Cabot Oil & Gas Corporation
1200 Enclave Parkway
Houston, Texas 77077
Telephone: 281/589-4600
Facsimile: 281/589-4912
May 2, 2000
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Cabot Oil & Gas Corporation Form 10-Q
for the Quarter Ended March 31, 2000
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, 2000 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,
JILL RIBBECK
Manager, Financial Reporting
<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, 2000
( ) 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)
1200 Enclave Parkway, Houston, Texas 77077-1607
(Address of principal executive offices including Zip Code)
(281) 589-4600
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
As of April 28, 2000, there were 24,981,394 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, 2000 and 1999.......................... 3
Condensed Consolidated Balance Sheet at March 31, 2000
and December 31, 1999............................................... 4
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2000 and 1999.......................... 5
Notes to Condensed Consolidated Financial Statements................. 6
Report of Independent Accountant's Review
of Interim Financial Information.................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................ 18
Signature ................................................................ 19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
NET OPERATING REVENUES
Natural Gas Production........................ $ 39,086 $ 30,619
Crude Oil & Condensate........................ 4,325 2,650
Brokered Natural Gas Margin................... 1,451 883
Other......................................... 4,772 1,128
-------- --------
49,634 35,280
OPERATING EXPENSES
Direct Operations............................. 8,511 7,847
Exploration................................... 3,233 2,425
Depreciation, Depletion and Amortization...... 12,648 12,979
Impairment of Unproved Properties............. 960 1,257
General and Administrative.................... 4,887 4,291
Taxes Other than Income....................... 4,601 3,638
-------- --------
34,840 32,437
Gain (Loss) on Sale of Assets................... (21) 1
-------- --------
INCOME FROM OPERATIONS.......................... 14,773 2,844
Interest Expense................................ 5,971 6,718
-------- --------
Income (Loss) Before Income Taxes............... 8,802 (3,874)
Income Tax Expense (Benefit).................... 3,457 (1,432)
-------- --------
NET INCOME (LOSS)............................... 5,345 (2,442)
-------- --------
Dividend Requirement on Preferred Stock......... 851 851
-------- --------
Net Income (Loss) Applicable to
Common Stockholders........................... $ 4,494 $ (3,293)
======== ========
Basic Earnings (Loss) Per Share
Applicable to Common.......................... $ 0.18 $ (0.13)
Diluted Earnings (Loss) Per Share
Applicable to Common.......................... $ 0.18 $ (0.13)
Average Common Shares Outstanding............... 24,798 24,666
</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,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents............................. $ 836 $ 1,679
Accounts Receivable................................... 49,356 50,391
Inventories........................................... 4,928 10,929
Other................................................. 2,289 3,641
--------- ---------
Total Current Assets................................ 57,409 66,640
Properties and Equipment,
Net (Successful Efforts Method)...................... 592,244 590,301
Other Assets........................................... 2,439 2,539
--------- ---------
$ 652,092 $ 659,480
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt..................... $ 16,000 $ 16,000
Accounts Payable...................................... 52,478 56,551
Accrued Liabilities................................... 20,321 17,387
--------- ---------
Total Current Liabilities........................... 88,799 89,938
Long-Term Debt......................................... 262,000 277,000
Deferred Income Taxes.................................. 97,613 95,012
Other Liabilities...................................... 12,232 11,034
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 2000 and 1999.................................... 113 113
Common Stock:
Authorized -- 40,000,000 Shares of $.10 Par Value
Issued and Outstanding - 25,175,596 Shares and
25,073,660 Shares in 2000 and 1999, Respectively.... 2,518 2,507
Additional Paid-in Capital............................. 256,215 254,763
Accumulated Deficit.................................... (63,014) (66,503)
Less Treasury Stock, at Cost:
302,600 Shares in 2000 and 1999..................... (4,384) (4,384)
--------- ---------
Total Stockholders' Equity.......................... 191,448 186,496
--------- ---------
$ 652,092 $ 659,480
========= =========
</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,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(Loss).................................. $ 5,345 $ (2,442)
Adjustment to Reconcile Net Income (Loss) to Cash
Provided by Operating Activities:
Depletion, Depreciation and Amortization....... 12,648 12,979
Impairment of Undeveloped Leasehold............ 960 1,257
Deferred Income Taxes.......................... 2,601 (1,472)
(Gain) Loss on Sale of Assets.................. 21 (1)
Exploration Expense............................ 3,233 2,425
Other.......................................... 517 741
Changes in Assets and Liabilities:
Accounts Receivable............................ 1,035 8,581
Inventories.................................... 6,002 1,338
