-----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, K0v38vhAroYzQia9EliXnDTRMA089gpBFcnSgV3j9ZbnRaAR+maPiqfrP4F/n5qy jELYFkHtEuFCa0ZmFxjldw== 0000858470-95-000006.txt : 19951119 0000858470-95-000006.hdr.sgml : 19951119 ACCESSION NUMBER: 0000858470-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95592539 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 September 30, 1995 ( ) 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 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 31, 1995, there were 22,779,723 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 No. Item 1. Financial Statements Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 1995 and 1994 3 Condensed Consolidated Balance Sheet at September 30, 1995 and December 31, 1994 4 Condensed Consolidated Statement of Cash Flows for the Three and Nine Months Ended September 30, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6 Independent Accountants' Report on Review of Interim Financial Information 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 21 Signature 22
- 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, --------------------- ---------------------- 1995 1994 1995 1994 ------- ------- -------- -------- REVENUES Natural Gas......................................... $ 40,576 $ 50,320 $141,036 $166,560 Crude Oil and Condensate............................ 2,116 3,790 8,388 7,691 Other (Note 13)..................................... 5,290 1,648 8,033 3,800 ------- ------- -------- -------- 47,982 55,758 157,457 178,051 COSTS AND EXPENSES Costs of Natural Gas............................... 18,359 21,515 65,627 72,978 Direct Operations.................................. 6,785 8,729 20,692 24,884 Exploration........................................ 2,025 2,198 5,016 5,310 Depreciation, Depletion and Amortization........... 11,352 15,088 38,182 37,922 Impairment of Unproved Properties.................. 1,128 933 3,177 2,623 Impairment of Long-Lived Assets (Note 9)........... 113,795 - 113,795 - General and Administrative......................... 3,274 4,456 12,727 12,824 Taxes Other Than Income............................ 2,983 3,294 8,775 8,887 Cost Reduction Program............................. - - 6,820 - --------- --------- -------- --------- 159,701 56,213 274,811 165,428 Gain (Loss) On Sale Of Assets...................... 10 32 (399) 48 -------- -------- -------- --------- INCOME (LOSS) FROM OPERATIONS...................... (111,709) (423) (117,753) 12,671 Interest Expense................................... 5,523 4,632 17,118 11,308 ------- ------- ------- -------- Income (Loss) Before Income Taxes.................. (117,232) (5,055) (134,871) 1,363 Income Tax Expense (Benefit)....................... (45,313) (2,024) (52,234) 543 -------- --------- --------- ------- NET INCOME (LOSS) ................................. (71,919) (3,031) (82,637) 820 Dividend Requirement On Preferred Stock............ 1,391 1,410 4,162 3,057 ------- ------- -------- ------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS............................. $ (73,310) $ (4,441) $ (86,799) $ (2,237) ======== ======= ========= ======== EARNINGS (LOSS) PER COMMON SHARE................... $ (3.22) $ (0.20) $ (3.81) $ (0.10) ======= ======== ======== ======== Average Common Shares Outstanding.................. 22,778 22,726 22,773 21,775 ======= ======= ======= =======
See accompanying notes to these condensed consolidated financial statements. - 3 - CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (In Thousands)
September 30, December 31, 1995 1994 --------- --------- ASSETS Current Assets Cash and Cash Equivalents.................................................. $ 1,961 $ 3,773 Accounts Receivable........................................................ 27,205 38,166 Inventories................................................................ 7,059 8,384 Other...................................................................... 1,714 1,696 --------- --------- Total Current Assets..................................................... 37,939 52,019 Properties and Equipment (Successful Efforts Method).......................... 472,273 634,934 Other Assets.................................................................. 1,442 1,399 --------- --------- $ 511,654 $ 688,352 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-Term Debt............................................................ $ 29 $ - Accounts Payable........................................................... 27,405 39,990 Accrued Liabilities........................................................ 16,520 13,750 -------- -------- Total Current Liabilities................................................ 43,954 53,740 Long-Term Debt................................................................ 240,307 268,363 Deferred Income Taxes......................................................... 65,486 117,807 Other Liabilities............................................................. 7,955 5,360 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 1995 and 1994 - 6% Convertible Redeemable Preferred; $50 Stated Value; 1,134,000 Shares in 1995 and 1994........................ 183 183 Common Stock: Authorized--40,000,000 Shares of $.10 Par Value Issued and Outstanding--22,779,266 Shares and 22,757,007 Shares as of September 30, 1995 and December 31, 1994, Respectively........................................ 2,278 2,275 Additional Paid-in Capital................................................. 241,873 241,471 Accumulated Deficit........................................................ (90,382) (847) -------- -------- Total Stockholders' Equity............................................... 153,952 243,082 ------- ------- $ 511,654 $ 688,352 ======== ========
