<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 MARCH 31, 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 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 April 28, 1995, there were 22,774,556 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
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the Three Months
Ended March 31, 1995 and 1994................................................ 3
Condensed Consolidated Balance Sheet at March 31, 1995 and December 31, 1994.. 4
Condensed Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1995 and 1994................................................ 5
Notes to Condensed Consolidated Financial Statements.......................... 6
Independent Certified Public Accountants' Report on Review of
Interim Financial Information................................................ 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K....................................... 18
Signature........................................................................ 19
</TABLE>
2
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1994
-------- ------
<S> <C> <C>
REVENUES
Natural Gas......................................... $ 53,309 $63,748
Crude Oil & Condensate.............................. 3,122 1,100
Other............................................... 1,691 992
-------- -------
58,122 65,840
COSTS AND EXPENSES
Costs of Natural Gas................................ 25,535 29,062
Direct Operations................................... 7,294 7,459
Exploration......................................... 1,658 1,017
Depreciation, Depletion and Amortization (Note 6)... 13,685 9,220
Impairment of Unproved Properties................... 921 720
General and Administrative.......................... 4,261 4,180
Taxes Other Than Income............................. 2,921 2,615
Cost Reduction Program (Note 7)..................... 6,820 -
-------- -------
63,095 54,273
Gain (Loss) on Sale of Assets........................ (393) 13
-------- -------
INCOME (LOSS) FROM OPERATIONS........................ (5,366) 11,580
Interest Expense..................................... 5,860 2,877
-------- -------
Income (Loss) Before Income Taxes.................... (11,226) 8,703
Income Tax Expense (Benefit)......................... (4,405) 3,469
-------- -------
NET INCOME (LOSS).................................... (6,821) 5,234
Dividend Requirement on Preferred Stock.............. 1,379 552
-------- -------
Net Income (Loss) Applicable to Common Stockholders.. $ (8,200) $ 4,682
======== =======
Earnings (Loss) Per Share Applicable to Common....... $(0.36) $0.23
======== =======
Average Common Shares Outstanding.................... 22,766 20,584
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents................................ $ 3,329 $ 3,773
Accounts Receivable...................................... 37,893 38,166
Inventories.............................................. 3,438 8,384
Other.................................................... 930 1,696
-------- --------
Total Current Assets.................................... 45,590 52,019
Properties and Equipment (Successful Efforts Method)...... 617,474 634,934
Other Assets.............................................. 1,449 1,399
-------- --------
$664,513 $688,352
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Debt.......................................... $ 1,129 $ -
Accounts Payable......................................... 26,400 39,990
Accrued Liabilities...................................... 18,863 13,750
-------- --------
Total Current Liabilities............................... 46,392 53,740
Long-Term Debt............................................ 261,307 268,363
Deferred Income Taxes..................................... 114,185 117,807
Other Liabilities......................................... 8,433 5,360
Commitments and Contingencies (Note 5)
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--22,773,891 Shares and
22,757,007 Shares as of March 31, 1995 and
December 31, 1994, Respectively....................... 2,277 2,275
Additional Paid-in Capital............................... 241,697 241,471
Retained Earnings........................................ (9,961) (847)
-------- --------
Total Stockholders' Equity.............................. 234,196 243,082
-------- --------
$664,513 $688,352
======== ========
</TABLE>
The accompanying notes are an integral part of 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
MARCH 31,
---------------------------
1995 1994
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss).................................... $ (6,821) $ 5,234
Adjustment to Reconcile Net Income (Loss) To Cash
Provided by Operating Activities:
Depletion, Depreciation and Amortization........... 13,685 9,220
Impairment of Undeveloped Leasehold................ 921 720
Deferred Income Taxes.............................. (3,622) 2,804
(Gain) Loss on Sale of Assets...................... 393 (13)
Postretirement Benefits Cost....................... (209) (185)
Exploration Expense................................ 1,658 1,017
Cost Reduction Program (Note 7).................... 4,188 -
Other, Net......................................... (48) (219)
Changes in Assets and Liabilities:
Accounts Receivable................................ 6,082 406
Inventories........................................ 4,946 2,899
Other Current Assets............................... 765 1
Other Assets....................................... (50) 16
Accounts Payable and Accrued Liabilities........... (10,621) 5,583
Other Liabilities.................................. 706 (312)
-------- --------
Net Cash Provided by Operating Activities......... 11,973 27,171
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures................................. (3,067) (13,544)
Proceeds from Sale of Assets......................... 313 21
Exploration Expense.................................. (1,658) (1,017)
-------- --------
Net Cash Used by Investing Activities............. (4,412) (14,540)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock................................. 224 40
Increase in Debt..................................... 1,100 2,040
Decrease in Debt..................................... (7,027) (13,000)
Dividends Paid....................................... (2,302) (1,333)
-------- --------
Net Cash Used by Financing Activities............. (8,005) (12,253)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents.. (444) 378
Cash and Cash Equivalents, Beginning of Period........ 3,773 2,897
-------- --------
Cash and Cash Equivalents, End of Period.............. $ 3,329 $ 3,275
======== ========
</TABLE>
The accompanying notes are an integral part of 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.
