<PAGE>
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, 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 September 30, 1994, there were 22,735,401 shares of Common Stock, Par
Value $.10 Per Share, outstanding.
<PAGE>
CABOT OIL & GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Statement of Income for the Three and Nine
Months Ended September 30, 1994 and 1993 3
Condensed Consolidated Balance Sheet at September 30, 1994 and
December 31, 1993 4
Condensed Consolidated Statement of Cash Flows for the Three and
Nine Months Ended September 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements 6
Independent Accountants' Report on Review of
Interim Financial Information 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
</TABLE>
2
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Natural Gas............................... $50,320 $31,524 $166,560 $108,271
Crude Oil and Condensate.................. 3,790 1,617 7,691 4,142
Other..................................... 1,648 342 3,800 2,925
------- ------- -------- --------
55,758 33,483 178,051 115,338
COSTS AND EXPENSES
Costs of Natural Gas...................... 21,515 6,794 72,978 30,620
Direct Operations......................... 8,729 7,063 24,884 20,988
Exploration............................... 2,198 1,585 5,310 5,190
Depreciation, Depletion and Amortization.. 15,088 7,958 37,922 22,638
Impairment of Unproved Properties......... 933 720 2,623 2,112
General and Administrative................ 4,456 4,867 12,824 13,371
Taxes Other Than Income................... 3,294 2,296 8,887 6,816
------- ------- -------- --------
56,213 31,283 165,428 101,735
Gain On Sale Of Assets.................... 32 12 48 723
------- ------- -------- --------
INCOME (LOSS) FROM OPERATIONS............. (423) 2,212 12,671 14,326
Interest Expense.......................... 4,632 2,467 11,308 7,499
------- ------- -------- --------
Income (Loss) Before Income Taxes......... (5,055) (255) 1,363 6,827
Income Tax Expense (Benefit).............. (2,024) 2,762 543 5,009
------- ------- -------- --------
NET INCOME (LOSS)......................... (3,031) (3,017) 820 1,818
Dividend Requirement On Preferred Stock... 1,410 553 3,057 927
------- ------- -------- --------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS.................... $(4,441) $(3,570) $ (2,237) $ 891
======= ======= ======== ========
EARNINGS (LOSS) PER COMMON SHARE.......... $ (0.20) $ (0.17) $ (0.10) $ 0.04
======= ======= ======== ========
Average Common Shares Outstanding......... 22,726 20,522 21,775 20,491
======= ======= ======== ========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
3
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents.................................. $ 4,317 $ 2,897
Accounts Receivable, Net................................... 37,861 35,296
Inventories................................................ 8,928 5,693
Other...................................................... 967 752
-------- --------
Total Current Assets...................................... 52,073 44,638
Properties And Equipment, Net (Successful Efforts Method)... 627,631 400,270
Other Assets................................................ 1,386 93
-------- --------
$681,090 $445,001
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Debt............................................ $ 3,767 $ 530
Accounts Payable........................................... 37,122 26,538
Accrued Liabilities........................................ 17,834 10,223
-------- --------
Total Current Liabilities................................. 58,723 37,291
Long-Term Debt.............................................. 259,336 169,000
Deferred Income Taxes....................................... 111,204 78,698
Other Liabilities........................................... 5,395 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 - 22,735,401 Shares and
20,583,220 Shares in 1994 and 1993, Respectively.......... 2,273 2,058
Additional Paid-In Capital................................. 240,717 143,264
Retained Earnings.......................................... 3,259 8,138
-------- --------
Total Stockholders' Equity................................ 246,432 153,529
-------- --------
$681,090 $445,001
======== ========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
4
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss).............................. $ (3,031) $ (3,017) $ 820 $ 1,818
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depletion, Depreciation and Amortization..... 15,088 7,958 37,922 22,638
Impairments of Unproved Properties........... 933 720 2,623 2,112
Deferred Income Taxes........................ (1,418) 4,062 615 5,908
Gain on Sale of Assets....................... (32) (12) (48) (723)
Exploration Expense.......................... 2,198 1,585 5,310 5,190
Other, Net................................... (282) (108) (1,054) (273)
Changes in Assets and Liabilities:
Accounts Receivable.......................... 1,195 743 10,653 8,425
