Cabot Oil & Gas Corporation
15375 Memorial Drive
Houston, Texas 77079
Telephone: 281/589-4600
Facsimile: 281/589-4912
May 14, 1999
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Cabot Oil & Gas Corporation Form 10-Q
for the quarter ending May 31, 1999
Ladies and Gentlemen:
On behalf of Cabot Oil & Gas Corporation, transmitted herewith for filing
under the Securities and Exchange Act of 1934, as amended, is a copy of the
Company's March 31, 1999 Form 10-Q. Pursuant to Rule 302 of Regulation S-T, the
Form 10-Q has been executed by typing the name of the signature.
This filing has been effected through the Securities and Exchange
Commission's EDGAR electronic filing system.
Please contact the undersigned at (281) 589-4642 with any questions or
statements you may have regarding this filing.
Sincerely,
CHUCK SMYTH
Controller
<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, 1999
( ) 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, 1999, there were 24,694,609 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 Page
Condensed Consolidated Statement of Operations for the
Three Months Ended March 31, 1999 and 1998............................. 3
Condensed Consolidated Balance Sheet at March 31, 1999
and December 31, 1998.................................................. 4
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1999 and 1998............................. 5
Notes to Condensed Consolidated Financial Statements.................... 6
Independent Accountant's 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................................. 16
Signature ................................................................. 17
</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,
1999 1998
-------- --------
<S> <C> <C>
NET OPERATING REVENUES
Natural Gas Production........................ $ 30,619 $ 35,176
Crude Oil & Condensate........................ 2,650 2,338
Brokered Natural Gas Margin................... 883 1,387
Other......................................... 1,128 1,890
-------- --------
35,280 40,791
OPERATING EXPENSES
Direct Operations............................. 7,847 6,964
Exploration................................... 2,425 3,401
Depreciation, Depletion and Amortization...... 12,979 9,768
Impairment of Unproved Properties............. 1,257 696
General and Administrative.................... 4,291 5,501
Taxes Other Than Income....................... 3,638 3,799
-------- --------
32,437 30,129
Gain on Sale of Assets.......................... 1 52
-------- --------
INCOME FROM OPERATIONS.......................... 2,844 10,714
Interest Expense................................ 6,718 4,255
-------- --------
Income/(Loss) Before Income Taxes............... (3,874) 6,459
Income Tax Expense/(Benefit).................... (1,432) 2,616
-------- --------
NET INCOME/(LOSS)............................... (2,442) 3,843
Dividend Requirement on Preferred Stock......... 851 850
-------- --------
Net Income/(Loss) Applicable to
Common Stockholders........................... $ (3,293) $ 2,993
======== ========
Basic Earnings/(Loss) Per Share
Applicable to Common......................... $ (0.13) $ 0.12
Diluted Earnings/(Loss) Per Share
Applicable to Common......................... $ (0.13) $ 0.12
Average Common Shares Outstanding............... 24,666 24,683
</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,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents............................. $ 1,679 $ 2,200
Accounts Receivable................................... 47,219 55,799
Inventories........................................... 7,974 9,312
Other................................................. 3,603 3,804
--------- ---------
Total Current Assets............................... 60,475 71,115
Properties and Equipment (Successful Efforts Method)... 631,751 629,908
Other Assets........................................... 2,512 3,137
--------- ---------
$ 694,738 $ 704,160
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt..................... $ 16,000 $ 16,000
Accounts Payable...................................... 39,787 66,628
Accrued Liabilities................................... 17,749 16,406
--------- ---------
Total Current Liabilities.......................... 73,536 99,034
Long-Term Debt......................................... 347,000 327,000
Deferred Income Taxes.................................. 84,480 85,952
Other Liabilities...................................... 10,870 9,506
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 1999 and 1998.................................... 113 113
Common Stock:
Authorized -- 40,000,000 Shares of $.10 Par Value
Issued and Outstanding - 24,995,919 Shares and
24,959,897 Shares in 1999 and 1998, Respectively.... 2,500 2,496
Additional Paid-in Capital............................ 252,533 252,073
Accumulated Deficit................................... (71,910) (67,630)
Less Treasury Stock, at cost:
302,600 Shares in 1999 and 1998.................... (4,384) (4,384)
--------- --------
Total Stockholders' Equity......................... 178,852 182,668
--------- --------
$ 694,738 $704,160
========= ========
</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,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(Loss).................................. $ (2,442) $ 3,843
Adjustment to Reconcile Net Income/(Loss) to Cash
Provided by Operating Activities:
Depletion, Depreciation and Amortization....... 12,979 9,768
