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, 1996
( ) 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, 1996, there were 22,797,754 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, 1996 and 1995.................................................................... 3
Condensed Consolidated Balance Sheet at March 31, 1996 and December 31, 1995....................... 4
Condensed Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1996 and 1995.................................................................... 5
Notes to Condensed Consolidated Financial Statements............................................... 6
Independent Certified Public Accountants' Report on Review of
Interim Financial Information.................................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................................................. 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,
1996 1995
<S> <C> <C>
NET OPERATING REVENUES
Natural Gas Production.................................................... $ 33,608 $ 26,822
Crude Oil & Condensate.................................................... 2,659 3,122
Brokered Natural Gas Margin............................................... 2,090 952
Other..................................................................... 2,841 1,691
-------- -------
41,198 32,587
OPERATING EXPENSES
Direct Operations......................................................... 6,822 7,294
Exploration............................................................... 2,353 1,658
Depreciation, Depletion and Amortization.................................. 9,753 13,685
Impairment of Unproved Properties......................................... 705 921
General and Administrative................................................ 3,737 4,261
Taxes Other Than Income................................................... 3,404 2,921
Cost Reduction Program (Note 7)........................................... -- 6,820
------- -------
26,774 37,560
Gain (Loss) on Sale of Assets................................................ 1,505 (393)
------- -------
INCOME (LOSS) FROM OPERATIONS................................................ 15,929 (5,366)
Interest Expense............................................................. 4,849 5,860
------- -------
Income (Loss) Before Income Taxes............................................ 11,080 (11,226)
Income Tax Expense (Benefit)................................................. 4,431 (4,405)
------- -------
NET INCOME (LOSS)............................................................ 6,649 (6,821)
Dividend Requirement on Preferred Stock...................................... 1,391 1,379
------- -------
Net Income (Loss) Applicable to Common Stockholders.......................... $ 5,258 $ (8,200)
======= =======
Earnings (Loss) Per Share Applicable to Common............................... $ 0.23 $ (0.36)
======= =======
Average Common Shares Outstanding............................................ 22,793 22,766
======= =======
</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,
1996 1995
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents.................................................. $ 3,751 $ 3,029
Accounts Receivable........................................................ 53,853 42,014
Inventories................................................................ 4,113 5,596
Other...................................................................... 1,160 1,709
-------- --------
Total Current Assets..................................................... 62,877 52,348
Properties and Equipment (Successful Efforts Method).......................... 475,303 474,371
Other Assets.................................................................. 1,460 1,436
-------- --------
$ 539,640 $ 528,155
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable........................................................... $ 48,144 $ 48,122
Accrued Liabilities........................................................ 15,895 12,759
-------- --------
Total Current Liabilities................................................ 64,039 60,881
Long-Term Debt................................................................ 248,000 249,000
Deferred Income Taxes......................................................... 67,049 62,752
Other Liabilities............................................................. 8,040 7,666
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 1996 and 1995 - 6%
Convertible Redeemable Preferred; $50
Stated Value; 1,134,000 Shares in 1996 and 1995........................ 183 183
Common Stock:
Authorized--40,000,000 Shares of $.10 Par Value
Issued and Outstanding--22,796,972 Shares and
22,783,319 Shares in 1996 and 1995, Respectively....................... 2,279 2,278
Additional Paid-in Capital................................................. 242,367 242,058
Accumulated Deficit........................................................ (92,317) (96,663)
-------- --------
Total Stockholders' Equity............................................... 152,512 147,856
-------- --------
$ 539,640 $ 528,155
======== ========
</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,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)........................................................ $ 6,649 $ (6,821)
Adjustment to Reconcile Net Income (Loss) To Cash
Provided by Operating Activities:
Depletion, Depreciation and Amortization............................. 9,753 13,685
Impairment of Undeveloped Leasehold.................................. 705 921
Deferred Income Taxes................................................ 4,297 (3,622)
(Gain) Loss on Sale of Assets........................................ (1,505) 393
Exploration Expense.................................................. 2,353 1,658
Cost Reduction Program (Note 7)...................................... -- 4,188
Other, Net........................................................... 42 (257)
Changes in Assets and Liabilities:
Accounts Receivable.................................................. (11,838) 6,082
Inventories.......................................................... 1,483 4,946
Other Current Assets................................................. 549 765
