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, 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 July 31, 1995, there were 22,777,996 shares of Class A Common Stock,
Par Value $.10 Per Share, outstanding.
<PAGE>
CABOT OIL & GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the Three and Six
Months Ended June 30, 1995 and 1994 3
Condensed Consolidated Balance Sheet at June 30, 1995 and
December 31, 1994 4
Condensed Consolidated Statement of Cash Flows for the Three and Six
Months Ended June 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
</TABLE>
- 2 -
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
REVENUES
Natural Gas......................................... $ 47,151 $ 52,492 $ 100,460 $ 116,240
Crude Oil and Condensate............................ 3,149 2,801 6,272 3,902
Other............................................... 1,053 1,160 2,743 2,151
------ ------ ------- -------
51,353 56,453 109,475 122,293
COSTS AND EXPENSES
Costs of Natural Gas............................... 21,732 22,400 47,268 51,463
Direct Operations.................................. 6,614 8,697 13,907 16,156
Exploration........................................ 1,333 2,095 2,991 3,112
Depreciation, Depletion and Amortization........... 13,145 13,615 26,830 22,834
Impairment of Unproved Properties.................. 1,128 970 2,049 1,690
General and Administrative......................... 5,191 4,187 9,453 8,366
Taxes Other Than Income............................ 2,871 2,978 5,791 5,593
Cost Reduction Program............................. - - 6,820 -
------ ------ ------- -------
52,014 54,942 115,109 109,214
Gain (Loss) On Sale Of Assets...................... (16) 2 (409) 15
------ ------ ------- -------
INCOME (LOSS) FROM OPERATIONS...................... (677) 1,513 (6,043) 13,094
Interest Expense................................... 5,735 3,798 11,596 6,675
------ ------ ------- -------
Income (Loss) Before Income Taxes.................. (6,412) (2,285) (17,639) 6,419
Income Tax Expense (Benefit)....................... (2,515) (901) (6,921) 2,568
------ ------ ------- -------
NET INCOME (LOSS) ................................. (3,897) (1,384) (10,718) 3,851
Dividend Requirement On Preferred Stock............ 1,391 1,096 2,770 1,648
------ ------ ------- -------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS............................. $ (5,288) $ (2,480) $ (13,488) $ 2,203
====== ====== ======= =======
EARNINGS (LOSS) PER COMMON SHARE................... $ (0.23) $ (0.11) $ (0.59) $ 0.10
====== ====== ======= =======
Average Common Shares Outstanding.................. 22,775 21,992 22,770 21,292
====== ====== ======= =======
</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>
June 30, Dec. 31,
1995 1994
------- -------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents.................................................. $ 2,310 $ 3,773
Accounts Receivable........................................................ 31,408 38,166
Inventories................................................................ 5,263 8,384
Other...................................................................... 1,173 1,696
Total Current Assets..................................................... 40,154 52,019
------- -------
Properties and Equipment (Successful Efforts Method).......................... 606,007 634,934
Other Assets.................................................................. 1,433 1,399
------- -------
$ 647,594 $ 688,352
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Debt............................................................ $ 29 $ -
Accounts Payable........................................................... 36,341 39,990
Accrued Liabilities........................................................ 13,378 13,750
------- -------
Total Current Liabilities................................................ 49,748 53,740
Long-Term Debt................................................................ 250,307 268,363
Deferred Income Taxes......................................................... 111,421 117,807
Other Liabilities............................................................. 8,085 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--22,775,894 Shares and
22,757,007 Shares as of June 30, 1995 and
December 31, 1994, Respectively........................................ 2,277 2,275
Additional Paid-in Capital................................................. 241,734 241,471
Accumulated Deficit........................................................ (16,161) (847)
------- -------
Total Stockholders' Equity............................................... 228,033 243,082
------- -------
$ 647,594 $ 688,352
======= =======
