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Cabot Output Up as Marcellus Midstream Expands

Houston-based Cabot Oil & Gas Corp. grew its natural gas production by 31% and its liquids production 61% during the third quarter compared to year-ago levels, the company said. It credited much of the growth to the Marcellus Shale, where infrastructure constraints that delayed some wells during the second quarter have been overcome. Production during the quarter was 66.5 Bcfe: 62.7 Bcf of natural gas and 629,000 bbl of liquids.

"Our year-to-date production growth relative to last year further highlights the prolific nature of our wells in the Marcellus, even in the face of continued delays in permitting for gathering lines," said CEO Dan O. Dinges. "Based on our plans to connect (or begin producing) 45 additional wells in the fourth quarter, we expect a ramp in production above our previous highs."

During a conference call with financial analysts, Dinges elaborated on the difficulties the company has had getting its wells connected in the Marcellus. He said Cabot midstream provider Williams has worked through the issues.

"Last quarter we reported that the 2012 slowdown in the permit approval process did delay the construction of various gathering pipelines that ultimately affected the dates we turned our wells online," Dinges said. "We believe that issue has been fully resolved, and in fact Williams...has now received 90% of the pipeline gathering permits to complete the 2012 program and has acquired 100% of the right-of-ways needed to complete our 2013 program. In fact, we have no less than 12 different pipelines that are currently in the construction phase. This is great news on the pipeline construction side of the infrastructure.

"The other half of the infrastructure picture deals with the timing of compressor stations and free-flow interconnect into the interstate pipelines. These projects have made significant progress. While we are not going to see any of these individual projects have an in-service date earlier than we expected, we do still expect to be close to our original goal of approximately 1 Bcf/d of takeaway prior to year-end 2012."

As drilling progresses and infrastructure around it develops, Dinges said there will be periods in the play when some areas have excess takeaway capacity while others are "slightly" constrained. "That phenomenon is simply a result of where we need to have our drilling rigs throughout the year," he said. "...[W]e have already provided Williams with the necessary information for our 2014 program. We anticipate Williams will submit the completed applications for permits in January 2013 for our 2014 program."

Cabot reported net income of $36.6 million (17 cents/share) for the third quarter compared to $28.5 million (14 cents/share) for the third quarter of 2011. Excluding special items net income was $43.1 million (21 cents/share) compared to $35.3 million (17 cents/share) for the third quarter of 2011. Higher equivalent production and higher realized crude oil prices drove the quarter's overall improvement, partially offset by lower realized natural gas prices and increased operating expenses associated with higher production.

"Our industry-leading cost structure continues to result in decreasing per-unit costs over time," Dinges said. "For example, direct operating expenses for the third quarter declined 22% per unit to 43 cents/Mcfe compared to 2011." Including the effect of hedges, natural gas price realizations were $3.68/Mcf, down 20% compared to the third quarter of 2011. Oil price realizations were $101.34/bbl, up 17% compared to the year-ago quarter.

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