2. PROPERTIES AND EQUIPMENT
Properties and equipment are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- -------------
<S> <C> <C>
(in thousands)
Unproved oil and gas properties....................... $ 17,357 $ 20,847
Proved oil and gas properties......................... 795,961 796,390
Gathering and pipeline systems........................ 146,143 146,131
Land, building and improvements....................... 5,526 5,533
Other................................................. 14,085 13,875
--------- ---------
979,072 982,776
Accumulated depreciation, depletion and amortization.. (361,598) (347,842)
--------- ---------
$ 617,474 $ 634,934
========= =========
</TABLE>
6
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. ADDITIONAL BALANCE SHEET INFORMATION
Certain balance sheet amounts are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- -------------
<S> <C> <C>
(in thousands)
Accounts Receivable
Trade accounts.............................. $30,182 $36,246
Sale of oil and gas properties.............. 5,264 -
Other accounts.............................. 3,813 3,245
------- -------
39,259 39,491
Allowance for doubtful accounts............. (1,366) (1,325)
------- -------
$37,893 $38,166
======= =======
Inventories
Natural gas in storage...................... $ 1,538 $ 5,777
Tubular goods and well equipment............ 2,052 2,120
Exchange balances........................... (152) 487
------- -------
$ 3,438 $ 8,384
======= =======
Accounts Payable
Trade accounts.............................. $ 6,325 $10,818
Natural gas purchases....................... 6,932 7,938
Royalty and other owners.................... 7,811 12,691
Capital costs............................... 1,603 4,097
Dividends payable........................... 1,391 1,404
Taxes Other Than Income..................... 627 690
Other accounts.............................. 1,711 2,352
------- -------
$26,400 $39,990
======= =======
Accrued Liabilities
Employee benefits........................... $ 2,883 $ 3,182
Taxes other than income..................... 8,014 7,886
Interest payable............................ 5,948 1,742
Other accrued............................... 2,018 940
------- -------
$18,863 $13,750
======= =======
Other Liabilities
Postretirement benefits other than pension.. $ 3,266 $ 898
Accrued pension cost........................ 3,005 2,299
Taxes other than income..................... -- 1,593
Other....................................... 2,162 570
------- -------
$ 8,433 $ 5,360
======= =======
</TABLE>
7
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. LONG-TERM DEBT
At March 31, 1995, the Company had borrowed $181 million against an available
credit line of $260 million. The available credit line may be increased up to
$300 million if supported by 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 has begun discussions with its banks to amend certain provisions
of the revolving credit facility, including an extension of the revolving term.
The Company expects the amendment to be finalized in the second quarter of this
year. Management believes that the amendment will 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, assuming the
expected extension is obtained.
5. 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 the Plaintiff appealed the decision of the trial
court to the Oklahoma Supreme Court. The Plaintiffs have requested that the
Oklahoma Supreme Court retain the case. Retention by the Oklahoma Supreme Court
is discretionary. No decision on retention by the Court has been received.