Inventories.................................. (2,418) (4,443) (2,828) (2,507)
Other Current Assets......................... 327 (1,099) 401 (2,350)
Other Assets................................. (307) 23 (287) 101
Accounts Payable & Accrued Liabilities....... (6,359) 3,176 2,049 2,312
Other Liabilities............................ 217 281 (461) 1,198
-------- -------- --------- --------
Net Cash Provided By Operating................. 6,111 9,869 55,715 43,849
-------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of Major Acquisition (1).................. (9,403) - (78,291) -
Capital Expenditures........................... (25,179) (59,559) (60,113) (75,235)
Proceeds from Sale of Assets................... 146 38 322 1,163
Exploration Expense............................ (2,198) (1,585) (5,310) (5,190)
-------- -------- --------- --------
Net Cash Used By Investing..................... (36,634) (61,106) (143,392) (79,262)
-------- -------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock........................... 226 477 323 1,082
Increase in Debt............................... 33,535 54,000 93,574 39,190
Dividends Paid................................. (2,017) (1,187) (4,800) (2,826)
-------- -------- --------- --------
Net Cash Provided By Financing................. 31,744 53,290 89,097 37,446
-------- -------- --------- --------
Net Increase In Cash and Cash Equivalents...... 1,221 2,053 1,420 2,033
Cash and Cash Equivalents, Beginning of Period.. 3,096 1,082 2,897 1,102
-------- -------- --------- --------
Cash and Cash Equivalents, End of Period........ $ 4,317 $ 3,135 $ 4,317 $ 3,135
======== ======== ========= ========
</TABLE>
_______________
(1) Excludes non-cash consideration of $97.5 million of the Company's common
stock and preferred stock issued in connection with the WERCO Acquisition
(See Note 7).
See accompanying notes to these condensed consolidated financial statements.
5
<PAGE>
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.
<TABLE>
<CAPTION>
2. INVENTORIES
<S> <C> <C>
Inventories are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
1994 1993
------ ------
(in thousands)
Natural gas in storage........................... $ 6,908 $ 4,722
Tubular goods and well equipment................. 2,121 1,712
Exchange balances................................ (101) (741)
-------- --------
$ 8,928 $ 5,693
======== ========
3. PROPERTIES AND EQUIPMENT
Properties and equipment comprised the following:
SEPTEMBER 30, DECEMBER 31,
1994 1993
------ ------
(in thousands)
Unproved oil and gas properties.................. $ 19,945 $ 12,277
Proved oil and gas properties.................... 782,061 533,110
Gathering and pipeline systems................... 140,511 134,262
Land, building and improvements.................. 7,750 7,376
Other............................................ 12,816 11,554
--------- ---------
963,083 698,579
Accumulated depreciation, depletion and
amortization.................................. (335,452) (298,309)
--------- ---------
$ 627,631 $ 400,270
========= =========
</TABLE>
6
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
4. ADDITIONAL BALANCE SHEET INFORMATION
Certain balance sheet amounts comprised the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------ ------
(in thousands)
<S> <C> <C>
Accounts Receivable
Trade accounts.............................. $34,717 $32,527
Joint interest billing...................... 2,292 1,168
Income taxes................................ 1,449 1,660
Other accounts.............................. 744 585
------ ------
39,202 35,940
Allowance for doubtful accounts............. (1,341) (644)
------ ------
$37,861 $35,296
====== ======
Accounts Payable
Trade accounts.............................. $13,523 $ 8,727
Natural gas purchases....................... 6,357 4,301
Royalty and other owners.................... 9,448 5,445
Capital costs............................... 4,002 5,721
Taxes other than income..................... 1,295 831
Other accounts.............................. 2,497 1,513
------ ------
$37,122 $26,538
====== ======
Accrued Liabilities
Employee benefits........................... $ 2,982 $ 3,702
Taxes other than income..................... 8,020 3,437
Interest payable............................ 3,700 1,092
Other accrued............................... 3,132 1,992
------ ------
$17,834 $10,223
====== ======
Other Liabilities
Postretirement benefits other than pension.. $ 1,136 $ 1,764
Accrued pension cost........................ 2,097 1,964
Other....................................... 2,162 2,755
------ ------
$ 5,395 $ 6,483
====== ======
</TABLE>
5. LONG-TERM DEBT
Under the Company's revolving credit facility at September 30, 1994, a
$270 million credit line was available, against which $179 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.
7
<PAGE>
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 "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 other than as set forth below.
