COG Cabot Oil and Gas Corp

We have upgraded independent energy exploration and production company Cabot Oil and Gas (COG) to Outperform from Neutral, reflecting its attractive fundamentals and positive outlook.

On the whole, we believe that Cabot’s natural gas-weighted properties should help generate steady volume increases going forward, highlighting the growth momentum in the company’s drilling efforts in the high-return Marcellus and Haynesville Shale plays.

During the recently concluded first quarter, Cabot’s overall production volume reached 37.7 billion cubic feet equivalent (Bcfe) – the highest ever reported – up 41.2% from the previous-year period. Natural gas volumes were up 43.3% year over year at 36.4 billion cubic feet (Bcf), while liquids volumes improved 4.2% to 226 thousand barrels.

In November last year, Cabot entered an agreement with Tourmaline Oil Corp. to sell its remaining investment in Canada for about $61.3 million in cash and stock. The Tourmaline transaction, which followed Cabot’s agreement with Williams Partners L.P. (WPZ) to sell its midstream assets in Pennsylvania for $150 million, has further shored up its strong balance sheet apart from helping it to bolster its natural gas operations on core shale plays. We also like Cabot’s relatively low risk profile and longer reserve life asset base.

As such, we believe the company is favorably positioned to continue accelerating revenue and earnings growth over the next few quarters. Cabot currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.

Cabot Oil and Gas, based in Houston, Texas, is an independent oil and gas exploration firm with producing properties mainly in the U.S. Founded over 100 years ago in Pennsylvania, Cabot originally operated in the Appalachian Mountains of the eastern U.S. before moving the bulk of its activities to the Gulf Coast.

Presently, the company has four domestic focus areas: the Appalachia, the Gulf Coast, the Rocky Mountains, and the Anadarko Basin (in Oklahoma, Kansas, and the Texas Panhandle). As of year-end 2010, the company had 2.70 trillion cubic feet equivalent in proved reserves (98% natural gas). Cabot produced 130.6 Bcfe of oil and gas in 2010, of which more than 96% was natural gas.

 
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