Chart-Topping Cabot, Defying Gas Gravity, Splits Stock

Cabot Oil & Gas Corp. (COG), 2011’s best- performer among the Standard & Poor’s 500 (SPX), announced a stock split and dividend increase after more than doubling natural-gas production from the Marcellus Shale in a year.

With about 95 percent (COG) of its production in gas, Cabot shares doubled in 2011 to $75.90 even as gas prices fell 32 percent. The company prospered from exceptionally productive wells in northeastern Pennsylvania, Raymond Deacon, a Boston- based analyst for Brean Murray Carrett & Co., said today in an interview. A November deal with pipeline owner Williams Partners LP (WPZ) will get its rising production to market this year and beyond, he said.

“They’re sitting on the best piece of real estate in the Marcellus,” Brian Lively, director of exploration and production research at Tudor Pickering Holt & Co. in Houston, said today in an interview. “They are a takeover target.”

Gas wells in northeastern Pennsylvania are so cheap and productive that they’re the only ones worth drilling with gas trading on the New York Mercantile Exchange at $3.05 a million British thermal units today, said Lively, who rates the shares at “buy” and owns none.

Cabot doesn’t comment on takeover speculation, George Stark, a company spokesman, said today in an interview.

The two-for-one split will be distributed Jan. 25 to holders who owned the stock as of Jan. 17, Houston-based Cabot, said today in a statement. The company increased the quarterly dividend on a pre-split basis by 33 percent. Shareholders will get 2 cents a share on Feb. 3, up from 1.5 cents.

Doubling Marcellus

While larger producers including Devon Energy Corp. (DVN) and Chesapeake Energy Corp. (CHK) are shifting more of their production to oil or natural gas liquids that fetch higher prices than gas, Cabot has kept its focus on gas. The company’s production from the Marcellus Shale more than doubled to 600 million cubic feet a day during the final two days of 2011 compared with a year earlier, Cabot said in a separate statement today.

“The economics of their wells are better than anyone else’s,” said Deacon of Brean Murray, who rates Cabot at “buy” and owns none. “They would still get north of a 40 percent return at a $3.30 gas price.”

Production in 2012 may rise as much as 80 percent, Deacon said. Cabot forecast output growth of 45 percent to 55 percent, allowing for delays in pipeline expansions.

That limit was dispelled today as Cabot announced increased shipping capacity, Lively said.

‘Underpromises and Overdelivers’

“You have a management team that underpromises and overdelivers,” said Lively of Tudor Pickering. “Today we saw infrastructure hooked up faster than expected, and infrastructure is the biggest throttle on their production growth for 2012.”

A compressor upgrade increased Marcellus shipping capacity to 650 million cubic feet a day, the company said today. The company expects deliveries of 250 million cubic feet per day from a new pipeline link will begin tomorrow. That’s faster than expected, Lively said in a note to clients.

Cabot sold its Marcellus pipeline system to Williams Partners last month for $150 million and a 25-year shipping agreement that includes providing as much as 1.2 billion cubic feet per day of capacity within three years.

Cabot rose 7.2 percent to close at $82.32 in New York.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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