</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 Six Months Ended
June 30, June 30,
-------------------- ---------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)....................................... $ (3,897) $ (1,384) $ (10,718) $ 3,851
Adjustments to Reconcile Net Income (Loss) to
Cash Provided by Operating Activities:
Depletion, Depreciation and Amortization............ 13,145 13,615 26,830 22,834
Impairments of Unproved Properties.................. 1,128 970 2,049 1,690
Deferred Income Taxes............................... (2,764) (771) (6,387) 2,033
Loss (Gain) on Sale of Assets....................... 16 (2) 409 (15)
Exploration Expense................................. 1,333 2,095 2,991 3,112
Other, Net.......................................... (925) (370) 3,007 (772)
Changes in Assets and Liabilities:
Accounts Receivable................................. 1,221 9,052 6,758 9,458
Inventories......................................... (1,825) (3,309) 3,121 (410)
Other Current Assets ............................... (243) 74 522 75
Other Assets........................................ 15 5 (35) 21
Accounts Payable & Accrued Liabilities.............. 5,341 2,823 (4,735) 8,405
Other Liabilities................................... (137) (365) 569 (677)
------- ------- ------- --------
Net Cash Provided By Operating.......................... 12,408 22,433 24,381 49,605
------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures ................................... (4,958) (21,391) (8,025) (34,934)
Cost of Major Acquisition (1)........................... - (68,888) - (68,888)
Proceeds from Sale of Assets (Note 11).................. 7,383 156 7,696 176
Exploration Expense..................................... (1,333) (2,095) (2,991) (3,112)
------- ------- ------- --------
Net Cash Provided (Used) By Investing .................. 1,092 (92,218) (3,320) (106,758)
------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock.................................... 37 58 261 98
Increase in Debt........................................ 5,900 73,998 7,000 76,038
Decrease in Debt........................................ (18,000) (3,000) (25,027) (16,000)
Dividends Paid.......................................... (2,456) (1,450) (4,758) (2,784)
------- ------- ------- --------
Net Cash Provided (Used) By Financing................... (14,519) 69,606 (22,524) 57,352
------- ------- ------- --------
Net Increase (Decrease) In Cash
and Cash Equivalents.................................... (1,019) (179) (1,463) 199
Cash and Cash Equivalents, Beginning of Period............ 3,329 3,275 3,773 2,897
------- ------- ------- --------
Cash and Cash Equivalents, End of Period.................. $ 2,310 $ 3,096 $ 2,310 $ 3,096
======= ======= ======= ========
</TABLE>
---------------
(1) Excludes non-cash consideration of $97.5 million of the Company's common
stock and preferred stock issued in connection with the Washington Energy
Resources Company acquisition in May 1994.
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 (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:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Unproved oil and gas properties........................................ $ 16,658 $ 20,847
Proved oil and gas properties.......................................... 795,521 796,390
Gathering and pipeline systems......................................... 147,232 146,131
Land, building and improvements........................................ 5,519 5,533
Other.................................................................. 14,602 13,875
-------- --------
979,532 982,776
Accumulated depreciation, depletion and amortization.................. (373,525) (347,842)
-------- --------
$ 606,007 $ 634,934
======== ========
</TABLE>
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest and income taxes are comprised as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Interest expense..................... $ 9,786 $ 5,268 $ 11,440 $ 6,264
Income taxes......................... $ 30 $ 12 $ 30 $ 12
</TABLE>
- 6 -
<PAGE>
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:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Accounts Receivable
Trade accounts.................................................... $ 29,827 $ 36,246
Other accounts.................................................... 2,944 3,245
------ ------
32,771 39,491
Allowance for doubtful accounts................................... (1,363) (1,325)
------ ------
$ 31,408 $ 38,166
====== ======
Inventories
Natural gas in storage............................................ $ 3,625 $ 5,777
Tubular goods and well equipment.................................. 1,879 2,120
Exchange balances................................................. (241) 487
