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, 1997
( ) 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)
(281) 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 July 31, 1997, there were 22,876,776 shares of Class A Common
Stock, Par Value $.10 Per Share, outstanding.
<PAGE>
CABOT OIL & GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the Three and Six Months
Ended June 30, 1997 and 1996..................................................................... 3
Condensed Consolidated Balance Sheet at June 30, 1997 and December 31, 1996........................ 4
Condensed Consolidated Statement of Cash Flows for the Three and Six Months
Ended June 30, 1997 and 1996..................................................................... 5
Notes to Condensed Consolidated Financial Statements............................................... 6
Independent Certified Public Accountants' Report on Review of
Interim Financial Information.................................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................... 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................................................. 17
Signature .............................................................................................. 18
</TABLE>
2
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1997 1996 1997 1996
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
NET OPERATING REVENUES
Natural Gas Production.....................................$ 33,301 $ 31,258 $ 80,486 $ 64,864
Crude Oil & Condensate..................................... 2,946 2,939 6,150 5,598
Brokered Natural Gas Margin................................ 932 1,123 1,429 3,214
Other...................................................... 2,228 2,026 4,134 4,868
-------- -------- -------- -------
........................................................... 39,407 37,346 92,199 78,544
OPERATING EXPENSES
Direct Operations.......................................... 7,364 6,603 14,433 13,425
Exploration................................................ 3,281 3,695 6,907 6,048
Depreciation, Depletion and Amortization................... 10,108 10,261 20,612 20,014
Impairment of Unproved Properties.......................... 723 705 1,446 1,410
General and Administrative................................. 4,700 4,322 8,856 8,060
Taxes Other Than Income.................................... 3,485 3,113 7,567 6,518
------- ------- ------ ------
........................................................... 29,661 28,699 59,821 55,475
Gain (Loss) on Sale of Assets................................. 267 (32) 350 1,474
-------- --------- ------- --------
INCOME FROM OPERATIONS........................................ 10,013 8,615 32,728 24,543
Interest Expense.............................................. 4,358 4,780 8,919 9,628
------- -------- ------- -------
Income Before Income Taxes.................................... 5,655 3,835 23,809 14,915
Income Tax Expense ........................................... 2,309 1,591 9,378 6,022
------- -------- ------- -------
NET INCOME ................................................... 3,346 2,244 14,431 8,893
Dividend Requirement on Preferred Stock....................... 1,391 1,391 2,783 2,783
------- -------- -------- -------
Net Income Applicable to Common Stockholders..................$ 1,955 $ 853 $ 11,648 $ 6,110
======= ======== ======= =======
Earnings Per Share Applicable to Common.......................$ 0.09 $ 0.04 $ 0.51 $ 0.27
======= ======= ======== ========
Average Common Shares Outstanding............................. 22,870 22,798 22,863 22,795
======= ======= ======== =======
</TABLE>
3
<PAGE>
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents.................................................. $ 442 $ 1,367
Accounts Receivable........................................................ 34,206 67,810
Inventories................................................................ 5,684 8,797
Other...................................................................... 2,203 1,663
--------- ---------
Total Current Assets..................................................... 42,535 79,637
Properties and Equipment (Successful Efforts Method).......................... 489,883 480,511
Other Assets.................................................................. 813 1,193
--------- ---------
$ 533,231 $ 561,341
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-term Debt.......................................... $ 16,000 $ --
Accounts Payable........................................................... 37,487 56,338
Accrued Liabilities........................................................ 14,280 16,279
--------- ---------
Total Current Liabilities................................................ 67,767 72,617
Long-Term Debt................................................................ 207,000 248,000
Deferred Income Taxes......................................................... 77,609 69,427
Other Liabilities............................................................. 9,365 10,593
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 1997 and 1996 - 6%
Convertible Redeemable Preferred; $50
Stated Value; 1,134,000 Shares in 1997 and 1996........................ 183 183
Common Stock:
Authorized--40,000,000 Shares of $.10 Par Value
Issued and Outstanding--22,876,776 Shares and
22,847,345 Shares in 1997 and 1996, Respectively....................... 2,287 2,284
Additional Paid-in Capital................................................. 244,250 243,283
Accumulated Deficit........................................................ (75,230) (85,046)
