlighting the impact of our ongoing share repurchases and debt reduction, which will continue to allow us further accrete our growth per share adjusted over time.

We also reaffirmed our 2019 capital budget range of $800 million to $820 million. For the full year, we remain on track to deliver between $500 million and $525 million of positive free cash flow, representing a 7% free cash flow yield based on an average NYMEX price assumption of $2.60, which is derived from the average of the actual settlements for the first 10 months of the year and recent Strip prices for November and December.

At this price assumption, we also expect to deliver a return on capital employed of 20% to 22% and adjusted earnings per share growth of 38% to 42% in 2019. As you will recall, we provided a preliminary 2020 plan on the second quarter earnings call that is expected to deliver full year production growth of 5% or 7% to 8% on a debt adjusted per share basis based on a preliminary capital budget range of $700 million to $725 million.

We continue to believe this moderated growth plan is appropriate strategy for maximizing shareholder value in 2020, given it provides the best combination of free cash flow, return on capital employed, growth in per share metrics, assuming a $2.50 or higher NYMEX price.

However, subsequent to the second quarter earnings call, the 2020-2021 NYMEX forward curve has continued to decline to levels below the $2.50 NYMEX budget price. As a result, we incorporated a slide in our investor material back in August that highlighted Cabot's ability to deliver competitive free cash flow in 2020 under a $575 million cap -- maintenance capital plan, assuming prices continue to remain lower than our original budget price assumption.

This maintenance capital plan, which includes nondrilling and completion capital, would allow the company to hold fourth quarter 2020 production levels flat to the midpoint of our fourth quarter 2019 net production guidance range of approximately 2.4 Bcf per day, resulting in 2% to 3% growth in full year production per debt adjusted share while still generating excess free cash flow after our newly increased dividend commitments even at a $2 NYMEX price assumption.

Both the growth plan and the maintenance plan assume a moderate amount of curtailments during the shoulder season based on expectations of normal pipeline maintenance, higher line pressure and weaker spot market prices. We are currently in the process of evaluating both scenarios to determine which plan will deliver the most value for our shareholders in 2020 while also positioning the company for continued value creation in 2021.

Ultimately, our outlook on natural gas prices for both 2020 and 2021 will dictate our plan forward. As we mentioned on the second quarter call, there are still numerous variables that will be better understood as we navigate through the winter withdrawal season, including the impacts of weather, the continued reduction in operating activity levels across North American natural gas basins, associated gas production growth and continued natural gas demand growth, primarily from exports.

In a $2.50 or higher natural NYMEX price regime, we believe the growth scenario delivers a compelling combination of free cash flow returns and per share growth while positioning the company for continued growth in 2021. In a sub $2.50 NYMEX environment, we believe the maintenance capital scenario allows us to maximize our free cash flow available to opportunistically repurchase more of our outstanding shares in a low price environment while compromising some growth in a per share metrics, which we believe is prudent if the expectation for natural gas prices remains challenged in 2020 and 2021.

As a result, we plan to communicate our final 2020 plan to the market on the fourth quarter call in late February, once we have a more refined, near and mid-term outlook on the natural gas markets. Either way, both plans are designed to deliver a combination of free -- strong free cash flow generation, high return on capital employed, continued return of capital to shareholders, low financial leverage and growth in production and reserves per share.

While we remain opportunistic that better days are ahead of us for natural gas prices, we believe our business model is extremely resilient and will continue to deliver compelling financial metrics even in the lows of the natural gas price cycle. That compares favorably not only across the energy sector, but against the broader energy markets as well. And Aily, with that, I'll be more than happy to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from David Deckelbaum with Cowen.

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David Adam Deckelbaum, Cowen and Company, LLC, Research Division - MD & Senior Analyst [2]

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Just curious, Dan, as you look out and you're weighing all of these factors now for what you're going to spend next year, you've talked about, I guess, there's probably lots of different iterations of plans or what you think the NYMEX price is going to be next year. In the past, you've also, I think, been mindful of market share and keeping your place in the pipe. I guess, with other people slowing down, are you less concerned about that now?

