-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AR/EzGeQH3S5v1GjMRqUkO7jt1S7ZRM4C7GZs2f8e5bF6B5SRxaFDLt35FPXl5DE 0b1tbJzwwZU+ZekwK31w5A== 0000899243-94-000264.txt : 19940817 0000899243-94-000264.hdr.sgml : 19940817 ACCESSION NUMBER: 0000899243-94-000264 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABOT OIL & GAS CORP CENTRAL INDEX KEY: 0000858470 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94544257 BUSINESS ADDRESS: STREET 1: 15375 MEMORIAL DR CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 7135894600 10-Q 1 FORM 10-Q 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 JUNE 30, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-10447 CABOT OIL & GAS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 04-3072771 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 15375 Memorial Drive, Houston, Texas 77079 (Address of principal executive offices including Zip Code) (713) 589-4600 (Registrant's telephone number) NO CHANGE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No ------ ------ As of June 30, 1994, there were 22,721,552 shares of 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 Income for the Three and Six Months Ended June 30, 1994 and 1993 3 Condensed Consolidated Balance Sheet at June 30, 1994 and December 31, 1993 4 Condensed Consolidated Statement of Cash Flows for the Three and Six Months Ended June 30, 1994 and 1993 5 Notes to Condensed Consolidated Financial Statements 6 Independent Accountants' Report on Review of Interim Financial Information 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 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 INCOME (UNAUDITED) (In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------ 1994 1993 1994 1993 --------- --------- -------- -------- REVENUES Natural Gas............................... $52,492 $35,646 $116,240 $76,746 Crude Oil and Condensate.................. 2,801 1,762 3,902 2,525 Other..................................... 1,160 971 2,151 2,583 ------- ------- -------- ------- 56,453 38,379 122,293 81,854 COSTS AND EXPENSES Costs of Natural Gas...................... 22,400 10,851 51,463 23,827 Direct Operations......................... 8,697 7,030 16,156 13,925 Exploration............................... 2,095 1,734 3,112 3,605 Depreciation, Depletion and Amortization.. 13,615 7,620 22,834 14,680 Impairment of Unproved Properties......... 970 720 1,690 1,392 General and Administrative................ 4,187 4,287 8,366 8,502 Taxes Other Than Income................... 2,978 2,287 5,593 4,520 ------- ------- -------- ------- 54,942 34,529 109,214 70,451 Gain (Loss) On Sale Of Assets............. 2 (27) 15 710 ------- ------- -------- ------- INCOME FROM OPERATIONS.................... 1,513 3,823 13,094 12,113 Interest Expense.......................... 3,798 2,472 6,675 5,031 ------- ------- -------- ------- Income (Loss) Before Income Taxes......... (2,285) 1,351 6,419 7,082 Income Tax Expense (Benefit).............. (901) 411 2,568 2,247 ------- ------- -------- ------- NET INCOME (LOSS)......................... (1,384) 940 3,851 4,835 Dividend Requirement On Preferred Stock... 1,096 373 1,648 373 ------- ------- -------- ------- NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS.................... $(2,480) $ 567 $ 2,203 $ 4,462 ======= ======= ======== ======= EARNINGS (LOSS) PER COMMON SHARE.......... $(0.11) $0.03 $0.10 $0.22 ======= ======= ======== ======= Average Common Shares Outstanding......... 21,992 20,486 21,292 20,476 ======= ======= ======== =======
See accompanying notes to these condensed consolidated financial statements. 3 CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (In Thousands)
JUNE 30, DECEMBER 31, 1994 1993 -------- ------------ ASSETS Current Assets Cash and Cash Equivalents................................... $ 3,096 $ 2,897 Accounts Receivable......................................... 39,061 35,296 Inventories................................................. 6,510 5,693 Other....................................................... 1,293 752 -------- -------- Total Current Assets...................................... 49,960 44,638 Properties And Equipment (Successful Efforts Method).......... 618,564 400,270 Other Assets.................................................. 1,079 93 -------- -------- $669,603 $445,001 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-Term Debt............................................. $ 1,232 $ 530 Accounts Payable............................................ 58,579 26,538 Accrued Liabilities......................................... 11,841 10,223 -------- -------- Total Current Liabilities................................. 