Good morning, and welcome to the Cabot Oil & Gas Corporation second quarter 2021 earnings call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I'd now like to turn the conference over to Dan Dinges, Chairman, President, and Chief Executive Officer. Please go ahead.
Thank you, Phyllis, and good morning. Thank you for joining us today for Cabot's second quarter 2021 earnings call. As a reminder, on today's 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 measure were provided in this morning's earnings release. Our results for the second quarter 2021 reinforced the positive theme from our first quarter results with a significant increase in realized prices year-over-year, driving exponential growth in our financials. Our adjusted net income for the quarter was $105 million or $0.26 per share, which represents over a fivefold increase in adjusted earnings per share relative to the prior year period, driven primarily by a 30% increase in our realized natural gas prices.
During the quarter, we also delivered positive free cash flow of $64 million, our 18th quarter of positive free cash flow over the last 21 quarters, resulting in a $106 million improvement in free cash flow relative to the second quarter of 2020. This quarter, we returned over two-thirds of our free cash flow to shareholders through our base quarterly dividend, as we continue to emphasize our strategic focus on returning a majority of our free cash flow to shareholders. We continued to improve our industry-leading cost structure during the quarter, as demonstrated by 2% year-over-year improvement of all-in operating expenses to $1.1 per Mcfe. Excluding a $6.2 million of expenses during the second quarter related to the pending merger with Cimarex Energy, our unit cost improved by 4% relative to the prior year period.
Production for the second quarter of 2021 was 1% below our guidance range due to longer than anticipated maintenance related midstream downtime, primarily resulting from one of our third-party provider's compression station, and operational delays during the quarter that pushed the timing of certain wells gone on production to later in the second quarter and into the first part of the third quarter. Our production volumes for the third quarter to date have averaged approximately 2.3 Bcf per day, a 4% increase relative to our second quarter production levels. We incurred $166 million in capital expenditure during the second quarter, a 5% reduction relative to the prior year period.
Our capital for the quarter was in line with our prior guidance for higher activity levels in the second and third quarters, which are expected to result in sequential production growth during the second half of this year, primarily during the fourth quarter in anticipation of higher realized natural gas prices and the in-service of the Leidy South expansion project. We also drilled five more net wells and completed 121 more stages than originally planned during the second quarter, highlighting continued efficiency gains in our operations. Our balance sheet remains as strong as ever with less than $900 million of net debt as of quarter end, resulting in a net leverage ratio of less than 1x trailing 12 months EBITDA. We expect to continue to reduce our absolute debt levels during the third quarter through the repayment of $100 million tranche of debt maturing in September.
On the pricing front, our bullish thesis for natural gas prices entering this year has continued to materialize, resulting in significant year-over-year gains in natural gas prices across North America. Through July 2021, NYMEX prices have risen 61% compared to the same time frame in 2020, while Leidy prices have increased by 43% over the same period. Despite transitory pipeline maintenance and outages that resulted in wider regional basis differentials during the second quarter of 2021, we have recently witnessed forward prices and cash prices across Appalachia sales locations beginning to compress and trend back to their historic pricing relationships. We have updated our full year differential guidance of $0.50 to $0.55 to $0.70 to $0.75, primarily as a result of the impact of higher anticipated NYMEX prices relative to our fixed price sales agreement and, to a lesser extent, wider regional basis differentials.
Our prior differential guidance from our first quarter earnings release in late April was based on a $2.75 NYMEX for the year, while our updated guidance is based on an average NYMEX price of approximately $3.35, implied by actual year- to- date and the future curve for the balance of the year. At the midpoint of our updated guidance range, our pre-hedged natural price realizations are now expected to be 18% higher than our prior guidance from late April and 60% higher than our actual 2020 price realizations. Third quarter 2021 differentials are expected to widen relative to the second quarter, with a tightening expected in the fourth quarter. We are extremely encouraged by natural gas prices for the balance of the year, where the current NYMEX futures are averaging over $4.
Despite wider differentials in the Northeast during the second quarter, we are optimistic about a strong improvement in local pricing in the second half of the year, driven by our expectation for continued strength in regional gas storage levels, which are currently 17% below 2020 levels and 8% below the five-year average. Of equal importance, we are very optimistic on the impact of the Leidy South expansion project that is projected to be placed in service during the fourth quarter of 2021 and will deliver 580 million cubic foot per day of Northeast Pennsylvania production volumes to the Mid-Atlantic market area while further improving Cabot's realized pricing. Additionally, the PennEast and Regional Energy Access Expansion projects are projected to be in service between 2022 and 2024, which will move even more supply out of the basin and into growing demand markets.