Impairment of Undeveloped Leasehold............ 1,257 696
Deferred Income Taxes.......................... (1,472) 2,289
Gain on Sale of Assets......................... (1) (52)
Exploration Expense............................ 2,425 3,401
Other.......................................... 741 489
Changes in Assets and Liabilities:
Accounts Receivable............................ 8,581 12,695
Inventories.................................... 1,338 626
Other Current Assets........................... 201 (17)
Other Assets................................... 626 1
Accounts Payable and Accrued Liabilities....... (15,532) (4,669)
Other Liabilities.............................. 1,365 (117)
--------- ---------
Net Cash Provided by
Operating Activities....................... 10,066 28,953
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures............................... (26,513) (31,385)
Proceeds from Sale of Assets....................... 1 511
Exploration Expense................................ (2,425) (3,401)
--------- ---------
Net Cash Used by Investing Activities....... (28,937) (34,275)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock............................... 187 896
Increase in Debt................................... 41,000 26,000
Decrease in Debt................................... (21,000) (18,000)
Dividends Paid....................................... (1,837) (1,838)
--------- ---------
Net Cash Provided by
Financing Activities....................... 18,350 7,058
--------- ---------
Net Increase/(Decrease) in Cash
and Cash Equivalents................................ (521) 1,736
Cash and Cash Equivalents,
Beginning of Period................................. 2,200 1,784
--------- ---------
Cash and Cash Equivalents,
End of Period....................................... $ 1,679 $ 3,520
========= =========
</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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires all derivatives
to be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of SFAS
133. This statement is effective for financial statements for fiscal years
beginning after June 15, 1999. The Company has not yet completed its evaluation
of the impact of the provisions of SFAS No. 133.
2. PROPERTIES AND EQUIPMENT
Properties and equipment are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, ECEMBER 31,
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Unproved Oil and Gas Properties......................... $ 40,588 $ 42,426
Proved Oil and Gas Properties........................... 934,615 921,463
Gathering and Pipeline Systems.......................... 124,653 121,999
Land, Building and Improvements......................... 4,230 4,200
Other................................................... 21,597 20,468
---------- ----------
1,125,683 1,110,556
Accumulated Depreciation, Depletion and Amortization.... (493,932) (480,648)
---------- ----------
$ 631,751 $ 629,908
========== ==========
</TABLE>
3. ADDITIONAL BALANCE SHEET INFORMATION
Certain balance sheet amounts are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Accounts Receivable
Trade Accounts........................................ $ 36,745 $ 41,397
Joint Interest Accounts............................... 5,846 6,712
Insurance Recoveries.................................. 3,378 5,539
Current Income Tax Receivable......................... -- 502
Other Accounts........................................ 1,664 2,123
-------- --------
47,633 56,273
Allowance for Doubtful Accounts........................ (414) (474)
-------- --------
$ 47,219 $ 55,799
======== ========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Accounts Payable
Trade Accounts........................................ $ 8,681 $ 13,229
Natural Gas Purchases................................. 11,395 17,031
Wellhead Gas Imbalances............................... 2,021 1,945
Royalty and Other Owners.............................. 8,655 8,987
Capital Costs......................................... 5,005 20,165
Dividends Payable..................................... 851 851
Taxes Other Than Income............................... 919 1,017
Drilling Advances..................................... 1,014 900
Other Accounts........................................ 1,246 2,503
-------- -------
$ 39,787 $66,628
======== =======
Accrued Liabilities
Employee Benefits..................................... $ 2,157 $ 4,479
Taxes Other Than Income............................... 7,754 7,357
Interest Payable...................................... 6,915 2,406
Other Accrued......................................... 923 2,164
-------- -------
$ 17,749 $16,406
======== =======
Other Liabilities
Postretirement Benefits Other Than Pension............ $ 498 $ 316
Accrued Pension Cost.................................. 6,271 4,941
Taxes Other Than Income and Other..................... 4,101 4,249
-------- -------
$ 10,870 $ 9,506
======== =======
</TABLE>
4. LONG-TERM DEBT
At March 31, 1999, the Company had $199 million outstanding under its
facility, which provides for an available credit line of $250 million. The
available credit line is subject to adjustment from time-to-time on the basis of
the projected present value (as determined by the banks' petroleum engineer
incorporating certain assumptions provided by the lender) of estimated future
net cash flows from proved oil and gas reserves and other assets of the Company.