--------- ---------
Total Stockholders' Equity............................................... 171,490 160,704
-------- --------
$ 533,231 $ 561,341
======== ========
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................. $ 3,346 $ 2,244 $ 14,431 $ 8,893
Adjustment to Reconcile Net Income To Cash
Provided by Operating Activities
Depletion, Depreciation and Amortization............ 10,108 10,261 20,612 20,014
Impairment of Undeveloped Leasehold................. 723 705 1,446 1,410
Deferred Income Taxes............................... 1,628 1,258 8,183 5,555
(Gain) Loss on Sale of Assets....................... (267) 32 (350) (1,474)
Exploration Expense................................. 3,281 3,695 6,907 6,048
Other, Net.......................................... 251 52 285 96
Changes in Assets and Liabilities:
Accounts Receivable................................. 5,446 17,810 33,603 5,972
Inventories......................................... (528) (787) 3,114 696
Other Current Assets................................ (415) (785) (540) (236)
Other Assets........................................ (128) 18 379 (6)
Accounts Payable and Accrued Liabilities............ (4,162) (14,795) (21,084) (11,731)
Other Liabilities................................... (498) 413 (780) 967
-------- -------- -------- --------
Net Cash Provided by Operating Activities....... 18,785 20,121 66,206 36,204
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures................................... (20,223) (9,577) (31,805) (23,914)
Proceeds from Sale of Assets........................... 480 (60) 783 4,408
Exploration Expense.................................... (3,281) (3,695) (6,907) (6,048)
-------- ------- -------- -------
Net Cash Used by Investing Activities........... (23,024) (13,332) (37,929) (25,554)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock................................... 165 63 410 228
Increase in Debt....................................... 1,000 -- 1,000 --
Decrease in Debt....................................... -- (5,000) (26,000) (6,000)
Dividencs Paid......................................... (2,306) (2,303) (4,612) (4,607)
---------- --------- -------- --------
Net Cash Used by Financing Activities........... (1,141) (7,240) (29,202) (10,379)
---------- --------- -------- -------
Net Increase (Decrease) in Cash and Cash Equivalents...... (5,380) (451) (925) 271
Cash and Cash Equivalents, Beginning of Period............ 5,822 3,751 1,367 3,029
-------- ------- --------- -------
Cash and Cash Equivalents, End of Period.................. $ 442 $ 3,300 $ 442 $ 3,300
======== ======== ========== ========
</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>
JUNE 30, DECEMBER 31,
1997 1996
(in thousands)
<S> <C> <C>
Unproved oil and gas properties....................................... $ 16,446 $ 15,746
Proved oil and gas properties......................................... 836,001 811,726
Gathering and pipeline systems........................................ 152,081 150,910
Land, building and improvements....................................... 5,255 5,221
Other................................................................. 16,622 16,028
----------- ---------
1,026,405 999,631
Accumulated depreciation, depletion and amortization.................. (536,522) (519,120)
---------- --------
$ 489,883 $ 480,511
========== ========
</TABLE>
3. ADDITIONAL BALANCE SHEET INFORMATION
Certain balance sheet amounts are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(in thousands)
<S> <C> <C>
Accounts Receivable
Trade accounts.................................................... $ 29,003 $ 63,458
Other accounts.................................................... 5,832 5,021
------- -------
34,835 68,479
Allowance for doubtful accounts................................... (629) (669)
-------- -------
$ 34,206 $ 67,810
======= =======
Accounts Payable
Trade accounts.................................................... $ 9,865 $ 12,277
Natural gas purchases............................................. 7,244 20,726
Royalty and other owners.......................................... 10,503 13,469
Capital costs..................................................... 5,109 5,409
Dividends payable................................................. 1,391 1,391
Taxes other than income........................................... 854 1,170
Other accounts.................................................... 2,521 1,896
------- -------
$ 37,487 $ 56,338
======= =======
</TABLE>
6
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
3. ADDITIONAL BALANCE SHEET INFORMATION, continued
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(in thousands)
<S> <C> <C>
Accrued Liabilities
Employee benefits................................................. $ 3,303 $ 4,432
Taxes other than income........................................... 8,278 8,407
Interest payable.................................................. 1,888 2,188
Other accrued..................................................... 811 1,252
------- -------
$ 14,280 $ 16,279
====== =======
Other Liabilities
Postretirement benefits other than pension........................ $ 1,404 $ 1,853
Accrued pension cost.............................................. 3,657 4,022
Taxes other than income and other................................. 4,304 4,718
------- -------
$ 9,365 $ 10,593
======= =======
</TABLE>
4. LONG-TERM DEBT
At June 30, 1997, the Company had borrowed $143 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 1999 and is subject to renewal.
