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Cabot Grows Production But Profits Fall

Cabot Oil & Gas Corp. saw profits shrink but production rise in the first quarter compared to the year-ago period, the result of low natural gas prices combined with expansion of operations in the Marcellus and Eagle Ford shales.

"Throughout the remainder of 2011, I would expect to see similar commodity pricing and also a continued increase in our production profile," CEO Dan Dinges said during an earnings conference call Thursday.

The Houston-based company earned $12.9 million in net income during the first quarter of 2011, down from nearly $29 million during the same period last year. However, Cabot produced a record 37.7 Bcfe during the first quarter, up 41% from the first three months of 2010 (see Daily GPI, Oct. 27, 2010).

The earnings discrepancy is explained by low natural gas prices. Cabot reported an average sales price of $4.68/Mcf during the first quarter of 2011, down from $6.71/Mcf during the same period last year.

Cabot plans to spend $600 million on exploration and production this year, $350 million on its natural gas operations in the Marcellus of Pennsylvania and the remainder on its oil operations in the Eagle Ford of South Texas.

In the Marcellus, Cabot produced 320 MMcf/d gross from 57 horizontal wells in the first quarter and is currently running five rigs. Dinges touted a two-well pad producing 36 MMcf/d, and a six-well pad producing at a curtailed rate of 51 MMcf/d, which is expected to produce as much as 80 MMcf/d at full output.

Cabot recently hit the 100 Bcf cumulative production mark in the Marcellus, less than three years after arriving in the play, and expects to hit its second 100 Bcf in less than a year.

But like many operators in the area, Cabot is constrained by infrastructure (see Shale Daily, April 28).

Dinges counted 560 hydraulic fracturing (hydrofracking) stages in the Marcellus that are "being completed or cleaned up, waiting on pipeline, or waited to be completed." A dedicated hydrofracking crew completed three stages per pumping day in March and is averaging about 20 pumping days per month. At that rate, Cabot will likely hire a second crew to work through the backlog, Dinges said.

Cabot is just starting to reap the benefits of building out its seven-compressor station Lathrop facility in Susquehanna, in northeast Pennsylvania, giving it 225 MMcf/d of capacity. That will increase to 450 MMcf/d once a new dehydration facility and associated gathering lines come online in the second half of the year. Including its Teel station, Cabot will have 550 MMcf/d of capacity.

In the Eagle Ford, Dinges touted three wells Cabot recently completed in the Buckhorn area that flowed at initial production rates of 958 boe/d, 460 boe/d and 345 boe/d, respectively. The company drilled three other wells in the area that it plans to complete in May and June. "It's early in our completion techniques in this area and we certainly like the results we've seen so far," Dinges said.

Cabot also drilled three wells on an 18,000-acre leasehold in partnership with EOG Resources Inc. and plans to drill or participate in as many as 30 wells in the Eagle Ford this year, Dinges said.

In East Texas, Cabot finalized two agreements that would allow it to "maintain a large percentage of our Haynesville acreage with no capital investment," Dinges said. The agreements give Cabot an interest in initial wells drilled to hold acreage, but don't require further drilling until prices rise.

Cabot is also working to sell its minority interest in some producing and nonproducing acreage that the company does not operate in the area. Dinges said that agreement should close in early May.

"Combined, these agreements will allow Cabot to maintain approximately 22,000 net acres of its original 33,000 net acres in the play within the original lease terms and no incremental cost to us for 2011 and 2012," Dinges said. "This was our plan going into these joint ventures."

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