Cabot Oil and Gas (NYSE:COG) continued the company's slow evolution to a more balanced oil and gas production mix during the first quarter of 2012, as the company made progress on various domestic crude oil and liquids plays in its portfolio.

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First Quarter of 2012
Cabot Oil and Gas reported production of 59.7 Bcfe in the first quarter of 2012, with 95% of the production composed of natural gas. The production of crude oil, condensate and natural gas liquids increased by 138% in the quarter, but still totaled only 538,000 barrels.

Cabot Oil and Gas expects the share of liquids production to grow and reach 10% of total production in 2012. The company plans to spend 40% of its $750 million to $790 million 2012 capital budget on oil and liquids areas.

SEE: Industry At A Glance - Large Oil And Gas Producers

Eagle Ford Shale
The Eagle Ford Shale is one of the fastest growing domestic resource plays under development by the industry. Operators spud 856 wells here in the first quarter of 2012, up 110% from 407 in the first quarter of 2011. In April 2012, the industry was operating 217 rigs and producing more than 500,000 barrels of oil and condensate per day from the Eagle Ford Shale, according to BENTEK Energy LLC.

Cabot Oil and Gas has 61,000 net acres of exposure to the Eagle Ford Shale and is conducting a pilot program to test down spacing on the company's acreage. The company recently drilled and completed two wells spaced 400 feet apart, compared to the original spacing of 1,000 to 1,200 feet. Cabot Oil and Gas reported that the 24 hour production rate of these wells was better than average for the area.

Cabot Oil and Gas has exposure to oil and liquids in the Marmaton play in Oklahoma and Texas. The company just reported a Marmaton well with a peak production rate of 1,470 barrels of oil equivalent (BOE) per day, with oil and liquids content of 87%.

SM Energy (NYSE:SM) is also developing the Marmaton play and has approximately 35,000 net acres of exposure. The company plans to operate three rigs to develop this play in 2012.

SEE: Unearth Profits In Oil Exploration And Production

Brown Dense
Cabot Oil and Gas is also active in the Brown Dense or Smackover play, which runs through Louisiana, Mississippi and Arkansas. This is an early stage oil and liquids play that several operators are working on. The company's first well here produced at a peak rate of 206 barrels of oil per day.

Southwestern Energy (NYSE:SWN) has approximately 520,000 net acres under lease exposed to this emerging play, and reported its first well in February 2012. Devon Energy (NYSE:DVN) is also working on the Smackover play and drilled a well in Morehouse Parish, Louisiana in late 2011.

The Bottom Line
Although the phrase "a big ship turns slowly" may be a cliché, it certainly applies to Cabot Oil and Gas, which is in the midst of a multi-year move away from natural gas. Let's hope that the industry won't be running away from oil just as quickly by the time this transition is complete.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Tickers in this Article: COG, SWN, DVN, SM

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