71,652 37,291 Long-Term Debt................................................ 228,336 169,000 Deferred Income Taxes......................................... 112,621 78,698 Other Liabilities............................................. 5,438 6,483 Stockholders' Equity Preferred Stock: Authorized - 5,000,000 Shares of $.10 Par Value Issued and Outstanding - $3.125 Cumulative Convertible; $50 Stated Value; 692,439 Shares in 1994 and 1993 - 6% Convertible Redeemable; $50 Stated Value; 1,134,000 Shares in 1994............................................ 183 69 Common Stock: Authorized - 40,000,000 Shares of $.10 Par Value Issued and Outstanding - 22,721,552 Shares and 20,583,220 Shares in 1994 and 1993, Respectively.......... 2,273 2,058 Additional Paid-In Capital.................................. 240,492 143,264 Retained Earnings........................................... 8,608 8,138 -------- -------- Total Stockholders' Equity................................ 251,556 153,529 -------- -------- $669,603 $445,001 ======== ========
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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------- 1994 1993 1994 1993 ---------- --------- ------ ------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss)............................. $( 1,384) $ 940 $ 3,851 $ 4,835 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depletion, Depreciation and Amortization.. 14,585 8,340 24,524 16,072 Deferred Income Taxes..................... (771) 208 2,033 1,846 (Gain) Loss on Sale of Assets............. (2) 27 (15) (710) Exploration Expense....................... 2,095 1,734 3,112 3,605 Other, Net................................ (370) (54) (772) (165) Changes in Assets and Liabilities: Accounts Receivable....................... 9,052 3,248 9,458 7,683 Inventories............................... (3,309) (1,151) (410) 1,937 Other Current Assets...................... 74 (1,374) 75 (1,253) Other Assets.............................. 5 46 21 78 Accounts Payable & Accrued Liabilities.... 2,823 4,936 8,405 (863) Other Liabilities......................... (365) 527 (677) 914 -------- ------- --------- -------- Net Cash Provided By Operating Activities..... 22,433 17,427 49,605 33,979 -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Cost of Major Acquisition (1)................. (68,888) - (68,888) - Capital Expenditures.......................... (21,391) (7,286) (34,934) (15,677) Proceeds from Sale of Assets.................. 156 4 176 1,125 Exploration Expense........................... (2,095) (1,734) (3,112) (3,605) -------- ------- --------- -------- Net Cash Used By Investing Activities......... (92,218) (9,016) (106,758) (18,157) -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of Common Stock.......................... 58 605 98 605 Increase (Decrease) in Debt................... 70,998 (7,830) 60,038 (14,810) Dividends Paid................................ (1,450) (819) (2,784) (1,638) -------- ------- --------- -------- Net Cash Provided (Used) By Financing Activities.................................. 69,606 (8,044) 57,352 (15,843) -------- ------- --------- -------- Net Increase (Decrease) In Cash and Cash Equivalents.......................... (179) 367 199 (21) Cash and Cash Equivalents, Beginning of Period.. 3,275 714 2,897 1,102 -------- ------- --------- -------- Cash and Cash Equivalents, End of Period........ $ 3,096 $ 1,081 $ 3,096 $ 1,081 ======== ======= ========= ========
_______________ (1) Excludes non-cash consideration of $97.5 million of the Company's common stock and preferred stock issued in the WERCO Acquisition (See Note 7). 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, necessary for a fair presentation. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. INVENTORIES Inventories are comprised of the following:
JUNE 30, DECEMBER 31, 1994 1993 --------- ------------- (in thousands) Natural gas in storage................................ $ 4,621 $ 4,722 Tubular goods and well equipment...................... 2,285 1,712 Exchange balances..................................... (396) (741) --------- --------- $ 6,510 $ 5,693 ========= =========
3. PROPERTIES AND EQUIPMENT Properties and equipment comprised the following:
JUNE 30, DECEMBER 31, 1994 1993 -------- ------------ (in thousands) Unproved oil and gas properties....................... $ 18,861 $ 12,277 Proved oil and gas properties......................... 761,829 533,110 Gathering and pipeline systems........................ 137,701 134,262 Land, building and improvements....................... 7,950 7,376 Other................................................. 12,436 11,554 --------- --------- 938,777 698,579 Accumulated depreciation, depletion and amortization.. (320,213) (298,309) --------- --------- $ 618,564 $ 400,270 ========= =========
