Is COG a Good Investment? How This Marcellus Producer Is Coping With Low Regional Gas Prices

Right off the bat, having access to three large interstate pipeline systems places Cabot Oil & Gas Corporation (NYSE:COG) in an enviable position. Not only do these pipelines provide the company with firm transportation contracts to move as much as 325 MMcf per day this year, all three of them recently wrapped up expansion projects and have announced plans to expand capacity in the future.

Furthermore, Cabot Oil & Gas Corporation (NYSE:COG) has an ambitious plan to more than triple its current capacity secured by firm transportation contracts by 2015, as it adds a number of additional pipelines to its existing transportation and marketing efforts. These include the Constitution pipeline, for which Cabot filed an application with FERC during the second quarter and expects the line to be in service by March of 2015, as well as the Iroquois Pipeline, the Tennessee Gas Pipeline’s 200 Line, and the TransCanada Pipeline via Iroquois.

As these and other infrastructure projects come online over the next couple of years, Cabot expects to ramp up capacity secured by firm transportation contracts to 450 MMcf per day by 2014 and to a whopping 1 Bcf per day by 2015. The company also expects to nearly double its long-term sales contracts (defined as those between eight and fifteen years) between now and 2015, from 325 MMcf per day this year to roughly 615 MMcf per day in 2015.

The bottom line
These infrastructure improvements provide a very visible growth runway for Cabot, as well as other Marcellus producers, whose production potential has been severely hampered by infrastructure limitations in the play. Indeed, Cabot is so confident about the impact of new infrastructure coming online in the second half of this year that it recently increased the low end of its 2013 production growth guidance to 44% and the high end to 54%.

As the backlog of Cabot’s Marcellus wells – 37 as of the end of the second quarter – starts to fall, investors can expect production and free cash flow to grow robustly, which not only bodes well for the stock price but could also mean additional dividend increases down the line.

The article How This Marcellus Producer Is Coping With Low Regional Gas Prices originally appeared on Fool.com and is written by Arjun Sreekumar.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan and National Grid plc (NYSE:NGG) (ADR). The Motley Fool owns shares of Kinder Morgan. 

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