UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 20192020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-10447
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CABOT OIL & GAS CORPORATION |
(Exact name of registrant as specified in its charter) |
|
| | | | | | | |
Delaware | | 04-3072771 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification Number)
|
Three Memorial City Plaza
840 Gessner Road,Suite 1400,Houston,Texas77024
(Address of principal executive offices including ZIP code)
(281) (281) 589-4600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: |
| | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.10 per share | COG | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
| | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 23, 2019,28, 2020, there were 407,924,673398,579,881 shares of Common Stock, Par Value $0.10 Per Share, outstanding.
CABOT OIL & GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
ITEM 1.Financial Statements
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) | | (In thousands, except share amounts) | | September 30, 2019 | | December 31, 2018 | (In thousands, except share amounts) | | September 30, 2020 | | December 31, 2019 |
ASSETS | | |
| | |
| ASSETS | | | | |
Current assets | | |
| | |
| Current assets | | | | |
Cash and cash equivalents | | $ | 82,316 |
| | $ | 2,287 |
| Cash and cash equivalents | | $ | 170 | | | $ | 200,227 | |
Restricted cash | | Restricted cash | | 11,578 | | | 13,556 | |
Accounts receivable, net | | 159,239 |
| | 362,403 |
| Accounts receivable, net | | 136,738 | | | 209,023 | |
Income taxes receivable | | 133,028 |
| | 109,251 |
| Income taxes receivable | | 156,815 | | | 129,795 | |
Inventories | | 18,195 |
| | 11,076 |
| Inventories | | 14,929 | | | 13,932 | |
Derivative instruments | | 25,700 |
| | 57,665 |
| |
| Other current assets | | 3,201 |
| | 1,863 |
| Other current assets | | 2,322 | | | 1,715 | |
Total current assets | | 421,679 |
| | 544,545 |
| Total current assets | | 322,552 | | | 568,248 | |
Properties and equipment, net (Successful efforts method) | | 3,787,581 |
| | 3,463,606 |
| Properties and equipment, net (Successful efforts method) | | 4,034,680 | | | 3,855,706 | |
Equity method investments | | 169,086 |
| | 163,181 |
| |
| Other assets | | 64,319 |
| | 27,497 |
| Other assets | | 62,073 | | | 63,291 | |
| | | $ | 4,419,305 | | | $ | 4,487,245 | |
| | $ | 4,442,665 |
| | $ | 4,198,829 |
| |
LIABILITIES AND STOCKHOLDERS' EQUITY | | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current liabilities | | |
| | |
| Current liabilities | | | | |
Accounts payable | | $ | 172,732 |
| | $ | 241,939 |
| Accounts payable | | $ | 151,662 | | | $ | 189,811 | |
Current portion of long-term debt | | 87,000 |
| | — |
| Current portion of long-term debt | | 188,000 | | | 87,000 | |
Accrued liabilities | | 27,780 |
| | 25,227 |
| Accrued liabilities | | 28,396 | | | 31,290 | |
Interest payable | | 7,273 |
| | 20,098 |
| Interest payable | | 6,242 | | | 19,933 | |
| Derivative instruments | | Derivative instruments | | 11,628 | | | 0 | |
| Total current liabilities | | 294,785 |
| | 287,264 |
| Total current liabilities | | 385,928 | | | 328,034 | |
Long-term debt, net | | 1,132,790 |
| | 1,226,104 |
| Long-term debt, net | | 973,712 | | | 1,133,025 | |
| Deferred income taxes | | 647,473 |
| | 458,597 |
| Deferred income taxes | | 748,489 | | | 702,104 | |
Asset retirement obligations | | 56,968 |
| | 50,622 |
| Asset retirement obligations | | 83,670 | | | 71,598 | |
| Postretirement benefits | | 29,427 |
| | 27,912 |
| Postretirement benefits | | 33,749 | | | 32,713 | |
Other liabilities | | 67,646 |
| | 60,171 |
| Other liabilities | | 75,269 | | | 68,284 | |
Total liabilities | | 2,229,089 |
| | 2,110,670 |