5. ACCOUNTING FOR LONG-LIVED ASSETS
The Company adopted SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in 1995. If the
Company determines that an impairment event has occurred, through either adverse
changes or a periodic review, the impairment is made on an economic unit basis.
The Company performs a review of all fields each year to determine if an
impairment event has occurred.
6. GREEN RIVER BASIN ACQUISITION
In July 1997, the Company entered into a definitive agreement to purchase
certain oil and gas properties located in the Green River Basin of Wyoming from
Equitable Resources Energy Company for $44 million. The transaction is expected
to close early in the fourth quarter. Refer to the Overview section of
Management's Discussion and Analysis of Financial Condition on page 9 for
further discussion.
7
<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 June 30, 1997, and the related condensed
consolidated statements of operations and cash flows for the three-month and
six-month periods ended June 30, 1997 and 1996. 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, 1996, 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 7, 1997, 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, 1996, 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 13, 1997
8
<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 six months
of 1997 and 1996 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, 1996.
Overview
For the first half of 1997, a substantial improvement in gas prices,
coupled with a 7% increase in production to 33.0 Bcfe were primarily responsible
for record earnings. Operating cash flows were also up significantly, increasing
$30.0 million over the first half of 1996. Cash flows from operations funded
$38.7 million of capital and exploration expenditures, as well as allowing a
$25.0 million reduction in outstanding debt.
The Company drilled 73.5 net wells with a success rate of 87% compared to
70.9 net wells and a 81% success rate in the first half of 1996. For the entire
year of 1997 the Company plans to drill 157 net wells and spend $79 million in
capital and exploration expenditures compared to 154 net wells and $73 million
of capital and exploration expenditures in 1996.
Natural gas production was 31.1 Bcf, up 2.1 Bcf compared to the 1996
first half. The production increase was due primarily to new production brought
on by the expanded 1996 drilling program of 154 net wells in 1996 compared to
only 55 net wells drilled in 1995.
In July 1997, the Company entered into a definitive agreement to purchase
certain oil and gas properties located in the Green River Basin of Wyoming
("Green River Acquisition") from Equitable Resources Energy Company for $44
million in cash. The Green River Acquisition includes approximately 74 Bcfe of
proved reserves, interests in 65 wells, estimated initial net daily production
of 10 Mmcfe and nearly 70 potential drilling locations. The transaction is
expected to close early in the fourth quarter and will be funded initially
through the Company's revolving credit facility.
Energy commodity prices, particularly the price of natural gas, are a
significant factor in the Company's financial performance. While gas prices in
most regions of the U.S. were up sharply in January 1997 compared to December
1996, prices dropped markedly in February and March of 1997, demonstrating
significant price volatility in the first quarter of 1997. During the second
quarter of 1997, gas prices rebounded in May and June with prices in most
regions reaching levels comparable or favorable to May and June prices of 1996.
Given the price variations experienced in recent years, there is considerable
uncertainty about gas prices for the remainder of this year and beyond.
The Company remains focused on its growth strategies through the drill
bit, synergistic acquisitions and exploitation of its marketing abilities.
Management believes that these strategies are appropriate in the current
industry environment, enabling the Company to add shareholder value over the
long term.
The preceding paragraph, discussing the Company's strategic objectives,
contains forward-looking information. See Forward-Looking Information on page
16.
9
<PAGE>
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
128") and Statement of Financial Accounting Standards No. 129, Disclosure of
Information About Capital Structure ("SFAS 129"). The Company expects to adopt
these statements effective December 31, 1997. While SFAS 128 simplifies the
computation of earnings per share for companies with a complex capital structure
by replacing primary and fully diluted presentations with the new basic and
diluted disclosures, it is not expected to significantly impact the Company's
disclosure because the Company has a simple capital structure. SFAS 129
establishes standards for disclosing information about an entity's capital
structure. The Company has not determined the impact of this pronouncement on
its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") and Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of an Enterprise and Related Information ("SFAS 131"). The Company
expects to adopt these statements effective the year ended December 31, 1998.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. It requires (a) classification of items
of other comprehensive income by their nature in a financial statement and (b)
display of the accumulated balance of other comprehensive income separate from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Company does not believe this pronouncement
will have a material impact on its financial statements.
