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Shale oil and gas play Cabot Oil & Gas announced better than expected Q4 earnings Friday. $COG announced a benefit from tax reform and forecast higher cash flow and production growth. The stock closed 2.43% Higher.

Cabot Marcellus

Earnings

Reported a loss of $44 million in the fourth quarter, compared with $292 million year-over-year. EPS loss of 10 cents, which adjusted for one-time gains and costs, came to 13 cents per share beating expectations of 12 cents per share. Full-year net income of $100 million, compared with a net loss of $417 million in 2016.  Revenue of $400.5 million for Q4 missed Street the expected $426.4 million. For the year, the company reported net income of $100.4 million, or 22 cents per share. Revenue was reported as $1.76 billion. 

Reaction: Cabot Oil & Gas Corp NYSE: $COG

Close February 23, 2018 $24.46 ▲ 0.58 (+2.43%)

Earnings Highlights

  • Net cash provided by operating activities of $898.2 million; discretionary cash flow (non-GAAP) of $976.1 million
  • Free cash flow (non-GAAP) of $154.5 million, marking the second consecutive year of positive free cash flow
  • Daily equivalent production growth of 10 percent year-over-year
  • Proved reserves growth of 13 percent year-over-year
  • Total company all-sources finding and development costs of $0.35 per thousand cubic feet equivalent (Mcfe) and Marcellus-only all-sources finding and development costs of $0.22 per thousand cubic feet (Mcf)
  • Returned $202.6 million of cash to shareholders through dividends and share repurchases Improved operating expenses per unit by seven percent year-over-year
  • Capital expenditures (including investment in equity method investments) of $821.6 million, three percent below the full-year guidance Improved return on capital employed (ROCE) (non-GAAP) by over 800 basis points
  • Announced the divestiture of three non-core assets for total proceeds of $836.3 million (subject to customary closing conditions and purchase price adjustments)

Tax Reform Impact

On December 22, 2017, the U.S. enacted tax legislation referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which made significant changes to U.S. federal income tax law. These changes include, among others, a permanent reduction of the U.S. corporate income tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent; elimination of the corporate alternative minimum tax (AMT); and immediate deductions for certain new investments instead of deductions for depreciation expense over time.

Overall, the Company expects the provisions of the Tax Act to favorably impact its future effective tax rate, after-tax earnings, and cash flows. As a result of the enactment of the Tax Act, Cabot recorded an income tax benefit of $242.9 million in the fourth-quarter of 2017 resulting from the remeasurement of the Company's net deferred tax liabilities based on the new lower corporate income tax rate.

As of December 31, 2017, the Company had AMT credit carryforwards of $208.6 million, which do not expire and can be used to offset regular income taxes in future years. Under the new Tax Act, the Company may claim a refund of 50 percent of the remaining AMT credits (to the extent the credits exceed regular tax for the year) in 2018, 2019, and 2020. Any AMT credits remaining after 2020 will be refunded in 2021. The Company expects a net refund of $97.1 million related to 2018.

Last Quarter Earnings:

Cabot Oil & Gas $COG Soars Over 8% As Cashflow and Production Increases

Cabot Oil and Gas $COG Misses Earnings, Raises Production Guidance

Top U.S. Natural Gas Producers:

Q1 2017 Production - MMcf/day
1 ExxonMobil 3,011
2 Chesapeake Energy 2,344 
3 Southwestern Energy Co. 2,033
4 Anadarko 1,859 
5 EQT 1,827+ 
6 Cabot Oil & Gas 1,820 
7 BP 1,594 
8 Antero Resources 1,544 
9 Range Resources 1,292 
10 Rice Energy 1,258+

+ EQT bought Rice Energy for $6.7 Billion, After closing the Rice deal EQT's output will total 3.6 billion cubic feet per day of natural gas, going ahead of the U.S. production of Exxon Mobil and Chesapeake Energy.

Year-End 2017 Proved Reserves

Cabot reported year-end proved reserves of 9.7 trillion cubic feet equivalent (Tcfe), an increase of 13 percent over year-end 2016.