6 CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 4. ADDITIONAL BALANCE SHEET INFORMATION Certain balance sheet amounts comprised the following:
JUNE 30, DECEMBER 31, 1994 1993 --------- ------------- (in thousands) Accounts Receivable Trade accounts.............................. $33,786 $32,527 Joint interest billing...................... 4,382 1,168 Income taxes................................ 847 1,660 Other accounts.............................. 690 585 ------- ------- 39,705 35,940 Allowance for doubtful accounts............. (644) (644) ------- ------- $39,061 $35,296 ======= ======= Accounts Payable Trade accounts.............................. $21,808 $ 8,727 Natural gas purchases....................... 7,192 4,301 Royalty and other owners.................... 13,877 5,445 Capital costs............................... 8,763 5,721 Taxes other than income..................... 4,945 831 Other accounts.............................. 1,994 1,513 ------- ------- $58,579 $26,538 ======= ======= Accrued Liabilities Employee benefits........................... $ 3,103 $ 3,702 Taxes other than income..................... 4,265 3,437 Interest payable............................ 1,478 1,092 Other accrued............................... 2,995 1,992 ------- ------- $11,841 $10,223 ======= ======= Other Liabilities Postretirement benefits other than pension.. $ 1,396 $ 1,764 Accrued pension cost........................ 1,870 1,964 Other....................................... 2,172 2,755 ------- ------- $ 5,438 $ 6,483 ======= =======
5. LONG-TERM DEBT Under the Company's revolving credit facility at June 30, 1994, there was a $270 million available credit line, against which $148 million was borrowed. The available credit line is subject to adjustment on the basis of the projected present value of estimated future net cash flows from proved oil and gas reserves (as determined by a petroleum engineer's report incorporating certain assumptions provided by the lender) and other assets. If supported by such an adjustment, the available credit line may be increased to $300 million. The recent increase in the available credit line from $180 million to $270 million on May 31, 1994 was due to the additional value associated with the WERCO Acquisition (See Note 7) and the reserve additions from the Company's drilling program. 7 CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. CONTINGENCIES There have been no new developments with regard to contingencies as described in Note 10. "Commitments and Contingencies" to the Consolidated Financial Statements included in the Company's Form 10-K for the year ended December 31, 1993 and in Note 6. "Contingencies" to the Condensed Consolidated Financial Statements included in the Company's Form 10-Q for the quarter ended March 31, 1994. 7. MAJOR ACQUISITION The Company completed the merger between a Company subsidiary and Washington Energy Resources Company ("WERCO"), a wholly-owned subsidiary of Washington Energy Company. The Company acquired the stock of WERCO in a tax-free exchange for total consideration of approximately $166.3 million, subject to certain post-closing adjustments. The acquisition, effective May 2, 1994, was recorded using the purchase method. Excluded from the transaction were certain firm transportation, storage and other contractual arrangements of WERCO's marketing affiliate which were retained by Washington Energy Company. The Company issued 2,133,000 shares of Common Stock and 1,134,000 shares of 6 percent convertible redeemable preferred stock ($50 per share stated value) to Washington Energy Company in exchange for the capital stock of WERCO. The preferred stock is convertible into 1,972,174 shares of Common Stock at $28.75 per share. In addition, the Company advanced cash to repay intercompany indebtedness. The intercompany debt of WERCO was $63.6 million on March 31, 1994, as adjusted. 8 CABOT OIL & GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED The oil and gas properties, located in the Green River Basin of Wyoming and in the Gulf Coast, have approximately 191 billion cubic feet equivalent of proved reserves of which 82% is natural gas. Average net daily production from such properties in June, 1994 was approximately 42.6 million cubic feet of natural gas, 1,435 barrels of oil and 423 barrels of natural gas liquids. The properties include 376 wells (116 net), of which 184 wells (87 net) are operated by the Company. The following represents the pro forma results of operations as if such acquisition had occurred at the beginning of the current year, as well as the preceding year:
SIX MONTHS ENDED JUNE 30, ------------------------- 1994 1993 ------- -------- (in thousands) Total Revenue................................. $144,294 $107,570 ======== ======== Net Income Available to Common Shares......... $ 356 $ 1,953 ======== ======== Earnings per Common Share..................... $ 0.02 $ 0.09 ======== ========
The pro forma results of operations presented above do not purport to be indicative of the results of future operations, nor are they indicative of historical operations had the acquisition occurred as of the assumed dates. 9 Report of Independent Accountants To the Stockholders and Board of Directors of Cabot Oil & Gas Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Cabot Oil & Gas Corporation as of June 30, 1994 and the related condensed consolidated statements of income and cash flows for the three and six month periods ended June 30, 1994 and 1993. 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, 1993, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein); and, in our report dated February 25, 1994, 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, 1993, 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 August 10, 1994 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of operations for the three and six month periods ended June 30, 1994 and 1993 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, 1993. OVERVIEW The Company continues to pursue its growth strategy through the exploitation of current development drilling opportunities, selective acquisitions and expanded marketing activities. The acquisition program is focused on opportunities to add strategically located properties in areas where the Company presently has operations and in certain other natural gas producing areas throughout the United States which have production and exploration opportunities similar to areas where the Company has demonstrated expertise. Toward this end: . The Company drilled 91 net wells in the second quarter of 1994 with a success rate of 97%, as compared to 22 net wells drilled in the second quarter of 1993 with a 91% success rate. During the first half of this year, net wells drilled were 117 with a success rate of 97% which compared favorably to the net drilling results for the first half of 1993, 37 net wells with an 87% success rate. . The Company reflected the first two months of operating results from the recently completed merger of Washington Energy Resources Company into a subsidiary of Cabot Oil and Gas Corporation (the "WERCO Acquisition"). Operating results from the WERCO Acquisition included 3,190 MMcfe of production, total revenues of $9.2 million and discretionary cash flows of $3.3 million. The WERCO Acquisition has resulted in: the establishment of two new operating regions, Rocky Mountains region and Gulf Coast region; an increase in reserves which now exceeds one trillion cubic feet equivalent of natural gas; and the expansion of the Company's production base by approximately 36% annualized. 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 is subject to seasonal influences characterized by peak demand and higher prices in the winter heating season. Primary sources of cash for the Company were from funds generated from operations and bank borrowings. Primary uses of cash were funds used in operations, exploration and development expenditures, acquisitions, repayment of debt and dividends. The Company had a net cash inflow of $0.2 million in the first half of 1994. Net cash inflow from operating and financing activities totalled $107 million in the first half, funding capital and exploration expenditures of $106.8 million, including the $69 million cash consideration attributable to the WERCO Acquisition. 11
SIX MONTHS ENDED JUNE 30, ------------------------- 1994 1993 ---- ---- (in millions) Cash Flows Provided by Operating Activities.. $49.6 $34.0 ===== =====
Cash flows from operating activities in the first half of 1994 were higher by $15.6 million compared to the corresponding first half of 1993 primarily due to the WERCO Acquisition and a lower funding requirement of working capital, most notably on vouched payables and accrued capital costs.
SIX MONTHS ENDED JUNE 30, ------------------------- 1994 1993 ---- ---- (in millions) Cash Flows Used by Investing Activities........ $106.8 $18.2 ====== =====
Cash flows used by investing activities in the first six months of 1994 and 1993 were substantially attributable to capital and exploration expenditures, $106.9 million (including $68.9 million for the WERCO Acquisition) and $19.3 million, respectively.
