-----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, LqE3aY8gI1o+33Xj+DfDIWLVekxg7xUi6fF84WSaDIlGvq2bLYnEkIQpRsZNLDBD DpAizgS21haxKqYs4IY99A== 0000858470-98-000007.txt : 19981116 0000858470-98-000007.hdr.sgml : 19981116 ACCESSION NUMBER: 0000858470-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: SEC FILE NUMBER: 001-10447 FILM NUMBER: 98746066 BUSINESS ADDRESS: STREET 1: 15375 MEMORIAL DR CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 7135894600 10-Q 1 QUARTERLY REPORT FOR CABOT OIL & GAS CORPORATION Cabot Oil & Gas Corporation 15375 Memorial Drive Houston, Texas 77036 Telephone: 281/589-4600 Facsimile: 281/589-4912 November 11, 1998 Securities & Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Cabot Oil & Gas Corporation Form 10-Q for the quarter ending September 30, 1998 Ladies and Gentlemen: On behalf of Cabot Oil & Gas Corporation, transmitted herewith for filing under the Securities and Exchange Act of 1934, as amended, is a copy of the Company's June 30, 1998 Form 10-Q. Pursuant to Rule 302 of Regulation S-T, the Form 10-Q has been executed by typing the name of the signature. This filing has been effected through the Securities and Exchange Commission's EDGAR electronic filing system. Please contact the undersigned at (281) 589-4642 with any questions or statements you may have regarding this filing. Sincerely, JILL RIBBECK Manager, Financial Reporting ================================================================================ 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 September 30, 1998 ( ) 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) (281) 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 October 30, 1998, there were 24,928,480 shares of Class A Common Stock, Par Value $.10 Per Share, outstanding. ================================================================================ CABOT OIL & GAS CORPORATION INDEX TO FINANCIAL STATEMENTS
Page ---- Part I. Financial Information Page Item 1. Financial Statements Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 1998 and 1997................ 3 Condensed Consolidated Balance Sheet at September 30, 1998 and December 31, 1997.................................................. 4 Condensed Consolidated Statement of Cash Flows for the Three and Nine Months Ended September 30, 1998 and 1997................ 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................................. 19 Signature ................................................................. 20
2 CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 ------- ------- ------- ------- NET OPERATING REVENUES Natural Gas Production.....................$32,740 $35,416 $105,214 $115,901 Crude Oil & Condensate..................... 2,146 2,676 6,394 8,826 Brokered Natural Gas Margin................ 1,095 1,053 3,580 2,484 Other...................................... 1,405 1,628 4,656 5,761 ------- ------- -------- -------- 37,386 40,773 119,844 132,972 OPERATING EXPENSES Direct Operations.......................... 7,529 7,154 22,026 21,587 Exploration................................ 7,195 2,966 13,574 9,873 Depreciation, Depletion and Amortization... 11,086 10,647 31,169 31,259 Impairment of Unproved Properties.......... 1,257 714 3,064 2,160 General and Administrative................. 4,919 5,011 16,244 13,867 Taxes Other Than Income.................... 3,776 3,450 11,610 11,017 ------- ------- -------- -------- 35,762 29,942 97,687 89,763 Gain/(Loss) on Sale of Assets............... 77 (1) 133 349 ------- ------- -------- -------- INCOME FROM OPERATIONS...................... 1,701 10,830 22,290 43,558 Interest Expense............................ 4,423 4,614 13,256 13,533 ------- ------- -------- -------- Income/(Loss) Before Income Taxes........... (2,722) 6,216 9,034 30,025 Income Tax Expense (Benefit)................ (1,049) 2,536 3,730 11,914 ------- ------- -------- -------- NET INCOME/(LOSS)........................... (1,673) 3,680 5,304 18,111 Dividend Requirement on Preferred Stock..... 851 1,391 2,551 4,175 ------- ------- -------- -------- Net Income/(Loss) Applicable to Common Stockholders........................$(2,524) $ 2,289 $ 2,753 $ 13,936 ======= ======= ======== ======== Basic Earnings/(Loss) Per Share Applicable to Common.......................$ (0.10) $ 0.10 $ 0.11 $ 0.61 ======= ======= ======== ======== Diluted Earnings/(Loss) Per Share Applicable to Common.......................$ (0.10) $ 0.10 $ 0.11 $ 0.59 ======= ======= ======== ======== Average Common Shares Outstanding........... 24,780 22,909 24,764 22,878
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)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ ASSETS Current Assets Cash and Cash Equivalents..........................$ 2,096 $ 1,784 Accounts Receivable................................ 45,917 59,672 Inventories........................................ 10,058 6,875 Other.............................................. 4,283 2,202 -------- -------- Total Current Assets............................. 62,354 70,533 Properties and Equipment (Successful Efforts Method)..................................... 532,199 469,399 Other Assets......................................... 2,379 1,873 -------- -------- $596,932 $541,805 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current Portion of Long-Term Debt..................$ 16,000 $ 16,000 Accounts Payable................................... 50,192 52,348 Accrued Liabilities................................ 20,441 17,524 -------- -------- Total Current Liabilities........................ 