Cabot A Strong Energy Play

Cabot Oil And Gas (NYSE:COG) has a solid base of existing production and is exposed to prospective acreage in two high-profile shale plays in North America, making this one attractive to own for investors who still believe in the long-term bull in the energy sector. It may be a rocky road for the industry in 2009, but eventually the forces that create cycles in the energy industry will reassert themselves and end the downturn.

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Cabot is an oil-and-gas exploration and production company with 1.942 Tcfe (trillion cubic feet equivalent) of proved reserves (by the end of 2008). Its areas of operations are in the onshore North America region including the Rocky Mountains area, and the Marcellus and the Haynesville Shale. Production in 2008 was 95.2 Bcfe, up 11% over 2007.

Haynesville Shale
Cabot has interests in three existing fields in the East Texas Area - the Minden, Trawick and County Line Fields, with 134,000 total acreage in these three fields. The geology on this area allows production from multiple zones at different depths. In 2009, the company is aggressively targeting the Haynesville Shale, which lies below the Travis Peak and Cotton Valley Sand zones. (Before jumping into this sector, learn how these companies make their money in Oil And Gas Industry Primer.)

Other companies have had success in this area by targeting the shale. One such example is Goodrich Petroleum (NYSE:GDP); it has 60,000 acres under lease and has had several successful wells nearby with promising initial production rates.

Marcellus Shale
The next promising area for Cabot Oil and Gas is the Marcellus Shale, which is located in the Northeast. The company has 150,000 acres under lease, located in Pennsylvania, and recently reported its third successful horizontal well in this play. One problem that Cabot, and other exploration and production companies, have in this area is lack of takeaway capacity. The company had to shut in some of its vertical wells in the area to accommodate the new production.

The potential of the Marcellus Shale has excited the industry due to its sheer size and results to date. CNX Gas (NYSE:CXG) disclosed in its fourth quarter earnings that it has 186,000 acres under lease. Its first horizontal well in the area (in December 2008) produced at a record rate for the company. CNX Gas is 81% owned by CONSOL Energy (NYSE:CNX), the giant coal company. Demand for coal has fallen sharply with the economy, and analysts estimate that production will exceed demand by 40 million tons in 2009. CONSOL Energy is down 80% from its 52-week high.

Financials
Cabot has total debt of $867 million, against only $28 million cash at the end of 2008. While this debt could be worrisome if commodity prices continue to come down, only $35.9 million is listed as due within a year. (To read more on fluctuations in gold and oil prices and improve your trading, read Commodity Prices And Currency Movements.)

Cabot is among the few exploration and production companies to combine a solid base of existing production with prospective acreage in two shale plays in North America. The combination could make this one a good place to put your bets on energy.