See accompanying notes to 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, --------------------- ---------------------- 1995 1994 1995 1994 -------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss)....................................... $ (71,919) $ (3,031) $ (82,637) $820 Adjustments to Reconcile Net Income (Loss) to Cash Provided by Operating Activities: Depletion, Depreciation and Amortization............ 11,352 15,088 38,182 37,922 Impairments of Unproved Properties.................. 1,128 933 3,177 2,623 Impairments of Long-Lived Assets (Note 9)........... 113,795 - 113,795 - Deferred Income Taxes............................... (45,935) (1,418) (52,321) 615 Loss (Gain) on Sale of Assets....................... (10) (32) 399 (48) Exploration Expense................................. 2,025 2,198 5,016 5,310 Other, Net.......................................... (473) (282) 2,530 (1,054) Changes in Assets and Liabilities: Accounts Receivable................................. 4,203 1,195 10,961 10,653 Inventories......................................... (1,797) (2,418) 1,325 (2,828) Other Current Assets ............................... (540) 327 (18) 401 Other Assets........................................ (9) (307) (43) (287) Accounts Payable & Accrued Liabilities.............. (5,515) (6,359) (10,250) 2,049 Other Liabilities................................... 82 217 652 (461) -------- -------- -------- -------- Net Cash Provided By Operating.......................... 6,387 6,111 30,768 55,715 ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures ................................... (2,907) (25,179) (10,933) (60,113) Cost of Major Acquisition (Note 12)..................... 8,402 (9,403) 8,402 (78,291) Proceeds from Sale of Assets (Notes 11 & 14)............ 2,019 146 9,716 322 Exploration Expense..................................... (2,025) (2,198) (5,016) (5,310) -------- -------- ------- -------- Net Cash Provided (Used) By Investing .................. 5,489 (36,634) 2,169 (143,392) -------- -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of Common Stock.................................... 78 226 339 323 Increase in Debt........................................ - 33,535 7,000 109,574 Decrease in Debt........................................ (10,000) - (35,027) (16,000) Dividends Paid.......................................... (2,303) (2,017) (7,061) (4,800) --------- --------- -------- -------- Net Cash Provided (Used) By Financing................... (12,224) 31,744 (34,749) 89,097 -------- -------- -------- -------- Net Increase (Decrease) In Cash and Cash Equivalents.................................... (349) 1,221 (1,812) 1,420 Cash and Cash Equivalents, Beginning of Period............ 2,310 3,096 3,773 2,897 ------- -------- -------- -------- Cash and Cash Equivalents, End of Period.................. $ 1,961 $ 4,317 $ 1,961 $ 4,317 ======= ======== ======== ========
See accompanying notes to 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 (except as described in the Notes to the Condensed Consolidated Financial Statements), necessary for a fair presentation. 2. PROPERTIES AND EQUIPMENT Properties and equipment are comprised of the following:
September 30, December 31, 1995 1994 -------- -------- (in thousands) Unproved oil and gas properties........................................ $ 16,330 $ 20,847 Proved oil and gas properties.......................................... 789,047 796,390 Gathering and pipeline systems......................................... 147,424 146,131 Land, building and improvements........................................ 5,513 5,533 Other.................................................................. 14,749 13,875 -------- -------- 973,063 982,776 Accumulated depreciation, depletion and amortization.................. (500,790) (347,842) -------- -------- $ 472,273 $ 634,934 ======== ========
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for interest and income taxes are comprised as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 1995 1994 1995 1994 ------ ------ ------ ------ (in thousands) Interest expense..................... $ 2,629 $ 2,410 $ 14,069 $ 8,674 Income taxes......................... $ 7 $ 6 $ 37 $ 18
- 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:
Sept. 30, December 31, 1995 1994 --------- --------- (in thousands) Accounts Receivable Trade accounts.................................................... $ 25,962 $ 36,246 Other accounts.................................................... 2,598 3,245 ------- ------- 28,560 39,491 Allowance for doubtful accounts................................... (1,355) (1,325) ------- ------- $ 27,205 $ 38,166 ======= ======= Inventories Natural gas in storage............................................ $ 5,560 $ 5,777 Tubular goods and well equipment.................................. 1,746 2,120 Exchange balances................................................. (247) 487 ------ ------- $ 7,059 $ 8,384 ====== ====== Accounts Payable Trade accounts.................................................... $ 6,207 $ 10,818 Natural gas purchases............................................. 7,603 7,938 Royalty and other owners.......................................... 7,456 12,691 Capital costs..................................................... 1,197 4,097 Dividends payable................................................. 1,237 1,404 Taxes Other Than Income........................................... 484 690 Other accounts.................................................... 3,221 2,352 ------- ------- $ 27,405 $ 39,990 ======= ======= Accrued Liabilities Employee benefits................................................. $ 2,425 $ 3,182 Taxes other than income........................................... 8,553 7,886 Interest payable.................................................. 4,792 1,742 Other accrued..................................................... 750 940 ------- -------- $ 16,520 $ 13,750 ======= ======= Other Liabilities Postretirement benefits other than pension........................ $ 2,842 $ 898 Accrued pension cost.............................................. 3,061 2,299 Other............................................................. 2,052 2,163 ------- ------- $ 7,955 $ 5,360 ======= =======