In February 1993, Barby Energy Corporation and certain other parties filed
suit in Beaver County, Oklahoma against the Company to determine the rights and
interests of the parties in and to the oil, gas and other minerals underlying a
tract of land in Beaver County, Oklahoma, to quiet title to said mineral estate,
and for an accounting and payment of production proceeds attributable to said
mineral estate. Specifically at issue is whether there was continuous production
from an oil and gas well located on the property at issue since July 5, 1965.
Plaintiffs claim there was a cessation of production, and therefore, all right,
title and interest to such property reverted to them and that they are entitled
to all revenues from such production since the date cessation of production
occurred. The Company believes that it holds a valid oil and gas lease covering
the interest claimed by the plaintiffs. Trial was set for September 1994,
however, such trial date has been continued. The trial date has not been reset
at this time. Although no assurances can be given, the Company believes that the
ultimate outcome of this litigation will not have a material adverse effect on
the Company's financial position.
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 on May 2, 1994.
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:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
------ ------
(in thousands)
<S> <C> <C>
Total Revenue.............................. $200,052 $155,824
======= =======
Net Loss Available to Common Shareholders.. $ (4,085) $ (2,705)
======= =======
Loss per Common Share...................... $ (0.18) $ (0.12)
======= =======
</TABLE>
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.
8
<PAGE>
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 September 30, 1994 and the related condensed
consolidated statements of income and cash flows for the three and nine month
periods ended September 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.
Houston, Texas
November 10, 1994
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following review of operations for the three and nine month periods
ended September 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. Toward this end:
. The Company drilled 39 net wells in the third quarter of 1994 with a
success rate of 95%, as compared to 46 net wells drilled in the third quarter of
1993 with a 96% success rate. During the nine months of this year, net wells
drilled were 160 with a success rate of 95% which compared favorably to the net
drilling results for the nine months of 1993, 83 net wells with a 91% success
rate.
. The Company reflected the first five 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 8,171 MMcfe of production, revenues
of $20.6 million and discretionary cash flows of $9.4 million. The WERCO
Acquisition provides development and exploration opportunities in the Green
River basin of the Rocky Mountains region and in the 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.
. Natural Gas sales were 26.4 Bcf and 74.7 Bcf, respectively, for the
third quarter and nine month period ended September 30, 1994 compared with 13.6
Bcf and 45.3 Bcf, respectively, for the same periods last year.
The Company's strategic pursuits are sensitive to energy commodity
prices, particularly the price of natural gas. Year-to-date natural gas price
realizations have compared unfavorably to prices for the same period last year.
Lower gas prices have had the effect of reducing earnings and cash flow, offset
in part, by the benefits of higher production and lower unit costs. Lower gas
prices contributed to the net loss reported with respect to the third quarter of
1994. The Company continues to assess market conditions and commodity prices and
will adjust its business plans accordingly.
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 natural gas and oil and its ability to market production
on a cost-effective basis. During the third quarter and nine months of 1994, the
Company did not experience significant curtailments of production due to market
conditions. However, during the month of October, the Company elected to
withhold approximately 25 MMcf/d of gas from markets, or about 13% of its
productive capacity as a result of low gas prices, which had the effect of
reducing cash flow and earnings for the month.
10
<PAGE>
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, capital expenditures and exploration expenses, acquisitions,
repayment of debt and dividends.
The Company had a net cash inflow of $1.4 million in the nine months of
1994. Net cash inflow from operating and financing activities totalled $144.8
million in the nine months, funding capital and exploration expenditures of
$143.4 million, including the $78.3 million cash component of total
consideration attributable to the WERCO Acquisition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1994 1993
------ ------
(in millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities. . . . . $ 55.7 $ 43.8
===== =====
</TABLE>
Cash flows from operating activities in the nine months of 1994 were
higher by $11.9 million compared to the corresponding nine months of 1993
primarily due to an increase from the WERCO Acquisition, the September 1993
property acquisition from Emax Oil Company (the "EMAX Acquisition") and a lower
funding requirement of working capital.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1994 1993
------ ------
(in millions)
<S> <C> <C>
Cash Flows Used by Investing Activities. . . . . . . $143.4 $ 79.3
===== =====
</TABLE>
Cash flows used by investing activities in the nine months of 1994 and
1993 were substantially attributable to capital and exploration expenditures,
$143.7 million (including the $78.3 million cash component of total
consideration attributable to the WERCO Acquisition) and $80.4 million,
respectively.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1994 1993
------ ------
(in millions)
<S> <C> <C>
Cash Flows Provided by Financing Activities. . . . . $ 89.1 $ 37.4
===== =====
</TABLE>
Cash flows provided by financing activities in 1994 were primarily from
debt increases under the revolving credit facility to partially fund the WERCO
Acquisition ($73.1 million) and the $6.2 million purchase of additional drilling
locations in connection with the EMAX Acquisition. The increase in 1993 of $37.4
million was primarily attributable to increased borrowings under the revolving
credit facility to finance the EMAX Acquisition.