Other Assets......................................................... (24) (50)
Accounts Payable and Accrued Liabilities............................. 3,064 (10,621)
Other Liabilities.................................................... 554 706
------- -------
Net Cash Provided by Operating Activities.......................... 16,082 11,973
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures..................................................... (14,337) (3,067)
Proceeds from Sale of Assets............................................. 4,468 313
Exploration Expense...................................................... (2,353) (1,658)
------- -------
Net Cash Used by Investing Activities.............................. (12,222) (4,412)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock..................................................... 165 224
Increase in Debt......................................................... -- 1,100
Decrease in Debt......................................................... (1,000) (7,027)
Dividends Paid........................................................... (2,303) (2,302)
------- ---------
Net Cash Used by Financing Activities.............................. (3,138) (8,005)
------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........................ 722 (444)
Cash and Cash Equivalents, Beginning of Period.............................. 3,029 3,773
------- -------
Cash and Cash Equivalents, End of Period.................................... $ 3,751 $ 3,329
======= =======
</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. RECLASSIFICATIONS
Certain items within the Consolidated Statement of Operations for the three
months ended March 31, 1995 have been reclassified to conform with the March 31,
1996 presentation. Under the new presentation, the Company presents gas revenues
from its equity production net of related costs (principally transportation and
storage costs) in a new revenue item called "Natural Gas Production". Similarly,
the procurement costs related to the purchase and resale (brokered) activity are
netted against the gas revenues and presented in a new item called "Brokered
Natural Gas Margin" in the net operating revenues section.
3. PROPERTIES AND EQUIPMENT
Properties and equipment are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(in thousands)
<S> <C> <C>
Unproved oil and gas properties....................................... $ 13,569 $ 12,488
Proved oil and gas properties......................................... 779,729 800,373
Gathering and pipeline systems........................................ 144,615 146,330
Land, building and improvements....................................... 5,443 5,551
Other................................................................. 15,488 15,243
-------- --------
958,844 979,985
Accumulated depreciation, depletion and amortization.................. (483,541) (505,614)
-------- --------
$ 475,303 $ 474,371
======== ========
</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>
MARCH 31, DECEMBER 31,
1996 1995
(in thousands)
<S> <C> <C>
Accounts Receivable
Trade accounts.................................................... $ 48,494 $ 38,119
Other accounts.................................................... 6,544 5,138
------- -------
55,038 43,257
Allowance for doubtful accounts................................... (1,185) (1,243)
------- -------
$ 53,853 $ 42,014
======= =======
Inventories
Natural gas in storage............................................ $ 1,087 $ 4,058
Tubular goods and well equipment.................................. 1,408 1,485
Pipeline Exchange balances........................................ 1,618 53
------- -------
$ 4,113 $ 5,596
====== =======
Accounts Payable
Trade accounts.................................................... $ 11,449 $ 9,312
Natural gas purchases............................................. 13,683 12,523
Royalty and other owners.......................................... 11,979 10,842
Capital costs..................................................... 4,524 6,518
Dividends payable................................................. 1,391 1,391
Taxes Other Than Income........................................... 876 749
Gas Price Swaps................................................... -- 3,205
Other accounts.................................................... 4,242 3,582
------- -------
$ 48,144 $ 48,122
======= =======
Accrued Liabilities
Employee benefits................................................. $ 2,664 $ 2,506
Taxes other than income........................................... 8,005 7,633
Interest payable.................................................. 4,314 1,883
Other accrued..................................................... 912 737
-------- -------
$ 15,895 $ 12,759
======= =======
Other Liabilities
Postretirement benefits other than pension........................ $ 2,460 $ 2,640
Accrued pension cost.............................................. 3,399 3,144
Taxes other than income........................................... 1,783 1,482
Other............................................................. 398 400
------ -------
$ 8,040 $ 7,666
======= =======
</TABLE>
-7-
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
5. LONG-TERM DEBT
At March 31, 1996, the Company had borrowed $163 million against an
available credit line of $235 million. The available credit line is subject to
adjustment from time-to-time on the basis of 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 revolving term under this credit facility
presently ends in June 1997 and is subject to renewal.
The Company was also fully drawn on a $5 million term note agreement,
established in February 1996, that matures December 31, 1997. The interest rate
is principally based on the prime rate minus one percent.
6. CONTINGENCIES
Subsequent to the developments with regard to the Barby lawsuits as
described in the Company's 1995 Annual Report on Form 10-K, both actions have
been conditionally settled, subject to the Court's approval of certain
provisions contained in the settlement agreement. The conditional settlement, if
effected, will result in a charge to earnings in 1996 that is not material to
the Company's operating results or financial position.
