-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FjLli1YE3nnuOQ3EoT3fOv1Bi7rCsWqD9qOUPvRROmdKnu9zWkdm/GAbXv5D1SZA xq1ZQtASnvdZnZsC8tsLJA== 0000858470-96-000002.txt : 19960517 0000858470-96-000002.hdr.sgml : 19960517 ACCESSION NUMBER: 0000858470-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABOT OIL & GAS CORP CENTRAL INDEX KEY: 0000858470 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 043072771 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10447 FILM NUMBER: 96565259 BUSINESS ADDRESS: STREET 1: 15375 MEMORIAL DR CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 7135894600 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------- FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 1-10447 CABOT OIL & GAS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 04-3072771 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 15375 Memorial Drive, Houston, Texas 77079 (Address of principal executive offices including Zip Code) (713) 589-4600 (Registrant's telephone number) No Change (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of April 28, 1996, there were 22,797,754 shares of Class A Common Stock, Par Value $.10 Per Share, outstanding. CABOT OIL & GAS CORPORATION INDEX TO FINANCIAL STATEMENTS
Part I. Financial Information Page Item 1. Financial Statements Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 1996 and 1995.................................................................... 3 Condensed Consolidated Balance Sheet at March 31, 1996 and December 31, 1995....................... 4 Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1996 and 1995.................................................................... 5 Notes to Condensed Consolidated Financial Statements............................................... 6 Independent Certified Public Accountants' Report on Review of Interim Financial Information.................................................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................................................. 18 Signature .............................................................................................. 19
-2- CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED MARCH 31, 1996 1995 NET OPERATING REVENUES Natural Gas Production.................................................... $ 33,608 $ 26,822 Crude Oil & Condensate.................................................... 2,659 3,122 Brokered Natural Gas Margin............................................... 2,090 952 Other..................................................................... 2,841 1,691 -------- ------- 41,198 32,587 OPERATING EXPENSES Direct Operations......................................................... 6,822 7,294 Exploration............................................................... 2,353 1,658 Depreciation, Depletion and Amortization.................................. 9,753 13,685 Impairment of Unproved Properties......................................... 705 921 General and Administrative................................................ 3,737 4,261 Taxes Other Than Income................................................... 3,404 2,921 Cost Reduction Program (Note 7)........................................... -- 6,820 ------- ------- 26,774 37,560 Gain (Loss) on Sale of Assets................................................ 1,505 (393) ------- ------- INCOME (LOSS) FROM OPERATIONS................................................ 15,929 (5,366) Interest Expense............................................................. 4,849 5,860 ------- ------- Income (Loss) Before Income Taxes............................................ 11,080 (11,226) Income Tax Expense (Benefit)................................................. 4,431 (4,405) ------- ------- NET INCOME (LOSS)............................................................ 6,649 (6,821) Dividend Requirement on Preferred Stock...................................... 1,391 1,379 ------- ------- Net Income (Loss) Applicable to Common Stockholders.......................... $ 5,258 $ (8,200) ======= ======= Earnings (Loss) Per Share Applicable to Common............................... $ 0.23 $ (0.36) ======= ======= Average Common Shares Outstanding............................................ 22,793 22,766 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. -3- CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (In Thousands)
MARCH 31, DECEMBER 31, 1996 1995 ASSETS Current Assets Cash and Cash Equivalents.................................................. $ 3,751 $ 3,029 Accounts Receivable........................................................ 53,853 42,014 Inventories................................................................ 4,113 5,596 Other...................................................................... 1,160 1,709 -------- -------- Total Current Assets..................................................... 62,877 52,348 Properties and Equipment (Successful Efforts Method).......................... 475,303 474,371 Other Assets.................................................................. 1,460 1,436 -------- -------- $ 539,640 $ 528,155 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable........................................................... $ 48,144 $ 48,122 Accrued Liabilities........................................................ 15,895 12,759 -------- -------- Total Current Liabilities................................................ 