As we look forward to 2022, we're extremely encouraged by the improvement in the Cal 2022 NYMEX futures to approximately $350 or 34% increase since the beginning of the year. We are currently unhedged in 2022, providing significant exposure to a strong natural gas price environment that supports an improving cash flow profile. In this morning's release, we reaffirmed a full-year standalone 2021 plan to deliver an average net production rate of 2.35 Bcf per day from a capital program of $530 million-$540 million. The capital guidance range for the year remain unchanged despite the increase in our expected net wells drilled from 80- 85, resulting from our continued drilling efficiencies. We also provided our third quarter 2021 production guidance range of 2.275 Bcf per day-2.325 Bcf per day. The third quarter guidance range implies sequential production growth of 4% relative to the second quarter at the midpoint.
While we anticipate approximately 10% of sequential production growth from the third quarter to the fourth quarter, coinciding with higher winter natural gas prices and the in-service of Leidy South expansion project. Third quarter capital expenditures are expected to decrease slightly relative to second quarter, with a greater sequential decline anticipated in the fourth quarter, driven by lower activity levels as we enter the winter season. Operationally, we continue to execute our program in line with guidance, while financially, our outlook for 2021 is much stronger as a result of higher expected realized prices. Based on current strip, our standalone free cash flow for the second half of the year is expected to be approximately two times our first half free cash flow, excluding the impact of merger-related expenses.
I also want to provide a brief update on our pending merger with Cimarex as we are excited as ever about the compelling strategic and financial benefits of our merger, and we continue to make progress towards closing the fourth quarter of 2021. As I noted when I announced the transaction, in May, we carefully studied the long-term benefits of expanding geographically beyond the Marcellus Shale and adding more scale and balance to operation. The pending merger will accelerate our strategy and create an industry-leading operator with geographic and commodity diversity, scale, financial strength to thrive in today's market and over the long term across the commodity price cycles.
With the addition of Cimarex oil assets in the Permian and Anadarko basins to our natural gas assets in the Marcellus Shale, we will be a more resilient company with scale and strong positions in the premier oil and gas basins in the United States. Together, we will have top-quality assets and the lowest cost of supply profile relative to our upstream peers, which will facilitate free cash flow generation, shareholder value creation, and an accelerated return of capital to shareholders. With our increased footprint, we will have complementary oil exposure with low cost, high margin assets, and we'll be positioned to capture opportunities from both near-term oil demand and long-term natural gas transition fuel demand.
Compared to Cabot standalone, the combined business will be able to return substantially more capital to shareholders, especially in light of the improvement in natural gas prices and to a lesser extent, oil prices since the deal was announced in late May. This best-in-class capital profile return will be driven by a high-quality portfolio that delivers significant free cash flow through cycles at very low cost of supply through consolidation of Cabot's and Cimarex's top-tier teams and assets, and a reduced cost of capital due to increased scale, a strong balance sheet, and increased liquidity. In short, combining the Cimarex with Cimarex will create a clearly differentiated energy company with a strong financial foundation and the right asset exposure and capital allocation flexibility to deliver peer-leading capital returns while maintaining a strong balance sheet.
As a stronger, more resilient company, we will be well-positioned to generate substantial free cash flow through commodity cycles to facilitate best-in-class capital returns and deliver enhanced shareholder value. I would like to acknowledge the incredible work and dedication of our employees. I believe we have the best employees in the world, and I have been inspired by their commitment over the last year. To our Cabot employees, you have my deepest appreciation. Looking ahead, we remain on track to close the transaction in the fourth quarter of 2021, shortly after receiving shareholder approval. We look forward to continuing to engage with our shareholders in the weeks ahead regarding the benefits of the pending merger. This transaction builds on and accelerates the strategy we have been executing, and I hope you will share our excitement and enthusiasm for the future.
Together with Cimarex, we intend to deliver superior long-term value creation for our shareholders and other stakeholders. Phyllis, with that, I'll be more than happy to answer any questions.
At this time I would like to remind everyone in order to ask a question. Press star then the number one on your telephone keypad. We will pause for a moment to compile all the Q&A roster. Your first question comes from the line of Leo Mariani with KeyBank.