86,633 85,872 Long-Term Debt....................................... 233,000 183,000 Deferred Income Taxes................................ 85,550 80,108 Other Liabilities.................................... 7,674 8,763 Stockholders' Equity Preferred Stock: Authorized--5,000,000 Shares of $.10 Par Value Issued and Outstanding - 6% Convertible Redeemable Preferred; $50 Stated Value; 1,134,000 Shares in 1998 and 1997................ 113 113 Common Stock: Authorized--40,000,000 Shares of $.10 Par Value Issued and Outstanding - 24,923,356 Shares and 24,667,262 Shares in 1998 and 1997, Respectively............................... 2,492 2,467 Additional Paid-in Capital...................... 251,559 247,033 Accumulated Deficit.................................. (65,780) (65,551) Less Treasury Stock, at cost: 297,600 shares in 1998 and no shares in 1997....... (4,309) - -------- -------- Total Stockholders' Equity....................... 184,075 184,062 -------- -------- $596,932 $541,805 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In Thousands)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 ------ ------ ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income/(Loss)......................$ (1,673) $ 3,680 $ 5,304 $ 18,111 Adjustment to Reconcile Net Income/(Loss) To Cash Provided by Operating Activities: Depletion, Depreciation and Amortization.................... 11,086 10,647 31,169 31,259 Impairment of Undeveloped Leasehold.. 1,257 714 3,064 2,160 Deferred Income Taxes................ 864 3,000 5,442 11,183 (Gain) Loss on Sale of Assets........ (77) 1 (133) (349) Exploration Expense.................. 7,195 2,966 13,574 9,873 Other................................ 105 399 1,383 683 Changes in Assets and Liabilities: Accounts Receivable.................. (2,527) (2,675) 13,756 30,929 Inventories.......................... (1,311) (3,420) (3,183) (307) Other Current Assets................. 50 (144) (2,082) (684) Other Assets......................... (665) (105) (506 ) 275 Accounts Payable and Accrued Liabilities........................ 3,191 12,054 (3,135) (9,029) Other Liabilities.................... (68) 123 (748) (658) -------- -------- -------- -------- Net Cash Provided by Operating Activities.............. 17,427 27,240 63,905 93,446 -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures................... (25,921) (32,018) (94,032) (63,823) Proceeds from Sale of Assets........... 283 468 953 1,251 Exploration Expense.................... (7,195) (2,966) (13,574) (9,873) -------- -------- -------- -------- Net Cash Used by Investing Activities........................ (32,833) (34,516) (106,653) (72,445) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of Common Stock................... 762 936 2,896 1,347 Treasury Stock Transactions............ (4,309) - (4,309) - Increase in Debt....................... 36,000 16,000 101,000 17,000 Decrease in Debt....................... (17,000) (6,000) (51,000) (32,000) Dividends Paid......................... (1,845) (2,308) (5,527) (6,920) -------- -------- -------- -------- Net Cash Provided (Used) by Financing Activities.............. 13,608 8,628 43,060 (20,573) -------- -------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents....................... (1,798) 1,352 312 428 Cash and Cash Equivalents, Beginning of Period.................... 3,894 443 1,784 1,367 -------- -------- -------- -------- Cash and Cash Equivalents, End of Period............ .............$ 2,096 $ 1,795 $ 2,096 $ 1,795 ======== ======== ======== ========
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. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting of Comprehensive Income ("SFAS 130"). Comprehensive income is defined as the change in net assets of the Company during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners (sale of stock by the Company) and distributions to owners (dividends). Since the Company has no such changes in equity other than net income, comprehensive income is equal to Net Income Available to Common Shareholders as presented in the Consolidated Statement of Operations. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"). The Company plans to adopt this statement effective December 31, 1998. SFAS 131 requires that the Company make certain disclosures about each operating segment of its business. This is a presentation requirement only and will not have an effect on reporting or presentation of the financial position or operating results of the Company when adopted. Since the Company operates in one segment, natural gas and oil exploration and exploitation, no additional disclosure requirements are anticipated by management. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits ("SFAS 132"). The Company plans to adopt this statement effective December 31, 1998. SFAS 132 standardizes the disclosure requirements for pensions and other postretirement benefits in the Form 10-K Annual Report to Shareholders. This is a presentation requirement only and will not have an effect on the financial position or operating results of the Company when adopted. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires all derivatives to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be designated, reassessed and documented pursuant to the provisions of SFAS 133. This statement is effective for financial statements for fiscal years beginning after June 15, 1999. The Company has not yet completed its evaluation of the impact of the provisions of SFAS 133 on its financial position or operations. 2. PROPERTIES AND EQUIPMENT Properties and equipment are comprised of the following:
September 30, December 31, 1998 1997 ------------ ------------ (in thousands) Unproved oil and gas properties......................$ 26,323 $ 24,618 Proved oil and gas properties........................ 832,591 744,381 Gathering and pipeline systems....................... 119,928 116,360 Land, building and improvements...................... 4,278 3,896 Other................................................ 19,665 17,525 ---------- --------- 1,002,785 906,780 Accumulated depreciation, depletion and amortization.................................... (470,586) (437,381) ---------- --------- $ 532,199 $ 469,399 ========== =========
6 3. ADDITIONAL BALANCE SHEET INFORMATION Certain balance sheet amounts are comprised of the following:
September 30, December 31, 1998 1997 ------------ ----------- (in thousands) Accounts Receivable Trade accounts.................................. $30,824 $49,315 Joint interest accounts......................... 6,313 4,843 Insurance recoveries............................ 7,242 3,043 Current income tax receivable................... 819 1,291 Other accounts.................................. 1,267 1,719 ------- ------- 46,465 60,211 Allowance for doubtful accounts.................. (548) (539) ------- ------- $45,917 $59,672 ======= ======= Accounts Payable Trade accounts................................. $ 8,449 $ 6,209 Natural gas purchases.......................... 13,230 13,991 Royalty and other owners....................... 7,911 11,995 Capital costs.................................. 16,526 12,936 Dividends payable.............................. 851 851 Taxes other than income........................ 954 1,478 Drilling advances.............................. 768 2,333 Other accounts................................. 1,503 2,555 ------- ------- $50,192 $52,348 ======= ======= Accrued Liabilities Employee benefits............................... $ 4,671 $ 6,067 Taxes other than income......................... 8,682 8,314 Interest payable................................ 6,009 2,147 Other accrued................................... 1,079 996 ------- ------- $20,441 $17,524 ======= ======= Other Liabilities Postretirement benefits other than pension...... $ 651 $ 992 Accrued pension cost............................ 4,079 3,742 Taxes other than income and other............... 2,944 4,029 ------- ------- $ 7,674 $ 8,763 ======= =======
4. LONG-TERM DEBT At September 30, 1998, the Company had $85 million outstanding under its facility which provides for an available credit line of $135 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 2000 and is subject to renewal. 5. EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") on December 31, 1997. SFAS 128 simplifies the calculation of earnings per share for companies with complex capital structures by replacing primary and fully diluted earnings per share with the new basic and diluted computations. Under the previous guidelines, the Company disclosed only primary earnings per share since its capital structure was considered simple. The new disclosure of basic earnings per share is the same as the previously disclosed primary earnings per share. In periods prior to the fourth quarter of 1997, the Company, with its then simple capital structure, was not required to disclose fully diluted earnings per share. However, SFAS 128 requires all companies with any number of common stock equivalents outstanding to disclose diluted earnings per share unless such equivalents are antidilutive. Basic earnings per share amounts are based on the weighted average shares outstanding (24,764,177 in 1998 and 22,878,344 in 1997). The dilutive effect of outstanding stock awards of 321,169 in 1998 and 649,632 in 1997 resulted in diluted earnings per share for the third quarter of $(0.10) and $0.10 in 1998 and 1997, respectively. Year-to-date diluted earnings per share was $0.11 and $0.59 in 1998 and 1997, respectively. No adjustments were made to reported net income in the computation of earnings per share. 7 6. STOCK REPURCHASE In August 1998, the Board of Directors authorized the Company to repurchase up to two million shares of outstanding common stock at market prices. The timing and amount of these stock purchases are determined at the discretion of management. As of September 30, 1998, the Company has repurchased 297,600 shares, or 15% of the total authorized number of shares, for a total cost of approximately $4.3 million. No treasury shares were issued or sold by the Company during the quarter. 7. YEAR 2000 To date, the Company has incurred expenses of $0.1 million as part of its efforts to make all computer software, hardware and embedded microprocessors Year 2000 compliant. Total project costs are estimated to be $2.1 million, including $1.8 million in capital expenditures, when the project is complete in 1999. See Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Year 2000. 8 Independent Accountant's Report To the Board of Directors and Shareholders Cabot Oil & Gas Corporation: We have reviewed the accompanying condensed consolidated balance sheet and the related condensed consolidated statements of operations and cash flows of Cabot Oil & Gas Corporation as of September 30, 1998, and for the three-month and nine-month periods then ended. 