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Cabot Oil & Gas (COG) is making headway with natural gas, even while the market is currently too rich with gas, and the price, too low.

The company is all about improving the efficiency of production. For the second quarter of 2012, Cabot saw 40 percent year-on-year production growth. The company's third quarter results revealed that production grew 42% year-over-year.

President and Chief Executive Officer, Dan O. Dinges in the third quarter results reported that, "Our year-to-date production growth relative to last year further highlights the prolific nature of our wells in the Marcellus, even in the face of continued delays in permitting for gathering lines. Based on our plans to connect (or begin producing) 45 additional wells in the fourth quarter, we expect a ramp in production above our previous highs."

According to the results, production during the third quarter 2012 was 66.5 Bcfe, with 62.7 Bcf of natural gas production and 629 thousand barrels of liquids production. Compared to the third quarter 2011, this represents a 31 percent increase in gas production and a 61 percent increase in liquids production.

Production during the nine-month period ended September 30, 2012, was 188.9 Bcfe, with 178.4 Bcf of natural gas production and 1.8 million barrels of liquids production, representing increases of 42 percent, 40 percent, and 91 percent, respectively, compared to the nine-month period ended September 30th, 2011. Cabot is already a leader in gas and once the demand for gas increases and prices rise, the company is set to profit nicely. Because of the company's long track record of consistent, impressive production as well as its ability to apply innovations for improving the movement of product, I see Cabot as a solid buy today.

Much of the production for Cabot comes from its profitable Marcellus play where other gas hunters are having success including Southwestern Energy (SWN), which earlier this year announced that it had gross operated production in the Marcellus of 166 MMcf/d from 41 wells, mostly in the Greenzweig area. Southwestern Energy reported 2012 third quarter net production at its Marcellus properties at 15.1 Bcf, up 50% over the second quarter and more than double from a year ago.

Another company in the same region is Ultra Petroleum (UPL). Ultra Petroleum third quarter results states that it and its partners had drilled eight gross horizontal Marcellus wells and initiated production from 22 gross wells. During the quarter, the company's average net production was 196 MMcfe per day.

Range Resources (RRC) is also in this play. In the southwest Marcellus, Range Resources drilled and cased 25 wells in the third quarter as compared to 39 wells drilled and cased in the second quarter, and estimates that it has the potential to grow its Marcellus natural gas production, solely from the liquids-rich area in southwest Pennsylvania, to approximately 1.8 Bcf per day.

Cabot is one of the top producers in Marcellus and is also one of the most innovative. The company is not just in the exploration and production mode for natural gas, but now the company is trying to move the gas as well. Cabot has a 25 percent stake in the Constitution Pipeline Company, which is a natural gas pipeline project that will transport natural gas supplies from the prolific Marcellus supply region in northern Pennsylvania to major northeastern markets.

A recent investment from Piedmont Natural Gas (PNY) of $180 million will give Piedmont a 24 percent stake in the venture and help to facilitate progress of the project. The 121 mile long Constitution Pipeline will run from Susquehanna County in Pennsylvania to transmission and pipeline connections in Schoharie County in New York and is expected to begin in April 2014. As the leading independent natural gas producer, this project will help to facilitate Cabot's task of moving gas from ground to market.

In the Eagle Ford play, Cabot operates over 62,000 net acres spanning across four counties in South Texas. The company largely targets the liquids-rich and shale oil windows of the Eagle Ford. A portion of the company's acreage there, about one-third, is operated by EOG Resources (EOG). EOG Resources recently reported good news to investors with its third quarter results that revealed a 42 percent crude oil and condensate production increase as well as a 40 percent increase in total liquids production over third quarter 2011 results.

Cabot recently completed its second Eagle Ford Oil Shale well known as the Arminius Energy Trust #1 well. This Frio County, Texas well was drilled with a horizontal length of 5,840' and completed with a 20-stage frack resulting in a 24-hour production rate of 759 barrels of oil per day and 1.0 Mmcf per day. CEO Dinges well that, "This is more than double the rate we saw on our initial discovery. We have already drilled our third and fourth wells with completions on those scheduled for October and early November."

Additionally, the company is developing 94,000 net acres in the Pearsall Shale region, where the company's initial short lateral well was successfully completed in 11 stages and had an initial production rate of more than 1,400 barrels of oil equivalent (BOE) per day. In just 20 days of production, the well averaged more than 900 BOE per day, roughly 50 percent oil. The company is in the process of completing a second well and drilling three additional wells.

Increased productivity is causing the company to do well financially. Cabot reported third quarter 2012 earnings of $.21 per share, exceeding last year's third quarter results by 23.53%. The company had third quarter 2012 revenues of $296.87 million, which was 11.75% above the prior year's third quarter results. Year-on-year, the company grew revenues 13.53% from $863.10 million to $979.864 million while net income improved 18.40% from $103.38 million to $122.40 million. Cabot reported that cash flow from operations for the third quarter of 2012 was $164.0 million. Comparatively, the third quarter of 2011 had cash flow from operations of $154.7 million. Discretionary cash flow for the third quarter of 2012 was $175.7 million, compared to the third quarter of 2011 when discretionary cash flow was $165.4 million.

Cabot is in a great position now to continue its production growth and provide investors with great returns. Investors should consider buying Cabot Oil & Gas today.

Source: Cabot: A Winning Natural Gas Producer For 2013