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.
11
<PAGE>
Capitalization information on the Company is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------ ------
(in millions)
<S> <C> <C>
Long-Term Debt.......... $259.4 $169.0
Stockholders' Equity
Common Stock........... 155.2 118.9
Preferred Stock........ 91.2 34.6
----- -----
246.4 153.5
----- -----
Total Capitalization.... $505.8 $322.5
===== =====
Debt to Capitalization.. 51.3% 52.4%
</TABLE>
The Company's capitalization reflects the financing of the WERCO
Acquisition, which closed on May 2, 1994. The Company incurred debt of $78.3
million and issued 1,134,000 shares of 6% convertible redeemable preferred stock
(stated value of $50 per share) and 2,133,000 shares of Common Stock in
connection with the acquisition.
Capital Requirements
The following table presents major components of capital and exploration
expenditures:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1994 1993
------ ------
<S> <C> <C>
(in millions)
Capital Expenditures
Drilling and Facilities...... $ 42.2 $ 22.4
Leasehold Acquisitions....... 3.4 0.9
Pipeline and Gathering....... 6.4 4.3
Other........................ 1.3 1.0
----- -----
53.3 28.6
----- -----
Proved Property Acquisitions. 6.9 82.4(1)
WERCO Acquisition............ 207.6(2) -
----- -----
214.5 82.4
----- -----
Exploration Expenses.......... 5.3 5.2
----- -----
Total........................ $273.1 $116.2
===== =====
</TABLE>
_______________
(1) Includes the $35.8 million non-cash consideration for the Harvard
Acquisition.
(2) Includes the $97.5 million non-cash component of total consideration
attributable to the WERCO Acquisition described above.
12
<PAGE>
Total capital expenditures and exploration expenses during the nine months
of 1994, excluding the WERCO Acquisition and the Proved Property Acquisitions
increased $25 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 expenditures and
exploration expenses excluding acquisitions, with net cash generated from
operations. The Company attempts to budget such capital expenditures based upon
projected cash flows after dividend requirements, exclusive of acquisitions.
The Company estimates that total capital expenditures and exploration
expenses for 1994, excluding acquisitions, will approximate $75.1 million,
including drilling and facility expenditures related to the WERCO Acquisition of
$9.6 million, and drilling and facility expenditures related to the Emax
Acquisition. The 1994 capital expenditure and exploration expense estimate has
been revised downward as a result of the deferral of drilling due to lower than
anticipated gas prices and a delay in receiving regulatory approval by the
Federal Energy Regulatory Commission of two pending acquisitions of certain
assets in West Virginia from CNG Transmission Corporation for $8.8 million,
subject to certain adjustments.
The Company expects to drill 225 wells, 175 net to its interest, in 1994
compared with 162 wells, 150 net, drilled in 1993.
Dividends
- - - ---------
During the first nine months of 1994, dividends were paid on the Common
Stock totalling $2.6 million; on the Company's $3.125 cumulative convertible
preferred stock totalling $1.6 million and on the Company's 6.0% convertible
redeemable preferred stock (issued in connection with the WERCO Acquisition)
totalling $0.6 million. A regular dividend of $0.04 per share of Common Stock
was declared October 28, 1994 payable November 30, 1994 to shareholders of
record as of November 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, the Company believes that such suits and claims should
not result in final judgements or settlements which 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 natural gas price realizations decreased
18% and 7%, respectively, for the third quarter and first nine months of 1994
compared with prices received for the same periods of 1993. The deterioration of
gas prices during 1994 has negatively impacted the Company's earnings and cash
flow and contributed to the net loss recorded with respect to the third quarter
of 1994. Given the inherent price volatility of natural gas prices in recent
years, the Company cannot predict with certainty, pricing levels for the
remainder of 1994 and 1995. However, the Company believes the continuing effects
of lower gas prices will negatively impact cash flow and will result in a net
loss for the fourth quarter and full year 1994. Because future cash flows and
earnings are subject to such variables, there can be no assurance that the
Company's operations will provide cash sufficient to fully fund its capital
requirements.
