Sep 30, 2015 - the definitions of âlarge accelerated filer,â âaccelerated filerâ and âsmaller reporting .....
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2015
o 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 (State or other jurisdiction of incorporation or organization)
04-3072771 (I.R.S. Employer Identification Number)
Three Memorial City Plaza 840 Gessner Road, Suite 1400, Houston, Texas 77024 (Address of principal executive offices including ZIP code) (281) 589-4600 (Registrant’s telephone number, including area code) 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 ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý As of October 19, 2015, there were 413,874,655 shares of Common Stock, Par Value $.10 Per Share, outstanding.
Table of Contents CABOT OIL & GAS CORPORATION INDEX TO FINANCIAL STATEMENTS Page
Part I. Financial Information Item 1.
Financial Statements
Condensed Consolidated Balance Sheet (Unaudited) at September 30, 2015 and December 31, 2014
3
Condensed Consolidated Statement of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014
4
Condensed Consolidated Statement of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014
5
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2015 and 2014
6
Notes to the Condensed Consolidated Financial Statements
7
Report of Independent Registered Public Accounting Firm on Review of Interim Financial Information
19
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
31
Item 4.
Controls and Procedures
33
Part II. Other Information Item 1.
Legal Proceedings
33
Item 1A.
Risk Factors
33
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
33
Item 6.
Exhibits
34
Signatures
35 2
Table of Contents PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) September 30, 2015
(In thousands, except share amounts)
ASSETS Current assets Cash and cash equivalents Accounts receivable, net Income taxes receivable Inventories Derivative instruments Other current assets
$
Total current assets Properties and equipment, net (Successful efforts method) Equity method investments Other assets
8,773 119,743 16,218 18,283 48,445 3,959
December 31, 2014
$
215,421 5,141,404 93,408 34,439
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable Current portion of long-term debt Accrued liabilities Income taxes payable Deferred income taxes
20,954 235,397 3,612 14,026 137,603 1,855 413,447 4,925,711 68,029 30,529
$
5,484,672
$
5,437,716
$
191,341 20,000 39,123 2,448 12,673
$
400,076 — 63,669 — 35,273
Total current liabilities Postretirement benefits Long-term debt Deferred income taxes Asset retirement obligations Other liabilities Total liabilities
265,585
499,018
38,018 2,017,000 874,702 138,889 28,741
35,827 1,752,000 843,876 124,655 39,607
3,362,935
3,294,983
42,377 716,930 1,671,416 (2,151)
42,292 710,432 1,698,995 (2,151)
Commitments and contingencies Stockholders' equity Common stock: Authorized — 960,000,000 shares of $0.10 par value in 2015 and 2014, respectively Issued — 423,767,060 shares and 422,915,258 shares in 2015 and 2014, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Less treasury stock, at cost: 9,892,680 shares in 2015 and 2014, respectively
(306,835)
Total stockholders' equity
(306,835)
2,121,737 $
5,484,672
The accompanying notes are an integral part of these condensed consolidated financial statements. 3
2,142,733 $
5,437,716
Table of Contents CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended September 30, (In thousands, except per share amounts)
OPERATING REVENUES Natural gas Crude oil and condensate Gain (loss) on derivative instruments Brokered natural gas Other
2015
$
Nine Months Ended September 30,
2014
222,963 59,014 17,364 4,010 1,945
$
2015
347,970 82,563 71,906 6,501 3,077
$
2014
807,960 202,804 44,668 12,650 8,277
$
1,218,540 228,047 69,577 27,794 11,049
305,296
512,017
1,076,359
1,555,007
OPERATING EXPENSES Direct operations Transportation and gathering Brokered natural gas Taxes other than income Exploration Depreciation, depletion and amortization General and administrative
34,818 102,121 3,020 11,407 4,930 144,326 11,102
37,802 85,966 5,680 10,933 8,812 154,013 19,579
106,947 321,652 9,643 34,298 18,960 472,335 53,611
109,241 247,707 24,570 36,794 19,963 458,995 61,342
Earnings (loss) on equity method investments Gain (loss) on sale of assets
311,724 1,648 3,756
322,785 1,063 46
1,017,446 4,581 3,814
(1,024) 24,510
190,341 17,422
67,308 72,244
595,479 50,312
(25,534) (10,020)
172,919 72,131
(4,936) (2,169)
545,167 218,928
INCOME (LOSS) FROM OPERATIONS Interest expense Income (loss) before income taxes Income tax (benefit) expense
958,612 1,819 (2,735)
NET INCOME (LOSS)
$
(15,514)
$
100,788
$
(2,767)
$
326,239
Earnings (loss) per share Basic Diluted
$ $
(0.04) (0.04)
$ $
0.24 0.24
$ $
(0.01) (0.01)
$ $
0.78 0.78
Weighted-average common shares outstanding Basic Diluted Dividends per common share
413,846 413,846 $
0.02
416,173 418,093 $
0.02
413,636 413,636 $
