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Cabot's 2Q Production Declines on NatGas Curtailments

Cabot Oil & Gas Corp.'s production fell considerably between the first and second quarters, as low commodity prices prompted it to curtail 500 MMcf/d of gross natural gas volumes in the Northeast.

Double-digit percentage declines in its price realizations also led to a net loss, with natural gas prices dropping 38% from the year-ago period to $2.15/Mcf. Oil price realizations fared no better, falling by 43% during the same time to $56.10/bbl. A $36.5 million non-cash loss on hedges helped drive down profits as well.

The company reported producing 138 Bcfe, down from 171.4 Bcfe in the first quarter, but up 8% from the year-ago period. In response to a low price environment that didn't appear as though it would budge at the end of the first quarter, Cabot said it wouldn't squeeze profit margins moving forward and announced a plan to curtail its Marcellus volumes for most of the year (see Shale DailyApril 24). Second quarter production included 1.6 million bbl of natural gas liquids and was primarily driven by the Marcellus, where Cabot produced 1.34 Bcf/d.

With costs coming down, CEO Dan Dinges said the company remains positioned for a rebound in prices. Cabot anticipates ramping production in the fourth quarter to meet anticipated winter demand.

"Our spud-to-spud cycle time during the quarter was under 15 days as compared to approximately 19 days for full year 2014 -- due in large part to new highs established for gross feet drilled per day during the quarter," he said. "As a result of these efficiencies, we have seen a 15% reduction in costs at rig release year-to-date. We anticipate further cost reductions as we move into 2016, as two rig contracts will expire in December of this year, and our expectations are for a significant reduction in day rates going forward."

Dinges said Eagle Ford Shale volumes were flat sequentially at 17,889 boe/d. The company plans to operate one rig in the play for the remainder of the year and three in the Marcellus.

Dinges also said the Constitution Pipeline is on track for construction in the Fall. Backed by Cabot, Williams, Piedmont Natural Gas Co. and WGL Holdings, the 124-mile pipeline would deliver Marcellus gas to the Northeast. In December, Constitution was given the green light by FERC to begin construction, but it hit administrative snags with the New York Department of Environmental Conservation (DEC) (see Shale DailyApril 30Dec. 3, 2014). The project had to resubmit an application for a water quality permit to begin construction. On Friday, Dinges said Constitution has filed its implementation plan with the Federal Energy Regulatory Commission in a critical last step before it can proceed.

The project has also obtained 100% of the necessary rights-of-way and has filed its final reroute variance with DEC, which Dinges said should clear up any regulatory issues in the state. Constitution is projected to be in-service by the second half of 2016. Dinges added that it's expected to significantly increase the company's price realizations shortly afterward.

For the most part, the company's third quarter guidance of about 1.4 Bcf/d remains unchanged. As a result of reduced completion activity, though, Cabot lowered its liquids guidance at the midpoint by 1,500 bbl to 15,750-17,000 bbl/d.

The company reported a second quarter net loss of $27.5 million (7 cents/share), compared to net income of $118.4 million (28 cents/share) in the year-ago period. Income was also down from the first quarter when the company reported a profit of $40.3 million (10 cents/share).

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