13
<PAGE>
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.
The Company believes that higher production and gas prices over time
coupled with the Company's continuing efforts to reduce costs 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.
14
<PAGE>
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.
<TABLE>
<CAPTION>
Selected Financial and Operating Data
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Revenues...................... $ 55.8 $ 33.5 $178.1 $115.3
Costs and Expenses............ 56.2 31.3 165.4 101.7
Operating Income (Loss)....... (0.4) 2.2 12.7 14.3
Interest Expense.............. 4.6 2.5 11.3 7.5
Net Income (Loss)............. (4.4) (3.6) (2.2) 0.9
Earnings Per Share............ $(0.20) $(0.17) $(0.10) $ 0.04
Natural Gas Production (Bcf)
Appalachia............... 7.6 6.1 22.1 19.0
Anadarko................. 4.4 5.1 14.5 14.3
Rocky Mountains.......... 2.7 - 4.4 -
Gulf Coast............... 1.2 - 2.0 -
------ ------ ------ ------
Total Company............ 15.9 11.2 43.0 33.3
====== ====== ====== ======
Natural Gas Sales (Bcf)
Appalachia............... 12.5 7.6 43.0 27.8
Anadarko................. 6.3 6.0 19.8 17.5
Rocky Mountains.......... 6.0 - 9.1 -
Gulf Coast............... 1.7 - 2.8 -
------ ------ ------ ------
Total Company............ 26.5 13.6 74.7 45.3
====== ====== ====== ======
Natural Gas Prices ($/Mcf)
Appalachia............... $ 2.14 $ 2.60 $ 2.56 $ 2.68
Anadarko................. $ 1.62 $ 1.96 $ 1.81 $ 1.93
Rocky Mountains.......... $ 1.71 - $ 1.72 -
Gulf Coast............... $ 1.79 - $ 1.83 -
Total Company............ $ 1.90 $ 2.31 $ 2.23 $ 2.39
Crude/Condensate
Volume (MBbl)............ 212 103 464 240
Price $/Bbl.............. $17.92 $15.71 $16.56 $17.27
</TABLE>
Third Quarters of 1994 and 1993 Compared
Net Income (Loss) and Revenues. The Company recorded a net loss of $4.4
million, down $0.9 million, or $0.03 per share, compared with the 1993 third
quarter. Operating income decreased $2.6 million. Revenues increased $22.3
million. Natural gas made up 90%, or $50.3 million, of total revenue. The
increase in revenues was primarily attributable to the WERCO Acquisition ($16.5
million) and to an increase in the natural gas purchased for resale ($8.0
million), net of storage. Net income and operating income, however, were
negatively impacted by an 18% decline in the average natural gas price, and
higher depreciation expense and additional financing cost associated with the
WERCO Acquisition as discussed below.
15
<PAGE>
The Company added two new operating regions through the WERCO Acquisition,
the Rocky Mountains region and Gulf Coast region. The WERCO Acquisition provides
development and exploration opportunities in the Green River basin of the Rocky
Mountains region and in the 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. Operating results
from the WERCO Acquisition for the quarter ended September 30, 1994 were as
follows: 3.8 Bcf of natural gas production, 7.6 Bcf of natural gas sales, 127
MBbl of oil production and revenues of $16.5 million. Total natural gas and oil
revenues were $13.2 million and $2.3 million, respectively. The average natural
gas price for the quarter was $1.73 per Mcf.
Natural gas sales volumes were up 5.0 Bcf to 12.6 Bcf in the Appalachian
Region primarily due to a 3.5 Bcf increase in gas purchased for resale.
Production volumes in the Appalachian Region were up 1.5 Bcf, or 25%, 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
down 0.7 Bcf, or 14%, primarily due to a 0.5 Bcf reduction attributable to well
testing, compression and gathering repairs, and to a 0.2 Bcf one-time reduction
due to adjustments in mineral interests in certain producing properties. The
Company's production for the fourth quarter of 1994 is expected to be lower due
to the Company's election to "shut in" for one month approximately 39 MMcf/d of
gas due to market conditions.
