Coterra Energy Inc

NYSE:CTRA

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, and welcome to the Cabot Oil & Gas Corporation Second Quarter 2021 Earnings Call and Webcast. [Operator Instructions].

I'd now like to turn the conference over to Dan Dinges, Chairman, President and Chief Executive Officer. Please go ahead.

[Dan Dinges, executive]

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 measures 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 financial metrics. 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 35% 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 $127 million improvement in free cash flow relative to the second quarter of 2020.

During the second quarter, we returned over 2/3 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 continue to improve on our industry-leading cost structure during the quarter as demonstrated by a 2% year-over-year improvement of all-in operating expenses to $1.41 per Mcfe, excluding a $6.2 million of expenses during the second quarter related to the pending merge with Cimarex Energy, our unit cost improved by 4% relative to prior year period.

Production for the second quarter of 2021 was 1% below our guidance range due to a longer-than-anticipated maintenance-related midstream downtime primarily resulting from one of our third-party providers compression station and operational delays during the quarter that pushed the timing of certain wells down 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 of 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 5 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-month 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's 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 year 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 in the second half of the year, driven by our expectation for continued strength in regional gas demand, flat production profiles across the Appalachian basin and a significant reduction in east storage levels, which are currently 17% below 2020 levels and 8% below the 5-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 East 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 are extremely encouraged by the improvement in the Cal '22 NYMEX futures to approximately $3.50 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 our full year stand-alone 2021 plan to deliver an average net production rate of 2.35 Bcf per day from a capital program of the $530 million to $540 million.

Our capital guidance range for the year remain unchanged despite the increase in our expected net well drilled -- net wells drilled from 80 to 85 resulting from our continued drilling efficiencies. We also provided our third quarter 2021 production guidance range of 2.275 to 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 the Leidy South Expansion Project.

Third quarter capital expenditures are expected to decrease relative to the 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 stand-alone free cash flow for the second half of the year is expected to be approximately 2x our first half free cash flow, excluding the impact of merger-related expenses.

I also want to provide a brief update on our pending merge with Cimarex as we are excited as ever about the compelling strategic and financial benefits of our merge, and we continue to make progress towards closing the fourth quarter of 2021. As I noted, when 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 our operation. The pending merge 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 stand-alone, 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, a 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 (sic) [ Cabot ] with Cimarex will create a clearly differentiated energy company with a strong financial foundation and the right assets, 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, 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 merge. 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.

And Phyllis, with that, I'll be more than happy to answer any questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Leo Mariani with KeyBanc.

[Leo Mariani, analyst]

I was hoping you could talk a little bit to the mechanics of the 10% production increase in the fourth quarter. It 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 turn in lines, but just kind of help us get to that 10% in 4Q.

[Dan Dinges, executive]

Yes, Leo. I appreciate the question. With the cadence that the North Group has set up and Phil Stalnaker is here with us this morning. But 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. And keep in mind, it's by design somewhat to be able to take advantage of the anticipated fourth quarter increase in pricing. But it was also designed in anticipation of the Leidy South coming online and commissioning.

So by design, but keep in mind, when we have just so few pads that we bring on during the year, we're -- and you've seen it in the past how -- if you delay 3 or 4 or 5 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. But it is a very, very narrow period of time that, that's disruptive one way or the other. But this fourth quarter increase was somewhat by design on the cadence of us accelerating our capital this year upfront and kind of dissipating a little bit towards the back end into the winter months.

[Leo Mariani, analyst]

Okay. That's helpful. And maybe just to follow up on your expectations there. So 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? And can you talk a little bit to the benefit that you're expecting in terms of local pricing around that? And then lastly, you mentioned you're still unhedged for '22 despite the ability to hedge it, I guess, to $3.50 right now. So maybe just provide any thoughts around that.

[Dan Dinges, executive]

Okay. Very good. I will just mention first the hedge kind of out of the way. I'll let Jeff weigh in also on the Leidy South. But we're looking at 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 are drawn down significantly from last year and below the 5-year average. That's all constructive to a 2022 pricing. So 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. And our Hedge Committee meets on a fairly regular basis to have that discussion. We've been bullish for the reasons we're all aware 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. And we look forward to that continuing certainly for Cabot.

With that, Leidy South, Jeff, I'm going to let you talk about and what your expectations are.

[Jeffrey Hutton, executive]

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. 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 of 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 hand service on December 1. However, there could be some volumes available prior to that. We will likely find that out sometime during August. For the rest of the project that includes some pipe replacement, it's on schedule. We do have bimonthly updates with Williams and Transco and everything is on schedule.

So incrementally speaking for Cabot, it does move quite a bit of volume out of in-basin pricing down to the Atlantic -- Mid-Atlantic area. For the most part, we've already secured markets. We have some opportunities and some options yet they're going to wait and see on. So we'll pick up primarily the difference between Mid-Atlantic pricing and in-basin pricing, although our expectation is in-basin pricing will materially improve with the low eastern storage levels and other fundamentals.