64,039 60,881 Long-Term Debt................................................................ 248,000 249,000 Deferred Income Taxes......................................................... 67,049 62,752 Other Liabilities............................................................. 8,040 7,666 Commitments and Contingencies (Note 6) Stockholders' Equity Preferred Stock: Authorized--5,000,000 Shares of $.10 Par Value Issued and Outstanding - $3.125 Cumulative Convertible Preferred; $50 Stated Value; 692,439 Shares in 1996 and 1995 - 6% Convertible Redeemable Preferred; $50 Stated Value; 1,134,000 Shares in 1996 and 1995........................ 183 183 Common Stock: Authorized--40,000,000 Shares of $.10 Par Value Issued and Outstanding--22,796,972 Shares and 22,783,319 Shares in 1996 and 1995, Respectively....................... 2,279 2,278 Additional Paid-in Capital................................................. 242,367 242,058 Accumulated Deficit........................................................ (92,317) (96,663) -------- -------- Total Stockholders' Equity............................................... 152,512 147,856 -------- -------- $ 539,640 $ 528,155 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. -4- CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In Thousands)
THREE MONTHS ENDED MARCH 31, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss)........................................................ $ 6,649 $ (6,821) Adjustment to Reconcile Net Income (Loss) To Cash Provided by Operating Activities: Depletion, Depreciation and Amortization............................. 9,753 13,685 Impairment of Undeveloped Leasehold.................................. 705 921 Deferred Income Taxes................................................ 4,297 (3,622) (Gain) Loss on Sale of Assets........................................ (1,505) 393 Exploration Expense.................................................. 2,353 1,658 Cost Reduction Program (Note 7)...................................... -- 4,188 Other, Net........................................................... 42 (257) Changes in Assets and Liabilities: Accounts Receivable.................................................. (11,838) 6,082 Inventories.......................................................... 1,483 4,946 Other Current Assets................................................. 549 765 Other Assets......................................................... (24) (50) Accounts Payable and Accrued Liabilities............................. 3,064 (10,621) Other Liabilities.................................................... 554 706 ------- ------- Net Cash Provided by Operating Activities.......................... 16,082 11,973 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures..................................................... (14,337) (3,067) Proceeds from Sale of Assets............................................. 4,468 313 Exploration Expense...................................................... (2,353) (1,658) ------- ------- Net Cash Used by Investing Activities.............................. (12,222) (4,412) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of Common Stock..................................................... 165 224 Increase in Debt......................................................... -- 1,100 Decrease in Debt......................................................... (1,000) (7,027) Dividends Paid........................................................... (2,303) (2,302) ------- --------- Net Cash Used by Financing Activities.............................. (3,138) (8,005) ------- -------- Net Increase (Decrease) in Cash and Cash Equivalents........................ 722 (444) Cash and Cash Equivalents, Beginning of Period.............................. 3,029 3,773 ------- ------- Cash and Cash Equivalents, End of Period.................................... $ 3,751 $ 3,329 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. -5- CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. FINANCIAL STATEMENT PRESENTATION During interim periods, the Company follows the accounting policies set forth in its Annual Report to Stockholders and its Report on Form 10-K filed with the Securities and Exchange Commission. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the Annual Report to Stockholders when reviewing interim financial results. In the opinion of management, the accompanying interim financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. 2. RECLASSIFICATIONS Certain items within the Consolidated Statement of Operations for the three months ended March 31, 1995 have been reclassified to conform with the March 31, 1996 presentation. Under the new presentation, the Company presents gas revenues from its equity production net of related costs (principally transportation and storage costs) in a new revenue item called "Natural Gas Production". Similarly, the procurement costs related to the purchase and resale (brokered) activity are netted against the gas revenues and presented in a new item called "Brokered Natural Gas Margin" in the net operating revenues section. 3. PROPERTIES AND EQUIPMENT Properties and equipment are comprised of the following:
MARCH 31, DECEMBER 31, 1996 1995 (in thousands) Unproved oil and gas properties....................................... $ 13,569 $ 12,488 Proved oil and gas properties......................................... 779,729 800,373 Gathering and pipeline systems........................................ 144,615 146,330 Land, building and improvements....................................... 5,443 5,551 Other................................................................. 15,488 15,243 -------- -------- 958,844 979,985 Accumulated depreciation, depletion and amortization.................. (483,541) (505,614) -------- -------- $ 475,303 $ 474,371 ======== ========
