Cabot Oil & Gas (COG)

TOP CONTRIBUTORS

Michael McGillen

Avinash Gandhi

suman singh

Cabot Oil & Gas is an independent oil and gas company that participates in the exploration, development, and exploitation of oil and gas fields in North America. The company's oil and gas operations are divided into four regions: the East Region, the Gulf Coast Region, the West Region, and the Canada Region.^[1] Because approximately 80% of Cabot's revenue came from the sale of natural gas, the financial health of the company depends on the price of and demand for natural gas as an energy source.^[2]

Company Overview

Cabot’s revenues come from the exploration, production, and the sale of natural gas and oil. Unlike many of its competitors, Cabot’s operating segments are by geographic region instead of by operation. In response to the global recession beginning in 2007, Cabot announced restructuring plans. In May 2009, Cabot plans to close its Charleston, WV and Denver regional offices by the end of summer.^[3] Instead, Cabot is in the process of building a new office in Pittsburgh, PA to oversee the West Virginia assets along with the Rocky Mountain assets.^[4] Cabot has also combined the Gulf Coast operations with its Mid-Continent operations to form a new South Region.^[5]

Business Segments

Cabot sells natural gas to industrial customers, local distribution companies and gas marketers both on and off its pipeline and gathering system.^[6] Its segments of operation in 2010 are as follows:

North Region: The North region consists of operations in the Appalachian and Rocky Mountains areas. In this region, its assets include a acreage position, wells, natural gas gathering and pipeline systems, and storage capacity.^[7] As of December 31, 2010, Cabot had 4,185 wells (3,588.5 net), of which 3,724 wells are operated by the Company. Natural gas production and reserves in the North region are associated with the Marcellus shale.^[8] During 2010, it drilled 63 wells (61.3 net) in the North region, of which 62 wells (60.3 net) were development and extension wells.^[9]

In 2010, Cabot produced 221.8 million cubic feet per day of natural gas and 272.5 barrels of crude oil/condensate/ natural gas liquid (NGL) per day in this region.^[10] During 2010, average daily production was 223.4 millions of cubic feet equivalent.^[11] During 2010, natural gas and crude oil/condensate/NGL production was 81 billion cubic feet and 100 Thousand Barrels, respectively.^[12] The principal markets for its North region natural gas are in the northeastern and northwestern United States.^[13]

South Region: Operations in the South region include east and south Texas and Oklahoma. As of December 31, 2010, it had 1,769 wells in the South region of which 1,345 wells are operated by the Company.^[14] Various processing plants in Texas and Louiiana along with multiple interstate and intrastate deliveries connect Cabot's properties.^[15]

During 2010, average daily production was 134.4 millions of cubic feet equivalent. During 2010, natural gas and crude oil/condensate/NGL production was 44.5 billion cubic feet and 759 thousand barrels, respectively.^[16] For its South Region operations, Cabot reported 693.9 billions of cubic feet equivalents of proved reserves as of December 31, 2010.^[17] As a result, the South region region 26% of its total proved reserves. During 2010, it drilled 50 wells in the South region, of which 47 wells were development and extension wells.^[18]

During 2010, the Company produced and marketed approximately 122 million cubic feet per day of natural gas and 2,079.1 barrels of crude oil/condensate/NGL per day in the South region at market responsive prices.^[19] During 2010, average daily production was 134.4 millions of cubic feet equivalent. During 2010, natural gas and crude oil/condensate/NGL production was 44.5 billion cubic feet and 759 thousand barrels, respectively.^[20]

Trends and Forces

Natural Gas operations face potential regulations and taxation

Natural gas producers operating in Pennsylvania have the potential of facing "severance taxes" on their leased lands in an effort by state governments to boost state revenues. In particular, the Marcellus shale field, much of which is in Pennsylvania, is receiving attention from the Pennsylvania governor's office.^[21] Natural Gas producers believe the Marcellus shale field is capable of being one of the U.S.'s largest natural gas finds and have devouted a lot of financial resources to developing the region.^[22] A state tax has the potential of severly reducing the profitability of producing from the region.^[23] As a result, several natural gas producers operating in Pennsylvania have put money into various PACs to lobby the state government on their behalf. Although the size and impact of the proposed taxes have not been disclosed, they have the potential of significantly effecting Cabot's operations in Pennsylvania, which are the third largest in the state by acres lease.^[24]

In January 2011, investors filed shareholder resolutions urging Cabot and other companies to disclose the risks behind their U.S. nautral gas fracturing operations.^[25] The resolutions requested that companies disclose their policies for reducing environmental and financial risks from the use of their chemicals.^[26] The resolution also asked that Cabot start recycling and reusing waste while simultaneously reducing volumes of toxic chemicals.^[27] While these requests for more shareholder transparency may not have a financial impact, the disclosure of fracking chemicals and process risks have the potential of affecting how shareholders view the risks of holding Cabot shares as well as inviting possible federal scrutiny.^[28]

Natural Gas Prices and Demand Are the Primary Determinants of Cabot's Operating Revenue