- 7 - CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued 5. LONG-TERM DEBT At September 30, 1995, the Company had borrowed $160 million against an available credit line of $235 million. The available credit line is subject to revision based on 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 Company amended certain provisions of the revolving credit facility in the second quarter of 1995, refer to Note 5 of the Notes to the Condensed Consolidated Financial Statements included in the Company's Form 10-Q for the quarter ended June 30, 1995 for further discussion. 6. CONTINGENCIES There have been no new material developments with regard to the Barby lawsuit as described in the Company's 1994 Annual Report on Form 10-K other than as set forth below. On March 16, 1995, Barby appealed the decision of the trial court to the Oklahoma Supreme Court. Barby requested that the Oklahoma Supreme Court retain the case. Subsequently, the Oklahoma Supreme Court decided not to retain the case and assigned the appeal to the Oklahoma Court of Appeals. In September 1995, Barby filed a separate action in state court in Oklahoma, purporting to represent all similarly situated royalty owners in Oklahoma, alleging improper calculation of royalties and seeking actual and punitive damages. The Company has denied the material allegations of the complaint. No formal discovery has yet been conducted. 7. ACCOUNTING CHANGE Effective January 1, 1995, the Company changed from the property-by-property basis to the field basis of applying the unit-of-production method to calculate depreciation and depletion on producing oil and gas properties. The net effect of the change in method resulted in a $2,899 thousand decrease in DD&A expense and a $1,762 thousand increase in net earnings in the nine months of 1995, including the impact of the pre-1995 amount of $303 thousand. The pro forma impact on the results of operations in the nine months of 1994, had the change in method been implemented at the beginning of 1994, would have been a decrease in DD&A expense of approximately $1,587 thousand and a $965 thousand increase in earnings. The Company projects the effect of the change in method for the full year of 1995 will reduce DD&A expense by approximately $3.5 to $4.0 million. For further discussion, refer to Note 7 of the Notes to the Condensed Consolidated Financial Statements included in the Company's Form 10-Q for the quarter ended June 30, 1995. 8. COST REDUCTION PROGRAM In the first quarter of 1995, the Company recorded a $6.8 million charge ($4.1 million after tax) in termination benefits for a 20% reduction of the total workforce. For further discussion, refer to Note 8 of the Notes to the Condensed Consolidated Financial Statements included in the Company's Form 10-Q for the quarter ended June 30, 1995. - 8 - CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued 9. ACCOUNTING FOR LONG-LIVED ASSETS Effective September 30, 1995, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 121 requires that an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flow of the asset. Under SFAS 121, the Company reviewed the impairment of oil and gas properties and related assets on an economic unit basis. For each economic unit determined to be impaired, an impairment loss equal to the difference between the carrying value and the fair value of the economic unit was recognized. Fair value, on a economic unit basis, was estimated to be the present value of expected future net cash flows over the economic lives of the reserves. As a result of the adoption of SFAS 121, the Company recognized a non-cash charge during the third quarter of $113.8 million ($69.1 million after tax). 10. NET REVENUE MARGINS ON NATURAL GAS SALES Natural gas revenue margins were comprised of the following:
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (in thousands, except where noted) Production and Royalty Gas Sales volume (MMcf).................. 15,990 19,483 56,516 53,661 Natural gas revenue.................. $ 26,405 $ 36,712 $ 98,941 $ 118,826 Cost of natural gas.................. 4,622 8,677 25,396 27,992 ------ ------ ------- ------- Net revenue margin................... $ 21,783 $ 28,035 $ 73,545 $ 90,834 ====== ====== ======= ======= Brokered Gas (*) Sales volume (MMcf).................. 9,977 7,014 27,109 21,022 Natural gas revenue.................. $ 14,171 $ 13,608 $ 42,095 $ 47,734 Cost of natural gas.................. 13,737 12,838 40,231 44,986 ------ ------ ------- ------- Net revenue margin................... $ 434 $ 770 $ 1,864 $ 2,748 ======= ======= ======== ======= Total Company Sales volume (MMcf).................. 25,967 26,497 83,625 74,683 Natural gas revenue.................. $ 40,576 $ 50,320 $ 141,036 $ 166,560 Cost of natural gas.................. 18,359 21,515 65,627 72,978 ------ ------ ------- ------- Net revenue margin................... $ 22,217 $ 28,805 $ 75,409 $ 93,582 ====== ====== ======= =======
