Good morning. Welcome to Cabot Oil and Gas Corporation's 3rd Quarter 2020 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would now like to turn the call over to Dan Dinges, Chairman, President and CEO. Please go ahead.
Thank you, Kate, and good morning. Thank you for joining us today for Cabot's 3rd quarter 2020 earnings call. As a reminder 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.
2020 has proven to be a challenging year on many fronts across the global market. I hope each of you and your families have remained safe and healthy through this unprecedented time. The natural gas industry specifically has had its fair share of challenges driven by the lowest NYMEX price on record in the last 25 years. However, the strategic actions we have undertaken since we first began leasing in the Marcellus Shale in 2006, which includes numerous divestitures of higher cost assets with proceeds utilized to maintain a healthy financial position, have positioned our company for continued success even in the very lows of the natural gas price cycle. While we are certainly not immune to lower natural gas prices, our low cost structure, strong balance sheet and disciplined capital allocation strategy allow us to continue to generate corporate returns and free cash flow even in this current price environment.
The good news is that we are already experiencing significant tailwinds for the natural gas supply and demand outlook, driven by large declines in natural gas supplies across the U. S, coupled with an improving demand outlook heading into the winter heating season. As a result, since our early March, we have seen over a 35% increase in the NYMEX futures for 2022 to the current levels that are above $3 which would result in a material expansion of net income, free cash flow and return on capital employed next year. While we're extremely proud of our team's ability to successfully manage our operations during the ongoing pandemic, while generating positive free cash flow in this low price environment. We believe better days lie ahead for Cabot in the 2021 beyond.
For the 3rd quarter, specifically, we generated adjusted net income of $37,300,000 or $0.09 per share and delivered a free cash flow breakeven program despite a 26% decline in realized natural gas prices relative to the prior year comparable period. Our production for the quarter was approximately 2.4 Bcf per day, which was inside our guidance range despite price curtailment during the last 13 days of the quarter that were not included in our original guidance. Our unit cost for the quarter improved relative to the prior year period and we continue to look for opportunities to improve on our peer leading cost structure even in a flat price flat production environment. On the operational front, in yesterday's release, we provided the initial results of our 5 Upper Marcellus test this year, which have been producing for an average of 140 days. Based on the curve fit to date, these wells are tracking above the average EUR of 2.7 Bcf per 1,000 lateral feet that we reported at year end for our 2018 2019 Upper Marcellus wells.
We believe these results continue to demonstrate the productivity of this distinct economic interval across our 1 173,000 net acre position in the core of the dry gas window in Northeast PA. As a reminder, we plan to allocating modest amount of capital to the Upper Marcellus annually as we continue to refine our well design and lateral placement across this interval with the intent of moving to full development of our Upper Marcellus inventory at the tail end of this decade. We also continue to evaluate the optimal lateral length across our asset And at this point, we expect to develop the Upper Marcellus at an average lateral length greater than 10,000 feet, which would provide significant well cost savings, further improving our economics of our Upper Marcellus inventory. Despite the questions we continue to receive on this high quality reservoir, we have over 60 Upper Marcellus wells that on average have been producing for over 5 years, which continue to reinforce our confidence and the opportunity that awaits us when we move to the full development of this section. In yesterday's press release, we also reaffirmed our 4th quarter production guidance range, which includes the impact of previously announced price related curtailments as well as our full year production and capital guidance.
While our current year expectation for differentials in 2020 is slightly wider than originally anticipated, which is primarily due to wider local basis in September October resulting from weaker shoulder season demand and the east storage levels nearing capacity. However, we are still on track to generate positive free cash flow and far exceed our return of capital target of at least 50% of our free cash flow for the 5th consecutive year. Despite reducing absolute debt earlier this year through the repayment of our maturity in July, we have seen a moderate increase in our leverage ratio due to lower EBITDAX resulting from the low price environment. However, we still ended the quarter with a healthy debt to EBITDAX ratio of 1.5 times and expect a significant deleveraging in 2021 through a combination of higher EBITDAX resulting from improved price realizations and lower absolute debt levels as we plan to utilize a portion of our expected free cash flow next year to retire our 2021 debt maturities. We also initiated a preliminary guidance for 2021.
