Good day. Welcome to the Cabot Oil & Gas Corporation first quarter 2019 earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note, today's event is being recorded. I would now like to turn the conference over to Mr. Dan Dinges, Chairman, CEO, and President. Please go ahead, sir.
Thank you, Rocco. Good morning to all. Thank you for joining us today for Cabot's first quarter 2019 earnings call. With me are several members of the executive team. I would first like to remind everyone that on this morning's call, we will make forward-looking statements based on our current expectations. Additionally, for some of our comments with reference non-GAAP financial measures, forward-looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures are provided in this morning's earnings release. Cabot shareholders have enjoyed a solid start to 2019. During the first quarter, we delivered record levels of operating cash flow, free cash flow, adjusted net income, and production underpinned by the continued success from our operations in the Marcellus and our unwavering commitment to disciplined capital allocation and cost control.
The first quarter net income was $263 million, or $0.62 per share. Adjusted net income excluding selected items was $308 million or $0.73 per share. This represents a 161% increase in adjusted earnings per share relative to the prior year comparable quarter. Free cash flow for the first quarter was $308 million, which was approximately 3.5 times the amount from the prior year comparable quarter and greater than our free cash flow generated for the full year in 2018. For the trailing 12 months, we generated a return on average capital employed of 20.4%, compared to 8.3% for the trailing 12 months as of the end of the prior comparable quarter, representing an increase of over 1,200 basis points. This ROCE of over 20% exceeds the current ROCE for the S&P 500, highlighting Cabot's competitive positioning relative to the broader equity markets.
Our success for the quarter was driven by higher production levels, improved realized prices, and lower operating expenses. Production for the quarter of 2.28 Bcf per day was above the high end of our guidance range and represented an increase of 21% relative to the prior year comparable quarter. natural gas price realizations were $3.35 per Mcf, an increase of 37% when compared to the first quarter of 2018. Our price realizations before hedges were $0.06 below NYMEX, which was our best corporate-wide differential since the second quarter of 2013. Operating expenses decreased to $1.48 per Mcf, a 6% improvement relative to the prior year comparable quarter, primarily driven by lower direct operating expenses, DD&A, and interest expense.
Given our strong free cash flow generation during the quarter, we ended the period with over $300 million of cash on the balance sheet and a net debt to EBITDAX ratio of 0.6 times, highlighting significant financial flexibility for continued return of capital to shareholders throughout the year. On the return of capital front, we announced a 29% increase in our dividend to $0.36 per share on an annualized basis, representing a 1.4% yield. This is our fourth dividend increase in the last 24 months. We expect to continue to increase our dividend methodically with an intent to grow our dividend over time to a yield that is competitive with the broader markets. Our free cash flow generation over the coming years will certainly be able to support this dividend growth even under significantly lower natural gas assumptions should the lower prices occur.
We remain fully committed to returning a minimum of 50% of our free cash flow to shareholders this year through dividends and opportunistic share repurchases. Given it is still early in the calendar year and we have been in blackout periods for the majority of the first four months of the year, we have not executed on any material share repurchases year to date. However, we fully expect to continue to reduce our shares outstanding throughout the year and have significant financial flexibility to be much more active on that front, especially if we see a continued weakening in natural gas prices that have negatively impacted our share price. Moving on to our operations for the quarter. Our Marcellus production increased 25% compared to the prior year comparable quarter.
During the quarter, we placed 13 wells on production, all of which were in March, including seven of the 13 wells that were turned in line the last week of the month. We expect to place an additional 18 wells on production during the second quarter, resulting in a production guidance range for the quarter of 2.3 to 2.35 Bcf per day, or a 2% sequential increase relative to the first quarter at the midpoint of our guidance range. On the pricing front, we have experienced some weakness in the natural gas forward curve as weather-related demand has dissipated in April, which is expected during the spring shoulder season.
However, we believe there may be upside to the current price levels driven by weather-related demand this summer that would also coincide with the potential increases in exports to Mexico and continued strength in the demand for feed gas from LNG export facilities. Lastly, on the production front, we are expecting a slowing of growth in the Northeast and Haynesville, which should be supportive for prices from a supply standpoint. The current strip, including actual NYMEX settlement through April, implies a $2.75 average price for the year, which is directly in line with our budgeted price. Based on these prices, we expect to generate over $50 million of hedging revenue for the last three quarters of the year. Through a combination of hedges and fixed price deals, we have approximately 46% of our volumes locked in from second quarter to fourth quarter, providing some mitigation of potential downside price risk.