Hi, guys. Was hoping you could talk a little bit to the mechanics of the 10% production increase in the fourth quarter. Seems like a really big jump here. Just trying to get a sense of whether or not maybe there have been some volumes held back here in 3Q or 2Q, just on the wider diffs. Just trying to get a sense mechanically if you're just opening up the wells a little bit more or maybe a lot of this is timing of trend lines, but just kind of help us get to that 10% in 4Q.
Yeah, Leo, appreciate the question. With the cadence that the North Group has set up, and Phillip L. Stalnaker's here with us this morning. With the cadence that had been set up for our 2021 program, which was done certainly a while back, the timing of just when we bring on those locations is what enhances that fourth quarter production growth. Keep in mind, it's by design somewhat to be able to take advantage of the anticipated fourth quarter increase in pricing. It was also designed in anticipation of the Leidy South coming online and commissioning.
By design, but keep in mind, when we have just so few pads that we bring on during the year, and you've seen it in the past how if you delay three or four or five days bringing on a big pad, it can either enhance your production on any given quarter or slightly reduce your production on any given quarter. It is a very narrow period of time that's disrupted one way or the other. This fourth quarter increase was somewhat by design on the cadence of us accelerating our capital this year up front and kind of dissipating a little bit towards the back end into the winter months.
Okay, that's helpful. Maybe just to follow up on your expectations there. Can you just update us on kind of when do you think that the Leidy South expansion comes on? Is that going to be earlier in the fourth quarter, maybe a little bit better? Can you talk a little bit to the benefit that you're expecting in terms of local pricing around that? Lastly, you mentioned you're still unhedged for 2022 despite the ability to hedge it, I guess, to $3.50 right now. Maybe just provide any thoughts around that.
Okay, very good. I will just mention first get the hedge kind of out of the way. I'll let Jeff weigh in also on the Leidy South. We're looking at the market. We're looking at the macro environment. We keep a close eye on the storage. As we mentioned, storage levels up in the east have drawn down significantly from last year and below the five-year average. That's all constructive to a 2022 pricing. We're keeping a close eye on that. Do I think we'll have some hedge volumes in 2022 at some point? Yes, I do. Our hedge committee meets on a fairly regular basis to have that discussion. We've been bullish for the reasons we're all aware of where natural gas prices have been going.
We're also aware that the capital constraint that is being demonstrated by industry is constructive to the macro environment. We look forward to that continuing certainly for Cabot. With that, Leidy South, Jeff, I'm going to let you talk about when and what your expectations are.
Okay. Well, thank you, Leo. Leidy South, as you know, has been on the drawing board for a number of years, and for Cabot it's an incremental 250,000 a day out of the in-basin area, and for Seneca and the other shipper on the project, it's 330,000 a day from the western side of northeast PA. For Cabot, the expansion involved a couple new compressor stations and some expansion of existing stations. Those projects are pretty much complete. A little bit of testing to be done and some regulatory approvals to wrap that up. We do anticipate a full in-service on December 1st. However, there could be some volumes available prior to that. We likely time that out sometime during August. For the rest of the project, that includes some pipe replacement. It's on schedule. We do have bi-monthly updates with Williams and Transco, and everything is on schedule.
Incrementally speaking, for Cabot, it does move quite a bit of volume out of in-basin pricing down to the Mid-Atlantic area. For the most part, we've already secured markets. We have some opportunities and some options yet that we're going to wait and see on. We will pick up primarily the difference between Mid-Atlantic pricing and in-basin pricing. Although our expectations this winter is in-basin pricing will materially improve with the low eastern storage levels and other fundamentals.
Okay. Thanks, guys.
Thank you, Leo.
Your next question comes from the line of Arun Jayaram with JPMorgan Chase. Your line is open.
Yeah, good morning. Maybe a follow-up to Leo's question on Leidy South. Dan, can you give us maybe your thoughts on how this would influence your views on differentials in 2022 when you get that expansion? Also just wondering if you could maybe remind us of the transport costs on that pipe.
Yeah, I'll just make a color commentary, Arun, and then let Jeff follow up. My view of the differentials is it is going to be very constructive. We realize the reason for this, having higher differentials is just the gas on gas competition, exacerbated by too much production, too little takeaway. Greater than a half a BCF a day into other markets and out of the basin, essentially just right out of our neck of the woods, is going to be constructive. We feel very good about it. I think we'll see improvements, you're already seeing out there some improvements from today as you move out. We're constructive and look forward to the other in my commentary, we look forward to the other pipelines in between the 2022-2024 period to be constructive for the differentials up in the Northeast.