(*) Includes back-to-back and third-party purchase brokerage activities. - 9 - CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued 11. SALE OF NON-CORE OIL AND GAS PROPERTIES To reduce debt, the Company sold various non-core oil and gas properties in the Western Region, obtaining proceeds of $7.9 million through the third quarter of 1995. 12. VALUATION ADJUSTMENT The Company received an $8.4 million net cash settlement in connection with a valuation adjustment on the 1994 Washington Energy Resources Company acquisition ("WERCO Valuation Adjustment"). The WERCO Valuation Adjustment was recorded as a reduction to the net book value of certain oil and gas properties purchased in the WERCO acquisition. 13. OTHER REVENUE The Company recorded $4.6 million ($4.1 million net of severance taxes) in other revenue in connection with the sale of certain Columbia Gas Transmission Corporation ("Columbia") bankruptcy claims. The claims related to the remaining value of gas sales in contracts terminated by Columbia as part of its bankruptcy filing in 1991. 14. MONETIZATION OF SECTION 29 TAX CREDITS During the third quarter, the Company completed a transaction to monetize the value of Section 29 tax credits from most of its qualifying Appalachian properties. The transaction provided cash of $1.8 million at closing, which was recorded as a reduction to the net book value of natural gas properties, and will generate additional revenues through 2002 estimated at $14 million ($2.0 million in the first twelve months) related to the value of future Section 29 tax credits attributable to these properties. Employing a volumetric production payment structure, the production, revenues, expenses and proved reserves related to these properties will continue to be reported by the Company until the production payment is satisfied. - 10 - Independent Certified Public Accountants' Report on Review of Interim Financial Information To the Board of Directors and Stockholders Cabot Oil & Gas Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Cabot Oil & Gas Corporation as of September 30, 1995, and the related condensed consolidated statements of operations and cash flows for the three and nine month periods ended September 30, 1995 and 1994. 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 condensed consolidated balance sheet as of December 31, 1994, 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 3, 1995, 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, 1994, 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 November 10, 1995 - 11 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of operations for the third quarters and nine months of 1995 and 1994 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 and the Notes included in the Company's Form 10-K for the year ended December 31, 1994. Overview The Company's growth strategy through the exploitation of current development drilling opportunities, selective acquisitions and expanded marketing activities is sensitive to energy commodity prices, particularly the price of natural gas. The average natural gas price realized by the Company in the third quarter of 1995 was approximately 18% lower than the third quarter of 1994, replacing the second quarter of 1995 as the lowest quarterly price since the Company became publicly traded in 1990. These lower gas prices have significantly reduced earnings and cash flows, partially offset by the benefit of lower unit costs. Effective September 30, 1995, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". As a result of this adoption, the Company recorded a non-cash charge of $113.8 million ($69.1 million after tax) in the third quarter. See Note 9 of the Notes to the Condensed Consolidated Financial Statements for further discussion of SFAS 121. While the adoption of SFAS 121 has no impact on cash flow or oil and gas reserves, the Company's depreciation, depletion and amortization rate per unit of production is expected to decrease in future periods by $0.13 to $0.15 per Mcfe. During the third quarter, the Company completed a transaction to monetize the value of Section 29 tax credits from most of its qualifying Appalachian properties. The transaction provided cash of $1.8 million at closing, which was recorded as a reduction to the net book value of natural gas properties, and will generate additional revenues through 2002 estimated at $14 million ($2.0 million in the first twelve months) related to the value of future Section 29 tax credits attributable to these properties. Employing a volumetric production payment structure, the production, revenues, expenses and proved reserves related to these properties will continue to be reported by the Company until the production payment is satisfied. A smaller but similar transaction monetizing Section 29 tax credits from the Company's Rocky Mountain properties is expected to be completed in the fourth quarter. The Company recorded $4.6 million ($4.1 million net of severance taxes) in other revenue during the third quarter in connection with the sale of claims related to certain gas sales contracts with Columbia Gas Transmission Corporation ("Columbia"). The claims related to the remaining value of gas sales contracts terminated by Columbia as part of its 1991 bankruptcy filing. In response to market conditions, the Company continues to focus on reducing debt while conducting a smaller drilling program than in prior years, comprised of the highest return opportunities and obligatory