-6- CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued 4. ADDITIONAL BALANCE SHEET INFORMATION Certain balance sheet amounts are comprised of the following:
MARCH 31, DECEMBER 31, 1996 1995 (in thousands) Accounts Receivable Trade accounts.................................................... $ 48,494 $ 38,119 Other accounts.................................................... 6,544 5,138 ------- ------- 55,038 43,257 Allowance for doubtful accounts................................... (1,185) (1,243) ------- ------- $ 53,853 $ 42,014 ======= ======= Inventories Natural gas in storage............................................ $ 1,087 $ 4,058 Tubular goods and well equipment.................................. 1,408 1,485 Pipeline Exchange balances........................................ 1,618 53 ------- ------- $ 4,113 $ 5,596 ====== ======= Accounts Payable Trade accounts.................................................... $ 11,449 $ 9,312 Natural gas purchases............................................. 13,683 12,523 Royalty and other owners.......................................... 11,979 10,842 Capital costs..................................................... 4,524 6,518 Dividends payable................................................. 1,391 1,391 Taxes Other Than Income........................................... 876 749 Gas Price Swaps................................................... -- 3,205 Other accounts.................................................... 4,242 3,582 ------- ------- $ 48,144 $ 48,122 ======= ======= Accrued Liabilities Employee benefits................................................. $ 2,664 $ 2,506 Taxes other than income........................................... 8,005 7,633 Interest payable.................................................. 4,314 1,883 Other accrued..................................................... 912 737 -------- ------- $ 15,895 $ 12,759 ======= ======= Other Liabilities Postretirement benefits other than pension........................ $ 2,460 $ 2,640 Accrued pension cost.............................................. 3,399 3,144 Taxes other than income........................................... 1,783 1,482 Other............................................................. 398 400 ------ ------- $ 8,040 $ 7,666 ======= =======
-7- CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued 5. LONG-TERM DEBT At March 31, 1996, the Company had borrowed $163 million against an available credit line of $235 million. The available credit line is subject to adjustment from time-to-time on the basis of the projected present value (as determined by a petroleum engineer's report incorporating certain assumptions provided by the lender) of estimated future net cash flows from proved oil and gas reserves and other assets. The revolving term under this credit facility presently ends in June 1997 and is subject to renewal. The Company was also fully drawn on a $5 million term note agreement, established in February 1996, that matures December 31, 1997. The interest rate is principally based on the prime rate minus one percent. 6. CONTINGENCIES Subsequent to the developments with regard to the Barby lawsuits as described in the Company's 1995 Annual Report on Form 10-K, both actions have been conditionally settled, subject to the Court's approval of certain provisions contained in the settlement agreement. The conditional settlement, if effected, will result in a charge to earnings in 1996 that is not material to the Company's operating results or financial position. 7. COST REDUCTION PROGRAM In January 1995, the Company announced a cost reduction program which included a voluntary early retirement program, a 15% targeted reduction in workforce and a consolidation of management in the Rocky Mountain, Anadarko and onshore Gulf Coast areas into a single Western Region. Accordingly, the Company recognized a liability and charged to expense $6.8 million in termination benefits for 115 employees, or 23% of the total workforce, including 24 employees who elected early retirement. See Note 12 of the Notes to the Consolidated Financial Statements in the Company's 1995 Annual Report for further discussion. 8. WERCO ACQUISITION On May 2, 1994, the Company, through a subsidiary, completed the merger with Washington Energy Resources Company ("WERCO"), a wholly-owned subsidiary of Washington Energy Company. The Company acquired the stock of WERCO in a tax-free exchange. Total capitalized costs related to the acquisition were $207.8 million, comprised of cash and stock consideration of $167.6 million (net of an $8.4 million post-closing adjustment in 1995) and a $40.2 million non-cash component relating to the deferred income taxes attributable to the differences between the tax and book bases of the acquired properties, as required by SFAS 109, "Accounting for Income Taxes". The acquisition was recorded using the purchase method. The oil and gas properties are located in the Green River Basin of Wyoming and in the Gulf Coast. The Company issued 2,133,000 shares of Common Stock and 1,134,000 shares of 6% convertible redeemable preferred stock ($50 per share stated value) to Washington Energy Company in exchange for the capital stock of WERCO. The $8.4 million