Great. Just my follow-up, Dan, is we are getting, call it a near term kind of price signal on natural gas, but the back end of the curve still remains below $3. Obviously, it's maybe a different decision with the Cimarex merger, but I just wanted to get your thoughts on what type of price signal would you need to think about adding a little bit of growth to the market? Because obviously the prices today are well above your hurdle rates in terms of getting an adequate rate of return.
Yeah. We have a program that's lined out, as we've discussed in the past, as pretty close to maintenance or very low growth. Right now our plan is to stick with that. You can look at impacts on differentials and you can look at your program, it makes sense for us to deliver into a market that is well tuned on supply and demand versus one that's oversupplied. We think that makes more sense. We think it is of more value to the shareholders not moving as much gas out of your inventory, your asset base for a better price point than moving more gas out of your inventory for a less price point. We're pleased with how we're programming going forward. The increased price is not going to be the driver.
We look at the dips, the realizations, and more importantly, we look at the takeaway that's coming and then measuring its effect on the dips going forward. I'll let Jeff make a comment also.
Yes. Back to your first question. Would not argue that the fundamentals have driven or at least the differentials to a point where in shoulder months and with other factors, they've been a little bit disappointing this year. I spoke earlier about the pipe replacement on the Leidy system for the Leidy South expansion. That was a huge issue in May of this year. Did not affect Cabot operationally, but in the basin, we saw differentials drop from about $0.80 down to $1.80. Not really for any good reason, but the market should not anticipate the duration of the pipe replacement by Transco. All that said, as back to your original question, the rate is $0.50 per MMBtu for Cabot on our end to get out of the basin down to the Mid-Atlantic market.
That compares to a $0.65 rate that we currently have on the Atlantic Sunrise project, which was, of course, the original foundation pipeline.
Great. Thanks for your color and congrats to your team for not hedging. That looks to be a good call today.
Thanks, Arun.
Your next question comes from the line of Josh Silverstein with Wolfe Research. Your line is open.
Thanks. Good morning, guys. Just wanted to talk about the stock price and the forward curve. Your stock's down 12% over the past year, while the 2022 curve is now up about 35% over that time period. Why not try to get aggressive, given that dislocation that you've had that's out there right now, buy back your stock, try to really take advantage of this environment? It just seems like that's probably the only way to get this to close right now, given some of the uncertainty around the transaction. Just curious around that.
Yeah. Josh, I'll let Scott respond to that. We still have all the arrows in our quiver. We are also certainly been disappointed with where our stock range is. I'll let Scott handle that.
Yeah, Josh, I think it's a very good point, and I think under normal circumstances, and what I mean by normal circumstances would be Cabot standalone, that would be higher on the discussion list. Particularly it would've been this week in our board room, in our board meeting, especially with Matt modeling, looking at the fact that we're looking at double the free cash flow generation in the second part of the year. Our standalone commitment to return 50% in cash, still plenty of availability to make that. What changes that dynamic is the announcement of the merger, but also all the things that we've laid out in anticipation of the closing of the merger, the special dividend and those aspects.
We want to make sure to manage our capital in this transitionary period so that when we come out together by the end of the year, at early fourth quarter close, but by the time we report at the end of the year, we're still as rock solid on the balance sheet. This, as Dan said, will still be an arrow in the quiver. We have had a couple of shareholders talk to us about this in investor calls more recently. As you know, when you look back at us, it has been part of our dynamic and will continue to be part of the dynamic going forward. As you know, in the announcement, I am still in the same chair in the combined organization. Appreciate the question.
Not the right time at this moment, but get past all the noise of the merger, and I think it's definitely on the table for a big discussion.
Got it. Thanks. Yeah, I agree, I mean, I think the stock would be higher without the uncertainty of the transaction there. Just on the free cash flow estimate that you've outlined for between now and 2024, the $5.7 billion, can you just talk about some of the assumptions behind that? How much comes from the Cimarex asset base versus your asset base? What are the assumptions around it? Are you guys basically in maintenance mode in Northeast P.A.? Just any sort of assumptions around that would be helpful.
Well, Josh, our free cash flow, as we mentioned, I think in the second half of the year, is going to be, say, double our first half of the year. It's just looking at what our capital program allocation is and looking at what we anticipate the realizations are going to be. I know your models out there are starting to pick a significant unhedged volume and rolling into 2022, looking at our forward curve on the 2022 free cash flow, which From our internal models is significantly better than we had started looking at it earlier in this year. Right now, our cash flow is designed on our expectations, designed on the macro and our capital program that we've given guidance for.
