Domestic energy explorer
Cabot Oil and Gas Corporation
) reported stellar third quarter 2012 results, owing to enhanced
output, better oil prices and lower exploration costs.
CABOT OIL & GAS (COG): Free Stock Analysis
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The predominantly natural gas-focused exploration and production
firm reported earnings per share (excluding special items) of 21
cents, breezing past the Zacks Consensus Estimate of 15 cents.
Cabot's performance also improved considerably from the year-ago
adjusted profit of 17 cents per share.
During the three-month period ended September 30, 2012,
Texas-based Cabot generated operating revenues of $296.9 million
- up 13.3% year over year - with the help of healthier
production. The result was in line with the Zacks Consensus
Overall production during the quarter was 66.5 billion cubic feet
equivalent (Bcfe) - 94% gas - up 33% from the previous-year
period. Natural gas volumes jumped 31.4% year over year to 62.7
billion cubic feet (Bcf), while liquid volumes shot up 60.9% to
629 thousand barrels (MBbl). The driving force behind the
increase in natural gas production was Appalachia region, where
volumes swelled by 42.4%.
The average realized natural gas price went down 19.7% from the
corresponding period of 2011 to $3.68 per thousand cubic feet
(Mcf), while average oil price realization moved up 16.6% to
$101.34 per barrel.
Costs & Expenses
Transportation and gathering costs and taxes (other than income)
came in at $34.4 million (up 73.7% year over year) and $10.4
million (up 48.6%) respectively. As a result of, total operating
expenses increased 10.1% over the third quarter of 2011 to $221.0
Drilling Statistics, Capital Expenditure & Balance
Net wells drilled during the quarter increased to 30 (from 27 in
the year-ago period) with a 95% success rate. Operating cash
flows were $164.0 million for the quarter, while capital
expenditures were $257.9 million. As of September 30, 2012, the
company had $1,062.0 million in total debt, with a
debt-to-capitalization ratio of 33.6%.
Cabot guides its 2012 volume growth in the range of 38% to 44%,
including an expected liquid growth of 60% to 70%.
For full-year 2013, the company expects to see production growth
in the range of 35% to 50%, including an expected liquid growth
of 45% to 55%.
Recommendation & Rating
We believe that large acreage holdings of Cabot will support
several years of oil and gas drilling in the fast-growing fields,
including the Marcellus Shale in Appalachia and the Eagle Ford
Shale in Texas. The company's recent restructuring operations and
the sale of Canadian assets will likely help the company to focus
on core shale plays.
But given natural gas' weak fundamentals and Cabot's high
exposure to the commodity, we do not believe that the stock will
be able to sustain the momentum in the near future. Cabot's steep
valuation and miniscule payout also keep us worried.
As such, we see the stock performing in line with the broader
market and maintain our long-term Neutral recommendation. Cabot,
) in Eagle Ford Shale play, currently holds a Zacks #3 Rank
(short-term Hold rating).