The revolving term under this credit facility presently ends in December 2003
and is subject to renewal.
5. EARNINGS/(LOSS) PER SHARE
Basic earnings/(loss) per share for the Company were $(0.13), and $0.12 in
1999 and 1998, respectively, and were based on the weighted average shares
outstanding of 24,666,431 in 1999, and 24,683,163 in 1998. Diluted earnings per
share in the first quarter were $(0.13), and $0.12 in 1999 and 1998,
respectively. The diluted earnings per share amounts are based on weighted
average shares outstanding plus common stock equivalents. Common stock
equivalents include both stock awards and stock options, and totaled 171,586 and
621,924 in 1999 and 1998, respectively.
6. YEAR 2000
To date, the Company has incurred expenses of $0.2 million and capital
costs of $1.0 million, including $0.8 million in 1999, as part of its efforts to
make all computer software, hardware and embedded microprocessors Year 2000
compliant. See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000.
7
<PAGE>
Independent Accountant's Report
To the Board of Directors and Shareholders
Cabot Oil & Gas Corporation:
We have reviewed the accompanying condensed consolidated balance sheet and
the related condensed consolidated statements of operations and cash flows of
Cabot Oil & Gas Corporation (the "Company") as of March 31, 1999, and for the
three-month periods ended March 31, 199 and 1998. 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 condensed 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, 1998, 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
February 26, 1999, 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, 1998, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
May 12, 1999
8
<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 1999 and 1998
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, 1998.
In all periods reported, the Company has operated in one segment, natural
gas and oil exploration and exploitation.
OVERVIEW
As a result of unseasonably mild temperatures, natural gas prices for the
first quarter of 1999 were substantially below those of the first quarter in
1998. This decline in gas price was the primary cause of the $5.5 million
reduction in net revenues and, along with increased depreciation, depletion and
amortization (DD&A) and higher interest expense, largely contributed to the net
loss available to common shareholders of $3.3 million, a $6.3 million decline
from 1998. Cash flows were similarly impacted, declining $18.9 million due to
lower natural gas prices, higher interest expenses and changes in working
capital.
The Company drilled 15 gross wells with a success rate of 80% compared to
33 gross wells and an 82% success rate in the first quarter of 1998. For the
full year, the Company plans to drill approximately 29 gross wells and spend
approximately $44.9 million in capital and exploration expenditures compared to
205 gross wells and $225.9 million of capital and exploration expenditures in
1998. Total expenditures were $18.3 million for the first quarter of 1999,
compared to $32.4 million for the comparable period in 1998. The Company has
reduced the amount of its capital and exploration expenditures in response to
the weak energy price environment in 1999 and in the fourth quarter of 1998.
However, as a result of improved natural gas prices, the Company has front-end
loaded its 1999 development and exploration activity to provide more flexibility
to drill more wells should cash flows improve later in the year. Also, by this
accelerated drilling program schedule, the Company expects to realize more
production from the 1999 program wells earlier in the year.
Natural gas production was 16.1 Bcf, up 0.6 Bcf compared to the 1998 first
quarter. This production increase was due primarily to new production brought on
by the expanded drilling program of 205 gross (143.7 net) wells in 1998, as well
as production from the Southern Louisiana properties acquired, effective
December 1998, from Oryx Energy.
