Independent energy exploration and production (E&P) company Cabot Oil and Gas (COG) reported better-than-expected fourth-quarter results, mainly driven by increased gas production in its North region. Other positive factors include higher commodity price realizations and overall lower expenses.
 
Earnings per share, excluding non-recurring items, came in at 52 cents, outperforming the Zacks Consensus Estimate of 45 cents and the year-ago earnings of 44 cents. Revenue increased marginally (by 0.4%) to $233.5 million and was above the Zacks Consensus Estimate of $226 million.
 
Volume Growth Continues
 
Overall production volumes during the quarter were 26.3 billion cubic feet equivalent (Bcfe), up nearly 3% from the previous-year period. Natural gas volumes were up 2.9% year-over-year to 25.0 billion cubic feet (Bcf) and liquids volumes were up 7.3% to 220 thousand barrels (MBbl).
 
Strength in natural gas production was driven mainly by the North region, where volumes rose by 28.9%, partially offset by the sale of the company’s Canadian assets (in Apr 2009) and a 12.1% decline in South region volumes. The year-over-year rise in oil volumes came on the back of a 13.5% increase in the output from the South region, somewhat canceled by a 13.3% dip in North region production and the Canadian assets divestment.
 
For full-year 2009, Cabot achieved overall production volumes of 103.0 Bcfe. It was a record-setting performance with the company surpassing the 100 Bcfe mark for the first time.
 
Realized Prices Up
 
Average realized natural gas price (including the impact of hedges) was up marginally (by 2 cents) to $7.73 per thousand cubic feet (Mcf), while average oil price realization was up more than 30% to $94.23 per barrel.
 
Drilling Statistics, Capital Expenditure & Balance Sheet
 
Net wells drilled during the quarter reduced to 22 (from 78 in the year-ago period), with an 83% success rate. Operating cash flows were $196.9 million for the quarter, while capital expenditures were $165.5 million. As of Dec 31, 2009, the company had $805 million in debt, with a debt-to-capitalization ratio of 30.8%.
 
Operational Update
 
During the earnings release, Cabot also provided an update regarding its Marcellus shale development in Pennsylvania and also informed about the proceedings in the East Texas region.
 
In the Marcellus shale play, the company drilled 30 horizontal wells in 2009 with 14 being completed and turned in line. The average per well initial production rate for these wells was 7.5 million cubic feet per day (Mmcf/d) with an average 30 day production rate of 6.9 Mmcf/d. The momentum has continued this year too with three more horizontal wells turned in line. Currently, 17 horizontal wells are awaiting completion with five rigs running.
 
During the fourth quarter, Cabot successfully completed three Pettet horizontal oil wells, two James Lime gas wells and a horizontal Cotton Valley Taylor sand well in the East Texas region, while drilling and casing the first company-operated horizontal Haynesville shale well.
 
Company Guidance
 
Cabot expects first quarter 2010 natural gas production to be in the 280 – 300 million cubic feet per day (Mmcf/d) range, while oil volumes are likely to vary between 2.8 – 3.0 thousand barrels per day (MBbl/d). For the full year, natural gas volumes are expected to be around 310.2 – 322.6 Mmcf/d. Cabot guided towards liquids output in the 3.2 – 3.6 MBbl/d range.
 
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