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Cabot NatGas Curtailments Continue as It Waits on More Marcellus Takeaway

Cabot Oil & Gas Corp. has plans to stay flexible this year amid an uncertain commodity price environment that's further complicated by a lack of clarity about when some of the company's key infrastructure projects will come online to serve bottlenecked Marcellus Shale production in Northeast Pennsylvania.

The company has struggled with lower price realizations in the northeast part of the state for years on a lack of takeaway. While Williams' Atlantic Sunrise project, which would expand capacity on the Transcontinental pipeline, remains on track for an in-service date of late 2017, delays persist for the Constitution Pipeline project. Atlantic Sunrise would help Cabot get 850,000 Dth/d of natural gas to the Northeast (see Daily GPI, Jan. 14).

But the 650,000 Dth/d Constitution, which is backed by Cabot and gas utilities, continues to languish in the hands of the New York Department of Environmental Conservation, where the pipeline has been under consideration for 29 months and continues to wait for a key water quality permit, despite FERC approval in 2014 (see Shale DailyDec. 3, 2014). Announced in 2012, Constitution was expected to be in-service by late this year.

"In the environment we live right now, there's certainly a contingent out there that don't want hydrocarbons in the mix. And that contingent is vocal and they speak out" Dinges said on a call to discuss 2015 earnings in which he signaled Cabot can do little more than wait for the state's approval. "From what we've been able to tell from New York's plan -- and looking at the future for New York -- natural gas is an energy source that's required for [Gov. Andrew Cuomo] to fulfill his plan."

Northeast Pennsylvania's low natural gas prices and the lack of takeaway capacity tied to them forced Cabot to curtail 75 Bcf of natural gas last year. The company also exited 2015 with 63 drilled but uncompleted wells (DUC) in the Marcellus and plans to whittle that number down to 48 by the end of this year. It also exited the year with three drilling rigs and has since cut down to one -- a level it plans to maintain for the remainder of 2016.

"This inventory, along with expected curtailed [2016] volumes provides us with flexibility to ramp our volumes in 2017, assuming both a timely in-service for both Constitution and Atlantic Sunrise and an improvement in realizations in Appalachia," Dinges said. "While it is far too early to provide any significant details on our plans for 2017, I would highlight that our unique set of assets in the Marcellus provides us with optionality as we assess our plans for the future.

"If market conditions improve and our takeaway capacity is placed into service according to our current expectations, then we can deliver on a program that generates double digit production growth in 2017. If there are any unexpected delays in infrastructure buildout, or more generally, if market conditions remain depressed, we have an asset that requires minimal capital investment to maintain flat production. In that scenario, while [production volumes] would be flat, we would still realize significant cash flow growth in 2017."

While most of the company's financial metrics suffered last year, the company did record its sixth consecutive year of double-digit production growth. Cabot produced 602.5 Bcfe in 2015, up 13% from the prior year. Production consisted of 566 Bcf of natural gas, 5.4 million bbl of oil and condensate and 667,000 bbl of natural gas liquids.

In the fourth quarter, Cabot produced 151 Bcfe, which was flat on curtailments compared to the year-ago period when it produced 157.9 Bcfe. Sequential production was up, however, from the third quarter when Cabot produced 142.1 Bcfe.

The Marcellus would continue to account for a majority of the company's production and capital expenditures this year (see Shale DailyFeb. 2). But it has a similar strategy planned for the Eagle Ford Shale in South Texas, where it has 86,000 net acres. The company ran one rig there in the fourth quarter, but recently released it after drilling three wells there this year. Cabot plans to bring back the rig to drill another two wells before the year is over. It would also exit this year with 13 Eagle Ford DUCs.

"Our focus in 2016 is to reduce our operating activity to the minimum levels needed to ensure we maintain all of our core acreage," Dinges said of the company's Eagle Ford operations.

Cabot reported a net loss of $111.1 million (minus 27 cents/share) in the fourth quarter, compared to a net loss of $221.8 million (minus 54 cents/share) in the year-ago period. Revenue was $280.8 million during the period, down from $618 million in 4Q2014. The losses, Cabot said, were mainly related to low commodity prices, but it also reported a $114.8 million impairment on its oil and gas properties during the period.

For 2015, Cabot reported a net loss of $113.9 million (minus 28 cents/share), compared to net income of $104.5 million (25 cents/share) in 2014. Full-year revenue slid from $2.2 billion in 2014 to $1.4 billion.

The company's total debt was $2 billion at the end of the year, of which $413 million was outstanding under its $1.8 billion credit facility. Cabot also said that its proved reserves increased  by 11% year over year to 8.2 Tcfe.

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