------ ------
$ 5,263 $ 8,384
====== ======
Accounts Payable
Trade accounts.................................................... $ 8,453 $ 10,818
Natural gas purchases............................................. 7,488 7,938
Royalty and other owners.......................................... 8,843 12,691
Capital costs..................................................... 1,397 4,097
Dividends payable................................................. 1,237 1,404
Taxes Other Than Income........................................... 517 690
Other accounts.................................................... 8,406 2,352
------ ------
$ 36,341 $ 39,990
====== ======
Accrued Liabilities
Employee benefits................................................. $ 2,735 $ 3,182
Taxes other than income........................................... 7,548 7,886
Interest payable.................................................. 1,898 1,742
Other accrued..................................................... 1,197 940
------ ------
$ 13,378 $ 13,750
====== ======
Other Liabilities
Postretirement benefits other than pension........................ $ 3,055 $ 898
Accrued pension cost.............................................. 2,979 2,299
Other............................................................. 2,051 2,163
------ ------
$ 8,085 $ 5,360
====== ======
</TABLE>
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<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
5. LONG-TERM DEBT
At June 30, 1995, the Company had borrowed $170 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, including a decrease in the credit line from $260 to
$235 million and an extension of the revolving term to June 1996. Management
believes that the amendment did not have a material impact on the Company's
ability to finance, if necessary, its capital requirements, including
acquisitions. No principal payments are due in 1995.
6. CONTINGENCIES
There have been no new 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.
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 field basis provides for the aggregation of wells that have a
common geological reservoir or field. The field basis provides a better matching
of expenses with revenues over the productive life of the properties, and,
therefore, the Company believes the new method is preferable to the
property-by-property basis. Because the cumulative effect of the change in
method from prior periods was insignificant, a pre-tax charge of $303 thousand,
such amount ("pre-1995 amount") was included with depreciation, depletion and
amortization ("DD&A") expense for the six months of 1995. The net effect of the
change in method resulted in a $1,933 thousand decrease in DD&A expense and a
$1,175 thousand increase in net earnings in the six months of 1995, including
the impact of the pre-1995 amount. The pro forma impact on the results of
operations in the first six 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 $1,270 thousand and a $770 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 to $3.5 million.
8. COST REDUCTION PROGRAM
In January 1995, the Company announced a cost reduction program which
included a voluntary early retirement program, a 15% targeted reduction in
workforce and a consolidation of management in the Rocky Mountain, Anadarko and
onshore Gulf Coast areas into a single Western Region. Accordingly, the Company
- 8 -
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
8. COST REDUCTION PROGRAM - continued
recognized a liability and charged to expense $6.8 million in termination
benefits for 99 employees, or 20% of the total workforce, including 24 employees
who elected early retirement. The employee terminations were made in virtually
all departments both at the Company's corporate headquarters and each of the
operating region/area offices. The termination benefits included $3.8 million
for severance and related costs, of which $3.5 million was paid out by June 30,
1995 (remainder to be paid by year end), and a $3.0 million non-cash charge for
curtailments to the Company's pension ($0.4 million) and postretirement ($2.6
million) benefits plans.
9. ACCOUNTING FOR LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Effective for
fiscal years beginning after December 15, 1995, FAS 121 attempts to standardize
methods used to determine whether the costs of long-lived assets will be
recovered, and how such cost should be tested for value impairment. The
provisions of FAS 121 as they relate to the oil and gas industry are currently
being interpreted by the industry, and additional analysis is necessary before a
reasonable estimation of the effect of this pronouncement, if any, can be
determined.
