Cabot Earnings Grow on Higher Yield

Zacks

Independent oil and gas exploration and production (E&P) company, Cabot Oil & Gas Corporation (COG) reported strong first quarter 2013 results, thanks to enhanced output and higher crude oil prices. These were partially offset by lower realized natural gas prices.

Cabot posted earnings per share (excluding special items) of 26 cents, managing to beat the Zacks Consensus Estimate by a penny. The bottom line showed a substantial improvement from the year-ago adjusted profit of 14 cents per share.

During the three-month period ended Mar 31, 2013, Cabot generated operating revenues of $373.3 million (up 37.2% year over year) with the help of healthier production. However, the result was below the Zacks Consensus Estimate of $381.0 million.

Volume Analysis

Overall production during the quarter was 89.3 billion cubic feet equivalent (Bcfe) – 95.4% gas – up 49.6% from the prior-year quarter. Natural gas volumes jumped 51.1% year over year to 85.2 billion cubic feet (Bcf), while liquid volumes increased 28.4% to 691 thousand barrels (MBbl). The expansion was driven by natural gas production at the Appalachia region, where volumes swelled 61.1%.

Realized Prices

The average realized natural gas price fell 5.5% from the corresponding quarter of 2012 to $3.45 per thousand cubic feet (Mcf), while average oil price realization moved up 7.6% to $104.03 per barrel.

Costs & Expenses

Transportation and gathering costs came in at $46.2 million (up 52.8% year over year). As a result, total operating expenses increased 27.2% over the first quarter of 2012 to $286.2 million.

Drilling Statistics, Capital Expenditure & Balance Sheet

Net wells drilled during the quarter increased to 26 (from 23 in the year-ago quarter) with a 97% success rate. Operating cash flows were $212.7 million, while capital expenditures were $260.2 million. As of Mar 31, 2013, the company had $1,127.0 million in total debt, with a debt-to-capitalization ratio of 34.7%.

Company Guidance

Cabot guides its 2013 volume growth in the range of 35% to 50%, including an expected liquid growth of 35% to 50%.

Zacks Rating

The company currently retains a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next 1 to 3 months.

Cabot's diversified asset portfolio is spread 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.

Moreover, Cabot has hedged around 45% of its projected 2013 production at attractive prices. This lowers the company’s near-term commodity-price exposure, which is a key positive for Cabot’s risk profile, given the current market volatility.

In addition to Cabot, there are other E&P companies that are expected to perform well in the coming 1 to 3 months. These include Zacks Rank #1 (Strong Buy) EPL Oil & Gas Inc. (EPL), Harvest Natural Resources Inc. (HNR) and Range Resources Corp. (RRC).
 

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