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
recognized a liability and charged to expense $6.8 million in termination
benefits for 115 employees, or 23% of the total workforce, including 24
employees who elected early retirement. See Note 12 of the Notes to the
Consolidated Financial Statements in the Company's 1995 Annual Report for
further discussion.
8. WERCO ACQUISITION
On May 2, 1994, the Company, through a subsidiary, completed the merger
with Washington Energy Resources Company ("WERCO"), a wholly-owned subsidiary of
Washington Energy Company. The Company acquired the stock of WERCO in a tax-free
exchange. Total capitalized costs related to the acquisition were $207.8
million, comprised of cash and stock consideration of $167.6 million (net of an
$8.4 million post-closing adjustment in 1995) and a $40.2 million non-cash
component relating to the deferred income taxes attributable to the differences
between the tax and book bases of the acquired properties, as required by SFAS
109, "Accounting for Income Taxes". The acquisition was recorded using the
purchase method. The oil and gas properties are located in the Green River Basin
of Wyoming and in the Gulf Coast.
The Company issued 2,133,000 shares of Common Stock and 1,134,000 shares of
6% convertible redeemable preferred stock ($50 per share stated value) to
Washington Energy Company in exchange for the capital stock of WERCO.
The $8.4 million post-closing adjustment was a net cash payment received in
1995 related to a valuation adjustment and was recorded as a reduction to the
net book value of certain of the oil and gas properties acquired.
-8-
<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 condensed consolidated balance sheet of
Cabot Oil & Gas Corporation as of March 31, 1996, and the related condensed
consolidated statements of operations and cash flows for the three month period
ended March 31, 1996 and 1995. 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, 1995, 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 1, 1996, 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, 1995, 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, 1996
-9-
<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 1996 and 1995
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, Notes and Management's
Discussion and Analysis included in the Company's Form 10-K for the year ended
December 31, 1995.
Overview
In addition to the substantial up swing in gas prices, actions taken in
1995, designed to return the Company to future profitability, played an
important part in the first quarter performance of 1996 with near record
earnings and strong operating cash flows. Refer to the Overview section of the
Management's Discussion and Analysis of Financial Condition in the Company's
1995 Annual Report on Form 10-K for a discussion of these actions. First quarter
operating results for 1996 included the benefit of the following realizations:
(*) The average gas price for the quarter was $2.37 per Mcf, up 36%
compared to the first quarter of 1995.
(*) Direct operating and administrative costs were reduced by $1.0
million, or 9%, compared to the corresponding quarter in 1995.
(*) Under its continued program to divest non-strategic properties, the
Company sold approximately 260 net wells located in the Appalachian
Region, generating $4.4 million in cash proceeds and a gain on sale
of $1.5 million.
(*) Interest costs were down $1.0 million, or 17%, primarily due to the
combination of the reduced debt balance, lower interest rates and the
absence of interest rate swaps that were in place in 1995.
(*) Depreciation, depletion and amortization ("DD&A") expenses were down
$4.1 million or $0.18 per Mcfe of production. This reduction was
primarily the result of the impairment of long-lived assets which
reduced the depreciable basis by $113.8 million in 1995.
Operating cash flows were also up significantly, increasing $4.1 million,
or 34%, over the same quarter in 1995. Cash flows from operations, along with
the $4.4 million of proceeds from the sale of non-strategic properties, funded
(1) the $16.7 million of capital and exploration expenditures, $12 million
higher than the first quarter in 1995, and (2) a $1.0 million reduction in
outstanding debt.
The Company drilled 35.8 net wells with a success rate of 91% compared to
4.2 net wells and a 75% success rate in the first quarter of 1995. In 1996 the
Company plans to drill 161 net wells and spend $69 million in capital and
exploration expenditures compared to 55 net wells and $32.7 million of capital
and exploration expenditures in 1995.
Natural gas production was 14.2 Bcf, down 1.2 Bcf compared to the 1995
first quarter. This production decline was due to (1) the low level of drilling
activity in 1995, drilling only 55 net wells compared to an average of 135 net
wells per year over the previous five years, and (2) the sale of non-strategic
properties, representing quarterly production of 0.6 Bcf.
