Cabot Oil's promising free cash flow forecast sends shares higher

(Reuters) - Cabot Oil and Gas COG.N on Friday forecast a higher-than-expected free cash flow for 2019 and promised bigger returns to investors, sending its shares up about 8 percent.

The Houston, Texas-based company estimated free cash flow in the range of $650 million to $700 million for the next year, ahead of Refinitiv estimates of about $468 million.

Cabot said it plans to distribute greater than 50 percent of that money to shareholders annually through a combination of dividends and share repurchases.

The company hiked its quarterly dividend by 17 percent to 7 cents per share, the third increase in payout in 18 months.

Cabot said it expected 2019 production to grow 20 to 25 percent, compared with this year’s estimate of 7 to 8 percent.

Some analysts said the forecast was on the “light side”, but was in line with the company’s long-term strategy to conserve cash.

“We felt like we were prudent in dialing back our ‘19 guidance,” said Chief Executive Dan Dinges on a call with analysts.

The company, which gets bulk of its revenue from natural gas assets in the Marcellus shale basin, said average production rose 10 percent to 2.03 billon cubic feet (bcf) in the third quarter.

Sales price of natural gas, excluding hedges, rose nearly 17 percent to $2.36 per thousand cubic feet.

Producers in the Marcellus, which runs through many states in the U.S. Northeast, have been able to benefit from higher gas prices in the Midwest and Gulf Coast, thanks to more pipelines coming into operation in the shale region that have helped move out the gas.

In contrast, Permian producers have been weighed down by supply bottlenecks that have pressured realized prices.

On an adjusted basis, Cabot earned 25 cents per share, missing analysts’ average estimate of 28 cents, according to Refinitiv data.

Cabot’s net income rose to $122.3 million, or 28 cents per share, in the third quarter ended Sept. 30, from $17.6 million, or 4 cents per share, a year earlier.

The company booked a gain of $25.66 million in the quarter related to sale of some assets.

Operating revenue rose 42 percent to $545.2 million.

Cabot’s shares were trading up at $23.05 when the broader markets were down. The shares have lost about 19 percent of their value since the start of this year.

Reporting by Shanti S Nair in Bengaluru; Editing by Sriraj Kalluvila