Cabot: This $34 Stock Has Massive Potential Now

| About: Cabot Oil (COG)

Although past performance does not guarantee future performance, when a company like Cabot Oil & Gas (NYSE:COG) has a 101% increase in share price for 2011, it does require at least a second and even third look. After examination, investors usually agree that this company is setting up for another grand year. Cabot is making all the right moves that lead up to an encore performance. The company reduced its 2012 total capital expenditures by $100 million, and decreased its total cost base in 2011 by 25% and is looking to decrease that by another 20%.

While competing with Petroleum Development Corporation (PETD), Chesapeake (NYSE:CHK), Anadarko (NYSE:APC), and Chevron (NYSE:CVX), Cabot has initiated a number of liquids-centered initiatives, with great success in the natural gas plays. In fact, the company increased liquids production 68% from 2010 to 2011 and reported liquids production of 138% year over year. It is because of the foundation of natural gas, (and the company's reserves), and the boldness in oil exploration and production that I believe this company to be a winner and one to own.

It was revealed in the company's first quarter 2012 report that the company plans to spend 40% of its $750 million to $790 million 2012 capital budget on oil and liquids areas and expects the share of liquids production to grow and reach 10% of total production in 2012. The company produced 59.7 Bcfe in the first quarter, with 95% of the production composed of natural gas. The production of crude oil, condensate and natural gas liquids increased by 138% in the quarter totaling 538,000 barrels.

The company has plenty of opportunities to increase production with properties in Appalachia, east and south Texas, Oklahoma, and Pennsylvania. One of the wells in the Marmaton play in Oklahoma and Texas recently had a peak production rate of 1,470 barrels of oil equivalent (NYSE:BOE) per day, with oil and liquids content of 87%.

Cabot has 61,000 net acres of exposure in the Eagle Ford Shale region, where it is completing a pilot program to test down spacing on the company's acreage. According to a statement made by CEO Dan O. Dinges, "These two wells were zipper fraced and the early stage flowback indicates very positive results. The wells have 24-hour production rates of 788 and 791 barrels of oil per day, which is greater than the average initial rates for our entire producing portfolio of Eagle Ford wells." Also, production at the Pennsylvania Marcellus Shale increased 141% in 2011 year over year from 2010. The company averaged a production rate of 600 million cubic feet (Mmcf) per day. Cabot currently operates four rigs in the region and 66 wells, which continue to show elevated production figures.

Last month, the company announced that its initial well in the Brown Dense/Smackover in Union County, Arkansas, which runs through Louisiana, Mississippi and Arkansas, reached a peak production rate of 206 barrels of oil per day from a 10-stage frac. CEO Dinges commented, "This early test demonstrates the productivity of the Brown Dense. With this and other data points we will continue efforts to enhance the play with science and technology. We hold 13,600 net acres in the play."

Still in the early planning stages of a natural gas pipeline route, Cabot recently partnered with Williams Partners LP (NYSE:WPZ) to create the Constitution Pipeline Company. Both companies hope to bridge the gap between production in Pennsylvania and markets in the northeast with the proposed start of the line in Susquehanna County, PA, following a route that goes along the I-88 corridor extending through parts of Broome, Chenango, Delaware, and ending in Schoharie County.

In another deal with Williams, Cabot is looking to sell some of its midstream shale assets in the Marcellus Shale in Pennsylvania to Williams in a $150 million deal that includes a 25-year gathering agreement. The sale is expected to close the end of this year and assets include 75 miles of pipelines and two compressor stations, the sale of which should close before the end of the year. Under the agreement, Williams' field services company will build two compressor units and construct miles of pipelines and trunk lines, and connect all Cabot drilling program wells with specific gathering lines and move Cabot output to five interstate delivery points over the 25-year agreement.

The company's first quarter 2012 report cites overall quarterly production volume grew 58.4% from the previous-year period to 59.7 billion cubic feet equivalent (Bcfe). Natural gas volumes were up 54.9% year over year at 56.4 billion cubic feet (BCF) in the first quarter, while liquids volume escalated 138.1% to 538 thousand barrels (MBbl).

Compared to 17 wells in the year-ago period, net wells drilled during the quarter 2012 increased to 23 with a success rate of 100%. Operating cash flows were $131.8 million, while capital expenditures were $188.5 million. As of March 31, 2012, the company had $1,012.0 million in total debt, with a debt-to-capitalization ratio of 31.6%.

Cabot reported first quarter 2012 earnings of 0.140 per share, exceeding last year's first quarter results by 40.00%, and had first quarter 2012 revenues of $272.14 million, 1.53% above the prior year's 1st quarter results. The company had revenues for the full year 2011 of $979.86 million, 16.09% above the prior year's results. In addition, a dividend of two cents ($0.02) per share on the company's common stock was declared by Cabot's Board of Directors.

Cabot is not just riding the wave of 2011, but seeking to keep up the momentum it started through 2012 and beyond. This company is one that keeps on providing good, solid results which makes it a no-brainer decision to buy.

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