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Cabot’s Net Debt Is Stable: What It Means for Net Debt to EBITDA

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Cabot’s net debt to EBITDA

In a previous series, we talked about Cabot Oil and Gas’s (COG) key management goals and strategies. In this series, we’ll discuss Cabot’s key fundamentals.

Cabot Oil and Gas’s (COG) net debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) had remained mostly under 2x until 4Q15. In 4Q15, however, its net-debt-to-EBITDA multiple shot up to over 3x, mostly because of a significant drop in its EBITDA due to lower commodity prices and an increase in its net debt.

Having said that, COG’s net-debt-to-EBITDA multiple fell from 4Q15 levels and didn’t touch those levels in 2016. The rising trend in its debt, which peaked in 4Q15, dropped sharply in 1Q16, and stayed at those levels, as we can see in the image above.

COG’s 4Q16 net-debt-to-EBITDA multiple was ~2.2x. COG’s 4Q16 net debt was ~$1.0 billion. Its trailing-12-month EBITDA as of 4Q16 was just $463.5 million. A year ago, in 4Q15, its net debt stood at $2.0 billion, and the trailing-12-month EBITDA as of 4Q15 was $636.4 million.

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Cabot’s liquidity and financial position

COG noted that as of December 31, 2016, its cash on hand was $498.5 million. It also had $1.7 billion available under its $1.8 billion revolving credit facility. Total liquidity at the end of the year was $2.2 billion.

COG’s net-debt-to-adjusted-capitalization ratio at the end of the year was 28.5% compared to 50.1% as of December 31, 2015. Total capital consists of a company’s debt and shareholder equity. A higher ratio indicates reduced financial flexibility. The company’s total debt as of December 31, 2016, was $1.5 billion. Refer to the next part of the series for more discussion on COG’s total debt.

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