The Company had a number of gas price swaps in place to hedge a
significant portion of its production for the first four months of 1996. For the
remainder of 1996, the Company has entered into one small hedge contract for the
months of May through September 1996 in a notional quantity equal to 5,000 Mmbtu
per day,
-10-
<PAGE>
or less than 4% of the Company's daily production. While the Company will
selectively use gas price hedges from time-to-time to protect certain markets
when substantial downside risks are perceived, management intends to structure
the hedge positions in a manner that provides upside potential.
The Company's strategic pursuits are sensitive to energy commodity
prices, particularly the price of natural gas. While gas prices in certain
regions of the U.S. have moved up sharply in 1996 and some industry analysts
predict continued improvements in 1996 pricing compared to 1995, the gas market
has demonstrated significant price volatility in the first quarter of 1996.
Consequently, there is considerable uncertainty about gas prices for the
remainder of this year and beyond.
The Company remains focused on the following goals established in 1995
and believes that progress toward these goals is appropriate in the current
industry environment, enabling the Company to pursue its strategic objectives
over the long term.
(*) Increase cash flows, using a balance of increased production and
reduced costs. Significant progress has been made toward this goal,
and the Company expects to be profitable in 1996 if the Henry Hub
average price is $1.80 or more, assuming a traditional correlation
between Henry Hub prices and prices in the physical markets.
(*) Maintain reserves per share while increasing production to protect
long-term shareholder value. An aggressive 1996 drilling program is
designed to result in 1996 production exceeding 1995, while reserves
are also expected to increase.
(*) Reduce debt as a percentage of total capitalization without diluting
existing shareholder value. To achieve this goal, project returns
will be compared with the marginal cost of debt when deciding whether
to reinvest or pay down debt. Other financing alternatives will also
be reviewed.
The preceding paragraphs, discussing the Company's strategic pursuits and
goals, contains forward-looking information. See Forward-Looking Information on
page 17.
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 control and reduce
costs. Demand for oil and gas has historically been subject to seasonal
influences characterized by peak demand and higher prices in the winter heating
season. Natural gas prices and demand were up significantly in the winter
heating season of the first quarter of 1996, resulting in higher cash flows.
However, 1995 was a year in which natural gas prices did not follow the
traditional seasonal influences and remained at some of the lowest levels in
recent history, adversely affecting cash flows.
The primary source of cash for the Company during the first quarter of
1996 was from funds generated from operations. Primary uses of cash were funds
used in operations, exploration and development expenditures, acquisitions,
repayment of debt and dividends.
The Company had a net cash inflow of $0.7 million in the first quarter of
1996. Net cash inflow from operating and financing activities totalled $12.9
million in the current quarter, sufficiently funding the $12.2 million of
capital and exploration expenditures, offset by the $4.5 million in proceeds
from the sale of assets.
-11-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
(in millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities............................... $ 16.1 $ 12.0
====== ======
</TABLE>
Cash flows from operating activities in the 1996 first quarter were higher
by $4.1 million compared to the corresponding quarter of 1995 primarily due to
higher natural gas prices, lower debt service due to decreased bank debt and
reduced operating and administrative costs.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
(in millions)
<S> <C> <C>
Cash Flows Used by Investing Activities................................... $ 12.2 $ 4.4
====== =====
</TABLE>
Cash flows used by investing activities in the first quarters of 1996 and
1995 were substantially attributable to capital and exploration expenditures of
$16.7 million and $4.7 million, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
(in millions)
<S> <C> <C>
Cash Flows Used by Financing Activities................................... $ 3.1 $ 8.0
===== ======
</TABLE>
Cash flows used by financing activities were primarily dividend payments and
debt reductions under the Company's revolving credit facility.
Under the Company's revolving credit facility, the available credit line,
currently $235 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. The revolving term of the credit facility runs to
June 1997. Management believes that the Company's has the ability to finance, if
necessary, its capital requirements, including acquisitions.
The Company's 1996 debt service is projected to be approximately $19.0
million. No principal payments are due in 1996.
