Cabot: Record Results for 2006

Cabot Oil & Gas Corp. late Thursday said that it had an "excellent" 2006 on nearly all of the reported metrics, including:

--The Company reported net income of $321.2 million, including a gain from the sale of assets totaling $145.1 million, after-tax.
--Year-end reserves totaled 1,416 Bcfe, the highest ever reported, on the strength of an all-in reserve replacement ratio of 273 percent.
--Absolute production growth was 4.6 percent with total production being 88.2 Bcfe.
--Total drilling finding cost was $1.97 per Mcfe.
--Year-end total debt to capitalization ratio reached an all-time low of 20 percent (with net debt to capitalization being 17.3 percent).

"When I reflect on the year, we made progress in many different areas that culminated with a very successful year," commented Dan O. Dinges, Chairman, President and Chief Executive Officer. "And now with the lower risk portfolio we have, I believe we are positioned for multiple years of successful drilling with growth off of the new base in production and reserves at a very competitive finding cost."

Full-year results

Cabot Oil & Gas Corporation reported record net income of $321.2 million, or $6.64 per share, which exceeded the prior year's net income of $148.4 million or $3.04 per share. In addition to the $145.1 million earnings contribution from the sale of certain south Louisiana, offshore and other properties, the year-over-year increase in net income is the result of increased production, along with higher realized prices for both natural gas and crude oil.

Cash flow from operations and discretionary cash flow for the year were $357.1 million and $356.9 million, respectively, both slightly below the figures reported in the prior year. The comparable cash flow figures in 2005 were $364.6 million for cash flow from operations and $374.4 million for discretionary cash flow.

"Our strategy to migrate our portfolio toward a more predictable, lower risk model culminated with the asset sale," said Dinges. "The early success of the transition is evident in Cabot's growing production profile and the high drilling success rate," said Dinges. "We grew total company production (4.6 percent) for the first time since 2002, even after removing a full quarter of production due to the sale. The retained properties in the portfolio experienced production growth of about 17 percent on a comparable basis year-over-year."

For the full year, natural gas price realizations were $7.13 per Mcf, compared to $6.74 per Mcf in 2005, although there was a significant decline in price indexes between 2006 and 2005. A hedge position covering a portion of production with an $8.25 per Mcf floor, led to the better realizations in 2006, versus a reduction from index prices that occurred in 2005. Oil realizations improved due to the expiration of lower price hedges in 2005. The Company realized $65.03 per barrel versus $44.19 per barrel.

"Expenses overall trended higher due to the inflationary pressures in the sector and competition for personnel," stated Dinges. "Operating expenses were up about 10 percent year-over-year with increases occurring in DD&A, G&A, direct operations and stock compensation, offset by lower exploration expense due to the strategic drilling change."

Fourth Quarter

The Company reported net income of $32.1 million, or $0.67 per share, for the fourth quarter compared to last year's record of $58.5 million, or $1.20 per share. The lower results were due to a 19 percent decline in realized natural gas prices, partially offset by increased oil prices, and a decline in the Gulf Coast region production due to the asset sale that removed over 36 Mmcfe per day (3.3 Bcfe), beginning October 1, 2006.

The selected items that impacted the quarter and full year earnings figures, included a gain on sale of assets and an impairment of an oil and gas property in the 2006 full year period. Removing the effect of these items, the net income comparison for 2006 versus 2005 would have been $178.5 million, or $3.69 per share, versus $144.3 million, or $2.95 per share. The quarter comparison for net income would have been $33.3 million, or $0.69 per share, and $53.1 million, or $1.09 per share.

Balance Sheet

Cabot used the proceeds from the sale of the properties to repay outstanding debt on its revolver, repurchase shares, fund its capital program and pay the related tax liability. At year-end, debt totaled $240 million, down from last year's $340 million. Additionally, Cabot repurchased nearly 1.1 million shares at a weighted average price of $42.71 per share during 2006. "When we have seen opportunity in our stock, we have made it a practice to repurchase it in the open market," said Dinges. "The share repurchase in 2006 had the effect of buying reserves in the ground at about $1.80 per Mcfe, which is very competitive with our reported finding cost."


Once again, the Company has organically replaced reserves. Cabot's reserves increased six percent to 1,416.1 Bcfe in 2006, up 12 percent, after removing the divestiture of 68 Bcfe in the Gulf Coast from the beginning balance. Finding costs were $1.97 for drilling, $2.09 for drilling and revisions and $2.10 for drilling, revisions and purchases. "Embedded in these numbers are 18.4 Bcfe of negative revisions due to a short-term price drop at year-end, which added $0.15 to the finding cost amount," commented Dinges.

The Company's 273 percent all-in reserve replacement comes primarily from drilling additions of 253 Bcfe that came from a 96 percent successful drilling program. "These favorable results are evidence of a successfully balanced portfolio achieved by divesting non-strategic properties and replacing them with lower cost, repeatable drilling opportunities," stated Dinges. "The PUD percentage rose two percent due to our expanding drilling program."

Cabot Oil & Gas Corporation, headquartered in Houston, Texas is a leading independent natural gas producer with substantial interests in the Gulf Coast, including Texas and Louisiana; the West, with the Rocky Mountains and Mid-Continent; the East and in Canada.