Cabot Beats, Reserve Increases - Analyst Blog

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Independent energy exploration and production company Cabot Oil and Gas ( COG ) has reported impressive fourth quarter and full year 2011 results, aided by higher production, strong drilling performance at Marcellus Shale and lower exploration costs.

Quarterly earnings per share (excluding special items) came in at 20 cents, surpassing the Zacks Consensus Estimate of 14 cents. Comparing year over year, earnings increased 100% from 10 cents per share.

For full-year 2011, the company posted earnings of 67 cents per share, against earnings of 49 cents in the prior year. The reported results also breezed past our earnings projection of 58 cents per share.

During the quarter, Cabot generated revenue of $268.0 million, beating our expectation of $265.0 million. On a year-over-year basis, sales improved 20.4% from $222.5 million, buoyed by higher output.

Cabot generated revenues of $979.9 million in fiscal 2011, compared with $863.1 million in 2010. The fiscal result also surpassed the Zacks Consensus Estimate of $962.0 million.

Stock Split

In late January, Cabot completed the two-for-one stock split of the company's common stock. Management also announced to hike its annual dividend payments to 8 cents from 6 cents.

Volume Analysis

Overall quarterly production volume grew 46.1% from the previous-year period to 54.8 billion cubic feet equivalent (Bcfe). Natural gas volumes were up 42.1% year over year at 51.6 billion cubic feet (Bcf) in the fourth quarter, while liquids volume escalated 164.1% to 523 thousand barrels (MBbl).

Strength in natural gas production was driven by the Appalachia regions, where volumes swelled (by 91.8%).

Realized Prices

Average realized natural gas price was down 22.2% at $4.02 per thousand cubic feet (Mcf) in the quarter, while average oil price realization dropped 7.7% to $91.90 per barrel.

Drilling Statistics, Capital Expenditure & Balance Sheet

Net wells drilled during the quarter increased to 29 (compared with 20 wells in the year-ago period), with a success rate of 100%. Operating cash flows were $126.5 million, while capital expenditures were $222.3 million. As of December 31, 2011, the company had $950.0 million in long-term debt, with a debt-to-capitalization ratio of 31.1%.

Proved Reserves

As of year-end 2011, the company had 3.03 trillion cubic feet equivalent (Tcfe) in proved reserves, up 12.2% from the 2010 level.

Operational Update

During the earnings release, Cabot also provided an update regarding its operations. The company stated that it continues to achieve completion objectives in the Marcellus Shale with a number of wells been drilled. In the Marmaton and Eagle Ford shales, Cabot executed its operations efficiently with improved oil and liquids production.

Company Guidance

For the first quarter of 2012, natural gas volumes are expected to be around 600.0-650.0 million cubic feet per day (Mmcf/d), while oil volumes are likely to vary between 5.0 and 6.0 thousand barrels per day (MBbl/d).

For full-year 2012, Cabot guided a production growth in the range of 35% to 50%.

Our Recommendation

We believe that Cabot's diversified asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties. A relatively low risk profile and longer reserve lives also add to or positive sentiment.

However, we remain concerned given natural gas' weak fundamentals 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 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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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