Other Current Assets........................... 1,352 201
Other Assets................................... 100 626
Accounts Payable and Accrued Liabilities....... 443 (15,532)
Other Liabilities.............................. 1,178 1,365
--------- ---------
Net Cash Provided by Operating Activities... 35,435 10,066
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures............................... (18,945) (26,513)
Proceeds from Sale of Assets....................... 1,523 1
Exploration Expense................................ (3,233) (2,425)
--------- ---------
Net Cash Used by Investing Activities....... (20,655) (28,937)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock............................... 1,231 187
Increase in Debt................................... 27,000 41,000
Decrease in Debt................................... (42,000) (21,000)
Dividends Paid..................................... (1,854) (1,837)
--------- ---------
Net Cash Provided (Used) by
Financing Activities....................... (15,623) 18,350
--------- ---------
Net Decrease in Cash
and Cash Equivalents................................ (843) (521)
Cash and Cash Equivalents,
Beginning of Period................................. 1,679 2,200
--------- ---------
Cash and Cash Equivalents,
End of Period....................................... $ 836 $ 1,679
========= =========
</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, Cabot Oil & Gas Corporation follows the same
accounting policies used in its Annual Report to Stockholders and its Report on
Form 10-K filed with the Securities and Exchange Commission. People using
financial information produced for interim periods are encouraged to refer to
the footnotes in the Annual Report to Stockholders when reviewing interim
financial results. In management's opinion, 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 133). SFAS 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 according to the provisions of
SFAS 133. This statement was initially effective for financial statements for
fiscal years beginning after June 15, 1999. However, in June 1999, the Financial
Accounting Standards Board issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective date of SFAS 133,"
which delayed the effective date of SFAS 133 to fiscal years beginning after
June 15, 2000. The Company has not yet completed its evaluation of the impact of
the provisions of SFAS 133.
2. PROPERTIES AND EQUIPMENT
Properties and equipment are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Unproved Oil and Gas Properties......................... $ 35,038 $ 32,262
Proved Oil and Gas Properties........................... 912,631 906,852
Gathering and Pipeline Systems.......................... 125,163 124,708
Land, Building and Improvements......................... 4,349 4,359
Other................................................... 23,658 23,206
---------- ----------
1,100,839 1,091,387
Accumulated Depreciation, Depletion and Amortization.... (508,595) (501,086)
---------- ----------
$ 592,244 $ 590,301
========== ==========
</TABLE>
3. ADDITIONAL BALANCE SHEET INFORMATION
Certain balance sheet amounts are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Accounts Receivable
Trade Accounts......................................... $ 44,769 $ 44,739
Joint Interest Accounts................................ 3,552 4,395
Insurance Recoveries................................... -- 1,177
Current Income Tax Receivable.......................... 111 111
Other Accounts......................................... 1,218 263
-------- --------
49,650 50,685
Allowance for Doubtful Accounts......................... (294) (294)
-------- --------
$ 49,356 $ 50,391
======== ========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Accounts Payable
Trade Accounts......................................... $ 9,736 $ 12,195
Natural Gas Purchases.................................. 14,481 14,918
Wellhead Gas Imbalances................................ 2,199 2,177
Royalty and Other Owners............................... 11,740 11,316
Capital Costs.......................................... 8,230 10,103
Dividends Payable...................................... 851 851
Taxes Other Than Income................................ 1,126 1,279
Drilling Advances...................................... 1,290 614
Other Accounts......................................... 2,825 3,098
-------- --------
$ 52,478 $ 56,551
======== ========
Accrued Liabilities
Employee Benefits...................................... $ 3,611 $ 5,203
Taxes Other Than Income................................ 8,927 8,471
Interest Payable....................................... 6,040 2,780
Other Accrued.......................................... 1,743 933
-------- --------
$ 20,321 $ 17,387
======== ========
Other Liabilities
Postretirement Benefits Other Than Pension............. $ 868 $ 799
Accrued Pension Cost................................... 6,422 6,290
Taxes Other Than Income and Other...................... 4,942 3,945
-------- --------
$ 12,232 $ 11,034
======== ========
</TABLE>
4. LONG-TERM DEBT
At March 31, 2000, the Company had $130 million outstanding under its
credit 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 first three months of the year were
based on the year-to-date weighted average shares outstanding of 24,797,986 in
2000 and 24,666,431 in 1999. Diluted earnings (loss) per share were the same as
basic earnings per share in all periods presented. The diluted earnings (loss)
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 213,525 in 2000 and 171,586 in 1999.