Capitalization information on the Company is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(in millions)
<S> <C> <C>
Long-Term Debt............................................................ $ 248.0 $ 249.0
Stockholders' Equity
Common Stock.......................................................... 61.2 56.6
Preferred Stock....................................................... 91.3 91.3
------ -----
Total ............................................................. 152.5 147.9
----- -----
Total Capitalization...................................................... $ 400.5 $ 396.9
===== =====
Debt to Capitalization.................................................... 61.9% 62.7%
</TABLE>
-12-
<PAGE>
Capital and Exploration Expenditures
The following table presents major components of capital and exploration
expenditures:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
(in millions)
<S> <C> <C>
Capital Expenditures
Drilling and Facilities.......................................... $ 11.5 $ 2.6
Leasehold Acquisitions........................................... 0.4 0.2
Pipeline and Gathering .......................................... 0.2 0.0
Other............................................................ 0.2 0.2
----- -----
12.3 3.0
----- -----
Proved Property Acquisitions..................................... 2.0 0.1
Exploration Expenses................................................... 2.4 1.6
----- -----
Total............................................................ $ 16.7 $ 4.7
===== =====
</TABLE>
Total capital and exploration expenditures in the first quarter of 1996
increased $12.0 million compared to the same quarter of 1995, primarily due to
increased capital spending program for 1996.
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 $69.0 million capital and exploration expenditures budget
for 1996 which includes $44.7 million for drilling and facilities, $12.2 million
for exploration expenses and $0.9 million for proved property acquisitions.
Compared to 1995 capital and exploration expenditures (excluding the $8.4
million valuation adjustment on the Washington Energy Resources Company
acquisition), the 1996 budgeted expenditures are up 111%. The Company plans to
drill 161 net wells in 1996 compared with 55 net wells drilled in 1995.
During the first quarter of 1996, 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, 1996, to be paid May 31, 1996 to shareholders of record as of
May 17, 1996.
Other Issues and Contingencies
Subsequent to the developments with regard to the Barby lawsuits as
described in the Company's 1995 Annual Report on Form 10-K, both actions have
been conditionally settled, subject to the Court's approval of certain
provisions contained in the settlement agreement. The conditional settlement, if
effected, will result in a charge to earnings in 1996 that is not material to
the Company's operating results or financial position.
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 natural gas prices rose sharply during
-13-
<PAGE>
the first quarter of 1996, up 36% compared to the average natural gas price
received for the first quarter 1995. However, the volatility of natural gas
prices in recent years remains prevalent in 1996 with wide price swings in
day-to-day trading on the Nymex futures market. Given this continued price
volatility, management cannot predict with certainty what pricing levels will be
for the remainder of 1996. 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 if prices should return
to the depressed levels of 1995.
While the Company's 1996 plans include a significant increase in capital
spending, potentially negative changes in industry conditions might require the
Company to adjust its 1996 spending plan to ensure the availability of capital,
including, among other things, reductions in capital expenditures or common
stock dividends.
The Company believes that higher production volumes and natural gas prices
over time coupled with its continuing efforts to reduce costs and invest in
projects with high rates of return 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.
The preceding paragraph contains forward-looking information. See
Forward-Looking Information on page 17.
-14-
<PAGE>
Results of Operations
For the purpose of reviewing the Company's results of operations, "Net
Income (Loss)" is defined as net income (loss) applicable to common
shareholders.
Selected Financial and Operating Data
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
(in millions, except where noted)
<S> <C> <C>
Net Operating Revenues...................................................... $ 41.2 $ 32.6
Operating Expenses.......................................................... 26.8 37.6
Operating Income (Loss)..................................................... 15.9 (5.4)
Interest Expense............................................................ 4.8 5.9
Net Income (Loss)........................................................... 5.3 (8.2)
Earnings (Loss) Per Share................................................... $ 0.23 $ (0.36)
Natural Gas Production (Bcf)
Appalachia............................................................. 6.7 7.4
West................................................................... 7.5 8.0
----- -----
Total Company.......................................................... 14.2 15.4
===== =====
Natural Gas Production Sales Prices ($/Mcf)
Appalachia............................................................. $ 3.00 $ 2.25
West................................................................... $ 1.81 $ 1.27
Total Company.......................................................... $ 2.37 $ 1.74
Crude/Condensate
Volume (MBbl).......................................................... 136 185
Price $/Bbl............................................................ $ 19.55 $ 16.84
Brokered Natural Gas Margin
Volume (Bcf)........................................................... 9.4 7.8
Margin $/Mcf........................................................... $ 0.22 $ 0.12
</TABLE>
First Quarters of 1996 and 1995 Compared
Net Income (Loss) and Revenues. The Company reported net income in the
first quarter 1996 of $5.3 million, or $0.23 per share. During the corresponding
quarter of 1995, the Company reported a net loss 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. Operating
income and operating revenues from recurring operations increased $14.3 million
and $9.2 million, respectively. Natural gas made up 87%, or $35.7 million, of
net operating revenue. The increase in net operating revenues was driven
primarily by a 36% increase in the average natural gas price, partially offset
by an 8% decrease in natural gas production as discussed below. Net income and
operating income from recurring operations were similarly impacted by the
increase in the average natural gas price, as well as lower direct operations,
general and administrative, depreciation and interest expenses (discussed
below).