This maintenance capital program is expected to hold production levels roughly flat year over year at 2.35 Bcf per day from a capital program of $530,000,000 to $540,000,000 representing a 7% reduction in capital spending year over year. The reduction in capital is driven by a combination of operating efficiency gains resulting from the utilization of leading edge technology across our operations and lower anticipated service costs. Our program for next year would generate a sizable expansion in free cash flow year over year, allowing us to not only cover our base dividend and retire $188,000,000 of maturing debt, but to also opportunistically return incremental levels of capital to our shareholders. We remain committed to returning a minimum of 50% of our free cash flow to shareholders annually, which we have far exceeded over the last 5 years and we'll continue to evaluate the prioritization of incremental capital return between growing the base dividend, specialvariable dividends and opportunistic share repurchases. It is our belief that depending on where we sit in the commodity price cycle, certain capital allocation options offer more value creation than others and that maintain financial flexibility is paramount, especially in a cyclical industry like ours.
We are often asked what price level we would consider investing in growth again. While we have never believed in growth for the sake of growth, we do believe there are certain price environments that warrant disciplined investments in the expansion of operating cash flow, especially as lowest cost producer. However, with the current natural gas futures in 2022 and beyond in backwardation and well below the $3 plus environment we are anticipating in 2021, we do not believe this is the appropriate time to consider growing our production base. We do have new takeaway capacity coming on the Leidy South expansion project, which a partial path in service was recently requested for as early as this December. This project will provide us additional access to premium markets in the Mid Atlantic.
So if natural gas prices continue to rise in the out years, we have new outlets to support incremental value enhancing growth. However, as we previously stated, our capital allocation priorities for next year are focused on maintaining our current production level, funding our current dividend, retiring our 20 21 debt maturities and opportunistically returning incremental free cash flow to shareholders. In order to ensure that we are able to deliver on these strategic objectives for 2021, we have begun layering in hedges by opportunistically locking in downside protection while maintaining some level of market price exposure if natural gas prices continue to move higher. Specifically, we have primarily targeted costless collars approach with a weighted average floor that generates a compelling return on capital employed and a level of free cash flow, while still providing the potential for upside to the ceiling if prices remain higher. Currently, we have approximately 23% of our volumes hedged through financial contracts and an additional 16% of our volumes protected through floors and our physical sales next year.
We will continue to use market rallies to opportunistically add to our hedge position and improve on our current floors and ceilings. Lastly, I'm pleased to announce that yesterday we posted our inaugural SaaSBI Sustainability Report to our website. At Cabot, we strive not only to be a leading independent producer of natural gas, but to also be a leader in safe, responsible operations and to minimize the impact of our operations on our employees, our community and the environment. Our success in developing abundant unconventional supplies of natural gas helps to support the goal of reducing total greenhouse gas emissions while achieving energy independence in the U. S.
Cabot's legacy of corporate responsibility places high value in operating with respect and care for people, property and the environment. We believe this commitment along with our operational success will continue to create strong value for our shareholders and other stakeholders in our communities. We are proud to report that our greenhouse gas emissions intensity for 2019 was 1.3 tons of carbon 3.1. Oh, darn. Scott just corrected me.
3.1 tons of CO2 equivalent per 1,000 barrels of oil equivalent. This significantly lower than the production weighted average intensity of 15 tons of CO2 equivalent per 1,000 barrels of oil equivalent for reported by INVERS based on the 2018 publicly available data. We currently evaluate new opportunities and continuously do this for emissions reductions to ensure that Cabot is among the most efficient and lowest emitting domestic producers. We also believe our elimination of flaring in the Marcellus, which began in 2014 and our strong performance in water management, including recycle 100% of our water recovered in our Marcellus drilling, completion and production operations, which began in 2011, will continue to make us financially and environmentally superior as pressures for lower carbon and water conserving economies and economics intensify. I hope you will each take a good look at our SASB report.
