Stock Update (NYSE:COG): Cabot Oil & Gas Corporation Announces Second Quarter 2016 Financial and Operating Results


Cabot Oil & Gas Corporation (NYSE:COG) reported financial and operating results for the second quarter of 2016.

“Cabot’s 2016 operating plan was designed to provide modest production growth while generating positive free cash flow despite a lower commodity price environment,” said Dan O. Dinges, Chairman, President and Chief Executive Officer. “Our second quarter results delivered on this plan as the Company grew equivalent production 10 percent relative to the second quarter of last year while generating operating cash flow that exceeded our capital expenditures, pipeline investments, and dividends.” Dinges added, “We anticipate significantly more positive free cash flow generation in the second half of the year based on the current commodity price outlook.”

Second Quarter 2016 Financial Results

Equivalent production in the second quarter of 2016 was 151.8 billion cubic feet equivalent (Bcfe), consisting of 144.3 billion cubic feet (Bcf) of natural gas, 1.1 million barrels (Mmbbls) of crude oil and condensate, and 113,000 barrels (Bbls) of natural gas liquids (NGLs). The Company estimates that unscheduled downtime related to infrastructure maintenance negatively impacted natural gas production for the quarter by approximately 3.3 Bcf, or 36 million cubic feet (Mmcf) per day. “While our daily equivalent production for the quarter was in line with the mid-point of our guidance, the Company would have surpassed the high-end of our guidance range had we not experienced this unexpected downtime during the quarter,” stated Dinges.

Cash flow from operating activities in the second quarter of 2016 was $85.2 million, compared to $171.2 million in the second quarter of 2015. Discretionary cash flow in the second quarter of 2016 was $97.6 million, compared to$183.2 million in the second quarter of 2015. Net loss in the second quarter of 2016 was $62.9 million, or $0.14 per share, compared to net loss of $27.5 million, or $0.07 per share, in the second quarter of 2015. Excluding the effect of selected items (detailed in the table below), net loss in the second quarter of 2016 was $30.2 million, or $0.07per share, compared to net income of $14.6 million, or $0.03 per share, in the second quarter of 2015. EBITDAX in the second quarter of 2016 was $127.3 million, compared to $203.9 million in the second quarter of 2015. See the supplemental tables at the end of this press release for a reconciliation of non-GAAP measures including discretionary cash flow, net income (loss) excluding selected items, EBITDAX and net debt to adjusted capitalization ratio.

Natural gas price realizations, including the impact of derivatives, were $1.63 per thousand cubic feet (Mcf) in the second quarter of 2016, down 24 percent compared to the second quarter of 2015. Excluding the impact of derivatives, natural gas price realizations for the quarter implied a $0.40 discount to NYMEX settlement prices compared to a $0.89 discount to NYMEX settlement prices in the second quarter of 2015. Oil price realizations, including the impact of derivatives, were $40.30 per Bbl, down 28 percent compared to the second quarter of 2015. NGL price realizations were $12.43 per Bbl, down 29 percent compared to the second quarter of 2015.

Operating expenses (including financing) decreased to $2.22 per thousand cubic feet equivalent (Mcfe) in the second quarter of 2016, a 12 percent improvement compared to $2.52 per Mcfe in the second quarter of 2015. Cash operating expenses (excluding depreciation, depletion and amortization; stock-based compensation; exploratory dry hole cost; and amortization of debt issuance costs) decreased to $1.19 per Mcfe in the second quarter of 2016, a 12 percent improvement compared to $1.35 per Mcfe in the second quarter of 2015.

Cabot drilled seven net wells and completed 11 net wells during the second quarter of 2016, incurring a total of$70.9 million in capital expenditures associated with activity during this period.

Year-To-Date 2016 Financial Results

Equivalent production for the six-month period ended June 30, 2016 was 312.1 Bcfe, consisting of 297.4 Bcf of natural gas, 2.2 Mmbbls of crude oil and condensate, and 205,000 Bbls of NGLs.

For the six-month period ended June 30, 2016, cash flow from operating activities was $147.2 million, compared to$438.6 million for the six-month period ended June 30, 2015. Discretionary cash flow was $168.8 million for the six-month period ended June 30, 2016, compared to $423.4 million for the six-month period ended June 30, 2015. For the six-month period ended June 30, 2016, net loss was $114.1 million, or $0.25 per share, compared to net income of $12.7 million, or $0.03 per share, for the six-month period ended June 30, 2015. Excluding the effect of selected items, net loss was $85.6 million, or $0.19 per share, compared to net income of $64.0 million, or $0.15 per share, for the six-month period ended June 30, 2015. EBITDAX for the six-month period ended June 30, 2016 was $228.3 million, compared to $483.3 million for the six-month period ended June 30, 2015.

Natural gas price realizations, including the impact of derivatives, were $1.55 per Mcf for the six-month period endedJune 30, 2016, down 33 percent compared to the six-month period ended June 30, 2015. Oil price realizations, including the impact of derivatives, were $34.06 per Bbl, down 32 percent compared to the six-month period endedJune 30, 2015. NGL price realizations were $10.09 per Bbl, down 29 percent compared to the six-month period ended June 30, 2015.

