Houston based independent oil and gas exploration company Cabot Oil & Gas Corporation (COG, Financial) clocked a revenue figure of $2.17 billion in 2014, up from $1.75 billion in 2013 and an annual profit of 104.5 million. Production went up 27% in the Marcellus region, helping to bring in the positive note to the results, but soaring operation expenses acted as a dampener. The key element that pulled down Cabot’s performance was a 45.5% year-over-year increase of $101.6 million in transportation and gathering cost.
The company reported a loss of 54 cents per share and the earnings adjusted for one-time gains, and the cost was 23 cents per share, which was as per the expectations of most analysts.
Key figures of the Quarter Four Report Card
Operating revenues clocked $618 million surpassing the market consensus of $559 million. Cabot has shown mark improvement in this sphere as the operating revenues for the same quarter in 2013 was $487.5 million. Cabot reported an EPS adjusted for special term of 23 cents which was in line with the analyst’s expectations. The bottom line for the quarter rose 28% from 18 cents. The production grew by 24.6% from the corresponding quarter in the previous year, wherein Cabot produced a total of 151.9 billion cubic feet equivalent (Bcfe) – 95% gas.
The average price of natural gas reduced by 14% from last year’s corresponding quarter to $2.96 per thousand cubic feet, while average oil price realization decreased 24.3% to hit a low of $72.35 per barrel. On the other hand exploration expenses shot up by 53.5% to $8.8 million pushing the operating cost to a whopping $1.12 billion, which is considerably higher than quarter four of 2013. The operating cash flows figure stood at $293.2 million which is a few million higher than the $257.9 million in Q4 of 2013. The capital expenditures clocked $514.9 million.
Some respite came in the form of 100% success rate in the drilling of the 68 wells during the quarter. The figure for last year’s quarter was slightly lower at 43.
Key figures of the annual report card
The total revenue for the year was $2.17 billion and the annual profit figure stood at $104.5 million which translates into 25 cents per share. As per expectations, the annual income (excluding non-operating items) figure stood at 97 cents per share, up from 71 cents a share in the previous year. As on Dec 31, 2014, Cabot had $1.75 billion in long-term debt reflecting in its balance sheet, with a debt-to-capitalization ratio of 44.9%. Not a desirable scenario.
Non-monetary figures
The total reserves for 2014 stood at 7.4 trillion cubic feet equivalent (Tcfe) is a 36% increase from the levels at the end of 2013. The natural gas volumes surged 23.2% YOY to 143.8 Bcf, while the liquids output jumped 56% to 1,354 thousand barrels (MBbl).
Guidance for 2015
The free fall in crude and gas prices has forced Cabot management to revisit the capital budget for 2015 to $900 million against the prior projection of $1.5–$1.6 billion. Following its peers Cabot has tried to reduce the burden on the balance sheet by scaling back on the expenditure (read reduction in production or new exploration). Hence the revised guidance figures put the growth projection to 10 to 18% for 2015 instead of the earlier projection of 20 to 30%.
Competition
Cabot’s competition in the energy sector InterOil Corp. (IOC, Financial), Golar LNG Partners LP (GMLP, Financial) and Valero Energy Partners LP (VLP, Financial) are faring better, carrying a ‘Buy’ recommendation by most analysts.
Conclusion
Although the revenue number for this year are better than 2013 but Cabot’s performance sheet is far from impressive. The ongoing troubled phase experienced by energy sector isn’t helping Cabot’s case either. Resembling the falling oil prices, Cabot’s share price has also been heading south since past 8 to 9 months. The reduced growth forecast for 2015 has added oil to the fire prompting the street fearing a further fall in the stock prices. Hence it would be recommended to cut the losses and sell the stock.
