Cabot Oil & Gas (COG, Financial) had a good start to fiscal 2015. The company saw robust increase in production which was in line with its expectations. The company is further looking for better results. It is focused on key strategies, such as cost reduction to maintain better profit margins. A 10% decline in the costs has allowed Cabot to focus mainly on ramping the oil focused activities. Its Marcellus is showing some positive signs, and the company is putting efforts to use it to the fullest. It will be exciting to know whether Cabot Oil & Gas is a good stock to choose in a volatile oil pricing market. Let us find out.
Cabot performed strongly in the first quarter, delivering 15% sequential growth in daily production volumes. Its cash flows from operations rose to $267.4 million from $255.4 million, but its net income fell to $40.3 million from $107.0 million.
What next for Cabot?
Demand for natural gas is also expected to improve in the coming quarters. This is an exciting opportunity for Cabot, and its Marcellus offering is expected to play a major role in improving its financial performance. Marcellus appears in great shape. Cabot has already completed 19 wells, out of which 17 are already in play. The higher production levels at Marcellus and best in class asset quality is a unique thing for Cabot, and this will benefit it with increase in the natural gas demand growth.
Cabot has now reduced its production volumes for the second quarter relative to the first quarter in response to its expectation of continued weakness in pricing during the second quarter, some of which is being driven by numerous maintenance and construction projects directly related to the downstream market. An interesting thing to note here is that the company is in the process of looping Transco-Leidy line, with the Leidy Southeast expansion project. This expansion will be very beneficial for Cabot’s smooth flow. With this, Cabot is expecting to produce between 1.55 and 1.6 Bcf per day of gross production in the Marcellus for the second quarter.
But Cabot is not satisfied with the performance in Appalachia. Considering these short comings, Cabot has plans to reduce the production levels in Appalachia in second quarter to respond to the current environment. It is also re-evaluating its programs and may consider delaying completion or can wait for environment to get better in future.
Moving to Eagle Ford Shale program, Cabot is pleased to realize significant improvements in operating efficiencies and cost savings. In the first quarter, Cabot drilled 24 wells in the Eagle Ford which is a 25% reduction compared to the 2014 program. It is further looking at adding value to these efforts. Cabot is currently operating two rigs in the Eagle Ford Shale and plans to reduce to one rig by the end of May.
Conclusion
Moving to the fundamentals now, the stock is dirt cheap with a trailing P/E of just 1.42 and the forward P/E of 19.22 indicates impressive growth in earnings in the near term. In addition, Cabot has got a solid profit margin of 173.94% which can attract many investors leading to a good growth in the market share as well. All these valuation levels indicates good growth in the stock, hence I would like to suggest the investors to definitely pick Cabot oil & gas for good returns.
