Cabot Oil & Gas Corp. (NYSE: COG) has added a sixth rig in its Marcellus Shale drilling program to establish an early start to its 2014 program. Additionally, the company reported continued success from its step-out drilling in the Marcellus and impressive results from its Eagle Ford drilling program, where its most recent wells have outperformed the average results for the program.
In the Marcellus shale play, Cabot is currently producing 1.2 billion cubic feet (Bcf) per day of gross natural gas from 226 producing horizontal wells. Its current Marcellus daily production rate represents a 15 percent sequential increase from the company’s first-quarter exit rate.
In the Eagle Ford shale play, Cabot operated one rig during the second quarter and turned-in-line four wells. Its last six Eagle Ford wells with at least 30 days of production data have averaged a 24-hour peak rate of approximately 900 barrels of oil equivalent (Boe) per day and an average 30-day rate of approximately 570 Boe per day. One noteworthy well is Cabot's first extended lateral well that was completed with a lateral length more than 8,000 feet. The well had a 24-hour peak rate of approximately 1,130 Boe per day and is currently producing approximately 1,100 Boe per day after 120 days of production.
Cabot has revised its 2013 production growth guidance range, increasing the low end to 44 percent and the high end to 54 percent. This reflects the company's confidence in the timing of the continued infrastructure build-out in the Marcellus Shale during the second half of the year. Separately, Cabot increased its 2013 program spending guidance to a range of $1.1 billion to $1.2 billion to reflect an increase in estimated net wells drilled for the year due to this rig addition. The company now expects to drill 155–165 net wells in 2013, up from the previous guidance of 130–145 net wells. This includes an increase in Marcellus wells drilled from 85–100 net wells.
In a research note following the announcement, analysts at Global Hunter Securities said that Cabot also plans to add a rig to its Eagle Ford operations, expanding the rig count there to two. Analysts said that, while it is unlikely that these new rigs will affect 2013 production measurably, Cabot management did increase the company's production guidance growth range for 2013 to 44% to 54% from a prior range of 35% to 50%. The 49% midpoint on this production guidance falls right in line with the analysts’ forecast for 49% growth to 1,089.8 MMcfepd for 2013. As a result of the increased operated rig count scaling to eight from six, Cabot management increased its 2013 capex guidance to $1.1–$1.2 billion from a prior $1.0 billion expectation. Management expects the net well count to expand to 155 wells to 165 wells from a prior expectation of 130 wells to 145 wells.
With regard to initial production (IP) rates, analysts also said, “Indicative of the positive asset performance lending management the confidence to increase production guidance are continued high-rate successes in the Marcellus, where step-outs from the Zick area, one a five-mile move to the northeast and another a two-mile move to the north consisting of a total of four wells, averaged IPs of 21.5 MMcfepd and 30-day rates of 17.9 MMcfepd. In the Eagle Ford, Cabot's extended, 8,000-foot lateral posted an IP of 1,130 boepd with minimal drawdown thus far as the well still produced 1,100 boepd after the first 120 days of production.”
The analysts also noted, “Cabot's balance sheet remains very strong with $1.1B in debt translating to a net debt to capitalization ratio of 32.4%. Even with the incremental two rigs going to work and the doubling of the dividend to $8.4MM per quarter, we expect that Cabot should at least maintain this level of leverage, if not reduce it slightly.”