10. NET REVENUE MARGINS ON NATURAL GAS SALES
Natural gas revenue margins were comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
------ ------ ------ ------
(in thousands, except where noted)
<S> <C> <C> <C> <C>
Production and Royalty Gas
Sales volume (MMcf).................. 18,474 17,364 40,508 34,178
Natural gas revenue.................. $ 32,297 $ 37,089 $ 72,536 $ 82,114
Cost of natural gas.................. 7,531 8,137 20,774 19,315
------ ------ ------ ------
Net revenue margin................... $ 24,766 $ 28,952 $ 51,762 $ 62,799
====== ====== ====== ======
Brokered Gas (*)
Sales volume (MMcf).................. 9,300 7,009 17,132 14,008
Natural gas revenue.................. $ 14,854 $ 15,403 $ 27,924 $ 34,126
Cost of natural gas.................. 14,202 14,263 26,494 32,148
------ ------ ------ ------
Net revenue margin................... $ 652 $ 1,140 $ 1,430 $ 1,978
====== ====== ====== ======
</TABLE>
- 9 -
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
10. NET REVENUE MARGINS ON NATURAL GAS SALES - continued
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
------ ------ ------ ------
(in thousands, except where noted)
<S> <C> <C> <C> <C>
Total Company
Sales volume (MMcf).................. 27,774 24,373 57,640 48,186
Natural gas revenue.................. $ 47,151 $ 52,492 $ 100,460 $ 116,240
Cost of natural gas.................. 21,733 22,400 47,268 51,463
------ ------ ------ ------
Net revenue margin................... $ 25,418 $ 30,092 $ 53,192 $ 64,777
====== ====== ====== ======
</TABLE>
-------------
(*) Includes back-to-back and third-party purchase brokerage activities.
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 $7.7 million through the second
quarter of 1995.
- 10 -
<PAGE>
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 consolidated condensed balance sheet of
Cabot Oil & Gas Corporation as of June 30, 1995, and the related condensed
consolidated statements of operations and cash flows for the three and six month
periods ended June 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 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
August 11, 1995
- 11 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review of operations for the second quarter and first six
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 second quarter of 1995 was approximately 21% lower than the second quarter
of 1994, resulting in the lowest quarterly price since becoming a publicly
traded company in 1990. These lower gas prices have significantly reduced
earnings and cash flows, partially offset by the benefits of higher production
and lower unit costs.
During the second quarter, John H. Lollar resigned as Chairman, Chief
Executive Officer and President. These offices were assumed by Charles P. Siess,
Jr., member of the Board of Directors and former Chairman, Chief Executive
Officer and President of the Company.
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. To reduce debt, the Company sold various non-core oil
and gas properties in the Western Region, obtaining proceeds of $7.7 million
through the second quarter. Other properties are presently being reviewed for
possible sale in the second half of 1995. Future reductions in debt will also be
achieved by applying benefits of the cost reduction program and anticipated
proceeds from certain non-recurring events. This focus has resulted in a net
debt reduction of $18 million since the beginning of 1995.
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 a small amount of gas production
in July 1995, and a larger amount in August, all from the Rocky Mountains area
of the Western Region. These actions are not expected to have a significant
impact on the Company's cash flows.
The Company's capital and exploration expenditures plan for 1995 is $43.5
million, down $37.2 million from the 1994 capital and exploration expenditures,
excluding the acquisition of Washington Energy Resources Company ("WERCO") in
May 1994. During the six months of 1995, the Company drilled 13 net wells and
realized a drilling success rate of 73%, compared to 117 net wells with a
drilling success rate of 97% for the six months of 1994.
Natural gas sales were 27.8 Bcf, up 3.4 Bcf, or 14%, compared with the
1994 second quarter. The increase is due to the expanded marketing of brokered
natural gas, up 33%. Gas volumes and net revenue margins associated with the
Company's marketing activities (see Note 10 to the Condensed Consolidated
Financial Statements included elsewhere in this Form 10-Q) 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 7 cents per Mcf in the second
quarter of 1995, compared with approximately 16 cents per Mcf in the second
quarter of 1994, when higher natural
- 12 -
<PAGE>
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 second quarter
of 1995. Controllable operating costs and expense, consisting of direct
operations, exploration, and general and administrative expenses, were $0.82 per
Mcfe produced, as compared with $0.94 per Mcfe produced in the second 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, however, natural gas prices
have dropped significantly while demand has remained reasonably high. While the
Company increased sales volumes, the drop in gas prices has significantly
reduced cash flows during this period.