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This pronouncement is not expected to
significantly impact disclosure requirements because the Company is operating as
a single business segment.
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 demand and, consequently prices, were up significantly in
January 1997 but trended down in February and March due to milder than normal
winter heating. Second quarter gas prices strengthened compared to March prices
and were comparable to the second quarter price levels of 1996.
The primary source of cash for the Company during the first half of 1997
was from funds generated from operations. Primary uses of cash were funds used
in operations, exploration and development expenditures, repayment of debt and
the payment of dividends.
The Company had a net cash outflow of $0.9 million in the first half of
1997. Net cash inflow from operating and financing activities totalled $37.0
million in the current half, substantially funding the $38.7 million of capital
and exploration expenditures.
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
(in millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities............................... $ 66.2 $ 36.2
====== ======
</TABLE>
Cash flows from operating activities in the 1997 first half were higher by
$30.0 million compared to the corresponding period of 1996 primarily due to
higher natural gas production and prices, as well as favorable changes in
working capital.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
(in millions)
<S> <C> <C>
Cash Flows Used by Investing Activities................................... $ 37.9 $ 25.6
====== ======
</TABLE>
Cash flows used by investing activities in the first half of 1997 and 1996
were substantially attributable to capital and exploration expenditures of $38.7
million and $30.0 million, respectively. Proceeds from the sale of certain oil
and gas properties in the first half of 1997 and 1996 were $0.8 million and $4.4
million, respectively.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
(in millions)
<S> <C> <C>
Cash Flows Used by Financing Activities................................... $ 29.2 $ 10.4
====== =====
</TABLE>
Cash flows used by financing activities were primarily debt reductions under
the Company's revolving credit facility and dividend payments.
The Company has a revolving credit facility of $235 million which 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 1999. Management believes that the
Company has the ability to finance, if necessary, its capital requirements,
including acquisitions.
The Company's 1997 interest expense is projected to be approximately $18.3
million. No principal payments are due in 1997. A $16 million principal payment
is due in 1998 on the Company's 12-year 10.18% Notes.
Capitalization information on the Company is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(in millions)
<S> <C> <C>
Long-Term Debt (1)........................................................ $ 223.0 $ 248.0
Stockholders' Equity
Common Stock.......................................................... 80.2 69.4
Preferred Stock....................................................... 91.3 91.3
------ -----
Total ............................................................. 171.5 160.7
----- -----
Total Capitalization...................................................... $ 394.5 $ 408.7
===== =====
Debt to Capitalization.................................................... 56.5% 60.7%
- -------
(1) Includes $16 million in current portion of long-term debt.
</TABLE>
11
<PAGE>
Capital and Exploration Expenditures
The following table presents major components of capital and exploration
expenditures:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
(in millions)
<S> <C> <C>
Capital Expenditures
Drilling and Facilities.......................................... $ 27.3 $ 19.5
Leasehold Acquisitions........................................... 2.6 1.4
Pipeline and Gathering .......................................... 1.3 0.5
Other............................................................ 0.6 0.2
----- ------
31.8 21.6
---- -----
Proved Property Acquisitions..................................... -- 2.4
Exploration Expenses................................................... 6.9 6.0
------ ------
Total............................................................ $ 38.7 $ 30.0
===== =====
</TABLE>
Total capital and exploration expenditures in the first half of 1997
increased $8.7 million compared to the same half of 1996, primarily due to the
overall increased capital spending program planned for 1997.
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 $79.2 million capital and exploration expenditures budget
for 1997, an increase of 17% compared to 1996. This budget excludes the Green
River Acquisition. The Company plans to drill 157 net wells in 1997 compared
with 154 net wells drilled in 1996.
During the first half of 1997, the Company paid dividends of $1.8 million
on the Common Stock and $2.8 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, 1997, to be paid August 29, 1997 to shareholders of record as of August
15, 1997.
Conclusion
The Company's financial results depend upon many factors. Two important
factors are the price of natural gas, and the Company's ability to market gas on
economically attractive terms. While the natural gas prices rose sharply in
January and trended down in February and March of 1997, the average produced
natural gas sales price received in the first quarter of 1997 was up 32% over
the first quarter in 1996. Gas prices for the first half were up 16% compared to
the first half of 1996. The volatility of natural gas prices in recent years
remains prevalent in 1997 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 1997.