We are extremely proud of how we measure up against peers and the desires of the investment community on all the metrics included in our report. In summary, Cabot's track record of disciplined capital allocation focused on generating improving corporate returns and increasing return of capital to shareholders, which is underpinned by strong free cash flow generation and an ironclad balance sheet as well as our continued focus on corporate responsibility and demonstrates our history of safe responsible operation that support the goal of reducing total greenhouse emissions does position us favorably not only today, but for decades to come as it is our belief that natural gas will continue to play a significant role in the domestic energy supply going forward. And with that, Kate, I will begin to answer any questions.
We will now begin the question and answer Our first question is from Leo Mariani from KeyBanc. Go ahead.
Hey, guys. Just a quick question here on the gas markets. To your point, we've seen NYMEX futures prices strengthen materially over the last month, which is certainly quite encouraging. I guess at the same time, we've seen quite a bit of weakness in physical markets in Appalachia and I guess a lot of the other kind of key gas producing regions around the U. S.
So definitely looks like there might be a bit of a disconnect in terms of what we're kind of seeing in futures versus physical. Just kind of wanted to get you all's opinion in terms of what you think might be driving some of that? And do you think those prices need to start to converge as we get deeper into the winter here?
Yes. Thanks, Leo. And yes, I'll turn this to Jeff in a second here, but we have seen the shoulder months, September October being difficult, typically difficult at that time of year, but the storage levels exasperated that perception for a while, but we did see on week over week injections in a comparative sense be less than certainly less than last year and majority of them less than the 5 year average. And I think that is moving into now to your point about convergence, I think that's moving into now the market converging rapidly as we've seen towards the latter part of October, an increase in the physical space. I'll let Jeff make a comment also.
Yes, sir. Good morning. Dan hit the nail on the head with the storage number primarily in the East. The East typically fills up for us their storage levels, but this year they were full quite early. And so with some really mild shoulder months, we did see our basis differentials widen out a bit in contrast to what NYMEX has done.
And I think when you look at NYMEX and what's driving it, you see an exit rate on U. S. Dry gas production close to 5 Bcf a day, less than the previous year. Obviously, that's helping NYMEX. You also see the capital discipline in the marketplace today, particularly among the gas guys.
That helps NYMEX, of course. So we're encouraged in a normal winter and we're prepared for that to for these base differentials to return to a somewhat more normal level.
Okay. And just to follow-up on that. Clearly, to your point, we're starting to see physical prices improve a little bit. Would you guys expect that those physical prices continue to rise this winter? But is there also a risk that maybe we see some downward pressure on those NYMEX prices for kind of prices to meet a little bit more in the middle?
Well, again, I think we're early into the winter weather season and it's encouraging. We had snow today in Boston. That's always a good thing in October. But it's going to be somewhat of a weather play. We've worked really hard to insulate ourselves from just being a weather play.
We've got a lot of physical fixed price contracts in place with high floors. We have, as Dan mentioned, started our hedging program. NYMEX is a result of demand and supply and demand is a function of weather in a lot of cases. But we've again, we're prepared for that. And I think the increase in NYMEX over the last 5 months and including a big increase in 2022 over the last 5 months is a real encouraging factor.
I'll also add that where the prices are right now and you look at the just the fundamentals that are out in front of us that you do have an undersupplied market going into this winter. With an undersupplied market, if you do have a colder winter than expected, it's going to certainly move the price up. But I think also equally as important, if you have a normal winter or even a warmer winter with the undersupplied market, I do think there is a higher floor that's been placed under the market based on these fundamentals and particularly where we have seen a very strong rebound in the LNG going from back in March, April, 3 Bs a day export to recently 9 and pushing 10 Bcf a day export in LNG in the last couple of days.
Very helpful color for sure guys. I was hoping you could maybe just touch base on the returns of capital. Clearly to your point, Dan, there should be significant excess free cash flow in 2021. You kind of talked about a number of different options, variable dividends, special dividend, buybacks. Clearly, to your point, clearly market conditions at the time in terms of where the stock is and where gas is will determine a lot of that.