development to maintain lease positions. A large portion of the $10 million debt reduction in the third quarter was funded by an $8.4 million net cash settlement received in connection with a valuation adjustment on the 1994 Washington Energy Resources Company acquisition ("WERCO Valuation Adjustment"). Future reductions in debt will also be achieved by applying benefits of the cost reduction program and anticipated proceeds from certain future transactions. This focus has resulted in a net debt reduction of $28 million since the beginning of 1995. - 12 - Also, as gas prices decline to a level approaching the Company's combined finding and variable lifting costs, production and sales at those prices become undesirable. Accordingly, the Company curtailed approximately 12 MMcf of production per day in August and September, all from the Rocky Mountains area of the Western Region. These actions did not have a significant impact on the Company's cash flows. Rocky Mountain market prices improved to a level allowing the Company to return the curtailed wells to production in October. The Company's capital and exploration expenditures plan ("program spending") for 1995 is $28.1 million, down $52.6 million from the 1994 capital and exploration expenditures, excluding the WERCO acquisition. Program spending for 1995 was revised downward from the second quarter estimate of $43.5 million primarily due to rescheduling of certain drilling and acquisition plans to 1996. During the nine months of 1995, the Company drilled 23 net wells and realized a drilling success rate of 77%, compared to 158 net wells with a drilling success rate of 96% for the nine months of 1994. Natural gas sales were 26.0 Bcf for the third quarter of 1995, including 10 Bcf from the marketing of brokered natural gas, compared to 26.5 Bcf in the third quarter of 1994, including 7.0 Bcf from the marketing of brokered natural gas. Gas volumes and net revenue margins associated with the Company's marketing activities (see Note 10 of the Notes to the Condensed Consolidated Financial Statements) are presented in two categories, (1) production and royalty gas marketed through the Company's gathering and pipeline facilities and (2) brokered gas marketed in back-to-back or brokered arrangements ("brokered"). The contribution to net revenue margin provided by brokered sales was approximately 5 cents per Mcf in the third quarter of 1995, compared with approximately 7 cents per Mcf in the third quarter of 1994, when higher natural gas prices typically supported higher margins. The reduction in net revenue margin also reflects an increase in lower margin brokered sales in the Western Region. The Company continued to reduce its operating costs in the third quarter of 1995. Controllable operating costs and expenses, consisting of direct operations, exploration and general and administrative expenses, were $0.85 per Mcfe produced as compared with $0.88 per Mcfe produced in the third quarter of 1994 and $0.93 per Mcfe for the year of 1994. This improvement reflects the Company's continued focus on cost control along with the impact of the cost reduction program implemented in the first quarter of 1995 (see Note 8 of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q). The Company continues to assess market conditions and commodity prices and will modify its business plans as warranted. 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 market production on a cost-effective basis. Demand for oil and gas has historically been subject to seasonal influences characterized by peak demand and higher prices in the winter heating season. During latter 1994 and 1995 to date, however, natural gas prices have dropped significantly while demand has remained reasonably high. While the Company increased year-to-date sales volumes, the drop in gas prices has significantly reduced cash flows during this period. - 13 - Primary sources of cash for the Company were from funds generated from operations and bank borrowings. Primary uses of cash were funds used in exploration and development expenditures, acquisitions, repayment of debt and dividends. The Company had a net cash outflow of $1.8 million in the nine months of 1995. Net cash inflows from operating activities, asset sales and the WERCO Valuation Adjustment totalled $48.9 million in the period, substantially funding capital and exploration expenditures of $15.9 million, net debt reductions of $28.0 million and dividend payments of $7.1 million.
Nine Months Ended Sept. 30, 1995 1994 ------ ------ (in millions) Cash Flows Provided by Operating Activities................................. $ 30.8 $ 55.7 ====== ======
Cash flows from operating activities in the 1995 nine months were lower by $24.9 million compared to the corresponding nine months of 1994 primarily due to lower natural gas prices, higher interest expense due to increased bank debt and non-recurring charges related to the cost reduction program and other related severance costs, partially offset by proceeds from the sale of the Columbia bankruptcy claim.
Nine Months Ended Sept. 30, 1995 1994 ------ ------ (in millions) Cash Flows Provided (Used) by Investing Activities.......................... $ 2.2 $ (143.4) ===== ======
Cash flows used by investing activities in the nine months of 1995 and 1994 were substantially attributable to capital and exploration expenditures of $15.9 million (offset by $9.7 million in proceeds from the sale of certain non-core oil and gas properties and $8.4 million from the WERCO Valuation Adjustment) and $143.7 million (including $78.3 million for the WERCO acquisition), respectively.