The average Appalachian natural gas sales price decreased $0.46 per Mcf, or
18%, to $2.14, decreasing operating revenues by approximately $5.8 million. In
the Anadarko Region, the average natural gas sales price decreased $0.34 per
Mcf, or 17%, to $1.62, decreasing operating revenues by approximately $2.1
million. Due to lower spot prices and 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 $0.41 per Mcf, or
18%, to $1.90.
Crude oil and condensate sales increased 109 MBbl to 212 MBbl due primarily
to the WERCO Acquisition.
Costs and Expenses. Total costs and expenses increased $24.9 million, or
80%, due primarily to the WERCO Acquisition:
. The costs of natural gas increased $14.7 million, to $21.5 million. The
WERCO Acquisition increased the cost of natural gas by $6.7 million. The
remaining $8.0 million increase was primarily due to a 4.2 Bcf increase
in gas purchased for resale.
. Direct operations expenses increased $1.7 million, or 24% due primarily
to $1.4 million of operating expenses attributable to the WERCO
Acquisition and $0.4 million attributable to the Emax Acquisition.
Importantly, direct operations expense per Mcf equivalent (Mcfe) of
production decreased $0.10, or 17%, to $0.50 due to increased production
primarily attributable to the WERCO Acquisition.
. Exploration expense increased $0.6 million, or 39%, due to the WERCO
Acquisition.
. Depreciation, depletion, amortization and impairment expense increased
$7.3 million, or 85%, due primarily to acquisitions. The WERCO
Acquisition increased such expense by $6.2 million and the Emax
Acquisition resulted in a $1.1 million increase. DD&A and impairment
expense per Mcfe of production increased $0.18, or 24%, to $0.91 due
primarily to the WERCO Acquisition.
. General and administrative costs were down $0.4 million primarily due to
a $0.3 million increase in the third quarter of 1993. General and
administrative costs per Mcfe of production decreased $0.16, or 38%, to
$0.25 due to increased production primarily attributable to the WERCO
Acquisition. The increase in the 1993 third 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 third quarter of 1993.
16
<PAGE>
. Taxes other than income increased $1.0 million, or 44%, due primarily to
the WERCO Acquisition. However, the taxes other than income expense per
Mcfe of production decreased $0.01 to $0.19.
Income tax expense was down $4.8 million due to the comparable decrease in
earnings before income tax and due to a $2.9 million charge in the third quarter
of 1993 to record an increase in the federal income tax rate.
Dividend requirement on preferred stock was up $0.9 million due to the 6%
Convertible Redeemable Preferred Stock issued in connection with the WERCO
Acquisition.
Nine Months of 1994 and 1993 Compared
Net Income (Loss) and Revenues. The Company recorded a net loss of $2.2
million, down $3.1 million, or $0.15 per share, compared with the nine months of
1993. Operating income decreased $1.7 million. Revenues increased $62.7 million.
Natural gas made up 94%, or $166.6 million, of total revenue. The increase in
revenues was primarily due to the WERCO Acquisition ($25.8 million), an increase
in the natural gas purchased for resale ($30.7 million) and an increase in
production volumes ($7.5 million). Net income and operating income, however,
were negatively impacted by a 7% decline in the average natural gas price and,
higher depreciation expense and additional financing cost (impacted net income
only) associated with the WERCO Acquisition as discussed below.
Operating results from the WERCO Acquisition for the five months ended
September 30, 1994 were as follows: 6.3 Bcf of natural gas production, 11.8 Bcf
of natural gas sales, 214 MBbl of oil production and revenues of $25.7 million.
Total natural gas and oil revenues were $20.6 million and $3.8 million,
respectively. The average natural gas price for the quarter was $1.75 per Mcf.
Natural gas sales volumes were up 15.2 Bcf to 43.0 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 nine
months was up 3.1 Bcf to 22.1 Bcf in the Appalachian Basin primarily due to the
Emax Acquisition. Production volume in the Anadarko Region was up 0.2 Bcf to
14.4 Bcf. Natural gas sales volumes in the Anadarko Region were up 2.3 Bcf due
to higher natural gas purchased for resale.
