Cabot Oil and Gas (COG), an independent energy exploration and production (E&P) company, reported better-than-expected first quarter 2010 results, mainly driven by increased gas production in its North region. Earnings per share, excluding special items, came in at 30 cents, exceeding the Zacks Consensus Estimate of 25 cents. Revenue of $212.6 million was also above our expectations of $208 million.
 
Year-Over-Year Results Down
 
However, compared to the year-ago period, Cabot’s adjusted earnings per share declined 26.8% (from 41 cents to 30 cents), while revenue fell 9.1% (from $233.9 million to $212.6 million). The negative comparisons can be attributed to lower natural gas price realizations. 
 
Volume Growth Continues
 
Overall production volumes during the quarter were 26.7 billion cubic feet equivalent (Bcfe), up 4.3% from the previous-year period. Natural gas volumes were up 3.7% year over year to 25.4 billion cubic feet (Bcf) and liquids volumes were up 10.7% to 217 thousand barrels (MBbl).
 
Strength in natural gas production was driven by the North region, where volumes rose by 34.6%, partially offset by the sale of the company’s Canadian assets (in April 2009) and a 16.7% decline in South region volumes. The year-over-year rise in oil volumes came on the back of a 16.9% increase in the output from the South region, somewhat canceled by an 11.5% dip in North region production and the Canadian assets divestment.
 
Realized Oil Prices Up
 
Average realized natural gas price (including the impact of hedges) was down 12.7% to $6.56 per thousand cubic feet (Mcf), while average oil price realization was up 29.4% to $97.40 per barrel.
 
Drilling Statistics, Capital Expenditure & Balance Sheet
 
Net wells drilled during the quarter reduced to 20 (from 37 in the year-ago period), with a 96% success rate. Operating cash flows were $116.1 million for the quarter, while capital expenditures were $227 million. As of Mar 31, 2010, the company had $915 million in debt, with a debt-to-capitalization ratio of 33.0%.
 
Operational Update
 
During the earnings release, Cabot also provided an update regarding its operations. The company informed that it has drilled and completed its first well in the Eagle Ford oil window in south Texas. The company also completed its third horizontal Cotton Valley Taylor Sand well in Texas, achieving the best result thus far. In the Marcellus shale play, the company turned into line 13 wells (8 horizontal and 5 vertical).
 
Company Guidance
 
Cabot expects second quarter 2010 natural gas production to be in the 320 – 330 million cubic feet per day (Mmcf/d) range, while oil volumes are likely to vary between 2.4 – 3.0 thousand barrels per day (MBbl/d). For the full year, natural gas volumes are expected to be around 314.9 – 325.8 Mmcf/d. Cabot guided towards liquids output in the 2.6 – 3.1 MBbl/d range.
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