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Cabot Sees Clearer Path Out of Appalachia in 2018; Six NatGas Projects Slated For Service

Cabot Oil & Gas Corp. CEO Dan Dinges sounded a resilient tone on Friday as the company continues to work through infrastructure challenges in Northeast Pennsylvania, saying 2018 could be the "inflection year" for the company with six projects expected to come online representing 2 Bcf/d of new takeaway capacity.

Setbacks on the Atlantic Sunrise pipeline expansion and the Constitution Pipeline project will ultimately be resolved, he said. Two natural gas-fired power plants, the PennEast Pipeline, a Tennessee Gas Pipeline expansion, Atlantic Sunrise and Constitution are now all expected to come online in 2018.

"Clearly, there's been a lot of questions about Constitution given the ongoing appeal process, but even if you exclude Constitution from the conversation, we would be able to produce 3.5 Bcf/d once all the new projects come online," Dinges said.

Cabot is the sole shipper on three of the six projects. FERC said earlier this month it would issue the final environmental impact statement for the Atlantic Sunrise expansion on Dec. 30 rather than this month to accommodate more landowner comments about a minor route modification (see Daily GPI, Oct. 20). As a result, Williams said Friday that it now expects the project to be in service by mid-2018 rather than late 2017 (see related story).

Cabot has 850 MMcf/d contracted on the project and Senior Vice President of Marketing Jeffrey Hutton couldn't say for sure when the notice to proceed would be needed to hit the target in-service date. He deferred to Williams, which will report third quarter earnings on Monday.

"While disappointed that this decision has resulted in a delay of in-service date to mid-2018, we believe the decision was prudent in that at the end of the day the Atlantic Sunrise will ultimately be insured of a full and complete record," Dinges said during a call to discuss the company's third quarter operations. "As you're all aware, in this environment, we simply want to get it done right, particularly concerning the route."

Constitution's backers have filed an appeal with the U.S. Circuit Court of Appeals for the Second Circuit over the New York Department of Environmental Conservation's refusal to issue a water quality certification for the pipeline, which has held up the project (see Shale Daily, May 16). An appeal was also filed in the U.S. District Court for the Northern District of New York, where Cabot is seeking a declaration that the state's permitting authority is preempted by federal law in the matter. Cabot has 500 MMcf/d of capacity on the 650 MMcf/d project. Dinges said the company expects the pipeline to be in service as early as the second half of 2018.

Hutton said the company likes its chances in the second circuit case, adding it has a strong legal argument. Oral arguments are scheduled for November with a reply from the court expected this spring. He added that the company has a strong argument in the northern district case too, but said it's more complex than the water quality permit appeal.

The projects could set Cabot up for 20-25% year/year growth in 2018. It said Friday that it would spend $575 million to drill 70 net wells in 2017. That's up from the $380 million budgeted for this year and most of the 2017 budget would be spent to fund growth in 2018. Next year's production is expected to be flattish at 5-10% year/year growth as it looks ahead.

Cabot produced 150.8 Bcfe in the third quarter, up from 142.1 Bcfe in 3Q2015. The period's volumes were slightly under management's guidance and down from 2Q2016 production of 151.8 Bcfe (see Shale Daily, July 29). The decline came on downstream maintenance projects and unscheduled upstream gathering downtime.

While Cabot saw its best pre-hedge natural gas realizations since 1Q2015 in the third quarter, its prices continued to slide. Bottlenecks in Northeast Pennsylvania have challenged the company. Including hedges, its average realized natural gas price was $1.75/Mcf, down from $2.02/Mcf in the year-ago period, but up from $1.63/Mcf in 2Q2016. Without hedges it still saw a $1.01 discount to the New York Mercantile Exchange settlement prices during the quarter, which was slightly over management's guidance.

The company expects to dedicate 79% of next year's budget to the Marcellus Shale, with the remainder headed to the Eagle Ford Shale in South Texas. Dinges said that after extensive testing, the company is moving to a fourth generation completion design in the Marcellus, which has given it a 20% production uplift in wells on pads where the third generation completions were also employed. The company shared few specifics on the completion techniques, and Dinges said Cabot wouldn't update its estimated ultimate recoveries in the Marcellus until after its year-end audit.

Third quarter revenue was up slightly from the year-ago period, going from $305.3 million to $310.4 million. The company reported a net loss of $10.3 million (minus 2 cents/share), compared to a net loss of $15.5 million (minus 4 cents) in 3Q2015.

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