Cabot Oil & Gas Increases Capital Program
Cabot Oil & Gas updates its 2005 drilling program and its acquisition efforts along with quantifying the nominal impact the hurricanes had on the Company. "We are fortunate to have incurred only minor production deferrals as a result of the recent hurricanes. Additionally, in regard to our ongoing operations, we have increased our capital program, which now totals about $400 million and includes a record level of drilling along with $89 million for investments in new leasehold and acreage plays that include some production." said Dan O. Dinges, Chairman, President and Chief Executive Officer. "We feel comfortable that 180% of our anticipated 2005 production has been replaced so far this year, with an aggressive drilling program still forecast through the end of the year. Strategically we have made the decision to maintain a high level of drilling in order to help secure service equipment over the long-term and also take advantage of the current commodity environment."
During the third quarter, Cabot participated in 10 wells with nine being successful. Of the nine, four are producing and five are completing. The one well not producing or completed is the VK251 #3, which is being temporarily abandoned pending further evaluation. Additionally, Cabot has five rigs currently drilling. Specific regional highlights include:
- Eros Prospect, Jackson Parish, Louisiana. (Working interest of
43.8-87.5%) Cabot is currently drilling the fifth well, the Loggy
Bayou #16-1, in this prospective area. The first three wells, the
Weyerhaeuser #8-1 (43.8%), Weyerhaeuser #9-1 (84.3%), and Weyerhaeuser
#15-1 (87.5%) are producing at a combined rate of 3.0 Mmcf (gross) per
day. The Loggy Bayou #9-1 (84.1%), currently being completed, has
tested two of the planned four zones to be fraced, at a combined rate
of 5 Mmcf per day. The final two fracs are scheduled for October 13
and October 20. This area will remain active with continuous drilling
for the next 15 months. "The well performance is consistent with
Vernon field wells with steep declines leveling off to an average
annual decline of six percent for 35 years. We expect our continuous
drilling program to increase our base line production with each well
drilled," stated Dinges.
A recent 40-square-mile 3D seismic survey over Eros has been shot, and the data is currently being processed with delivery expected by the end of October. The 112-square-mile Clear Branch 3D survey is currently being permitted, although slower than anticipated due to governmental restrictions. The data should be acquired late in 2005 with delivery in early to mid-2006.
- Bego Gas Field, Goliad County, Texas. (Working interest of 62-97%). The Company has an exciting new discovery in a section deeper than the shallow field pay, in the Price #2 (64.5% working interest). The well was drilled to 15,584 feet total depth and completed in the Wilcox section. The well was put on-line on October 5 at a rate of 6.4 Mmcf per day with flowing tubing pressure of 3,800 lbs. Cabot sees the potential for 4-5 offset locations to this recent discovery. In the shallow section, Cabot has drilled and completed two field extension wells in the third quarter.
Production from the East has grown 10 percent for the first nine months of 2005 versus the first nine months of 2004. These results are on the strength of a drilling program that has drilled 145 wells to date, with 98 being turned in line, 24 waiting on hook-up, and 23 completing. Cabot currently has nine rigs drilling in the East. Highlights include:
- U.S. Steel #65. (Working interest 100%). This 1.8 Bcf well was drilled to 4,472 feet and is currently producing at 1,950 Mcf per day from commingled Pocono, Weir and Gordon sandstones.
- In Danville, where the Company has invested the most in infrastructure including a recent investment in Henlawson pipeline, Cabot is seeing dividends with five wells providing a cumulative estimated ultimate recovery (EUR) of 4.5 Bcfe, current production of 1.1 Mmcf per day, at an all-in finding cost of $0.44 Mcfe, with the greatest depth drilled being 4,944 feet. The Company has an additional 40 locations, focused on the Big Lime, Berea and Ohio Shale, to be drilled in this area.
- Drilling continues in the 2005 Ohio Shale play in the Sissonville area, where Cabot has five successes in as many attempts. Statistics per well include average EUR of 500+ Mmcf, average initial production rate at 128 Mcf per day at an average completed cost of $319,000. The five successes are vertical wells drilled to an average depth of 4,600 feet.
"For the fourth consecutive year we continued to make advances on both our reserves and production profile in the East," commented Dinges. "With a larger program planned to exploit our one million acres for next year, some R&D opportunities in front of us (including various extraction techniques) and with the higher degree of interest in the basin for both the conventional reserves and unconventional gas in the Ohio Shale, we anticipate greater expansion in Cabot's reserves and production and their underlying value contribution to the Corporation."
Through the third quarter, the Western Region participated in 63 gross wells (29.2 net) with an overall success rate of 95%. Twenty-eight of the 63 wells were company-operated. The year-to-date program included 60 development wells (38 in the Rockies and 22 in the Mid-Continent) and three wildcats (all in the Rockies). Five of the wells are waiting on completion and six additional wells are in progress. Through the third quarter, the region produced 18.1 Bcfe, which represents a growth of six percent over the same nine-month period in 2004.
In Cabot's development play at Musreau, the Company has had six successes in six attempts. The Musreau 7-3-62-6W6 (40% working interest) is completing with favorable initial results. The most recent well, Musreau 10-14-62-6W6 (24% working interest) has reached total depth, logged and cased. At this time, Cabot believes the well may be the best well in the field. Presently, the Musreau field produces 13.6 Mmcfe per day (3.2 Mmcfe per day, net). "We have an estimated 10 Mmcf per day (4 Mmcf per day net) completed and waiting on pipeline," added Dinges. "We plan one additional well in 2005 and at least four wells in 2006 at Musreau."
Cabot came through both Hurricanes relatively unscathed, with deferred production of approximately 465 Mmcfe as a result of Katrina and 535 Mmcfe from Rita. Most of this deferral will be reflected in the third quarter production numbers as the majority of production was back on line by October 1, 2005. The Company still has 8 Mmcfe per day shut-in, with most of that related to non-operated offshore production. "These properties have limited damage; however, downstream problems continue to delay bringing the wells on line," said Dinges.
Cabot purchased interest in three production units in the Vernon field, Jackson Parish, Louisiana from an undisclosed third party for $18 million during September. The acquisition included 18 producing wells making 2.0 Mmcfe per day net to Cabot. Proved and probable reserves are estimated at 9 Bcfe, including four Lower Cotton Valley and one Upper Cotton Valley drill-ready locations. Cabot will become the operator of one of the units acquired. The Company plans to initiate drilling in the fourth quarter of 2005.
"In each of our regions, we have new and exciting opportunities consistent with our strategic direction. Our drilling, acquisitions, and leasing efforts are focused on building an asset profile that balances our reserve and production portfolios towards moderate declines with more predictable drilling locations," Dinges concluded.
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