7
<PAGE>
6. ENVIRONMENTAL LIABILITY
The EPA notified the Company in February 2000 that it might have potential
liability for waste material disposed of at the Casmalia Superfund Site
("Site"), located on a 252-acre parcel in Santa Barbara County, California. Over
10,000 separate parties disposed of waste at the Site while it was operational
from 1973 to 1989. The EPA stated that federal, state and local governmental
agencies along with the numerous private entities that used the Site for waste
disposal will be expected to pay for the clean-up costs which could total as
much as several hundred million dollars. The EPA is also pursuing the owner(s) /
operator(s) of the Site to pay for remediation. Documents received with the
notification from the EPA indicate that the Company used the site principally to
dispose of salt water from two wells over a period from 1976 to 1979.
The Company has a reserve that it believes to be adequate to cover this
potential environmental liability based on its assessment of the most likely
outcome of this matter. While the potential impact to the Company may materially
affect the quarterly or annual financial results, management does not believe it
would materially impact the Company's financial position. The Company will
continue to monitor the facts and its assessment of its liability related to
this claim.
8
<PAGE>
Report of Independent Accountants
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 (the "Company") as of March 31, 2000, and the
related condensed consolidated statements of operations and cash flows for the
three month periods ended March 31, 2000 and March 31, 1999. 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 accounting principles generally accepted in
the United States.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, 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 11, 2000 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, 1999, is
fairly stated, in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
April 25, 2000
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following review of operations for the first quarter of 2000 and 1999
should be read in conjunction with our Condensed Consolidated Financial
Statements and the Notes included in this Form 10-Q and with the Consolidated
Financial Statements, Notes and Management's Discussion and Analysis included in
the Cabot Oil & Gas Form 10-K for the year ended December 31, 1999.
OVERVIEW
In the first quarter of 2000, we realized higher prices for both natural
gas and oil. Our net revenues for the quarter increased $14.4 million, or 41%,
and net income increased $7.8 million, mainly as a result of this improved price
environment. Cash flows were similarly impacted, improving by $25.4 million over
last year.
Our first quarter net income was $4.5 million, or $0.18 per share,
including the net benefit resulting primarily from a contract settlement. This
selected item increased net income by $1.7 million, or $0.07 per share, in the
first quarter of 2000. Excluding this selected item, our first quarter 2000 net
income was $2.8 million, or $0.11 per share.
We drilled 25 gross wells with a success rate of 88% compared to 15 gross
wells and an 80% success rate in the first quarter of 1999. For the full year,
we plan to drill approximately 110 gross wells and spend approximately $88.9
million in capital and exploration expenditures compared to 73 gross wells and
$88.1 million of capital and exploration expenditures in 1999. Total
expenditures were $20.3 million for the first quarter of 2000, compared to $18.3
million for the comparable period in 1999.
Natural gas production was 15.2 Bcf, down 0.9 Bcf compared to the 1999
first quarter. This production decline was due primarily to the sale of
non-strategic producing assets in the Appalachian region during the third
quarter of 1999.
Our strategic pursuits are sensitive to energy commodity prices,
particularly the price of natural gas. As a result of unseasonably warm weather
during the winter of 1999, our realized gas price for the first quarter of 1999
($1.91/Mcf) was the lowest quarterly price since 1995. However, in the first
quarter of 2000, market conditions had improved significantly and our realized
gas price of $2.56/Mcf was the highest first quarter price since 1997. Based on
this history of market volatility, there is considerable uncertainty about the
level of natural gas prices for the remainder of this year and beyond.
We remain focused on our strategies of growth from the drill bit,
synergistic acquisitions and the exploitation of our marketing abilities.
Management believes that these strategies are appropriate in the current
industry environment, enabling Cabot Oil & Gas to add shareholder value over the
long-term.
The preceding paragraphs, discussing our strategic pursuits and goals,
contain forward-looking information. See Forward-Looking Information on page 17.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Our capital resources consist primarily of cash flows from our oil and gas
properties and asset-based borrowings supported by our oil and gas reserves. The
level of earnings and cash flows depend on many factors, including the price of
oil and natural gas and our 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.