Specific highlights from the Company's year-end reserve report include:

  • Total company all-sources finding and development costs of $0.35 per Mcfe
  • Marcellus-only all-sources finding and development costs of $0.22 per Mcf
  • Total company all-sources reserve replacement of 316 percent
  • Marcellus-only all-sources reserve replacement of 305 percent

Below reconciles the components driving the 2017 reserve increase:

Proved Reserves Reconciliation (in Bcfe)

Balance at December 31, 2016 8,576

  • Revisions of prior estimates 928 Extensions, discoveries and other additions 1,236
  • Sales (329) Production (685)

Balance at December 31, 2017 9,726

As of December 31, 2017, 96 percent of Cabot's year-end proved reserves were natural gas and 96 percent were located in the Marcellus Shale. Approximately 64 percent of the year-end proved reserves were classified as proved developed and 36 percent were classified as proved undeveloped (PUD), including eight percent of drilled and uncompleted PUDs.

Total costs incurred during 2017 were $761.0 million, which included $617.5 million for development costs, $41.2 million for exploration costs, and $102.3 million for lease acquisition costs.

The SEC prices used for reporting Cabot's year-end 2017 proved reserves, which have been adjusted for basis and quality differentials, were $2.33 per Mcf for natural gas and $49.26 per Bbl for crude oil, representing a 34 percent and 31 percent year-over-year increase, respectively. Assuming the SEC prices, the pre-tax PV–10 (non-GAAP) of the year-end 2017 proved reserves was $6.0 billion.

MARCELLUS SHALE

Since the inception of Cabot’s horizontal drilling program in 2008, the Company’s Marcellus Shale position in northeast Pennsylvania has developed into the cornerstone asset of its portfolio and has been the primary driver of record production and reserve growth during this period.

Cabot has approximately 179,000 net acres in the dry gas window of the Marcellus Shale, primarily in Susquehanna County, Pennsylvania. Cabot’s Marcellus Shale properties accounted for 93% of both the Company’s proved reserves and total net production as of year-end 2016 by the end of 2017 it accounted for 96%.

Marcellus Pad Graphic med

EAGLE FORD SHALE

Cabot’s oil-weighted drilling activity is focused on its 84,000 net acre position in the Eagle Ford Shale, principally located in Atascosa, Frio and La Salle Counties, Texas. Cabot has reaffirmed its 2018 daily production growth guidance of 10 to 15 percent (18 to 23 percent on a divestiture-adjusted basis to reflect the impact of the previously announced Eagle Ford, East Texas, and West Virginia dispositions).

First-Quarter and Full-Year 2018 Guidance Update

Cabot has provided first-quarter 2018 net production guidance of

  • 1,775 to 1,825 million cubic feet (Mmcf) per day for natural gas;
  • 7,500 to 8,000 Bbls per day for crude oil and condensate
  • 700 to 800 Bbls per day for NGLs.

This guidance range assumes a February 28, 2018 closing date for the Company's previously announced Eagle Ford divestiture and reflects the impact of the previously mentioned in-service delay for two new third-party compressor stations in the Marcellus.

Cabot has reaffirmed its 2018 daily production growth guidance of 10 to 15 percent (18 to 23 percent on a divestiture-adjusted basis to reflect the impact of the previously announced Eagle Ford, East Texas, and West Virginia dispositions).

"Our 2018 production growth is weighted toward the second half of the year driven by anticipated mid-year in-service dates for the Moxie Freedom power plant, Lackawanna Energy Center power plant, and Atlantic Sunrise pipeline," noted Dinges. "We anticipate sequential quarterly growth of approximately six, eleven and thirteen percent in the second, third, and fourth quarters, respectively, resulting in a divestiture-adjusted exit-to-exit production growth rate of over 35 percent."

The Company has also updated its capital budget to $950 million (consistent with the midpoint of the previously announced 2018 budget) as follows:

  • • Marcellus Shale: $800 million
  • • Exploration Areas: $75 million
  • • Pipeline Investments: $60 million
  • • Corporate: $15 million

The Company plans to average three rigs and two completion crews in the Marcellus Shale during 2018, resulting in 85 net wells drilled and 95 net wells completed. The average lateral length for the 2018 Marcellus Shale drilling program is 8,300 feet and the expected average well cost is $8.3 million ($1,000 per foot) for drilling, completion and facilities. This average well cost incorporates anticipated cost inflation resulting from new service contracts, offset by efficiencies associated with implementing the Generation 5 well design across the majority of the program.

"Our Generation 5 wells continue to track our 4.4 Bcf per 1,000 lateral feet type curve, which gives us the confidence to implement this well design across the majority of our program moving forward due to the improved economics from this more capital-efficient design," said Dinges.

About Cabot Oil and Gas

Cabot Oil & Gas Corporation is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties exclusively in the continental United States. 

Source: Cabot Oil and Gas

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