Appalachian pure-plays Cabot Oil & Gas Corp. and Southwestern Energy Co. said Friday they’ plan to hold the line on spending and keep production roughly flat with this year’s levels in 2021. 

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“Despite the expectation for higher price realizations and cash flow in 2021, our capital allocation priorities remain focused on maintaining our current production levels, funding our current dividend, retiring our 2021 debt maturities and opportunistically returning incremental free cash flow (FCF) to shareholders as we continue to target a minimum return of capital of at least 50% of FCF annually,” Cabot CEO Dan Dinges said.

Southwestern CEO Bill Way said much the same as operators have worked in recent years to meet the expectations of investors searching for better returns. Despite a proposed merger with Montage Resources Corp. that Southwestern is on track to complete in November, Way said during a call to discuss third quarter earnings on Friday that “we have no plans to invest above maintenance capital next year, holding production levels flat exit to exit” between 2020 and 2021. 

Cabot released preliminary 2021 production guidance of 2.35 Bcfe and an early spending plan that calls for $530-540 million, or 7% less than the midpoint of this year’s  spending. The company is aiming to produce about the same this year. Southwestern said it would formally release 2021 guidance early next year, but both management teams said their plans could change if market conditions warrant.

Dinges called 2020 the “most challenging year for natural gas prices in the last 25 years,” given a supply glut and demand challenges created by Covid-19, among other factors. But as operators have continued to curb activity and budgets, he said the outlook is improving. “We believe this capital discipline, along with rebounding demand largely driven by exports, will continue to move natural gas supply and demand toward a more sustainable balance…”

Lower realized prices and price-related curtailments during the third quarter impacted the company’s ability to generate free cash flow, but Dinges said Cabot expects up to $150 million of FCF in the fourth quarter. Cabot’s average realized natural gas prices, including the impact of derivatives, were $1.57/Mcf in 3Q2020, down 26% year/year. 

Cabot reported a third quarter net loss of $15 million (minus 4 cents/share), compared to net income of $90.4 million (22 cents) in the year-ago period. 

Meanwhile, Southwestern spent the quarter focused partly on cost cutting. The company hit a single-well cost record of $491 million per lateral foot. Management expects well costs to average below $650 per lateral foot in the second half of the year, which compares to the 3Q2020 average of $664 per lateral foot. 

The company has been largely focused on its balance sheet in recent years, cutting debt by nearly $2 billion, reducing its expense structure and decreasing well costs by 4%. It also sold a large asset base in the Fayetteville Shale of Arkansas in 2018 to focus on the Appalachian Basin. The company is now finally guiding for $300 million of FCF in 2021, a major sticking point for industry investors in recent years. 

The company agreed earlier in the year to acquire Appalachian pure-play Montage in an all-stock deal that will give Southwestern another 324,500 acres across Ohio, Pennsylvania and West Virginia. The deal also gives Southwestern its first assets in Ohio. 

“We have been consistent in our message that the industry needs to consolidate to benefit shareholders,” Way said of the deal. 

Southwestern produced 221 Bcfe in the third quarter, compared to 202 Bcfe during the same time last year. 

Southwestern’s average realized prices, including derivatives, also dipped during the quarter to $1.78/Mcfe from $2.16/Mcfe in the year-ago period. 

The company reported a third quarter net loss of $593 million (minus $1.04), compared to net income of $49 million (9 cents) in 3Q2019. The 3Q2020 loss included a $361 million non-cash impairment on oil and gas properties and a $289 million non-cash loss on derivatives.