And I guess, as you think about the implications for '21, which you all laid out today in the press release, how do you think about, I guess, the optimum program for where you're most efficient so that if you're operating in a flattish band of commodities or a narrow channel between $2.40 and $2.60, capital is best optimized and crews are best optimized as opposed to having to change things from year-to-year?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [3]

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David, you're right, there's a lot of variables that we're looking at, a lot of sensitivities. What we try to do in laying out the plan, both the maintenance plan and the growth plan, is look at it as kind of bookends right now with the knowledge we have and some of our early expectations of what we might see in natural gas prices. Bookends being that -- we feel like that on a maintenance program, we can deliver everything we're delivering today to the shareholders, and we focus on that and we focus on the financial metrics.

We think we can do that in a maintenance program, if you had this steady state. And basically, we've kind of been in this narrow bandwidth of natural gas prices for an extended period of time as is. So navigating in between the bookends, maintenance and this growth that we've laid out, we're comfortable in that zone right now and kind of toggling back and forth and in between that fairway we think is a prudent spot to land. And we will continue to look at the market and look at the tea leaves and what our best estimate it is for natural gas prices as it rolls forward.

But trying to continue to do what we've done in the past, i.e., protect our balance sheet, show a little bit of a growth, have return on capital, return of capital, both in dividends and share buybacks, we're going to continue doing the same, and I think our history shows that we're prudent in how we're managing that.

Our position has been to give back 50% of our free cash flow, and we sit today where we've given back 100%, which illustrates that as our balance sheet stays strong, the Strip price stays in a bandwidth that we're comfortable generating -- that we're going to generate free cash flow. We're prepared to go deeper than just the 50%. So we'll know -- have more clarity in February and we'll get a little bit more precise in February. But we kind of look at what we've laid out here as the bookends.

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David Adam Deckelbaum, Cowen and Company, LLC, Research Division - MD & Senior Analyst [4]

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I appreciate the color on that, Dan. And I guess just as a quick follow up to that, as you go into '20, I guess, this maintenance plan or lower plan, we should think of it as sort of a holistic slowdown in activity? There isn't necessarily a high grading component there, it would just be moving slower through, like (inaudible), the general program that you've already laid out?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [5]

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Yes. David, I think that's a fair assumption. Yes.

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Operator [6]

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Our next question comes from Leo Mariani with KeyBanc.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [7]

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Just a question around sort of fourth quarter production guidance here. Certainly noticed that you had quite a few well completions in the third quarter, I think the number was 29. And I guess your guidance, you're not expecting much growth, the midpoint basically flat in fourth quarter. Just wanted to get a sense of sort of what the dynamic is there? Are you guys expecting some potential maintenance or downtime in the fourth quarter? What can you kind of tell us about that?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [8]

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Yes. We're experiencing maintenance time right now. We have through most of October. We've incorporated that into our guidance. There is nothing unusual operationally or performance-wise that's affecting that, except that we're in a shoulder period, maintenance happens historically at this time.

There has been -- as an example, on one of the weekends in the earlier part of October, I know the day rate gas that we had -- it was a bad weekend and we curtailed a little bit of gas over a weekend because we didn't like the price. So it's all normal operations, Leo.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [9]

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Okay. No. That's great color, for sure. And I guess just back to your kind of comment around the band between maintenance scenario and the growth scenario and it makes perfect things. And you guys are basically $2.50 on the growth scenario. And just wanted to get a sense of, what do you guys kind of see as the band on that maintenance? Is that closer to that $2 level where you still generate free cash flow? Just trying to kind of put some parameters around the gas price associated with the maintenance CapEx.

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [10]

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We're just kind of giving 2 plans that would allow us -- with our price assumptions, that would allow us to keep our plan rolling forward. As David mentioned, is it kind of like moving through the plan just at a slower pace. And that's what it is.

We're going to look at the price and where we are in February and we're going to I think be in between what we've indicated. And that in between is somewhere in between a $575 million maintenance program and a $700 million to $725 million, 5% growth program on an absolute basis.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [11]

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All right. No. I think that makes a lot of sense. Okay. I guess just on your stock buyback here, obviously, you guys have not been shy the last couple of quarters buying back substantial stock, much as you said you would here. How do you think about the buyback versus dividend increases? Is it as simple as when the price is a lot lower on the stock that you start to favor the buyback more than more robust dividend increases? How do you sort of think about that internally?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [12]

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We have that discussion with the Board. And the Board is fully in tune of what our strategy is and opportunistically it is our process. We don't have a scripted buyback program. And when you look at the -- some of the volatility that we've seen in the market, mainly as a result of commodity price expectations, then we've been in the market and we bought back some shares.