SIX MONTHS ENDED JUNE 30, ------------------------- 1994 1993 ---- ---- (in millions) Cash Flows Provided (Used) by Financing Activities $57.4 $(15.8) ===== =======
Cash flows provided by financing activities in 1994 were primarily from debt increases under the revolving credit facility to partially fund the WERCO Acquisition. Cash flows used by financing activities in 1993 were a result of debt reductions under the revolving credit facility. Under the Company's revolving credit facility, the available credit line, currently $270 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 (as determined by a petroleum engineer's report incorporating certain assumptions provided by the lender) and other assets. If supported by such an adjustment, the borrowing presently may be increased to $300 million. The recent increase in the Company's available credit line from $180 million to $270 million is primarily due to the WERCO Acquisition and the reserve additions from the Company's drilling program. The Company's 1994 debt service is projected to be approximately $15.4 million, including the WERCO Acquisition. No principal payments are due in 1994. 12 Capitalization information on the Company is as follows:
JUNE 30, DECEMBER 31, 1994 1993 --------- ------------- (in millions) Stockholders' Equity Common Stock..................................... $160.4 $118.9 Preferred Stock.................................. 91.2 34.6 Long-Term Debt.................................... 228.3 169.0 ------ ------ Total Capitalization.............................. $479.9 $322.5 ====== ====== Debt to Capitalization............................ 47.6% 52.4%
The debt-to-capitalization at June 30, 1994 of 47.6% includes the impact of the WERCO Acquisition. CAPITAL AND EXPLORATION EXPENDITURES The following table presents major components of capital and exploration expenditures:
SIX MONTHS ENDED JUNE 30, ------------------------- 1994 1993 ---- ---- (in millions) Capital Expenditures WERCO Acquisition (1)............................... $207.6 $ - Drilling and Facilities............................. 26.9 10.8 Leasehold Acquisitions.............................. 1.8 0.5 Proved Property Acquisitions (2).................... 1.9 37.6 Pipeline and Gathering.............................. 3.5 1.8 Other............................................... 0.9 0.8 ------ ------ 242.6 51.5 Exploration Expenses................................. 3.1 3.6 ------ ------ Total.............................................. $245.7 $ 55.1 ====== ======
- - --------------- (1) Includes the $97.5 million non-cash consideration of the Company's preferred and Common stock. (2) Includes the $35.8 million non-cash consideration for the Emax Acquisition, described below. Total capital and exploration expenditures in the first half of 1994, excluding the WERCO Acquisition and the Emax Acquisition in 1993, increased $17.5 million compared to the same period in 1993 primarily due to the greater number of net wells drilled. The Company generally funds most of its capital and exploration activities, excluding oil and gas property acquisitions, with cash generated from operations and budgets such capital expenditures based upon projected cash flows, exclusive of acquisitions. The Company has a $98.8 million capital and exploration expenditures budget for 1994, which should permit the Company to continue to expand its reserves and production. The 1994 budget includes $17.6 million for development and exploration activity related to the WERCO Acquisition, $21.1 million for development and exploration expenditures attributable to properties acquired from Emax Oil Company in September 1993 (the "Emax Acquisition") and $8.8 million for two acquisitions in West Virginia from CNG Transmission Corporation, the closing, of which, is dependent upon the timing of regulatory approval by the 13 Federal Energy Regulatory Commission. The Company plans to drill 231 wells, 183 net to its interest, compared with 162 wells, 150 net, drilled in 1993. Capital dedicated to the drilling program for 1994 is $52.2 million, including the drilling activity attributable to the WERCO Acquisition. Dividends were paid on the Common Stock totalling $1.7 million and on the Company's $3.125 convertible preferred stock totalling $1.1 million. A regular dividend of $0.04 per share of Common Stock was declared for the quarter ending June 30, 1994. The dividend will be paid August 31, 1994 to shareholders of record as of August 17, 1994. CONTINGENCIES As discussed in Note 6. "Contingencies" to the Condensed Consolidated