6. 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 first
quarter of 1995. The net effect of the change in method resulted in a $497
thousand decrease in DD&A expense and a $302 thousand increase in net earnings
in the first quarter of 1995, including the impact of the pre-1995 amount. The
pro forma impact on the results of operations in the first quarter 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 $600 thousand and a $365 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 $2.5 to $3
million and will offset anticipated higher levels of DD&A expense due to reserve
revisions.
7. 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
7. 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 $2.6 million was paid out by March 31,
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.
8. 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.
9. NET REVENUE MARGINS ON NATURAL GAS SALES
Natural gas revenue margins are comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1994
------- --------
(in thousands, except
where noted)
<S> <C> <C>
Production and Purchased Gas, Excluding Brokered
Sales volume (MMcf).............................. 23,264 18,385
Natural gas revenue.............................. $42,480 $49,148
Cost of natural gas.............................. 15,196 14,801
------- -------
Net revenue margin............................... $27,284 $34,347
======= =======
Back-to-Back Brokered Gas
Sales volume (MMcf).............................. 6,597 5,421
Natural gas revenue.............................. $10,829 $14,600
Cost of natural gas.............................. 10,339 14,261
------- -------
Net revenue margin............................... $ 490 $ 339
======= =======
Total Company
Sales volume (MMcf).............................. 29,861 23,806
Natural gas revenue.............................. $53,309 $63,748
Cost of natural gas.............................. 25,535 29,062
------- -------
Net revenue margin............................... $27,774 $34,686
======= =======
</TABLE>
9
<PAGE>
Independent Certified Public Accountants' Report on Review of Interim Financial
Information
To the Board of Directors and Shareholders
Cabot Oil & Gas Corporation:
We have reviewed the accompanying consolidated condensed balance sheet of
Cabot Oil & Gas Corporation as of March 31, 1995, and the related condensed
consolidated statements of operations and cash flows for the three month period
ended March 31, 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
May 10, 1995
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review of operations for the first quarter 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 first quarter of
1995 was approximately 33% lower than the first quarter of 1994. These lower
gas prices have significantly reduced earnings and cash flows, partially offset
by the benefits of higher production and lower unit costs.
Due to the continued weakness in natural gas prices, the Company has reduced
the level of capital spending planned for 1995. The Company's capital and
exploration expenditures budget for 1995 is $28.4 million, down $52.4 million
from the 1994 capital and exploration expenditures, excluding the acquisition of
Washington Energy Resources Company ("WERCO") in May 1994. During the first
quarter of 1995, the Company drilled 4 net wells and realized a drilling success
rate of 75%, compared to 27 net wells with a drilling success rate of 96% for
the first quarter of 1994.
Natural gas sales were 29.9 Bcf, up 6.1 Bcf, or 25%, compared with the 1994
first quarter. The increase is due to production, up over 25%, and the expanded
marketing of third-party natural gas, up 30%. Both of these increases are
primarily due to the WERCO acquisition. Gas volumes and revenue margins
associated with the Company's marketing activities (see Note 9 to the Condensed
Consolidated Financial Statements included elsewhere in this Form 10-Q) are
presented in two categories, (1) production and purchased gas marketed through
the Company's gathering and pipeline facilities and (2) purchased gas marketed
in back-to-back or brokered arrangements ("brokered"). The contribution to
operating income provided by brokered sales was approximately 6 cents per Mcf in
the first quarter of 1995, compared with approximately 5 cents per Mcf in the
first quarter of 1994.
In response to the challenging price environment, the Company recorded a $4.1
million charge to earnings, or $0.18 per share, for a cost reduction program
which 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 ($2.6 million paid during the quarter) and a $3.0
million non-cash charge for curtailments to pension ($0.4 million) and
postretirement ($2.6 million) benefits plans. Costs are expected to be reduced
annually by approximately $4 to $5 million.
The Company continued to reduce its operating costs. In the first quarter of
1995, controllable operating costs and expense, consisting of operating,
exploration and administrative expenses, were $0.79 per Mcfe produced, as
compared with $1.00 per Mcfe produced in the first 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 some impact of the cost reduction program
mentioned above.
