Houston-based Cabot Oil & Gas Corp. burst through the finish line in 2011, averaging 600 MMcf/d from the Marcellus Shale at the end of the year, including one day where it produced a record 606 MMcf. The independent also earned the distinction of being the best-performing stock on the Standard & Poor’s 500 in 2011.

The output gains represent a 154% increase from the 236 MMcf/d Cabot produced from the Marcellus at the end of 2010, a jump attributable to drilling and expanding takeaway capacity.

Cabot recently commissioned an upgrade to the Teel Compressor Station in Pennsylvania, which doubles its capacity to 200 MMcf/d and gives the company 650 MMcf/d in total compression. Cabot also began delivering gas to Williams Partners LP’s 33-mile, 24-inch diameter Springville gathering pipeline in northeastern Pennsylvania in late December. While those supplies are initially being used for linepack and compression commissioning, Cabot expects to begin delivering up to 250 MMcf/d to Transcontinental Gas Pipe Line (Transco) via Springville soon, and up to 625 MMcf/d on the system by mid-2012 (see NGI, Sept. 19, 2011).

“Ending 2011 with this momentum provides us a great start to the new year,” CEO Dan O. Dinges said. “We have long anticipated these events and completing these during 2011 gives an exclamation point to what has been Cabot’s best year in many regards.”

Growing production across the Marcellus filled up Tennessee Gas Pipeline (TGP) in the region in 2011, causing a price differential between Line 200 that runs through New York State and Line 300 that runs through the heart of the play in Pennsylvania (see NGI, Sept. 12, 2011). The Springville option will eventually allow Cabot to decrease its Line 300 deliveries to 350 MMcf/d, which should “alleviate acute price weakness,” according to a note from Canaccord Genuity Energy Research analysts. Earlier in the fall Cabot made similar moves by beginning deliveries to Millennium Pipeline via Laser pipeline.

“The majority of our 2012 production will be going to markets not served today by Cabot, which we think is an improvement,” Dinges said in an October 2011 conference call.

Cabot also announced a two-for-one stock split to be distributed on Jan. 25, and indicated that its quarterly dividend would jump 33% to 16 cents/share on a pre-share basis. “We see these moves positively, as they should provide additional liquidity and indicate confidence in the company’s outlook,” Canaccord wrote. With a 101% increase in value over the past year, Cabot topped the Standard & Poor’s 500 in 2011. Early Friday Cabot stock was trading at $82.79/share on the New York Stock Exchange.

Despite low prices, Cabot remains focused on natural gas because of its location. The Marcellus in northeastern Pennsylvania, where Cabot operates, requires roughly a New York Mercantile Exchange of $5/MMBtu to generate a 10% rate of return, the lowest of any shale play, according to Canaccord. “We believes Cabot should outperform its Marcellus peers over the next year as the company’s differential Marcellus Shale productivity becomes fully appreciated and the others’ 10-20% takeout premium dissipates,” it wrote.

While Cabot posted a banner year for production and shareholder value, it continues to face old challenges in Dimock Township, PA. The U.S. Environmental Protection Agency recently began surveying Dimock homeowners to address “potential gaps in sampling and sample results” (see NGI, see story this issue). Some homeowners in the northeastern Pennsylvania community blame Cabot for contaminating their water supplies.

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