| Total liabilities | | 2,300,817 | | | 2,335,758 | |
| Commitments and contingencies | |
| |
| Commitments and contingencies | |
| Stockholders' equity | | |
| | |
| Stockholders' equity | | | | |
Common stock: | | |
| | |
| Common stock: | | | | |
Authorized — 960,000,000 shares of $0.10 par value in 2019 and 2018, respectively | | |
| | |
| |
Issued — 476,881,612 shares and 476,094,551 shares in 2019 and 2018, respectively | | 47,688 |
| | 47,610 |
| |
Authorized — 960,000,000 shares of $0.10 par value in 2020 and 2019, respectively | | Authorized — 960,000,000 shares of $0.10 par value in 2020 and 2019, respectively | | | | |
Issued — 477,537,199 shares and 476,881,991 shares in 2020 and 2019, respectively | | Issued — 477,537,199 shares and 476,881,991 shares in 2020 and 2019, respectively | | 47,754 | | | 47,688 | |
Additional paid-in capital | | 1,775,579 |
| | 1,763,142 |
| Additional paid-in capital | | 1,800,002 | | | 1,782,427 | |
Retained earnings | | 2,037,066 |
| | 1,607,658 |
| Retained earnings | | 2,093,004 | | | 2,143,213 | |
Accumulated other comprehensive income | | 4,027 |
| | 4,437 |
| Accumulated other comprehensive income | | 929 | | | 1,360 | |
Less treasury stock, at cost: | | |
| | |
| Less treasury stock, at cost: | | | | |
68,957,318 shares and 53,409,705 shares in 2019 and 2018, respectively | | (1,650,784 | ) | | (1,334,688 | ) | |
78,957,318 shares and 78,957,318 shares in 2020 and 2019, respectively | | 78,957,318 shares and 78,957,318 shares in 2020 and 2019, respectively | | (1,823,201) | | | (1,823,201) | |
Total stockholders' equity | | 2,213,576 |
| | 2,088,159 |
| Total stockholders' equity | | 2,118,488 | | | 2,151,487 | |
| | $ | 4,442,665 |
| | $ | 4,198,829 |
| | | $ | 4,419,305 | | | $ | 4,487,245 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands, except per share amounts) | | 2019 | | 2018 | | 2019 | | 2018 | (In thousands, except per share amounts) | | 2020 | | 2019 | | 2020 | | 2019 |
OPERATING REVENUES | | |
| | |
| | |
| | |
| OPERATING REVENUES | | | | | | | | |
Natural gas | | $ | 418,133 |
| | $ | 440,835 |
| | $ | 1,521,789 |
| | $ | 1,217,603 |
| Natural gas | | $ | 333,256 | | | $ | 418,133 | | | $ | 991,882 | | | $ | 1,521,789 | |
Crude oil and condensate | | — |
| | — |
| | — |
| | 48,722 |
| |
Gain (loss) on derivative instruments | | 11,060 |
| | (3,537 | ) | | 82,966 |
| | (1,628 | ) | |
Brokered natural gas | | — |
| | 105,849 |
| | — |
| | 203,375 |
| |
(Loss) gain on derivative instruments | | (Loss) gain on derivative instruments | | (42,253) | | | 11,060 | | | 17,783 | | | 82,966 | |
Other | | (82 | ) | | 2,026 |
| | 154 |
| | 3,775 |
| Other | | 38 | | | (82) | | | 181 | | | 154 | |
| | 429,111 |
| | 545,173 |
| | 1,604,909 |
| | 1,471,847 |
| | | 291,041 | | | 429,111 | | | 1,009,846 | | | 1,604,909 | |
OPERATING EXPENSES | | |
| | |
| | |
| | |
| OPERATING EXPENSES | | | | | | | | |
Direct operations | | 19,181 |
| | 17,030 |
| | 55,608 |
| | 52,757 |
| Direct operations | | 20,197 | | | 19,181 | | | 54,864 | | | 55,608 | |
Transportation and gathering | | 145,681 |
| | 129,534 |
| | 424,703 |
| | 355,848 |
| Transportation and gathering | | 146,982 | | | 145,681 | | | 425,563 | | | 424,703 | |
Brokered natural gas | | — |
| | 93,405 |
| | — |
| | 178,437 |
| |
Taxes other than income | | 4,607 |
| | 2,852 |
| | 14,094 |
| | 15,434 |
| Taxes other than income | | 3,615 | | | 4,607 | | | 10,705 | | | 14,094 | |
Exploration | | 4,481 |
| | 10,049 |
| | 15,029 |
| | 68,166 |
| Exploration | | 3,900 | | | 4,481 | | | 10,669 | | | 15,029 | |
Depreciation, depletion and amortization | | 110,889 |
| | 121,172 |
| | 299,294 |
| | 288,210 |
| Depreciation, depletion and amortization | | 99,649 | | | 110,889 | | | 294,406 | | | 299,294 | |
| General and administrative | | 18,391 |
