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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (61)	2/14/2008 8:52:32 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 111

Cabot Oil & Gas Corp. (COG): Drilling results show success in three key emerging regions - Goldman Sachs - February 14, 2008 News Cabot reported 4Q2007 adjusted EPS of $0.43, in line with our estimate of $0.43 and consensus of $0.42. Production was 232 MMcfe/d, lower than our 241 MMcfe/d estimate. Higher exploration expense was offset by lower DD&A, and higher realized prices offset lower production. Operating cash flow was $139 million, above our estimate of $114 million. Finding and development costs were $2.07/Mcfe in 2007, versus $2.10/Mcfe in 2006. Analysis We view the company's operational update positively, due to specific positive data from three of four plays we view as catalysts for the stock. (1) Marcellus Shale: vertical well initial production rates of 0.8-1.0 MMcf/d from two wells in recently leased acreage and 1.2-1.8 MMcf/d from three wells in legacy acreage. Initial horizontal results are expected next quarter. (2) James Lime: average 30-day IP rates from horizontal wells of almost 6 MMcf/d, with last two wells seeing one-day IP rates of 15 MMcf/d. (3) Trawick: 1-4 MMcf/d IP rates for six Travis Peak wells and unspecified success in the first deep Haynesville well. We believe the strong operational update and low F&D costs (without any increase in the percentage of proved undeveloped reserves) offset lower-than-expected production during the quarter. Understanding specifics behind the lower production on the conference call is key toward determining the extent to which management’s production guidance, which was left unchanged, is conservative. Implications We rate Cabot Conviction Buy. We believe Cabot has rising inventory of low cost drilling opportunities that can generate 8%-12% production growth per year for the next few years without a meaningful free cash deficit. We believe further multiple expansion is justified and see 22% upside potential to a $53 12-month DCF-based target price, which remains unchanged. Risks include commodity price volatility, drilling results, and cost pressures.