2008-09-02-2008-06-05-2008-10-15

Bought 97% WI in 25,000 gross acres in E. TX with Haynesville shale potential, gaining 182 Bcfe proved, 32 MMcfe/d net.

In its first acquisition since June 2001, Cabot Oil & Gas Corp., Houston, (NYSE: COG) has acquired producing properties, leasehold acreage and gathering infrastructure in East Texas with Haynesville shale potential from Enduring Resources LLC, Mustang Drilling Inc. and Minden Gathering Services LLC for $610.8 million. The assets include a 97% average working interest (77% net revenue interest) in approximately 25,000 gross acres (24,250 net) in the Minden area contiguous to and near existing Cabot properties with 49 wells drilled and completed. The acquisition will triple Cabot's footprint in the area. Proved reserves are approximately 176 billion cubic feet equivalent as estimated by Cabot (30% proved developed), allocated mainly to the Cotton Valley formation, with an additional 80 to 90 billion probable. Net production is approximately 32 million cubic feet of gas equivalent per day. Additional assets include 33 miles of pipeline, 5,400 horsepower of compression and four water-disposal wells valued at about $26 million. Upside includes 300 to 400 additional drilling locations. J.P. Morgan Securities Inc. analyst Joseph Allman says this acquisition "signals Cabot's optimism about the Haynesville." He reports Cabot is paying about $9,270 per implied Haynesville acreage, or about $225 million for Haynesville and any unbooked potential, which is "in line with and lower than some of the values we are hearing about for Haynesville acreage," he says. Allman values the deal at $3.28 per thousand cubic feet equivalent on proved reserves, and at $18,800 per thousand cubic feet equivalent per flowing barrel. Estimating 4 billion cubic feet per well potential at $6 million all-in cost, the value of the Haynesville potential alone could be $700 million, and could exceed $1 billion at 5 billion equivalent potential. Cabot describes the properties as "essentially cash-flow neutral" at the current production rate with four rigs drilling. Cabot president and chief executive Dan O. Dinges says the properties are being acquired to realize significant growth in production and reserves and to capture additional opportunity to exploit the Bossier/Haynesville. "There is significant incremental exposure to the emerging Bossier/Haynesville opportunities," he says. "Anticipated production growth from future drilling activity will generate additional cash flow to allocate toward exploitation of the Bossier/Haynesville. "The timing of this acquisition fits well, considering we will spud our first of several planned horizontal Bossier/Haynesville wells on Cabot's existing Minden acreage in the next several weeks," Dinges adds. The properties are in proximity to existing Cabot acreage in which the company has drilled 77 wells on 12,700 acres with a 100% success rate since its initial discovery in 2006. More than 98% of Cabot's combined total acreage of 37,700 in the greater Minden area is undeveloped below the Cotton Valley formation. Cabot plans to deepen the existing 49 vertical wells to the Haynesville zone and drill the majority of future wells to include the Haynesville zone with horizontal laterals, pending tests. Dinges says the Pettit, Travis Peak and Cotton Valley zones capture most of the purchase price, and that the Haynesville potential is upside. "We have a lot of confidence in those probable reserves due to our 100% success rate in similar wells in our Minden area," he says. Cabot has placed swaps covering estimated production for the remainder of 2008 and all of 2009 and 2010. The volumes swapped represent revenues exceeding $600 million from 47.5 billion cubic feet equivalent, or approximately 27%, of the acquired proved reserves. Swaps for 2008, 2009 and 2010 were set at $13.15, $12.18, and $11.43 per thousand cubic feet, respectively, net to the properties for gas, and $125.35 average swap price for oil over the same period. Cabot financed the deal through a combination of debt and equity. The effective date is May 1. Cabot operates on the Gulf Coast, including Texas and Louisiana, and in the Rockies, the Midcontinent, Appalachia and Canada.