Our primary source of cash during the first quarter of 2000 was from funds
generated from operations. Other sources of cash included proceeds from asset
sales and the exercise of stock options. Cash was primarily used to fund
exploration and development expenditures, to reduce debt and to pay dividends.
We had a net cash outflow of $0.8 million in the first quarter of 2000. Net
cash inflow from operating activities totaled $35.4 million in the current
quarter, substantially funding both the $15 million debt reduction and the $22.2
million of capital and exploration expenditures.
10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------ ------
(In millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities............ $ 35.4 $ 10.1
====== ======
</TABLE>
Cash flows from operating activities in the 2000 first quarter were $25.3
million higher than the corresponding quarter of 1999 primarily due to higher
natural gas prices, favorable changes in working capital and the cash received
on the settlement of a gas contract dispute.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------ ------
(In millions)
<S> <C> <C>
Cash Flows Used by Investing Activities................ $ 20.7 $ 28.9
====== ======
</TABLE>
Cash flows used by investing activities in the first quarters of 2000 and
1999 were substantially attributable to capital and exploration expenditures of
$22.2 million and $28.9 million, respectively. Proceeds from the sale of certain
oil and gas properties in the first quarter of 2000 were $1.5 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------ ------
(In millions)
<S> <C> <C>
Cash Flows Provided (Used) by Financing Activities..... $(15.6) $ 18.3
====== ======
</TABLE>
Cash flows used by financing activities in the first quarter of 2000
included $15 million used to reduce borrowings on our revolving credit facility.
In the same period of 1999, cash flows provided by financing activities were
primarily increases in borrowings on our revolving credit facility. These funds
were used to partially fund capital and exploration expenditures in 1999.
The available credit line under our revolving credit facility, 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 we have the
ability to finance, if necessary, our capital requirements, including
acquisitions.
Our 2000 interest expense is projected to be approximately $23.3 million.
In May 2000, 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 balance sheet.
This payment is expected to be made with cash from operations and, if necessary,
from increased borrowings on the revolving credit facility.
11
<PAGE>
CAPITALIZATION
Capitalization information is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
(In millions)
<S> <C> <C>
Long-Term Debt...................................... $ 262.0 $ 277.0
Current Portion of Long-Term Debt................... 16.0 16.0
------- -------
Total Debt........................................ 278.0 293.0
------- -------
Stockholders' Equity
Common Stock (net of Treasury Stock)............... 134.7 129.8
Preferred Stock.................................... 56.7 56.7
------- -------
Total............................................. 191.4 186.5
------- -------
Total Capitalization................................ $ 469.4 $ 479.5
======= =======
Debt to Capitalization.............................. 59.2% 61.1%
</TABLE>
During the first quarter of 2000, we 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, 2000, to be paid May 26, 2000 to shareholders of record
as of May 19, 2000.
We have entered into an agreement with the holder of our preferred stock to
repurchase its preferred shares by November 1, 2000. As outlined in the
agreement, the preferred shares, which are recorded on our balance sheet for
$56.7 million, will be repurchased for $51.6 million. Cash flow from operations,
additional borrowings or proceeds from the sale of equity may be used to fund
this transaction. If both parties agree, the transaction could also be settled
by exchanging a mutually agreed upon number of shares of our common stock for
its preferred shares.
During the first quarter of 2000, we reduced the balance on our revolving
credit facility by $15 million. The increased cash flow from operations in the
first quarter of 2000 provided the necessary cash for this debt reduction.
CAPITAL AND EXPLORATION EXPENDITURES
On an annual basis, we generally fund most of our capital and exploration
activities, excluding major oil and gas property acquisitions, with cash
generated from operations, and budget 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,
2000 1999
------ ------
(In millions)
<S> <C> <C>
Capital Expenditures
Drilling and Facilities.......................... $ 15.1 $ 11.6
Leasehold Acquisitions........................... 0.9 2.2
Pipeline and Gathering .......................... 0.4 0.4
Other............................................ 0.7 1.7
------ ------
17.1 15.9
Exploration Expenses............................... 3.2 2.4
------ ------
Total............................................ $ 20.3 $ 18.3
====== ======
</TABLE>
12
<PAGE>
Total capital and exploration expenditures in the first quarter of 2000
increased $2.0 million compared to the same quarter of 1999, primarily as a
result of increased drilling activity.
