<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, 1998
[_] 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 April 30, 1998, there were 24,808,647 shares of Class A Common Stock,
Par Value $.10 Per Share, outstanding.
<PAGE>
CABOT OIL & GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the Three Months
Ended March 31, 1998 and 1997................................................. 3
Condensed Consolidated Balance Sheet at March 31, 1998 and December 31, 1997... 4
Condensed Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1998 and 1997................................................. 5
Notes to Condensed Consolidated Financial Statements........................... 6
Independent Accountants' Report on Review of Interim
Financial Information......................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................................ 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
MARCH 31,
-------------------
1998 1997
--------- -------
<S> <C> <C>
NET OPERATING REVENUES
Natural Gas Production.......................... $35,176 $47,185
Crude Oil & Condensate.......................... 2,338 3,204
Brokered Natural Gas Margin..................... 1,387 497
Other........................................... 1,890 1,906
------- -------
40,791 52,792
OPERATING EXPENSES
Direct Operations............................... 6,964 7,069
Exploration..................................... 3,401 3,627
Depreciation, Depletion and Amortization........ 9,768 10,504
Impairment of Unproved Properties............... 696 723
General and Administrative...................... 5,501 4,156
Taxes Other Than Income......................... 3,799 4,082
------- -------
30,129 30,161
Gain on Sale of Assets........................... 52 83
------- -------
INCOME FROM OPERATIONS........................... 10,714 22,714
Interest Expense................................. 4,255 4,561
------- -------
Income Before Income Taxes....................... 6,459 18,153
Income Tax Expense............................... 2,616 7,069
------- -------
NET INCOME....................................... 3,843 11,084
Dividend Requirement on Preferred Stock.......... 850 1,391
------- -------
Net Income Available to Common Stockholders...... $ 2,993 $ 9,693
======= =======
Basic Earnings Per Share Available to Common..... $0.12 $0.42
Diluted Earnings Per Share Available to Common... $0.12 $0.41
Average Common Shares Outstanding................ 24,683 22,855
======= =======
</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,
1998 1997
---------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents............................. $ 3,520 $ 1,784
Accounts Receivable................................... 46,977 59,672
Inventories........................................... 6,249 6,875
Other................................................. 2,219 2,202
-------- --------
Total Current Assets................................. 58,965 70,533
Properties and Equipment (Successful Efforts Method)... 487,645 469,399
Other Assets........................................... 1,872 1,873
-------- --------
$548,482 $541,805
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt..................... $ 16,000 $ 16,000
Accounts Payable...................................... 44,268 52,348
Accrued Liabilities................................... 18,757 17,524
-------- --------
Total Current Liabilities............................ 79,025 85,872
Long-Term Debt......................................... 191,000 183,000
Deferred Income Taxes.................................. 82,396 80,108
Other Liabilities...................................... 8,486 8,763
Stockholders' Equity
Preferred Stock:
Authorized--5,000,000 Shares of $.10 Par Value
Issued and Outstanding - 6% Convertible Redeemable
Preferred; $50 Stated Value; 1,134,000 Shares
in 1998 and 1997.................................... 113 113
Common Stock:
Authorized--40,000,000 Shares of $.10 Par Value
Issued and Outstanding -- 24,725,916 Shares and
24,667,262 Shares in 1998 and 1997, Respectively.... 2,473 2,467
Additional Paid-in Capital............................ 248,542 247,033
Accumulated Deficit................................... (63,553) (65,551)
-------- --------
Total Stockholders' Equity........................... 187,575 184,062
-------- --------
$548,482 $541,805
======== ========
</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,
----------------------
1998 1997
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................ $ 3,843 $ 11,084
Adjustment to Reconcile Net Income To Cash
Provided by Operating Activities:
Depletion, Depreciation and Amortization............ 9,768 10,504
Impairment of Undeveloped Leasehold................. 696 723
Deferred Income Taxes............................... 2,289 6,555
Gain on Sale of Assets.............................. (52) (83)
Exploration Expense................................. 3,401 3,627
Other, Net.......................................... 489 33
Changes in Assets and Liabilities:
Accounts Receivable................................. 12,695 28,157
Inventories......................................... 626 3,641
Other Current Assets................................ (17) (125)
Other Assets........................................ 1 508
Accounts Payable and Accrued Liabilities............ (4,669) (16,920)
Other Liabilities................................... (117) (283)
-------- --------
Net Cash Provided by Operating Activities.......... 28,953 47,421
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures.................................. (31,385) (11,582)
Proceeds from Sale of Assets.......................... 511 303
Exploration Expense................................... (3,401) (3,627)
-------- --------
Net Cash Used by Investing Activities.............. (34,275) (14,906)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock.................................. 896 246
Decrease in Debt...................................... (18,000) (26,000)
Increase in Debt...................................... 26,000 -
Dividends Paid........................................ (1,838) (2,306)
-------- --------
Net Cash Provided/(Used) by Financing Activities... 7,058 (28,060)
-------- --------
Net Increase in Cash and Cash Equivalents.............. 1,736 4,455
Cash and Cash Equivalents, Beginning of Period......... 1,784 1,367
-------- --------
Cash and Cash Equivalents, End of Period............... $ 3,520 $ 5,822
======== ========
</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.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting of Comprehensive Income ("SFAS 130").