post-closing adjustment was a net cash payment received in 1995 related to a valuation adjustment and was recorded as a reduction to the net book value of certain of the oil and gas properties acquired. -8- Independent Certified Public Accountants' Report on Review of Interim Financial Information To the Board of Directors and Shareholders Cabot Oil & Gas Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Cabot Oil & Gas Corporation as of March 31, 1996, and the related condensed consolidated statements of operations and cash flows for the three month period ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and, in our report dated March 1, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived. Coopers & Lybrand L.L.P. Houston, Texas May 10, 1996 -9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of operations for the first quarter of 1996 and 1995 should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto included elsewhere in this Form 10-Q and with the Consolidated Financial Statements, Notes and Management's Discussion and Analysis included in the Company's Form 10-K for the year ended December 31, 1995. Overview In addition to the substantial up swing in gas prices, actions taken in 1995, designed to return the Company to future profitability, played an important part in the first quarter performance of 1996 with near record earnings and strong operating cash flows. Refer to the Overview section of the Management's Discussion and Analysis of Financial Condition in the Company's 1995 Annual Report on Form 10-K for a discussion of these actions. First quarter operating results for 1996 included the benefit of the following realizations: (*) The average gas price for the quarter was $2.37 per Mcf, up 36% compared to the first quarter of 1995. (*) Direct operating and administrative costs were reduced by $1.0 million, or 9%, compared to the corresponding quarter in 1995. (*) Under its continued program to divest non-strategic properties, the Company sold approximately 260 net wells located in the Appalachian Region, generating $4.4 million in cash proceeds and a gain on sale of $1.5 million. (*) Interest costs were down $1.0 million, or 17%, primarily due to the combination of the reduced debt balance, lower interest rates and the absence of interest rate swaps that were in place in 1995. (*) Depreciation, depletion and amortization ("DD&A") expenses were down $4.1 million or $0.18 per Mcfe of production. This reduction was primarily the result of the impairment of long-lived assets which reduced the depreciable basis by $113.8 million in 1995. Operating cash flows were also up significantly, increasing $4.1 million, or 34%, over the same quarter in 1995. Cash flows from operations, along with the $4.4 million of proceeds from the sale of non-strategic properties, funded (1) the $16.7 million of capital and exploration expenditures, $12 million higher than the first quarter in 1995, and (2) a $1.0 million reduction in outstanding debt. The Company drilled 35.8 net wells with a success rate of 91% compared to 4.2 net wells and a 75% success rate in the first quarter of 1995. In 1996 the Company plans to drill 161 net wells and spend $69 million in capital and exploration expenditures compared to 55 net wells and $32.7 million of capital and exploration expenditures in 1995. Natural gas production was 14.2 Bcf, down 1.2 Bcf compared to the 1995 first quarter. This production decline was due to (1) the low level of drilling activity in 1995, drilling only 55 net wells compared to an average of 135 net wells per year over the previous five years, and (2) the sale of non-strategic properties, representing quarterly production of 0.6 Bcf. The Company had a number of gas price swaps in place to hedge a significant portion of its production for the first four months of 1996. For the remainder of 1996, the Company has entered into one small hedge contract for the months of May through September 1996 in a notional quantity equal to 5,000 Mmbtu per day, -10- or less than 4% of the Company's daily production. While the Company will selectively use gas price hedges from time-to-time to protect certain markets when substantial downside risks are perceived, management intends to structure the hedge positions in a manner that provides upside potential. The Company's strategic pursuits are sensitive to energy commodity prices, particularly the price of natural gas. While gas prices in certain regions of the U.S. have moved up sharply in 1996 and some industry analysts predict continued improvements in 1996 pricing compared to 1995, the gas market has demonstrated significant price volatility in the first quarter of 1996. Consequently, there is considerable uncertainty about gas prices for the remainder of this year and beyond. The Company remains focused on the following goals established in 1995 and believes that progress toward these goals is appropriate in the current industry environment, enabling the Company to pursue its strategic objectives over the long term. (*) Increase cash flows, using a balance of increased production and reduced costs. Significant progress has been made toward this goal, and the Company expects to be profitable in 1996 if the Henry Hub average price is $1.80 or more, assuming a traditional correlation between Henry Hub prices and prices in the physical markets. (*) Maintain reserves per share while increasing production to protect long-term shareholder value. An aggressive 1996 drilling program is designed to result in 1996 