First quarter results of Cabot Oil & Gas Corp. improved over the year-ago period, thanks mainly to expansion of the company's production base. Oil and gas production volumes both set company records, although low gas prices weighed on the Houston-based producer.
Production during the first quarter was 59.7 Bcfe, with 56.4 Bcf of natural gas production and 538,000 bbl of liquids production, representing increases of 58%, 55% and 138%, respectively, compared to the first quarter 2011. Production was the strongest ever reported; however, realized pricing was mixed. Natural gas price realizations were down 22% to $3.65/Mcf in first quarter, while oil price realizations were up 11% to $96.67/bbl.
"Even with the significant reduction in realized natural gas prices between first quarters, we were able to grow oil and gas revenues by 36% as a result of our record production growth," said CEO Dan O. Dinges. "Fortunately, we have the assets, the balance sheet and the operational ability to weather this cycle and still be opportunistic in order to generate value over the long term."
Cabot might not be liquids-rich, but it is capital-efficient, analysts at Canaccord Genuity said in a note Friday.
"Cabot's capital productivity is almost twice the peer [EQT Corp., Range Resources Corp., Southwestern Energy Co., Ultra Petroleum Corp.] average," wrote analysts John Gerdes and Ryan Oatman. "Next year, we believe Cabot should generate almost four times the production growth while spending almost 40% less than cash flow as the peers spend about 30% beyond cash flow.
"Accordingly, we see about 40% upside to [Cabot] shares even in a long-term $4 gas price environment while [the four peer companies cited] have about 30% downside potential in this bear-case scenario."
Late in the first quarter Cabot commenced free-flowing Marcellus gas in the Zick area that represents a seven-mile step-out to the east from the nearest production. The five wells averaged 78 MMcf/d for the last 20 days. "The results of these wells have de-risked another substantial portion of our acreage position in Susquehanna," Dinges said. "If there was concern about the productivity of our eastern acreage, those concerns should be mitigated. The five wells were completed in 92 frack stages and will have additional productive capacity once compression is operational."
During a conference call with financial analysts Thursday Dinges said the company is delaying deployment of a second frack drew but will continue to have a backlog of wells due to the nature of pad drilling operations and delays in connecting wells to gathering lines.
As previously budgeted, the company plans a reduction in the number of Marcellus rigs toward the middle of the year and expects to be running three rigs at the end of this year.
While conceding that dry gas prices these days are disappointing, Dinges alluded to better days to come in the Marcellus as commodity prices improve and the company enjoys the benefits of future pure pad drilling.
In the Marmaton play in Oklahoma, Cabot completed a well that reached a production level of 1,279 b/d of oil and 1,144 Mcf/d of gas, totaling 1,470 boe/d. This well has produced 50,000 boe in 50 days, highlighting the potential of the area, Cabot said. "These results are significantly greater than any well previously drilled in the play," said Dinges. "This highly fractured zone is what our science effort is attempting to identify throughout the basin."
In the Eagle Ford Shale Cabot recently completed a down-spacing pilot, drilling two wells with the horizontal legs spaced at 400 feet. "These two wells were zipper fracked, and the early stage flowback indicates very positive results," Dinges said. "The wells have 24-hour production rates of 788 and 791 boe/d, which is greater than the average initial rates for our entire producing portfolio of Eagle Ford wells."
Cabot is scheduled to participate with Range Resources Corp. in a Utica/Point Pleasant test well in northwestern Pennsylvania. "We have 100,000 gross and 50,000 net acres in the play as a result of deep rights retained in an asset sale in 1997," said Dinges. "All indications place this acreage in an attractive position within the wet gas window of the Utica."
The company also said its initial well in the Brown Dense/Smackover in Union County, AR, reached a peak production rate of 206 b/d from a 10-stage frack. "This early test demonstrates the productivity of the Brown Dense. With this and other data points we will continue efforts to enhance the play with science and technology," said Dinges. "We hold 13,600 net acres in the play."
Net income was $18.3 million (9 cents/share), compared with $12.9 million (6 cents/share) during the year-ago period. Excluding special items, results were $28.5 million (14 cents/share), compared with $20.7 million (10 cents/share) during the year-ago quarter.