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Cabot: Marcellus Constraint Not Pinching Production

The third quarter production of Cabot Oil & Gas Corp. has not been affected by "recent operational challenges and the logistics of moving gas in northeast Pennsylvania," the company said Friday.

"In our published guidance (of 521-567 MMcfe/d), we allow for some level of disruptions because history shows unforeseen circumstances can occur," said CEO Dan O. Dinges. "We have experienced solid and expanding production levels in July and August that solidify the quarter's production outlook."

Growing Marcellus Shale production has filled up Tennessee Gas Pipeline (TGP) in the region. The booming shale play has turned what was traditionally the pipeline's market area into a supply area. Capacity constraint-induced price distortions started happening in earnest in Tennessee's northeastern Zones 4, 5, and 6 after the Fourth of July weekend and continue (see Shale Daily, Sept. 7). The Federal Energy Regulatory Commission has just approved TGP's and Dominion Transmission Inc.'s proposed system expansions to deliver gas from the Marcellus to markets in New England and to the Niagara Falls area of New York (see Shale Daily, Sept. 16).

Dinges said Cabot's year-to-date production will surpass that achieved during all of last year before the end of this month. The entire fourth quarter will represent production growth, he said.

For the fourth quarter Houston-based Cabot's production guidance is 562-608 MMcfe/d. Embedded in the numbers are some risked production levels expected from the new Laser pipeline (effective October) and the new Springville pipeline (effective December), the company said, noting that the timing of the pipelines' in-service dates might be affected by as much as a week or two due to recent weather delays.

"However, should further delays occur and assuming Cabot moves no volumes on either of these projects in the fourth quarter, we can still attain the low-end of our published fourth quarter production guidance," Dinges said. "...[W]e have set a new 24-hour record for gross production out of [the] Marcellus [Shale] at 483 MMcf/d and have reached a peak inter-day rate over 520 MMcf/d, all without the benefit of the new Laser or Springville pipelines."

Cabot did concede that it's feeling the weight of market conditions. "On average for the third quarter, the price differentials on unhedged gas in that market have moved negative to the low 30-cent range," it said. Cabot has approximately 55-60% of these volumes hedged above $5.00/Mcf.

"Even at the recent prices received for our product in the Marcellus, these returns are still above every gas project in the domestic energy business and nearly all oil projects," Dinges said.

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