Financial Statements included in this Form 10-Q and in Note 10. "Commitments and Contingencies" to the Condensed Consolidated Financial Statements included in the Form 10-K for the year ended December 31, 1993, the Company is a defendant in numerous lawsuits and is involved in other gas contract issues. Although no assurances can be given, it is the Company's opinion that these suits and claims should not result in final judgements or settlements which, in the aggregate, would have a material adverse effect on the financial position of the Company. CONCLUSION The Company's financial results depend upon many variables, particularly the price of natural gas, and its ability to market gas on economically attractive terms. The Company's average second quarter 1994 natural gas price decreased 11% over the average natural gas price received for the second quarter of 1993. The second quarter decline in gas prices offset the 10% increase in prices experienced in the first quarter when compared to the 1993 first quarter. Given the inherent price volatility of natural gas prices in recent years, management cannot predict with certainty, pricing levels for the remainder of 1994. 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. In addition, the Company has adopted a plan to pursue potential acquisitions as part of its stated 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. However, the Company believes its capital resources, supplemented, if necessary, with external financing, are adequate to meet its capital requirements, including acquisitions. 14 RESULTS OF OPERATIONS For the purpose of reviewing the Company's results of operations, "Net Income (Loss)" is defined as net income (loss) available to common stockholders. SELECTED FINANCIAL AND OPERATING DATA
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 1994 1993 1994 1993 -------- ------ ------ ------ (IN MILLIONS) Revenues............................... $ 56.5 $ 38.4 $122.3 $ 81.9 Costs and Expenses..................... 54.9 34.5 109.2 70.5 Operating Income....................... 1.5 3.8 13.1 12.1 Interest Expense....................... 3.8 2.5 6.7 5.0 Net Income (Loss)...................... (2.5) 0.6 2.2 4.5 Earnings Per Share..................... $(0.11) $ 0.03 $ 0.10 $ 0.22 Natural Gas Production (Bcf) Appalachia........................ 7.3 6.3 14.5 12.9 Anadarko.......................... 4.9 4.7 10.1 9.2 Rocky Mountains................... 1.8 - 1.8 - Gulf Coast 0.7 - 0.7 - ------ ------ ------ ------ Total Company..................... 14.7 11.0 27.1 22.1 ====== ====== ====== ====== Natural Gas Sales (Bcf) Appalachia........................ 13.5 8.7 30.5 20.2 Anadarko.......................... 6.7 6.1 13.5 11.5 Rocky Mountains................... 3.1 - 3.1 - Gulf Coast........................ 1.1 - 1.1 - ------ ------ ------ ------ Total Company..................... 24.4 14.8 48.2 31.7 ====== ====== ====== ====== Natural Gas Prices ($/Mcf) Appalachia........................ $ 2.47 $ 2.69 $ 2.73 $ 2.71 Anadarko.......................... $ 1.76 $ 2.02 $ 1.90 $ 1.92 Rocky Mountains................... $ 1.73 - $ 1.73 - Gulf Coast........................ $ 1.89 - $ 1.89 - Total Company..................... $ 2.15 $ 2.42 $ 2.41 $ 2.42 Crude/Condensate Volume (MBbl)..................... 171 94 253 137 Price $/Bbl....................... $16.38 $18.68 $15.42 $18.44
SECOND QUARTERS OF 1994 AND 1993 COMPARED Net Income (Loss) and Revenues. The Company recorded a net loss of $2.5 million, down $3.1 million, or $0.14 per share, compared with the 1993 second quarter. Income from operations decreased $2.3 million. Operating revenues increased $18.1 million. Natural gas made up 93%, or $52.5 million, of operating revenue. The increase in operating revenues was primarily attributable to the WERCO Acquisition ($9.2 million) and to an increase in the natural gas purchased for resale ($8.7 million), net of storage. Earnings and operating income, however, were negatively impacted by an 11% decline in the average natural gas price, and higher depreciation expense and additional financing cost associated with the WERCO Acquisition as discussed below. 