For the full year, we have reaffirmed our 2019 capital budget of $800 million and our production growth guidance of 20% or 27% on a debt-adjusted per share basis. At our $2.75 NYMEX budget price for the year, we now expect to deliver adjusted earnings per share growth of 45%-55%, return on capital employed of 22%-23%, and free cash flow of $600 million-$650 million, implying a 6% free cash flow yield at the midpoint of the range.
In closing, I'm proud to report one of the best quarters in Cabot's history, which is a direct result of continued operational excellence in the field, which has driven improved capital efficiency year after year, a marketing strategy that has allowed us to access new markets and significantly improve our differentials without increasing our gathering and transportation costs, a continued commitment to cost controls, including divesting higher cost properties and maintaining low overhead costs and interest expense, the latter of which is supported by one of the strongest balance sheets in the industry. Lastly, as I've stated many times before, but truly feel is paramount to our entire strategic plan, disciplined capital allocation focused on delivering strong returns on and of capital and a competitive growth in the per share metrics. Rocco, with that, I'm more than happy to answer any questions.
Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using the speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Leo Mariani of KeyBanc. Please go ahead.
Hey, guys. Just a quick question on your second quarter production growth. Looks like you're bringing on more wells in 2Q versus 1Q. Additionally, a lot of the 1Q wells kind of came on late in the quarter. I guess, given that, I would have thought maybe the growth would be a little bit higher in 2Q. Are you seeing a lot of those 2Q well tie-ins also come on late? Just any color you have around that would be helpful.
Well, we'll have a number of those wells that are scheduled for May, that's kind of the middle May, that's pushed out towards the latter part of the quarter. As we bring on these wells and we bring them on systematically, we don't bring on flush production as we unload the wells. Even though we bring them in, say, the middle of the quarter or the latter part of the quarter, we'll still bring them on and we'll see the majority of that increase probably towards the third quarter.
Okay, very helpful color for sure. Any further update in terms of the Upper Marcellus well performance now that you've had a couple more months to kind of view those wells?
No, it'd be a similar comment that I've made previously. We have not seen anything to deter our expectations that the production curve, the decline curve, if you will, would be above what we have out there currently as our 2.9 EUR for the Upper Marcellus. That is holding true with the early time production curve. Quite frankly, we do expect that, as prudency would necessitate, we're going to get more production before we make a firm statement on that. We're pleased with what we're seeing, and we're continuing to drill representative wells in that section throughout this year.
All right. Very helpful. I guess just lastly on your stock buyback, obviously a little bit less robust this quarter. It sounds like, just on your comments, it was really just due to the blackouts that you guys had and some of the restrictions there. Clearly more of a focus on maybe ramping the dividend. I guess, to get to that S&P competitive yield that you're sort of talking about, do you think that's something that could happen by the end of the year? Is that kind of a realistic expectation when you talked about some of the measured dividend growth?
Yeah. We look at it in whole. When you think about our buybacks, we had the first quarter and coming into the first quarter, as we're all aware, had strong pricing in December and into the early part of the first quarter. A lot of noise. You had some early warming and coming into the shoulder months and also during the blackout period. We thought it was prudent to just let all that settle in. We were focused on the dividend increase. We had a discussion with our board that this is directionally where we want to go, felt comfortable with our position on buybacks for the first quarter and laying out this dividend increase. As we go through the year, we'll continue to have board discussions on how we want to allocate our capital in the form of dividend increases and buybacks.
Our comment and our objective of giving back a minimum 50% of our free cash flow is, I feel certain, is going to occur before year-end.
Okay. Thank you for the color.
Thank you.
Our next question today comes from Mike Kelly of Seaport Global. Please go ahead.
Great. Thanks. Dan, industry consolidation has obviously been the hot topic in the space right now, this has been a leading question, if I look at Cabot, you guys are really kind of a one commodity and really just a one county levered operator. I'd love your thoughts on adding diversification to the portfolio and just kind of get your general take on what Cabot's role, if any, is likely to be in kind of a period of increased consolidation. Thanks.
