Current COG Stock Info

Eagle Ford sale brings $765 million from Venado

Cabot Oil & Gas (ticker: COG) announced the sale of its Eagle Ford assets to privately-held Venado Oil & Gas.

Cabot will divest about 74,500 net acres, 65,100 operated and 9,400 non-operated, for a total consideration of $765 million. These properties produced 15,656 BOEPD in Q3. The transaction is expected to close in Q1 2018. In addition, Cabot sold its remaining East Texas assets to an undisclosed buyer, in a sale that is expected to close in the first half of 2018.

Cabot said it expects to record an impairment of ~$275 million from the sale in its quarterly results.

Cabot Unloads Eagle Ford Assets, Focusing on Marcellus

Cabot’s Eagle Ford assets had a net 207 producing wells at year-end 2016, and over 1,100 remaining locations. The company planned to drill 30 wells and complete 39 in 2017. In addition to the consideration paid by Venado, Cabot will save the $125 to $150 million it planned to spend in the Eagle Ford in 2018.

Focus on Marcellus, dividend, share repurchase, balance sheet

Cabot reports it will use the proceeds, along with its expected free cash flow generation to accomplish its main upcoming goals:

  • Delivering double-digit growth per debt-adjusted share from its Marcellus Shale position;
  • Providing sustainable dividend growth;
  • Enhancing its share repurchase program;
  • Further strengthening its balance sheet; and
  • Funding any potential increases in future activity in its ongoing exploratory programs, depending on the outcome of initial testing efforts in these areas during the first half of 2018.

Venado now holds $1.5 billion in Eagle Ford assets

This is the second major acquisition by KKR-backed Venado Oil & Gas, as the company purchased non-operated assets from SM Energy in March. In that deal, Venado paid $800 million for 37,500 acres and 27,260 BOEPD. The company now holds assets worth more than $1.5 billion in the Eagle Ford.

Valuation metrics

Based on a sale price of $765 million, Cabot received $10,670 per acre, or $48,860 per flowing BOEPD. It is difficult to determine if Cabot or SM received a better deal. SM received roughly $21,330 per acre, double Cabot’s proceeds, but only $29,350 per flowing BOE, significantly below Cabot’s valuation.

Cabot Chairman, President and CEO Dan Dinges commented, “These assets accounted for only five percent of our year-to-date total equivalent production and four percent of our proved reserves. Pro forma for these transactions and the previously announced divestiture of the Company’s legacy West Virginia properties, Cabot’s operating expenses per unit (including interest expense) are expected to decrease by almost 20 percent to approximately $1.65 per thousand cubic feet equivalent (Mcfe) in 2018.

“In a higher oil price environment, the Eagle Ford Shale assets were a nice complement to our Marcellus Shale position and provided capital allocation optionality. However, based on our current outlook for the oil markets and the resulting rates of return from these assets relative to our Marcellus Shale returns, we did not plan to allocate any incremental capital to the Eagle Ford Shale above the current maintenance capital levels.”

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