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 condensed 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, 1997, 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 6, 1998, 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, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. PricewaterhouseCoopers LLP Houston, Texas November 6, 1998 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of operations for the first nine months of 1998 and 1997 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, 1997. In previous years, the Company operated as two regions: the Appalachian Region and the Western Region, which included the Anadarko, Rocky Mountains and Gulf Coast areas. Beginning in 1998, a third region was created with the formation of the Gulf Coast Region, leaving the Anadarko and Rocky Mountains areas in the Western Region. For purposes of the comparisons below, prior period results have been restated to conform to the new structure. In all periods reported, the Company has operated in one segment, natural gas and oil exploration and exploitation. OVERVIEW Along with unseasonably warm temperatures, the first three quarters of 1998 brought natural gas prices substantially below 1997 levels. This decline in price was the primary cause of the $13.1 million reduction in net revenues. Net income available to common stockholders declined $11.2 million as a result of lower prices and increased exploration and general and administrative expenses. The Company drilled 151 gross wells with a success rate of 88% in the first nine months of 1998 compared to 168 gross wells and a 90% success rate for the comparable period of 1997. In 1998, the Company plans to drill 220 gross wells and spend $149.1 million in capital and exploration expenditures compared to 225 gross wells and $87.4 million of capital and exploration expenditures in 1997. The plan includes acquisitions to date of $6.6 million as part of the joint exploration agreement with Union Pacific Resources Group, Inc. ("UPR") and $6.6 million to acquire 9.3 Bcfe of proved reserves in the Anadarko area of the Western Region. The 1998 drilling program includes an increase in activity in the Gulf Coast Region. Typically, wells in this area require higher levels of capital expenditure, including more frequently required workovers and recompletions. Natural gas production was 48.6 Bcf, up 0.8 Bcf compared to the first three quarters of 1997. This production increase was due primarily to new production brought on by the expanded drilling program of 225 gross (151 net) wells in 1997 along with the 1997 acquisition of producing properties in the Green River Basin from Equitable Energy Resources. Production for 1997 includes approximately 3.6 Bcf attributable to certain properties in the Appalachian Region that were sold effective September 1, 1997. The Company's strategic pursuits are sensitive to energy commodity prices, particularly the price of natural gas. To date, 1998 prices have demonstrated a great deal of volatility. Due to the mild winter of 1997, January prices were significantly lower than the prior year. Prices dropped dramatically in February, but rebounded to the highest level of the year in March. Since the beginning of the second quarter, prices have been declining at a slow, but steady rate. Consequently, there is considerable uncertainty about the level of natural gas prices for the remainder of the year and beyond. The Company remains focused on its strategies to grow through the drill bit, from synergistic acquisitions and from exploitation of its marketing abilities. Management believes that these strategies are appropriate in the current industry environment, enabling the Company to add shareholder value over the long term. The preceding paragraphs, discussing the Company's strategic pursuits and goals, contain forward-looking information. See Forward-Looking Information on page 18. 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 natural gas has historically been subject to seasonal influences generally characterized by peak demand and higher prices in the winter heating season. Due to mild winter conditions, natural gas prices softened significantly in January and remained well below 1997 prices until March. While temperatures for much of the U.S. were unseasonably warm during the second quarter and the natural gas price in the second quarter was up $0.16 per Mcf over 1997, prices softened significantly in the third quarter, with the quarter prices down $0.14 per Mcf over last year. Natural gas prices for the first nine months of 1998 are $0.26 per Mcf, or 11%, below the 1997 prices. The primary sources of cash for the Company during the first nine months of 1998 were from funds generated from operations and increased borrowings on the revolving credit facility. Primary uses of cash were funds used in exploration and development expenditures and in the repayment of debt and dividends, as well as the repurchase of common stock in the third quarter. The Company had a net cash inflow of $0.3 million in the first three quarters of 1998. Net cash inflow from operating and financing activities totaled $107 million year to date through September 1998, funding the $107.6 million of capital and exploration expenditures.
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 ------ ------ (in millions) Cash Flows Provided by Operating Activities............$ 63.9 $ 93.4 ====== ======
Cash flows from operating activities in the first three quarters of 1998 were lower by $29.5 million compared to the corresponding period of 1997 primarily due to lower natural gas prices and smaller favorable changes in working capital. Accounts receivable increased in part due to outstanding insurance claims on well blowouts in the Gulf Coast.