SFAS 130 requires the disclosure of comprehensive income. Comprehensive income
is defined as the change in net assets of the Company during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners (sale of stock by the Company) and distributions to owners
(dividends). Since the Company has no such changes in equity other than net
income, comprehensive income is equal to Net Income Available to Common
Shareholders as presented in the Consolidated Statement of Operations contained
on page 3.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). The Company plans to adopt
this statement effective December 31, 1998. SFAS 131 requires that the Company
make certain disclosures about each operating segment of its business. This
statement will not have an effect on the financial results of the Company when
adopted.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits ("SFAS 132"). The Company plans to adopt this
statement effective December 31, 1998. SFAS 132 standardizes the disclosure
requirements for pensions and other postretirement benefits in the Form 10-K
Annual Report to Shareholders. This is a presentation requirement only and will
not have an effect on the financial results of the Company when adopted.
2. PROPERTIES AND EQUIPMENT
Properties and equipment are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- -------------
(in thousands)
<S> <C> <C>
Unproved oil and gas properties........................ $ 20,381 $ 24,618
Proved oil and gas properties.......................... 775,210 744,381
Gathering and pipeline systems......................... 117,638 116,360
Land, building and improvements........................ 3,902 3,896
Other.................................................. 18,242 17,525
--------- ---------
935,373 906,780
Accumulated depreciation, depletion and amortization... (447,728) (437,381)
--------- ---------
$ 487,645 $ 469,399
========= =========
</TABLE>
6
<PAGE>
3. ADDITIONAL BALANCE SHEET INFORMATION
Certain balance sheet amounts are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- -------------
(in thousands)
<S> <C> <C>
Accounts Receivable
Trade accounts............................... $37,874 $49,315
Insurance Recoveries......................... 3,043 3,043
Current Income Tax Receivable................ -- 1,291
Other accounts............................... 6,607 6,562
------- -------
47,524 60,211
Allowance for doubtful accounts.............. (547) (539)
------- -------
$46,977 $59,672
======= =======
Accounts Payable
Trade accounts............................... $ 6,176 $ 6,209
Natural gas purchases........................ 12,965 13,991
Royalty and other owners..................... 9,303 11,995
Capital costs................................ 10,570 12,936
Dividends payable............................ 851 851
Taxes other than income...................... 1,149 1,478
Drilling Advances............................ 1,069 2,333
Other accounts............................... 2,185 2,555
------- -------
$44,268 $52,348
======= =======
Accrued Liabilities
Employee benefits............................ $ 3,655 $ 6,067
Taxes other than income...................... 8,408 8,314
Interest payable............................. 5,874 2,147
Other accrued................................ 820 996
------- -------
$18,757 $17,524
======= =======
Other Liabilities
Postretirement benefits other than pension... $ 832 $ 992
Accrued pension cost......................... 3,854 3,742
Taxes other than income and other............ 3,800 4,029
------- -------
$ 8,486 $ 8,763
======= =======
</TABLE>
4. LONG-TERM DEBT
At March 31, 1998, the Company, had $27 million outstanding under its
facility which provides an available credit line of $135 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. At this time, the Company elected to reduce its available line under
the Credit Facility from $235 million to the current level of $135 million.
7
<PAGE>
5. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standard ("SFAS") No.
128, "Earnings per Share" on December 31, 1997. SFAS 128 simplifies the
calculation of earnings per share for companies with complex capital structures
by replacing primary and fully diluted earnings per share with the new basic and
diluted disclosures. The adoption of SFAS 128 has not impacted the Company's
previously disclosed earnings per share since the Company had a simple capital
structure and because earnings per share in prior years was calculated in the
same manner that the new "basic" earnings per share is presented. Basic earnings
per share amounts are based on the weighted average shares outstanding
(24,683,163 in 1998 and 22,855,468 in 1997). The dilutive effect of outstanding
stock awards of 621,924 in 1998 and 649,632 in 1997 resulted in diluted earnings
per share of $0.12 and $0.41 in 1998 and 1997, respectively. No adjustments were
made to reported net income in the computation of earnings per share.
