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Cabot Oil & Gas Increases 2017 Spending on Firmer Commodity Prices

Cabot Oil & Gas Corp. said Friday that improving well results and a better commodity price outlook have prompted it to increase spending this year in both the Marcellus and Eagle Ford shales.

While Cabot saw the lowest realized natural gas price in its history during 2016, a bevy ofinfrastructure projects slated to come online in 2018 in the Northeast and a rosier outlook for crude prices have the company returning to growth mode. It announced an increase in exploration and production spending from $575 million to $650 million. The company guided for just $325 million of 2016 spending at this time last year.

Cabot said 67% of its budget would be spent on additional activity in the Marcellus with the rest going toward more activity in the Eagle Ford. The company is still guiding for 5-10% year/year production growth in 2017, but it has baked in oil production guidance of 15%, which is significant considering it guided for no crude growth in the preliminary budget that was released in October.

"This increased oil growth moves us higher in our production guidance range and allows for more flexibility around curtailments in the Marcellus, if warranted. However, based on current price expectations, we do not expect curtailments to be a concern," said CEO Dan Dinges during a call with analysts to discuss year-end results. "We have increased our spending in the Eagle Ford to help pivot this asset back into growth mode as opposed to the holding pattern that it's been in the last couple years."

In late 2016, Cabot tested higher proppant loading, cluster spacing and other enhanced completion techniques in its Eagle Ford wells that are significantly outperforming offset pads finished with older designs. The company also increased its type curves for the lower Marcellus to reflect fourth generation completion techniques. Based on 21 wells drilled across Cabot's position in Northeast Pennsylvania, Marcellus estimated ultimate recoveries were increased from 3.8 Bcf per 1,000 feet of lateral to 4.4 Bcf per 1,000 feet of lateral.

The company produced 164.2 Bcfe in the fourth quarter, up from the 151 Bcfe it produced in the year-ago period and 9% above 3Q2016. For the full year, Cabot reported production of 627.1 Bcfe, compared to the 602.5 Bcfe it produced in 2015. The company drilled 38 wells last year and completed 76. It exited the year with 51 drilled but uncompleted wells and plans to drill and complete 90 wells this year.

The company's realized prices have been challenged by infrastructure bottlenecks in Northeast Pennsylvania, but Cabot's outlook is improving. Six pipeline projects representing more than 2 Bcf/d are expected to come online for the company and others by 2018. Cabot is the sole shipper on three of those projects.

"Upon in-service of all these projects, Cabot will have the ability to double production volumes from its 2016 exit rate," Dinges said. "The pace at which we fill this capacity with incremental growth volumes will obviously be dependent upon the market environment."

Cabot has 1 Bcf/d alone contracted on the 1.7 Bcf/d Atlantic Sunrise project, which received its FERC certificate earlier this month. While the U.S. Army Corps of Engineers recently raised concerns with the planned route, Dinges said he expects the corps' approval, along with Pennsylvania permits and the Federal Energy Regulatory Commission (FERC) notice to proceed by mid-summer when construction can begin.

The company is also waiting on a decision from the U.S. Circuit Court of Appeals for the Second Circuit about the 650 MMcf/d Constitution pipeline. Dinges said Cabot -- which has 500 MMcf/d contracted on the pipeline -- should have more information about that case late in 2Q2017.

Natural gas price realizations, including the impact of hedges, were $1.70 in 2016, down 21% compared to 2015. Year/year revenue slid as a result from $1.4 billion to $1.2 billion.

The company reported a full-year net loss of $417.1 million (minus 91 cents/share) -- including a $274.7 million impairment on its properties and related pipeline assets -- versus a 2015 net loss of $113.9 million (minus 28 cents). The company finished 2016 with $2.2 billion of liquidity, including nearly $500 million of cash and $1.7 billion available under its credit facility.

For the fourth quarter, Cabot reported a net loss of $292.8 million (minus 63 cents) on revenues of $316.5 million, compared to a net loss of $111.1 million (minus 27 cents) on revenues of $280.8 million in the year-ago period.

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