Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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

Page 1 of 2

It’s safe to say that the Marcellus has exceeded most expectations about production growth. In the first half of this year, output from the prolific shale gas play increased 50% year over year, according to Bentek Energy, an energy market analytics company.

Cabot Oil & Gas Corporation (NYSE:COG)

Ironically, however, this supply growth has led to depressed regional prices that have proved a major challenge for the very same Marcellus producers that drove the surge in production in the first place. Let’s take a closer look at what Cabot Oil & Gas Corporation (NYSE:COG), one of the largest gas producers in the Marcellus, is doing to combat low regional gas prices.

Low gas prices in the Marcellus
The collapse of regional gas prices in the Marcellus has been one of the biggest causes for concern among investors recently. In a nutshell, the combination of soaring production from the play and inadequate infrastructure has caused basis differentials to widen significantly. Last month, for instance, gas at a Pennsylvania trading hub known as TGP Zone 4-Marcellus traded for as little as $1 per Mcf, a more than $2 per Mcf discount to benchmark prices at Henry Hub.

Even Cabot, despite its industry-leading low costs of production, hasn’t been immune to the impact of widening basis differentials. According to CEO Dan Dinges, the company’s gas production during the month of July sold at an average $0.15 per Mcf discount to NYMEX futures prices on a pre-hedged basis. These types of heavy discounts for Marcellus gas have left regional producers scrambling to market their production profitably.

To alleviate this problem, Cabot Oil & Gas Corporation (NYSE:COG) is diversifying its transportation network through multiple pipelines while also pursuing a rigorous hedging program to mitigate its exposure to regional price volatility. In the company’s second-quarter earnings conference call, Dinges explained the various measures Cabot Oil & Gas Corporation (NYSE:COG) is taking to accomplish these objectives:

“…We have pursued many different avenues, including: diversifying all multiple pipelines; firm transportation agreements; long-term sales agreements, that’s our firm sales; investing in new projects like the Constitution Pipeline; and opportunistically hedging a portion of our production. All of this provides us diverse opportunities to maximize the value of this tremendous resource.”

Cabot’s gas marketing efforts
Cabot Oil & Gas Corporation (NYSE:COG) currently moves its production to market through three large interstate pipeline systems: Tennessee Gas Pipeline’s 300 Line, which is owned by Kinder Morgan Inc (NYSE:KMI), the Transco Gas Pipeline, owned by the Williams Companies, Inc. (NYSE:WMB), and the Millennium Gas Pipeline, owned by affiliates of NiSource Inc. (NYSE:NI), National Grid plc (ADR) (NYSE:NGG) and DTE Energy.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!