Cabot Oil & Gas Is One Company Rising in Oil-Sector Carnage

Cabot Oil & Gas is one company rising in oil-sector carnage
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Cabot Oil & Gas (COG) - Get Report shares on Monday were higher while the rest of the oil sector tumbled as analysts reassessed their views of the natural-gas-heavy company.

At last check Cabot shares were 9.3% higher at $17.90.

Cabot's advance to the top of the S&P 500 came in sharp contrast to other oil companies, which sank after crude prices fell. Negotiations between OPEC and Russia have broken down and Saudi Arabia launched a price war and vowed to boost production to lift its market share.

Analysts at Cowen said Cabot was the "best-in-class gassy name," while Doug Leggate, an analyst with Bank of America, said that "on a relative basis, Cabot is 99% gas" and is among the companies "with the lowest operating cost and sustaining capital in the sector."

Bank of America previously held an underperform rating "vs. a more optimistic view of oil vs. gas," Leggate wrote in a note to investors. "This has changed with the real risk that slowing U.S. drilling activity puts a floor under U.S. gas. Our rating on Cabot moves to neutral."

In addition, Heikkinen Energy upgraded Cabot, adding it to the firm’s focus list, Bloomberg reported. And Tudor Pickering reiterated its buy rating on the company, saying Cabot remains a “great” risk-reward pick as a long play.

"The world has changed for the oil sector," Leggate said. "Considerable damage is being inflicted on oil prices from the demand shock associated with the coronavirus; but the bigger issue is the collapse of the Saudi/Russia ‘put’ after failed attempts to support price."

Oil prices will collapse, Leggate said. The "question is by how much, for how long and with what eventual impact on supply."

"An extended period of weakness seems inevitable and will test energy equities to extremes not seen since 2016," he said.

Raymond James analyst John Freeman said Cabot "has done what it can with an already low-cost structure and a shift to maintenance mode. [But] upside in the stock is at the mercy of a resurgence in natural gas prices."

"Adding to this, the front-loaded capital-expenditure budget removes some cash-flow flexibility the operator has been historically known for relative to its peers," Freeman said. "Accordingly, we reiterate our underperform rating."