Nine Months Ended Sept. 30, 1995 1994 ------ ------ (in millions) Cash Flows Provided (Used) by Financing Activities.......................... $ (34.7) $ 89.1 ===== =====
Cash flows provided (used) by financing activities were primarily debt reductions in 1995 and debt increases in 1994 under the revolving credit facility. The debt reductions in 1995 were funded in part by cash flows from operations and from the aforementioned sale proceeds from non-core properties and the WERCO Valuation Adjustment. The $93.6 million net increase under the revolving credit facility in 1994 was primarily attributable to the financing associated with the WERCO acquisition ($73.1 million) and the $6.2 million purchase of additional drilling locations in connection with another proved property acquisition. Under the Company's revolving credit facility, the available credit line, currently $235 million, is subject to revision based on the projected present value of estimated future net cash flows from proved oil and gas reserves and other assets. The Company's 1995 interest expense is projected to be approximately $23 million. No principal payments are due in 1995. - 14 - Capitalization information on the Company is as follows:
Sept. 30, December 31, 1995 1994 ------ ------ (in millions) Long-Term Debt.............................................................. $ 240.3 $ 268.3 Stockholders' Equity Common Stock........................................................... 62.7 151.8 Preferred Stock........................................................ 91.3 91.3 ------ ------ Total ............................................................. 154.0 243.1 ------ ------ Total Capitalization........................................................ $ 394.3 $ 511.4 ===== ===== Debt to Capitalization...................................................... 60.9% 52.5%
Since December 31, 1994, the debt-to-capitalization percentage increased from 52.5% to 60.9% largely due to the $113.8 million non-cash charge recorded in connection with the adoption of SFAS 121 in the third quarter of 1995. Capital and Exploration Expenditures The following table presents major components of capital and exploration expenditures:
Nine Months Ended Sept. 30, 1995 1994 ------ ------ (in millions) Capital Expenditures Drilling and Facilities.......................................... $ 8.8 $ 42.2 Leasehold Acquisitions........................................... 0.5 3.4 Pipeline and Gathering .......................................... 1.1 6.4 Other............................................................ 0.1 1.3 ----- ------- 10.5 53.3 ----- ------ Proved Property Acquisitions (*)................................. 0.4 214.5 Exploration Expenses................................................... 5.0 5.3 ------ ------ Total............................................................ $ 15.9 $ 273.1 ====== ======
- ------------ (*) Excludes the $8.4 million WERCO Valuation Adjustment in 1995 and includes $207.6 million attributable to the WERCO acquisition in 1994 of which $97.5 million was non-cash consideration of the Company's preferred and common stock and $31.9 million was a non-cash component relating to deferred taxes for the difference in book and tax bases. Total capital spending is down most notably in the area of proved property acquisitions due to the $208.0 million WERCO acquisition in 1994. The remaining decrease is due primarily to a reduced capital spending program for 1995. 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 planned $28.1 million of capital and exploration expenditures for 1995 which includes $23.7 million for drilling and facilities and exploration expenses. Compared to the 1994 capital and exploration expenditures, excluding the WERCO acquisition, the Company has reduced 1995 planned - 15 - expenditures by 65% in response to continued low natural gas prices. The Company plans to drill 50 to 60 wells, net to its interest, in 1995 compared with 169 net wells drilled in 1994. During the nine months of 1995, the Company paid dividends of $2.7 million on the Common Stock and $4.4 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 September 30, 1995. The dividend will be paid November 30, 1995 to shareholders of record as of November 16, 1995. Other Issues and Contingencies There have been no new material developments with regard to the Barby lawsuit as described in the Company's 1994 Annual Report on Form 10-K other than as set forth below. On March 16, 1995, Barby appealed the decision of the trial court to the Oklahoma Supreme Court. Barby requested that the Oklahoma Supreme Court retain the case. Subsequently, the Oklahoma Supreme Court decided not to retain the case and assigned the appeal to the Oklahoma Court of Appeals. In September 1995, Barby filed a separate action in state court in Oklahoma, purporting to represent all similarly situated royalty owners in Oklahoma, alleging improper calculation of royalties and seeking actual and punitive damages. The Company has denied the material allegations of the complaint. No formal discovery has yet been conducted. 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 continued deterioration of gas prices in 1995 significantly impacted the Company's operating results, reducing earnings and cash flows in the third quarter. Given the volatility of natural gas prices in recent years, management cannot predict with certainty what pricing levels will be for the remainder of 1995. Should the present pricing levels continue through the end of the year, management would expect to report a net loss for the fourth quarter of 1995. 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. While present conditions make such actions difficult, the Company remains committed to its plan to pursue potential acquisitions as part of its long-term corporate strategy. Such acquisitions may require capital resources beyond those provided from operations. The Company's ability to fund such acquisitions, if necessary, with external financing is dependent, among other things, upon available borrowing capacity under its committed bank line and the Company's access to and the general conditions of debt and equity capital markets. The Company believes that debt reduction aided by asset rationalization, production increases from the exploitation of its highest return exploration and development opportunities, and continuing efforts to improve efficiency and reduce operating cost 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, including acquisitions. - 16 - 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 stockholders. Selected Financial and Operating Data
