How Is Cabot Oil & Gas Dealing with Its High Debt?

As of December 31, 2015, Cabot Oil & Gas’s (COG) total debt stood at ~$2.03 billion. With only ~$0.5 million in cash and cash equivalents, COG’s net debt was ~$2.02 billion at the end of 4Q15.

Net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) is a debt ratio that shows how many years it would take for a company to pay back its debt under the current earnings situation. As you can see in the above graph, as of 4Q15, Cabot Oil & Gas’s net debt-to-EBITDA was ~2.6x. It was ~0.9x in 1Q14. An increase over the last two years can be attributed to rising debt and falling EBITDA due to lower natural gas prices. In 4Q15, COG’s EBITDA was ~60% lower year-over-year at ~$154 million.

Below are some other upstream companies and their net debt-to-EBITDA ratios:

• Diamondback Energy (FANG): 1.1x
• Consol Energy (CNX): 5.7x
• Pioneer Natural Resources (PXD): 1.5x
• Chesapeake Energy (CHK): 3.5x

Movements in natural gas prices also affect the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

For 1Q16, Wall Street analysts expect COG to report adjusted EBITDA of ~$111 million, which is lower by ~59% when compared to 1Q15 adjusted EBITDA of ~$270 million. Lower adjusted EBITDA estimates can be attributed to expectations for continued lower natural gas (UNG) prices. For 1Q16, assuming net debt remains unchanged, COG’s net debt-to-EBITDA ratio estimate is ~3.3x. That’s the highest in two years and far above COG’s two-year average of ~1.5x.

On February 26, 2016, in an attempt to deal with falling earnings and high debt, Cabot Oil & Gas (COG) closed a public offering of 44 million shares of its common stock at a price to the public of $20 per share. COG plans to spend proceeds from this offering to reduce its debt, fund part of its capital program, and pay for general corporate expenses.

Next, let’s take a look at Cabot’s free cash flow situation.