Cabot Oil & Gas
(
COG
) has entered into a sales agreement, worth $250 million, with the
U.S. arm of Japanese energy firm Osaka Gas Co., Ltd.
Per the deal, Cabot will sell a 35% non-operated working stake
in Pearsall Shale acreage to Osaka. The interest covers
approximately 50,000 net acres leased by Cabot in Atascosa, Frio,
La Salle and Zavala counties of Texas.
Osaka will make a cash payment of $125 million to Cabot at
closing, which is expected to take place on June 26. Osaka will pay
the remaining $125 million, covering 85% of Cabot's future drilling
costs in the Pearsall Shale.
The companies target to fully utilize the drilling expenses by
the end of 2013. The initial plans include operations by two rigs,
starting in July 2012. Cabot will add a third rig in 2013, followed
by another in 2014.
Cabot management remains highly upbeat about this alliance that
is expected to reap long-term benefits. Cabot believes that the
developed Pearsall Shale will acts as a strong catalyst for growth
in the coming years.
Houston, Texas based Cabot is an independent oil and gas
exploration company with producing properties mainly in the U.S. As
of year-end 2011, the company had 3.03 trillion cubic feet
equivalent in proved reserves (96% natural gas). Cabot produced
187.5 billion cubic feet equivalent of oil and gas in 2011, of
which more than 95% was natural gas.
We believe that Cabot has a diversified asset portfolio spanning
between low-risk/long reserve-life Appalachian assets and
large-volume/rapid-payout Gulf Coast properties, with further
variety from large prospect inventories in the Rocky Mountains and
the Anadarko Basin that have a broad mix of production and payout
profiles.
However, we remain concerned given the weak fundamentals of
natural gas and Cabot's high exposure to the commodity. The company
also faces competition from larger rivals such as
Anadarko Petroleum Corporation
(
APC
) and
Chevron Corporation
(
CVX
). Hence, we maintain a long-term Neutral recommendation on the
stock.
Cabot currently retains a Zacks #3 Rank, which translates into
short-term Hold rating for a period of one to three months.
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