But can you maybe provide a little bit more color in terms of how you kind of think about those different options for next year and kind of what sort of the key things you're looking forward to choose 1 versus the other?
Well, as I mentioned, our first commitment is to our stated dividend. We also are going to take care of our $188,000,000 maturity. That's important. You look at our history and in the last 5 years, we have returned a significant level of capital to our shareholders over $1,000,000,000 We've had a 5 times. We have increased our dividend and we have also brought back in about 14% of our outstanding shares by repurchases.
But to a prioritization, as I mentioned, dividend, maturities, but it has been our intent to deliver a minimum of 50% of our free cash flow back to shareholders. We'll continue to do that. We referenced earlier a special dividend consideration, variable dividend proposition that some have outlined and made it a little bit more formulaic. We have not gotten to that stage yet. But if you look at our history as an example of what this management group considers and the Board, we have given back a lot of our free cash flow over and above the 50%.
Okay. Thanks for the color.
Thank you.
Our next question is from Charles Meade from Johnson Rice. Go ahead.
Good morning, Dan, to you and your whole team there.
Hey, how are you doing, Charles?
I'm well. I'm doing very well. That's kind of you asked. Thank you. Dan, we the outlook for prices is really, really interesting.
Of course, we've got some rosy possibilities out there, but we'll have to wait and see. What I'm curious about is what levers you may have or may have set aside on your 2021 plan. And as I look at your capital guide, with just a $10,000,000 window, that looks like to me that the message is even if we do see a higher price spike, you guys aren't going to change your plan at all. And I guess my question is, is that the right read to take from your CapEx plan? And the follow-up being, are there other levers you could pull perhaps something like increased compression if you happen to see really strong spot prices for a couple of months?
It's a good question. And we referenced in my comments that we're not going to grow for the sake of growth and that there is a point that capital efficiency would make sense to allocate. But really the way we see the market right now, Charles, and even at a slightly higher price point than where it is right now, we think that the capital program that we've laid out in the range of $530,000,000 to $540,000,000 is the appropriate program. We think a maintenance program is appropriate at this stage. You have to look at right now the early winter season, you have to look at there is still a couple of 100 Bcf over comparison between this year's storage levels and 5 year average and last year's storage levels.
We are moving into an undersupplied market. We have uncertainty with winter out in front of us. So I think that from our perspective and looking at what's prudent for the health of Cabot and this industry that we are better served to stick with a maintenance capital program and that's what we're going to do.
Got it. Okay. And then the follow-up on the Upper Marcellus, just to dig in and see if there's any other maybe detail you guys would give it. It's you talked or you talked about in your press release and you spoke about it. Could you clarify, is are all are each of those wells individually above that 2.7% type curve?
And or is it the average of those being above the type curve? And what are you learning with what you're seeing in the variation between those Upper Marcellus wells?
Yes, we had those wells we referenced are wells drilled off 3 different pads and distinctly different areas of the field. And obviously, with an average of greater than 2.7, there's variability between the wells. And what we're seeing in my comments I made and what we're trying to do with our capital allocation right now with complete confidence in the distinct nature of the zone, we have a thick per cell barrier between the upper and the lower. We gather data on any effects of offset wells that we've drilled and each of these wells were drilled near previous drilled and producing Lower Marcellus wells and we saw no effects on the Lower Marcellus wells, again, clear evidence of the distinct nature of the Upper Marcellus. But we are learning from our frac recipes and the landing position that we have been looking at in various different sections and a tweak of a frac recipe on various different landing sections to determine do we see differences in the results.
So it's an early game and we're just gathering data like every operator has done when they go into a new shale play. The upper is a new shale play with the 60 or so wells that we've drilled in it. We're learning continuously as we go. We're not carrying the we learn from our lower Marcellus and what we do there, but we also know the upper is a distinctive reservoir to the lower. So we're going to be well educated as we roll into our full development at the end of this decade, we'll be well educated and ready to roll forward with greater than 10,000 foot laterals and an enhanced return profile for our Upper Marcellus wells.
