Cabot's First Pearsall Well Impresses - Eagle Ford Prices Improve

Cabot Oil and Gas Pearsall Shale Target Area Map

Cabot Oil & Gas announced results from the company's first horizontal well in the Pearsall Shale and the short lateral yielded promising results. The well, drilled in Frio County,  produced 1,400 boe/d, with 50% of production attributable to oil. One additional Pearsall well is being completed and three others are at some stage of being drilled. A total of 6 wells will be drilled targeting the play in 2012. The first well came in at a cost of just over $10 million, but the company is targeting $9-$9.5 million for its early wells.

In the Eagle Ford, the company completed one well in the quarter that came online at more than 1,000 boe/d, 95% oil. There are now 38 producing wells in the Buckhorn area in Frio County, TX. Well costs have fallen to $6.5-$7 million.

Eagle Ford oil price realizations improved to more than $8 per barrel better than NYMEX pricing in the quarter. Oil is moving by pipe instead of truck to Corpus Christi, where the company is able to get LLS prices.

For 2013, approximately 30% of the company's capital budget will be allocated to the Pearsall and Eagle Ford shales of South Texas. Impressively, Cabot expects to drill into 2013 targeting gas wells in the Marcellus and Pearsall that keep the company cash flow positive at a $3.50 gas price.

"This year has seen many new ideas and ongoing efforts come to fruition, including a joint venture with an international company and innovations with well and frac spacing in key plays, that have translated into continued industry-leading production growth," said Dan O. Dinges, Chairman, President and Chief Executive Officer.

Cabot - Osaka Pearsall Shale JV Agreed - $250 Million

Maverick Basin Pearsall Shale Map

Cabot Oil & Gas and Osaka Gas have announced a joint venture (JV) agreement in the Pearsall Shale. Cabot is selling a 35% interest in 50,000 acres prospective for shale across Atascosa, Frio, La Salle and Zavala counties. Osaka will pay $125 million at closing and will carry 85% of Cabot's drilling cost until the remaining $125 million is paid. Cabot plans to run two rigs in the play through 2012, three in 2013, and four in 2014. At that rate, the drilling carry will be fulfilled by year-end 2013. Cabot keeps full rights to the Eagle Ford.

The deal follows successful exploration wells proving the Pearsall Shale has better liquids yields east of the Maverick basin.  The JV is beneficial for both parties. Cabot secures the capital needed to begin development sooner than would be possible on its own and Osaka gains natural gas assets in the U.S.  Osaka has been in negotiations to take LNG from the U.S. Owning supply is a natural hedge.

Cabot's CEO commented:

"We believe the Pearsall Shale could prove to be an additional liquids-rich catalyst in our portfolio and are pleased with the results we have seen to date--both internally and from neighboring peers. This transaction will provide the capital necessary to accelerate drilling of this formation, while still maintaining Cabot's 100 percent interest in our Eagle Ford leasehold."

Osaka Gas is a Japanese energy supplier with a focus on natural gas. Natural gas is more important than ever after Fukushima accident.