Cabot Oil & Gas Corporation Q2 2010 Earnings Call Transcript

Cabot Oil & Gas Corporation Q2 2010 Earnings Call Transcript
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Cabot Oil & Gas Corporation




Q2 2010 Earnings Call Transcript

July 22, 2010 4:00 pm ET


Dan Dinges – Chairman, President & CEO

Scott Schroeder – VP & CFO

Phil Stalnaker – VP & Regional Manager, North Region

Matt Reid – VP & Regional Manager, South Region


Brian Lively – Tudor Pickering & Holt

Gil Yang – Bank of America-Merrill Lynch

Joe Magner – Macquarie Capital

Eric Hagen – Lazard Capital Markets

Ray Deacon – Pritchard

Biju Perincheril – Jefferies

Cathy Milostan – Morningstar

Robert Christensen – Buckingham Research



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Good afternoon, my name is Cynthia and I will be your conference operator today. At this time I would like to everyone to the Cabot Oil & Gas second quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I would now like to turn today’s call over to Dan Dinges, Chairman, President and CEO of Cabot Oil & Gas. Please go ahead, sir.

Dan Dinges

Thank you, Cynthia, and good afternoon and I appreciate everybody extending their day and staying with us for this conference call. I have Scott Schroeder with me, I have Matt Reid who some of you all have met, VP of our south region, I have Phil Stalnaker, VP of our North region.

Also the forward-looking statements included in our press release will apply to my comments today. First and foremost, before I commence my prepared remarks, let me say this unequivocally we will not issue equity to fund our capital program. I know there was a significant level of rhetoric around this today and let me emphasize that the equity issue has been and will continue be for the value creation of opportunities we might see and not simply to reload our balance sheet. I will also make some comments regarding our capital spending later.

On the prepared remarks, Cabot reported financial results this morning that were in line in consensus expectations. When you compare these numbers against the previous year, lower natural gas prices, and even with our higher production cannot match the previous year numbers. From a clean earnings perspective, net income was approximately $20 million with the selected items for this quarter including a gain on sale stock compensation and a mark to market basis hedges.

Certainly highlight of the quarter and I think a very positive trend that will continue was the near 20% production growth that we experiences. A couple of notations to make when you do look at this 20% growth is the fact that last year comparable production volumes included Canada production, which was sold in April 30


of 2009. Pro forma growth is 30% for the quarter and 29% for the year-to-date period. Also, we had forecast our Lathrop station to start sooner than it did and this obviously delayed some of our production volumes in the second quarter. In a moment, I will discuss the volumes we are now moving the Lathrop station and the increase to our production guidance as a result of that.

Natural gas price realizations experience 25% decline and as mentioned impacted margins for the quarter. In terms of our balance sheet, we had a debt level increase of $100 million from last quarter as we continue to acquire select acreage mainly in Susquehanna and also drilled to place our primary term acreage in HBP status. I think many in our industry are continuing to drill primary term acreage and this certainly has been a catalyst for the rig count. However, I do think the number of rigs necessary to accomplish this goal is beginning to peak.

In terms of current production, our total company daily levels are approximately 375 million cubic foot equivalent a day and as our press release indicated, we have numerous well in various stages of completion that will continue to add to our production profile. Today, we posted new guidance for the third and fourth quarters. That combined with actual production for the first half generate a 21% to 25% reported growth. Clearly, pro forma numbers would be greater also because of several quarters of better cost results. We have made improvements in guidance for several of our cost metrics. I also anticipate some organic cost will continue to come down.

We also moved our capital guidance higher. This spending increase was done for solid business reasons. About one-third of the increase is allocated to Marcellus in-field leasing, which allows more efficient development up there. I will expand on this more later. The other two-thirds is for drilling primarily as a result of partner well proposals ion the Bossier or Haynesville and to a lesser extent a couple of oil wells associated with the new joint venture in the Eagle Ford we just executed. We do not want to stand out of the Haynesville Bossier wells and lose the opportunity to participate in an additional three to five wells in each of the proposed units in the future. This would cause the loss of a significant resource potential for our shareholders estimated in each unit from the Bossier and Haynesville to be in the range of 48 to 100 Bcfe, again, the reason why we are staying in those particular wells.

As you can see, our balance sheet is not overleveraged. Let me add that the 2010 growth program we have can be accomplished without any additional new funding. That being said, let me add that we will explore adding to our credit facility or select asset sales, any one of which can be accomplished within our existing borrowing base and without overleveraging the Company.

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