| | 20,724 |
| | 72,370 |
| | 66,013 |
| General and administrative | | 24,262 | | | 18,391 | | | 80,857 | | | 72,370 | |
| | 303,230 |
| | 394,766 |
| | 881,098 |
| | 1,024,865 |
| | | 298,605 | | | 303,230 | | | 877,064 | | | 881,098 | |
Earnings (loss) on equity method investments | | 3,860 |
| | (11 | ) | | 11,194 |
| | (1,009 | ) | Earnings (loss) on equity method investments | | 0 | | | 3,860 | | | (59) | | | 11,194 | |
Gain (loss) on sale of assets | | 36 |
| | 25,655 |
| | (1,464 | ) | | (14,850 | ) | Gain (loss) on sale of assets | | 31 | | | 36 | | | (139) | | | (1,464) | |
INCOME FROM OPERATIONS | | 129,777 |
| | 176,051 |
| | 733,541 |
| | 431,123 |
| |
(LOSS) INCOME FROM OPERATIONS | | (LOSS) INCOME FROM OPERATIONS | | (7,533) | | | 129,777 | | | 132,584 | | | 733,541 | |
Interest expense, net | | 13,554 |
| | 14,191 |
| | 40,302 |
| | 57,577 |
| Interest expense, net | | 14,389 | | | 13,554 | | | 43,143 | | | 40,302 | |
| Other expense | | 143 |
| | 115 |
| | 430 |
| | 347 |
| Other expense | | 57 | | | 143 | | | 171 | | | 430 | |
Income before income taxes | | 116,080 |
| | 161,745 |
| | 692,809 |
| | 373,199 |
| |
Income tax expense | | 25,722 |
| | 39,408 |
| | 158,679 |
| | 91,201 |
| |
NET INCOME | | $ | 90,358 |
| | $ | 122,337 |
| | $ | 534,130 |
| | $ | 281,998 |
| |
(Loss) income before income taxes | | (Loss) income before income taxes | | (21,979) | | | 116,080 | | | 89,270 | | | 692,809 | |
Income tax (benefit) expense | | Income tax (benefit) expense | | (7,018) | | | 25,722 | | | 19,947 | | | 158,679 | |
NET (LOSS) INCOME | | NET (LOSS) INCOME | | $ | (14,961) | | | $ | 90,358 | | | $ | 69,323 | | | $ | 534,130 | |
| | | | | | | | | | | | | | | | |
Earnings per share | | |
| | |
| | |
| | |
| |
(Loss) earnings per share | | (Loss) earnings per share | | | | | | | | |
Basic | | $ | 0.22 |
| | $ | 0.28 |
| | $ | 1.27 |
| | $ | 0.63 |
| Basic | | $ | (0.04) | | | $ | 0.22 | | | $ | 0.17 | | | $ | 1.27 | |
Diluted | | $ | 0.22 |
| | $ | 0.28 |
| | $ | 1.27 |
| | $ | 0.62 |
| Diluted | | $ | (0.04) | | | $ | 0.22 | | | $ | 0.17 | | | $ | 1.27 | |
| | | | | | | | | |
Weighted-average common shares outstanding | | |
| | |
| | |
| | |
| Weighted-average common shares outstanding | | | | | | | | |
Basic | | 412,456 |
| | 440,772 |
| | 419,199 |
| | 450,445 |
| Basic | | 398,580 | | | 412,456 | | | 398,500 | | | 419,199 | |
Diluted | | 414,462 |
| | 443,110 |
| | 421,101 |
| | 452,313 |
| Diluted | | 398,580 | | | 414,462 | | | 400,628 | | | 421,101 | |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
| | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | (In thousands) | | 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES | | |
| | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
Net income | | $ | 534,130 |
| | $ | 281,998 |
| Net income | | $ | 69,323 | | | $ | 534,130 | |
Adjustments to reconcile net income to cash provided by operating activities: | | |
| | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | |
Depreciation, depletion and amortization | | 299,294 |
| | 288,210 |
| Depreciation, depletion and amortization | | 294,406 | | | 299,294 | |
| Deferred income tax expense | | 188,997 |
| | 131,799 |
| Deferred income tax expense | | 46,513 | | | 188,997 | |
Loss on sale of assets | | 1,464 |
| | 14,850 |
| Loss on sale of assets | | 139 | | | 1,464 | |
Exploratory dry hole cost | | 16 |
| | 56,425 |
| Exploratory dry hole cost | | 2,011 | | | 16 | |
(Gain) loss on derivative instruments | | (82,966 | ) | | 1,628 |
| |
Net cash received (paid) in settlement of derivative instruments | | 114,931 |
| | (20,354 | ) | |
(Earnings) loss on equity method investments | | (11,194 | ) | | 1,009 |
| |
Gain on derivative instruments | | Gain on derivative instruments | | (17,783) | | | (82,966) | |