Thank you for that added color, Dan.
Our next question is from Arun Yauravaram from JPMorgan. Go ahead.
Yes. Good morning. Arun Jayaram from JPMorgan. You've talked about the backwardation in the curve currently not incentivizing you to grow. And it's clear that generating free cash flow is your main priority.
But the question is, at what price level would you need to see longer term in terms of the strip for you to pivot to call it some moderate level of growth?
Yes. Higher than where it is, we have you look at the backwardation and referenced 2022, it has increased, Jeff referenced, I think $2.75 plus or minus is where 2022 is right now. The current strip is north of $3 for 'twenty one. We are going to be able to generate with the market what we see today in front of us. We've layered in some good floors to protect a very good program for 2021 that's going to deliver significant free cash flow, greater than we've seen this year, Full coverage we feel on our dividend and debt maturities and also incremental free cash flow above that, we think we're going to be able to see that.
We're looking again with anticipation on the winter and what it does to the markets. We have, for example, gas available for the non New York market up there in New York. That non New York market up there last year, as a reminder, averaged about as a $1.70 premium market to NYMEX in the Q1 of 2019. That also just as a footnote on what that does to an annualized differential out there and certainly compresses the differential that we see in the in basin area. So to answer you specifically, I'm just going to focus on and my preference is to focus on right now what I think is better far Cabot Oil and Gas is better to focus on our commitment to a maintenance capital program at this time.
We think that is important for the industry and we think that our commitment and conviction to that at this point in time is the prudent position to take.
Great. And Dan, just my follow-up, you got the Leidy expansion coming on next year. Can you talk about any views on how this could impact basis differential and transport costs in 2021 and beyond?
Yes, it's a good question and I appreciate it. I'm going to hand the baton to Jeff.
Yes, good morning. Yes, Lighting South is a rail force project, not only for Cabot Brothers in the basin. And essentially in the Northeast area of the country, greater than half a Bcf a day, it's 580,000 a day of new takeaway. Super majority of that gas will be existing gas that's coming off the Leidy system and maybe a little bit off of Tennessee, for example. So for Cabot's position, 250,000 a day down to the Mid Atlantic marketplace is will improve price We felt like there was a little bit of gas supply from that project.
It was going to compete with us. And since that's no longer there, that's another good indicator for habits realizations. Overall though, I think the basis differentials in Northeast Pennsylvania for all the pipes will improve significantly just like the start up of Atlantic Sunrise project. So we're encouraged that there is in fact a good possibility that there'll be some early service available to the shippers on that project. We're hopeful that that could be as early as this winter.
More to come on that, but it's definitely an improvement to get another major takeaway project in place.
Great. Thanks for your color.
Thanks, Brian.
Our next question is from Brian Singer from Goldman Sachs. Go ahead.
Thank you. Good morning.
Hey, Brian.
I wanted to follow-up on Arun's first question. You had talked, I think, in your opening comments about the forward curve for '22 being below the $3 plus that you're kind of seeing for 'twenty one. And I wondered if you could just talk philosophically on how you think about what that price point is where you would move away from maintenance mode? Is it based on where peer supply cost is? Is it based on a higher cost of capital relative to what would have been used in the past to try to drive supply costs?
Or is there a clawback in return of capital to shareholders above and beyond your debt pay down target, given that this year was a pause for understandable reasons? Just some philosophy on how you would make that decision.
Well, I really look at the start with the macro environment, Brian. The macro environment has been oversupplied and that oversupply has made it extremely difficult and challenging for our industry. You can look at the balance sheets across the space, both natural gas and oil producers balance sheets has a level of stress that is going to be sticky. And when you look at the ability to delever in a market that is such a challenged and maybe oversupplied market in light of this pandemic, it is not in our best interest from a capital management standpoint to stress our balance sheet. And we think at this period of time with the prices we see out there that if we are going to see higher pricing, a return of that capital to our shareholders in the form of the dividend, in the form of special or variable dividend, also again taking care of our $188,000,000 debt maturity is the most prudent use of capital.
