Cabot Oil & Gas Corp. on Friday joined other Appalachian operators in a chorus of praise for the takeaway capacity that has come online throughout the basin this year, which has helped to lift prices that have long been restrained.
During a week that kicked off earnings season for exploration and production companies in the Northeast, with both Southwestern Energy Co. and Range Resources Corp. touting soaring gas prices, Cabot said the tide has turned in Northeast Pennsylvania, where it operates in just one county.
“Our marketing strategy to create new major takeaway greenfield pipeline and development in key basin demand has finally and effectively come together,” CEO Dan Dinges told analysts during a call to discuss third quarter earnings.
While nearly 400 MMcf/d of gas-fired power capacity that Cabot is supplying is mostly online in the region, the bellwether of higher prices has been Atlantic Sunrise, which came online Oct. 6 to move another 1.7 Bcf/d along the Atlantic seaboard. The pipeline allowed Cabot to unleash 1.05 Bcf/d of deliveries to the Dominion Cove Point liquified natural gas facility, Washington Gas Light Co., Southern Co. and another undisclosed buyer.
“No single project could be viewed as significant and material to Cabot’s financial and operational stream as this new 178-mile greenfield pipeline,” Dinges said of Atlantic Sunrise.
Prices were already improving for Cabot in the third quarter, when year/year gas realizations increased 16% to $2.36/Mcf. During the first week of October, prior to Atlantic Sunrise coming online, local prices were averaging $1.40, compared to an average of $2.90 once gas started to move on the pipeline.
“Cash prices in the Northeast have continued to improve throughout the month with this week’s average price over $3.10,” Dinges said, adding that local prices were averaging about 72 cents at the same time last year.
Earlier this month, the company also took capacity on Transcontinental Gas Pipe Line Co.’s new 580 MMcf/d Leidy South expansion, which would move more Appalachian gas to the East Coast.
Management was expected to have a more detailed update on exploratory efforts in north-central Ohio, where the company is working in old oilfields by targeting formations in the Knox Group with unconventional wells. The company has spent millions of dollars on the prospect and another in West Texas since last year. But it ended efforts in Texas over the summer after turning up dry holes.
It’s pressing on in Ohio, though. “We have continued to make progress on evaluation of this area, but our progress has been slowed — slower than forecast — due to permitting and weather delays,” Dinges said. He added that the company should be finished with the evaluation of the Ohio properties by the end of 1Q2019.
Cabot produced 2.029 Bcfe/d in the third quarter, up 10% from the year-ago period and 7% from 2Q2018.
Management offered preliminary 2019 guidance on Friday, with a target for annual production growth of 20-25% and a capital budget of $800-850 million. The company expects to spend $940 million this year.
Dinges indicated that next year’s program would better reflect an ongoing transition from a growth model to a value model.
“I would also highlight that our focus, first and foremost, is on maximizing returns and free cash flow with production growth simply being a result of disciplined capital allocation to high quality assets,” he said of next year.
Cabot reported net income of $122.3 million (28 cents/share), compared with $17.6 million (4 cents) in 3Q2017. Revenue was up during the third quarter to $545.2 million, compared with $385.4 million in the year-ago period.
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