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Cabot Shares Up on Marcellus Update - Analyst Blog

By: Zacks.com
Posted: 12/10/2013 1:23:00 PM
Referenced Stocks: AXAS;BHI;COG;HNR;IP

Shares of the independent oil and gas exploration company, Cabot Oil and Gas ( COG ), went up 4.6% to $36.82 post the announcement of the company's success in the Marcellus shale.

The 10-well pad that the company successfully completed will result in a 30-day average production of 168 million cubic feet (Mmcf) per day and has a peak production capacity of 201 Mmcf per day.

Per management, the strong performance of the two Upper Marcellus wells - with initial production (IP) of 32 Mmcf per day and 30-day production of 24 Mmcf per day - would be advantageous for the company with rates of return competing with those of the other unconventional resource plays.

A key takeaway from the update is the success of the downspacing test that would provide a greater recoverable resource base for Cabot. The three Lower Marcellus wells where the pilot program was tested will have an IP rate of 62 Mmcf per day and a 30-day production rate of 56 Mmcf per day.

A decrease in the well costs from $6.4 million to the anticipated $5.8 million level should be value additive for the company and enhance the drilling returns.

Baker Hughes ( BHI ) acted as Cabot's frac service provider for this 10-well pad venture. This marks the first area for Cabot that has been hydraulically fractured by a bi-fuel frac fleet.

Apart from the Marcellus operational update, the company also announced its fourth-quarter share repurchase activities. Cabot has repurchased around 4.8 million shares that will be financed by the Marmaton and West Texas asset sales announced earlier.

Cabot also announced of an agreement to divest its Mid-Continent legacy conventional oil and gas assets for a consideration of around $123 million. The sale is expected to close by the year-end. These properties have a current production capacity of 15 million cubic feet equivalent per day, of which 94% is gas.

To date, the company has divested non-core assets of around $325 million, a strategic move to shift focus to the higher yielding projects.

Cabot currently holds a Zacks Rank #4 (Sell). Meanwhile, one can consider other better-ranked players in the energy sector like Abraxas Petroleum Corp. ( AXAS ) and Harvest Natural Resources Inc. ( HNR ) that sport a Zacks Rank #1 (Strong Buy).



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BAKER-HUGHES (BHI): Free Stock Analysis Report

CABOT OIL & GAS (COG): Free Stock Analysis Report

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