We look at a dividend more long term. The dividend is continually increasing since we started in '17, increasing dividends. This was the fifth increase we've provided to shareholders. And we're not just jumping out with a big number. We're just kind of moving it forward, a 2.2% yield is above -- for the most part, above the class out there and we're comfortable with that. So we look at it in tandem. And again, just by definition, opportunistically, it's just when we feel like the market's going to allow us to be in the market to buy back.

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Operator [13]

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Our next question comes from Holly Stewart with Scotia Howard Weil.

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Holly Meredith Barrett Stewart, Scotiabank Global Banking and Markets, Research Division - Analyst [14]

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Dan, maybe just to follow up on David's question, you talked about the maintenance plan moving at a slower pace in 2020. So should we assume with that plan versus the original plan, sort of, similar rig and crew cadence or would this be sort of a duct building inventory? Just trying to kind of put some parameters around it.

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [15]

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Yes. Holly, it'll be a little bit of both. We have -- Phil is -- he's sitting here at the table with me. Him and his crew up there in Pittsburgh are in negotiations now for both rigs and frac crews. Those negotiations are -- as you might suspect, are considering what we're laying out to public as a maintenance program and a growth program.

For the maintenance program, we don't need 3 full rigs throughout the year, and we don't need 2 full frac crews for the year. So trying to work both in full respect of our service providers, but also be able to accomplish some optionality for us on rigs and frac crew. Those were the discussions they're having right now and trying to find that good balance between what our needs are and certainly trying to allow the service providers to be as efficient as they possibly can on delivering what they do to us.

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Holly Meredith Barrett Stewart, Scotiabank Global Banking and Markets, Research Division - Analyst [16]

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Okay. That's helpful. And then maybe one for Jeff. Jeff, very strong basis during the quarter versus kind of where bid week all settled out. Anything sort of unusual or maybe just to highlight here going forward and then also during the quarter? And then as I look at the 2020 assumption that you guys have in the guidance, anything to think through right now? Like, I mean, obviously, we've got some seasonal weakness, but just trying to get a bigger picture from you on that.

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Jeffrey W. Hutton, Cabot Oil & Gas Corporation - SVP of Marketing [17]

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Yes. Sure, Holly. You're correct, of course. And the strong basis differential for the year, I think, we're going to come in Leidy, probably close to $0.45 under, which is obviously big improvement over 2018 and much better improvement over '17 and '16. But our outlook is -- consists of our very comprehensive sales files with the future outlook on our differentials.

And combine all that with what the subjective piece that we put on it to give the guidance, it does look very favorable. There's -- in-basin demand continues to inch up a little bit. The overall demand picture is very good. We did have some hiccups, I guess, on basis in September, October with typical shoulder month if you're using -- obviously, we've had massive storage injections all year. And then we've had -- Cove Point had their maintenance program in September.

So we continue to have the fall hiccups on differentials but the longer term outlook is very positive, and we're happy that all the in-basin projects and the takeaway that's been established up there over the last 3 or 4 years has finally proven itself to be the answer to our basis issues.

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Operator [18]

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Our next question comes from Drew Venker with Morgan Stanley.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [19]

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I just want to follow up on the comments about the breakeven prices and protecting the company in the returns to the downside. Is there a price at which you might allow production to decline? It sounds like from your comments, you already have to get to a very low price and you could still be generating free cash at $2. So curious if you guys have thought through that scenario?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [20]

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Yes. We think of all of the scenarios, Drew, but as far as really what our outlook is today, again, thinking we're going to have more clarity and be better prepared to offer what our 2020 program is going to be in February, we feel like that the bandwidth that we provided on maintenance and growth is a reasonable guidance with our expectations today. And if you go, prices way down, $2 or below, and if it's instantaneous or it's any given month, we're not going to have a knee-jerk reaction to that.

If again, we see sustainable prices continue to leak, then we'll react. And just -- and a counter to that, if we see that the -- with the less rigs in the Northeast and less frac crews anticipated in the Northeast, if we see that, and that has an enhancement on pricing, then we'll react to that. But quite frankly, we feel like that the 2 programs we laid out is probably going to cover what our near-term expectations are.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [21]

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That's fair, Dan. Thanks for the color. I guess everything -- conversely, if prices are better, I guess certainly thinking probably from your perspective beyond 2020, you talked about in a $2.50 price I believe around mid-single digits growth kind of for the next few years. What price would you need to target some higher growth rate or where your CapEx based on returns would drive higher growth in that mid-single-digit range?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [22]

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Yes. We'd make -- that decision would be made the same way we're making a decision today. Our priority focus is on returning value to shareholders. We recognize that shareholders like to see a return both in dividends and buybacks. So we'll focus on those financial metrics as a priority first. Growth is -- in our opinion, is secondary. If we can deliver the financial metrics and have a moderate growth program, we think in this macro environment, that that is the prudent course of action to take.

