Independent oil and gas exploration company, Cabot Oil and Gas (COG), announced the initial production guidance of 30–50% growth for 2014. It also restated its 2013 production growth of 44–54%.
The production volumes have been low in recent times due to weak Marcellus spot market price and other planned maintenance activities. However, management believes that this should not create a significant impact on the production levels in the long run. Moreover, the announcement reflects management’s belief in itself to achieve the stated growth potential.
While partially affected by lower price realizations in the near term, Cabot still stands to benefit from its hold in the Marcellus Shale. The rock bed offers natural gas at profitable levels with recovery costs staying below $1.20 per thousand cubic feet (Mcf). The company is focused on maintaining quality assets and explores the positive risk-return drilling options that the Shale provides.
Houston, Texas-based Cabot trades in a 52-week range of $21.07–$40.34. Post announcement, the shares rose to an intraday high of $37.48 on Sep 26, before settling at $37.12, up 4.4% from the previous day close.
Cabot has a diversified asset portfolio, 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. Moreover, Cabot maintains a stable balance sheet that continues to provide flexibility to its capital programs and bolt-on acquisitions.
However, we remain cautious about the company’s high natural gas exposure that raises its sensitivity to gas price fluctuations.
Cabot currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in-line with the broader U.S. equity market over the next 1 to 3 months.
Meanwhile, one can consider better-placed other stocks in the exploration and production industry such as Matador Resources Company (MTDR) and Stone Energy Corp. (SGY) which holds a Zacks Rank #1 (Strong Buy) or Carrizo Oil & Gas Inc. (CRZO) which currently holds a Zacks Rank #2 (Buy).
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