The Company's strategic pursuits are sensitive to energy commodity prices,
particularly the price of natural gas. As a result of unseasonably warm weather,
the Company's realized gas price for the first quarter ($1.91/MCF) was the
lowest quarterly price since 1995. Following the first quarter, gas prices have
begun to recover and are currently about $0.40 higher. 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 of growth from the drill bit,
synergistic acquisitions and the 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, contain forward-looking information. See Forward-Looking Information on
page 15.
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
9
<PAGE>
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. Natural gas prices were unseasonably low during much of 1998 and, due to
mild winter conditions, prices eroded further during the first quarter of 1999,
resulting in the lowest realized quarterly price since 1995.
The primary sources of cash for the Company during the first quarter of
1999 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 dividends.
The Company had a net cash outflow of $0.5 million in the first quarter of
1999. Net cash inflow from operating and financing activities totaled $28.4
million in the current quarter, substantially funding the $28.9 million of
capital and exploration expenditures.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------ ------
(In millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities............ $ 10.1 $ 29.0
====== ======
</TABLE>
Cash flows from operating activities in the 1999 first quarter were lower
by $18.9 million compared to the corresponding quarter of 1998 primarily due to
lower natural gas prices, higher interest expense and changes in working
capital.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------ ------
(In millions)
<S> <C> <C>
Cash Flows Used by Investing Activities................ $ 28.9 $ 34.3
====== ======
</TABLE>
Cash flows used by investing activities in the first quarters of 1999 and
1998 were substantially attributable to capital and exploration expenditures of
$28.9 million and $34.8 million, respectively. Proceeds from the sale of certain
oil and gas properties in the first quarter of 1998 were $0.5 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------ ------
(In millions)
<S> <C> <C>
Cash Flows Provided by Financing Activities............ $ 18.3 $ 7.1
====== ======
</TABLE>
Cash flows provided by financing activities were primarily increases in
borrowings on the Company's revolving credit facility in 1999 and 1998, used to
partially fund capital and exploration expenditures.
Under the Company's revolving credit facility, the available credit line,
currently $250 million, is subject to adjustment on the basis of the present
value of estimated future net cash flows from proved oil and gas reserves (as
determined by the bank's petroleum engineer) and other assets. The revolving
term of the credit facility runs to December 2003. Management believes that the
Company has the ability to finance, if necessary, its capital requirements,
including acquisitions.
The Company's 1999 interest expense is projected to be approximately $27
million. In May 1999, 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.
YEAR 2000 ("Y2K")
Many computer systems have been built using software that processes
transactions using two digits to represent the year. This type of software will
generally require modifications to function properly with dates after December
31, 1999 (or, to become "Y2K Compliant"). The same issue applies to
microprocessors embedded in machinery and equipment, such as gas compressors and
pipeline meters. The impact of failing to identify those computer systems
10
<PAGE>
(operated by the Company or its business partners) that are not Y2K compliant
and correct the problem could be significant to the Company's ability to operate
and report results, as well as potentially expose the Company to third-party
liability.
The Company has begun making the necessary modifications to its computer
systems and embedded microprocessors in preparation for the Year 2000. This
project is on schedule and the Company believes that the total related costs
will be approximately $2.1 million, funded by cash from operations or borrowings
on the revolving credit facility, when completed in 1999. Of the total project
cost, $1.8 million is attributable to the purchase of new software and equipment
that will be capitalized. The remaining $0.3 million is being expensed and is
not expected to have a material impact on the Company's financial position or
operating results. To date, the Company has incurred $0.2 million of expense,
all recorded in 1998, and $1.0 million in capital cost, $0.8 million of which
was incurred this quarter.
The Company has begun reviewing the compliance of field equipment including
compressor stations, gas control systems and data logging equipment. Most
equipment reviewed was found to be compliant, and, where necessary,
microprocessor chip replacements are scheduled to be completed by the end of the
second quarter of 1999 at a cost of less than $0.1 million.
Additionally, the Company is in the process of contacting its significant
customers and suppliers in order to determine the Company's exposure to their
potential failure to become Y2K compliant. Although the Company is not aware of
any Y2K compliance problems with any of its customers or suppliers, there can be
no guarantee that the systems of these companies will operate without
interruption in the new millennium.
The Company has an internal committee that not only identifies and responds
to these issues, but also is developing a contingency plan in the event that a
significant problem arises after the turn of the century. Management expects the
contingency plan to be substantially complete by mid 1999. Additionally, the
Company has engaged outside consultants to review the Company's plans and
provide feedback relating to the status of the plan implementation. At this
time, the Company does not anticipate that the arrival of the Year 2000 will
materially impact its financial position or results of operations.
The project costs and timetable for Y2K compliance are based on
management's best estimates. In developing these estimates, assumptions were
made regarding future events including, among other things, the availability of
certain resources and the continued cooperation of the Company's customers and
suppliers. Actual costs and timing may differ from management's estimates due to
unexpected difficulties in obtaining trained personnel, locating and correcting
relevant computer code and other factors.
CAPITALIZATION
Capitalization information on the Company is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------- -------
(In millions)
<S> <C> <C>
Long-Term Debt...................................... $ 347.0 $ 327.0
Current Portion of Long-Term Debt................... 16.0 16.0
------- -------
Total Debt........................................ $ 363.0 $ 343.0
------- -------
Stockholders' Equity
Common Stock (net of Treasury Stock)............... 122.2 126.0
Preferred Stock.................................... 56.7 56.7
------- -------
Total............................................ 178.9 182.7
------- -------
Total Capitalization................................ $ 541.9 $ 525.7
======= =======
Debt to Capitalization.............................. 67.0% 65.2%
</TABLE>
11
<PAGE>
During the first quarter of 1999, 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 March 31, 1999, to be paid May 28, 1999 to
shareholders of record as of May 21, 1999.
During the first quarter of 1999, debt has increased $20 million to
partially fund the accelerated drilling program and working capital
requirements.
CAPITAL AND EXPLORATION EXPENDITURES
On an annual basis, 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 for the year.
The following table presents major components of capital and exploration
expenditures:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------ ------
(In millions)
<S> <C> <C>
Capital Expenditures
Drilling and Facilities.......................... $ 11.6 $ 21.1
Leasehold Acquisitions........................... 2.2 6.2
Pipeline and Gathering .......................... 0.4 1.0
Other............................................ 1.7 0.7
------ ------
15.9 29.0
Exploration Expenses............................... 2.4 3.4
------ ------
Total............................................ $ 18.3 $ 32.4
====== ======
</TABLE>
Total capital and exploration expenditures in the first quarter of 1999
decreased $14.1 million compared to the same quarter of 1998, primarily as a
result of the reduced 1999 drilling program. Additionally, in the first quarter
of 1998, the Company made an initial expenditure of $5 million related to the
evaluation of acreage as part of its joint exploration program in Southern
Louisiana with Union Pacific Resources Group, Inc.
The Company has a $44.9 million capital and exploration expenditures budget
for 1999 which includes $24.5 million for drilling and facilities, $8.9 million
for exploration expenses, and $4.5 million for pipelines. In reaction to lower
energy commodity prices, the 1999 budgeted capital and exploration expenditures
are down 68% compared to 1998 expenditures after excluding proved property
acquisitions. The Company plans to drill 29 gross wells in 1999 compared with
205 gross wells drilled in 1998. The Company will continue to assess the natural
gas price environment and may increase or decrease the capital and exploration
expenditures accordingly.
GAS PRICE SWAPS
The Company has entered into limited natural gas swap agreements since
December 31, 1998, and, accordingly, there have been no material changes in the
Company's open natural gas price swap position.
At March 31, 1999, the Company had entered into natural gas price swap
contracts that remain open as follows:
Swap Purchases
---------------------------------------------
Volume Weighted Unrealized
in Average Gain (Loss)
Period MMBtu Contract Price ($ Millions)
---------------------------------------------------------------------------
1999 1,370,000 $1.79 $ .2
1st Quarter 2000 450,000 2.13 (.1)
12
<PAGE>
CONCLUSION
The Company's financial results depend upon many factors, particularly the
price of natural gas and oil, and its ability to market gas on economically
attractive terms. The average produced natural gas sales price received in the
first quarter of 1999 was down 16% over the first quarter in 1998. The
volatility of natural gas prices in recent years remains prevalent in 1999 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 1999. 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 planned capital
expenditures.
