EUR 850.00 For Business Accounts Only

Morningstar | Cabot is a low-cost, low-leverage, pure-play Marcellus operator.

Cabot Oil & Gas is a pure-play U.S. dry natural gas exploration and production company. Its asset base is geographically concentrated in the Marcellus, a low-cost source of U.S. natural gas. Cabot’s cost position within the basin is enviable, characterized by a fully loaded break-even price below $2.00 per thousand cubic feet.Cabot has been drilling in the Marcellus for more than a decade, and as one of the first operators in the basin, the company has benefited from somewhat of a first-mover advantage in the form of low royalty rates and contiguous acreage, both of which help improve returns on invested capital. And the firm’s drilling opportunities aren’t likely to dry up anytime soon. With 3,000 remaining undrilled locations, we think Cabot has well over a decade of profitable drilling ahead of it. As such, we’re expecting a material pick up in Cabot’s gas production. In 2017, the company produced 1,875 million cubic feet of gas per day. By the end of the decade, we think production will swell to above 3,000 mmcf/d, a gain of roughly 75%.Our long-term outlook is for U.S. natural gas prices to reach $3.00 per mcf in 2021 at Henry Hub. At these prices, we expect Cabot will generate healthy margins and returns on capital in the years to come. Also on the pricing front, we’re expecting an improvement in commodity differentials for the company as takeaway capacity in the Marcellus continues to come on line. As a dry gas operator, Cabot doesn’t currently have exposure to changes in pricing for natural gas liquids. This could put it at a comparative disadvantage if the NGL/crude price ratio improves gradually as we expect, but it also insulates the company from any drop in NGL pricing we’re not expecting.