Yeah. Thanks, Mike. I think you'll continue to hear a lot of the chatter and expectations on the M&A side. When we look at our asset and how we're located, to your point of a single commodity, single basin, single regulatory environment, it's a two-edged sword. We're there, but we're there with what I think is probably the best natural gas assets in North America. I think our numbers and financials do reflect that. Looking at what we can deliver with just those assets, manage the risk profile of it being single commodity or same jurisdiction, we're comfortable with that. We're comfortable with how we've been able to manage it, we're comfortable with working through both the regulatory environment and the commodity price expectations that we can still deliver financial results in.
When you look at long term and assess from a board level, strategic level, Cabot has always made decisions that are, I think, beneficial to shareholders to deliver the maximum value, any strategic decision we would make would also take that in consideration. If it's good for the shareholder, my job one, two, and three is to deliver value to the shareholder, if it's good for the shareholder, my job is to evaluate it. If it's strategic, it's strategic. If it's doing what we're doing, that's organic growth, delivering value through dividend increases and buybacks and organic growth with a very clean balance sheet. I think we have one of the best-looking companies on a macro level and delivery to shareholders that you can find out there with a high degree and level of consistency on delivery.
We're happy with the cards we have, and again, if there's significant value enhancement in any other direction, then I'm paid to look at it.
Great. Appreciate the color. Switching gears a little bit. Q1, the differential, it's great to see that narrow fairly significantly. Just wanted to get your thoughts on how you see that differential trending throughout the rest of 2019 and maybe even color on the differentials you head into 2020 and beyond. Thanks.
Yeah. Thanks, Mike, and I'll let Jeff handle that.
Good morning, Mike. Differentials were what we expected in Q1 after Atlantic Sunrise ramped up and the basin demand projects came on. We certainly enjoyed a good Q1. Looking out at Q2 and more short term, maybe the balance of the year
Our basis has widened a little bit. We did expect a little more volatility in the shoulder months, and we're seeing it right now. I think the same volatility applies in the NYMEX world as well. We do expect some ups and downs. Looking out beyond that, it's still encouraging. They're way better and way tighter than what we experienced in 2016, 2017, and 2018. We're pleased with the trend, and I think it's here to stay. Quite frankly, as we build more in basin demand projects, and others do as well, and we see the production not necessarily decline, but certainly the growth moderate, our expectations are we're here to stay with these type of differentials.
Great to hear. Appreciate the color, guys.
Our next question today comes from Charles Meade at Johnson Rice. Please go ahead.
Good morning, Dan, to you and your whole team there.
Charles.
I wonder if you could give us a little bit more insider detail. It makes sense to me on your blackout period, it makes sense that with year-end reporting, that a lot of the early part of the year is going to be blacked out. What's it look like for, I guess, the fourth part of Q2 for you?
As far as the blackout's concerned?
Right.
Well, we have a consistent parameters leading up into our year-end numbers and our quarterly release. As we gather the numbers, we provide notice to all of the, as you put it, insider personnel, including the board, a bandwidth that's conservative early, and we allow for a few days for dissemination of the data post-release to end the blackout. The second quarter is going to be open next week sometime, and we'll be free to do what we want to do at that period of time.
Got it. I guess where I'm going is the majority of this three-month window is going to be open to you, which is different from Q1, and that's the message you were trying to give us?
Yes. Exactly.
Got it. Second question. This, Dan, this goes back to a comment you made in your prepared comments about what you're seeing or what your expectations are from Marcellus for play-wide growth and ditto in the Haynesville. It seems from my point of view that most operators up in the Marcellus are, I guess, holding rank in the sense that we're not seeing a breakout in activity and people going back to tout spending. Can you confirm what you're seeing, if that's similar, and maybe elaborate on how you expect that to progress through the year?
Our group up there monitors the equipment activity, rigs, frac crews, and we get a fairly good feel for, particularly in the six-county area that we focus in, a fairly good level of expectation of the number of completions that would be coming on. Our comments are with the benefit of that information. We certainly feel comfortable and agree with your comment that there is some rationalization going on by the industry. I think that is prudent, and I think it will continue. Particularly when you look at the shoulder months that we see, you've seen a fairly good and quick fall off because of the early weather conditions. That certainly has a bearing on capital allocation and intensity of capital allocated.
