Cabot Oil & Gas Corporation (COG), Cheniere Energy, Inc. (LNG): What To Watch In This Space

Thanks to the shale gas boom in North America, natural gas has proved to be an economically viable replacement for coal in the continent. But, mining for natural gas involves the leakage of methane, the greenhouse effect of which is 21 times greater than carbon dioxide. Currently, methane accounts for 9% of total greenhouse gases, and a ramp up in it natural gas production would obviously have disastrous environmental consequences. These estimates were a major a deterrent in natural gas adoption.

However, in a recently revised report, the Environmental Protection Agency (EPA) lowered its estimates of methane gas emissions from natural gas mining by 20% (from 1990 to 2010). The agency stated that the roll back was made possible by strict pollution and emission controls in the industry, which suggests that fracking is greener than previously estimated. The report by EPA clears most of the environmental roadblocks, and presents a tremendous growth opportunity for most natural gas companies.

Profiting from volumes

Cabot Oil & Gas Corporation (NYSE:COG) is one of the leading natural gas producers in the U.S., with its hydrocarbon reserves spread across the North American continent. The company had been ramping up its production to offset the falling prices of natural gas. But, the recent turnaround in the gas prices allowed the company to report a quarterly profit of $42.8 million as compared $18.3 million in last year’s quarter.

For the recent quarter, Cabot Oil & Gas Corporation (NYSE:COG) increased its natural gas production by 51% while its oil, condensate, and NGL segments reported an overall growth of 28%. Since Cabot Oil & Gas generates most of its revenue from natural gas (95.4%), strong gas production led to a 37% surge in its quarterly revenue, due to which its operating and discretionary cash flows touched record levels.

Additionally, most of its natural gas production comes from Marcellus shale gas plays, which is estimated to produce around 66.40 Bcf/d (an upward revision of 1.30 Bcf/d from the previous forecasts). For the recent quarter, Cabot Oil & Gas Corporation (NYSE:COG) reported record natural gas production of 1.05 Bcf/d, which would further grow once its field pressure constraints are overcome this year.

For FY13, management is targeting an overall production growth of 35%-50%, while analysts estimate its annual EPS to grow 75.17% next year.

But that’s not all!

Another company that stands to benefit here is Cheniere Energy, Inc. (NYSEAMEX:LNG). Its Sabine Pass export terminal is the first liquefaction plant in the U.S. to receive regulatory approvals for LNG exports in the last 50 years. The plant is able to accommodate four LNG supply trains, and has a natural gas processing capacity of 2 Bcf/d. Naturally, with the optimistic picture presented by the EPA, international natural gas demand would most likely increase, which should drive up the company’s revenue.