We plan to drill 110 gross wells in 2000 compared with 73 gross wells
drilled in 1999. This 2000 drilling program includes $88.9 million in total
capital and exploration expenditures, up from $88.1 million in 1999. Expected
spending in 2000 includes $49.1 million for drilling and facilities and $25.2
million in exploration expenses. In addition to the drilling and exploration
program, other 2000 capital expenditures are planned primarily for lease
acquisitions and for gathering and pipeline infrastructure maintenance and
construction. We will continue to assess the natural gas price environment and
may increase or decrease the capital and exploration expenditures accordingly.
COMMODITY PRICE SWAPS
From time to time, we enter into natural gas and crude oil swap agreements
with counterparties to hedge price risk associated with a portion of our
production. These derivatives are not held for trading purposes. Under these
price swaps, we receive a fixed price on a notional quantity of natural gas or
crude oil in exchange for paying a variable price based on a market-based index,
such as the NYMEX gas and crude oil futures. We did not enter into any natural
gas price swaps on our production for the first quarter of 2000. The notional
volume of the crude oil swap transactions was 182,000 Bbls at an average price
of $22.25 per Bbl, which represents most of our total oil production for the
quarter. We did not enter into any fixed price swaps to hedge oil or natural gas
production for the first quarter of 1999.
We also use price swaps to hedge the natural gas price risk on some
brokered transactions. Typically, we enter into contracts to broker natural gas
at a variable price based on the market index price. However, in some
circumstances, some of our customers or suppliers request that a fixed price be
stated in the contract. After entering into these fixed price contracts to meet
the needs of our customers or suppliers, we may use price swaps to effectively
convert these fixed price contracts to market-sensitive price contracts. These
price swaps are held by us to their maturity and are not held for trading
purposes.
During the first quarters of 2000 and 1999 we entered into price swaps with
total notional quantities of 1,164,800 and 670,000 Mmbtu, respectively, related
to our brokered activities representing 8% and 4%, respectively, of our total
volume of brokered natural gas sold.
As of the period ended March 31, 2000, we had open commodity price swap
contracts on our brokered activity as follows:
<TABLE>
<CAPTION>
Natural Gas Price Swaps
---------------------------------------------
Volume Weighted Unrealized
in Average Gain/(Loss)
Period Mmbtu Contract Price (in $ millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural Gas Price Swap on Brokered Transactions
- -----------------------------------------------
Second Quarter 2000.................. 300,000 $2.57 $ (0.0)
</TABLE>
Financial derivatives related to natural gas added revenues of $20,000 in
the first quarter of 2000 and reduced revenue by $91,000 in the same period of
1999.
13
<PAGE>
We had open oil price swap contracts on our production at March 31, 2000,
as follows:
<TABLE>
<CAPTION>
Oil Price Swaps
------------------------------------------
Volume Weighted Unrealized
in Average Gain/(Loss)
Contract Period Bbls Contract Price (in $ millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil Price Swaps on Our Production
- ---------------------------------
Second Quarter 2000............. 182,000 $23.08 $(0.6)
</TABLE>
Financial derivatives related to crude oil reduced revenue by $1.2 million
during the first quarter of 2000. There were no crude oil price swaps
outstanding at March 31, 1999.
We are exposed to market risk on these open contracts, to the extent of
changes in market prices of natural gas and oil. However, the market risk
exposure on these hedged contracts is generally offset by the gain or loss
recognized upon the ultimate sale of the commodity that is hedged.
CONCLUSION
Our financial results depend upon many factors, particularly the price of
natural gas and oil and our ability to market gas on economically attractive
terms. The average produced natural gas sales price received in the first
quarter of 2000 was up 34% over 1999, after declining 16% from the first quarter
of 1998 to 1999. The volatility of natural gas prices in recent years remains
prevalent in 2000 with wide price swings in day-to-day trading on the NYMEX
futures market. Given this continued price volatility, we cannot predict with
certainty what pricing levels will be in the future. Because future cash flows
are subject to these variables, we cannot assure you that our operations will
provide cash sufficient to fully fund our planned capital expenditures.
We believe our capital resources, supplemented with external financing, if
necessary, are adequate to meet our capital requirements.
The preceding paragraph contains forward-looking information. See
Forward-Looking Information on page 17.
