Cabot Oil & Gas Corp. is backing out of the Rockies to focus on Appalachia and the Midcontinent.
The Houston-based company recently sold all its assets in Wyoming, Colorado and Utah for $285 million to an undisclosed buyer, the company said Wednesday. The sale includes 170 Bcfe in proved reserves and 27 MMcfe/d of new production and becomes effective in September with a closing date expected in early October.
Cabot CEO Dan O. Dinges said, "When the opportunity arose to monetize and effectively accelerate the cash flows from these assets, we agreed with the thought to redeploy nonvalued capital into our Marcellus activity and our oil initiatives."
In the second quarter Cabot saw production increase enough to offset sluggish prices (see Shale Daily, April 29). The company earned $54.7 million (53 cents/share) in the second quarter, compared with $21.7 million (21 cents/share) in the second quarter of 2010.
"We see the sale as a modest positive as the company will be able to redeploy proceeds to high-return projects in the Marcellus while potentially reducing operating costs. Cabot has not allocated capital to [its Rockies] assets since early 2009," Canaccord Genuity Energy Research said in a research note.
Cabot produced 45 Bcfe during the second quarter, up 47.5% year over year. Although drilling is up slightly from last year, that bump is mostly the result of capacity additions in the Marcellus region, which allowed the company to boost production rates by 35% in a single day (see Shale Daily, May 26).
While operating expenses and financing costs increased 11% year over year, they fell 25% per unit because of that increased production.
Dinges noted that the Rocky Mountain deal, the previously announced East Texas joint venture/asset sales and some small miscellaneous sales activity are expected to provide Cabot with over $340 million in proceeds during 2011.
"These transactions provide us the opportunity to add to our acreage position in liquid-rich areas of Texas and Oklahoma, as well as enhance the opportunity to drill a few more wells in the Marcellus in Pennsylvania," Dinges said. "Only a portion of the expected proceeds are earmarked for 2011 expenditures currently, so my expectation is for debt to be reduced year over year -- 2010 to 2011 -- and for our program to deliver significant reserve and production growth even after these sales."
In its North region -- including the Rockies and the Marcellus -- Cabot produced 61.7 Bcf of natural gas during the first half of the year, nearly double the 31.5 Bcf it produced in the first half of 2010. Liquids production in the North region, though, fell to 17,800 bbl from 22,800 barrels year over year.
Cabot recently completed a three-well pad in the Marcellus with a combined initial production rate of 20 MMcf/d. The company also said two Marcellus wells have now passed the 4 Bcf mark -- one in 12 months and another in 16 months -- and eight wells have produced more than 3 Bcf. Cabot is currently producing about 420 MMcf/d in the Marcellus from 81 horizontal wells, a rate still restricted by infrastructure in the region.
In its South region -- including the Eagle Ford and Haynesville shales and the Permian and Anadarko basins -- Cabot produced 486,000 barrels of liquids during the first half of the year, compared with 416,000 in 2010. But natural gas production fell to 43 Bcf this year from 51 Bcf in 2010.
Cabot brought four horizontal Eagle Ford wells into production in the second quarter with an average initial production rate of 721 boe/d. The company is halfway to its goal of drilling between 25 and 30 net wells in the Eagle Ford this year, having drilled 16 wells through the first six month of 2011.
Cabot also shed some light on its work in the Marmaton oil shale in the Texas and Oklahoma Panhandles. The company reported an initial production rate of 646 boe/d from a 10-stage completion in a 4,000-foot lateral on a $4 million well in the region also known as the Granite Wash.
"We remained quiet about this well as we wanted to add acreage," Dinges said. "We now have over 32,000 net acres in the play, plan to participate as a nonoperator in six wells and, depending on rig availability, may use some of our asset sale proceeds to drill another operated well here later in the year."