Morningstar | Cabot's Volumes and Pricing Differentials Set to Improve With Atlantic Sunrise
We're leaving our Cabot Oil & Gas fair value estimate unchanged at $30 per share following our initial look at second-quarter earnings. Our narrow moat rating is also intact. Cabot posted production in the second quarter of 1.895 billion cubic feet per day, near the high end of management's guidance and a 0.5% increase sequentially versus the second quarter. Volumes are set to jump in the second half of the year thanks to the anticipated in-service of the Atlantic Sunrise pipeline project. We don’t see cause for concern in management bringing down the top end of 2018 production growth guidance from 15% to 12% as the company's expectation for the 2018 exit rate is unchanged.We expect improvement in natural gas pricing differentials to benchmark Nymex as needed infrastructure, including the aforementioned Atlantic Sunrise, improve Cabot's takeaway capacity and get more gas out of the Marcellus region, improving local prices.
Free cash flow dipped negative in the quarter due to infrastructure investments, breaking a streak of eight consecutive quarters. Still, we think Cabot is set up for solid free cash flow generation in the future given it's moatworthy asset base. Cabot holds one of the best cost positions is the Marcellus Shale, which itself is characterized by low operating and development costs.
Cabot Oil & Gas is an independent oil and gas company engaged in the development, exploitation, exploration and production of oil and gas properties. The company operates in one segment, natural gas and oil development, exploitation, exploration and production, in the continental United States. The company's operations are primarily concentrated in one unconventional play—the Marcellus Shale in northeast Pennsylvania.
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