Cabot Oil & Gas (COG)

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Cabot Oil & Gas (COG)

Post by dan_s »

Cabot is on my "Watch List" for the obvious reason that they are projecting double digit production growth. IMO there is no rush on this one, (A) it is primarily a gas producer and (B) they have some issues up in the Marcellus Shale. EOG has been under some pressure due to the threat of regulators shutting down the Marcellus drilling but IMO it is not warranted. The Marcellus is almost a non-core asset for EOG compared to what they have going on in the Bakken and Eagle Ford shales. - Dan

PS: EnCana (ECA) and Range (RRC) are both former Sweet 16 companies. They are first class and both are "Core Holding" quality stocks

Cabot's Promising, but Problematic
By Toby Shute July 23, 2010

Earlier this week, I wrote about how leading Canadian gas producer EnCana (NYSE: ECA) is on a serious growth kick. Cabot Oil & Gas (NYSE: COG) is one of the many midsized North American operators following a similar game plan. The company is targeting 21% to 25% production growth in 2010.

After divesting its Canadian operations last year, Cabot is almost purely focused on the U.S. onshore. (There are limited operations in shallow water right off the Gulf coast.) The company has just two divisions now: North and South.

Down south, Cabot is plugging away at both the Haynesville/Bossier shale in eastern Texas and the Eagle Ford shale in southern Texas. Both programs are in very early stages of development.

While there was initial excitement surrounding the potential of the Haynesville on the Texas side of the Louisiana border late last year, following the release of a flashy production test by Devon Energy (NYSE: DVN), attention has shifted to the Bossier formation as a more promising target in the area. Cabot reports that "several recent industry Bossier wells in the area have performed equal to or better than Haynesville completions." The company's second operated horizontal Haynesville well, meanwhile, recently tested at more than 20 million cubic feet of gas per day, which is a big result. Now we just need to watch the decline profile.

In the oilier Eagle Ford play, Cabot has partnered up with EOG Resources (NYSE: EOG) on some acreage, and EOG will operate the joint venture. Despite a Marcellus mishap that we'll mention in a moment, EOG is without question one of the most skilled operators in North America, particularly in unconventional oil plays, so this is a promising pairing.

North of the Mason-Dixon, you've got the Marcellus shale in Appalachia. Cabot has drilled 61 horizontal wells in the play to date, so the program is coming along, but it hasn't been remotely smooth sailing. Cabot has run afoul of state regulators repeatedly. While there have been blowouts at wells operated by Chief Oil & Gas and EOG, Cabot has easily had the most high-profile run of safety violations.

This problematic track record makes me reluctant to give the company two thumbs up, no matter how good its asset base may be. I would suggest that investors consider Range Resources (NYSE: RRC) or Atlas Energy (Nasdaq: ATLS) for their Marcellus exposure instead.
Dan Steffens
Energy Prospectus Group
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