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The price of natural gas has been recovering from its precipitous four year drop, which sent it plunging from 2008 highs. The plunge was caused by the appearance of abundant new reserves and production of natural gas in the United States. One of the beneficiaries of the substantially increased natural gas production and the recent price recovery is certainly Cabot Oil & Gas (NYSE:COG). Cabot's share price has risen more than 400% since the late 2011 lows, driven by the substantial revenue and earnings growth, production growth and lower costs. Here are five reasons for you to consider buying the stock.

1. Earnings and revenue growth

Cabot's recovery started in late 2011. Revenue grew 13.5% in 2011, and the growth has accelerated since, with 23% growth in 2012, and the expected growth of 47% in 2013. Earnings grew 6% in 2012, and are expected to rise 140% in 2013 and 72% in 2014. Quarterly earnings and revenue growth accelerated in recent quarters, and are expected to continue to grow at an elevated pace in the future.

2. Industry leading production growth and cost structure

Cabot has delivered compounded annual production per debt-adjusted share growth of 42% in the 2010-2012 period, and an 18% growth in reserves over the same period. This growth is at the top of its competition, and way ahead of peer median growth rates of 11% for production growth and -2% for the reserve growth. The company has also driven down the costs of production in every year since 2009. The dollar cost per Mcfe (million cubic feet equivalent) decreased from $2.47 in 2009 to $1.67 in 2012, and a further decrease to $1.30-$1.70 range is expected in 2013. The lowered cost structure and substantial production growth put the company in a favorable position to benefit in the future.

3. Cabot is well positioned in the Marcellus shale

Cabot is well positioned in the Marcellus shale, which is abundant with natural gas. With hydraulic fracturing methods, gas production in the Marcellus has soared in the recent years. Cabot has 200,000 net acres there. The company's low cost structure enables it to make money with gas prices being as low as $2, which is much lower from the current levels around $4. Other companies well positioned in the Marcellus shale include Chesapeake Energy (NYSE:CHK) and Southwestern Energy (NYSE:SWN). Both companies have performed much worse than Cabot, and are expected to grow production and revenue at a much slower rate than Cabot. Chesapeake and Southwestern Energy are expected to grow revenue 8% and 11% respectively this year, compared to Cabot's expected revenue growth of 47%. Chesapeake energy has recently appointed a new CEO, and must deleverage its balance sheet, and sell its assets, and Cabot does not have such problems. In late April, Chesapeake sold 162,000 net acres of natural gas properties in the Marcellus shale to Southwestern Energy for $93 million. After the deal closes, Southwestern Energy will have approximately 337,000 net acres in the Marcellus shale. So, both Cabot and Southwestern are better positioned to take advantage of the natural gas market recovery than the troubled Chesapeake Energy.

COG Chart

COG data by YCharts

4. Potential for increased natural gas demand
There are several demand catalysts for natural gas in the future. Cabot lists a few of potential demand catalysts in its latest presentation:

- Over 45 gigawatts of coal-fired generating capacity is estimated to be retired between 2012 and 2016, and there is potential for 48 gigawatts of gas-fired generating capacity to be built during the same period.

- Potential for incremental industrial demand of 3.3 Bcf/d by 2019 from new ethylene crackers, methanol and fertilizer plants, and gas-to-liquids projects.

- New pipeline systems in Mexico could potentially add 5.1 Bcf/d of incremental export capacity by 2016.

- Over 24 Bcf/d of proposed/potential U.S. LNG export facilities are currently approved or pending approval.

- Increased demand for natural gas in transportation could reach 3.6 Bcf/d by 2020 as natural gas vehicles penetrate heavy use end markets.


Cabot's great position in the Marcellus shale, substantial production, revenue and profit growth, together with an expectation of increased demand in the natural gas market put the company in a favorable position to bring further rewards to its shareholders. It has achieved better growth rates than its competitors, and is expected to keep delivering more growth than its competitors, with further lowering of the already low cost structure.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.