All right, thanks, guys.
Thanks, Josh.
Your next question comes from the line of Doug Leggate with Bank of America. Your line is open.
Thanks. Guys, I appreciate you getting on the call this morning. Dan, I've got two questions. I guess my first one is on takeaway capacity. You've kind of laid out, albeit it might post-date the merger, but you've laid that in there for your input to the strategy, I guess. You've laid out the takeaway capacity expansion you expect over the next couple of years. Does that move Cabot back to expansion mode on the standalone assets? If so, what would you see as your return to that?
Let me interrupt you one second, if I could. Your phone, and I'm talking to Phyllis also. Your phone is cutting in and out, and I am having a very difficult time receiving your question.
All right, I've picked up the phone. Is that any better, Dan?
Yep. Let's try that.
Okay, I'll try. My headset's obviously playing up today. Sorry about that. My question's on takeaway capacity and what it means for Cabot's longer-term plateau production level. What do you think you can get to, albeit with You're obviously not going to be in the chair longer term, and a lot of that is online, but what do you think the ultimate takeaway production capacity could be for Cabot longer term? That was the simple part of the question.
The ultimate production?
Yeah, the plateau.
Yeah. With the line of sight you have on takeaway capacity today, what do you think you can get to over the next couple of years?
Well, I'm not going to speculate out that far. We have an enhancing takeaway capacity in the basin by the Leidy South and the PennEast and the Regional Access. We're pleased to see additional takeaways there, Doug. We have a long runway of premier locations out in front of us. We've managed our program right now to glide on a maintenance capital in light of the macro. Right now, the shareholders like to see a significant amount of free cash flow. They also like to see a strong balance sheet. We're able to deliver both of those, but I would only be speculating as far as maybe the timing of those lines, when they would be commissioned, and what the macro market is way out in front of us to answer that.
I can say this, if you just wanted to drill wells and drill them for a long time and bring in the equipment and frac crews to be able to get that done to increase production, it could increase significantly from where it is today. I mean significantly, but I'm not going to speculate on the amount and where it might go in the next couple of years.
Yeah. Matt's done a pretty good job explaining how you guys kind of led the charge on capital discipline during your tenure, Dan, so I congratulate you on that. My second question, if I may, is really on the merger. Again, for Cabot, this has clearly achieved a lot of things. The S-4 is now out. We can all see what happened. I'm just curious to the extent you can share from the discussions you've had with your shareholders, are you at all concerned about the pushback from Cimarex shareholders that are going to own a much gassier company, and as the selling company did not run a process? Are you concerned that that could get in the way of this closing? I'm just curious of your perspectives on that.
I am kind of constrained somewhat on the details of the merge, but I will say this, that we're combining these companies for the reasons that I outlined in my comments. It's going to be a much stronger company, more resilient company, and positioned to drive a significant free cash flow across the cycles. We're seeing cycles right now where natural gas is having its another day in the sun, and it's enhancing the cash flow of Cabot. I think it's a benefit to both Cabot, and in a combined world, it would be of benefit. Long term, and you look at the natural gas as a dynamic energy product of the future.
I don't know how you can not embrace a combination that creates the resiliency and the type of company that we're going to have going forward with an extremely strong balance sheet and with a disciplined objective of delivering significant free cash flow back to shareholders. I don't know how any shareholder could not be excited about the future of this combination.
Yeah, I think the issue is lack of industrial overlap. Don, as I'm sure you know, because all of the above could've been achieved with a lot more synergies, I think is the issue. I appreciate your comments, and thanks so much for the answer.
Thank you.
Your next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open.
Yeah. Good morning, team. Just wanted to follow up on some of the slides as following the announcement then of the acquisition. You talked about a variable dividend, and you put out a reasonable P50 estimate of what you think the special or dividend could be. Can you talk about as you look at the forward curve into 2022, give us an estimate of what you think that variable dividend could look like next year?
Yeah. I will say this, I think the variable dividend is going to look very good and in particular, compared to the way it looked at the beginning of this year. However, I'll let Scott give it some color also.
