Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Shares of Cabot Oil & Gas Surge on Analyst Upgrade, Pipeline Approval

By Tyler Crowe - Feb 6, 2017 at 11:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Analysts seem to be big fans of Cabot's low-cost operations and better takeaway capacity.

What happened

Shares of independent oil and gas producer Cabot Oil & Gas ( COG 3.13% ) is up 10% as of 11:45 a.m. EST today. The impetus for this share price movement is an analyst upgrade from J.P. Morgan as well as approval for a pipeline in the Marcellus shale region that will increase natural gas takeaway capacity from the region.

So what

Cabot Oil & Gas has quietly become one of the better independent oil and gas companies in America's oil patch. Its focus in the Marcellus and Eagle Ford shale formations make for some pretty attractive geology, and the company has some of the lowest production costs out there. Today, its internal rate of return on $2.00 per million BTU of gas in the Marcellus region is better than 100%.

Drilling rig in green field

Image source: Getty Images.

One of the things that has held back the Marcellus shale formation, though, is a lack of takeaway capacity. Unlike Texas or Oklahoma, which already had robust pipeline infrastructure in place, much of the Pennsylvania and Ohio regions have been starting from scratch and have been capacity constrained. So today, when the Federal Energy Regulatory Commission approved Williams Companies' Atlantic Sunrise pipeline, it was a big deal especially when you consider that Cabot Oil & Gas was signed on as an anchor customer that had already committed to moving 1 billion cubic feet per day through the Atlantic Sunrise pipe.

When analysts at J.P. Morgan saw this today, they immediately upgraded this stock. 

Now what

Normally, long-term investors should ignore such things as analyst upgrades and downgrades as they are normally based on short-term catalysts. The approval of the Atlantic Sunrise pipeline, however, is a big deal for Cabot both in the short and long term. It should open up Cabot's natural gas production to many more customers and could potentially even result in higher realized prices. Combine that with Cabot's low-cost operations and that could mean something for the bottom line.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cabot Oil & Gas Corporation Stock Quote
Cabot Oil & Gas Corporation
COG
$20.75 (3.13%) $0.63
The Williams Companies, Inc. Stock Quote
The Williams Companies, Inc.
WMB
$27.23 (-0.43%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
145%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.