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Cabot (COG) Misses Earnings and Revenue Estimates in Q3

Domestic energy explorer Cabot Oil & Gas Corporation COG reported third-quarter 2017 earnings per share — adjusted for special items — of 7 cents, missing the Zacks Consensus Estimate of 8 cents on lower-than-expected natural gas price realizations, increased costs and weaker-than-expected production. The Zacks Consensus Estimate for natural gas realization was pegged at $2.32 per thousand cubic feet as against the reported $2.03. Further the estimated current production stood at 172 billion cubic feet equivalent (Bcfe) as against the reported $169.5 Bcfe.

However, earnings of 7 cents compares favorably with the year-ago quarter’s adjusted loss of 4 cents. Results advanced year over year and were driven by improvement in the commodity pricing environment which in turn led to higher realized oil and gas prices.

Houston, TX-based Cabot’s quarterly revenues improved 24.2% year over year to $385.4 million but was below the Zacks Consensus Estimate of $407 million.

Volume Analysis

Cabot’s overall production during the quarter totaled 169.5 Bcfe as against 150.8 Bcfe in the prior-year quarter. Natural gas output was 161.2 Bcf in the quarter under review; while crude oil production came in at 1,268 thousand barrels (MBbl) and natural gas liquids was 124.7 MBbl.

Realized Prices

The average realized natural gas price improved by 16% from the year-ago quarter to $2.03 per thousand cubic feet, while average crude/condensate price realization rose 13% to $45.53 per barrel. Meanwhile, natural gas liquids fetched $17.04 per barrel, an increase of 35% compared to third-quarter 2016.

Costs & Expenses

Total operating expenses rose to $332.1 million, 9.3% higher than third-quarter 2016. In particular transportation and gathering expenses were up 11.6% to $117.9 million. Further, Cabot’s exploration and depreciation costs also increased. Depreciation charges incurred in the quarter came in at $146.3 million, as against $139.5 million in the year-ago quarter. Exploration charges stood at $6.5 million compared with $2.9 million in the third quarter of 2016.

Drilling Statistics, Capital Expenditure & Balance Sheet

During the quarter, Cabot drilled and completed 13.2 net wells and placed 15.2 net wells on production. Operating cash flows were $189.1 million for the quarter compared with $105.4 million in the prior-year quarter. Capital expenditures totaled $193.5 million (up 126%). As of Sep 30, 2017, the company had $510.3 million in cash and $1,284.6 million in long-term debt with a debt-to-capitalization ratio of 32.7%.

Guidance Update

For the fourth quarter, the company projects net production of 1,775 to 1,850 million cubic feet per day for natural gas 13,250 to 14,250 barrels per day for crude oil and condensate and 1,350 to 1,450 barrels per day for NGLs. Cabot has reiterated its capex budget for 2017 at $845 million.

Cabot has also provided preliminary guidance for 2018. It projects the production growth to be in the 15-20% range in 2018. The production growth is based on a capex range of $1.02-$1.15 billion.

Cabot plans to operate three rigs in the Marcellus Shale during 2018. It has forecasted a capex of $750-$850 million in the Marcellus region. The company anticipates delivering a three-year Marcellus production compounded annual growth rate from 2017 to 2020 of 20%.

Zacks Rank & Key Picks

Cabot is an independent oil and gas exploration company with producing properties mainly in the continental United States. Cabot focuses on high-impact natural gas-focused drilling in the Marcellus Shale and supplements it with Eagle Ford-based liquids program in Texas. The company currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the oil and energy sector are Par Pacific Holdings, Inc. PARR, Braskem S.A. BAK and Denbury Resources, Inc. DNR. While Par Pacific and Braskem sport a Zacks Rank #1 (Strong Buy), Denbury Resources carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Par Pacific’s sales for third-quarter 2017 are expected to increase 28.5% year over year. The company delivered an average positive earnings surprise of 195.3% in the last four quarters.

Braskem’s sales for third-quarter 2017 are expected to increase 4.1% year over year. The company delivered a positive earnings surprise of 68.2% in the preceding four quarters.

Denbury Resources’ sales for 2017 are expected to increase 5.9% year over year. The company delivered average positive earnings surprise of 25% in the trailing four quarters.

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