Cabot Oil & Gas Corp. said Friday that an improving outlook for natural gas prompted it to add a second completion crew that will finish another 15-20 wells this year in Northeast Pennsylvania's Marcellus Shale.
That's in addition to the 40 Marcellus wells and 15 Eagle Ford Shale wells that the company said earlier this year that it would complete.
"As a result of continued efficiency gains and incremental cost savings, the company plans to complete an additional 15-20 Marcellus wells during the second half of the year and will also incur an additional $20 million of capital," CEO Dan Dinges said during the company's second quarter earnings call with financial analysts. "The production impact of accelerated Marcellus completions will not be realized until early 2017. Therefore, we're leaving our current 2016 production guidance unchanged."
Cabot is the latest Appalachian-focused operator to announce an increase in activity in the second half of the year. So far this earnings season, Southwestern Energy Co.; Consol Energy Inc.; Range Resources Corp. and EQT Corp. have all announced plans to capitalize on a slowly recovering natural gas market as prices have firmed since the beginning of the second quarter.
Cabot said it would increase this year's capital budget to $345 million from $325 million to cover more activity. The company produced 602.5 Bcfe in 2015, and it's guiding for 2-7% production growth this year. While he said the company is still drawing up its plans for 2017, Dinges told analysts on the call that a 5-10% production growth rate is a "prudent" estimate for next year.
Cabot continued to work during the second quarter to resolve some of the bottlenecks it's dealt with over the years in Northeast Pennsylvania, where a lack of takeaway capacity has dented its price realizations. The company now has two deals with power generation facilities in the region that will find it supplying them with more than 400,000 Dth/d at premium pricing terms that are confidential and linked to the power markets (see Shale Daily, July 13; July 6).
The company's plans for its marquee Constitution pipeline were derailed in April when the New York Department of Environmental Conservation denied a key water quality permit (see Shale Daily, April 25). Federal regulators initially approved the project in 2014 and it was expected to be in-service by the end of this year. Constitution's backers -- which also include Williams, Piedmont Natural Gas Co. Inc. and WGL Holdings Inc. -- filed an appeal against that decision with the U.S. Circuit Court of Appeals for the Second Circuit.
Dinges said Friday that any questions about the pipeline project could be answered by reviewing the appellate brief in that case, Constitution Pipeline Co. LLC v. DEC et al [No. 16-1568]. Dinges noted, however, that other infrastructure projects it has committed to, such as the PennEast Pipeline and the Atlantic Sunrise project, have received draft environmental impact statements from the Federal Energy Regulatory Commission and remain on track (see Shale Daily, July 22; May 6). Excluding Constitution, Cabot has about 700 MMcf/d of takeaway capacity coming online in 2018, according to one recent estimate from Tudor, Pickering, Holt & Co.
"Assuming a gross exit rate this year of approximately 2 Bcf/d, we have line of sight to double our production to over 4 Bcf/d, assuming all of the announced projects are approved and built," Dinges said. "For all the Constitution naysayers out there, while we are extremely confident that the project will ultimately be constructed, even without Constitution volumes, we still have direct line of sight to have the ability to produce over 3.5 Bcf/d by the end of 2018."
Cabot produced 151.8 Bcfe during the second quarter, up from the 138 Bcfe it produced in the year-ago period. Second quarter production was down from the 160.3 Bcfe the company produced in 1Q2016, but the company had forecasted up to a 6% decline in second quarter production on curtailments that have resulted from the commodities downturn (see Shale Daily, April 29). Unscheduled downtime during the second quarter for infrastructure maintenance also cost the company 3.3 Bcf of production.
While Cabot's Eagle Ford activity was once again at a near standstill, new wells that came online there this year outperformed and sent 2Q2016 production up 10% from 1Q2016 to 14,312 boe/d. The company does not plan to place any new wells on production there in the third quarter and will focus on the Marcellus, which produced 1.535 Bcf/d during the second quarter.
"At this point in time, based on our current outlook, our plan is to allocate a minimal amount of capital to our Eagle Ford assets and instead focus on arresting base declines, meeting our leasehold obligations and waiting for a slightly higher oil price environment before allocating any additional capital to this asset," Dinges said. "Given the higher returns we see in the Marcellus, we believe the best place for additional capital today is in Susquehanna County, PA."
Cabot drilled seven wells during the quarter, all of which were in the Marcellus. One of those was the company's longest to date, with a total measured depth of more than 18,000 feet and a lateral over 10,000 feet. The company completed 11 wells during the period, three of which were in the Eagle Ford.
Despite its operational gains and an improving outlook, Cabot struggled with low prices during the quarter. Including hedges, its average realized gas price was just a $1.63/Mcf, down 24% from the year-ago period. Revenue fell to $246.8 million from $306.3 million in 2Q2015.
Cabot reported a net loss of $62.9 million (minus 14 cents/share), compared to a net loss of $27.5 million (minus 7 cents) at the same time last year.
Stay up to date on 2Q2016 earnings and projections for the remainder of the year with NGI's Earnings Call and Coverage sheet.