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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	10/29/2007 8:42:59 AM
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Cabot Oil & Gas Corp. (COG): Resource expansion on track, beating guidance now needed - Goldman Sachs - 10/29/07 What's changed COG reported adjusted EPS of $0.40 versus First Call consensus of $0.38 and our $0.35. Total production was 238 MMcfe/d versus our 239 MMcfe/d estimate. Operating cash flow was $121 million versus our estimate of $95 million. Management introduced 2008 production guidance calling for 9.4% growth. Our full-year 2007 and 2008 estimates are now $1.72($1.68 previously) and $2.10($2.33 previously). Implications In 2007 Cabot has expanded its resource potential in East Texas and Appalachia but has suffered from midstream delays in Appalachia and shut in production in the Rockies that has impacted growth versus expectations. We believe Cabot can once again outperform if it can continue to show positive drilling results from the James Lime play East Texas and the various Devonian Shale opportunities in Appalachia while also showing double digit production growth. We rate Cabot Neutral relative to an Attractive coverage view. Valuation COG shares trade at 7.3x 2008 EV/debt-adjusted cash flow, a discount to other long-lived and unconventional small and mid-cap E&Ps that trade at 8.6x. Cabot’s discount in our view is reflective of a lower growth rate, though we would note that we are expecting Cabot to show free cash flow in 2008. We see 19% upside potential to our $45 12-month target price, a similar level of upside as we do for peers. Our target price is based on discounted cash flow analysis of proved reserves and select unbooked resource. Key risks Commodity price volatility, drilling results, cost pressures and government pronouncements are the key risks to COG's shares.

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