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 $1.5 million in the first six
months of 1995. Net cash inflow from operating activities and asset sales
totalled $32.1 million in the period, substantially funding capital and
exploration expenditures of $11.0 million, net debt reductions of $18.0 million
and dividend payments of $4.8 million.
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1995 1994
---- ----
(in millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities................................. $ 24.4 $ 49.6
</TABLE>
Cash flows from operating activities in the 1995 six months were lower by
$25.2 million compared to the corresponding six 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.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1995 1994
------ ------
(in millions)
<S> <C> <C>
Cash Flows Used by Investing Activities..................................... $ 3.3 $ 106.8
</TABLE>
Cash flows used by investing activities in the six months of 1995 and 1994
were substantially attributable to capital and exploration expenditures of $11.0
million (offset by $7.7 million in proceeds from the sale of certain non-core
oil and gas properties) and $106.9 million (including $68.9 million for the
WERCO acquisition), respectively.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1995 1994
------ ------
(in millions)
<S> <C> <C>
Cash Flows Provided (Used) by Financing Activities.......................... $ (22.5) $ 57.4
</TABLE>
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 $7.7 million in sale proceeds from
non-core properties. The $60.0 million increase under the revolving credit
facility in 1994 was directly attributable to the financing associated with the
WERCO 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 amended certain provisions of the revolving credit
facility in the second quarter of 1995, including a decrease in the available
credit line from $260 to $235 million and an extension of the revolving term to
June 1996. Management believes that the amendment did not have a material impact
on the Company's ability to finance, if necessary, its capital requirements,
including acquisitions.
The Company's 1995 interest expense is projected to be approximately $23
million. No principal payments are due in 1995.
Capitalization information on the Company is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- --------
(in millions)
<S> <C> <C>
Long-Term Debt.............................................................. $ 250.3 $ 268.3
Stockholders' Equity
Common Stock........................................................... 136.7 151.8
Preferred Stock........................................................ 91.3 91.3
Total ............................................................. 228.0 243.1
Total Capitalization........................................................ $ 478.3 $ 511.4
Debt to Capitalization...................................................... 52.3% 52.5%
</TABLE>
- 14 -
<PAGE>
Capital and Exploration Expenditures
The following table presents major components of capital and exploration
expenditures:
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1995 1994
---- ----
(in millions)
<S> <C> <C>
Capital Expenditures
Drilling and Facilities.......................................... $ 5.8 $ 26.9
Leasehold Acquisitions........................................... - 1.8
Pipeline and Gathering .......................................... 0.9 3.4
Other............................................................ 0.2 0.9
---- -----
6.9 33.0
---- -----
Proved Property Acquisitions..................................... 1.1 209.6 (1)
Exploration Expenses................................................... 3.0 3.1
---- -----
Total............................................................ $ 11.0 $ 245.7
==== =====
</TABLE>
------------
(1) Includes $207.6 million attributable to the the WERCO acquisition 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 $207.6 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 $43.5 million of capital and exploration
expenditures for 1995 which includes $22.7 million for drilling and facilities
and exploration expenses and $9.0 million for proved property acquisitions.
Compared to the 1994 capital and exploration expenditures, excluding the WERCO
acquisition, 1995 planned expenditures are down 46% due to continued low natural
gas prices. The Company plans to drill 60 to 70 wells, net to its interest, in
1995 compared with 169 net wells drilled in 1994.
During the first half of 1995, the Company paid dividends of $1.8 million
on the Common Stock and $3.0 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
June 30, 1995. The dividend will be paid August 31, 1995 to shareholders of
record as of August 17, 1995.