8
<PAGE>
Independent Accountants' Report
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, 1998, and the related condensed
consolidated statements of operations and cash flows for the three month period
ended March 31, 1998 and 1997. 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, 1997, 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 6, 1998, 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, 1997, 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 12, 1998
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review of operations for the first quarters of 1998 and 1997
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, 1997.
In previous years, the Company has operated as two regions: the Appalachian
Region and the Western Region, which included the Anadarko, Rocky Mountain and
Gulf Coast areas. Beginning in 1998, the Gulf Coast Region was formed, leaving
the Anadarko and Rocky Mountain areas in the Western Region and leaving the
Appalachian Region unchanged. For purposes of the comparisons below, prior
period results have been restated to conform to the new structure.
OVERVIEW
Along with unseasonably mild temperatures, the first quarter of 1998 brought
gas prices substantially below first quarter 1997 prices. This decline in price
was the primary cause of the $12.0 million reduction in net revenues, the $6.7
million reduction in net income and the $18.5 reduction in cash flow from
operations.
The Company drilled 33 gross wells with a success rate of 82% compared to 31
gross wells and a 87% success rate in the first quarter of 1997. In 1998 the
Company plans to drill 270 gross wells and spend $111.0 million in capital and
exploration expenditures compared to 225 gross wells and $87.4 million of
capital and exploration expenditures in 1997.
Natural gas production was 15.5 Bcf, up 0.4 Bcf compared to the 1997 first
quarter. This production increase was due primarily to new production brought
on by the expanded drilling program of 225 gross (151 net) wells in 1997.
The Company's strategic pursuits are sensitive to energy commodity prices,
particularly the price of natural gas. While natural gas prices in most regions
of the U.S. softened in January and February of 1998, gas prices strengthened
somewhat in March of 1998, demonstrating significant price volatility in the
first quarter of 1998. Prices continued above 1997 levels into April and the
beginning of May 1998. Consequently, there is considerable uncertainty about the
level of natural gas prices for the remainder of this year and beyond.
The Company remains focused on its strategies to grow through the drill bit,
from synergistic acquisitions and from 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 paragraphs, discussing the Company's strategic pursuits and
goals, contains forward-looking information. See Forward-Looking Information on
page 16.
10
<PAGE>
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 natural gas has historically been subject
to seasonal influences characterized by peak demand and higher prices in the
winter heating season. Due to mild winter conditions, natural gas prices
softened significantly in January and February but strengthened somewhat in
March due to cooler weather in parts of the country.
The primary sources of cash for the Company during the first quarter of 1998
were from funds generated from operations and increased borrowings on the
revolving credit facility. Primary uses of cash were funds used in exploration
and development expenditures and in the repayment of debt and dividends.
The Company had a net cash inflow of $1.7 million in the first quarter of
1998. Net cash inflow from operating and financing activities totaled $36.0
million in the current quarter, sufficiently funding the $34.8 million of
capital and exploration expenditures.
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
(in millions)
Cash Flows Provided by Operating Activities $ 29.0 $ 47.4
====== ======
Cash flows from operating activities in the 1998 first quarter were lower by
$18.4 million compared to the corresponding quarter of 1997 primarily due to
lower natural gas prices and smaller favorable changes in working capital.
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
(in millions)
Cash Flows Used by Investing Activities $ 34.3 $ 14.9
====== =====
Cash flows used by investing activities in the first quarters of 1998 and 1997
were substantially attributable to capital and exploration expenditures of $34.8
million and $15.2 million, respectively. Proceeds from the sale of certain oil
and gas properties in the first quarters of 1998 and 1997 were $0.5 million and
$0.3 million, respectively.
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
(in millions)
Cash Flows Provided (Used) by Financing Activities $ 7.1 $ (28.1)
===== =======
Cash flows provided by financing activities were primarily increases in
borrowings on the Company's revolving credit facility in 1998. The cash from
the increased borrowings was used primarily to fund capital and exploration
expenditures. Cash flows used by financing activities in 1997 were primarily
debt reductions under the Company's revolving credit facility and dividend
payments.
11
<PAGE>
Under the Company's revolving credit facility, the available credit line,
currently $135 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 1999. Management believes that the Company's has the ability to finance, if
necessary, its capital requirements, including acquisitions.
