Cabot Oil and Gas’s segment-wise operational updates
Cabot Oil & Gas (COG) primarily operates in the Marcellus and Eagle Ford shales. In this part, we’ll be looking at operational highlights in these two segments.
It was reiterated on the 3Q15 earnings call that the company continues to curtail production in the Marcellus shale due to weak prices throughout Appalachia.
The image above, from an investor presentation released on September 8, notes the flattening production in the Marcellus shale, and also the falling rig counts.
Cabot Oil & Gas is presently operating three rigs in the Marcellus shale but plans to lower it to two rigs by the end of 2015. The company hopes to accelerate activity in 3Q16, anticipating its Constitution and Atlantic Sunrise pipelines coming into service.
The company is yet to receive necessary permits and approvals for both the Constitution and Atlantic Sunrise pipelines.
Cabot Oil & Gas has equity investments of $150 million in both these projects, with $100 million allocated to Constitution and $50 million allocated to Atlantic Sunrise. The company highlighted that depending on the timing of construction, that figure could change. The current figure assumes an in-service date of 4Q16 for the Constitution pipeline and 3Q17 for the Atlantic Sunrise pipeline.
On the earnings call, the company highlighted two takeaway projects coming online in 4Q15, that could benefit its Marcellus production. One of them will be operational in November, and the second one will be operational in December. The company said, “Our new capacity and long-term sales on these projects will allow Cabot to accelerate production sequentially in the fourth quarter at better price realizations than we are expecting in the local market today.”
Eagle Ford operations
In the Eagle Ford shale, Cabot Oil & Gas highlighted an 8% sequential fall in liquid volumes, saying that it had reduced activity in this region due to lower crude oil prices. The company expects volumes to fall in the fourth quarter as well.
The company is currently operating one rig in Eagle Ford and plans to drop that rig by 2Q16, that is, when the rig contract expires, unless crude oil prices improve in the first half of 2016. The company said on the earnings call, “Based on this level of activity in 2016, we should be able to maintain all of our leasehold, while averaging full-year liquids production volumes that are flat to our fourth quarter liquid volumes this year.”
Companies with significant operations in Eagle Ford include ConocoPhillips (COP). Together, ConocoPhillips, Cabot Oil & Gas, Chesapeake Energy, and Range Resources make up ~6.2% of the Energy Select Sector SPDR ETF (XLE).
We'll discuss analyst recommendations for COG, following the release of its 3Q15 results. Wall Street analysts provided target prices for the next 12 months.
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