Other Issues and Contingencies
There have been no new 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 March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Effective for
fiscal years beginning after December 15, 1995, FAS 121
- 15 -
<PAGE>
attempts to standardize methods used to determine whether the costs of
long-lived assets will be recovered, and how such cost should be tested for
value impairment. The provisions of FAS 121 as they relate to the oil and gas
industry are currently being interpreted by the industry, and additional
analysis is necessary before a reasonable estimation of the effect of this
pronouncement, if any, can be determined.
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 second
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 each of the remaining quarters
in 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 -
<PAGE>
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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1995 1994 1995 1994
------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Revenues................................................ $ 51.4 $ 56.5 $ 109.5 $ 122.3
Costs and Expenses...................................... 52.0 54.9 115.1 109.2
Operating Income (Loss)................................. (0.7) 1.5 (6.0) 13.1
Interest Expense........................................ 5.7 3.8 11.6 6.7
Net Income (Loss)....................................... (5.3) (2.5) (13.5) 2.2
Earnings (Loss) Per Share............................... $ (0.23) $ (0.11) $ (0.59) $ 0.10
Natural Gas Production (Bcf)
Appalachia......................................... 7.0 7.3 14.4 14.5
West............................................... 7.9 7.4 15.8 12.6
---- ---- ---- ----
Total Company...................................... 14.9 14.7 30.2 27.1
==== ==== ==== ====
Natural Gas Sales (Bcf)
Appalachia......................................... 12.0 13.5 27.0 30.5
West............................................... 15.8 10.9 30.7 17.7
---- ---- ---- ----
Total Company...................................... 27.8 24.4 57.7 48.2
==== ==== ==== ====
Natural Gas Prices ($/Mcf)
Appalachia......................................... $2.12 $2.47 $2.16 $2.71
West............................................... $1.38 $1.75 $1.38 $1.89
Total Company...................................... $1.70 $2.15 $1.74 $2.41
Crude/Condensate
Volume (MBbl)...................................... 166 171 351 253
Price $/Bbl........................................ $19.00 $16.38 $17.86 $15.42
</TABLE>
- 17 -
<PAGE>
Second Quarters of 1995 and 1994 Compared
Net Loss and Revenues. The Company reported a net loss in the second quarter
1995 of $5.3 million, or $0.23 per share, including $4.8 million, or $0.21 per
share, from recurring operations and $0.5 million, or $0.02 per share, primarily
due to severance costs in connection with the resignation of the former Chairman
and Chief Executive Officer. During the corresponding quarter of 1994, the
Company reported a loss of $2.5 million, or $0.11 per share. Operating income
decreased $2.2 million. Operating revenues decreased $5.1 million. Natural gas
made up 92%, or $47.2 million, of operating revenue. The decrease in operating
revenues was driven primarily by a 21% decrease in the average natural gas
price, partially offset by a 14% increase in natural gas sales volumes due to
higher gas purchased for resale (up 33%) as discussed below. Net loss and
operating income (loss) were similarly impacted by the decline in the average
natural gas price, as well as higher depletion expense and higher interest
expense associated with the WERCO acquisition.
Natural gas sales volumes were down 1.5 Bcf to 12.0 Bcf in the Appalachian
Region primarily due to a 2.1 Bcf decrease in gas purchased for resale.
Production volume in the Appalachian Region was down 0.3 Bcf, or 4%. Natural gas
sales volumes were up 4.9 Bcf to 15.8 Bcf in the Western Region due primarily to
gas purchased for resale, up 4.9 Bcf.
The average Appalachian natural gas sales price decreased $0.35 per Mcf, or
14%, to $2.12, decreasing operating revenues by approximately $4.2 million. In
the Western Region, the average natural gas sales price decreased $0.37 per Mcf,
or 21%, to $1.38, decreasing operating revenues by approximately $6.1 million.