The accompanying notes are an integral part of these condensed consolidated financial statements. 4
0.06
416,785 418,468 $
0.06
Table of Contents CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended September 30, (In thousands)
2015
Net income (loss) Other comprehensive income (loss), net of taxes: Reclassification adjustment for settled cash flow hedge contracts(1) Changes in fair value of cash flow hedge contracts(2)
$
Comprehensive income (loss) (1) (2)
2014
(15,514)
Total other comprehensive income (loss) $
Nine Months Ended September 30,
$
100,788
2015
$
2014
(2,767)
326,239
— —
12,965 —
— —
69,337 (80,175)
—
12,965
—
(10,838)
(15,514)
$
113,753
$
(2,767)
Net of income taxes of $(8,592) and $(45,951) for the three and nine months ended September 30, 2014, respectively. Net of income taxes of $53,135 for the nine months ended September 30, 2014. The accompanying notes are an integral part of these condensed consolidated financial statements. 5
$
$
315,401
Table of Contents CABOT OIL & GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (In thousands)
2015
CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation, depletion and amortization Deferred income tax expense (Gain) loss on sale of assets Exploratory dry hole cost (Gain) loss on derivative instruments Net cash received (paid) in settlement of derivative instruments Amortization of debt issuance costs Stock-based compensation and other Changes in assets and liabilities: Accounts receivable, net Income taxes Inventories Other current assets Accounts payable and accrued liabilities Other assets and liabilities Stock-based compensation tax benefit
$
2014
(2,767)
$
326,239
472,335 8,226 (3,814) 184 (44,668) 133,827 3,395 7,041
458,995 181,439 2,735 6,454 (69,577) 24,811 3,378 13,304
112,712 (10,158) (4,256) (2,106) (83,432) (1,565) —
30,418 (23,430) 3,737 (147) (9,712) 607 (6,001)
584,954
943,250
CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Acquisitions Proceeds from sale of assets Restricted cash Investment in equity method investments
(819,839) (16,312) 7,380 — (20,798)
(964,741) (15,826) 3,913 28,094 (28,784)
Net cash used in investing activities
(849,569)
(977,344)
790,000 (505,000) — (24,812) — (7,838) 84
1,802,000 (1,337,000) (119,767) (25,018) 6,001 (5,626) 91
Net cash provided by operating activities
CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from debt Repayments of debt Treasury stock repurchases Dividends paid Stock-based compensation tax benefit Capitalized debt issuance costs Other Net cash provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of period
252,434
320,681
(12,181) 20,954
286,587 23,400
$
Cash and cash equivalents, end of period Supplemental non-cash transactions: Change in accrued capital costs
8,773
(159,102)
The accompanying notes are an integral part of these condensed consolidated financial statements. 6
$
309,987
35,702
Table of Contents CABOT OIL & GAS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Financial Statement Presentation During interim periods, Cabot Oil & Gas Corporation (the Company) follows the same accounting policies disclosed in its Annual Report on Form 10-K for the year ended December 31, 2014 (Form 10-K) filed with the Securities and Exchange Commission (SEC). The interim financial statements should be read in conjunction with the notes to the consolidated financial statements and information presented in the Form 10-K. In management’s opinion, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair statement. The results for any interim period are not necessarily indicative of the expected results for the entire year. Certain reclassifications have been made to prior year statements to conform with the current year presentation. These reclassifications have no impact on previously reported net income (loss). With respect to the unaudited financial information of the Company as of September 30, 2015 and for the three and nine months ended September 30, 2015 and 2014, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated October 23, 2015 appearing herein states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 (the Act) for their report on the unaudited financial information because that report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act. Recent Accounting Pronouncements In March 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The guidance is effective for interim and annual periods beginning after December 15, 2015. The Company does not believe the adoption of this guidance will have a material effect on its financial position, results of operations or cash flows. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 201514, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of ASU No. 2014-09 by one year, making the new standard effective for interim and annual periods beginning after December 15, 2017. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption; however, entities reporting under U.S. GAAP are not permitted to adopt the standard earlier than the original effective date for public entities (that is, no earlier than 2017 for calendar year-end entities). The Company is currently evaluating the effect that adopting this guidance will have on its financial position, results of operations or cash flows. 7
