Cabot: This Oil And Gas King Could Jump $10 By 2014

| About: Cabot Oil (COG)

For some big firms, a 100-year old company would seem like an old dog that takes an eternity to learn new tricks. However, this is not the case with Cabot Oil & Gas (NYSE:COG). Cabot is all about not only learning new ways to conduct business, but the company acts quickly, taking advantage of great opportunities.

Unlike competitors Anadarko Petroleum (NYSE:APC), Chevron (NYSE:CVX), and Chesapeake Energy (NYSE:CHK), Cabot does not fear change. After presenting gains of 100% last year, even with much lower natural gas prices, the company steams full throttle ahead seeking new plays for oil and liquids while maintaining a supply of natural gas awaiting rising prices. Because of the way this fearless giant embraces change, I believe this to be a company that will be profitable for the long-term investor.

Cabot, with headquarters in Houston, Texas, is a leading independent natural gas producer, but has been making headway in the oil drilling game. The company continues production of natural gas even with the decline in pricing. Last month the company began free-flowing Marcellus gas in the Zick area that represents a 7-mile step-out to the east from the nearest production. For 20 days straight, five wells averaged 78 million cubic feet (Mmcf) per day.

CEO, Chairman, and President, Dan O. Dinges stated, "The results of these wells have de-risked another substantial portion of our acreage position in Susquehanna. If there was concern about the productivity of our eastern acreage, those concerns should be mitigated. The five wells were completed in 92 frac stages and will have additional productive capacity once compression is operational." In addition, volume of natural gas production increased by 83% mainly from production in the Appalachia regions.

The company is reeling in the profits by focusing on plays that produce the most in energy products. Cabot recently drilled and completed two wells spaced 400 feet apart, compared with the original spacing of 1,000 to 1,200 feet, at the Eagle Ford Shale where the company has 61,000 net acres of exposure. The company reported that the 24-hour production rate of these wells was better than average for the area. In the Marmaton play in Oklahoma, and Texas, the company has exposure to both oil and liquids.

This is also where one of Cabot's competitors, SM Energy (NYSE:SM) is also developing with approximately 35,000 net acres exposure. One of Cabot's Marmaton wells had a peak production rate of 1,470 barrels of oil equivalent per day, with oil and liquids content of 87%. In the play running through Louisiana, Arkansas, and Mississippi, known as Brown Dense or Smackover play, Southwestern Energy (NYSE:SWN), with about 520,000 net acres, and Devon Energy (NYSE:DVN) have both recently drilled their first well.

Cabot is at an early stage there with its first well producing at a rate of 206 barrels per day. The company is also expected to participate with Range Resources (NYSE:RRC) in a Utica/Point Pleasant test well in northwestern Pennsylvania, where the company has 50,000 net acres in the play as a result of deep rights retained in an asset sale in 1997.

For first-quarter 2012 results, the company posted net income of $18.3 million, or $0.09 per share, cash flow from operations of $131.8 million and discretionary cash flow of $138.5 million for the first quarter of 2012 compared with 2011 first quarter when the company reported net income of $12.9 million, or $0.06 per share, cash flow from operations of $91.2 million and discretionary cash flow of $112.3 million. First-quarter 2012 net income was $28.5 million, or $0.14 per share, compared with $20.7 million, or $0.10 per share, in first-quarter 2011. Additionally, Cabot's Board of Directors declared a regular dividend of two cents ($0.02) per share on the company's common stock.

Cabot's revenue has risen for the last four quarters, increasing 23.6% to $268 million in the fourth quarter of the last fiscal year. This figure rose 19.6% in the third quarter of the last fiscal year from the year earlier and climbed 23.1% in the second quarter of the last fiscal year from the year-ago quarter. Last quarter's profit increase comes after net income dropped in the previous quarter, and in the fourth quarter of the last fiscal year, net income declined 46.3% to $26.4 million.

Production during the first quarter 2012 was 59.7 Bcfe, (58% increase) with 56.4 Bcf of natural gas production (55% increase) and 538 thousand barrels of liquids production (138% increase), the strongest ever reported. The company continues to shine even with natural gas prices down 22%t to $3.65 per Mcf in first quarter 2012. Dinges said in a statement in regards to the quarter results that, "Even with the significant reduction in realized natural gas prices between first quarters, we were able to grow oil and gas revenue by 36% as a result of our record production growth. These results highlight how efforts in each of our areas of focus continue to generate positive momentum. Fortunately, we have the assets, the balance sheet, and the operational ability to weather this cycle and still be opportunistic in order to generate value over the long-term."

The company expects the share of liquids production to grow and reach 10% of total production in 2012, and it plans to spend 40% of its $750 million to $790 million 2012 capital budget on oil and liquids areas.

It is easy to see that this is a company bent on not just surviving at all costs, but thriving through adversity. Because of improved production, higher realized oil prices and lower per-unit costs, Cabot keeps on reporting good quarterly results and will continue to do so based on its tremendous track record. Cabot is currently hovering around the $33 mark. I expect the stock to climb above $45 by the end of 2013 and higher in coming years. Based on the above information, I think this stock makes for an excellent long-term play.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.