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 15.
RESULTS OF OPERATIONS
For the purpose of reviewing the Company's results of operations, "Net
Income/(Loss)" is defined as net income or loss available to common
shareholders.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------ ------
(In millions, except where noted)
<S> <C> <C>
Net Operating Revenues......................... $ 35.3 $ 40.8
Operating Expenses............................. 32.4 30.1
Operating Income............................... 2.8 10.7
Interest Expense............................... 6.7 4.3
Net Income/(Loss).............................. (3.3) 3.0
Earnings/(Loss) Per Share - Basic.............. $(0.13) $ 0.12
Earnings/(Loss) Per Share - Diluted............ $(0.13) $ 0.12
Natural Gas Production (Bcf)
Appalachia................................... 5.6 5.1
West......................................... 7.4 7.6
Gulf Coast................................... 3.1 2.8
------ ------
Total Company................................ 16.1 15.5
====== ======
Natural Gas Production Sales Prices ($/Mcf)
Appalachia................................... $ 2.25 $ 2.78
West......................................... $ 1.71 $ 1.94
Gulf Coast................................... $ 1.75 $ 2.24
Total Company................................ $ 1.91 $ 2.27
Crude/Condensate
Volume (Mbbl)................................ 230 156
Price ($/Bbl)................................ $11.53 $14.98
Brokered Natural Gas Margin
Volume (Bcf).................................. 12.7 10.6
Margin ($/Mcf)................................ $ 0.07 $ 0.13
</TABLE>
13
<PAGE>
FIRST QUARTERS OF 1999 AND 1998 COMPARED
Net Income and Revenues. The Company reported a net loss in the first
quarter 1999 of $3.3 million, or $0.13 per share. During the corresponding
quarter of 1998, the Company reported net income of $3.0 million, or $0.12 per
share. Operating revenues decreased by $5.5 million and operating income
decreased by $7.9 million. Natural gas made up 87%, or $30.6 million, of net
operating revenue. The decrease in net operating revenues was driven primarily
by a 16% decrease in the average natural gas price, offset slightly by a 4%
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.
Natural gas production volume in the Appalachian Region was up 0.5 Bcf to
5.6 Bcf due primarily to new production associated with the 1998 exploration
program. Natural gas production volume in the Western Region was down 0.2 Bcf to
7.4 Bcf, primarily due to lower levels of drilling activity in the Anadarko area
during 1998. Natural gas production volume in the Gulf Coast Region was up 0.3
Bcf to 3.1 Bcf primarily due to production from the Southern Louisiana
properties acquired in December 1998. Production growth in the Gulf Coast Region
was reduced as a result of drilling and mechanical difficulties encountered in
the Beaurline field in 1998. The production from these wells, interrupted during
the middle of the third and fourth quarters due to mechanical failures, averaged
17.5 Mmcf per day for the nine months ended September 30, 1998. Production from
certain of the replacement wells commenced in the first quarter with the
remaining replacement wells scheduled to be completed in the second quarter. The
field's total proved reserves remained substantially intact.
The average Appalachian natural gas production sales price decreased $0.53
per Mcf, or 19%, to $2.25, decreasing net operating revenues by $3.0 million on
5.6 Bcf of production. In the Western Region, the average natural gas production
sales price decreased $0.23 per Mcf, or 12%, to $1.71, decreasing net operating
revenues by $1.7 million on 7.4 Bcf of production. In the Gulf Coast Region, the
average natural gas production sales price decreased $0.49 per Mcf, or 22%, to
$1.75, decreasing net operating revenues by $1.5 million on 3.1 Bcf of
production. The overall weighted average natural gas production sales price
decreased $0.36 per Mcf, or 16%, to $1.91.