production exceeding 1995, while reserves are also expected to increase. (*) Reduce debt as a percentage of total capitalization without diluting existing shareholder value. To achieve this goal, project returns will be compared with the marginal cost of debt when deciding whether to reinvest or pay down debt. Other financing alternatives will also be reviewed. The preceding paragraphs, discussing the Company's strategic pursuits and goals, contains forward-looking information. See Forward-Looking Information on page 17. Financial Condition Capital Resources and Liquidity The Company's capital resources consist primarily of cash flows from its oil and gas properties and asset-based borrowing supported by its oil and gas reserves. The Company's level of earnings and cash flows depend on many factors, including the price of oil and natural gas and its ability to control and reduce costs. Demand for oil and gas has historically been subject to seasonal influences characterized by peak demand and higher prices in the winter heating season. Natural gas prices and demand were up significantly in the winter heating season of the first quarter of 1996, resulting in higher cash flows. However, 1995 was a year in which natural gas prices did not follow the traditional seasonal influences and remained at some of the lowest levels in recent history, adversely affecting cash flows. The primary source of cash for the Company during the first quarter of 1996 was from funds generated from operations. Primary uses of cash were funds used in operations, exploration and development expenditures, acquisitions, repayment of debt and dividends. The Company had a net cash inflow of $0.7 million in the first quarter of 1996. Net cash inflow from operating and financing activities totalled $12.9 million in the current quarter, sufficiently funding the $12.2 million of capital and exploration expenditures, offset by the $4.5 million in proceeds from the sale of assets. -11-
THREE MONTHS ENDED MARCH 31, 1996 1995 (in millions) Cash Flows Provided by Operating Activities............................... $ 16.1 $ 12.0 ====== ======
Cash flows from operating activities in the 1996 first quarter were higher by $4.1 million compared to the corresponding quarter of 1995 primarily due to higher natural gas prices, lower debt service due to decreased bank debt and reduced operating and administrative costs.
THREE MONTHS ENDED MARCH 31, 1996 1995 (in millions) Cash Flows Used by Investing Activities................................... $ 12.2 $ 4.4 ====== =====
Cash flows used by investing activities in the first quarters of 1996 and 1995 were substantially attributable to capital and exploration expenditures of $16.7 million and $4.7 million, respectively.
THREE MONTHS ENDED MARCH 31, 1996 1995 (in millions) Cash Flows Used by Financing Activities................................... $ 3.1 $ 8.0 ===== ======
Cash flows used by financing activities were primarily dividend payments and debt reductions under the Company's revolving credit facility. Under the Company's revolving credit facility, the available credit line, currently $235 million, is subject to adjustment on the basis of the projected present value of estimated future net cash flows from proved oil and gas reserves and other assets. The revolving term of the credit facility runs to June 1997. Management believes that the Company's has the ability to finance, if necessary, its capital requirements, including acquisitions. The Company's 1996 debt service is projected to be approximately $19.0 million. No principal payments are due in 1996. Capitalization information on the Company is as follows:
MARCH 31, DECEMBER 31, 1996 1995 (in millions) Long-Term Debt............................................................ $ 248.0 $ 249.0 Stockholders' Equity Common Stock.......................................................... 61.2 56.6 Preferred Stock....................................................... 91.3 91.3 ------ ----- Total ............................................................. 152.5 147.9 ----- ----- Total Capitalization...................................................... $ 400.5 $ 396.9 ===== ===== Debt to Capitalization.................................................... 61.9% 62.7%
-12- Capital and Exploration Expenditures The following table presents major components of capital and exploration expenditures:
THREE MONTHS ENDED MARCH 31, 1996 1995 (in millions) Capital Expenditures Drilling and Facilities.......................................... $ 11.5 $ 2.6 Leasehold Acquisitions........................................... 0.4 0.2 Pipeline and Gathering .......................................... 0.2 0.0 Other............................................................ 0.2 0.2 ----- ----- 12.3 3.0 ----- ----- Proved Property Acquisitions..................................... 2.0 0.1 Exploration Expenses................................................... 2.4 1.6 ----- ----- Total............................................................ $ 16.7 $ 4.7 ===== =====