As mentioned in Note 6 to the Condensed Consolidated Financial Statements
included elsewhere in this Form 10-Q, in the first quarter of 1995, the Company
changed its method of accounting for depletion of capital costs from the
property-by-property basis to the field basis. The Company made this change
since it believes the new method provides better matching of revenues and
expenses over the productive lives of the assets, and therefore, is preferable
to the method previously employed.
11
<PAGE>
Through several transactions, the Company recorded the sale of certain non-
core oil and gas properties located in its Western Region. The proceeds from
the sales, totalling $5.5 million, are to be used to reduce the Company's
outstanding debt. The Company expects to record a similar sale of properties in
the second quarter with total proceeds of approximately $2.6 million.
The Company continues to assess market conditions and commodity prices and
will modify it 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 did not reduce 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
operations, exploration and development expenditures, acquisitions, repayment of
debt and dividends.
The Company had a net cash outflow of $0.4 million in the first quarter of
1995. Net cash inflow from operating and investing activities totalled $7.6
million in the current quarter, funding substantially all of the $5.9 million
net reduction of the Company's bank debt and dividends paid.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
(in millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities $ 12.0 $ 27.2
====== ======
</TABLE>
Cash flows from operating activities in the 1995 first quarter were lower by
$15.2 million compared to the corresponding quarter of 1994 primarily due to
lower natural gas prices, higher debt service due to increased bank debt and
non-recurring charges related to the cost reduction program.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
(in millions)
<S> <C> <C>
Cash Flows Used by Investing Activities $ 4.4 $ 14.5
===== ======
</TABLE>
Cash flows used by investing activities in the first quarters of 1995 and 1994
were substantially attributable to capital and exploration expenditures of $4.7
million and $14.6 million, respectively.
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
(in millions)
<S> <C> <C>
Cash Flows Used by Financing Activities $ 8.0 $ 12.3
===== ======
</TABLE>
Cash flows used by financing activities were primarily debt reductions under
the Company's revolving credit facility.
Under the Company's revolving credit facility, the available credit line,
currently $260 million, is subject to adjustment on the basis of the projected
present value of estimated future net cash flows from proved oil and gas
reserves and other assets. If supported by such an adjustment, the credit line
presently may be increased up to $300 million. The Company has begun
discussions with its banks to amend certain provisions of the revolving credit
facility, including an extension of the revolving term. The Company expects the
amendment to be finalized in the second quarter of this year. Management
believes that the amendment will not have a material impact on the Company's
ability to finance, if necessary, its capital requirements, including
acquisitions.
The Company's 1995 debt service is projected to be approximately $25.0
million. No principal payments are due in 1995, assuming the expected extension
is obtained on the revolving credit facility.
Capitalization information on the Company is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- -------------
(in millions)
<S> <C> <C>
Long-Term Debt.......... $261.3 $268.3
Stockholders' Equity
Common Stock.......... 142.9 151.8
Preferred Stock........ 91.3 91.3
------ ------
Total.................. 234.2 243.1
------ ------
Total Capitalization.... $495.5 $511.4
====== ======
Debt to Capitalization.. 52.7% 52.5%
</TABLE>
CAPITAL AND EXPLORATION EXPENDITURES
The following table presents major components of capital and exploration
expenditures:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
(in millions)
<S> <C> <C>
Capital Expenditures
Drilling and Facilities....... $ 2.6 $ 9.1
Leasehold Acquisitions........ 0.2 1.1
Pipeline and Gathering........ 0.0 1.1
Other......................... 0.2 0.4
----- -----
3.0 11.7
----- -----
Proved Property Acquisitions.. 0.1 1.9
Exploration Expenses........... 1.6 1.0
----- -----
Total......................... $ 4.7 $14.6
===== =====
</TABLE>
13
<PAGE>
Total capital and exploration expenditures in the first quarter of 1995
decreased $9.9 million compared to the same quarter of 1994, primarily due 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 a $28.4 million capital and exploration expenditures budget
for 1995 which includes $16.2 million for drilling and facilities and
exploration expenses and $7.3 million for proved property acquisitions.