Three Months Ended Nine Months Ended September 30, September 30, ------------------- -------------------- 1995 1994 1995 1994 ------ ------ ------ ------ (in millions) Revenues................................................ $ 48.0 $ 55.8 $ 157.5 $ 178.1 Costs and Expenses (1).................................. 159.7 56.2 274.8 165.4 Operating Income (Loss) (1)............................. (111.7) (0.4) (117.8) 12.7 Interest Expense........................................ 5.5 4.6 17.1 11.3 Net Income (Loss) (1)................................... (73.3) (4.4) (86.8) (2.2) Earnings (Loss) Per Share (1)........................... $ (3.22) $ (0.20) $ (3.81) $ (0.10) Natural Gas Production (Bcf) Appalachia......................................... 6.6 7.6 21.0 22.1 West............................................... 6.7 8.3 22.5 20.9 ---- ----- ----- ---- Total Company...................................... 13.3 15.9 43.5 43.0 ==== ==== ==== ==== Natural Gas Sales (Bcf) Appalachia......................................... 11.8 12.5 38.8 43.0 West............................................... 14.2 14.0 44.8 31.7 ---- ----- ---- ---- Total Company...................................... 26.0 26.5 83.6 74.7 ==== ===== ==== ==== Natural Gas Prices ($/Mcf) Appalachia......................................... $1.97 $2.14 $2.10 $2.56 West............................................... $1.22 $1.67 $1.33 $1.80 Total Company...................................... $1.56 $1.90 $1.69 $2.23 Crude/Condensate Volume (MBbl)...................................... 119 212 470 464 Price $/Bbl........................................ $17.83 $17.92 $17.86 $16.56
- ---------- (1) Included in the three and nine month periods ended September 30, 1995, is the impact of the $113.8 million ($69.1 million after tax or $3.03 per share) non-cash charge recorded in connection with the adoption of SFAS 121 in the third quarter. - 17 - Third Quarters of 1995 and 1994 Compared Net Loss and Revenues. The Company reported a net loss in the third quarter 1995 of $73.3 million, or $3.22 per share, including $6.6 million, or $0.29 per share, from recurring operations and $66.7 million, or $2.93 per share, due to a $113.8 million charge ($69.1 million after tax) related to the adoption of SFAS 121, partially offset by other revenue of $4.1 million ($2.5 million after tax) in connection with the sale of a Columbia bankruptcy claim. During the corresponding quarter of 1994, the Company reported a loss of $4.4 million, or $0.20 per share. Operating income and operating revenues from recurring operations decreased $1.6 million and $12.4 million, respectively. Natural gas made up 94%, or $40.6 million, of operating revenue from recurring operations. The decrease in operating revenues was driven primarily by an 18% decrease in the average natural gas price. Net loss and operating income (loss) from recurring operations were similarly impacted by the decline in the average natural gas price, as well as higher interest expense associated with the WERCO acquisition. Natural gas sales volumes were down 0.8 Bcf to 11.8 Bcf in the Appalachian Region. Production volume in the Appalachian Region was down 1.0 Bcf, or 13% primarily due to decreased production resulting from higher pipeline curtailments and normal production declines that were not offset by new production due to the reduced drilling activity in 1995. Natural gas sales volumes were virtually unchanged at 14.2 Bcf in the Western Region. Production volume in the Western Region was down 1.6 Bcf, or 19%, resulting from 0.7 Bcf of shutin production in response to lower gas prices, the sale of non-core oil and gas properties and normal production declines not offset by new production due to the reduced drilling activity in 1995. The average Appalachian natural gas sales price decreased $0.17 per Mcf, or 8%, to $1.97, decreasing operating revenues by approximately $2.0 million. In the Western Region, the average natural gas sales price decreased $0.45 per Mcf, or 27%, to $1.22, decreasing operating revenues by approximately $6.5 million. The total Company natural gas price decreased $0.34 per Mcf, or 18%, to $1.56. Crude oil and condensate sales were down 93 MBbl to 119 MBbl due to the sale of various non-core oil and gas properties earlier in the year. Costs and Expenses Total costs and expenses, excluding the $113.8 million impairment of long-lived assets (discussed above), decreased $10.3 million, or 18%, due primarily to the following: o The costs of natural gas decreased $3.2 million to $18.4 million. The decrease was primarily due to a $0.40 per Mcf decrease in the average price of gas purchased for resale, partially offset by a 1.7 Bcf increase in gas purchased for resale (including gas exchanges and storage). o Direct operations expense decreased $1.9 million, or 22%, due in large part to reductions in (1) lease maintenance work and workovers, (2) field and regional office expenses due primarily to the cost reduction program and (3) compressor rental and overhaul expenses. o General and administrative expense decreased $1.2 million, or 27%, due to $0.5 million in cost savings from the cost reduction program in the first quarter and a $0.7 million downward revision in the provision for employee benefits costs for 1995. o Depreciation, depletion, amortization and impairment ("DD&A") expense, excluding the $113.8 million impairment of long-lived assets in connection with SFAS 121, decreased $3.5 million, or 22%, due primarily to shutin production as discussed above and in part to the field level method of