Cabot Oil and Gas Corp. (COG) impressed the marketplace on Monday with some astonishing results from a 10-well pad in the Marcellus Shale, delivering on a promise to up its game there with longer laterals, more frack stages and more efficient well pads.
Equity analysts called the results "phenomenal," with some saying Cabot has one of the finest acreage positions in the prolific gas field as it continues to sell off non-core assets to focus on its holdings in the Marcellus and Eagle Ford.
"COG remains our top pick given it has one of the best domestic resource plays with its superior economics in the dry gas Marcellus Shale, top-tier production growth, clean balance sheet and strong potential free cash flow generation," wrote Gabriele Sorbara, vice president of E&P research at Topeka Capital Markets, in a research note.
Cabot's 10-well pad was completed with 170 stages at a combined peak production rate of 201 MMcf/d and a combined average 30-day production rate of 168 MMcf/d. Moreover, the company said those rates exceeded its 14 Bcf type curve, "further reiterating the consistency of results across Cabot's Marcellus position."
"This 10-well pad represents the new standard for operational efficiencies and technological advancement in our Marcellus operations," said Cabot CEO Dan Dinges. "From de-risking of the upper Marcellus and downspacing initiatives in the lower Marcellus to drilling and completion efficiencies and bi-fuel utilization in our operations, our achievements on this pad showcase the innovation and ingenuity our team continues to demonstrate day-in and day-out."
The pad consists of eight lower Marcellus wells and two upper Marcellus wells. The two upper wells were completed with 37 stages and had an initial production (IP) rate of 32 MMcf/d and a 30-day rate of 24 MMcf/d. While the laterals were spaced 1,000 feet apart in the two upper wells and five of the lower wells, Cabot said it was testing and monitoring 500 foot spacing on three lower wells that were completed with 62 stages at an IP rate of 62 MMcf/d and a 30-day rate of 56 MMcf/d.
"While more production data and testing are needed to determine the optimal spacing of laterals across the play, the results from this pilot program reinforce our belief that tighter downspacing will increase recoverable resource across our positions, further enhancing the value of our Marcellus asset," Dinges said of the pilot program.
Cabot said earlier this year that its 2013 drilling program was using longer laterals and about 200-foot spacing between frack stages, with between three and four stages added per well to maximize returns (see Shale Daily, Oct. 25).
Thanks in part to the Marcellus, 2Q2013 was one of the best in Cabot’s history (see Shale Daily, July 26). Last quarter, it reported 107.1 Bcfe of natural gas, a 61% improvement from 3Q2012.
The company also said Monday that it has repurchased 4.8 million shares, representing the 19.2 million shares its authorized to repurchase under a program that will find those proceeds being directed to more drilling in the Marcellus and Eagle Ford.
It also announced a purchase agreement with an undisclosed buyer to sell legacy assets in the Midcontinent for $125 million.
Cabot has already sold off $325 million of non-core assets this year, (see Shale Daily, Oct. 18), "with proceeds being reinvested into our higher-return projects through the drillbit and through share repurchases at prices materially below our intrinsic value," Dinges said.
The company said current production from the latest sale properties is 15 MMcfe/d, most of which is dry gas.
Dinges said approximately 60% of the company's 2014 program will be drilled on pads with five or more wells. Cabot also said it achieved $6 million in cost savings for the 10-well pad, reducing its cost per foot by 30%compared to 2012 drilling figures. Reduced move time between wells, location cost savings and greater drilling efficiencies have led the company to target an average of $5.8 million per well, on a 10-well pad, as opposed to $6.4 million on a two-well pad.
One major positive for the company's latest results was a fleet powered by bi-fuel engines, which utilized Cabot's own natural gas from nearby wells, enabling it to displace 110,000 gallons of diesel fuel.