Total capital and exploration expenditures in the first quarter of 1996 increased $12.0 million compared to the same quarter of 1995, primarily due to increased capital spending program for 1996. The Company generally funds most of its capital and exploration activities, excluding oil and gas property acquisitions, with cash generated from operations, and budgets such capital expenditures based upon projected cash flows, exclusive of acquisitions. The Company has a $69.0 million capital and exploration expenditures budget for 1996 which includes $44.7 million for drilling and facilities, $12.2 million for exploration expenses and $0.9 million for proved property acquisitions. Compared to 1995 capital and exploration expenditures (excluding the $8.4 million valuation adjustment on the Washington Energy Resources Company acquisition), the 1996 budgeted expenditures are up 111%. The Company plans to drill 161 net wells in 1996 compared with 55 net wells drilled in 1995. During the first quarter of 1996, the Company paid dividends of $0.9 million on the Common Stock and $1.4 million in aggregate on the $3.125 convertible preferred stock and 6% convertible redeemable preferred stock. A regular dividend of $0.04 per share of Common Stock was declared for the quarter ending March 31, 1996, to be paid May 31, 1996 to shareholders of record as of May 17, 1996. Other Issues and Contingencies Subsequent to the developments with regard to the Barby lawsuits as described in the Company's 1995 Annual Report on Form 10-K, both actions have been conditionally settled, subject to the Court's approval of certain provisions contained in the settlement agreement. The conditional settlement, if effected, will result in a charge to earnings in 1996 that is not material to the Company's operating results or financial position. Conclusion The Company's financial results depend upon many factors, particularly the price of natural gas, and its ability to market gas on economically attractive terms. The Company's natural gas prices rose sharply during -13- the first quarter of 1996, up 36% compared to the average natural gas price received for the first quarter 1995. However, the volatility of natural gas prices in recent years remains prevalent in 1996 with wide price swings in day-to-day trading on the Nymex futures market. Given this continued price volatility, management cannot predict with certainty what pricing levels will be for the remainder of 1996. Because future cash flows are subject to such variables, there can be no assurance that the Company's operations will provide cash sufficient to fully fund its capital expenditures if prices should return to the depressed levels of 1995. While the Company's 1996 plans include a significant increase in capital spending, potentially negative changes in industry conditions might require the Company to adjust its 1996 spending plan to ensure the availability of capital, including, among other things, reductions in capital expenditures or common stock dividends. The Company believes that higher production volumes and natural gas prices over time coupled with its continuing efforts to reduce costs and invest in projects with high rates of return will return the Company to profitability. Furthermore, the Company believes its capital resources, supplemented, if necessary, with external financing, are adequate to meet its capital requirements. The preceding paragraph contains forward-looking information. See Forward-Looking Information on page 17. -14- Results of Operations For the purpose of reviewing the Company's results of operations, "Net Income (Loss)" is defined as net income (loss) applicable to common shareholders. Selected Financial and Operating Data
THREE MONTHS ENDED MARCH 31, 1996 1995 (in millions, except where noted) Net Operating Revenues...................................................... $ 41.2 $ 32.6 Operating Expenses.......................................................... 26.8 37.6 Operating Income (Loss)..................................................... 15.9 (5.4) Interest Expense............................................................ 4.8 5.9 Net Income (Loss)........................................................... 5.3 (8.2) Earnings (Loss) Per Share................................................... $ 0.23 $ (0.36) Natural Gas Production (Bcf) Appalachia............................................................. 6.7 7.4 West................................................................... 7.5 8.0 ----- ----- Total Company.......................................................... 14.2 15.4 ===== ===== Natural Gas Production Sales Prices ($/Mcf) Appalachia............................................................. $ 3.00 $ 2.25 West................................................................... $ 1.81 $ 1.27 Total Company.......................................................... $ 2.37 $ 1.74 Crude/Condensate Volume (MBbl).......................................................... 136 185 Price $/Bbl............................................................ $ 19.55 $ 16.84 Brokered Natural Gas Margin Volume (Bcf)........................................................... 9.4 7.8 Margin $/Mcf........................................................... $ 0.22 $ 0.12