-15-
<PAGE>
Natural gas production volume in the Appalachian Region was down 0.7 Bcf to
6.7 Bcf. Natural gas production volume in the Western Region was down 0.5 Bcf to
7.5 Bcf. These production declines in the Appalachian and Western regions were a
result of the low level of drilling activity in 1995 and the sale of
non-strategic properties representing approximately 0.6 Bcf of quarterly
production.
The average Appalachian natural gas production sales price increased $0.75
per Mcf, or 33%, to $3.00, increasing net operating revenues by approximately
$5.0 million on 6.7 Bcf of production. In the Western Region, the average
natural gas production sales price increased $0.54 per Mcf, or 43%, to $1.81,
increasing net operating revenues by approximately $4.1 million on 7.5 Bcf of
production. The overall weighted average natural gas production sales price
increased $0.63 per Mcf, or 27%, to $2.37.
Crude oil and condensate sales decreased 49 MBbl, or 26%, due primarily to
the low drilling activity in 1995 and the sale of various non-strategic oil
properties in 1995.
The brokered natural gas margin increased $1.1 million to $2.1 million
primarily due to a $0.10 per Mcf increase in the net margin to $0.22 per Mcf.
Other net operating revenues increased $1.1 million to $2.8 million due to
$0.7 million from the monetization of the Company's Section 29 tight sands tax
credits and $0.4 million of miscellaneous net revenues primarily related to a
contract settlement.
Costs and Expenses Total costs and expenses from recurring operations
decreased $3.8 million, or 12%, due primarily to the following:
(*) Direct operations and general and administrative expenses decreased
in total by $1.0 million, or 9%, primarily due to the impact of the
cost reduction program implemented in 1995.
(*) Exploration expense increased $0.7 million, or 42%, due to the
increase in geological and geophysical expenses related to the
increased capital expenditures program in 1996.
(*) Depreciation, depletion, amortization and impairment expense
decreased $4.1 million, or 28%, due to a $0.18 per Mcfe decline in the
DD&A rate caused by the 1995 impairment of long-lived assets which
reduced depreciable basis by $113.8 million, and, to a lesser extent,
by a 10% decline in equivalent production.
(*) Taxes other than income increased $0.5 million, or 17%, due primarily
to the increase in natural gas production revenues.
(*) The cost reduction program in 1995 consisted primarily of a 23% 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.
Interest expense declined $1.0 million, or 17%, due to the decreases in
bank debt and interest rates and to the absence of the interest rate swaps which
effectively increased interest expense in 1995.
-16-
<PAGE>
Income tax expense was up $8.8 million due to the comparable increase in
earnings before income tax.
* * *
Forward-Looking Information
The statements regarding future financial performance and results and the
other statements which are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties, including, but
not limited to, market factors, market prices (including regional basis
differentials) of natural gas and oil, results of future drilling and marketing
activity, future production and costs and other factors detailed herein and in
the Company's other Securities and Exchange Commission filings.
-17-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 -- Awareness letter of independent accountants.
27 -- Article 5. Financial Data Schedule for First Quarter
1996 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/ Ray R. Seegmiller
-----------------------------------
May 10, 1996 Ray R. Seegmiller, Vice President,
Chief Financial Officer and Treasurer
(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, 1996 on our review of the interim
consolidated financial information of Cabot Oil & Gas Corporation for the three
month period ended March 31, 1996 and 1995 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, 1996
-20-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,751
<SECURITIES> 0
<RECEIVABLES> 55,037
<ALLOWANCES> (1,185)
<INVENTORY> 4,113
<CURRENT-ASSETS> 62,877
<PP&E> 961,778
<DEPRECIATION> (486,475)
<TOTAL-ASSETS> 539,640
<CURRENT-LIABILITIES> 64,039
<BONDS> 248,000
<COMMON> 153,508
0
91,321
<OTHER-SE> (92,317)
<TOTAL-LIABILITY-AND-EQUITY> 539,640
<SALES> 38,357
<TOTAL-REVENUES> 41,198
<CGS> 26,774
<TOTAL-COSTS> 26,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,849
<INCOME-PRETAX> 11,080
<INCOME-TAX> 4,431
<INCOME-CONTINUING> 5,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,258
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
</TABLE>