15 The Company added two new operating regions through the WERCO Acquisition, the Rocky Mountains region and Gulf Coast region. Operating results from the WERCO Acquisition for the two months ended June 30, 1994 were as follows: 2.5 Bcf of natural gas production, 4.2 Bcf of natural gas sales, 87 MBbl of oil production and total operating revenues of $9.2 million. Total natural gas and oil revenues were $7.4 million and $1.5 million, respectively. The average natural gas price for the two months ended June 30, 1994 was $1.77 per Mcf. Natural gas sales volumes were up 4.8 Bcf to 13.5 Bcf in the Appalachian Region primarily due to a 4.4 Bcf increase in gas purchased for resale. Production volumes in the Appalachian Region were up 1.0 Bcf, or 16%, primarily due to the oil and gas properties acquired from Emax Oil Company in September 1993 (the "Emax Acquisition"). Production volumes in the Anadarko Region were up 0.2 Bcf, or 6%. The average Appalachian natural gas sales price decreased $0.22 per Mcf, or 8%, to $2.47, decreasing operating revenues by approximately $3.1 million. In the Anadarko Region, the average natural gas sales price decreased $0.26 per Mcf, or 13%, to $1.76, decreasing operating revenues by approximately $1.8 million. Due to the weighted mix of sales volume, including the newly established Rocky Mountains region and Gulf Coast region, the overall weighted average natural gas sales price decreased $0.27 per Mcf, or 11%, to $2.15. Crude oil and condensate sales increased 77 MBbl, or 82%, due primarily to the WERCO Acquisition. Costs and Expenses Total costs and expenses increased $20.4 million, or 59%, due primarily to the following: . The costs of natural gas increased $11.5 million, to $22.4 million. The WERCO Acquisition increased the cost of natural gas by $3.2 million. The remaining $8.3 million increase was primarily due to a 4.8 Bcf increase in gas purchased for resale and partially offset by a 0.6 Bcf increase in gas put into storage. . Direct operations expenses increased $1.7 million, or 23% due to $1.0 million of operating expenses attributable to the WERCO Acquisition and $0.7 million attributable to the Emax Acquisition and the properties acquired in May, 1993 from Harken Anadarko Partners, L.P. (the "Harvard Acquisition"). . Exploration expense increased $0.4 million, or 21%, due to the WERCO Acquisition. . Depreciation, depletion, amortization and impairment expense increased $6.2 million, or 75%, due primarily to the Company's pursuit of its acquisition strategy. As a result, the WERCO Acquisition caused an increase of $4.2 million and the Harvard and Emax Acquisitions resulted in a $1.5 million increase. . General and administrative costs were down $0.5 million, excluding $0.4 million attributable to the WERCO Acquisition, primarily due to a $0.3 million increase in the second quarter of 1993. The increase in the 1993 second quarter was due to a restatement required by the early adoption of SFAS 112 in the fourth quarter of 1993. Therefore, the Company retroactively recognized certain postemployment costs in the second quarter of 1993. . Taxes other than income increased $0.7 million, or 30%, due primarily to the WERCO Acquisition. Income tax expense was down $1.3 million due to the comparable decrease in earnings before income tax and to an increase in the effective tax rate. Dividend requirement on preferred stock was up $0.7 million due primarily to the $0.5 million associated with the 6% Convertible Redeemable Preferred Stock issued in connection with the WERCO Acquisition. The remaining $0.2 million increase is attributable to the $3.125 Cumulative Convertible Preferred Stock, originally issued May 2, 1993, and, accordingly, reflected only 2 months of dividends in the second quarter of 1993. 16 FIRST SIX MONTHS OF 1994 AND 1993 COMPARED Net Income and Revenues. Net income was $2.2 million, down $2.3 million, or $0.12 per share, compared with the first half of 1993. Income from operations increased $1.0 million. Operating revenues increased $40.4 million. Natural gas made up 95%, or $116.2 million, of operating revenue. The increase in operating revenues was primarily due to the WERCO Acquisition ($9.2 million), an increase in the natural gas purchased for resale ($24.7 million) and an increase in production volumes ($6.4 million). Net income and operating income, however, were negatively impacted by higher depreciation expense and additional financing cost (impacted net income only) associated with the WERCO Acquisition as discussed below. Given that the operating results from the WERCO Acquisition is for the two months ended June 30, 1994, refer to the operational discussion of the WERCO Acquisition in the Results of Operations - Second Quarters of 1994 and 1993 Compared on pages 15 and 16. Natural gas sales volumes were up 10.3 Bcf to 30.5 Bcf in the Appalachian Basin primarily attributable to an increase in natural gas purchased for resale and, to a lesser extent, increased