Net cash received in settlement of derivative instruments | | Net cash received in settlement of derivative instruments | | 33,529 | | | 114,931 | |
Loss (earnings) on equity method investments | | Loss (earnings) on equity method investments | | 59 | | | (11,194) | |
Distribution of earnings from equity method investments | | 12,610 |
| | — |
| Distribution of earnings from equity method investments | | 0 | | | 12,610 | |
Amortization of debt issuance costs | | 3,219 |
| | 3,521 |
| Amortization of debt issuance costs | | 2,234 | | | 3,219 | |
Stock-based compensation and other | | 22,720 |
| | 16,472 |
| Stock-based compensation and other | | 34,204 | | | 22,720 | |
Changes in assets and liabilities: | | |
| | |
| Changes in assets and liabilities: | | | | |
Accounts receivable, net | | 203,164 |
| | (7,345 | ) | Accounts receivable, net | | 72,285 | | | 203,164 | |
Income taxes | | (16,746 | ) | | (14,447 | ) | Income taxes | | (27,020) | | | (16,746) | |
Inventories | | (7,119 | ) | | (5,326 | ) | Inventories | | (1,433) | | | (7,119) | |
Other current assets | | (1,338 | ) | | 104 |
| Other current assets | | (637) | | | (1,338) | |
Accounts payable and accrued liabilities | | (43,413 | ) | | 32,192 |
| Accounts payable and accrued liabilities | | (25,118) | | | (43,413) | |
Interest payable | | (12,825 | ) | | (18,474 | ) | Interest payable | | (13,691) | | | (12,825) | |
Other assets and liabilities | | (22,133 | ) | | 26,590 |
| Other assets and liabilities | | 1,372 | | | (22,133) | |
| Net cash provided by operating activities | | 1,182,811 |
| | 788,852 |
| Net cash provided by operating activities | | 470,393 | | | 1,182,811 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
Capital expenditures | | (620,696 | ) | | (647,503 | ) | Capital expenditures | | (478,422) | | | (620,696) | |
| Proceeds from sale of assets | | 2,401 |
| | 675,525 |
| Proceeds from sale of assets | | 335 | | | 2,401 | |
Investment in equity method investments | | (8,977 | ) | | (72,866 | ) | Investment in equity method investments | | (35) | | | (8,977) | |
Distribution of investment from equity method investments | | 1,656 |
| | — |
| Distribution of investment from equity method investments | | 0 | | | 1,656 | |
Proceeds from sale of equity method investments | | Proceeds from sale of equity method investments | | (9,424) | | | 0 | |
Net cash used in investing activities | | (625,616 | ) | | (44,844 | ) | Net cash used in investing activities | | (487,546) | | | (625,616) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
Borrowings from debt | | 95,000 |
| | — |
| Borrowings from debt | | 123,000 | | | 95,000 | |
Repayments of debt | | (102,000 | ) | | (237,000 | ) | Repayments of debt | | (182,000) | | | (102,000) | |
Treasury stock repurchases | | (347,446 | ) | | (581,725 | ) | Treasury stock repurchases | | 0 | | | (347,446) | |
| Dividends paid | | (104,722 | ) | | (81,185 | ) | Dividends paid | | (119,532) | | | (104,722) | |
| Tax withholdings on vesting of stock awards | | (10,587 | ) | | (8,068 | ) | Tax withholdings on vesting of stock awards | | (6,350) | | | (10,587) | |
Capitalized debt issuance costs | | (7,411 | ) | | — |
| Capitalized debt issuance costs | | 0 | | | (7,411) | |
| Net cash used in financing activities | | (477,166 | ) | | (907,978 | ) | Net cash used in financing activities | | (184,882) | | | (477,166) | |
Net increase (decrease) in cash and cash equivalents | | 80,029 |
| | (163,970 | ) | |
Cash and cash equivalents, beginning of period | | 2,287 |
| | 480,047 |
| |
Cash and cash equivalents, end of period | | $ | 82,316 |
| | $ | 316,077 |
| |
| Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | | (202,035) | | | 80,029 | |