Because Western Region sales volume, relative to total Company sales volume, was
up significantly, the weighted average natural gas price for the total Company
decreased $0.45 per Mcf, or 21%, to $1.70, weighted more heavily by the lower
average price in the Western Region.
Crude oil and condensate sales remained virtually unchanged, down 5 MBbl.
Costs and Expenses Total costs and expenses decreased $2.9 million, or 5%, due
primarily to the following:
o The costs of natural gas decreased $0.7 million to $21.7 million. The decrease
was primarily due to a $0.52 per Mcf decrease in the average price of gas
purchased for resale, partially offset by a 3.1 Bcf increase in gas purchased
for resale and gas exchanges.
o Direct operations expense decreased $2.1 million, or 24%, due in large part to
the weather related timing of lease maintenance work and workovers performed
(approx. $0.8 million), reductions in field and regional office expense due
primarily to the cost reduction program (approx. $0.6 million), and a $0.3
million decrease in compressor rental and overhaul expenses.
o Exploration expense decreased $0.8 million, or 36%, due largely to lower dry
hole and geological and geophysical costs.
o General and administrative expense increased $1.0 million, or 24%, due
primarily to the severance costs in connection with the resignation of the
former Chairman and Chief Executive Officer in the second quarter.
Interest expense was up $1.9 million, or 51%, due to the increase in debt
primarily attributable to the WERCO acquisition in 1994.
Income tax benefit was up $1.6 million due to the comparable increase in
the loss before income tax.
- 18 -
<PAGE>
Six Months of 1995 and 1994 Compared
Net Income (Loss) and Revenues. The Company reported a net loss in the first
half of 1995 of $13.5 million, or $0.59 per share, including $8.7 million, or
$0.38 per share, from recurring operations and $4.8 million, or $0.21 per share,
primarily due to the cost reduction program ($4.3 million) and the severance
costs in connection with the resignation of the former Chairman and Chief
Executive Officer. During the corresponding first half of 1994, the Company
reported net income of $2.2 million, or $0.10 per share. Operating income
decreased $19.1 million. Operating revenues decreased $12.8 million. Natural gas
made up 92%, or $100.5 million, of operating revenue. The decrease in operating
revenues was driven primarily by a 28% decrease in the average natural gas
price, partially offset by a 20% increase in natural gas sales volumes due to
higher natural gas production (up 12%) and gas purchased for resale (up 26%) as
discussed below. Net income (loss) and operating income (loss) were similarly
impacted by the decline in the average natural gas price, as well as higher
depletion expense, higher interest expenses associated with the WERCO
acquisition and the cost reduction program.
Natural gas sales volumes were down 3.5 Bcf to 27.0 Bcf in the Appalachian
Region primarily due to a 4.2 Bcf decrease in gas purchased for resale.
Production volume in the Appalachian Region was virtually unchanged, down 0.1
Bcf. Natural gas sales volumes were up 13.0 Bcf to 30.7 Bcf in the Western
Region due primarily to higher production volume (up 3.2 Bcf) and gas purchased
for resale (up 10.0 Bcf), all of which are primarily due to the WERCO
acquisition.
The average Appalachian natural gas sales price decreased $0.55 per Mcf, or
20%, to $2.16, decreasing operating revenues by approximately $15.5 million. In
the Western Region, the average natural gas sales price decreased $0.51 per Mcf,
or 27%, to $1.38, decreasing operating revenues by approximately $15.2 million.
Because Western Region sales volume, relative to total Company sales volume, was
up significantly, the weighted average natural gas price for the total Company
decreased $0.67 per Mcf, or 28%, to $1.74, weighted more heavily by the lower
average price in the Western Region.
Crude oil and condensate sales increased 98 MBbl, or 39%, due primarily to
the WERCO acquisition.
