market folly

We're posting up notes from the Sohn New York Investment Conference.  Next up is Matthew J. Smith of Deep Basin Capital who presented long Cabot Oil & Gas (COG).


Matthew Smith's Sohn New York Presentation

•    Energy focused investment firm
•    Cabot Oil & Gas (COG) - Currently $25 a share. Base case $35/Bull case $45/Downside to low 20’s
o    Acquisition candidate. Management incentivized to sell
o    Acreage in Marcellus shale. Marcellus generates 1/3 of natural gas used in the US
o    COG is in the best place in the country for nat gas
o    Productivity of COG wells 75% better than industry average
o    18 years of inventory in prime acreage
o    Atlantic Sunrise pipeline built to take COG gas into premium markets. Realize higher prices on nat gas. Own 10% of Atlantic Sunrise
o    40% higher margins than peers and growing
o    Over next 8 years will generate market cap in FCF
o    Based on current curve COG worth mid-thirties. On 50 cents higher curve worth bull case
o    Doesn’t like AR RRC because they are levered and are competing with free gas from oil production (associated gas)
o    COG will soon be a tax payer. Through an acquisition the profits can be shielded from taxes
o    COG share of Atlantic Sunrise worth $300 million and likely to sell and repurchase stock
o    Average management age at Cabot is in the sixties so think they will look to exit in a sale


Be sure to check out the rest of the Sohn New York conference presentations.