Cash, cash equivalents and restricted cash, beginning of period | | Cash, cash equivalents and restricted cash, beginning of period | | 213,783 | | | 2,287 | |
Cash, cash equivalents and restricted cash, end of period | | Cash, cash equivalents and restricted cash, end of period | | $ | 11,748 | | | $ | 82,316 | |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
| (In thousands, except per share amounts) | | (In thousands, except per share amounts) | | Common Shares | | Common Stock Par | | Treasury Shares | | Treasury Stock | | Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total |
Balance at December 31, 2019 | | Balance at December 31, 2019 | | 476,882 | | | $ | 47,688 | | | 78,957 | | | $ | (1,823,201) | | | $ | 1,782,427 | | | $ | 1,360 | | | $ | 2,143,213 | | | $ | 2,151,487 | |
Net income | | Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 53,910 | | | 53,910 | |
| Stock amortization and vesting | | Stock amortization and vesting | | 651 | | | 65 | | | — | | | — | | | 2,886 | | | — | | | — | | | 2,951 | |
| | (In thousands, except per share amounts) | | Common Shares | | Common Stock Par | | Treasury Shares | | Treasury Stock | | Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | |
Balance at December 31, 2018 | | 476,095 |
| | $ | 47,610 |
| | 53,410 |
| | $ | (1,334,688 | ) | | $ | 1,763,142 |
| | $ | 4,437 |
| | $ | 1,607,658 |
| | $ | 2,088,159 |
| |
| Cash dividends at $0.10 per share | | Cash dividends at $0.10 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (39,817) | | | (39,817) | |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (136) | | | — | | | (136) | |
| Balance at March 31, 2020 | | Balance at March 31, 2020 | | 477,533 | | | $ | 47,753 | | | 78,957 | | | $ | (1,823,201) | | | $ | 1,785,313 | | | $ | 1,224 | | | $ | 2,157,306 | | | $ | 2,168,395 | |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 262,763 |
| | 262,763 |
| Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 30,374 | | | 30,374 | |
| Stock amortization and vesting | | 682 |
| | 68 |
| | — |
| | — |
| | (281 | ) | | — |
| | — |
| | (213 | ) | Stock amortization and vesting | | 2 | | | 1 | | | — | | | — | | | 7,218 | | | — | | | — | | | 7,219 | |
Purchase of treasury stock | | — |
| | — |
| | — |
| | (28 | ) | | — |
| | — |
| | — |
| | (28 | ) | |
Cash dividends at $0.07 per share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29,605 | ) | | (29,605 | ) | |
| Cash dividends at $0.10 per share | | Cash dividends at $0.10 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (39,858) | | | (39,858) | |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (137 | ) | | — |
| | (137 | ) | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (151) | | | — | | | (151) | |
Balance at March 31, 2019 | | 476,777 |
| | $ | 47,678 |
| | 53,410 |
| | $ | (1,334,716 | ) | | $ | 1,762,861 |
| | $ | 4,300 |
| | $ | 1,840,816 |
| | $ | 2,320,939 |
| |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 181,009 |
| | 181,009 |
| |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | | 477,535 | | | $ | 47,754 | | | 78,957 | | | $ | (1,823,201) | | | $ | 1,792,531 | | | $ | 1,073 | | | $ | 2,147,822 | | | $ | 2,165,979 | |
Net loss | | Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (14,961) | | | (14,961) | |
| Stock amortization and vesting | | 102 |
| | 10 |
| | — |
| | — |
| | 6,334 |
| | — |
| | — |
| | 6,344 |
| Stock amortization and vesting | | 2 | | | — | | | — | | | — | | | 7,471 | | | — | | | — | | | 7,471 | |
Purchase of treasury stock | | — |
| | — |
| | 5,081 |
| | (125,260 | ) | | — |
| | — |
| | — |
| | (125,260 | ) | |
Cash dividends at $0.09 per share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (38,092 | ) | | (38,092 | ) | |
| Cash dividends at $0.10 per share | | Cash dividends at $0.10 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (39,857) | | | (39,857) | |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (136 | ) | | — |