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 ------ ------ (in millions) Cash Flows Used in Investing Activities................$106.7 $ 72.4 ====== ======
Cash flows used by investing activities in both the first nine months of 1998 and 1997 were substantially attributable to capital and exploration expenditures of $107.6 million and $73.7 million, respectively. Proceeds from the sale of certain oil and gas properties in the first nine months of 1998 and 1997 were $1.0 million and $1.3 million, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 ------ ------ (in millions) Cash Flows Provided (Used) by Financing Activities.....$ 43.1 $(20.6) ====== =======
Cash flows provided by financing activities were primarily increases in borrowings on the Company's revolving credit facility in 1998. The cash from the increased borrowings was used to fund acquisitions ($13.2 million), a stock repurchase program ($4.3 million), and to partially fund other capital and exploration expenditures. Cash flows used by financing activities in 1997 were primarily debt reductions under the Company's revolving credit facility and dividend payments. Under the Company's revolving credit facility, the available credit line, currently $135 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 2000. Management believes that the Company has the ability to finance, if necessary, its capital requirements, including acquisitions from existing operating cash flows and the available credit facility. The Company's 1998 interest expense is projected to be approximately $19.0 million. In May 1999, a $16 million principal payment is due on the 10.18% Notes. This amount is reflected as "Current Portion of Long-Term Debt" on the Company's balance sheet. This payment is expected to be made with cash from operations and, if necessary, from increased borrowings on the revolving credit facility. The Company is subject to legal proceeding and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these matters will not materially affect the financial position and operating results of the Company. YEAR 2000 ("Y2K") Many computer systems have been built using software that processes transactions using two digits to represent the year. This type of software will generally require modifications to function properly with dates after December 31, 1999 (or, to become "Y2K Compliant"). The same issue applies to microprocessors embedded in machinery and equipment, such as gas compressors and pipeline meters. The impact of failing to identify those computer systems (operated by the Company or its business partners) that are not Y2K compliant and correct the problem could be significant to the Company's ability to operate and report results, as well as potentially expose the Company to third-party liability. The Company has begun making the necessary modifications to its computer systems and embedded microprocessors in preparation for the Year 2000. These projects are on schedule and the Company believes that the total related costs will be approximately $2.1 million, funded by cash from operations or borrowings on the revolving credit facility, when completed in 1999. Of the total cost, $1.8 million is attributable to the purchase of new software and equipment which will be capitalized. The remaining $0.3 million will be expensed over the next five quarters and is not expected to have a material impact on the Company's financial position or operating results. Actual costs to date are approximately $0.1 million, all of which has been expensed. The Company has begun reviewing the compliance of field equipment including compressor stations, gas control systems and data logging equipment. Most equipment reviewed was found to be compliant, and, where necessary, microprocessor chip replacements are scheduled to be completed by the end of the first quarter of 1999 at a cost of less than $0.1 million. Additionally, the Company is in the process of contacting its significant customers and suppliers in order to determine the Company's exposure to their potential failure to become Y2K compliant. Although the Company is not aware of any Y2K compliance problems with any of its customers or suppliers, there can be no guarantee that the systems of these companies will operate without interruption in the new millennium. The Company has formed an internal committee to not only identify and respond to these issues, but also to develop a contingency plan in the event that a problem arises after the turn of the century. Management expects the contingency plan to be substantially complete by mid 1999. Additionally, the Company has engaged outside consultants to review the Company's plans and provide feedback relating to the status of the plan implementation. At this time, the Company does not anticipate that the arrival of the Year 2000 will materially impact its financial position or results of operations. The project costs and timetable for Y2K compliance are based on management's best estimates. In developing these estimates, assumptions were made regarding future events including, among other things, the availability of certain resources and the continued cooperation of the Company's customers and suppliers. Actual costs and timing may differ from management's estimates due to unexpected difficulties in obtaining trained personnel, locating and correcting relevant computer code and other factors. CAPITALIZATION Capitalization information on the Company is as follows:
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------ ------ (in millions) Long-Term Debt................................... $233.0 $183.0 Current Portion of Long-Term Debt................ 16.0 16.0 ------ ------ Total Debt.................................. 249.0 199.0 ------ ------ Stockholders' Equity Common Stock................................ 131.7 127.4 Treasury Stock.............................. (4.3) - Preferred Stock............................. 56.7 56.7 ------ ------ Total....................................... 184.1 184.1 ------ ------ Total Capitalization............................. $433.1 $383.1 ====== ====== Debt to Capitalization........................... 57.5% 51.9%
During the first nine months of 1998, the Company paid dividends of $3.0 million on the Common Stock and $2.5 million on the 6% convertible redeemable preferred stock. A regular dividend of $0.04 per share of Common Stock was declared for the quarter ending September 30, 1998, to be paid November 27, 1998 to shareholders of record as of November 13, 1998. During the first three quarters of 1998, debt has increased $50 million. The primary reasons for this increase are the expanded capital spending program, the stock repurchase program as well as the reduction to income resulting from lower natural gas prices. CAPITAL AND EXPLORATION EXPENDITURES The Company generally funds most of its capital and exploration activities, excluding major oil and gas property acquisitions, with cash generated from operations, and budgets such capital expenditures based upon projected cash flows. The following table presents major components of capital and exploration expenditures:
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 ------ ------ (in millions) Capital Expenditures Drilling and Facilities...................... $ 72.0 $ 50.0 Leasehold Acquisitions....................... 12.7 3.3 Pipeline and Gathering....................... 3.3 3.4 Other........................................ 1.7 1.5 ------ ------ 89.7 58.2 ------ ------ Proved Property Acquisitions................. 7.9 5.6 Exploration Expenses.......................... 13.6 9.9 ------ ------ Total........................................ $111.2 $ 73.7 ====== ======
Total capital and exploration expenditures in the first nine months of 1998 increased $37.5 million compared to the same period of 1997, primarily as a result of increased expenditures attributable to its 1998 drilling program, the acquisition of proved properties and its participation in the UPR exploration joint venture. In the first quarter of 1998, the Company invested $6.6 million as part of its joint exploration program with UPR. In the second quarter of 1998, the Company also purchased 9.3 Bcfe of proved reserves in the Anadarko area of the Western Region for $6.6 million. The Company has a $149.1 million capital and exploration expenditures plan for 1998 which includes $92.5 million for drilling and facilities, $18.9 million for exploration expenses, $6.8 million for pipelines and $12.7 million for proved property acquisitions. Compared to 1997 capital and exploration expenditures of $87.4 million, the 1998 planned expenditures are up 71%. The Company expects to drill 220 gross (150.5 net) wells in 1998 compared with 225 gross (151.4 net) wells drilled in 1997. CONCLUSION The Company's financial results depend upon many factors, particularly the price of natural gas, and its ability to market gas on economically attractive terms. The volatility of natural gas prices in recent years remains prevalent in 1998 with wide price swings in day-to-day trading on the Nymex futures market. Given this continued price volatility, management cannot predict with certainty what pricing levels will be for the remainder of 1998. Because future cash flows are subject to such variables, there can be no assurance that the Company's operations, combined with short-term borrowings on the revolving credit facility, will provide cash sufficient to fully fund its planned capital expenditures if prices should remain low through the rest of 1998. While the Company's 1998 plan includes a significant increase over 1997 spending, potentially negative changes in industry conditions might require the Company to adjust its 1998 spending plan to ensure the availability of capital, including, among other things, reductions in capital expenditures or common stock dividends. The Company believes its capital resources, supplemented, if necessary, with external financing, are adequate to meet its capital requirements. The preceding paragraphs contain forward-looking information. See Forward-Looking Information on page 18. RESULTS OF OPERATIONS For the purpose of reviewing the Company's results of operations, "Net Income/Loss " is defined as net income or loss available to common shareholders. Selected Financial and Operating Data
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 ------ ------ ------ ------ (in millions, except where noted) Net Operating Revenues...................$ 37.4 $ 40.8 $119.8 $133.0 Operating Expenses....................... 35.8 29.9 97.7 89.8 Operating Income......................... 1.7 10.8 22.3 43.6 Interest Expense......................... 4.4 4.6 13.3 13.5 Net Income/(Loss)........................ (2.5) 2.3 2.8 13.9 Earnings/(Loss) Per Share - Basic........$(0.10) $ 0.10 $ 0.11 $ 0.61 Earnings/(Loss) Per Share - Diluted......$(0.10) $ 0.10 $ 0.11 $ 0.59 Natural Gas Production (Bcf) Appalachia.............................. 5.9 6.5 16.6 19.9 West.................................... 7.9 8.1 23.0 21.9 Gulf Coast.............................. 2.7 2.1 9.0 6.0 ------ ------ ------ ------ Total Company........................... 16.5 16.7 48.6 47.8 ====== ====== ====== ====== Natural Gas Production Sales Prices ($/Mcf) Appalachia..............................$ 2.19 $ 2.57 $ 2.51 $ 2.88 West....................................$ 1.79 $ 1.77 $ 1.90 $ 2.06 Gulf Coast..............................$ 2.07 $ 2.34 $ 2.21 $ 2.36 Total Company...........................$ 1.98 $ 2.12 $ 2.16 $ 2.42 Crude/Condensate Volume ((Bbbl).......................... 174 139 471 434 Price $/Bbl.............................$12.35 $19.57 $13.58 $20.45 Brokered Natural Gas Margin Volume (Bcf)............................ 10.4 9.2 29.8 24.8 Margin $/Mcf............................$ 0.10 $ 0.11 $ 0.12 $ 0.10
