Cabot Oil & Gas Beats Q4 Earnings, Reserves Grow

Zacks

Independent oil and gas exploration company, Cabot Oil & Gas Corporation (COG) reported strong fourth-quarter 2013 results, primarily aided by significant increase in production levels. The favorable results led to a 2.2% share price rise on the NYSE, in after-market trade hours.

The domestic energy explorer reported earnings per share (excluding special items) of 18 cents, above the Zacks Consensus Estimate of 17 cents and the year-ago adjusted profit of 14 cents.

During the three-month period ended Dec 31, 2013, Texas-based Cabot generated operating revenues of $487.5 million, up 31.8% year over year. The top line also beat the Zacks Consensus Estimate of $479.0 million.

For the year ended Dec 31, 2013, Cabot reported income (excluding non-operating items) of 72 cents per share, above the Zacks Consensus Estimate of 65 cents. The figure also came ahead of year-ago adjusted profit of 34 cents per share. Revenues came in at $1,746.3 million, up from $1,204.6 million in 2012.

Volume Analysis

Cabot’s overall production during the quarter totaled 121.9 billion cubic feet equivalent (Bcfe) – 95.7% gas – up 54.7% from the prior-year quarter. Natural gas volumes surged 56.0% year over year to 116.7 billion cubic feet (Bcf), while liquids volumes improved 34.3% to 869 thousand barrels (MBbl). Impressive operating performance by the company in the Marcellus shale region aided the results.

Realized Prices

Average realized natural gas price was down 12.0% from the year-ago quarter to $3.44 per thousand cubic feet (Mcf). Moreover, average oil price realization decreased 9.3% to $95.57 per barrel.

Costs & Expenses

Transportation and gathering costs increased 53.5% year over year to $69.8 million, while depreciation, depletion and amortization expensed were up 56.9% at $182.0 million. As a result, total operating expenses increased 36.0% over the fourth quarter of 2012 to $337.0 million. However, Cabot was able to cut exploration costs by 27.8% from the year-ago quarter to $5.7 million.

Drilling Statistics, Capital Expenditure & Balance Sheet

Net wells drilled during the quarter increased to 43 (from 36 in the year-ago period) with a 100% success rate. Operating cash flows came in at $257.9 million, while capital expenditures totaled $351.2 million. As of Dec 31, 2013, Cabot had $1,147.0 million in long-term debt, with a debt-to-capitalization ratio of 34.2%.

Increase in Proved Reserves

As of Dec 31, 2013, Cabot’s proved reserves grossed 5,454 Bcfe, reflecting an increase of roughly 42.0% from 3,842 Bcfe reserves reported at the end of 2012. Improved well performances in the Marcellus Shale area favored the results.

Agreements

Cabot entered into a definitive gas sale and purchase contract with an affiliate of WGL Holdings Inc. (WGL), an utility gas distribution company. Per the deal, Cabot is expected to sell roughly 500,000 million British thermal unit of natural gas per day for 15 years. Cabot intends to start selling from the second half of 2017.

Cabot has also inked a binding Precedent contract with Transcontinental Gas Pipe Line Company LLC (Transco). Per the deal, Transco will construct new pipeline system spanning 177 miles from Susquehanna County’s Zick region to Lancaster County, Pennsylvania. Once the pipeline project is operational, Cabot will be able to transport 850,000 million British thermal unit of natural gas per day from its gas producing area in Susquehanna County, Pennsylvania.

Company Guidance

Cabot has lowered its 2014 production growth guidance to 25–45% range. Moreover, the company expects its 2014 capital budget to lie in the band of $1.3−$1.4 billion, lower than its previous projection.

Zacks Rank & Stock Picks

Cabot currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in-line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the oil and gas exploration and production sector like Athlon Energy Inc. (ATHL) and Matador Resources Company (MTDR). Both the stocks sport a Zacks Rank #1 (Strong Buy).

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