COG Cabot Oil and Gas Corp

Independent energy exploration and production company Cabot Oil and Gas (COG) has reported third quarter earnings per share (excluding special items) of 34 cents, which were at par with the Zacks Consensus Estimate. Comparing year-over-year, earnings increased 9.7% from 31 cents.

During the quarter, Cabot generated revenue of $262.1 million, which lagged our expectation of $267.0 million. On a year-over-year basis, sales improved 17.0% from $224.1 million, buoyed by higher output.

Volume Analysis

Overall production volume grew 38.9% from the previous-year period to an all-time high of 50.0 billion cubic feet equivalent (Bcfe). Natural gas volumes were up 37.1% year over year to 47.7 billion cubic feet (Bcf), while liquids volume escalated 100.5% to 391 thousand barrels (MBbl).

Strength in natural gas production was driven by the Pennsylvania, West Virginia and Rocky Mountains regions, where volumes swelled (by 66.2%), partially offset by a decline of 25.2% in the Texas, Oklahoma and Other regions. The expansion in oil volumes can be attributed to a 118.8% growth in the Texas, Oklahoma and Other regions.

Realized Prices

Average realized natural gas price was down 17.0% at $4.58 per thousand cubic feet (Mcf), while average oil price realization dropped 11.6% to $86.89 per barrel.

Drilling Statistics, Capital Expenditure & Balance Sheet

Net wells drilled during the quarter increased by one to 27 in the year-ago period, with a success rate of 97%. Operating cash flows were $154.7 million, while capital expenditures were $264.8 million. As of September 30, 2011, the company had $1,205.0 million in long-term debt, with a debt-to-capitalization ratio of 35.9%.

Operational Update

During the earnings release, Cabot also provided an update regarding its operations. The company stated that it continues to achieve drilling/completion objectives in the Marcellus Shale play plus drilling success in Marmaton and Eagle Ford. The sale of assets in Rocky Mountain were also completed in early October.

Company Guidance

Cabot expects fourth quarter 2011 natural gas production in the 540.0–580.0 million cubic feet per day (Mmcf/d) range, while oil volumes are likely to vary between 3.7 and 4.7 thousand barrels per day (MBbl/d).

For the first quarter of 2012, natural gas volumes are expected to be around 600.0–650.0 Mmcf/d. Cabot has guided toward liquids output in the 5.0–6.0 MBbl/d range.

For full-year 2012, the company initiated production growth outlook in the range of 45% to 55%.

Our Recommendation

We believe that Cabot's large acreage holdings will support several years of oil and gas drilling in fast-growing fields, including the Marcellus Shale in Appalachia and the Haynesville Shale in east Texas. We believe that the company’s recent restructuring operations and the sale of Canadian assets will further help Cabot to focus on core shale plays.

Moreover, the company’s natural gas-weighted properties should steadily increase volumes going forward, highlighting the growth momentum. Cabot competes with its larger rivals such as Anadarko Petroleum Corporation (APC) and Chevron Corporation (CVX). We maintain a long-term Outperform rating on the stock.

 
ANADARKO PETROL (APC): Free Stock Analysis Report
 
CABOT OIL & GAS (COG): Free Stock Analysis Report
 
CHEVRON CORP (CVX): Free Stock Analysis Report
 
Zacks Investment Research