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Cabot to Cut Back as Profits Fall Despite Soaring Liquids Production

Cabot Oil & Gas Corp.'s Eagle Ford Shale assets pushed its first quarter natural gas liquids (NGL) production up by more than 100% from the year-ago period, but it won't squeeze profit margins moving forward, with a plan to curtail volumes as commodity prices remain low.

The company's NGL volumes increased 132% to 1.6 million bbl last quarter, carrying over momentum from 2014 when it finished with record liquids production of 4 million bbl (see Shale Daily, Feb. 20). Overall, the company produced 171.4 Bcfe, up 43% from the year-ago period and up 13% from the fourth quarter. Liquids production was buoyed by the Eagle Ford, where the company averaged 17,831 boe/d, while natural gas production surpassed expectations in the Marcellus Shale by climbing 43% year over year.

But the company's profits were cut by lower oil and gas prices, and revenue sank as well. Last year, Cabot made strides in the Eagle Ford with reduced downspacing, longer laterals with shorter fracture stages and more proppant per lateral foot, but it plans to hold liquids production flat there for the remainder of the year (see Shale Daily, July 25, 2014). Most of its $900 million capital budget is expected to be spent in the first half of 2015, and it will also curtail volumes in the Marcellus in the coming quarters.

"We'll continue to monitor the price environment before we make any decisions on selling more gas into the local market," CEO Dan Dinges said of Cabot's Marcellus program. "It's clear from our first quarter production that we can move volumes in excess of these baseload levels, but we are not going to chase production growth to the detriment of cash margins.

"In light of our expectation for continued weakness throughout Appalachia during the summer months -- we do often reevaluate our program -- we could delay completions as we await a more favorable price environment in the future," he added.

The company is guiding for about 1.4 Bcf/d of natural gas production and roughly 17,500-18,250 b/d of NGL production in the second quarter. Cabot averaged 1.7 Bcf/d of natural gas volumes in the Marcellus Shale last quarter. Dinges said in addition to an unfavorable price environment, some of the company's Appalachian gas in northeast Pennsylvania is likely to be curtailed by planned maintenance and upgrades to midstream infrastructure during the summer months.

"Virtually all of the pipelines our production reaches have planned or scheduled projects during the second quarter, most notably the looping of [Transcontinental Gas Pipe Line's] Leidy line in conjunction with the Leidy Southeast expansion project," he said. "Although this expansion of 525 MMcf/d of new capacity will ultimately be very beneficial to Cabot, the 43-day construction period is expected to affect throughput on the line."

In February, the company said it would cut its Eagle Ford rig count from three to one and cut its Marcellus rigs from five to three. It plans to maintain that count through the remainder of the year in response to low commodity prices. Including hedges, natural gas price realizations were $2.46/Mcf, down 34% from the year-ago period and 17% from the fourth quarter. The same was true for oil price realizations, which were $43.82/bbl last quarter, down 55% from the same time last year and down 40% from the fourth quarter.

Declining commodity prices cut year-over-year revenue from $510 million to $464 million. Net income also declined from $107 million (26 cents/share) in the year-ago period to $40.3 million (10 cents/share) last quarter. Profits improved, however, from the fourth quarter when Cabot recorded a $221.8 million net loss (minus 54 cents/share) on declining oil and gas prices and related impairments associated with non-core properties in East Texas.

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