Natural gas prices have remained weak in response to reports on the U.S. government's natural gas inventory buildup.^[29] Average daily production peaked several months before the government reported on its inventory and has the potential of declining significantly as prices drop. Domestic production already flatlined among the majors like BP, Chevron, and ConocoPhillips.^[30] However, independent producers like Chesapeake Energy and XTO Energy have been slow to cut production because they do not have many alternative sources of revenue. Falling prices and rising inventory levels have the potential of reducing earnings for independent natural gas producers.^[31]

Obama Energy policy and Environmental concerns will benefit U.S. natural gas companies

When compared to oil, natural gas is more abundant, burns cleaner, and is more plentiful in the U.S..^[32] Approximately 22% of United State’s energy consumption in 2007 came from natural gas, but that percentage has the potential to increase considerably with a new Obama energy plan.^[33] Clean energy policies are likely to benefit natural gas companies because their product has fewer emissions of sulfur, carbon, and nitrogen than coal or oil. Of the $787 billion stimulus package President Obama signed in February 2009, $38 billion will be spent on renewable energy sources and there will be $20 billion in tax incentives over the next 10 years.^[34] The stimulus package includes a 50% tax credit worth up to $50,000 for gas stations or business that install fuel pumps that dispense E85 fuel, electricity, or natural gas.^[35]

Additionally, burning natural gas for energy produces half the carbon emissions that come from burning coal.^[36] The amount of energy generated by natural gas fired plants grew by 10.8% in 2007 because rising coal prices and growing environmental concerns over coal’s emissions made natural gas a more practical alternative.^[37] Despite being a “cleaner” form of energy, natural gas remained a more expensive energy source at the end of 2008; the cost of producing energy by using natural gas was 50% higher than the price of producing energy from coal.^[38]

Competition

Anadarko Petroleum (APC): Anadarko Petroleum is an independent oil and gas company that operates in the exploration and production of crude oil, natural gas, and natural gas liquids.^[39] The company has operations primarily located in the United States, the deepwater of the Gulf of Mexico, and Algeria, but also operates in China, Ghana, and Brazil.^[40]

Petroleum Development (PETD): The Petroleum Development Corporation is an independent energy company that operates in the exploration and production of natural gas and crude oil.^[41]

Comstock Resources (CRK): Comstock Resources operates in the development and production of oil and natural gas. The company operates in Texas, Louisiana and offshore the Gulf of Mexico.^[42]

Notes

1. ↑ COG 2008 10-K, pg. 43
2. ↑ COG 2008 10-K, pg. 43
3. ↑ Reuters: Cabot Oil & Gas Corporation Announces Organizational Changes, May 2009
4. ↑ Reuters: Cabot Oil & Gas Corporation Announces Organizational Changes, May 2009
5. ↑ Reuters: Cabot Oil & Gas Corporation Announces Organizational Changes, May 2009
6. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
7. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
8. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
9. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
10. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
11. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
12. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
13. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
14. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
15. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
16. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
17. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
18. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
19. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
20. ↑ Reuters.com: Cabot Oil and Gas Company Profile, May 2010
21. ↑ istockanalyst.com: Fight against state tax on gas extraction gets expensive, January 2010
22. ↑ istockanalyst.com: Fight against state tax on gas extraction gets expensive, January 2010
23. ↑ istockanalyst.com: Fight against state tax on gas extraction gets expensive, January 2010
24. ↑ istockanalyst.com: Fight against state tax on gas extraction gets expensive, January 2010
25. ↑ environmentalleader.com: Shareholders Demand Fracking Risk Disclosure, January 2010
26. ↑ environmentalleader.com: Shareholders Demand Fracking Risk Disclosure, January 2010
27. ↑ environmentalleader.com: Shareholders Demand Fracking Risk Disclosure, January 2010
28. ↑ environmentalleader.com: Shareholders Demand Fracking Risk Disclosure, January 2010
29. ↑ Fool.com: Natural Gas Is Headed Lower, August 2009
30. ↑ Fool.com: Natural Gas Is Headed Lower, August 2009
31. ↑ Fool.com: Natural Gas Is Headed Lower, August 2009
32. ↑ Seekingalpha.com: The case for Natural Gas, January 2009
33. ↑ EIA: Natural Gas Energy Facts
34. ↑ CNET.com: Obama signs stimulus plan, touts clean energy, February 2009
35. ↑ Green Tech Media: Obama Signs Stimulus Package, February 2009
36. ↑ WSJ.com: A Better Climate for Natural-Gas Sector, January 2009
37. ↑ WSJ.com: A Better Climate for Natural-Gas Sector, January 2009
38. ↑ WSJ.com: A Better Climate for Natural-Gas Sector, January 2009
39. ↑ Reuters.com: Cabot Oil and Gas, March 2009
40. ↑ Reuters.com: Cabot Oil and Gas, March 2009
41. ↑ Reuters.com: PETD, March 2009
42. ↑ Yahoo! finance: CRK

Energy Companies Anadarko Petroleum • BP • ChevronTexaco • Arch Coal • Cameco • ConocoPhillips • Enbridge • Consolidated Edison • Entergy • Exelon • Exxon Mobil • Frontier Oil • GE • Halliburton • Philips • Massey Energy • Occidental Petroleum • PG&E • Peabody Energy • Shell • Sasol • Schlumberger • Sinopec • Suncor • Sunoco • SunPower • Suntech • Suzlon • Toshiba • Valero • Xcel