Compared to the 1994 capital and exploration expenditures, excluding the WERCO
acquisition, the 1995 budgeted expenditures are down 65% due to continued low
natural gas prices. The Company plans to drill 20 to 30 wells, net to its
interest, in 1995 compared with 169 net wells drilled in 1994.
During the first quarter of 1995, the Company paid dividends of $0.9 million
on the Common Stock and $1.4 million in aggregate on the $3.125 convertible
preferred stock and 6% convertible redeemable preferred stock. A regular
dividend of $0.04 per share of Common Stock was declared for the quarter ending
March 31, 1995. The dividend will be paid May 31, 1995 to shareholders of
record as of May 18, 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 the Plaintiff appealed the decision of the trial
court to the Oklahoma Supreme Court. The Plaintiffs have requested that the
Oklahoma Supreme Court retain the case. Retention by the Oklahoma Supreme Court
is discretionary. No decision on retention by the Court has been received.
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.
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 Company's average first quarter 1995 natural gas price decreased 33%
compared to the average natural gas price received for the first quarter 1994.
Counter to the historical trend in which the industry typically realized higher
natural gas prices in the winter heating season, natural gas prices continued to
decline in the first quarter 1995 from the depressed price levels that began in
latter 1994. This continued deterioration of gas prices in 1995 significantly
impacted the Company's operating results, reducing earnings and cash flows in
the first 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.
The Company remains committed to its plan to pursue potential acquisitions as
part of its stated corporate strategy. Such acquisitions may require capital
resources beyond those provided from operations.
14
<PAGE>
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 volumes and natural gas prices
over time coupled with its 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.
15
<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 shareholders.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1995 1994
------ ------
(in millions, except where noted)
<S> <C> <C>
Revenues............................. $ 58.2 $ 65.8
Costs and Expenses................... 63.1 54.3
Operating Income (Loss).............. (5.4) 11.6
Interest Expense..................... 5.9 2.9
Net Income (Loss).................... (8.2) 4.7
Earnings (Loss) Per Share............ $(0.36) $ 0.23
Natural Gas Production (Bcf)
Appalachia.......................... 7.4 7.2
West................................ 8.0 5.1
------ ------
Total Company....................... 15.4 12.3
====== ======
Natural Gas Sales (Bcf)
Appalachia.......................... 15.1 16.9
West................................ 14.8 6.9
------ ------
Total Company....................... 29.9 23.8
====== ======
Natural Gas Prices ($/Mcf)
Appalachia.......................... $ 2.19 $ 2.94
West................................ $ 1.37 $ 2.04
Total Company....................... $ 1.79 $ 2.68
Crude/Condensate
Volume (MBbl)....................... 185 82
Price $/Bbl......................... $16.84 $13.43
</TABLE>
FIRST QUARTERS OF 1995 AND 1994 COMPARED
Net Income (Loss) and Revenues. The Company reported a net loss in the first
quarter 1995 of $8.2 million, or $0.36 per share, including $3.9 million, or
$0.17 per share, from recurring operations and $4.3 million, or $0.19 per share,
from a cost reduction program implemented in the first quarter. During the
corresponding quarter of 1994, the Company reported earnings of $4.7 million, or
$0.23 per share. Operating income (loss) decreased $16.9 million. Operating
revenues decreased $7.7 million. Natural gas made up 92%, or $53.3 million, of
operating revenue. The decrease in operating revenues was driven primarily by a
33% decrease in the average natural gas price, partially offset by a 25%
increase in natural gas sales volumes due to higher production (up 25%) and gas
purchased for resale (up 30%) 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 depreciation expense and additional
financing cost associated with the WERCO acquisition and the cost reduction
program (discussed below).
16
<PAGE>
Natural gas sales volumes were down 1.8 Bcf to 15.1 Bcf in the Appalachian
Region primarily due to a 2.0 Bcf decrease in gas purchased for resale.
Production volume in the Appalachian Region was virtually unchanged, up 0.2 Bcf.
Natural gas sales volumes were up 7.9 Bcf to 14.8 Bcf in the Western Region due
to higher production, up 2.8 Bcf, or 56%, and gas purchased for resale, up 5.0
Bcf, all of which are primarily attributable to the WERCO acquisition.
