Independent energy exploration and production company Cabot Oil and Gas (COG) has reported second quarter earnings per share (excluding special items) of 41 cents, breezing past the Zacks Consensus Estimate of 28 cents and prior-year results of 19 cents.
During the quarter, Cabot generated revenue of $240.7 million, which lagged our expectation of $247.0 million. On a year-over-year basis, sales improved 20.2% from $200.2 million, fueled by higher output.
Volume Analysis
Overall production volume grew 47.5% from the previous-year period to an all-time high of 45.0 billion cubic feet equivalent (Bcfe). Natural gas volumes were up 49.1% year over year to 43.1 billion cubic feet (Bcf), while liquids volumes improved 21.7% to 303 thousand barrels (MBbl).
Strength in natural gas production was driven by the North region, where volumes rose heavily (by 102.3%), partially offset by a moderate decline of 28.0% in South region volumes. The year-over-year rise in oil volumes can be attributed to a 27.1% increase in output from the South.
Realized Prices
Average realized natural gas price was down 17.3% to $4.67 per thousand cubic feet (Mcf), while average oil price realization dropped 1.6% to $95.17 per barrel.
Drilling Statistics, Capital Expenditure & Balance Sheet
Net wells drilled during the quarter increased to 22 from 21 in the year-ago period, with a 100% success rate. Operating cash flows were $129.5 million, while capital expenditures were $201.0 million. As of June 30, 2011, the company had $1,095 million in long-term debt, with a debt-to-capitalization ratio of 35.8%.
Operational Update
During the earnings release, Cabot also provided an update regarding its operations. The company informed that it continues to achieve drilling/completion objectives in the Marcellus Shale play, drilling success in the Eagle Ford coupled with discovery in Oklahoma and agreements to dispose its Rocky Mountain natural gas assets.
Company Guidance
Cabot expects third quarter 2011 natural gas production in the 500.0–540.0 million cubic feet per day (Mmcf/d) range, while oil volumes are likely to vary between 3.5 and 4.5 thousand barrels per day (MBbl/d).
For the fourth quarter of 2011, natural gas volumes are expected to be around 540.0–580.0 Mmcf/d. Cabot has guided toward liquids output in the 3.7–4.7 MBbl/d range.
For the full year, the company increased its production growth outlook in the range of 40% to 46% up from the previous level of 34% to 42%.
Our Recommendation
We believe that Cabot's diversified asset portfolio is well distributed between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties, with variety from large prospect inventories in the Rocky Mountains and the Anadarko Basin that have a broad mix of production and payout profiles.
Moreover, the company’s natural gas-weighted properties should help generate steady volume increases going forward, highlighting the growth momentum. A relatively low risk profile and longer reserve life asset base provides Cabot a competitive edge over its larger rival Anadarko Petroleum Corporation (APC). We maintain a long-term Outperform rating on the stock.
ANADARKO PETROL (APC): Free Stock Analysis Report
CABOT OIL & GAS (COG): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment