Cabot Oil & Gas A 'Top Pick' For Barclays

In a report published Monday, Barclays analysts maintained an Overweight rating on

, with a price target of $28. The company's shares currently trade at a premium of about 29 percent to peers. "We think the premium is justified by stronger than average rates of value creation (we believe COG can sustain a 5%-plus advantage vs. peers) and the likelihood that new pipeline capacity will allow COG to raise volumes and to benefit from lower differentials," the analysts mentioned. Cabot reported strong 1Q15 results ahead of estimates by a wide margin. The company's oil volumes were about 14 percent higher than analyst estimates, aided by strong well performance in the Eagle Ford. Its Gas volumes were 12% higher as COG accelerated Marcellus production to take advantage of strong winter demand and the hope of higher winter prices. Cabot is planning to cut its 2Q volumes in the wake of weak Marcellus gas prices and planned maintenance construction downtime of various midstream projects. "COG expects volumes to fall from 1Q15 levels for the rest of the year, though it expects to deliver 10-18% yoy growth in FY'15.," the analysts stated. Lower well costs, strong well performance and improving operating efficiencies have led COG to state it can generate $90/bbl well returns (more than 50 percent) at $65/bbl in the Eagle Ford. COG successfully lowered D&C costs in the play by 20-30 percent ytd and cut drilling days by 25 percent vs. 2014. COG also increased its estimated EF well inventory to 1,300 locations as a result of down spacing to 300 feet and acquisitions. About 60 percent of 2015 D&C budget ($720 mm) targets the Marcellus with the rest going to the Eagle Ford. "We think COG's multiple could contract by 1-2 turns when Constitution starts up. Constitution could come on in mid-2016 – when it does COG will likely fill 100% of its 500 mmcfpd commitment via a combination of high volume and volumes that will be shifted from other pipes where COG gets inferior netbacks. We estimate the start-up of Constitution could help add 15-20% to COG's cash flows," the analysts stated.