Houston-based natural gas producer Cabot Oil & Gas
CEO Dan Dinges blamed the fall on the decline in natural gas prices over the corresponding periods. However, this does not quite explain everything, as the company has also scaled up production.
The real culprit affecting profitability lies with the $14.6 million rise in operating expenses. While it's true that total production rose from 26.7 billion cubic feet equivalent to 37.7 Bcfe for comparable quarters, the company could not keep the expenses down, with transportation and gathering costing nearly $13 million -- up from $3.7 million.
As a result of these higher costs, operating income fell to $36.3 million this quarter, from $60.5 million a year ago -- a 40% drop. Foolish investors must always look at a company's operations as part of their greater due diligence.
One more thing
Dinges did say that there should be expansion in 2011 along the top line, especially in the Eagle Ford shale play. Cabot intends to participate in or personally drill 25 to 30 wells -- up from its current involvement in six wells. With a partnership with EOG Resources
Foolish bottom line
Demand for natural gas will grow as the need to satisfy the hunger for energy increases. As a legitimate, present-day alternative to ever-pricey oil, Cabot's natural gas properties have great potential in terms of growth. After all, companies such as Anadarko Petroleum
Isac Simon does not own shares of any of the companies mentioned in this article. Alpha Newsletter Account LLC owns shares of Chesapeake Energy. 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.