And even with higher prices, I think there is a lot of shareholders out there, including a lot of shareholders around this table, that would like to see value come back to them as opposed to just see growth for the sake of growth. So we'll balance that. It's a high-class problem if we get to higher prices, and we do think higher prices are in our future, just not our immediate future.

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Andrew Elliot Venker, Morgan Stanley, Research Division - VP and Lead Analyst for the Mid-Cap Oil & Gas Exploration & Production [23]

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Okay. So just to clarify, Dan, so I'm sure I'm characterizing this correctly. So at something like a $2.75 or $3 price, you might increase growth a bit, but probably not substantially?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [24]

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No. We're -- our guidance right now is what we've put out there. And that's a $700 million to $725 million 2020 capital program.

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Operator [25]

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Our next question comes from Brian Singer with Goldman Sachs.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [26]

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Can you give us just the latest update on cycle times, well costs and how they're evolving versus productivity? And I realize the year's not over yet, but do you expect that this will lead to lower, flatter, higher finding and development or development costs per Mcfe this year in your overall supply cost?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [27]

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Well, in cycle times, we continue to eke out cycle times. I know Phil in the presentation to the Board illustrated a couple of different areas where we're continuing to pick up minutes on each connection and looking at AI on the drilling side. And Steve Novakowski is looking at all of those nuances that can improve cycle times.

Jim Edwards on his logistics, on the completion side, is also focused on how we save a minute here, a minute there and they've done an excellent job. They continue to do those things that will enhance production. Our cash costs, as you see, were down this quarter. So we're entirely comfortable with continuing to try to squeeze out what we can in cycle times.

I know, Bill, you have one or two things that we pointed to in the Board meeting in the drilling side for example that we're doing.

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Unidentified Company Representative [28]

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Right. And some of the things, just looking at the flat time we have, and so some of the things we're doing in offline cementing, where we will -- as we run casing, then we walk to the next hole and then go ahead and cement the casing offline. That saves us several hours of time.

We're looking at intelligent software packages on all the rigs, like Dan said, looking at connection time, looking at how you bring on your pumps and the weight on bit, again, that saves us time. And then you're seeing more improvements in like bit designs and we continue to save hours there. So again, all this adds up over time as additional efficiency savings for us.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [29]

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And then, I guess, on the F&D side, on the capital cost per -- when you think about well cost and then your average EUR this year, do you expect at present that you would have lower versus flat versus other changes in F&D?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [30]

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Well, I'm going to have a look at that once Steve Lindeman kind of gets the year-end reserve report to us and what our F&D is going to be. I'll be able to answer that much more clearly, Brian, in February.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [31]

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Great. Thanks. And then, I guess, my follow up is, you highlighted, and Jeff you highlighted, just the strong local demand on a longer-term basis. Based on the growth rate that you are currently envisioning for Cabot over the longer term, are -- is looking at underwriting incremental pipeline takeaway, is that even worthwhile? Do you see strong enough local demand to support Cabot's needs?

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Jeffrey W. Hutton, Cabot Oil & Gas Corporation - SVP of Marketing [32]

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Yes. Brian, that's a -- obviously it's ongoing here. We're still involved day to day on looking at new projects, obviously with the intent of improving realizations. And, again, there may be a niche project here and there for us in the future. We're very much looking forward to Leidy South. It is on schedule, of course, we have 250,000 of [AF] capacity on that project.

Whether or not, there's another 2 or 3 Bcf a day pipeline out in the Northeast and whether or not that's necessary at this point is still being studied. But I think we're positioned very well to take advantage of the opportunities that we've worked long and hard for in the last 3 or 4 years. But again, if in-basin demand projects, particularly, offer better price realizations and keep the gas in-basin, then we'll look strongly at that.

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Operator [33]

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Our next question comes from Jeffrey Campbell with the Tuohy Brothers.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [34]

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Congratulations on the quarter. I just wanted to ask one question, going back to some of the macro stuff that you talked about earlier. You mentioned looking at reduction in nat gas activity levels and also deceleration of associated nat gas production growth. I was just wondering, A, is there a nat gas or an oil price range that you think will generate a meaningful pullback in nat gas activity? And B, do you think this might already be underway?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [35]

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I think it's underway, Jeffrey. I think the -- you look at the nat gas space and you look at some of the stress and tension in the market and to make capital allocation decisions in a way that one protects a balance sheet or does not do any further damage to a balance sheet is extremely important in this environment. We've seen some releases recently on where the debt towers are and how you manage the debt towers.

We've all had conversations and talk about the redeterminations and the borrowing base coming up and that's being managed proactively I think right now by the industry. But I also think that there's a clear understanding that over-allocating capital into a macro environment that is already stretched or saturated in some ways is maybe not as prudent as it should be for financial metrics.

It's also -- we're also seeing the ills of prior decisions on firm transportation commitments that had been made in the marketplace. I think some of the additional drilling that might be taking place today is an effort to just fulfill commitments in that particular area. And I think that's influencing a little bit of market. I think that will dissipate with time. I don't think that's a sustainable model. If in fact the natural gas price stays in the range it is, I think it creates issues maybe with the future issues with balance sheets, if that continues.

So I do think that you're seeing some reduction in rigs and frac crews. Take 1 frac crew, we know it's going to be down at least 1 frac crew up in the Northeast. Well, that's probably 1,500 stages on an annual basis. 1,500 stages is a lot of gas compared to having that frac crew there. The same with drilling the rigs. The rigs, you might -- you lose -- you drop 1 one rig and that's probably going to be plus or minus 200,000 lateral feet that you're going to be taking out of future gas production that would be available for the market.

So I think you're seeing it and I think you'll continue to see that rationalization occur. And the -- being able to see that reduction I think is -- and if we can get the -- some of the cost of doing business down, then I think companies will be more inclined to not have to grow into a growth profile to fulfill their objectives. I think it's going on and I think it's prudent.

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Operator [36]

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Our next question comes from Charles Meade with Johnson Rice.

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Charles Arthur Meade, Johnson Rice & Company, L.L.C., Research Division - Analyst [37]

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I want to go back to something, I believe, I heard you say in your prepared comments where you said that under the maintenance scenario you would be buying back more shares. Is -- was that -- is that the correct read? And assuming it is, does that reflect just the fact that you'd have more free cash flow in that maintenance scenario or is there something more there that under that maintenance scenario you're more shifted to buybacks versus dividends?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [38]

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No. The implication is that we're going to remain opportunistic on buybacks. It's not saying we're going to buy back more, it is connecting the dots and assuming that under the maintenance program, our assumption is that the commodity Strip is going to be less and that with a reduced commodity Strip, we think there could be pressure on the share price. And if, in fact, there is pressure on the share price, then that would create that opportunity to be in the market, again, buying back share.

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Charles Arthur Meade, Johnson Rice & Company, L.L.C., Research Division - Analyst [39]

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Got it. That's helpful. I appreciate your clarity there. And then second question, hopefully maybe it's just a quick one. From my seat, following -- this is on Constitution Pipeline, looks like there's some signs of life there. Does it look the same from your point of view? And you guys as equity holders, is that something worth talking about?

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [40]

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Yes. I'll just let Jeff make a brief update comment.

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Jeffrey W. Hutton, Cabot Oil & Gas Corporation - SVP of Marketing [41]

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Charles, you're right. There was a small battle that we won during the war, or the ongoing war with New York over Constitution. It's -- the fact that FERC finally agreed that a waiver did occur in New York DEC was positive. All that said, I'll just repeat what the partners public outlook is on the project and that is it needs further evaluation.

And so we are taking the next steps to look at all aspects of the project, the -- for the permitting the commercial aspects of the project and sometime over the next few months we'll try to get collectively -- decide on a path forward. And again, it's a small win, but there's still a lot of work to be done.

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Operator [42]

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

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Dan O. Dinges, Cabot Oil & Gas Corporation - Chairman, President & CEO [43]

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Thank you all. Thank you for the good questions. We look forward to seeing you once again. And is it -- in February of 2020 full expectations that Cabot is going to continue to deliver as we have in the past. Thank you, again.

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Operator [44]

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