| | (136 | ) | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (144) | | | — | | | (144) | |
Balance at June 30, 2019 | | 476,879 |
| | $ | 47,688 |
| | 58,491 |
| | $ | (1,459,976 | ) | | $ | 1,769,195 |
| | $ | 4,164 |
| | $ | 1,983,733 |
| | $ | 2,344,804 |
| |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 90,358 |
| | 90,358 |
| |
Stock amortization and vesting | | 3 |
| | — |
| | — |
| | — |
| | 6,384 |
| | — |
| | — |
| | 6,384 |
| |
Purchase of treasury stock | | — |
| | — |
| | 10,466 |
| | (190,808 | ) | | — |
| | — |
| | — |
| | (190,808 | ) | |
Cash dividends at $0.09 per share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (37,025 | ) | | (37,025 | ) | |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (137 | ) | | — |
| | (137 | ) | |
Balance at September 30, 2019 | | 476,882 |
| | $ | 47,688 |
| | 68,957 |
| | $ | (1,650,784 | ) | | $ | 1,775,579 |
| | $ | 4,027 |
| | $ | 2,037,066 |
| | $ | 2,213,576 |
| |
| Balance at September 30, 2020 | | Balance at September 30, 2020 | | 477,537 | | | $ | 47,754 | | | 78,957 | | | $ | (1,823,201) | | | $ | 1,800,002 | | | $ | 929 | | | $ | 2,093,004 | | | $ | 2,118,488 | |
|
| (In thousands, except per share amounts) | | (In thousands, except per share amounts) | | Common Shares | | Common Stock Par | | Treasury Shares | | Treasury Stock | | Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total |
Balance at December 31, 2018 | | Balance at December 31, 2018 | | 476,095 | | | $ | 47,610 | | | 53,410 | | | $ | (1,334,688) | | | $ | 1,763,142 | | | $ | 4,437 | | | $ | 1,607,658 | | | $ | 2,088,159 | |
Net income | | Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 262,763 | | | 262,763 | |
| | (In thousands, except per share amounts) | | Common Shares | | Common Stock Par | | Treasury Shares | | Treasury Stock | | Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | |
Balance at December 31, 2017 | | 475,547 |
| | $ | 47,555 |
| | 14,936 |
| | $ | (430,576 | ) | | $ | 1,742,419 |
| | $ | 2,077 |
| | $ | 1,162,430 |
| | $ | 2,523,905 |
| |
Stock amortization and vesting | | Stock amortization and vesting | | 682 | | | 68 | | | — | | | — | | | (281) | | | — | | | — | | | (213) | |
| Purchase of treasury stock | | Purchase of treasury stock | | — | | | — | | | — | | | (28) | | | — | | | — | | | — | | | (28) | |
Cash dividends at $0.07 per share | | Cash dividends at $0.07 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (29,605) | | | (29,605) | |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (137) | | | — | | | (137) | |
| Balance at March 31, 2019 | | Balance at March 31, 2019 | | 476,777 | | | $ | 47,678 | | | 53,410 | | | $ | (1,334,716) | | | $ | 1,762,861 | | | $ | 4,300 | | | $ | 1,840,816 | | | $ | 2,320,939 | |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 117,231 |
| | 117,231 |
| Net income | | — | | — | | | — | | | — | | | — | | | — | | | 181,009 | | | 181,009 | |
| Stock amortization and vesting | | Stock amortization and vesting | | 102 | | | 10 | | | — | | | — | | | 6,334 | | | — | | | — | | | 6,344 | |
| Purchase of treasury stock | | Purchase of treasury stock | | — | | | — | | | 5,081 | | | (125,260) | | | — | | | — | | | — | | | (125,260) | |
Cash dividends at $0.09 per share | | Cash dividends at $0.09 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (38,092) | | | (38,092) | |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (136) | | | — | | | (136) | |
| Balance at June 30, 2019 | | Balance at June 30, 2019 | | 476,879 | | | $ | 47,688 | | | 58,491 | | | $ | (1,459,976) | | | $ | 1,769,195 | | | $ | 4,164 | | | $ | 1,983,733 | | | $ | 2,344,804 | |
Net income | | Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 90,358 | | | 90,358 | |