If there is a disconnect in valuation to your point and part of your question, if there is a disconnect in valuation about what we think is a value of Cabot stock. It is not as higher priority as a dividend to us, but we have bought back shares in the past and that's certainly not off the table in the future.
Got it. Thanks. And then my follow-up is, can you provide any update on litigation with the state of Pennsylvania?
To comment on that, it's risky. And I can say this that we have just ongoing discussions on the litigation and we feel like that there is progress being made.
Great. Thank you.
Our next question is from David Deckelbaum from Cowen. Go ahead.
Pardon? Hello? Hello, Dave?
Yes. Can you hear me? Yes. Now I can, yes.
Sorry about that. Good morning, guys. Thanks for the time. Dan, just a lot about your philosophy going forward. I guess I have just two questions.
You talked about the 'twenty two curve, the backwardation there. I guess longer term, if we're thinking beyond 'twenty two, if we're in the range where you're getting somewhere in the realm of $4,250,000 of realized gas, If we're thinking 2023 and beyond, is Cabot a production oriented company in addition to income? Or do you still think that this is becomes a construct for a very long term maintenance plan with the upside in the commodity just return in the form of free cash?
Yes. And you are breaking up a little bit, David, but think you'd indicated that at a $2.40 $2.50 realized, how do we reflect and beyond 2022, how do we reflect on growth versus maintenance. Don't take my statements today as we are going to maintain in a maintenance program forever. We are we understand the value of growth. We understand what growth can do for us.
And at the right opportunity and when we see the right macro outlay out in front of us and if we can feel confident about the macro environment that growth can be and will be in our future. But right now, today, we are laser focused on the maintenance program, but I would be surprised if in the future as the macro market continues to improve that we don't consider growth.
I appreciate that. And my follow-up to that is coming through clearly is, I guess, the Appalachian market now being very seasonally driven, weather is obviously very determining factor. This past year, there were a lot of fabric and storage filling up faster than expected. This year you've shown some production in September, October. As you go into next year, are you looking at optimizing around free cash?
Is any consideration to sort of waiting your completions to be more seasonally advantaged, shying away from shoulder periods where you would have even extreme weakness in your orders? Or is it something that's better dynamic with keeping completely steady and consistent throughout the year and just adjusting things at the well if need be?
Yes. We have a very low capital intensity program. We only have and had 2 rigs 3 rigs running for 2020. We've had 2 frac crews, now 1 frac crew working up there. And to measure the cadence and to be able to time it just exactly right is difficult because we don't have many pad sites.
And if you look at our gathering system, even though we have a great header system and we have flexibility within the gathering system, We do manage when and the timing we bring on the gas through the field in order to have the most efficiency of newly produced gas having the maximum positive effect without increasing any area of our header system pressures to where it might reduce older wells that are on the system. So it's a lot of moving parts. We do take that in consideration what you're asking about, David. We do take that in consideration and we have also brought wells on at a lower cadence in anticipation of a better price point looking ahead if that opportunity is available to us and we'll continue to do that in the future.
I appreciate that. If I could just ask one more quick one. One of your peers recently paid PDP-seventeen for an asset, primarily looking at it as a source of sort of inexpensive free cash, considering that that's something that you're squarely focused on now in returning capital. Is Cabot out there in the market looking at, in other words, just cheap sources of free cash in the basin that you'd able to potentially optimize and use some of your currency?
We're always interested in a value proposition. The idea of free cash and one of the luxuries that Cabot does have is we generate free cash. We have extremely strong balance sheet and we feel good about our organic operation being able to generate free cash. The value proposition of buying assets on a PDP basis, which I think any asset today if it moves, it's probably going to be on a PDP basis. If it fits in our wheelhouse, we'd consider it.
But there's and I'll add that every deal that we're aware of anywhere out there, Cabot's internal team does a high level scrub on it and we do also an internal evaluation on can we have incremental accretive value added to Cabot shareholders on every deal out there, Every single deal that we know about out there, David, we do that. So to your point, would we do it on basin assets? Sure. We look at it because we do that as part of our DNA.