[Operator]

Your next question comes from the line of Arun Jayaram with JPMorgan Chase.

[Arun Jayaram, analyst]

Maybe a follow-up to Leo's question kind of 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? And also just wondering if you can maybe remind us of the transport costs on that pipe.

[Dan Dinges, executive]

Yes. I'll just make a color commentary, Arun, and then I'll let Jeff follow up. But my view of the differentials is it is going to be very constructive. We realize the reason for this and having higher differentials is just the gas on gas competition and exasperated by too much production too little takeaway. 0.5 Bcf -- greater than 0.5 Bcf a day into other markets and out of the basin and essentially just right out of our neck of the woods is going to be constructive, and we feel very good about it.

And I think we'll see improvements and you're already seeing out there some improvements from today as you move out. So we're constructive and look forward to the other -- in my commentary, we look forward to the other pipelines into -- in between the 2022 to 2024 period also to be constructive for the differentials up in the Northeast.

[Arun Jayaram, analyst]

Great. Great. And just my follow up. Dan, we are getting, call it, a near-term kind of price signal on natural gas, but the back end of the curve still kind of 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 -- call it, your hurdle rates in terms of getting an adequate kind of rate of return.

[Dan Dinges, executive]

Yes. We have a program that's lined out, and we've -- as we've discussed in the past as pretty close to maintenance of very low growth. And right now, our plan is to stick with that. You can look at a -- you can look at impacts on differentials and you can look at the program, and 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.

So we're pleased with what we're -- 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. But I'll let Jeff make a comment also.

[Jeffrey Hutton, executive]

Yes. So back to your first question. We'd not argue that the fundamentals have driven the -- or at least the differentials to a point where in shorter months and with other factors, they've done a little bit disappointing this year. I spoke earlier about the pipe replacement on the Leidy system or 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 the differentials drop from about $0.80 down to $1.80, not really for any good reason, but the markets did 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. If we 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 the -- of course, the original foundation pipeline.

[Arun Jayaram, analyst]

Great. Thanks for your color and congrats to your team for not hedging. That looks to be a good call today.

[Operator]

Your next question comes from the line of Josh Silverstein with Wolfe Research.

[Joshua Silverstein, analyst]

I just wanted to talk about the stock price and the forward curve. Your stock is down 12% over the past year, while the 2022 curve is now up about 35% over that time period. I want to 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 as it seems like that's probably the only way to get this to close right now given some of the uncertainty around the transaction. So just curious around that.

[Dan Dinges, executive]

Yes. Josh, I'll let Scott respond to that. We still have all the arrows in our quiver. And we are also certainly been disappointed with where our stock range is. But I'll let Scott handle that.

[Scott Schroeder, executive]

Yes, Josh, I think it's a very good point. And I think under normal circumstances, what I mean by normal circumstances would be Cabot stand-alone, that would be higher on the discussion list, particularly it would have been this week in our Board room and our Board meeting, especially with math modeling, looking at the fact that we're looking at double the free cash flow generation in the second part of the year. Our stand-alone 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 of 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 and manage our capital in this transitionary period so that when we come out together by the end of the year, 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. So I 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.

[Joshua Silverstein, analyst]

Got it. Yes, and I agree. I mean, I think could be higher without the uncertainty of the transaction there. And then 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? Or what are the assumptions around it? Are you guys basically in maintenance mode in Northeast PA. Just any sort of assumptions around that would be helpful.

[Dan Dinges, executive]

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. And it's just looking at what our capital program allocation is and looking at what we anticipate the realizations are going to be. And -- it's -- and I know your models out there are starting to pick up on that also. We still have a -- certainly a significant unhedged volume and rolling into '22. 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. So -- but right now, our cash flow is designed on -- or our expectation is designed on the macro and our capital program that we've given guidance for.

[Operator]

Your next question comes from the line of Doug Leggate with Bank of America.

[Douglas Leggate, analyst]

Dan, I've got 2 questions. The first is one is on takeaway capacity. You kind of laid out, albeit a month post date the merger, but you've laid that in there for your input to the strategy, I guess, but 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 stand-alone assets? And if so, what would you think -- what would you see as your...

[Dan Dinges, executive]

I'm sorry, Doug, let me interrupt you 1 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.

[Douglas Leggate, analyst]

All right. I've picked up the phone. Is that any better, Dan?

[Dan Dinges, executive]

Yes. Let's try that.

[Douglas Leggate, analyst]

Okay. I'll try but my headset is obviously playing up today. Sorry about that. So my question is on takeaway capacity. What it means for Cabot's longer-term plateau production level? What do you think you can get to, albeit even 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 a simple part of the question.

[Dan Dinges, executive]

The ultimate production?

[Douglas Leggate, analyst]

Yes. 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?

