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Cabot Oil & Gas (COG)Stock (Energy Industry, Independent Oil & Gas Industry)
 The strength of its onshore portfolio has led the company to abandon ship (figuratively speaking) and leave the fast-growing offshore market in the Gulf of Mexico. Rising oil and gas prices have driven Cabot's margins growth in recent years, as have a wealth of new reserve discoveries, and the company has cut costs by withdrawing from offshore operations. Current trends towards increased use of renewable energy may benefit Cabot, as the same forces that are driving renewables could drive a transition away from oil and to natural gas. Since natural gas is Cabot's primary product, a shift away from oil and coal would leave the company ahead of competitors with more investment in oil. Cabot's competitors include Anadarko Petroleum, Apache, and offshore players Comstock Resources and EnCana.
[edit] Business FinancialsIn recent years, Cabot has seen strong revenue and income growth; though the company is not as large as some competitors, its 2006 operating margin was almost 70%. This can be attributed to a combination of higher oil prices and lower operating costs as previous exploratory investments paid off.
Source: 2006 Annual Report[2] As is clear in the data below, most of Cabot's reserves are filled with natural gas. The Eastern reserves are Cabot's largest holdings, but the Gulf region shows the highest daily production, probably because drilling in the Gulf is easier than in the Appalachians. It should be noted, however, that the faster extraction rate of the Gulf means that the reserves will not last nearly as long as onshore reserves.
Source: 2006 Annual Report[3]
[edit] Trends and Forces[edit] Oil and Gas Prices Are Key to Cabot's ProfitabilityOil and gas prices have fluctuated heavily over the past few years, though the most recent trend is a rise in prices, with a barrel of oil trading in international market a day after the '08 new year at just over $100. Because both are nonrenewable forms of energy (they will eventually run out), slowing discoveries of new sources combined with an increasing price level has led to speculation that production is approaching peak oil quantities. Whether this is true or not, oil and gas are commodities: one company's gas can only be differentiated from another company's gas based on price. While Cabot currently benefits from high prices, the profitability of the current market will drive increased exploration and production , which could eventually cause prices to fall and margins to drop. [edit] In the Race for Reserves, Cabot has Left the WaterIn the current high-price environment, oil and gas companies have the opportunity to make big bucks if they can increase their production ahead of competitors. Many of these companies are turning to the offshore sector, trying to extract more from mature wells or strike it rich in deeper water, but Cabot seems to have a different strategy. In October of 2006, the company sold all its offshore holdings for $344 million, and is planning on spending at least $60 million of the cash on expanding its reserves onshore[4]. The success of this venture depends on the success the company has in expanding its reserves onshore, especially in hotter regions like the Devonian Shale in West Virginia where other companies (like Devon Energy) have struck it rich. Large new reserves quickly found would mean that the company could take advantage of the current price level and make a hefty profit. Without significant onshore expansion, however, the sale of its offshore holdings could mean that the company is foregoing growth in one of the hottest new markets in the industry, and, therefore, large potential profits. [edit] A Natural Gas Future Would Yield Big Bucks for CabotNatural gas is being touted by a number of sources as "the" alternative to oil and coal. As a source of heating energy, gas is cheaper[5] and, in recent years, seemingly more abundant than oil. Furthermore, natural gas can be touted as environmental; in terms of "dirty" emissions like sulfur and nitrogen oxides, natural gas is far cleaner than oil or coal. 90% of Cabot's production is natural gas[6], as are 97% of the company's reserves[7]. With the vast majority of its business resting on natural gas, Cabot could end up a huge winner if the energy market swings away from oil and toward this cleaner form of petroleum, as it would have less to lose than other, more oil-dependent competitors. [edit] Seasonal Storms Slow Production for Cabot's Diverse OperationsWith over a million cubic feet of natural gas in storm-prone regions, the company risks production failures and rising costs from natural disasters. Hurricanes hitting the Gulf Coast and storms in the mountain regions (the Rockies and Appalachians) where Cabot drills can damage equipment, hurt employees, and make transportation of products very difficult. This leads to higher costs and lower profits all around. [edit] Environmental Concerns Could Create Long-Term Problems for Cabot's BusinessFossil fuels, though highly cost-efficient forms of energy, are heavy polluters when burned. Increasing environmental concern over environmental degradation and global climate change is fueling a consumer-driven push away from dirty forms of energy toward cleaner forms like wind, solar, biofuels, and/or nuclear, especially in developed, politically-progressive regions like Europe, where renewables are catching on. This could lead to a long-term decrease in the demand for oil and gas. In emerging markets like China and India, however, the drive for economic growth supersedes environmental concerns. Since emerging markets are where most of the future opportunities in the global economy lay, Cabot and other oil and gas companies could continue to grow despite growth in the renewables sector. [edit] CompetitionCabot's main competitors lie in the independent oil and gas sector, since the major oil companies like Exxon Mobil and BP are too large and diverse to fairly be called "competition". Among Cabot's independent competitors are Anadarko Petroleum, EnCana, Comstock Resources, and Apache. Anadarko Petroleum is by far the largest, with nearly eight times the natural gas production and nearly fifty times the oil production of Cabot. Comstock Resources is much smaller than Cabot is, and is betting on deepwater exploration to deliverin the future, whereas Cabot has moved out of the offshore sector and is sticking to landed reserves. Apache's strategy is a unique one; the company buys up "mature" properties from oil majors and then extracts more from them, taking advantage of the high price level to keep margins up despite the use of expensive technology. EnCana is the most similar to Cabot, though much larger; the company, like Cabot, is heavily invested in natural gas (it has an estimated 12 trillion cubic feet in its reserves[8]). EnCana, however, is spread internationally, from Canada to Qatar to Brazil, and is currently investing in ultra-deepwater technology to try and dramatically increase its production capacity.
 Cabot Oil & Gas2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
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