computing DD&A expense on producing oil and gas properties, adopted effective January 1, 1995. Due to the adoption of - 18 - SFAS 121, the Company's DD&A rate is expected to decrease in future periods by $0.13 to $0.15 per Mcfe. Interest expense was up $0.9 million, or 19%, due to the increase in debt primarily attributable to the WERCO acquisition in 1994. Income tax benefit was up $43.3 million due to the comparable increase in the loss before income tax. The Company's effective tax rate was virtually unchanged. Nine Months of 1995 and 1994 Compared Net Income (Loss) and Revenues. The Company reported a net loss in the nine months of 1995 of $86.8 million, or $3.81 per share, including $15.4 million, or $0.68 per share, from recurring operations and $71.4 million, or $3.13 per share, primarily due to a $113.8 million charge ($69.1 million after tax) related to the adoption of SFAS 121 and $7.7 million ($4.9 million after tax) for the cost reduction program and other severance costs, offset in part by other revenue of $4.1 million ($2.5 million after tax) in connection with the sale of a Columbia bankruptcy claim. During the corresponding nine months of 1994, the Company reported a net loss of $2.2 million, or $0.10 per share. Operating income and operating revenues from recurring operations decreased $13.0 million and $25.2 million, respectively. Natural gas made up 92%, or $141.0 million, of operating revenue from recurring operations. The decrease in operating revenues from recurring operations was driven primarily by a 24% decrease in the average natural gas price, partially offset by a 12% increase in natural gas sales volumes due to higher gas purchased for resale (up 21%) as discussed below. Net income (loss) and operating income (loss) from recurring operations were similarly impacted by the decline in the average natural gas price, as well as higher interest expenses associated with the WERCO acquisition. Natural gas sales volumes were down 4.2 Bcf to 38.8 Bcf in the Appalachian Region primarily due to a 4.5 Bcf decrease in gas purchased for resale. Production volume in the Appalachian Region was down 1.1 Bcf, or 5%, to 21.0 Bcf due in part to higher pipeline curtailments and normal production declines not fully replaced by new production due to reduced drilling activity in 1995. Natural gas sales volumes were up 13.1 Bcf to 44.8 Bcf in the Western Region due primarily to higher production volume (up 1.7 Bcf) and gas purchased for resale (up 11.8 Bcf), all of which are primarily due to the WERCO acquisition. The average Appalachian natural gas sales price decreased $0.46 per Mcf, or 18%, to $2.10, decreasing operating revenues by approximately $17.7 million. In the Western Region, the average natural gas sales price decreased $0.46 per Mcf, or 26%, to $1.33, decreasing operating revenues by approximately $20.6 million. Because the proportion of lower priced Western Region sales volume relative to total Company sales volume was up significantly, the weighted average natural gas price for the total Company decreased $0.54 per Mcf, or 24%, to $1.69. Crude oil and condensate sales were virtually unchanged at 470 MBbl. Costs and Expenses Total costs and expenses from recurring operations decreased $12.2 million, or 7%, due primarily to the following: o The costs of natural gas decreased $7.4 million to $65.6 million. The decrease was primarily due to a $0.58 per Mcf decrease in the average price of gas purchased for resale, partially offset by an 8.5 Bcf increase in gas purchased for resale (including gas exchanges and storage). o Direct operations expense decreased $4.2 million, or 17%, due in large part to reductions in (1) lease maintenance work and workovers, (2) field and regional office expenses due primarily to the cost reduction program, and (3) compressor rental and overhaul expenses. - 19 - o General and administrative expense from recurring operations decreased $1.0 million, or 8%, due largely to costs savings realized from the cost reduction program. o Depreciation, depletion, amortization and impairment expense, excluding the $113.8 million impairment of long-lived assets in connection with SFAS 121, increased $0.8 million due primarily to the WERCO acquisition partially offset by the field level method of computing DD&A expense on producing oil and gas properties, adopted effective January 1, 1995. Due to the adoption of SFAS 121, the Company's DD&A rate is expected to decrease in future periods by $0.13 to $0.15 per Mcfe. The cost reduction program, recorded in the first quarter, consisted primarily of a 20% 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 ($3.6 million paid during the nine months) and a $3.0 million non-cash charge for the impact of the staff reduction to the pension and postretirement benefits plans. Interest expense was up $5.8 million, or 51%, due to the increase in debt primarily attributable to the WERCO acquisition in 1994. Income tax expense was down $52.8 million due to the comparable decrease in earnings before income tax. The Company's effective tax rate was virtually unchanged. - 20 - 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 1995 Form 10-Q (b) Reports on Form 8-K None - 21 - 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 ------------------------------------- November 14, 1995 Ray R. Seegmiller, Vice President and Chief Financial Officer (Chief Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant) - 22 - 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 November 10, 1995 on our review of the interim consolidated financial information of Cabot Oil & Gas Corporation for the three and nine month periods ended September 30, 1995 and 1994 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 November 14, 1995 - 23 - EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1,000 9-MOS DEC-31-1995 SEP-30-1995 1,961 0 28,560 (1,355) 7,059 37,939 973,063 (500,790) 511,654 43,954 240,307 153,046 0 91,289 (90,383) 511,654 150,688 157,457 274,811 274,811 0 0 17,118 (134,871) (52,234) (86,799) 0 0 0 (86,799) (3.81) 0
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