Cabot Oil & Gas Earnings Rise on Volume Growth - Analyst Blog

Independent oil and gas exploration company, Cabot Oil & Gas Corporation COG posted earnings per share EPS of 26 cents, significantly higher than the prior-year quarter level of 13 cents. Overall volume expansion and better natural gas realizations led to the improvement. It reflected in its share price on the NYSE, where it rose over 5% in early trade.

However, the company failed to meet the Zacks Consensus Estimate of 28 cents. A drop in liquid volume and price realization, along with an increase in operating expenses resulted in the miss.

During the three-month period ended Mar 31, 2014, Texas-based Cabot generated operating revenues of $509.8 million, up 36.6% year over year. The top line, however, failed to beat the Zacks Consensus Estimate of $540.0 million.

Volume Analysis

Cabot's overall production during the quarter totaled 119.9 billion cubic feet equivalent (Bcfe) – 96.6% gas – up 34.3% from the prior-year quarter. Natural gas volumes surged 35.9% year over year to 115.8 billion cubic feet (Bcf). However, liquids volumes fell to 686 thousand barrels (MBbl) from 691 MBbl. Strong results from the Marcellus and Eagle Ford Shale drove the overall volume growth.

Realized Prices

Average realized natural gas price improved 8.4% from the year-ago quarter to $3.74 per thousand cubic feet (Mcf). However, average oil price realization decreased 6.0% to $97.76 per barrel.

Costs & Expenses

Transportation and gathering costs were 68.2% steeper year over year, totaling $77.8 million, while exploration costs increased 60.9% to $6.5 million.

Depreciation, depletion and amortization expenses, however, decreased to $147.4 million from $148.7 million in the first quarter of 2013. Total operating expenses increased 9.7% over the first quarter of 2013 to $314.0 million.

Drilling Statistics, Capital Expenditure & Balance Sheet

Net wells drilled during the quarter increased to 27 (from 26 in the year-ago period) with a 100% success rate.

Operating cash flows came in at $255.4 million, while capital expenditures totaled $338.7 million. As of Mar 31, 2014, Cabot had $1,222.0 million in long-term debt, with a debt-to-capitalization ratio of 35.0%.

Company Guidance

Cabot adjusted its 2014 production guidance to 530–585 Bcfe from 519–598 Bcfe. The company also expects a 20% to 30% production increase in 2015.

Cabot has raised its capital budget to $1.375–$1.475 billion amid an increase in rig count and higher activity in the Eagle Ford.

Zacks Rank & Stock Picks

Cabot currently carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the oil and gas exploration and production sector like Range Resources Corp. RRC, Clayton Williams Energy, Inc. CWEI and EOG Resources, Inc. EOG. While Range Resources and Clayton Williams sport a Zacks Rank #1 (Strong Buy), EOG holds a Zacks Rank #2 (Buy).