[Dan Dinges, executive]

Well, I'm not going to speculate out that far. We have enhancing takeaway capacity in the basin by the Leidy South and the PennEast and the regional access. So we're pleased to see additional takeaways there, Doug. We have a long, 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. And so 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. And I mean, significantly. But I'm not going to speculate on the amount where it might go in the next couple of years.

[Douglas Leggate, analyst]

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. And again, for Cabot, this has clearly achieved a lot of things. The S-4 is now out. We can all see what happened. But 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 on your perspectives on that.

[Dan Dinges, executive]

Well, 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 it another day in the sun and it's enhancing the cash flow of Cabot. And I think it's a benefit to both Cabot. And in a combined world, it would be a benefit.

So long term and you look at the natural gas as a dynamic energy product of the future. I don't know how you cannot 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. So I don't know how any shareholder could not be excited about the future of this combination.

[Douglas Leggate, analyst]

Yes. I think the issue is a lack of industrial overlap, Dan, as I'm sure you know because all of the above could have been achieved with a lot more synergies, I think, is the issue. But I appreciate your comments, and thanks so much for the answer.

[Operator]

Your next question comes from the line of Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

Just wanted to follow up on some of the slides as following the announcement of the acquisition. You talked about a variable dividend that 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?

[Dan Dinges, executive]

Yes. I would say this. I think the variable dividend is going to look very good in particular, compared the way it looked at the beginning of this year. However, I'll let Scott give it some color also.

[Scott Schroeder, executive]

Yes. I mean thanks, Neil. Remember, the variable dividend we call the supplemental in ours was to return at least 50% of the free cash flow in cash back to shareholders. And that is memorialized going forward in the new company. So 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. It's also been preannounced for the transaction. So again -- but we've got to come together, put the models together, put combined guidance out in the new year, but 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.

[Neil Mehta, analyst]

Okay. Great. And 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 and that scenario historically, we've thought about gas to coal substitution as the balancing item but with as much coal-fired capacity having been shut as it has that mechanism might not be as pronounced, but you also have the potential for Canadian gas flow, for example, or shutting down the LNG arm. So how do you think about what is the mechanism that -- on the natural gas side that can offset the potential demand impact of a very cold winter?

[Dan Dinges, executive]

Thanks, Neil, and I'll turn that to Jeff, our gas expert.

[Jeffrey Hutton, executive]

Yes, Neil, that's an intriguing question because we have -- we thought about that here, too. The impact of the demand across the country currently with record exports in 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 fall 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 and the commission that's in more exports from Canada head 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 flow this time last year, same as the east storage levels.

So your question about how high can it go is a good question. And in our Hedge Committee meetings, of course, we think about that or we've done a wish about that. And it's -- fundamentally, we're set up for good year-over-year capital that's put in place. And yes, we had a good winter in certain spots of the country this year. It will tax the system, and there will be price increases. We're prepared to producing to our commitments with our customers. Storage levels will not get to where they were at this time last year. It's a well-known fact. So how high can it go is relative, particularly in the New York market, the Boston market, the Chicago market and other areas that do like the amount of storage that we had last year. So if I was a gambler or a speculator, I don't know if there is a cap necessarily for $4, $5, $6, we have seen $8 in non-New York market in the past. So I think it's all on the table at this point.

[Operator]

Your next question comes from the line of David Heikkinen with Pickering Energy Partners.

[David Heikkinen, analyst]

I wanted to make sure that I'm thinking about one of the synergies of the merger correctly. So for stand-alone Cabot, we had your cash taxes increasing over time, just given where you were and now particularly with the increase in commodity prices. Just wanted to get some of your thoughts on deferred tax percentage. But then once you're merged, you get the benefit of the Cimarex NOLs. And if you could talk a little bit about how cash taxes change in the Cabot stand-alone. And then the new company, that'd just be helpful to kind of quantify that benefit to you all.

[Dan Dinges, executive]

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 the -- all the shareholder approval but I'll let...

[David Heikkinen, analyst]

Maybe what would your cash taxes have been just stand-alone would be helpful then certainly I'll like to talk about the post merge.

[Dan Dinges, executive]

Yes. Okay. Thanks, David.

[Matthew Kerin, executive]

David, it's Matt. Yes. We're currently 30% deferred this year, 70% current. And that continues to be the case even with this higher NYMEX environment that we're looking at today. As we roll forward to 2022 and beyond, if we were stand-alone, 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, something along those lines of $3.50. But it's obviously going to be very sensitive to movement in pricing. And obviously, what we're doing on the capital front is where we're able to take advantage of IDCs.

[David Heikkinen, analyst]

Yes, this moving commodities makes this deal even better for you all as you get that benefit. So I was just trying to quantify it. That's helpful.

[Operator]

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

[Dan Dinges, executive]

Thank you, Phyllis, and thank you all for tuning in. We look forward to the future for Cabot, its 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, bright opportunity for the future for both shareholder groups. And 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. So thanks again for your interest, and we look forward to the next meeting we have. Thank you very much.

[Operator]

This concludes today's conference call. You may now disconnect.