14
<PAGE>
RESULTS OF OPERATIONS
For the purpose of reviewing our 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,
2000 1999
------ ------
(In millions, except where noted)
<S> <C> <C>
Net Operating Revenues......................... $ 35.3 $ 40.8
Net Operating Revenues......................... $ 49.6 $ 35.3
Operating Expenses............................. 34.8 32.4
Operating Income............................... 14.8 2.8
Interest Expense............................... 6.0 6.7
Net Income (Loss).............................. 4.5 (3.3)
Earnings (Loss) Per Share - Basic.............. $ 0.18 $(0.13)
Earnings (Loss) Per Share - Diluted............ $ 0.18 $(0.13)
Natural Gas Production (Bcf)
Appalachia................................... 4.5 5.6
West......................................... 7.3 7.4
Gulf Coast................................... 3.4 3.1
------ ------
Total Company................................ 15.2 16.1
====== ======
Natural Gas Production Sales Prices ($/Mcf)
Appalachia................................... $ 3.07 $ 2.25
West......................................... $ 2.26 $ 1.71
Gulf Coast................................... $ 2.55 $ 1.75
Total Company................................ $ 2.56 $ 1.91
Crude/Condensate
Volume (Mbbl)................................ 195 230
Price ($/Bbl)................................ $22.19 $11.53
Brokered Natural Gas Margin
Volume (Bcf)................................. 13.9 12.7
Margin ($/Mcf)............................... $ 0.10 $ 0.07
</TABLE>
The table below presents the after-tax effect of a selected item on our
results of operations for the three months ended March 31, 2000.
<TABLE>
<CAPTION>
(In millions, except per share amounts) Amount per share
- ------------------------------------------------------------------------
<S> <C> <C>
Net Income Before Selected Items.................... $ 2.8 $0.11
Benefit from miscellaneous net revenue (1)........ 1.7 0.07
-----------------
Net Income........................................ $ 4.5 $0.18
=================
(1) Represents net benefit, primarily from a contract settlement.
</TABLE>
This selected item impacted our first quarter financial results. Because it
is not a part of our normal business, we have isolated its effect in the table
above. This selected item represents miscellaneous net revenue, primarily from
the settlement of a natural gas sales contract. There were no selected items in
the first quarter of 1999. The discussion below excludes the impact of the
selected item.
15
<PAGE>
FIRST QUARTERS OF 2000 AND 1999 COMPARED
Net Income and Revenues. We reported net income before the selected items
in the first quarter of 2000 of $2.8 million, or $0.11 per share. During the
corresponding quarter of 1999, we reported a net loss of $3.3 million, or $0.13
per share. Operating revenues increased by $11.5 million and operating income
increased by $9.2 million. Natural gas made up 84%, or $39.1 million, of net
operating revenue. The increase in net operating revenues was driven primarily
by a 34% improvement in the average natural gas price, offset slightly by a 6%
decrease in natural gas production as discussed below. Net income and operating
income were similarly impacted by the increase in the average natural gas price.
Natural gas production volume in the Gulf Coast region was up 0.3 Bcf, or
10%, to 3.4 Bcf primarily due to production from the Oryx acquisition, and
discoveries and development in the Kacee field in south Texas in 1999. Natural
gas production volume in the Western region was down 0.1 Bcf to 7.3 Bcf
primarily due to a decrease in drilling activity in the Mid-Continent area
during 1999. Natural gas production volume in the Appalachian region was down
1.1 Bcf to 4.5 Bcf, as a result of the sale of certain non-strategic assets
effective October 1, 1999, and a decrease in drilling activity in the region in
1999. The decline in total natural gas production of 0.9 Bcf, or 6%, reduced
revenue by $1.5 million in the first quarter of 2000.
The average Gulf Coast natural gas production sales price rose $0.80 per
Mcf, or 46%, to $2.55, increasing net operating revenues by approximately $2.7
million. In the Western region, the average natural gas production sales price
increased $0.55 per Mcf, or 32%, to $2.26, increasing net operating revenues by
approximately $3.7 million. The average Appalachian natural gas production sales
price increased $0.82 per Mcf, or 36%, to $3.07, increasing net operating
revenues by approximately $3.6 million. The overall weighted average natural gas
production sales price increased $0.65 per Mcf, or 34%, to $2.56, increasing
revenues by $10.0 million.
