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2019 Sohn Conference New York Recap

9:35 Matthew J. Smith, Chief Executive Officer & Chief Investment Officer, Deep Basin Capital LP: In 2017 Matt Smith founded energy hedge fund Deep Basin Capital which employs a market and beta-neutral strategy. He previously worked at Citadel’s Surveyor Capital as a portfolio manager for more than 5 years. Prior to that, he cut his teeth as an energy analyst at Highfields Capital. He began his career at Copper Arch Capital before moving to JCK Partners. Matthew Smith holds a B.A. degree in Finance from University of Iowa and a Master’s of Science degree in Finance in the Applied Security Analysis Program (ASAP) at the University of Wisconsin. We recently started tracking Deep Basin Capital.

Idea: Long position in Cabot Oil & Gas Corporation (COG)

Benchmark: Long position in S&P 500 ETF

Thesis: “This business is a true unicorn in the energy sector and possesses an extraordinary combination of qualities. First, it is a single asset focus business with world class low cost unit level economics. Second, those economics fuel materially above peer margins that improve over time that do not degrade. Third, those margins yield abundant free cash flow so much so that over the next eight years the company will generate almost its entire market cap in free cash. In the mean time investors will get 9-10% free cash flow yield over each of the next 5 years on average. Fourth, contrary to the market perception this company is inexpensive on an absolute and relative basis. As a result, we believe this company is the prime takeout target in the entire E&P space with the management team incentivized to sell. The company is Cabot Oil & Gas (COG). The stock price is $25 a share. We get well into mid 30s on our base case using the forward commodity curve. Our upside case is in mid 40s if you breathe just a little bit of life into that natural gas curve to get to our bull case. That’s 60-80% upside versus the current stock price. Downside we think is very limited; we think it’s in the low 20s,” said Matthew Smith. “Many of Cabot’s peers are materially, structurally and terminally disadvantaged and, should Cabot not be acquired, we think in very short order, Cabot will be just one of very few natural gas E&Ps left standing,” Smith added.

COG vs Peers

Smith said that Cabot’s wells are 75% more productive than peers’ wells during the first 24 months giving it a huge cost advantage over peers.

Elements of Deep Basin's COG Thesis

You can read the summary of other presentations on the next page.

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