First Quarters of 1996 and 1995 Compared Net Income (Loss) and Revenues. The Company reported net income in the first quarter 1996 of $5.3 million, or $0.23 per share. During the corresponding quarter of 1995, the Company reported a net loss of 8.2 million, or $0.36 per share, including $3.9 million, or $0.17 per share, from recurring operations and $4.3 million, or $0.19 per share, from a cost reduction program. Operating income and operating revenues from recurring operations increased $14.3 million and $9.2 million, respectively. Natural gas made up 87%, or $35.7 million, of net operating revenue. The increase in net operating revenues was driven primarily by a 36% increase in the average natural gas price, partially offset by an 8% decrease in natural gas production as discussed below. Net income and operating income from recurring operations were similarly impacted by the increase in the average natural gas price, as well as lower direct operations, general and administrative, depreciation and interest expenses (discussed below). -15- Natural gas production volume in the Appalachian Region was down 0.7 Bcf to 6.7 Bcf. Natural gas production volume in the Western Region was down 0.5 Bcf to 7.5 Bcf. These production declines in the Appalachian and Western regions were a result of the low level of drilling activity in 1995 and the sale of non-strategic properties representing approximately 0.6 Bcf of quarterly production. The average Appalachian natural gas production sales price increased $0.75 per Mcf, or 33%, to $3.00, increasing net operating revenues by approximately $5.0 million on 6.7 Bcf of production. In the Western Region, the average natural gas production sales price increased $0.54 per Mcf, or 43%, to $1.81, increasing net operating revenues by approximately $4.1 million on 7.5 Bcf of production. The overall weighted average natural gas production sales price increased $0.63 per Mcf, or 27%, to $2.37. Crude oil and condensate sales decreased 49 MBbl, or 26%, due primarily to the low drilling activity in 1995 and the sale of various non-strategic oil properties in 1995. The brokered natural gas margin increased $1.1 million to $2.1 million primarily due to a $0.10 per Mcf increase in the net margin to $0.22 per Mcf. Other net operating revenues increased $1.1 million to $2.8 million due to $0.7 million from the monetization of the Company's Section 29 tight sands tax credits and $0.4 million of miscellaneous net revenues primarily related to a contract settlement. Costs and Expenses Total costs and expenses from recurring operations decreased $3.8 million, or 12%, due primarily to the following: (*) Direct operations and general and administrative expenses decreased in total by $1.0 million, or 9%, primarily due to the impact of the cost reduction program implemented in 1995. (*) Exploration expense increased $0.7 million, or 42%, due to the increase in geological and geophysical expenses related to the increased capital expenditures program in 1996. (*) Depreciation, depletion, amortization and impairment expense decreased $4.1 million, or 28%, due to a $0.18 per Mcfe decline in the DD&A rate caused by the 1995 impairment of long-lived assets which reduced depreciable basis by $113.8 million, and, to a lesser extent, by a 10% decline in equivalent production. (*) Taxes other than income increased $0.5 million, or 17%, due primarily to the increase in natural gas production revenues. (*) The cost reduction program in 1995 consisted primarily of a 23% staff reduction, achieved through early retirement and involuntary termination programs. The pre-tax charges related to this action totalled $6.8 million, comprised of $3.8 million in salary and other severance related expense ($2.6 million paid during the quarter) and a $3.0 million non-cash charge for curtailments to pension and postretirement benefits plans. Interest expense declined $1.0 million, or 17%, due to the decreases in bank debt and interest rates and to the absence of the interest rate swaps which effectively increased interest expense in 1995. -16- Income tax expense was up $8.8 million due to the comparable increase in earnings before income tax. * * * Forward-Looking Information The statements regarding future financial performance and results and the other statements which are not historical facts contained in this report are forward-looking statements that involve risks and uncertainties, including, but not limited to, market factors, market prices (including regional basis differentials) of natural gas and oil, results of future drilling and marketing activity, future production and costs and other factors detailed herein and in the Company's other Securities and Exchange Commission filings. -17- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 15.1 -- Awareness letter of independent accountants. 27 -- Article 5. Financial Data Schedule for First Quarter 1996 Form 10-Q (b) Reports on Form 8-K None -18- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABOT OIL & GAS CORPORATION (Registrant) By: /s/ Ray R. Seegmiller ----------------------------------- May 10, 1996 Ray R. Seegmiller, Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant) -19- EXHIBIT 15.1 Coopers & Lybrand L.L.P. Awareness Letter Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D. C. 20549 Re: Cabot Oil & Gas Corporation Registration Statements on Form S-8 We are aware that our report dated May 10, 1996 on our review of the interim consolidated financial information of Cabot Oil & Gas Corporation for the three month period ended March 31, 1996 and 1995 and included in this Form 10-Q is incorporated by reference in the Company's registration statements on Form S-8 filed with the Securities and Exchange Commission on June 23, 1990, November 1, 1993 and May 20, 1994. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meanings of Section 7 and 11 of the Act. Coopers & Lybrand L.L.P. Houston, Texas May 10, 1996 -20- EX-27 2
5 1,000 3-MOS DEC-31-1996 MAR-31-1996 3,751 0 55,037 (1,185) 4,113 62,877 961,778 (486,475) 539,640 64,039 248,000 153,508 0 91,321 (92,317) 539,640 38,357 41,198 26,774 26,774 0 0 4,849 11,080 4,431 5,258 0 0 0 5,258 0.23 0
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