3 Reasons to Like Cabot Oil & Gas Corporation

The Marcellus Shale is America's unsung shale play. As oil-rich plays, the Eagle Ford and Bakken often get all the attention. Think of the Marcellus shale as the dry gas equivalent of the Eagle Ford and Bakken, and then some. One of the best names in the Marcellus, if not the best, is Cabot Oil & Gas.

May 21, 2014 at 1:50PM

In the U.S. shale revolution, oftentimes the Bakken and Eagle Ford shale plays get all the attention. After all, those two shales are the most prolific and profitable oil-producing shales in the country. But what about natural gas? When it comes to shale gas, one shale play stands out from all the rest. This play not only has a very low cost base, with production costs dropping as low as the $1 range in the core, but also has tremendous inventory that will last for decades, maybe much longer. 

That play is the Marcellus Shale in Pennsylvania and upstate New York. And since New York has a ban on fracking, the Marcellus is effectively limited to Pennsylvania and some parts of West Virginia. Like the other big shale plays, if one wants to invest in the Marcellus, there are quite a few choices. 

But if you're looking for quality and concentration in this amazing dry gas play, look no further than Cabot Oil & Gas (NYSE:COG). Cabot has a respectable 200,000+ acre position with tremendous inventory. It is the best operator with the lowest cost base, and it has a reasonably clean balance sheet. 

Marcellus

Gas drilling in the Pennsylvania countryside. Source: Wikipedia

Best operator, bar none
In the Marcellus Shale, Cabot may not be the biggest, but it probably is the best. For example, in 2013 Cabot operated 17 of the top 20 wells by estimated ultimate recovery per 1,000 feet of lateral well. By cost base, Cabot is also hard to beat. Cabot's production cost per thousand cubic feet, or mcfe, is an astonishing $0.75. It shouldn't be surprising, then, to see an internal rate of return of just over 100%, even with dry gas prices at $3 per mcfe. At $4 per mcfe, the internal rate of return rises to over 200%. 

Reasonable debt
As a very early mover in the Marcellus Shale, Cabot is now an established player with a tidy balance sheet. While many other shale players have debt at multiple times cash flow, Cabot has used its profitable production base to keep debt at a very reasonable level. For example, the company's total debt is now $1.15 billion, but operational cash flow is $1.06 billion. This means that, if absolutely necessary, Cabot could pay off its debt in about a year if it stopped all capital expenditure. Compare Cabot with one of its closest peers, Range Resources (NYSE:RRC), which has $2.88 billion in debt and $744 million in operating cash flow. 

Tremendous inventory
Last but not least is Cabot's very long-lived inventory. Cabot's proved reserves currently sit at 4 trillion cfe. At this rate, Cabot has 25 years' worth of drilling inventory. No one knows exactly how much oil and gas is in the Marcellus shale, but most experts agree there is at least 100 years' worth of dry gas. In any case, Cabot is going to be drilling profitably in the Marcellus for a long time. 

Bottom line
There are many reasons to put Cabot Oil & Gas on your watch list: The company has at least 25 years of drilling inventory in the Marcellus, and probably more. With a rock-bottom cost basis, Cabot can make money in pretty much any price environment. Finally, Cabot's pristine balance sheet makes it an ideal choice for beginning investors or just those who are generally risk-averse. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

 

Casey Hoerth has no position in any stocks mentioned. The Motley Fool recommends Range Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers