Cabot Oil and Gas
(COG - Analyst Report
), an independent Houston-based oil and gas exploration company, reported its recent success in producing from horizontal wells. The company recently completed four horizontal wells in the Marcellus Shale and East Texas areas.
Teel 8H, the first of the recently completed Marcellus horizontal wells, had an initial production rate of 10.3 million cubic feet per day (MMcf/d) with a strong 30-day average rate of 9.8 MMcf/d. The company is planning to spud 18 additional horizontal wells through the rest of 2009.
The second of Cabot's horizontal wells -- and its first at Minden, Texas -- witnessed an initial production rate of 9.5 MMcf/d with a 30-day average rate of 7.9 MMcf/d. The company initiated an effort to exploit the horizontal Pettet at County Line oil reservoir to cope with the near-term softening in natural gas price outlook.
The remaining two of Cabot's completed confirmation wells were at Pettet in the James Lime field. The Forest #5 well that was tested recently, witnessed 842 barrels of oil and 1.4 MMcf/d of gas with a 30-day average rate of 519 barrels of oil and 2 MMcf/d of gas. The Timberstar Redditt #4 well tested at 504 barrels of oil per day and 1.2 MMcf/d of gas.
Despite the unfavorable macro backdrop, Cabot remains committed to a robust drilling program, which is expected to drive production growth in the range of 4% to 8% this year. With a Pennsylvania and East Texas weighted drilling program in 2009, the company plans to spend around $500 million (up from $475 million before). Cabot's natural gas-weighted asset base should help it generate steady production growth going forward.
However, we think that these positives are adequately reflected in the current valuation, leaving little room for meaningful upside from current levels. As such, we are maintaining our Hold recommendation. Our preferred E&P names continue to be the resource-rich players such as EOG Resources (EOG - Analyst Report) and Chesapeake Energy (CHK - Analyst Report).