Cabot Oil & Gas Corporation (ticker: COG), headquartered in Houston, Texas, is a leading independent natural gas producer, with its entire resource base located in the continental United States. The company’s predominate growth asset is the Marcellus Shale in Pennsylvania which is producing more than one billion cubic feet of natural gas per day.
LNG Contract with Sumitomo
On December 19, 2013, Cabot Oil & Gas announced a 20-year definitive gas sale and purchase agreement with Pacific Summit Energy LLC, a wholly owned subsidiary of Sumitomo Corporation (ticker: SSUMY) to sell liquefied natural gas (LNG) to Japan. The contract is set to begin in 2017 and will involve the sale of 350,000 MMBtu /d to SSUMY’s Dominion Cove Point LNG facility.
Marcellus Gas Keeps Growing
The gas will come from COG’s production in the Marcellus shale, where the company recently achieved a new gross production record of 1.5 Bcf/d. COG’s new record is a 50% increase over 2012’s total of 1 Bcf/d, resulting in the adjustment of its 2013 growth guidance to 50% to 55% from the previous estimate of 44% to 54%. A contributor to the increase was the completion of COG’s first 10-well pad in the play which exceeded the type curve by producing 168 MMcf/d at a 30-day rate.
COG’s takeaway capacity is expected to grow to 605 MMBtu/d from 455 MMBtu/d by September of next year. From there, it is expected to hit 1,100 MMBtu/d when the Constitution line starts up and 1,450 MMbtu/d with the startup of Cove Point in 2017.
Hedging Above $4.00 per Mcf
Cabot also added 55 hedging contracts in the quarter for a total of 970 MMCF/d at a weighted average floor of $4.12 per Mcf. COG management said the contracts protect downside risks and lock in prices that mitigate the volatility of pricing during the summer.
Constitution Pipeline Schedule Progresses
Cabot’s Constitution Pipeline, a proposed 124-mile line spanning from Pennsylvania to New York, is officially being reviewed by the Federal Energy Regulatory Commission (FERC) as part a mandatory environmental evaluation. COG is partnering with Williams Companies (ticker: WMB) for the project, which has the capacity to transport 650,000 dekatherms of natural gas per day. Construction is tentatively scheduled to begin in June 2014, with an in-service date by March 2015. Cabot management said the FERC’s new schedule could possibly push back the anticipated in-service date, but assured a delay will not slow COG’s 2015 production rate due to different takeaway options. More detail on the project can be found by visiting www.constitutionpipeline.com.
Japan’s Energy Crisis
According to the Energy Information Association, Japan’s limited resources make it heavily dependent on imports. In 2012, the country was the world’s greatest importer of liquefied natural gas (responsible for 37% of worldwide usage) and the third greatest importer of oil. Its considerable reliance on LNG is a result of the nuclear disaster at Fukushima. Japan has since decommissioned all but two of its 50 nuclear reactors. As a result, the EIA’s 2013 International Energy Outlook report predicts LNG usage to rise by 1.8% each year until 2020. By the predicted year, natural gas is estimated to consist of 21% of all energy usage in the country. The number is expected to increase to 25% by 2040.
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