You also come into this period of the season with maintenance that affects production profiles and forecasts, which certainly affects our second quarter numbers a little bit also. I don't know. We think there will be that rationalization, some of the equipment count indicates that also.
Thanks for that added color, Dan.
Yeah. Thanks, Charles.
Our next question today comes from Brian Singer of Goldman Sachs. Please go ahead.
Thank you. Good morning.
Hello, Brian.
Can you or Jeff give us the latest update on the midstream chalkboard, any local demand projects or pipelines out of the region that are moving earlier or later, added or subtracted from the schedule?
Yeah. Turn that to Jeff.
Thanks. Good morning, Brian. I guess two areas. On in-basin demand, obviously, it's key on our radar. We are out there
Looking very, very hard at a number of different things. Nothing to announce today, of course, I would add that we're also being very selective in our approach. We want to find the right project, the right scale, timing. We also want to find the right project for the community, and there's just a lot of factors going into it. We are looking around, we have a lot of leads and a lot of prospects. I'll leave it at that. I might add that others are doing it as well. In the six-county area up there, I think there's been something like 1.4 Bcf of in-basin demand added in the last year and a half. Of course, a lot of that was power growth. We're continuing to get calls about additional projects up there, but on the power side.
We'll see how those play out. In terms of infrastructure, I'll just talk about Leidy South to begin with. Publicly, you all will see a filing notice at FERC probably in June on the project. We've completed pre-filing, completed open houses. The project's moving along. I see nothing at this point to move us away from a November 2021 in-service on that project. Talk a little bit about PennEast. I think publicly, they have said that they'll submit their DEP permit to New Jersey sometime in June. I think they also have said administratively they are complete in Pennsylvania, so that's good. We'll see how the DEP and their 401 is treated once it's submitted. Obviously, it could be anywhere from six months to a year. I believe they've stated they'll start construction as soon as they get that final permit.
That's about it on the project side at this point.
Great, thank you. My follow-up, Dan, the dividend increase is certainly notable here. What are the key areas of focus for you, management, and the board as you try to go through the year and figure out how much more relative to the 50% minimum you would expect to return cash to shareholders? What do you see as the potential range and then the key other areas of competition for cash?
The biggest competition for cash is Scott. He wants to maybe pay off all that debt.
Yes.
Kidding aside, we evaluate the different process that can be employed in dividend management and buybacks. There are some that say, "Go ahead and get it ratcheted up to the level that you would want it to be." From a council standpoint or third-party perspective, a 2% yield on dividend seems to be the floor when it comes to evaluating the broader market. On the buybacks, there is the back and forth between opportunistic and just putting in a consistent program of buybacks, and what is the most effective process to employ in doing that. We have that discussion at our board at this point in time, again, we've had free cash flow the last three years. We are now moving into a clear picture with just Marcellus as our asset.
Our predictability, again, was just last October with the commissioning of Atlantic Sunrise, the certainty of the commodity space and where we think the landing point's going to be, the differences in differential in the Northeast area we wanted to measure out. With that comfort and a clear path for over a decade of being able to deliver free cash flow, I just think, and the board thinks at this point in time, though it may be conservative, that representing delivery of 50% of our cash flow in broad terms, including dividends and share buybacks, is a messaging to the street that we're going to do it. We also say that we will give back possibly more than that. We're comfortable right now taking a gradual step up in the dividend increase, we're comfortable right now just having an opportunistic messaging on buybacks.
Could that change in the future? Sure it could, because we talk about it every board meeting. A little bit long-winded, Brian. Don't know if that answers you specifically, but we do consider all aspects of how we give back capital.
That is helpful. Thank you.
Our next question today comes from Holly Stewart of Scotiabank. Please go ahead.
Good morning, gentlemen.
Holly.
Dan, maybe the first one, I know you've provided your key forecasted financial metrics at different pricing, but any updated thoughts around your activity levels should strip move substantially below this kind of $2.75 level, and obviously recognizing differentials are substantially better than they have been when we were at similarly depressed NYMEX prices?
