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Did Cabot Oil & Gas’s Normalized Free Cash Flows Rise in 2017?

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Cabot Oil & Gas’s normalized free cash flow in 2017

For 2017, Cabot Oil & Gas (COG) has normalized FCF (free cash flow) of ~15%, which is the fourth highest among the upstream producers we have been tracking. To know more about our normalized free cash flow methodology and filtering criteria, refer to part one of this series. In this part, we’ll study COG’s free cash flow and normalized free cash flow trends in detail.

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Cabot Oil & Gas’s free cash flow trend

In 2017, Cabot Oil & Gas reported positive free cash flow (or FCF) of ~$134 million, which is ~500% higher when compared with COG’s FCF of ~$22 million in 2016.

In the last four quarters, on a sequential basis, Cabot Oil & Gas’s quarterly free cash flow showed a mixed trend. On a sequential basis, COG’s free cash flow rose strongly in 1Q17 and 2Q17 but turned negative in 3Q17. However, COG’s free cash flow again turned positive in 4Q17.

Cabot Oil & Gas’s normalized free cash flow trend

In full-year 2017, Cabot Oil & Gas’s (COG) normalized free cash flow (or FCF) increased from ~6% in 2016 to ~15% in 2017. The increase in COG’s normalized FCF in 2017 can be attributed to the steep increase in its operating cash flow (or OCF). Even COG’s capital expenditures increased from 2016 to 2017, but the increase in COG’s operating cash flow outweighed the increase in its capital expenditures.

Cabot Oil & Gas’s OCF increased by ~226% from ~$397 million in 2016 to ~$898 million in 2017. In comparison, Cabot Oil & Gas’s capital expenditures increased by ~103% from ~$375 million in 2016 to ~$765 million in 2017.

From 1Q17 to 4Q17, COG’s quarterly normalized free cash flow showed a mixed trend. It showed a strong sequential increase in 1Q17 and 2Q17 but turned negative in 3Q17. However, COG’s quarterly normalized free cash flow again turned positive in 4Q17.

Cabot Oil & Gas’s stock performance in 2018

Year-to-date in 2018, COG’s stock is down ~16.0%. In 2018, so far, Cabot Oil & Gas’s stock has underperformed the First Trust Natural Gas ETF (FCG), which represents an index of energy stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. Year-to-date in 2018, FCG is down by ~9.3%. In comparison, natural gas (UNG) is down by ~10.1% in 2018.

Next, we will take a look at Murphy Oil’s (MUR) free cash flow trends.

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