Costs and Expenses Total costs and expenses decreased $5.9 million, or 5%, due
primarily to the following:
o The costs of natural gas decreased $4.2 million to $47.3 million. The decrease
was primarily due to a $0.69 per Mcf decrease in the average price of gas
purchased for resale, partially offset by a 6.2 Bcf increase in gas purchased
for resale and gas exchanges.
o Direct operations expense decreased $2.2 million, or 14%, due in large part to
the weather related timing of lease maintenance work and workovers performed
(approx. $0.9 million), reductions in field and regional office expense due
primarily to the cost reduction program (approx. $0.6 million), and a $0.3
million decrease in compressor rental and overhaul expenses.
o Depreciation, depletion, amortization and impairment expense increased $4.4
million, or 18%, due primarily to the WERCO acquisition.
o General and administrative expense increased $1.1 million, or 13%, due
primarily to the severance costs in connection with the resignation of the
former Chairman and Chief Executive Officer in the second quarter.
o 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
- 19 -
<PAGE>
($3.5 million paid during the first half) and a $3.0 million non-cash charge for
curtailments to pension and postretirement benefits plans.
Interest expense was up $4.9 million, or 74%, due to the increase in debt
primarily attributable to the WERCO acquisition in 1994.
Income tax expense was down $9.5 million due to the comparable decrease in
earnings before income tax.
- 20 -
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 18, 1995, in
Houston, Texas. Stockholders voted on the election of four directors for a three
year term expiring in 1998, an amendment to the incentive stock option plan and
the appointment of independent auditors for the year 1995. The voting results on
these matters were as follows (in millions):
(a) Election of Directors:
Votes
Nominee Received For Votes Against Abstentions
---------------------- ------------ -------------- ----------------
Robert F. Bailey 22.740 0.093 -
John G.L. Cabot 22.741 0.092 -
William H. Knoell 22.737 0.095 -
C. Wayne Nance 22.742 0.090 -
The other Board of Directors with terms ending after 1995 are:
Samuel W. Bodman, Henry O. Boswell, William R. Esler, Carl M. Mueller, Charles
P. Siess, Jr. and William P. Vititoe.
(b) Approval of the Amendment to the Incentive Stock Option Plan:
Votes Received For: 20.051
Votes Against: 2.765
Abstentions: 0.017
(c) Approval of appointment of Coopers & Lybrand L.L.P. as independent
auditors of the Company:
Votes Received For: 22.775
Votes Against: 0.045
Abstentions: 0.130
Item 5. Other Information
On May 19, 1995, John H. Lollar resigned as Chairman, Chief Executive
Officer and President of the Company. On such date, these offices were assumed
by Charles P. Siess, Jr. On June 30, 1995, Ray R. Seegmiller joined the Company
as Vice President and Chief Financial Officer.
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 second quarter
1995 Form 10-Q
(b) Reports on Form 8-K
None
- 21 -
<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/ Ray R. Seegmiller
-------------------------------------
August 11, 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 -
<PAGE>
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 August 11, 1995 on our review of the interim
consolidated financial information of Cabot Oil & Gas Corporation for the three
and six month periods ended June 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
August 11, 1995
- 23 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000858470
<NAME> CABOT OIL & GAS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,310
<SECURITIES> 0
<RECEIVABLES> 32,771
<ALLOWANCES> (1,363)
<INVENTORY> 5,263
<CURRENT-ASSETS> 40,154
<PP&E> 979,532
<DEPRECIATION> (373,525)
<TOTAL-ASSETS> 647,594
<CURRENT-LIABILITIES> 49,748
<BONDS> 250,307
<COMMON> 153,055
0
91,139
<OTHER-SE> (16,161)
<TOTAL-LIABILITY-AND-EQUITY> 647,594
<SALES> 107,676
<TOTAL-REVENUES> 109,475
<CGS> 115,110
<TOTAL-COSTS> 115,110
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,596
<INCOME-PRETAX> (17,639)
<INCOME-TAX> (6,921)
<INCOME-CONTINUING> (13,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,488)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> 0
</TABLE>