Yeah. Thanks, Neil. Remember the variable dividend, or we called it supplemental in ours, was to return at least 50% of the free cash flow in cash back to shareholders. That is memorialized going forward in the new company. Obviously, in the new company going forward with the broader base, the broader commodity mix, obviously the higher realizations on the oil side, it's going to be fairly robust in terms of not only what's part of the variable, but the increase in the base dividend to the $0.50 level. That's also been pre-announced for the transaction. Again, we've got to come together, put the models together, put combined guidance out in the new year. I think it's safe to say that, remember, the key point in that message was a minimum of 50% of free cash flow being returned in cash.
Okay. Great. Then the follow-up is just on the Henry Hub gas market here. As you think about overall gas flat price, if we do have a cold winter, you can start to really design some real upside scenarios. Can you talk about what you ultimately think creates a ceiling on natural gas in that scenario? Historically, we've thought about gas to coal substitution as the balancing item, but with as much coal fire capacity having been shut as it has, that mechanism might not be as pronounced. You also have the potential for Canadian gas flow, for example, or shutting down the LNG arm. How do you think about what is the mechanism on the natural gas side that can offset the potential demand impact of a very cold winter?
Thanks, Neil. I'll turn that to Jeff, our gas expert.
Neil, that is an intriguing question because we thought about that here, too. The impact of demand across the country currently with record exports into Mexico and obviously a very robust LNG export market that is fairly consistent day in, day out. You have a few hiccups here and there with fault and maintenance and things like that, but it's been fun over the last couple of years to watch this demand increase. Even in the Pacific Northwest, you mentioned the Canadian imports. It's been interesting to watch as we see hydro up there in the commission has been more exports from Canada headed in that direction and then to the upper Midwest. That's actually influenced the storage levels in the upper Midwest. I think they're somewhere well over 100 Bcf below this time last year, same as the East storage levels.
Your question about how high can it go is a good question. In our hedge committee meetings, of course, we think about that, or we file wish about that. Fundamentally, we're set up for a good year-over-year of capital in place. Yes, if we get a good winter in certain spots of the country this year, it'll tax the system, and there will be price increases. We're prepared to meet the commitments of our customers. The storage levels will not get to where they were this time last year. That's a well-known fact. How high can it go is relative, particularly in the N.Y. market, the Boston market, the Chicago market, and other areas that do lack the amount of storage that we had last year. If I was a gambler or a speculator, I don't know if there is a cap necessarily for.
Is it $4, $5, $6? We've seen $8 in the non-New York market in the past. I think it's all on the table at this point.
Thanks, Jeff.
Thanks, Neil.
Your next question comes from the line of David Henneken with Pickering Energy Partners. Your line is open.
Good morning, y'all, and thanks for taking the question. I wanted to make sure that I'm thinking about one of the synergies of the merger correctly. For standalone Cabot, we had your cash taxes increasing over time, just given where you were, and now particularly with the increase in commodity prices. I just wanted to get some of your thoughts on deferred tax percentage. Once you're merged, you get the benefit of the Cimarex NOLs. If you could talk a little bit about how cash will change in the Cabot standalone and then the new company. That'd just be helpful to quantify that benefit to y'all.
Well, I have both Matt and Scott here, and we have all kinds of modeling run on all that. Getting into the details, David, we can do once we get all the shareholder approval.
Maybe what would your cash taxes have been just standalone?
Yeah.
Would be helpful.
Okay.
They don't have to talk about the post-merge.
Yeah. Okay. Thanks, David.
David, it's Matt.
Yeah, that's better.
We're currently 30% deferred this year, 70% current. That continues to be the case even with this higher margin environment that we're looking at today. As we roll forward to 2022 and beyond, if we were standalone, we would see that number deferred start ticking down a little bit, especially in the $3.50 environment. I don't know if that's 20%- 25% next year or something along those lines at $3.50. It's obviously going to be very sensitive to movement and pricing and obviously what we're doing on the capital front as we're able to take advantage of our IDCs.
Yeah. Just moving commodities makes this deal look even better for y'all as you get that benefit. I was just trying to quantify it. That's helpful. Thanks, y'all.
Thanks, David.
This concludes our question and answer session. I would like to turn the conference back over to Dan Dinges for closing remarks.
Thank you, Phyllis, and thank you all for tuning in. We look forward to the future for our Cabot shareholders, and we're extremely excited about the combination with Cimarex, the quality of people they have, the asset quality they have. It's a bright opportunity for the future for both shareholder groups. We are certainly committed to be able to deliver all that we've represented to deliver, if not more, once we obtain the shareholder approval and get closed in the early fourth quarter. Thanks again for your interest, and we look forward to the next meeting we have. Thank you very much.
This concludes today's conference call. You may now disconnect.