The average Appalachian natural gas sales price decreased $0.12 per Mcf, or
4%, to $2.56 decreasing operating revenues by approximately $5.2 million. In the
Anadarko Region, the average natural gas sales price also decreased $0.12 per
Mcf, or 6%, to $1.81, decreasing operating revenues by approximately $2.4
million. Due to lower gas spot prices and 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 $0.16 per Mcf to
$2.23.
Crude oil and condensate sales increased 224 MBbl to 464 MBbl due primarily
to the Harvard Acquisition (72 MBbl) and the WERCO Acquisition (214 MBbl).
Costs and Expenses. Total costs and expenses increased $63.7 million, or
63%, to $165.4 million due primarily to the WERCO Acquisition:
. The costs of natural gas increased $42.4 million to $73 million. The
WERCO Acquisition increased the cost of natural gas by $9.9 million. The
remaining $32.5 million was primarily due to a 13.8 Bcf increase in
natural gas purchased for resale, net of storage.
. Direct operations expenses increased $3.9 million, or 19%, to $24.9
million due primarily to $2.3 million of operating expenses attributable
to the WERCO Acquisition and $1.9 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.
Importantly, direct
17
<PAGE>
operations expense per Mcfe of production decreased $0.07, or 11%, to
$0.54 due to increased production primarily attributable to the WERCO
Acquisition.
. Exploration expense decreased $1.1 million, or 21%, to $4.1 million,
excluding $1.2 million related to the WERCO Acquisition, due primarily to
higher dry hole expenses in the nine months ended September 30, 1993.
. Depreciation, depletion, amortization and impairment expense increased
$15.8 million, or 64%, due primarily to the acquisitions. The WERCO
Acquisition increased such expense by $10.4 million and the Harvard and
Emax Acquisitions resulted in a $4.2 million increase. DD&A and
impairment expense per Mcfe of production increased $0.16, or 23%, to
$0.88 due primarily to the WERCO Acquisition.
. General and administrative costs were down $1.1 million, excluding $0.5
million attributable to the WERCO Acquisition, primarily due to a $0.6
million increase in the 1993 nine month period. General and
administrative costs per Mcfe of production decreased $0.11, or 28%, to
$0.28 due to increased production primarily from the WERCO Acquisition.
The increase in the 1993 nine months 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 and third quarters of 1993.
. Taxes other than income increased $2.1 million, or 30%, to $8.9 million
due primarily to the WERCO Acquisition ($1.9 million). The taxes other
than income expense per Mcfe of production remained virtually unchanged.
Income tax expense was down $4.5 million to $0.5 million due to the
comparable decrease in earnings before income taxes and a $2.9 million charge in
the third quarter of 1993 to record an increase in the federal income tax rate.
The dividend requirement on preferred stock was up $2.1 million due
primarily to the $1.4 million associated with the 6% Convertible Redeemable
Preferred Stock issued in connection with the WERCO Acquisition. The remaining
$0.7 million increase was attributable to the $3.125 Cumulative Convertible
Preferred Stock, originally issued May 3, 1993, and accordingly, reflected only
5 months of dividends in the corresponding period of 1993.
18
<PAGE>
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
1994 Form 10-Q.
(b) Reports on Form 8-K
None
19
<PAGE>
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
------------------------------------------
November 11, 1994 John U. Clarke, Executive Vice President,
Chief Financial and Administrative Officer
20
<PAGE>
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 November 10, 1994 on our review of the
interim condensed consolidated financial information of Cabot Oil & Gas
Corporation for the three-month period and nine-month period ended September 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.
Houston, Texas
November 10, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,317
<SECURITIES> 0
<RECEIVABLES> 39,203
<ALLOWANCES> (1,341)
<INVENTORY> 8,928
<CURRENT-ASSETS> 52,073
<PP&E> 963,082
<DEPRECIATION> (335,451)
<TOTAL-ASSETS> 681,090
<CURRENT-LIABILITIES> 58,723
<BONDS> 259,336
<COMMON> 151,847
0
91,326
<OTHER-SE> 3,259
<TOTAL-LIABILITY-AND-EQUITY> 681,090
<SALES> 175,164
<TOTAL-REVENUES> 178,051
<CGS> 165,428
<TOTAL-COSTS> 165,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,308
<INCOME-PRETAX> 1,363
<INCOME-TAX> 543
<INCOME-CONTINUING> (2,237)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,237)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
</TABLE>