Although crude oil prices decreased $3.45 per Bbl, or 23%, to $11.53, the
effect was offset by a volume increase of 74 Mbbl, or 47%, to 230 Mbbl,
resulting in an combined increase to net operating revenues of approximately
$0.3 million. The volume increase was largely due to the acquisition of
properties in Southern Louisiana in the fourth quarter of 1998.
The brokered natural gas margin decreased $0.5 million to $0.9 million
primarily due to a $0.06 per Mcf decrease in the net margin to $0.07 per Mcf.
Offsetting this margin reduction, the quarterly volume of brokered gas increased
20%, or 2.1 Bcf, contributing $0.3 million to revenue.
Costs and Expenses. Total costs and expenses from operations increased $2.3
million in the first quarter of 1999 compared to the same quarter of 1998. The
primary reasons for this fluctuation are as follows:
- Direct operating expense increased $0.9 million, or 13%, which
represents the incremental quarterly cost of operating the Southern
Louisiana properties acquired in December 1998.
- Exploration expense decreased $1.0 million, or 29%, primarily as a
result of a reduction in dry hole costs from the 1998 first quarter.
The Company recorded expenses related to three dry holes in the first
quarter of 1999, compared to five dry holes in the first quarter of
1998.
- Depreciation, depletion, amortization and impairment expense increased
$3.8 million, or 36%, due to the costs associated with the newly
acquired Southern Louisiana properties, as well as higher finding
costs in 1998 on certain fields in the Gulf Coast Region, largely
related to drilling and mechanical difficulties. A 4% increase in
total Company natural gas production, including an 11% production
increase in the higher cost Gulf Coast Region, accounted for the
remaining of the DD&A increase.
14
<PAGE>
- General and administrative expenses decreased $1.2 million, or 22%,
due to cost reductions on certain incentive plans and non-cash stock
awards, along with decreases in salaries and wages associated with
reduced headcount and in travel and related costs.
- Taxes other than income decreased $0.2 million, or 4%, due primarily
to lower severance taxes as a result of the decrease in oil and gas
revenue.
Interest expense increased $2.5 million as a result of a higher average
level of outstanding debt during the first quarter of 1999 when compared to the
first quarter of 1998.
Income tax expense was down $4.0 million due to the comparable decrease in
earnings before income tax.
* * *
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," "plan," "forecast,"
"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.
15
<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 1999 Form 10-Q
(b) Reports on Form 8-K
None
16
<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, 1999 Ray R. Seegmiller, Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer Duly Authorized
to Sign on Behalf of the Registrant)
By: /s/ Paul F. Boling
--------------------------------------------
Paul F. Boling, Vice President - Finance
(Principal Financial Officer)
By: /s/ Henry C. Smyth
--------------------------------------------
Henry C. Smyth, Controller
(Principal Accounting Officer)
17
<PAGE>
EXHIBIT 15.1
PricewaterhouseCoopers LLP Awareness Letter
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Cabot Oil & Gas Corporation
Registration Statements on Form S-8
We are aware that our report dated May 12, 1999 on our review of the interim
consolidated financial statements of Cabot Oil & Gas Corporation as of March 31,
1999, and for the three month period ended March 31, 1999 and 1998 and included
in the Company's quarterly report on 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.
PricewaterhouseCoopers LLP
Houston, Texas
May 12, 1999
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 451
<SECURITIES> 1,228
<RECEIVABLES> 47,633
<ALLOWANCES> (414)
<INVENTORY> 7,974
<CURRENT-ASSETS> 60,475
<PP&E> 1,125,683
<DEPRECIATION> (493,932)
<TOTAL-ASSETS> 694,738
<CURRENT-LIABILITIES> 73,536
<BONDS> 363,000
<COMMON> 122,153
0
56,700
<OTHER-SE> (71,910)
<TOTAL-LIABILITY-AND-EQUITY> 694,738
<SALES> 34,152
<TOTAL-REVENUES> 35,280
<CGS> 32,437
<TOTAL-COSTS> 32,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,718
<INCOME-PRETAX> (3,874)
<INCOME-TAX> (1,432)
<INCOME-CONTINUING> (2,442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,442)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