Operating expenses (including financing) decreased to $2.24 per Mcfe for the six-month period ended June 30, 2016, a seven percent improvement compared to $2.41 per Mcfe for the six-month period ended June 30, 2015. Cash operating expenses (excluding depreciation, depletion and amortization; stock-based compensation; exploratory dry hole cost; and amortization of debt issuance costs) decreased to $1.18 per Mcfe for the six-month period endedJune 30, 2016, a nine percent improvement compared to $1.30 per Mcfe in the six-month period ended June 30, 2015.

Cabot drilled 17 net wells and completed 32 net wells during the six-month period ended June 30, 2016, incurring a total of $162.5 million in capital expenditures associated with activity during this period.

Operational Highlights

Marcellus Shale

During the second quarter of 2016, the Company averaged 1,535 Mmcf per day of net Marcellus production (1,798 gross operated Mmcf per day), an increase of 14 percent compared to the second quarter of 2015. During the second quarter, the Company drilled seven net wells, completed eight net wells and placed 12 net wells on production including a four-well pad that was placed on production 10 days prior to the quarter-end and had minimal impact on second quarter production as the wells were still cleaning up in line.

Cabot is currently operating one rig and recently added a second completion crew in the Marcellus Shale. “Based on continued efficiency gains, lower service costs and our improved outlook for natural gas price realizations, we are increasing our activity levels in our high-return Marcellus asset beginning with the addition of a second completion crew.” Dinges added, “Cabot is the lowest cost producer in Northeast Pennsylvania and generates rates of return over 100 percent under current price expectations so we plan to opportunistically increase our market share during 2017 as we await the in-service of our new infrastructure projects beginning in late-2017.”

Eagle Ford Shale

Cabot’s net production in the Eagle Ford Shale during the second quarter of 2016 was 14,312 barrels of oil equivalent (Boe) per day, an increase of 10 percent sequentially compared to the first quarter of 2016. Net oil production during the quarter was 12,360 Bbls per day, an increase of four percent sequentially compared to the first quarter of 2016. During the second quarter, the Company did not drill any wells; however, Cabot completed and placed on production three net wells.

Cabot plans to drill two Eagle Ford wells during the third quarter and will not complete or place on production an additional Eagle Ford well until the fourth quarter.

Financial Position and Liquidity

As of June 30, 2016, Cabot had total debt of $1.5 billion and cash on hand of $517.5 million. The Company’s net debt to adjusted capitalization ratio and net debt to trailing twelve months EBITDAX ratio were 26.2 percent and 1.8x, respectively, compared to 50.1 percent and 2.5x as of December 31, 2015.

Total commitments under the Company’s revolving credit facility remain unchanged at $1.8 billion, with approximately $1.7 billion currently available to the Company. The Company currently has no debt outstanding under the credit facility, resulting in approximately $2.2 billion of liquidity.

Third Quarter and Full-Year 2016 Guidance

Cabot has provided third quarter net production guidance of 1,575 to 1,600 Mmcf per day for natural gas; 10,000 to 10,500 Bbls per day for crude oil and condensate; and 1,200 to 1,250 Bbls per day for NGLs. The Company expects its natural gas price realizations (before the impact of derivatives) to average between $0.80 and $0.90 below NYMEX settlement prices for the third quarter based on the assumption of an average NYMEX settlement price of approximately $2.80. “Despite a widening of basis in the third quarter due to higher NYMEX prices, our natural gas price realizations before the impact of derivatives are forecasted to be over 25 percent higher than our second quarter realizations based on the mid-point of our differential guidance,” commented Dinges.

Cabot has increased its 2016 capital budget from $325 million to $345 million to reflect the incremental capital for the completion of an additional 15 to 20 net wells during the second half of the year, partially offset by efficiency gains and cost savings realized throughout the year. Since the production impact from these additional wells will not be realized until early 2017, the Company’s 2016 production growth guidance range of two to seven percent remains unchanged. (Original Source)

Shares of Cabot closed yesterday at $23.85, up $0.23 or 0.97%. COG has a 1-year high of $27.24 and a 1-year low of $14.88. The stock’s 50-day moving average is $24.99 and its 200-day moving average is $22.63.

On the ratings front, Cabot has been the subject of a number of recent research reports. In a report issued on July 15, UBS analyst William Featherston assigned a Buy rating on COG, with a price target of $30, which represents a potential upside of 25.8% from where the stock is currently trading. Separately, on June 30, Jefferies Co.’s Jon Wolff reiterated a Hold rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, William Featherston and Jon Wolff have a total average return of -2.4% and -2.8% respectively. Featherston has a success rate of 40.2% and is ranked #3375 out of 4087 analysts, while Wolff has a success rate of 42.4% and is ranked #3324.

Overall, 6 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $22.67 which is -4.9% under where the stock closed yesterday.

Cabot Oil & Gas Corp. is an independent oil and gas company. It is engaged in the development, exploitation, exploration, production and marketing of natural gas, crude oil and, to a lesser extent, natural gas liquids from its properties in the continental U.S. The company also transports, stores, gathers and produces natural gas for resale. Its exploitation and exploration activities are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs.