Cabot Oil & Gas Corp., whose year-ago output in the Marcellus Shale averaged 16 MMcf/d, was producing 100 MMcf/d gross there as of Feb. 19, and the natural gas play "will be the driving force for the company for years to come...it's the real deal," said CEO Dan Dinges last week.
Dinges and his management team discussed the company's 4Q2009 and year-end performance in the Marcellus Shale, as well as its operations in East Texas and Louisiana, with financial analysts during a conference call. The Houston-based independent reported better-than-expected quarterly results, mostly driven by increased gas output in its Pennsylvania leasehold in the Marcellus Shale.
"This area is the centerpiece for Cabot's future strategy," Dinges said of the Marcellus play. "It is developing into a true company-maker, and it is a world-class resource. Early on we were conservative with our judgment regarding the potential of this play. Now it has met and exceeded all expectations, and we know it will be the driving force for Cabot for years to come."
Cabot has leased more than 190,000 net acres in the shale play, with most of the acreage is Susquehanna County, PA. The five-year renewable leases carry a 12.5% royalty; Cabot is the sole stakeholder.
"Our strategy was from Day One to focus on what area where we believed the geology supported a concentration to support our leasehold, knowing that all Marcellus acreage is not created equally," Dinges told analysts. "During 2009 we drilled 30 horizontal wells and have 14 online...We ended 2009 producing about 72 MMcf/d," and have since upped output by more than 28 MMcf/d.
Cabot's 2009 Marcellus program had an average initial production (IP) rate of 7.5 MMcf/d and a 30-day average of 6.9 MMcf/d. The strong results led to Cabot increasing the estimated ultimate recovery to "north of 5.5 Bcfe per well" from 4.5 Bcfe, said Dinges.
"We have seen no diminishing results as we step out and feel that our drilling and that of our peers has essentially derisked our entire acreage block," he said. "Is there room for enhancing? Certainly we think there is...The upside is definitely there, as we completed the last well with a 39-foot lateral wall, 12-stage demolition, and it is flowing to sales at 16.1 MMcf/d and over 1,600 pounds pressure" per square inch.
Cabot now is planning to expand its Marcellus drilling program to around 73 horizontal wells in 2010 and 100 wells in 2011. Two more rigs would be added to its program this year and next year, he said. "We also anticipate that this program will yield over a tripling of our 2010 production, and a doubling again of our production in 2011."
The independent recently executed binding agreements with Williams Partners LP to anchor a new 20-inch diameter high-pressure gathering line (see NGI, Feb. 22). Williams is to construct and operate the 28-mile gathering line, which would run from Cabot's Susquehanna County operating area south to Williams' Transcontinental Gas Pipe Line. The new line is expected to be in service by mid-summer 2011.
As the majority capacity holder, "this firm takeaway commitment goes a long way to providing the next wedge of needed capacity for the company," said the CEO.
In East Texas Cabot in 4Q2009 completed three Pettet horizontal oil wells, two James Lime gas wells and a horizontal Cotton Valley Taylor Sand well, while drilling and casing the first company-operated horizontal Haynesville Shale well. Currently the 2010 plan has 11 Pettet wells in the mix, with one flowing back, two wells to complete, two drilling and four wells to be drilled.
The Cotton Valley Taylor Sand horizontal confirmation well IP'd at 8.9 MMcf /d and a 30-day production rate of 5.9 MMcf/d. The company is currently drilling its third well in this play. Cabot also drilled and cased its first operated horizontal Haynesville well, which is in the queue for completion by early March.
"The combination of strong production coming from our Marcellus [operations] and the success with the drillbit in several East Texas operations provides a great jump start to 2010," said Dinges.
"Investors will recognize that COG [Cabot] remains one of the best ways to play the Marcellus today," said analysts with Tudor, Pickering, Holt & Co. Inc. "Wells continue to get better (at least $8/share better), and COG is not a 'sleeper' Marcellus producer anymore..." It's now third behind Range Resources Corp. and Chesapeake Energy Corp. Cabot has other opportunities, "but investors can buy COG today for the Marcellus alone."
Cabot in 2009 increased its total proved reserves to 2.06 Tcfe on the strength of 450% organic production replacement. The company added 463 Bcfe through its drilling operations and produced a record 103 Bcfe. Under the revised Securities and Exchange Commission rules, Cabot grew its reserves 6%.
Net income in 4Q2009 totaled $36.4 million (35 cents/share), compared with net income of $43.7 million (42 cents) in the year-ago period. Excluding one-time charges net income in the final quarter of 2009 improved to $53.8 million (52 cents/share) versus $45.8 million (44 cents). Higher commodity prices, higher production and overall lower expenses drove the results, Cabot said.
In related news, COO Michael B. Walen announced his retirement, effective May 1. Walen has been at Cabot for almost 25 years. Cabot also announced that Controller Henry C. Smyth will retire at the end of March and will be replaced by Todd Roemer.
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