Independent energy exploration and production company Cabot Oil & Gas Corporation (COG) retained its third quarter production guidance and projected output levels for the fourth quarter. The company does not foresee the recent operational disturbances and the logistics of moving gas in northeast Pennsylvania as affecting the output level.
Cabot guided for a combined oil and gas production of 521–567 million cubic feet equivalent (mmcfe) per day in the third quarter, reflecting strong output levels in July and August. The company expects consolidated production in the first nine months of 2011 to surpass the total volume recorded in 2010, leaving the entire fourth quarter to register growth over last year.
For the final quarter, oil and gas volumes are expected to be around 562–608 mmcfe per day. This projection includes risks of weather-related production delays from the Laser pipeline (effective October) and the Springville pipeline (effective December).
We believe that Cabot displays a diversified asset portfolio ranging from low-risk/long reserve-life Appalachian assets to large-volume/rapid-payout Gulf Coast properties, with further variety added by large-prospect inventories in the Rocky Mountains and the Anadarko Basinthat have a broad mix of production and payout profiles.
Additionally, the company’s exposure to the high-return Marcellus and Haynesville Shale plays will aid in the generation of above-average production growth levels. We expect the capital infusion of over $200 million to bolster Cabot’s natural gas operations.
Cabot also exhibits a relatively low risk profile and longer reserve life that adds on to its array of positive aspects. Considering these factors, we believe Cabot is well positioned going forward and will perform better than its peers such as Anadarko Petroleum Corporation (APC) and Chevron Corporation (CVX).
We maintain a long-term Outperform recommendation on the stock. Cabot currently retains a Zacks #1 Rank (short-term Strong Buy rating).
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