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.
12
<PAGE>
While the Company's 1997 plans include a significant increase in capital
spending, potentially negative changes in industry conditions might require the
Company to adjust its 1997 spending plan to ensure the availability of capital,
including, among other things, reductions in capital expenditures or common
stock dividends.
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 16.
13
<PAGE>
Results of Operations
For the purpose of reviewing the Company's results of operations, "Net
Income" is defined as net income available to common shareholders.
Selected Financial and Operating Data
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------- ------- -------- ---------
(in millions, except where noted)
<S> <C> <C> <C> <C>
Net Operating Revenues................................... $ 39.4 $ 37.3 $ 92.2 $ 78.5
Operating Expenses....................................... 29.7 28.7 59.8 55.5
Operating Income......................................... 10.0 8.6 32.7 24.5
Interest Expense......................................... 4.4 4.8 8.9 9.6
Net Income............................................... 2.0 0.9 11.6 6.1
Earnings Per Share....................................... 0.09 0.04 0.51 0.27
Natural Gas Production (Bcf)
Appalachia.......................................... 6.7 6.5 13.4 13.2
West................................................ 9.3 8.4 17.7 15.8
Total Company....................................... 16.0 14.9 31.1 29.0
Natural Gas Production Sales Prices ($/Mcf)
Appalachia.......................................... 2.38 2.51 3.04 2.76
West................................................ 1.87 1.79 2.25 1.80
Total Company....................................... 2.08 2.10 2.59 2.23
Crude/Condensate
Volume (Mbbl)....................................... 153 143 295 279
Price $/Bbl......................................... 19.24 20.53 20.85 20.05
Brokered Natural Gas Margin
Volume (Bcf)........................................ 6.5 7.3 15.6 16.7
Margin $/Mcf........................................ 0.14 0.15 0.09 0.19
</TABLE>
Second Quarters of 1997 and 1996 Compared
Net Income and Revenues. The Company reported net income in the second
quarter 1997 of $2.0 million, or $0.09 per share. During the corresponding
quarter of 1996, the Company reported net income of $0.9 million, or $0.04 per
share. Operating income and operating revenues increased $1.4 million and $2.1
million, respectively. Natural gas made up 85%, or $33.3 million, of net
operating revenue. The increase in net operating revenues was driven primarily
by a 7% increase in natural gas production as discussed below. Net income and
operating income were similarly impacted by the increase in natural gas
production.
Natural gas production volume in the Appalachian Region was up 0.2 Bcf to
6.7 Bcf. Natural gas production volume in the Western Region was up 0.9 Bcf to
9.3 Bcf due primarily to new production brought on by drilling in 1996 and early
1997.
14
<PAGE>
The average Appalachian natural gas production sales price decreased $0.13
per Mcf, or 5%, to $2.38, reducing net operating revenues by $0.9 million on 6.7
Bcf of production. In the Western Region, the average natural gas production
sales price increased $0.08 per Mcf, or 4%, to $1.87, improving net operating
revenues by $0.7 million on 9.3 Bcf of production. The overall weighted average
natural gas production sales price decreased $0.02 per Mcf to $2.08.
The brokered natural gas margin decreased $0.2 million to $0.9 million
primarily due to a 0.8 Bcf drop in brokered volume and in part to a $0.01 per
Mcf decrease in the net margin to $0.14 per Mcf.
Costs and Expenses. Total costs and expenses from operations increased $1.0
million, or 3%, due primarily to the following:
(*) Direct Operations expense increased $0.8 million, or 12%, due to the
timing of workovers, surface and sub-surface maintenance and
compressor overhauls performed in the second quarter of 1997 as
compared to the third and fourth quarters in 1996.
(*) Exploration expense decreased $0.4 million, or 11%, due to lower dry
hole expenses offset in part by higher geological and geophysical
costs.
(*) Taxes other than income increased $0.3 million, or 12%, due to the
increase in natural gas production revenues.
(*) General and administrative expenses increased $0.4 million, or 9%,
due to the timing of certain compensation expenses which were accrued
later in 1996.
Interest expense declined $0.4 million due to decreases in bank debt.
Income tax expense was up $0.7 million due to the comparable increase in
earnings before income tax.
Six Months of 1997 and 1996 Compared
Net Income and Revenues. The Company reported net income in the first half
1997 of $11.6 million, or $0.51 per share. During the corresponding half of
1996, the Company reported net income of $6.1 million, or $0.27 per share.