THIRD QUARTERS OF 1998 AND 1997 COMPARED Net Income and Revenues. The Company reported a net loss in the third quarter 1998 of $2.5 million, or $0.10 per share. During the corresponding quarter of 1997, the Company reported net income of $2.3 million, or $0.10 per share. Operating revenues decreased by $3.4 million while operating income decreased by $9.1 million. Natural gas made up 88%, or $32.7 million, of net operating revenue. The decrease in net operating revenues was driven by a 7% decrease in the average natural gas price. Natural gas production volumes were comparable with the same period last year. Net income and operating income were similarly impacted by this drop in average natural gas price, along with a significant increase in exploration expense as discussed below. This impact was somewhat softened by decreases in both interest expense and preferred stock dividends in 1998. Natural gas production volume in the Appalachian Region was down 0.6 Bcf to 5.9 Bcf due primarily to the sale of producing properties in September of 1997. This was offset by natural gas production volume growth in the Gulf Coast Region, up 0.6 Bcf to 2.7 Bcf primarily due to new production brought on by drilling in 1997 and 1998. Natural gas production volume in the Western Region was down 0.2 Bcf to 7.9 Bcf. The average Appalachian natural gas production sales price decreased $0.38 per Mcf, or 15%, to $2.19, decreasing net operating revenues by approximately $2.2 million on 5.9 Bcf of production. In the Gulf Coast Region, the average natural gas production sales price decreased $0.27 per Mcf, or 12%, to $2.07, decreasing net operating revenues by approximately $0.7 million on 2.7 Bcf of production. In the Western Region, the average natural gas production sales price was up $0.02 per Mcf, or 1%, to $1.79, increasing net operating revenues by approximately $0.2 million on 7.9 Bcf of production. The overall weighted average natural gas production sales price decreased $0.14 per Mcf, or 7%, to $1.98. Crude oil prices decreased $7.22 per Bbl, or 37%, to $12.35, resulting in a decrease to net operating revenue of $1.3 million. A volume increase of 35 MBbl due to a prior period interest adjustment on a well in the Rocky Mountains area (25 MBbl) and to new production in that region, brought production up to 174 MBbls while adding $0.4 million to net operating revenue. Costs and Expenses Total costs and expenses from recurring operations increased $5.8 million in the third quarter of 1998 primarily due to the following: - Direct operating expense increased $0.4 million, or 5%, due primarily to increased costs associated with outside operated properties in the Rocky Mountains area combined with higher workover expenses in the Gulf Coast Region and Anadarko area of the Western Region. - Exploration expense increased by $4.2 million, or 143%, primarily due to $3.7 million of higher dry hole costs associated with the increased drilling activity in the Gulf Coast and Western Regions in 1998. Two wells, which contributed to the majority of the third quarter costs, were a $2.3 million exploratory well in the Gulf Coast Region and a $1.1 million extension well in the Western Region. In addition, the administrative costs related to this expanded exploration activity increased $0.4 million including additions to our professional staff and increased consulting expense. - Depreciation, depletion, amortization and impairment expense increased $1.0 million due largely to the amortization of unproved properties associated with the UPR exploration joint venture and in part to an increase in the overall units of production rate associated with the higher percentage of total production attributable to the Gulf Coast and Western Regions. - Taxes other than income increased $0.3 million, or 9%, due to increases in Ad Valorem taxes in West Virginia, brought about by higher taxable values related to higher gas prices in prior years. Interest expense decreased $0.2 million as a result of $0.4 million in interest income received on a prior year income tax refund. This benefit was partially offset by the effect of a higher average level of outstanding debt during the third quarter of 1998 when compared to the third quarter of 1997. Income tax expense was down $3.6 million due to the comparable decrease in earnings before income tax. Dividends on preferred stock were $0.5 million less than in the third quarter of 1997 due to the conversion of all of the Company's $3.125 cumulative convertible preferred stock into shares of common stock during the fourth quarter of 1997. NINE MONTHS OF 1998 AND 1997 COMPARED Net Income and Revenues. The Company reported net income in the first nine months of 1998 of $2.8 million, or $0.11 per share. During the corresponding period of 1997, the Company reported net income of $13.9 million, or $0.61 per share. Operating income and operating revenues decreased $21.3 million and $13.1 million, respectively. Natural gas made up 88%, or $105.2 million, of net operating revenue. The decrease in net