The average Appalachian natural gas sales price decreased $0.75 per Mcf, or
26%, to $2.19, decreasing operating revenues by approximately $11.3 million. In
the Western Region, the average natural gas sales price decreased $0.67 per Mcf,
or 33%, to $1.37, decreasing operating revenues by approximately $9.9 million.
Due to the weighted mix of sales volume, the overall weighted average natural
gas sales price decreased $0.89 per Mcf, or 33%, to $1.79.
Crude oil and condensate sales increased 103 MBbl, or 126%, due primarily to
the WERCO acquisition.
Costs and Expenses. Total costs and expenses increased $8.8 million, or 16%,
due primarily to the following:
. The costs of natural gas decreased $3.5 million to $25.5 million. The
decrease was primarily due to a $0.89 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.
. Exploration expense increased $0.6 million, or 63%, due largely to higher
exploration administrative costs attributable to staff additions from the WERCO
acquisition.
. Depreciation, depletion, amortization and impairment expense increased $4.7
million, or 48%, due primarily to the WERCO acquisition.
. Taxes other than income increased $0.3 million, or 11%, due primarily to
higher production.
. The cost reduction program 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 ($2.6 million paid during
the quarter) and a $3.0 million non-cash charge for curtailments to pension and
postretirement benefits plans.
Income tax expense was down $7.9 million due to the comparable decrease in
earnings (loss) before income tax.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 -- Awareness letter of independent accountants.
15.2 -- Preferability letter of independent accountants.
27 -- Article 5. Financial Data Schedule for First Quarter
1995 Form 10-Q
(b) Reports on Form 8-K
None
18
<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 H. Lollar
----------------------------------------
May 10, 1995 John H. Lollar, Chairman of the Board, Chief
Executive Officer and President
(Principal Financial Officer and Officer Duly
Authorized to Sign on Behalf of the Registrant)
19
<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 May 10, 1995 on our review of the interim
consolidated financial information of Cabot Oil & Gas Corporation for the three
month period ended March 31, 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
May 10, 1995
20
<PAGE>
EXHIBIT 15.2
Coopers & Lybrand L.L.P.
Cabot Oil & Gas Corporation
15375 Memorial Drive
Houston, Texas 77079
We are providing this letter to you for inclusion as an exhibit to your Form
10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting, related to
calculating unit-of-production depletion of its oil and gas assets from a
property-by-property basis to an aggregation of wells by a common geological
structure, contained in the Company's Form 10-Q for the quarter ended March 31,
1995. Based on our reading of the data and discussions with Company officials
of the business judgment and business planning factors relating to the change,
we believe management's justification to be reasonable. Accordingly, in
reliance on management's determination as regards elements of business judgment
and business planning, we concur that the newly adopted accounting principle
described above is preferable in the Company's circumstances to the method
previously applied.
We have not audited any financial statements of Cabot Oil & Gas Corporation as
of any date or for any period subsequent to December 31, 1994, nor have we
audited the application of the change in accounting principle disclosed in Form
10-Q of Cabot Oil & Gas Corporation for the three months ended March 31, 1995;
accordingly, our comments are subject to revision on completion of an audit of
the financial statements that include the accounting change.
Coopers & Lybrand L.L.P.
Houston, Texas
April 24, 1995
21
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,329
<SECURITIES> 0
<RECEIVABLES> 39,259
<ALLOWANCES> (1,366)
<INVENTORY> 3,438
<CURRENT-ASSETS> 45,590
<PP&E> 979,072
<DEPRECIATION> (361,598)
<TOTAL-ASSETS> 664,513
<CURRENT-LIABILITIES> 46,392
<BONDS> 261,307
<COMMON> 153,018
0
91,139
<OTHER-SE> (9,961)
<TOTAL-LIABILITY-AND-EQUITY> 664,513
<SALES> 56,983
<TOTAL-REVENUES> 58,122
<CGS> 63,095
<TOTAL-COSTS> 63,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,860
<INCOME-PRETAX> (11,226)
<INCOME-TAX> (4,405)
<INCOME-CONTINUING> (8,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,200)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> 0
</TABLE>