production. Production volume for the first half was up 1.6 Bcf to 14.5 Bcf in the Appalachian Basin primarily due to the Emax Acquisition. Production volume in the Anadarko Region was up 0.9 Bcf, or 10%, to 10.1 Bcf primarily due to the Harvard Acquisition. Natural gas sales volumes in the Anadarko Region were up 2.0 Bcf due to higher production and natural gas purchased for resale. The average Appalachian natural gas sales price increased $0.02 per Mcf to $2.73, increasing operating revenues by approximately $0.6 million. In the Anadarko Region, the average natural gas sales price decreased $0.02 per Mcf to $1.90, decreasing operating revenues by approximately $0.3 million. Due to the weighted mix of sales volumes including the newly established Rocky Mountains region and Gulf Coast region, the overall weighted average natural gas sales price decreased $0.01 per Mcf to $2.41. Crude oil and condensate sales increased 116 MBbl to 253 MBbl due primarily to the Harvard Acquisition (54 MBbl) and the WERCO Acquisition (87 MBbl). Total costs and expenses increased $38.7 million, or 55%, to $109.2 million due primarily to the following: . The costs of natural gas increased $27.6 million to $51.5 million. The WERCO Acquisition increased the cost of natural gas by $3.2 million. The remaining $24.4 million was primarily due to a 9.7 Bcf increase in natural gas purchased for resale, net of storage, and a $0.20 per Mcf increase in the average price of gas purchased for resale. . Direct operations expenses increased $2.2 million, or 16%, to $16.2 due primarily to $1.0 million of operating expenses attributable to the WERCO Acquisition and $1.6 million increased operating expenses attributable to the Emax and Harvard Acquisitions. Higher operating costs were offset somewhat by reduced costs on the Company's core properties. . Exploration expense decreased $1.0 million, or 28%, to $2.6 million, excluding $0.5 million related to the WERCO Acquisition, due primarily to higher dry hole expenses in the six months ended June 30, 1993. . Depreciation, depletion, amortization and impairment expense increased $8.5 million, or 53%, due primarily to the Company's pursuit of its acquisition strategy. As a result, the WERCO Acquisition caused an increase of $4.2 million and the Harvard and Emax Acquisitions resulted in a $3.3 million increase. 17 . General and administrative costs were down $0.5 million, excluding $0.4 million attributable to the WERCO Acquisition, primarily due to a $0.3 million increase in the 1993 second quarter. The increase in the 1993 second quarter was due to a restatement required by the early adoption of SFAS 112 in the fourth quarter of 1993. Therefore, the Company retroactively recognized certain post-employment costs in the second quarter of 1993. . Taxes other than income increased $1.1 million, or 24%, to $5.6 million due primarily to the WERCO Acquisition ($0.6 million) and to higher production. Income tax expense was up $0.3 million, or 14%, to $2.6 million due to an increase in the effective tax rate. The dividend requirement on preferred stock was up $1.3 million due primarily to the $0.5 million associated with the 6% Convertible Redeemable Preferred Stock issued in connection with the WERCO Acquisition. The remaining $0.8 million increase is attributable to the $3.125 Cumulative Convertible Preferred Stock, originally issued May 3, 1993, and accordingly, reflected only 2 months of dividends in the first half of 1993. 18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 15.1 -- Awareness letter of independent accountants. (b) Reports on Form 8-K Form 8-K/A, Amendment No, 1 to Current Report, Dated May 2, 1994. Filed on July 18, 1994. 19 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/ John U. Clarke -------------------------- August 10, 1994 John U. Clarke, Executive Vice President, Chief Financial Officer and Chief Administrative Officer 20 EX-15.1 2 EXHIBIT 15.1 EXHIBIT 15.1 Coopers & Lybrand's 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 August 10, 1994 on our review of the interim condensed consolidated financial information of Cabot Oil & Gas Corporation for the three-month period and six-month period ended June 30, 1994 and 1993 and included in this Form 10-Q is incorporated by reference in the Company's registration statement on Form S-8 (Registration No. 33-35478) filed with the Securities and Exchange Commission on March 7, 1994 and Form S-8 (Registration No. 33-53723) dated 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 August 10, 1994 -----END PRIVACY-ENHANCED MESSAGE-----