Why Cabot Oil & Gas slows after 2Q earnings despite beats

Why Cabot Oil & Gas slows after 2Q earnings despite beats (Part 1 of 6)

Must-know: Highlights of Cabot Oil & Gas’ 2Q earnings

Highlights of Cabot Oil & Gas’ 2Q earnings

Cabot Oil & Gas (COG), is an independent oil and gas exploration and production company, with operations focusing in the Marcellus Shale in Pennsylvania and the Eagle Ford Shale in Texas.

On July 24, COG reported its earnings for the second quarter ending June, 2014.

COG’s Key Financials in 2Q2014Enlarge Graph

Revenue for the quarter was $533 million, beating the consensus estimate of $514 million. Revenues were up ~19% year-over-year (or YoY), and ~5% sequentially. Increase in revenues was driven by Marcellus and Eagle Ford outputs.

Net income, excluding selected items, was $115 million. It beat the consensus estimate of $105.6 million and was higher by 21% on a YoY basis. Earnings per share (or EPS) for the quarter amounted to $0.28, beating the consensus estimate by $0.03.

Operational performance

Total natural gas and liquids production for the quarter was 127.6 billion cubic feet equivalent (or bcfe), consisting of 121.8 billion cubic feet (0r bcf) of natural gas and 961,000 barrels of liquids—including crude oil, natural gas liquids (or NGLs), and condensates. Total production was up 34% YoY and ~7% sequentially.

COG’s Production GrowthEnlarge Graph

It’s important to note that, COG has provided an annual production guidance of 28%–41% for 2014.

Stock drops despite beats

COG Stock Price MovementEnlarge Graph

Despite a strong quarterly performance, COG stock showed negative market movement and closed ~1% lower than the previous market close.

Deep price discounts

Natural gas price differentials in the Marcellus Shale are likely the reason for the negative market movement.

Wide price differentials are bound to affect earnings of other companies, which also have major operations in the Marcellus. Chesapeake (CHK), which is scheduled to report its second quarter earnings this week, is also likely to be affected by this.

Other companies that are scheduled to report second quarter earnings in the following week include Southwestern Energy (SWN) and Devon Energy (DVN).

It’s important to note that COG, CHK, SWN, and DVN are all components of the Energy Select Sector SPDR ETF (XLE).

In the next section, we’ll discuss the second quarter performance in more detail.

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