operating revenues was driven primarily by a 11% decrease in the average natural gas price, partially offset by a 2% increase in natural gas production as discussed below. Net income and operating income were similarly impacted by the decrease in natural gas prices. Natural gas production volume in the Appalachian Region was down 3.3 Bcf to 16.6 Bcf due primarily to the sale of producing properties in September 1997. Natural gas production volume in the Western Region was up 1.1 Bcf to 23.0 Bcf due primarily to the acquisition of producing properties in the Green River Basin of Wyoming effective in the third quarter of 1997 and in part to new production brought on by drilling in 1997 and 1998. Natural gas production volume in the Gulf Coast Region was up 3.0 Bcf, or 50%, to 9.0 Bcf primarily due to new production brought on by drilling in 1997 and 1998. The average Appalachian natural gas production sales price decreased $0.37 per Mcf, or 13%, to $2.51, decreasing net operating revenues by approximately $6.1 million on 16.6 Bcf of production. In the Western Region, the average natural gas production sales price decreased $0.16 per Mcf, or 8%, to $1.90, decreasing net operating revenues by approximately $3.7 million on 23.0 Bcf of production. The average Gulf Coast natural gas production sales price decreased $0.15 per Mcf, or 6%, to $2.21, decreasing net operating revenues by approximately $1.3 million on 9.0 Bcf of production. The overall weighted average natural gas production sales price decreased $0.26 per Mcf, or 11%, to $2.16. Crude oil and condensate sales volumes were up 37 MBbl, or 9%, to 471 MBbl while crude oil prices decreased $6.87 per Bbl, or 34%, to $13.58, decreasing net operating revenues by approximately $3.2 million. The volume increase was due to a prior period interest adjustment on a well in the Rocky Mountains area (25 MBbl) and to new production in that region. The brokered natural gas margin increased $1.1 million to $3.6 million primarily due to a 5.0 Bcf increase in volume, combined with a $0.02 per Mcf improvement in net margin to $0.12 per Mcf. Other net operating revenues decreased $1.1 million to $4.7 million due primarily to net miscellaneous revenues in the first nine months of 1997 related primarily to contract settlements. Costs and Expenses Total costs and expenses from operations increased $7.9 million, or 9%, due primarily to the following: - Exploration expense increased $3.7 million, or 37%, due to the higher dry hole expenses related to the exploration activity during the first nine months of 1998. In addition, the administrative cost related to this expanded exploration activity increased $0.8 million, including additions to our professional staff and increased consulting expense. - Depreciation, depletion, amortization and impairment expense increased $0.8 million due primarily to the amortization of unproved properties associated with the UPR exploration joint venture. - General and administrative expenses increased $2.4 million, or 17%, largely due to staffing increases in the third and fourth quarters of 1997 ($0.4 million), non-cash stock compensation from stock awards in the second quarter of 1997 ($0.8 million), certain executive retirement and severance packages accrued in 1998 ($0.5 million), and relocation and other travel expenses ($0.4 million). - Taxes other than income increased $0.6 million, or 5%, due to the increase in Ad Valorem taxes in West Virginia, brought about by higher taxable values related to higher natural gas prices in prior years. Income tax expense was down $8.2 million due to the comparable decrease in earnings before income tax. * * * FORWARD-LOOKING INFORMATION The statements regarding future financial performance and results, market prices, financing and capital activities, including drilling activities and the other statements which are not historical facts contained in this report are forward-looking statements. The words "expect," "project," "estimate," "believe," "anticipate," "intend," "budget," "predict" and similar expressions are also intended to identify forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, market factors, market prices (including regional basis differentials) of natural gas and oil, results for 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. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. 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 Third Quarter 1998 Form 10-Q (b) Reports on Form 8-K None 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/ Paul F. Boling ------------------------------------------- November 12, 1998 Paul F. Boling, Vice President - Finance (Executive Officer Duly Authorized to Sign on Behalf of the Registrant) By: /s/ Henry C. Smyth ------------------------------------------- Henry C. Smyth, Controller (Principal Accounting Officer) EXHIBIT 15.1 PricewaterhouseCoopers LLP 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 November 6, 1998 on our review of the condensed consolidated financial statements of Cabot Oil & Gas Corporation as of September 30, 1998, and for the three-month and nine-month periods then ended and included in the Company's quarterly report on Form 10-Q for the quarter ended, 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. PricewaterhouseCoopers LLP Houston, Texas November 6, 1998 EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 27 2,069 46,465 (548) 10,058 62,354 1,002,785 (470,586) 596,932 86,633 249,000 127,373 0 56,700 (65,780) 596,932 115,188 119,844 97,687 97,687 0 0 13,256 9,034 3,730 5,304 0 0 0 5,304 0.11 0.11
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