[Context: On December 20, KKR-backed Venado Oil & Gas announced a $765m acquisition of 74,500 net acres primarily in Frio and Atascosa counties, Texas, in the Eagle Ford play. Further details and related links are below.]
Cabot Oil & Gas Corporation Announces Agreement to Sell Eagle Ford Shale Assets
HOUSTON, Dec. 20, 2017 /PRNewswire/ — Cabot Oil & Gas Corporation (NYSE: COG) (“Cabot” or the “Company”) announced today that it has reached an agreement to sell its operated and non-operated Eagle Ford Shale assets to an affiliate of Venado Oil & Gas LLC for $765 million. The divestiture includes approximately 74,500 net acres (~65,100 operated and ~9,400 non-operated) of Eagle Ford Shale leasehold primarily located in Frio and Atascosa counties.
Production from these properties during the third quarter of 2017 was 15,656 barrels of oil equivalent (Boe) per day. This transaction is expected to close during the first quarter of 2018, subject to customary closing conditions and adjustments. Separately, the Company announced the sale of its remaining East Texas assets to an undisclosed buyer. This transaction is expected to close on or before July 1, 2018, subject to customary closing conditions and adjustments.
Cash proceeds from these transactions, in addition to the Company’s current cash position and its outlook for significant free cash flow generation during its three-year plan through 2020, are expected to allow Cabot to continue to enhance shareholder value by:
> 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.
“Beginning over a decade ago, Cabot began the process of transforming the Company into one of the lowest cost operators in the industry, which has allowed us to create value for shareholders by delivering returns-focused growth while maintaining a strong balance sheet throughout the commodity cycles,” commented Dan O. Dinges, Chairman, President and Chief Executive Officer. “These transactions represent a further step in our transformation process and accelerate the value of these assets while improving Cabot’s cost structure and corporate returns.
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.”
Cabot expects to record a non-cash, after-tax impairment on the Eagle Ford Shale assets of approximately $270 to $280 million (based on estimated net book value as of November 30, 2017) in the fourth quarter of 2017.
Scotiabank served as financial advisor and Norton Rose Fulbright US LLP served as legal counsel to Cabot on the Eagle Ford Shale transaction. Kirkland & Ellis LLP served as Venado’s legal counsel on the Eagle Ford Shale transaction.
Cabot Oil & Gas Corporation, headquartered in Houston, Texas, is a leading independent natural gas producer with its entire resource base located in the continental United States. For additional information, visit the Company’s website at www.cabotog.com.