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Independent oil and gas exploration and production (E&P) company, Cabot Oil & Gas Corporation (COG - Analyst Report) reported stellar fourth quarter 2012 results, owing to enhanced output and higher crude oil prices, partially offset by lower realized natural gas prices.

The company posted earnings per share (excluding special items) of 27 cents, comfortably beating the Zacks Consensus Estimate of 21 cents. Cabot’s performance also improved from the year-ago adjusted profit of 20 cents per share.

During the three-month period ended Dec 31, 2012, Cabot generated operating revenues of $369.9 million (up 38.0% year over year) with the help of healthier production. The result was also above the Zacks Consensus Estimate of $350.0 million.

Volume Analysis

Overall production during the quarter was 78.8 billion cubic feet equivalent (Bcfe) – 95% gas – up 43.8% from the prior-year quarter. Natural gas volumes jumped 45.0% year over year to 74.8 billion cubic feet (Bcf), while liquid volumes shot up 23.7% to 647 thousand barrels (MBbl). The driving force behind the increase in natural gas production was the Appalachia region, where volumes swelled 54.6%.

Realized Prices

The average realized natural gas price fell 2.7% from the corresponding period of 2011 to $3.91 per thousand cubic feet (Mcf), while average oil price realization moved up 14.7% to $105.40 per barrel.

Costs & Expenses

Transportation and gathering costs and taxes (other than income) came in at $45.5 million (up 84.8% year over year) and $9.0 million (up 38.3%) respectively. As a result, total operating expenses increased 26.2% over the fourth quarter of 2011 to $247.9 million.

Proved Reserves

Cabot’s year-end 2012 proved reserves increased 26.7% from the 2011 level to 3,842.4 billion cubic feet equivalent (bcfe). This marked the third successive year of reserve growth of above 20.0%.

Drilling Statistics, Capital Expenditure & Balance Sheet

Net wells drilled during the quarter increased to 36 (from 29 in the year-ago period) with a 99% success rate. Operating cash flows were $197.0 million for the quarter, while capital expenditures were $258.8 million. As of Dec 31, 2012, the company had $1,087.0 million in total debt, with a debt-to-capitalization ratio of 33.8%.

Company Guidance

Cabot guides its 2013 volume growth in the range of 35% to 50%, including an expected liquid growth of 35% to 50%.

Zacks Rating

The company currently retains a Zacks Rank #3 (Hold), implying that it is expected to    perform in line with the broader U.S. equity market over the next 1 to 3 months.

Cabot Oil & Gas Corp.'s diversified asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties, with further variety from large prospect inventories in the Rocky Mountains and the Anadarko Basin that have a broad mix of production and payout profiles.

Additionally, the company has hedged around 45% of its projected 2013 production at attractive prices. This lowers the company’s near-term commodity-price exposure, which is a key positive for Cabot’s risk profile, given the current market concerns.

However, Cabot’s high natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more-diversified independent peers with higher oil production.

But there are other E&P companies that are expected to perform well in the coming 1 to 3 months. These include Hyperdynamics Corporation (HDY), Penn Virginia Corporation (PVA - Snapshot Report) and Anadarko Petroleum Corporation (APC - Analyst Report). All three have a Zacks Rank #2 (Buy).

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