Domestic energy explorer Cabot Oil & Gas Corp. (COG) reported weaker-than-expected third quarter results, hamstrung by falling gas prices (which make up the lion’s share of the company's output).
The exploration and production firm reported earnings per share – adjusted for special items – of 19 cents, underperforming the Zacks Consensus Estimate of 23 cents. Operating revenues, at $512 million, also failed to surpass the Zacks Consensus Estimate of $516 million.
However, Houston TX-based Cabot’s performance improved from the year-ago period amid rising production. Adjusted profit improved a penny from the third quarter 2013 level of 18 cents per share, while revenues were up 17.5%.
Volume Analysis
Cabot’s overall production during the quarter totaled 132.4 billion cubic feet equivalent (Bcfe) – 96% gas – up 23.6% from the prior-year quarter. Natural gas volumes surged 24.6% year over year to 126.7 Bcf, while liquids output increased 7% to 961 thousand barrels (MBbl). Strength in natural gas production was driven by the Marcellus and Eagle Ford regions, where volumes swelled by 30% and 37%, respectively.
Realized Prices
The average realized natural gas price was down 8.9% from the corresponding period of 2013 to $3.06 per thousand cubic feet, while average oil price realization decreased 8.6% to $94.79 per barrel.
Costs & Expenses
Transportation and gathering costs were up 41.4% year over year to $86 million, while exploration expenses skyrocketed 126.5% to $8.8 million.
As a result, total operating expenses were 4.6% higher than the third quarter of 2013, reaching $322.8 million. However, Cabot was able to cut depreciation, depletion and amortization expenses by 8.9% from the year-ago period to $154 million.
Drilling Statistics, Capital Expenditure & Balance Sheet
Net wells drilled during the quarter increased to 46 (from 41 in the year-ago period) with a 98% success rate. Operating cash flows were $358.3 million for the quarter, while capital expenditures totaled $347.1 million. As of Sep 30, 2014, the company had $1,612 million in long-term debt, with a debt-to-capitalization ratio of 40.5%.
Company Guidance
Cabot reaffirmed that it remains on track to generate production growth of 20–30% for the full-year 2015. Further, the company expects to drill 180-190 net wells in the upcoming year, 95-100 of those in the Marcellus Shale and 80-85 in the Eagle Ford Shale. Finally, Cabot has pegged its 2015 capital budget at $1,530-1,600 million.
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 same industry like Halcon Resources Corp. (HK), Matador Resources Co. (MTDR) and WPX Energy Inc. (WPX). All these stocks sport a Zacks Rank #2 (Buy).
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