Independent oil and gas exploration company,
Cabot Oil and Gas
) reported robust third quarter 2013 earnings, primarily aided by
increased production levels and to a lesser extent by higher oil
The domestic energy explorer reported earnings per share
(excluding special items) of 18 cents, above the Zacks Consensus
Estimate of 15 cents and the year-ago adjusted profit of 11
During the three-month period ended Sep 30, 2013, Texas-based
Cabot generated operating revenues of $435.9 million, up 46.8%
year over year. However, the top line failed to beat the Zacks
Consensus Estimate of $439.0 million.
Cabot's overall production during the quarter was 107.1 billion
cubic feet equivalent (Bcfe) - 95% gas - up 61.1% from the
prior-year quarter. Natural gas volumes jumped 62.2% year over
year to 101.7 billion cubic feet (Bcf), while liquids volumes
improved 42.8% to 898 thousand barrels (MBbl). Strength in
natural gas production was driven by the Appalachia region, where
volumes expanded 70.9%.
Average realized natural gas price was down 8.7% from the
year-ago quarter to $3.36 per thousand cubic feet (Mcf). However,
better realizations are expected in the coming months on the back
of capacity additions and the onset of winter. On the other hand,
average oil price realization increased 2.4% to $103.76 per
Costs & Expenses
Transportation and gathering costs increased 76.6% year over year
to $60.8 million, taxes (other than income) were up 10.5% year
over year at $11.5 million, while depreciation, depletion and
amortization expensed were up 53% at $169 million. As a result,
total operating expenses increased 39.7% over the third quarter
of 2012 to $308.7 million. However, Cabot was able to cut
exploration costs by 58.2% from the year-ago quarter to $3.9
Drilling Statistics, Capital Expenditure & Balance
Net wells drilled during the quarter increased to 41 (from 30
in the year-ago period) with a 100% success rate. Operating cash
flows were $276.7 million, while capital expenditures were $319.5
million. As of Sep 30, 2013, Cabot had $1,162.0 million in
long-term debt, with a debt-to-capitalization ratio of 33.3%.
CABOT OIL & GAS (COG): Free Stock Analysis
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In a separate announcement, Cabot declared a dividend of 2 cents
per common share. The dividend will be paid on Nov 19, to
shareholders of record as of Nov 7.
Cabot reiterated its 2014 production growth guidance of 30% to
50%. The company plans to utilize 85% of the 2014 capex budget -
$1.375 to $1.475 billion - on drilling and completion activities.
The major focus of the drilling budget, over 75%, will be on
Marcellus Shale with expectations of drilling around 130 to 140
net wells. The Eagle Ford shale will see drilling in around 40 to
50 net wells, with total well count reaching 170 to 190 in 2014.
Zacks Rank & Stock Picks
Cabot currently carries a Zacks Rank #4 (Sell), implying that it
is expected to underperform the broader U.S. equity market over
the next one to three months.
Meanwhile, one can consider other stocks in the exploration and
production sector such as
Linn Co, LLC
, Linn Energy, LLC
Matador Resources Co.
) as good investment opportunities. These stocks sport a Zacks
Rank #1 (Strong Buy) and have solid secular growth stories with
the potential to rise significantly from current levels.