Cabot Oil & Gas Corporation is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties located in North America. In 2009, we restructured our operations by combining our Rocky Mountain and Appalachian areas to form the North Region and combining the Anadarko Basin with our Texas and Louisiana areas to form the South Region. Certain prior period amounts and historical descriptions have been reclassified to reflect this reorganization. Operationally, we now have two primary regional offices located in Houston, Texas and Pittsburgh, Pennsylvania.
In 2009, energy commodity prices recovered from the price levels experienced during the second half of 2008. Our 2009 average realized natural gas price was $7.47 per Mcf, 11% lower than the 2008 average realized price of $8.39 per Mcf. Our 2009 average realized crude oil price was $85.52 per Bbl, 4% lower than the 2008 average realized price of $89.11 per Bbl. These realized prices include realized gains and losses resulting from commodity derivatives (zero-cost collars or swaps).
In 2009, our investment program totaled $640.4 million, including lease acquisition ($145.7 million) and drilling and facilities ($401.1 million) programs. Our capital spending was funded largely through cash flow from operations and, to a lesser extent, borrowings on our revolving credit facility.
We remain focused on our strategies of pursuing lower risk drilling opportunities that provide more predictable results on our accumulated acreage position. Additionally, we intend to maintain spending discipline and manage our balance sheet in an effort to ensure sufficient liquidity, including cash resources and available credit. We believe these strategies are appropriate for our portfolio of projects and the current industry environment and will continue to add shareholder value over the long-term.
In April 2009, we sold substantially all of our Canadian properties to a private Canadian company. In April 2009, we also entered into a new revolving credit facility and terminated our prior credit facility.
In August 2008, we completed the acquisition of producing properties, leasehold acreage and a natural gas gathering infrastructure in east Texas (the “east Texas acquisition”). We paid total net cash consideration of approximately $604.0 million. In order to finance the east Texas acquisition, we completed a public offering of 5,002,500 shares of our common stock in June 2008, receiving net proceeds of $313.5 million, and we closed a private placement in July 2008 of $425 million principal amount of senior unsecured fixed rate notes.
On an equivalent basis, our production level in 2009 increased by 8% from 2008. We produced 103.0 Bcfe, or 282.1 Mmcfe per day, in 2009, as compared to 95.2 Bcfe, or 260.1 Mmcfe per day, in 2008. Natural gas production increased to 97.9 Bcf in 2009 from 90.4 Bcf in 2008, primarily due to increased production in the North region associated with the increased drilling program in Susquehanna County, Pennsylvania as well as increased natural gas production in the South region associated with the properties we acquired in the east Texas acquisition in August 2008 and drilling in the Angie field in east Texas. Partially offsetting these production gains were decreases in production in Canada due to the sale of our Canadian properties in April 2009, as well as reduced drilling activity in Oklahoma and Wyoming. Oil production increased by 36 Mbbls from 782 Mbbls in 2008 to 818 Mbbls in 2009 due primarily to increased production in the South region associated with the properties we acquired in the east Texas acquisition in August 2008 and an increase related to Pettet development in the Angie field, partially offset by a decrease in production in Canada due to the sale of our Canadian properties in April 2009.
For the year ended December 31, 2009, we drilled 143 gross wells (119 net) with a success rate of 95% compared to 432 gross wells (355 net) with a success rate of 97% for the prior year. In 2010, we plan to drill approximately 136 gross wells (123.9 net), focusing our capital program in the Marcellus Shale in northeast Pennsylvania and, to a lesser extent, in east Texas.
Our 2009 total capital and exploration spending was $640.4 million compared to $1.5 billion of total capital and exploration spending in 2008. In both 2009 and 2008, we allocated our planned program for capital and exploration expenditures among our various operating regions based on return expectations, availability of services and human resources. We plan to continue such method of allocation in 2010. Funding of the program is expected to be provided by operating cash flow, existing cash and increased borrowings under our credit facility, if required. For 2010, the North region is expected to receive approximately 69% of the anticipated capital program, with the remaining 31% dedicated to the South region. In 2010, we plan to spend approximately $585 million on capital and exploration activities.
Our proved reserves totaled approximately 2,060 Bcfe at December 31, 2009, of which 98% were natural gas. This reserve level was up by 6% from 1,942 Bcfe at December 31, 2008 on the strength of results from our drilling program. In 2009 we had a net downward revision of 200.1 Bcfe primarily due to (i) downward revisions of 101.6 Bcfe due to lower 2009 oil and natural gas prices compared to 2008 and (ii) downward revisions of 120.4 Bcfe due to the removal of proved undeveloped reserves scheduled for development beyond five years primarily due to the application of the Securities and Exchange Commission’s (SEC) new oil and gas reserve calculation methodology, partially offset by 21.9 Bcfe of positive performance revisions.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: OVERVIEW
Cabot Oil & Gas Corporation is a leading independent oil and gas company engaged in the development, exploitation, exploration, production and marketing of natural gas, and to a lesser extent, crude oil and natural gas liquids from its properties in the Continental U.S. We also transport, store, gather and produce natural gas for resale. Our exploitation and exploration activities are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs. Our program is designed to be disciplined and balanced, with a focus on achieving strong financial returns.
At Cabot, we evaluate three types of investment alternatives that compete for available capital: drilling opportunities, financial opportunities such as debt repayment or repurchase of common stock and acquisition opportunities. Depending on circumstances, we allocate capital among the alternatives based on a rate-of-return approach. Our goal is to invest capital in the highest return opportunities available at any given time. At any one time, one or more of these may not be economically feasible.
Our financial results depend upon many factors, particularly the price of natural gas and crude oil and our ability to market our production on economically attractive terms. Price volatility in the commodity markets has remained prevalent in the last few years. Throughout 2009 commodity index prices in general traded in a range significantly below recent highs. However, our realized natural gas and crude oil price was $7.47 per Mcf and $85.52 per Bbl, respectively, in 2009 and were significantly increased by our positions from our derivative instruments, which contributed approximately 45% of our realized revenues in 2009. In an effort to manage commodity price risk, we entered into a series of crude oil and natural gas price swaps and collars. These financial instruments are an important element of our risk management strategy.
Commodity prices are impacted by many factors that are outside of our control. Historically, commodity prices have been volatile and we expect them to remain volatile. Commodity prices are affected by changes in market supply and demand, which are impacted by overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors. As a result, we cannot accurately predict future natural gas, NGL and crude oil prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases will have on our capital program, production volumes and future revenues. In addition to production volumes and commodity prices, finding and developing sufficient amounts of crude oil and natural gas reserves at economical costs are critical to our long-term success.
As of December 31, 2009, we had 567 active employees. We recognize that our success is significantly influenced by the relationship we maintain with our employees. Overall, we believe that our relations with our employees are satisfactory. The Company and its employees are not represented by a collective bargaining agreement.
Website Access to Company Reports
We make available free of charge through our website, www.cabotog.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information filed by the Company. The public may read and copy materials that we file with the SEC at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.