Cabot Oil and Gas (COG: 31.84 -0.93 -2.84%), an independent energy exploration and production (E&P) company, reported second quarter earnings per share (excluding special items) of 19 cents, surpassing the Zacks Consensus Estimate of 16 cents.The better-than-expected results were mainly driven by increased gas production in its North region. Shares of Cabot have gained 1.01% as of this blog post in Thursday trading on the New York Stock Exchange.
However, revenue of $195.5 million was short of our expectations of $203 million amid lower gas prices.
Year Over Year Results Down
Compared with the year-ago period, Cabot’s adjusted earnings per share declined 50.0% (from 38 cents to 19 cents), while revenue fell 4.6% (from $204.8 million to $195.5 million). The negative comparisons can be attributed to lower natural gas price realizations, which make up the lion’s share of the company’s production.
Volume Growth Continues
Overall production volume during the quarter was 30.5 billion cubic feet equivalent (Bcfe) – the highest ever reported – up 19.6% from the previous-year period. Natural gas volumes were up 18.9% year over year to 28.9 billion cubic feet (Bcf) and liquids volumes were up 26.4% to 249 thousand barrels (MBbl).
Strength in natural gas production was driven by the North region, where volumes rose by 43.7%, partially offset by the sale of the company’s Canadian assets (in April 2009) and a slight decline of 1.7% in South region volumes. The year-over-year rise in oil volumes came on the back of a 35.6% increase in the output from the South region, somewhat canceled by a 12.5% dip in North region production and the Canadian assets divestment.
Realized Natural Gas Prices Down
Average realized natural gas price (including the impact of hedges) was down 24.4% to $5.48 per thousand cubic feet (Mcf), while average oil price realization was up 15.5% to $96.70 per barrel.
Drilling Statistics, Capital Expenditure & Balance Sheet
Net wells drilled during the quarter reduced to 21 from 28 in the year-ago period, with a 100% success rate. Operating cash flows were $127.1 million for the quarter, while capital expenditures were $218.7 million. As of June 31, 2010, the company had $1.0 billion in debt, with a debt-to-capitalization ratio of 35.5%.
Operational UpdateDuring the earnings release, Cabot also provided an update regarding its operations. The company informed that it has drilled its 101st well in the Marcellus Shale play and completed its second operated Haynesville Shale well. Cabot further said that it has entered into a 50/50 joint venture agreement with EOG Resources (EOG: 102.33 -0.87 -0.84%) to develop approximately 18,000 acres in the Eagle Ford oil window in south Texas. As per the deal terms, each party contributed equal amount of acreage with EOG in charge of operations.
Company Guidance
Cabot expects third quarter 2010 natural gas production to be in the 345.0 – 365.0 million cubic feet per day (Mmcf/d) range, while oil volumes are likely to vary between 2.6 and 3.2 thousand barrels per day (MBbl/d). For the full year, natural gas volumes are expected to be around 325.4 – 335.4 Mmcf/d. Cabot guided towards liquids output in the 2.7 – 3.0 MBbl/d range.
| Overall Summary: |  50%, Bullish 50%, Bearish
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