The Company's 1998 interest expense is projected to be approximately $16.9
million. In May 1998, a $16 million principal payment is due on the 10.18%
Notes. This amount is reflected as "Current Portion of Long-Term Debt" on the
Company's balance sheet. This payment is expected to be made with cash from
operations and, if necessary, from increased borrowings on the revolving credit
facility.
Capitalization information on the Company is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- -------------
<S> <C> <C>
(in millions)
Long-Term Debt...................... $191.0 $183.0
Current Portion of Long-Term Debt... 16.0 16.0
------ ------
Total Debt......................... $207.0 $199.0
------ ------
Stockholders' Equity
Common Stock....................... 130.9 127.4
Preferred Stock.................... 56.7 56.7
------ ------
Total.............................. 187.6 184.1
------ ------
Total Capitalization................ $394.6 $383.1
====== ======
Debt to Capitalization.............. 52.5% 51.9%
</TABLE>
CAPITAL AND EXPLORATION EXPENDITURES
The following table presents major components of capital and exploration
expenditures:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- ---------
<S> <C> <C>
(in millions)
Capital Expenditures
Drilling and Facilities........ $21.1 $10.2
Leasehold Acquisitions......... 6.2 1.1
Pipeline and Gathering......... 1.0 0.2
Other.......................... 0.7 0.1
----- -----
29.0 11.6
----- -----
Proved Property Acquisitions... -- --
Exploration Expenses............ 3.4 3.6
----- -----
Total.......................... $32.4 $15.2
===== =====
</TABLE>
Total capital and exploration expenditures in the first quarter of 1998
increased $19.6 million compared to the same quarter of 1997, primarily as a
result of the expanded 1998 drilling program. Unlike the first quarter of 1997,
mild winter conditions in 1998 have allowed the Company to drill without weather
interruption in the Western Region. Additionally, in the first quarter of 1998,
the Company made an initial expenditure of $5 million for leasehold acquisitions
as part of its recently announced joint exploration program with Union Pacific
Resources Group, Inc.
12
<PAGE>
The Company generally funds most of its capital and exploration activities,
excluding major oil and gas property acquisitions, with cash generated from
operations, and budgets such capital expenditures based upon projected cash
flows.
The Company has a $111.0 million capital and exploration expenditures budget
for 1998 which includes $63.8 million for drilling and facilities, $24.7 million
for exploration expenses, $7.1 million for pipelines and $2.5 million for proved
property acquisitions. Compared to 1997 capital and exploration expenditures,
the 1998 budgeted expenditures are up 27%. The Company plans to drill 270 gross
wells in 1998 compared with 225 gross wells drilled in 1997.
During the first quarter of 1998, the Company paid dividends of $1.0 million
on the Common Stock and $0.9 million on the 6% convertible redeemable preferred
stock. A regular dividend of $0.04 per share of Common Stock was declared for
the quarter ending June 30, 1998, to be paid May 29, 1998 to shareholders of
record as of May 15, 1998.
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. While the Company's natural gas prices rose slightly in March of 1998
after the downward trend experienced as the year began, the average produced
natural gas sales price received in the first quarter of 1998 was down 27% over
the first quarter in 1997. The volatility of natural gas prices in recent years
remains prevalent in 1998 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 1998.
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 1998 plans include a significant increase in capital
spending, potentially negative changes in industry conditions might require the
Company to adjust its 1998 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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1998 1997
-------------- ------------
(in millions, except where noted)
<S> <C> <C>
Net Operating Revenues........................ $ 40.8 $ 52.8
Operating Expenses............................ 30.1 30.2
Operating Income.............................. 10.7 22.7
Interest Expense.............................. 4.3 4.6
Net Income.................................... 3.0 9.7
Earnings Per Share - Basic.................... $ 0.12 $ 0.42
Earnings Per Share - Diluted.................. $ 0.12 $ 0.41
Natural Gas Production (Bcf)
Appalachia.................................. 5.1 6.6
West........................................ 7.6 6.9
Gulf Coast.................................. 2.8 1.6
------ ------
Total Company............................... 15.5 15.1
====== ======
Natural Gas Production Sales Prices ($/Mcf)
Appalachia.................................. $ 2.78 $ 3.71
West........................................ $ 1.94 $ 2.61
Gulf Coast.................................. $ 2.24 $ 2.82
Total Company............................... $ 2.27 $ 3.12
Crude/Condensate
Volume (MBbl)............................... 156 142
Price $/Bbl................................. $14.98 $22.59
Brokered Natural Gas Margin
Volume (Bcf)................................ 10.6 9.1
Margin $/Mcf................................ $ 0.13 $ 0.05
</TABLE>
FIRST QUARTERS OF 1998 AND 1997 COMPARED
Net Income and Revenues. The Company reported net income in the first quarter
1998 of $3.0 million, or $0.12 per share. During the corresponding quarter of
1997, the Company reported net income of $9.7 million, or $0.42 per share.
