Cabot Oil & Gas (COG)

Q1 2011 Earnings Call

April 28, 2011 9:30 am ET

Executives

James Reid - Vice President and Manager of South Region

Steven Lindeman - Vice President of Engineering & Technology

Jeffrey Hutton - Vice President of Marketing

Dan Dinges - Chairman, Chief Executive Officer, President and Member of Executive Committee

Analysts

Daniel Morrison - Global Hunter Securities, LLC

Michael Hall

Brian Singer - Goldman Sachs Group Inc.

Raymond Deacon - Pritchard Capital Partners, LLC

Eric Hagen - Lazard Capital Markets LLC

Amir Arif - Stifel, Nicolaus & Co., Inc.

Gil Yang - BofA Merrill Lynch

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc.

TheStreet Recommends

Ronny Eisemann - JP Morgan Chase & Co

Presentation

Operator

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» Cabot Oil & Gas Corp. Q1 2010 Earnings Call Transcript

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cabot Oil & Gas First Quarter 2011 Conference Call. [Operator Instructions] I would now like to turn the conference over to Dan Dinges, Chairman and President and CEO.

Dan Dinges

Thank you, Melissa. I appreciate everybody joining for this conference call. I have Scott Schroeder, our CFO; Jeff Hutton, VP of Marketing; Matt Reid, VP and Regional Manager in South; and Steve Lindeman, our VP of Engineering and Technology, with me today. As you're aware, the boilerplate language that's in our forward-looking statements included in the press release will apply to my comments today.

We have several items to cover, and I'll also expand on the press releases that were issued last night. I'll briefly cover the first quarter financial results and a discussion of our operations and further plans for 2011. And at the end, we'll leave ample time for Q&A.

Cabot did report its financial results for the first quarter with claimed earnings of just over $20 million and with discretionary cash flow of about $109 million. This quarter continued the same trend of lower natural gas price realizations, offset by robust production growth. Throughout the remainder of 2011, I would expect to see similar commodity pricing and also a continued increase in our production profile.

In terms of production, the company posted a 41% production growth rate between comparable first quarters. 37.7 Bcf was the highest quarterly production total the company has ever reported. Along with this production achievement is the fact that last week, we surpassed 100 Bcf cumulative production level for the Marcellus Shale in Pennsylvania, and we did this in just under 3 years. At our current production rate, the next 100 Bcf of production will be achieved within less than a year.

Looking ahead to guidance. Last night, we posted new full year 2011 expectations, increasing the overall growth rate to 34% to 42%. Effectively, the guidance midpoint is now 5% higher than before. The low end of the guidance is based on the current production levels. The high end of the guidance is tempered by our best guess of timing of the commissioning of the additional dehydration units, which we are currently installing, and the hookup of additional gathering lines to the Lathrop compressor station. With the dehydration and additional gathering lines, we think we can move an additional 50 million to 70 million cubic foot of gas to the market.

Any upside to our second quarter guidance would be dependent upon the timing of these 2 items. And again, that's upside to the second quarter guidance. You will note as we move to the third and fourth quarters, we are increasing our guidance as we anticipate the commissioning of the Williams Springville line from Lathrop to the Transco interstate line, which is 30 miles south.

To summarize, I understand there remains a lot of near-term noise and some uncertainty on the timing of infrastructure. However, each day, we get a little bit more clarity on these items. By the end of the second quarter, Lathrop should be fully commissioned with the piping and dehydration installation. At this point in time, we will be waiting on the Springville pipeline. Again, the infrastructure capacity, this is not production, but the infrastructure capacity at Lathrop and Teel at the end of the second quarter will be 550 million cubic foot of capacity.

Following the Springville commissioning, we will begin producing into this available capacity. And our guidance reflects what we think might be a conservative look at the expectations as we fill up this capacity in the third and fourth quarters. I think, most importantly, is the fact that our well performance and the deliverability that we've seen from our completions has not changed, and we continue to add to the backlog of completions for future productivity.

Okay. As part of our marketing effort, our costs associated with the required firm transportation arrangements and our gathering fee have grown. And as such, we are now reflected on separate line items. Previously, these costs were an offset to realized prices. The impact of this change to historical comparisons is 0, as realized prices are slightly higher to completely offset the new expense category.

For the first time, we have posted guidance for the transportation line, which captures all of these arrangements company-wide. This addition, together with some reductions in DD&A, financing, operating costs and in addition to a slight increase in G&A, excluding the pension termination and stock compensation are the changes that were reflected and posted to our costs guidance.

Now let's move to operations for 2011. Our plans remain unchanged from our original budget. We're holding firm to a $600 million capital program that has $350 million directed towards the North region for our Marcellus and $250 million in the South region for the Eagle Ford oil initiative. I would note that the first quarter disclosure for capital investments on the cash flow statement included over $30 million of 2010 carryover that was paid in 2011.

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