NEW YORK (TheStreet) -- Cabot Oil & Gas (COG - Get Report) , the shale gas producer that operates in Pennsylvania's Marcellus and Texas's Eagle Ford regions, continues to target up to 30% increase in production next year despite a difficult business environment.

The Houston company released its third-quarter results last week that showed a 17.5% increase in revenue from a year earlier to $512 million on the back of a 24% increase in production, while profits excluding one-off items grew 14% to $85 million. However, the results didn't meet Wall Street's estimates, as per data compiled by Thomson Reuters.

But there were two big positives: Cabot said it expects to drill about 190 wells,and it continues to target production growth of between 20% and 30% next year.

Cabot can achieve this target while spending within its cash flows, even with deteriorating oil and gas prices, Topeka Capital Markets analyst Gabriele Sorbara wrote in an Oct. 27 research report.

Cabot's shares, at around $31, are down nearly 19% for the year to date.

Futures for Brent and WTI oil have dropped by about 20% over the past three months.

Natural gas, which makes up about 96% of Cabot's production, isn't doing any better. The weekly Henry Hub natural-gas spot price has dropped by about 40% from its peak levels in July.

However, the company is in a great position to navigate this tough market. Cabot is "one of the lowest cost producers" at Marcellus and Eagle Ford, which makes it resilient to the drops in natural gas prices, Sorbara wrote.

Cabot has forecast it will incur cash cost of just $1.25 per thousand cubic feet equivalents of natural-gas production this year, about three times lower than the benchmark price.

In addition, the 124-mile Constitution pipeline, which is being developed by Williams Companies (WMB - Get Report)  partnering with Cabot, Piedmont Natural Gas (PNY) and WGL Holdings (WGL) , has received final environmental approval from U.S. regulators.

Major Marcellus producers such as Cabot, Anadarko Petroleum  (APC) Carrizo Oil & Gas  (CRZO - Get Report) and Chesapeake Energy (CHK - Get Report) have been plagued by a lack of infrastructure assets such as transmission pipelines in the region. This has restrained growth opportunities and created a glut of supply at Marcellus, which had a negative impact on prices.

The Constitution pipeline is a new infrastructure "that will allow for Cabot's natural gas to flow to both underserved and un-served markets along the East Coast," Cabot spokesman George Stark wrote in an email.

Although the pipeline needs additional permits before the construction work can actually begin, Sorbara expects the process to be fairly smooth. This approval improves Cabot's long-term production growth visibility, he wrote. He rates the stock a buy and has a $40 price target.

Cabot has forecast that the pipeline could become operational by as early as the end of next year. This could give the company an opportunity to increase its revenue and improve its profitability.

During the third-quarter conference call, Cabot Chief Executive Dan Dinges said the company will likely supply about half a billion cubic feet equivalents of gas from Constitution at better prices than the general market.

Besides Constitution, Cabot has also undertaken a number of measures to "increase the flow of natural gas to additional markets," according to Stark.

Cabot has signed additional capacity on the Columbia East Side expansion project and long-term contracts under the Leidy Southeast project, both of which are slated to come in service by the fourth quarter next year.

Beyond this, Cabot has secured contracts to supply 850 million cubic feet of natural gas daily from the Atlantic Sunrise pipeline, which is slated to come online in the second half of 2017, according to the company spokesman.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates CABOT OIL & GAS CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate CABOT OIL & GAS CORP (COG) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

You can view the full analysis from the report here: COG Ratings Report