Cabot Oil & Gas Corporation has announced its 2008 results that included new record highs for reserves, production, earnings (excluding gain on sales) and cash flow.
• Total proved reserves growth of 20 percent year-over-year, reaching 1,942 Bcfe, as the result of a 443 percent replacement of production.
• Production for 2008 of 95.2 Bcfe, an 11 percent increase over 2007.
• Net income of $211.3 million and earnings per share of $2.10.
• Record cash flow levels, including $634.4 million for cash flow from operations, and $608.7 million for discretionary cash flow.
"Our marketplace has changed substantially since the start of 2008, but that does not detract from this level of achievement," said Dan O. Dinges, Chairman, President and Chief Executive Officer. "Double-digit growth in reserves and production, along with exceptional financial results, made 2008 an outstanding year for Cabot."
Full Year Financial Results
For 2008, Cabot reported net income of $211.3 million, or $2.10 per share, which compares favorably with the $167.4 million of net income, or $1.73 per share, recorded in 2007. Excluding the selected items in both 2008 and 2007 (detailed in the attached tables), the full year comparisons for net income would have been $232.8 million, or $2.31 per share, for 2008 versus $171.5 million, or $1.77 per share, for 2007. The selected items include impairments, gains and stock compensation charges.
The main drivers of the improved financial results were higher realized commodity prices and increased equivalent production, partially offset by higher operating expenses. Inclusive of realized hedge gains and losses for the year, natural gas prices rose 16 percent to $8.39 per Mcf for the entire Company and oil prices increased 33 percent to $89.11 per barrel.
Expenses in each category other than exploration expense rose year-over-year, as a result of more activity in Cabot's organic drilling program, completion of an acquisition and general market conditions that existed the first eight months of the year. Exploration expense declined between years primarily due to fewer dry holes.
Reserves and Production
"In 2008, Cabot had its largest investment program ever, which included a significant acquisition, extensive drilling and a large lease acquisition effort," commented Dinges. "This program added nearly 500 Bcfe of reserves before taking into account the production for the year of 95.2 Bcfe and negative reserve revisions of 57.3 Bcfe, which was primarily due to lower year-end pricing."
The gross increase was roughly two-thirds organic and one-third acquisition. The Company's proved undeveloped portion of reserves grew slightly, to 30.6 percent (from 27.2 percent in 2007), due almost entirely to the higher PUD component of the acquired reserves. "Our reserves have been 100 percent audited since our inception as a public company," stated Dinges. "Our finding cost for 2008 experienced an increase due to several factors, including an outsized lease acquisition budget primarily focused on the Marcellus, a proved producing property acquisition and inflationary pressures in all aspects of drilling and completions. Our drilling finding cost (additions only) for the year was $2.25 per Mcfe."
Fourth Quarter
On the strength of higher levels of production and increased natural gas price realizations offset somewhat by cost increases for comparable fourth quarter periods, the Company reported net income of $43.7 million, or $0.42 per share, versus $42.0 million, or $0.43 per share, between 2008 and 2007, respectively. Excluding the selected items the comparison would have been $45.8 million in the fourth quarter 2008 versus $43.0 million in the fourth quarter 2007. Earnings per share, excluding the selected items, would have been $0.44 in both periods.
Balance Sheet
During 2008, the Company raised around $800 million through new debt and equity to fund its acquisition effort for both producing property and leases. This increase gave Cabot a year-end net debt to total adjusted capital ratio of 31.9 percent versus 23.6 percent for the 2007 year-end. "While up, this level remains very low by historical standards and affords us financial strength in this very trying environment," said Dinges.