Operating income and operating revenues each decreased by $12.0 million.
Natural gas made up 86%, or $35.2 million, of net operating revenue. The
decrease in net operating revenues was driven primarily by a 27% decrease in the
average natural gas price, offset slightly by a 2% increase in natural gas
production as discussed below. Net income and operating income were similarly
impacted by the decrease in the average natural gas price.
14
<PAGE>
Natural gas production volume in the Appalachian Region was down 1.5 Bcf to
5.1 Bcf due primarily to the sale of producing properties in this region during
the fourth quarter of 1997. Natural gas production volume in the Western Region
was up 0.7 Bcf to 7.6 Bcf due primarily to the acquisition of producing
properties in the Green River Basin of Wyoming during the fourth quarter of 1997
and in part to new production brought on by drilling in 1997. Natural gas
production volume in the Gulf Coast Region was up 1.2 Bcf to 2.8 Bcf primarily
due to new production brought on by drilling in 1997.
The average Appalachian natural gas production sales price decreased $0.93 per
Mcf, or 25%, to $2.78, decreasing net operating revenues by $4.8 million on 5.1
Bcf of production. In the Western Region, the average natural gas production
sales price decreased $0.67 per Mcf, or 26%, to $1.94, decreasing net operating
revenues by $5.0 million on 7.6 Bcf of production. In the Gulf Coast Region,
the average natural gas production sales price decreased $0.58 per Mcf, or 21%,
to $2.24, decreasing net operating revenues by $1.6 million on 2.8 Bcf of
production. The overall weighted average natural gas production sales price
decreased $0.85 per Mcf, or 27%, to $2.27.
Crude oil prices decreased $7.61 per Bbl, or 34%, to $14.98, partially offset
by a volume increase of 14 Mbbl, or 10%, to 156 Mbbl, resulting in a decrease to
net operating revenues by approximately $1.2 million.
The brokered natural gas margin increased $0.9 million to $1.4 million
primarily due to a $0.08 per Mcf increase in the net margin to $0.13 per Mcf.
Market conditions in the first quarter of 1997 were less favorable than normal.
Costs and Expenses Total costs and expenses from recurring operations
were essentially unchanged in total. However, certain expense categories
fluctuated due primarily to the following:
. Depreciation, depletion, amortization and impairment expense decreased $0.8
million, or 7%, due to the fourth quarter 1997 disposition of high cost
assets in the Appalachian Region and the decline in the Western Region DD&A
rate related to the addition of new, lower cost production to existing
fields.
. Taxes other than income decreased $0.3 million, or 7%, due primarily to
lower severance taxes as a result of the decrease in oil and gas revenue.
. General and administrative expenses increased $1.3 million, or 32%, largely
due to staffing increases in the third and fourth quarters of 1997 ($0.3
million), non-cash stock compensation from stock awards in the second
quarter of 1997 ($0.4 million), certain executive retirement and severance
packages accrued in 1998 ($0.4 million), and higher professional fees ($0.1
million).
Interest expense declined $0.3 million as a result of a lower average level
of outstanding debt during the first quarter of 1998 when compared to the first
quarter of 1997.
Income tax expense was down $4.5 million due to the comparable decrease in
earnings before income tax.
Dividends on preferred stock were $0.5 million less than in the first quarter
of 1997 due to the conversion of all of the Company's $3.125 cumulative
convertible preferred stock into shares of common stock during the fourth
quarter of 1997.
15
<PAGE>
* * *
Forward-Looking Information
The statements regarding future financial performance and results and market
prices and the other statements which are not historical facts contained in this
report are forward-looking statements. The words "expect," "project,"
"estimate," "believe," "anticipate," "intend," "budget," "predict" and similar
expressions are also intended to identify forward-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 for 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 First Quarter
1998 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/ Ray R. Seegmiller
-----------------------------------------
May 14, 1998 Ray R. Seegmiller, President and Chief
Operating Officer
(Principal Executive Officer Duly Authorized
to Sign on Behalf of the Registrant)
By: /s/ Paul F. Boling
-----------------------------------------
Paul F. Boling, Vice President - Finance
(Principal Accounting Officer)
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 May 12, 1998 on our review of the interim
consolidated financial information of Cabot Oil & Gas Corporation for the three
month period ended March 31, 1998 and 1997 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 12, 1998
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