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Domestic energy explorer Cabot Oil and Gas Corp. (COG - Analyst Report) reported strong second quarter 2013 results, buoyed by higher production and increase in gas prices (which make up the lion’s share of the company's output).   

The predominantly natural gas-focused exploration and production firm reported earnings per share (excluding special items) of 45 cents, above the Zacks Consensus Estimate of 31 cents. Cabot’s performance also improved considerably from the year-ago adjusted profit of 5 cents per share.

During the three-month period ended Jun 30, 2013, TX-based Cabot generated operating revenues of $449.7 million – up 69.3% year over year – and ahead of the Zacks Consensus Estimate of $425.0 million  

Volume Analysis

Overall production during the quarter was 95.2 billion cubic feet equivalent (Bcfe) – 95% gas – up 51.6% from the previous-year period. Natural gas volumes improved 53.2% year over year to 90.7 billion cubic feet (Bcf), while liquids volumes jumped 28.7% to 763 thousand barrels (MBbl). Strength in natural gas production was driven by the Appalachia region, where volumes swelled by 63.0%.

Realized Prices

The average realized natural gas price was up 19.8% from the corresponding period of 2012 to $4.06 per thousand cubic feet (Mcf), while average oil price realization edged down 1.2% to $101.39 per barrel.

Costs & Expenses

Transportation and gathering costs were up 58.9% year over year to $52.6 million, taxes (other than income) increased 4.7% to reach $11.4 million, while depreciation, depletion and amortization jumped 32.1% to $151.4 million. As a result, total operating expenses increased 11.7% over the second quarter of 2012 to $285.2 million. However, Cabot was able to cut exploration costs by 72.1% from the year-ago period to $4.5 million.

Drilling Statistics, Capital Expenditure & Balance Sheet

Net wells drilled during the quarter increased to 43.8 (from 28 in the year-ago period) with a 96% success rate. Operating cash flows were $277.3 million for the quarter, while capital expenditures were $263.9 million. As of Jun 30, 2013, the company had $1,067.0 million in long-term debt, with a debt-to-capitalization ratio of 31.8%.

Company Guidance

Armed with significant production increase year-to-date, Cabot is gunning for 2013 volume growth in the range of 44% to 54%, including an expected liquid growth of 30% to 40%.

Announces Stock Split

In a separate development, Cabot announced a 2-for-1 stock split to be distributed in the form of a stock dividend. The split will double the company’s outstanding shares to 422 million.

Zacks Rank & Stock Picks

Cabot currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at Dril-Quip Inc. (DRQ - Analyst Report), Blueknight Energy Partners L.P. (BKEP - Snapshot Report) and Natural Gas Services Group Inc. (NGS - Snapshot Report) as good buying opportunities. These energy equipment service providers – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.
 

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