Yeah. We have a bandwidth of $2.50 to $3. If it moves substantially below our bandwidth as an average for the year, at any point during the year, we're not going to have a knee-jerk reaction to our capital allocation. We'll continue to look at the macro and make some projections on where we think the strip is going to go. You need to keep in mind that we deliver significant amount of earnings and return to the shareholders, even below our $2.50 low end that we've used for 2019. I understand the metrics, I understand the cost, I understand the return from our peer group out there.
I know that if Cabot gets stressed in any particular way, I think there's going to be a self-correcting mechanism because Cabot can make money below $2, but I'm fairly confident with my knowledge that there's not going to be a lot of money made below $2. I think it's going to have an impact on the macro environment.
Yep. Understood. Maybe just one for Jeff on Atlantic Sunrise. Jeff, I know we've talked about your equity investment there, and you'd previously mentioned looking to see that final project move forward on Atlantic Sunrise. Maybe any updated thoughts on your divesting of that equity investment?
Holly, this is Scott. As we said when we invested both in Constitution and Atlantic Sunrise, our motivation was to have a seat at the table as part of the decision-making process. That served us well, obviously with one very positive result, and one still yet to be determined. Long term for the company, they're not going to be either pipeline or going to be part of our assets going forward. We continue to monitor the marketplace, and when we feel it's right, we'll explore the opportunity to sell that asset. Right now, more to come. We're just assessing that at this time.
Great. Thanks, Scott.
Our next question today comes from Jeffrey Campbell of Tuohy Brothers. Please go ahead.
Good morning. Congratulations on the strong quarter.
Thank you.
My first question was just, it looked like that the first quarter 2019 free cash generation was greater than would've been expected, just looking at the net gas price relationships that you've got on slide 10. I was wondering, was that extra boost from the very narrow differentials that you enjoyed in the quarter, or was it something else?
I think it was a combination of both. It exceeded our realized price expectations. We did see the significant narrowing in the differential. It was a combo.
Okay, thanks. Another kind of higher-level question. When Cabot's asked about M&A or exploration, it seems like the assumption is always that it would be about oil and be in other basins. I was just wondering if you ever look for other dry natural gas opportunities within Appalachia. I realize your Lower Marcellus acreage is clearly the best, but there are some other dry gassy areas in northeast P.A. that are starting to show dramatic improvements. I wondered if that's something you keep an eye on.
Yeah. We monitor all the activity up there. We do keep an eye on it. From a decisions standpoint and how we monitor or consider capital allocation or strategic opportunity, we look at what the financial returns would be of any investment we've made at agnostic, quite frankly, to the commodity. If we feel like we can deliver significantly more of the same, if it comes through a natural gas asset or oil asset, we're indifferent. The benefit, if you do get out-of-basin, it mitigates the single commodity. If you do also get out-of-basin, it would probably be an oil consideration also, which also is not only the commodity differential, but it is also out of the jurisdictional confines of P.A. We look at both, but one, two, and three is what deliveries of the financial metrics would occur if we did anything.
Okay. Thanks very much.
Our next question today comes from Michael Hall of Heikkinen Energy Advisors . Please go ahead.
Thanks. Good morning.
Hey, Michael.
Just curious, maybe if you could talk a little bit about hedging philosophy, and just how you guys are thinking about that as you keep progressing forward on the payout strategy and the path you've laid out. How are you guys thinking about hedging and how might that evolve over time?
Well, we went into the 2019 with virtually no hedges. We ramped up, as we have currently and where we stand, we felt like that was an inflection point. The market responded to some of the weather that we had, and we took advantage of some of that. Obviously prefer offensive hedges prior to defensive hedges. We will be opportunistic, and we will lock in what deliverables that we have promised, if in fact, the market would provide that to us. The runway on some of the hedge is somewhat limited by just the depth of it. You can go out there a good ways, but it's not necessarily always at the price point that we would like to see. If there is not a lot of depth, then it limits our participation.
If we do see numbers that we appreciate, and it helps where we think the macro market will go, and it improves our lie in that regard, then we continue to layer in that opportunity to mitigate.
Okay. That makes sense. Is there a minimum level of hedge that you guys are targeting over time? Any kind of bias towards hedging on a differential versus at NYMEX or any additional thoughts on that?
