Lackluster Eagle Ford activity in 2016
Having discussed Cabot Oil & Gas’s (COG) Marcellus advantages and disadvantages, let’s move on to its Eagle Ford position. As discussed, COG holds ~86,000 net acres in the oil window of the play.
COG’s liquids production, including crude oil (USO), condensate, and natural gas liquids, fell 25% in the nine months that ended on September 30, 2016, compared to the corresponding period in 2015. This fall was on account of reduced drilling activity.
The average rig count during these nine months was ~0.3, compared to an average of 2.1 in 2015. COG didn’t drill or complete any wells in the Eagle Ford Shale during 3Q16. The company had 23 drilled but uncompleted (or DUC) wells in the play at the end of 2015. It anticipates bringing this number down to 14 by the end of 2016.
Cost and drilling efficiencies
COG has, however, successfully managed to reduce its costs— both in the Eagle Ford and the Marcellus shales. The above image shows Cabot’s improved cost structure.
COG’s November presentation also noted that the company had increased its lateral lengths by 49% in the Eagle Ford Shale in 2016 by spending only 3% extra in drilling capital per well compared to 2015.
If Marcellus’s price economics don’t improve, COG could consider moving capital to Eagle Ford, provided oil prices reach favorable levels. When asked on COG’s 3Q16 conference call about possible mergers and acquisitions in the Marcellus and Eagle Ford plays in the future, CEO Dan Dinges responded, “We’re looking at the value proposition, looking at what can compete for our capital and provide what our strategy is. That is to deliver a growth with a high-return profile to it.”
Having said that, Marcellus definitely seems to be COG’s key focus in 2017. Drilling and completion capital expenditure for 2017 is 79% skewed toward Marcellus and only 21% toward Eagle Ford.