Houston-based Cabot Oil & Gas Corp., whose onshore operations are focused on three shale plays — the Marcellus, Eagle Ford and Haynesville/Bossier — said Tuesday it smashed quarterly production records in 3Q2010, with output hitting 36 Bcfe, which was a 41% jump year/year. Sequential production also rose 18%, exceeding guidance targets.

Year-to-date Cabot’s production is up 22% from the same period of 2009, and as of Monday 2010 production matched full-year 2009 output, CEO Dan O. Dinges told financial analysts during an earnings conference call. “Production through the remainder of the year will represent year/year growth,” he said.

“Pennsylvania remains the focus of our capital program and is the key contributor to this production growth, as we wait for a backlog of Haynesville and Eagle Ford completions for both natural gas and oil.”

Gas prices remain “very soft,” down 27% year/year, the CEO said. In addition, oilfield service costs, especially for pressure pumping, continue to rise, forcing management to rethink how to allocate capital spending through the rest of 2010 and into 2011.

Because of an “expanding production base” from its onshore basins, especially in the Marcellus, full-year 2010 capital spending has been increased to $790 million. Cabot shifted money from 2011 to fund this year’s increase; next year’s capital budget now is set at about $600 million.

Despite sustained low gas prices, the Marcellus Shale continues to demonstrate a remarkable ability to compete with gas and/or oil wells in other shale plays, Dinges told analysts.

“The Marcellus is quite a remarkable resource, even with lower gas prices,” he said. “Our economic returns are in the top quartile of the food chain.” Cabot’s estimated ultimate recovery (EUR) for Marcellus wells is 5.5 Bcf. “At the current EUR and at current pricing, the rate of return will compete with most oil and wet gas projects very favorably.”

The company recently completed its first Marcellus pad drilling site with three horizontal wells. Each well was drilled and then they were simultaneously completed using “zipper frack” technology. The completed wells have varying lateral lengths from 4,304 to 4,865 feet, and production from the pad site has reached 47.4 MMcf/d.

“The result is impressive and highlights the prolific nature of the wells in our area of operations,” he said. “We continue to expand our multi-well pad sites and are currently drilling the sixth well on our first six-well pad site.”

Dinges didn’t dwell on the company’s continuing war of words with the Pennsylvania Department of Environmental Protection (DEP) concerning gas migration issues in Dimock Township, where the producer has extensive operations. DEP wants Cabot to pay for a $12 million water line to replace contaminated water wells for 14 affected homes in Dimock (see Daily GPI, Oct. 1).

However, Dinges maintained Tuesday that the company has affidavits from area residents confirming that methane gas had been present in their water wells long before Cabot began its drilling operations (see Shale Daily, Oct. 20). The company continues to work with DEP to resolve the situation, he said.

In Cabot’s South Region, the producer completed its third successful well in the Eagle Ford Shale. The Arminius Energy Trust No. 2H well was completed with a 15-stage hydraulic fracture (hydrofrack), which resulted in a 24-hour production rate of 547 boe/d (504 b/d and 256 Mcf/d).

“We completed this well with 15 [hydrofrack] stages versus 20 stages on our last well, and the well continues to clean up with only 10% flowback to date,” said Dinges. The first successful well in the play “remains at 787 boe/d (579 b/d and 1,250 Mcf/d) after six weeks…”

The South Region’s oil production is forecast to double in 2011 with 18 to 20 net wells in the Buckhorn area and in an area of mutual interest with EOG Resources Inc. EOG, as operator, and Cabot are jointly developing about 18,000 acres in Atascosa County, TX.

However, to fund 2011 spending in the higher-priced Haynesville/Bossier operations, Cabot has begun looking for a joint venture partner, said the CEO.

“We remain committed to our plans for a cash-flow neutral program in 2011 while at the same time meeting our 2010 obligations, particularly in East Texas,” said Dinges. “As I have stated before, we do not want to lose the long-term benefit of this large resource potential.”