Well, we look at it every way, Michael, on how we might place those hedges and where we think the opportunities would come. Certainly now with a little bit different index points that we reached today, we have that added flexibility. There's no minimum position that we'd try to get to. If the market is low and we haven't achieved a level of hedging on our books, we're not going to, because we set a minimum, we're not going to try to achieve a minimum. If in fact, though, back to my point, if it looks like that we can improve our lie from our forecast and the market would give that to us, we're going to be active in the hedge market. The same holds true, we really have no minimum that we'd like to get to.
We have no maximum that we would be prepared to get to also. If we see an opportunity to lock in the majority of our volumes under hedge, we would do that.
That makes sense. Then I was also curious just on the operational side, as you look at the asset quarter-to-quarter across the year, how do you think about downtime, relative to what maybe maximum potential productive capacity of the completed well set would look like? What's that running on average, as you think about things like offset well shut-ins? You mentioned maintenance on pipelines, things along those lines. How should we think about downtime assumptions as we build things out?
Well, we build into our forecast a percentage of downtime and as a roundabout number, say, 10%. That downtime, though, does include some of the known maintenance scheduling that Jeff provides through the pipelines that will be incurred and dates are set for preventive maintenance and pigging operations or whatever the case might be. We incorporate that into our sales forecast. If that answers your question.
I'm assuming that also things like offset well shut-ins, if it's 10% overall, how much is known scheduled maintenance versus just a buffer for potential operational deltas? Does that make sense?
Yeah. Our historic look of the offsets and effects on offset wells are the time that we might shut in an offset well during a fracking operation. We take that into consideration.
Okay. That's helpful. Thanks, guys. Appreciate it.
Thank you.
Our next question today comes from David Deckelbaum of Cowen. Please go ahead.
Morning, Dan, Scott, Matt. Thanks for taking my questions.
Hey, David. Thanks.
Maybe a little bit more in the minutia, but in prior plans, you did allow for some well cost inflation over time. How do you see that progressing now through the balance of this year going into next year? I guess as you think about your footage costs, you've been benefiting from longer laterals, how long do you see that progressing for, where you could keep that footage costs sort of flattish here?
Yeah. We anticipate between now and the end of the year, a relatively flat service cost. Majority of our costs, as we've mentioned before, David, are tied up in annual contracts on both the biggest components, rig and pumping services. We expect fairly flattish cost. We continue to try to increase our lateral lengths based on the geology, geography out there, and we'll continue to do that. We like the zip code we're at from an efficiency standpoint. We do continue to try to squeeze out everything we can.
If the guys up there in the North region feel like that their process and all the different, not only the operational progress that we've made in the past and the learning we've had in the past, but any new ideas that they have out there, which we do and are trying several right now, that's not ready for prime time, we'll implement, and hopefully we can continue to gain the efficiencies that we've been successful in doing in the past.
I appreciate that. You guys sort of reaffirmed the differential guidance for the year. Do you still see that or use that as your base case going into 2020? As you look at some of the in-basin demand projects or other efforts to relieve some of the impact around Leidy, how do you see that differential shaping up for you at the corporate level going into 2020?
Yeah, we have given our guidance and feel like going into 2020 we're going to be in a similar area, at least with our expectations today in the similar area. It ties back to Jeff's comment about some of the conversations that we had and are having on in-basin demand projects. It also ties into what we think others are having in in-basin demand projects and the overall macro position on equipment and what we anticipate will be strong rationalization by the operators up in that neck of the woods. We do anticipate the differentials to stay in the same range that we are today.
Appreciate the responses, Dan. Best of luck.
Thanks, David.
Our next question today comes from Kashy Harrison of Simmons Energy. Please go ahead.
Good morning, everyone, and thank you for taking my question.
You bet.
Just one quick one for me. Dan, earlier you highlighted your expectation for a slowdown in both Pennsylvania and the Haynesville, and you talked about what gives you confidence that Appalachia is slowing down. I was just wondering if you'd share some more color on what gives you confidence that the Haynesville might be slowing down as well.
When you look at it, at approximately 10.5 or so, 10 Bcf a day at this point in time. In PA, we look at the level of equipment activity out there. In the Haynesville area, as you're well aware, that the majority of the operators there right now are private operators and activity driven through the private sector.
I think the idea of continued allocation, and particularly if you get a soft spot into the strip and you get a reduction in the natural gas price as we're seeing right now, it would be my bet and our bet that from a private operator allocation perspective, that a continued ongoing contribution at the levels that they had seen going into the end of 2018 and ramping up with several objectives in mind, whether it would be to increase production because of anticipation of higher commodity price or increasing production with the idea of IPOs opening up. I think that was an activity driver and could still be an activity driver. In that combination, I do think there is a likelihood that there will be a little bit less activity as we move forward at the levels that it's at right now.
That makes sense. That was it for me. Congrats on a solid quarter.
All right. Thank you.
Our next question today comes from Jane Trotsenko of Stifel. Please go ahead.
Good morning. I have a question for Jeff. Atlantic Sunrise is obviously running full. I'm curious how much spare capacity do you see available on Millennium and Tennessee pipelines?
Okay, well, obviously it varies quite a bit. From a high level, we added the in-basin demand kind of offset any kind of production growth over the last couple of years in Northeast P.A. You take a look at some of the Southwest P.A. volumes that are now headed out on Rover and NEXUS and some of the Columbia Xpress projects and other new projects. Need to take a look at Sunrise and the 1.7 Bcf that was probably removed, the majority from Transco and from Tennessee, and a little dab from Millennium. Look at some of the new demand that Millennium added, a new competitive power plant in New York. It all adds up to spare capacity on the interstates. Putting a definitive number on it is difficult because we believe there was spare capacity in these pipes before anything I just mentioned.
It is a moving number, but 2 to 3 Bcf a day of spare capacity is not out of the ballpark.
That's exceptionally helpful. I'm curious, how much appetite does Cabot have to grow production in basin given the numbers that you have just mentioned?
Well, we're all looking at each other, who's going to answer this? I think one of the things that when you look back even six months ago, right at the time of Atlantic Sunrise coming on, and you picked up on the fact that a lot of capacity was vacated to fill that obligation, and rightfully so, for better price points.
Cabot did, in February, come out with a little bit lower of a guidance, both on the capital side and on the production side, because our motivation is simply not, and the market's motivation, is not to chase growth. It's more of a moderated growth. Obviously, in 2019, Cabot has outsized growth just because of the timing of that build of those new projects. A more moderate growth profile going into the future is Cabot's plan at this point in time. We will defend market share, as we've said before. If we see the industry starting to backfill those in any great way. Right now, as an earlier question indicated, everybody's kind of sitting, has a very disciplined growth plan in front of them, either to hold certain volumes flat and grow other places.
There's no macro push or push from the peers for us to change our growth profile in any way at this point in time, and it reinforces our discipline and our capital allocation at this point.
This is a very good answer. The reason why I'm asking is we obviously have backwardation in the forward curve pricing, right? Then we have production growth that needs to offset that backwardation and forward curve pricing. Very often what we see is that the earnings trajectory is kind of flattish as a result of this backwardation and forward curve pricing. I'm just curious if you guys are thinking in terms of growing earnings trajectory over the following years or maybe just keeping production more moderate and offsetting the backwardation and the forward curve pricing.
Well, as Scott said, we plan on having a measured growth on an organic basis. We plan on augmenting growth on a per share basis with our return of capital to shareholders. From a program perspective and confidence level of what we deliver, we feel like that measured growth and a capital allocation program that allows for, one, that particular growth and the amount of cash flow generation to that yield perspective, which is in 2019, we anticipate around 6%. We think that is a good landing point at this stage. With the additional give back to shareholders, we think that we will be able to attract incremental dollars from outside of a traditional energy investor and compete with the broader market.
From a design standpoint, without having issues with an uncertainty attached to our program, keep in mind, we're doing this with three rigs and two frac crews, the complications of an operation is very low and our results are very consistent. We feel good about that. How we manage this financial side is along the lines that we've discussed, and we'll continue to be able to do that, again, into the next decade.
Got it. That's it for me. Thank you so much.
Thank you.
Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Dinges for any final remarks.
Thank you, Rocco, and thank you for your interest in Cabot this morning. As a closing comment, the good news, assuming you like disciplined capital allocation, earnings and production growth, free cash flow, share buyback, increased dividends. If you like all that, the good news is that you expect more of the same from Cabot in the future. Thanks again, we'll look forward to the visit next quarter.
Thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.