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Cabot expands buyback program, but shares slide as production guidance trimmed

Lower than expected earnings and a decrease in expected 2018 production growth sent shares of Cabot Oil & Gas Corp. down more than 7% in midday trading on July 27, despite the company announcing an expanded share buyback program.

Shares of Cabot were off $1.75 to $22.97 per share in the afternoon after the company announced earnings of $57.9 million, or 13 cents per share, in adjusted net income for the second quarter, compared to $64.0 million, or 14 cents per share, in the second quarter a year ago. The S&P Global Market Intelligence consensus normalized earnings estimate for the second quarter was 19 cents per share.

During the company's second-quarter earnings call, CEO Dan Dinges said the company saw 4% sequential production growth in the Marcellus Shale but endured a cash flow deficit due to capital costs and lower-than-anticipated commodity prices in May and June. Dinges said prices in those months were about 18% lower than April.

"We have seen an improvement in Northeast Pennsylvania pricing with July bid week prices selling 15% higher than the second quarter average and early indications imply August prices will look similar to July," he said.

Citing regional pipeline downtimes and third-party compressor problems, Dinges also announced the company would be lowering the top end of its annual production guidance range from 10% to 15% to 10% to 12%. "We'd rather err on the side of conservatism," he said.

Dinges complained that Cabot's growth strategy, which centers on its Marcellus asset, was "underappreciated" by the market due to "general apathy" for natural gas in general. He also defended the company's performance as solid and likely to produce long-term growth.

The company, in its earnings release, announced board approval for an expanded share repurchase program. Cabot said it will buy back an addition 20 million shares, meaning it plans to buy 30.1 million shares through the rest of the authorized buyback. At the company's July 26 closing price, that total would add up to about $745 million in share repurchases.

Year-to-date, Cabot has repurchased 20 million shares at a weighted-average price of $24.09 per share.

Touching on its exploratory program, where Cabot is looking for new shale plays to dive in to, the company said it was going to cease activity on one of two areas it is exploring after dry hole costs exceeded $51 million during the second quarter.