Operating income and operating revenues increased $8.2 million and $13.7
million, respectively. Natural gas made up 87%, or $80.5 million, of net
operating revenue. The increase in net operating revenues was driven primarily
by a 16% increase in the average natural gas price, and by a 7% increase in
natural gas production as discussed below. Net income and operating income were
similarly impacted by the increase in natural gas production and prices.
Natural gas production volume in the Appalachian Region was virtually flat
at 13.4 Bcf. Natural gas production volume in the Western Region was up 1.9 Bcf
to 17.7 Bcf due primarily to new production brought on by drilling in 1996 and
early 1997.
The average Appalachian natural gas production sales price increased $0.28
per Mcf, or 10%, to $3.04, increasing net operating revenues by $3.7 million on
13.4 Bcf of production. In the Western Region, the average natural gas
production sales price increased $0.45 per Mcf, or 25%, to $2.25, increasing net
operating revenues by $8.0 million on 17.7 Bcf of production. The overall
weighted average natural gas production sales price increased $0.36 per Mcf, or
16%, to $2.59.
Crude oil and condensate sales volumes were up 16 MBbl, or 6%, to 295 MBbl
while crude oil prices increased $0.80 per Bbl, or 4%, to $20.85, increasing net
operating revenues by approximately $0.6 million.
15
<PAGE>
The brokered natural gas margin decreased $1.8 million to $1.4 million
primarily due to a softening of $0.10 per Mcf in the net margin to $0.09 per
Mcf. Brokered gas market conditions in the first half of 1996, particularly in
the first quarter, were exceptionally good. While market conditions in the first
half of 1997 were less favorable than normal, they were more comparable to the
first half of 1995 which reported an $0.08 per Mcf margin.
Other net operating revenues decreased $0.7 million to $4.1 million due
primarily to net miscellaneous revenues in the first half of 1996 related
primarily to a contract settlement.
Costs and Expenses. Total costs and expenses from operations increased $4.3
million, or 8%, due primarily to the following:
(*) Direct Operations expense increased $1.0 million, or 8%, due to the
timing of workovers, surface and sub-surface maintenance and
compressor overhauls performed in the first half of 1997 as compared
to the second half in 1996.
(*) Exploration expense increased $0.9 million, or 14%, due to the dry
hole expenses related to the expanded exploration activity in the
drilling program for 1997.
(*) Depreciation, depletion, amortization and impairment expense
increased $0.6 million, or 3%, due to the increase in equivalent
production.
(*) Taxes other than income increased $1.0 million, or 16%, due to the
increase in natural gas production revenues.
(*) General and administrative expenses increased $0.8 million, or 10%,
due to the timing of certain compensation expenses which were accrued
in the later half of 1996.
Interest expense declined $0.7 million due to decreases in bank debt.
Income tax expense was up $3.4 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. The words "expect," "project," "estimate," "predict"
and similar expressions are also intended to identify forwarding-looking
statements. Such statements 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. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
16
<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 Second Quarter
1997 Form 10-Q
(b) Reports on Form 8-K
None
17
<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/ Edgar J. Milan
----------------------------------
August 13, 1997 Edgar J. Milan, Vice President and
Chief Financial Officer
(Principal Financial Officer and Officer Duly
Authorized to Sign on Behalf of the Registrant)
18
<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 13, 1997 on our review of the interim
consolidated financial information of Cabot Oil & Gas Corporation for the
three-month and six-month periods ended June 30, 1997 and 1996 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 13, 1997
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 442
<SECURITIES> 0
<RECEIVABLES> 34,836
<ALLOWANCES> (629)
<INVENTORY> 5,684
<CURRENT-ASSETS> 42,535
<PP&E> 1,027,881
<DEPRECIATION> (537,998)
<TOTAL-ASSETS> 533,231
<CURRENT-LIABILITIES> 67,767
<BONDS> 207,000
<COMMON> 155,399
0
91,321
<OTHER-SE> (75,230)
<TOTAL-LIABILITY-AND-EQUITY> 533,231
<SALES> 88,065
<TOTAL-REVENUES> 92,199
<CGS> 59,821
<TOTAL-COSTS> 59,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,919
<INCOME-PRETAX> 23,809
<INCOME-TAX> 9,378
<INCOME-CONTINUING> 11,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,648
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0
</TABLE>