Table of Contents 2. Properties and Equipment, Net Properties and equipment, net are comprised of the following:
September 30, 2015
(In thousands)
Proved oil and gas properties Unproved oil and gas properties Gathering and pipeline systems Land, building and other equipment
$
December 31, 2014
8,701,932 415,355 243,089 116,801
$
7,984,979 492,208 241,272 109,758
9,477,177 (4,335,773)
Accumulated depreciation, depletion and amortization $
5,141,404
8,828,217 (3,902,506) $
4,925,711
At September 30, 2015, the Company did not have any projects that had exploratory well costs capitalized for a period of greater than one year after drilling. 3. Equity Method Investments The Company holds a 25% equity interest in Constitution Pipeline Company, LLC (Constitution) and a 20% equity interest in Meade Pipeline Co LLC (Meade). Activity related to these equity method investments is as follows:
(In thousands)
Constitution
Meade
Nine Months Ended September 30,
Nine Months Ended September 30,
2015
2014
2015
Balance at beginning of period Contributions Earnings (loss) on equity method investments
$
64,269 13,500 4,608
$
26,892 26,575 1,938
$
Balance at end of period
$
82,377
$
55,405
$
3,760 7,298 (27) 11,031
Total Nine Months Ended September 30,
2014
2015
2014
$
— 2,209 (119)
$
68,029 20,798 4,581
$
26,892 28,784 1,819
$
2,090
$
93,408
$
57,495
The following table represents summarized financial information for Constitution as derived from the respective unaudited financial statements of Constitution for the nine months ended September 30, 2015 and 2014, respectively: Nine Months Ended September 30, 2015 (In thousands)
2015
Revenues Income (loss) from continuing operations Net income
$ $ $
— 19,366 19,366
2014
$ $ $
— 9,723 9,723
The Company records the activity for its equity method investments on a one month lag; however, the above summarized financial information represents Constitution's operations for the nine months ended September 30, 2015 and 2014, respectively. For further information regarding the Company’s equity method investments, refer to Note 4 of the Notes to the Consolidated Financial Statements in the Form 10-K. 8
Table of Contents 4. Debt and Credit Agreements The Company’s debt and credit agreements consisted of the following: September 30, 2015
(In thousands)
Total debt 7.33% weighted-average fixed rate notes 6.51% weighted-average fixed rate notes 9.78% fixed rate notes 5.58% weighted-average fixed rate notes 3.65% weighted-average fixed rate notes Revolving credit facility Current maturities 7.33% weighted-average fixed rate notes
$
20,000 425,000 67,000 175,000 925,000 425,000
$
2,017,000
December 31, 2014
$
20,000 425,000 67,000 175,000 925,000 140,000
$
1,752,000
(20,000)
Long-term debt, excluding current maturities
—
The Company was in compliance with all restrictive financial covenants for both the revolving credit facility and fixed rate notes as of September 30, 2015. Revolving credit facility At September 30, 2015, the Company had $425.0 million of borrowings outstanding under its revolving credit facility at a weighted-average interest rate of 2.1% and had unused commitments of $1.4 billion. The Company’s weighted-average effective interest rate under the revolving credit facility for the three months ended September 30, 2015 and 2014 was approximately 2.1% and 2.2%, respectively, and for the nine months ended September 30, 2015 and 2014 was approximately 2.2%. Effective April 17, 2015, the Company amended its revolving credit facility to extend the maturity date from May 2017 to April 2020 and change the mechanism under which interest rate margins are determined for outstanding borrowings. The revolving credit facility, as amended, provides for an increase in the borrowing base from $3.1 billion to $3.4 billion and an increase in commitments from $1.4 billion to $1.8 billion. The amended credit facility also provides for an accordion feature, which allows the Company to increase the available credit line up to an additional $500 million if one or more of the existing or new banks agree to provide such increased amount. The borrowing base is redetermined annually under the terms of the revolving credit facility on April 1. In addition, either the Company or the banks may request an interim redetermination twice a year or in conjunction with certain acquisitions or sales of oil and gas properties. Interest rates under the amended credit facility are based on Eurodollar (LIBOR) or alternate base rate (ABR) indications, plus a margin. The associated margins are based on the Company's leverage ratio as shown below: Leverage Ratio (1)