Thanks, Dan. Appreciate the time.
Yes, you bet.
Our next question is from Kashy Harrison from Simmons Energy. Go ahead.
Good morning all and thank you for taking the question. So just one for me. Are there any other large takeaway projects in Appalachia other than Leidy South MVP and then the MVP expansion that have a reasonable potential of getting through the finish line? And if not, does that mean that for all intents and purposes, Appalachian production really only has maybe another 10 ish percent growth, maybe about another 3 ish Bcf of growth Bcf a day of growth moving forward?
Yes, Kashyat, I appreciate the question and I'll make a color statement then pass it to Jeff. But the Leidy South is the near term project. There's other projects on the book that Jeff can cover. But in addition, we also have a business development group that is in search of in basin demand projects that would require incremental infrastructure, but it would not be in the form of long haul pipes. Those conversations have been had in the past.
Certainly, the pandemic has slowed down some conversations and getting together just by the sheer nature of what's going on in a lot of places. But it is our expectation that we will see in Northeast PA incremental in basin demand projects that would create demand off of our tailgate of our gathering system. Similar to, though we don't I'm not including another power plant in my expectation, But we have the Lackawanna and Moxa power plants that are classic examples of in basin demand projects that don't require long haul pipe. I'll let Jeff talk about some of the ideas in
the future. Kashy, just to pick up on your specifics about the entire Appalachian Marcellus Basin in terms of takeaway and the basin demand. Northeast PA, as Dan alluded to, is a focal point for us on in basin. We've actually taken advantage of this COVID situation and surprisingly been able to participate and muster up with a lot of trade associations. We've been doing a lot of webcast with manufacturers associations and industrial groups that are have been very beneficial and that was that's kind of a nuance in this day and age for us.
We are participating in a lot of site selection. Site selections include everything from power, water, rail, highway, workforce, permitting, tax, etcetera. So not only are we hard and fast in that area, but other cruisers throughout Marcellus. So it's hard to judge what a growth rate could be in the entire Marcellus when you have in basin demand projects throughout West Virginia, PA and Southwest PA, Ohio. And just for example, West Virginia is getting a couple of gas fired power plants next year that are replacing coal.
So it's growth all over on the in basin side throughout Marcellus. In terms of pipeline, if you look at Lake South and Mountain Valley, we got 2 Bcf a day there. We are firm believers that PennEast is going to be built. Their Phase 1 in Pennsylvania will be should receive FERC certificates any day now. If it gets here quickly, we'll see it in service late next year.
If it's delayed another couple of months, that will add to the construction time there. So PennEast is important. One of their connecting types was recently approved for construction in Adelphia. That's been in the news. So we have a new delivery point not only to the proposed Pannies delivery points on Columbia and Texas Eastern, Philadelphia will serve new markets in the Philadelphia area.
So I'm a firm believer there's going to be a number of niche projects going forward to meet the needs of the producer community throughout the Marcellus. And so I hesitate to confirm or deny a particular growth rate for all the Marcellus, but there's a lot of stuff going on and it's actually pretty exciting.
Got it. That's super helpful. Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Dan Dinges for closing remarks.
Thank you, Kate, and I appreciate everybody's good questions and attention to Cabot Business. 2020, as we mentioned, was an extremely difficult year on a commodity price point. I think we illustrated that even in this lowest price point in 25 years that we can still deliver free cash flow and maintain a great balance sheet and our operation. This is it's been a while since we've been able to look ahead and anticipate as optimistically as we are the forward strip. I think the Street also is looking at it optimistically with the number of questions that we received today on growth.
But we feel great about the position. We feel like the challenge of the commodity is going to have maybe going forward a different floor underneath it, I think which will also reinforce Cabot's ability in a cyclical market to be able to still deliver what we've been able to deliver for the last 5 years and that's free cash flow, strong balance sheet and return of capital to our shareholders. So with that, I again appreciate it. Look forward to our year end 2020 call in February and stay safe through this difficult time. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now