Crude oil prices rose $10.66 per Bbl, or 92%, to $22.19, resulting in an
increase to net operating revenues of approximately $2.1 million. Our realized
oil price was impacted by the $1.2 million revenue reduction that resulted from
price swap activity as discussed in the Commodity Price Swaps section of this
document. In addition, the volume of crude oil sold in the quarter decreased by
35 Mbbls, or 15%, to 195 Mbbls, reducing net operating revenues by $0.4 million.
The brokered natural gas margin increased $0.6 million to $1.5 million. The
primary cause was a $0.03 per Mcf improvement to net margin that resulted in a
$0.5 million revenue increase. Additionally, we realized a 1.2 Bcf volume
improvement, resulting in a $0.1 million increase in brokered natural gas
margin.
Excluding the selected item regarding the net settlement on a contract
dispute, other net operating revenues increased $0.8 million to $1.9 million.
This improvement was a result of changes in activity in the following areas:
- Transportation revenue rose $0.6 million.
- A new natural gas liquids plant in Appalachia contributed an
additional $0.4 million.
- Section 29 revenues decreased slightly due to normal production
decline.
Costs and Expenses. Total costs and expenses from operations increased
$2.4 million in the first quarter of 2000 compared to the same quarter of 1999.
The primary reasons for this fluctuation are as follows:
- Direct operating expense increased $0.7 million, or 8%, primarily as a
result of costs associated with the expansion of the Gulf Coast
regional office, both in staffing and space. Additionally, we accrued
approximately $0.3 million for incentive compensation this quarter. In
1999, incentive compensation was accrued largely in the fourth
quarter.
- Exploration expense increased $0.8 million, or 33%, primarily as a
result of increases in delay rentals and geological and geophysical
expenses in the Gulf Coast region as a result of the increased
activity this year on the Continental Land & Fur acreage.
16
<PAGE>
- Taxes other than income rose $1.0 million, or 26%, as a result of
higher commodity prices realized this year.
- General and administrative costs rose $0.6 million, or 14%, equally as
a result of the increased cost associated with our new corporate
office space and this period's incentive compensation accrual. In
1999, incentive compensation was accrued largely in the fourth
quarter.
- Depreciation, depletion, amortization and impairment expense decreased
$0.6 million, or 4%, due to the decrease in natural gas and oil
production this quarter.
Interest expense decreased $0.7 million as a result of a lower average
level of outstanding debt during the first quarter of 2000 when compared to the
first quarter of 1999.
Income tax expense was up $4.9 million due to the comparable increase 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
our 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.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 - Awareness letter of independent accountants.
27 - Article 5. Financial Data Schedule for
First Quarter 2000 Form 10-Q
(b) Reports on Form 8-K
None
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABOT OIL & GAS CORPORATION
(Registrant)
May 2, 2000 By: /s/ Paul F. Boling
--------------------------------------------
Paul F. Boling, Vice President - Finance
(Principal Executive Officer Duly Authorized
to sign on Behalf of the Registrant)
By: /s/ Henry C. Smyth
--------------------------------------------
Henry C. Smyth, Controller
(Principal Accounting Officer)
19
<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 and Form S-3
Commissioners:
We are aware that our report dated April 25, 2000 on our review of the interim
condensed consolidated financial information of Cabot Oil & Gas Corporation (the
"Company") as of and for the three month period ended March 31, 2000 and
included in the Company's quarterly report on Form 10-Q for the quarter then
ended is incorporated by reference in its Registration Statements on Form S-8
filed with the Securities and Exchange Commission on June 23, 1990, November 1,
1993 and May 20, 1994 and Form S-3 filed with the Securities and Exchange
Commission on July 27, 1999. 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 2, 2000
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 836
<SECURITIES> 0
<RECEIVABLES> 49,650
<ALLOWANCES> (294)
<INVENTORY> 4,928
<CURRENT-ASSETS> 57,409
<PP&E> 1,100,839
<DEPRECIATION> (508,595)
<TOTAL-ASSETS> 652,092
<CURRENT-LIABILITIES> 88,799
<BONDS> 278,000
<COMMON> 202,146
0
56,700
<OTHER-SE> (67,398)
<TOTAL-LIABILITY-AND-EQUITY> 652,092
<SALES> 44,862
<TOTAL-REVENUES> 49,634
<CGS> 34,840
<TOTAL-COSTS> 34,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,971
<INCOME-PRETAX> 8,802
<INCOME-TAX> 3,457
<INCOME-CONTINUING> 5,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,345
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