| Stock amortization and vesting | | 534 |
| | 53 |
| | — |
| | — |
| | 249 |
| | — |
| | — |
| | 302 |
| Stock amortization and vesting | | 3 | | | — | | | — | | | — | | | 6,384 | | | — | | | — | | | 6,384 | |
Purchase of treasury stock | | — |
| | — |
| | 8,328 |
| | (207,135 | ) | | — |
| | — |
| | — |
| | (207,135 | ) | Purchase of treasury stock | | — | | | — | | | 10,466 | | | (190,808) | | | — | | | — | | | — | | | (190,808) | |
Cash dividends at $0.06 per share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (27,647 | ) | | (27,647 | ) | |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 306 |
| | — |
| | 306 |
| |
Cumulative impact from accounting change | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (446 | ) | | (446 | ) | |
Balance at March 31, 2018 | | 476,081 |
| | $ | 47,608 |
| | 23,264 |
| | $ | (637,711 | ) | | $ | 1,742,668 |
| | $ | 2,383 |
| | $ | 1,251,568 |
| | $ | 2,406,516 |
| |
Net income | | — | | — |
| | — |
| | — |
| | — |
| | — |
| | 42,431 |
| | 42,431 |
| |
Exercise of stock appreciation rights | | 3 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| |
Stock amortization and vesting | | 2 |
| | — |
| | — |
| | — |
| | 6,769 |
| | — |
| | — |
| | 6,769 |
| |
Purchase of treasury stock | | — |
| | — |
| | 11,646 |
| | (274,337 | ) | | — |
| | — |
| | — |
| | (274,337 | ) | |
Cash dividends at $0.06 per share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (27,071 | ) | | (27,071 | ) | |
Cash dividends at $0.09 per share | | Cash dividends at $0.09 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (37,025) | | | (37,025) | |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (135 | ) | | — |
| | (135 | ) | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (137) | | | — | | | (137) | |
Balance at June 30, 2018 | | 476,086 |
| | $ | 47,609 |
| | 34,910 |
| | $ | (912,048 | ) | | $ | 1,749,437 |
| | $ | 2,248 |
| | $ | 1,266,928 |
| | $ | 2,154,174 |
| |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 122,337 |
| | 122,337 |
| |
Exercise of stock appreciation rights | | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Stock amortization and vesting | | 1 |
| | — |
| | — |
| | — |
| | 6,900 |
| | — |
| | — |
| | 6,900 |
| |
Purchase of treasury stock | | — |
| | — |
| | 7,170 |
| | (162,660 | ) | | — |
| | — |
| | — |
| | (162,660 | ) | |
Cash dividends at $0.06 per share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (26,468 | ) | | (26,468 | ) | |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (136 | ) | | — |
| | (136 | ) | |
Balance at September 30, 2018 | | 476,089 |
| | $ | 47,609 |
| | 42,080 |
| | $ | (1,074,708 | ) | | $ | 1,756,337 |
| | $ | 2,112 |
| | $ | 1,362,797 |
| | $ | 2,094,147 |
| |
Balance at September 30, 2019 | | Balance at September 30, 2019 | | 476,882 | | | $ | 47,688 | | | 68,957 | | | $ | (1,650,784) | | | $ | 1,775,579 | | | $ | 4,027 | | | $ | 2,037,066 | | | $ | 2,213,576 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 20182019 (Form 10-K) filed with the Securities and Exchange Commission (SEC), except for any new accounting pronouncements adopted during the period as discussed below. 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 stockholders' equity, net income (loss) or cash flows.
Cash and Cash Equivalents
From time to time, the Company may be in the position of a book overdraft in which outstanding checks exceed cash and cash equivalents. The Company classified book overdrafts in accounts payable in the Condensed Consolidated Balance Sheet, and classified the change in accounts payable associated with book overdrafts as an operating activity in the Condensed Consolidated Statement of Cash Flows. As of September 30, 2020, the book overdraft included within accounts payable was $7.8 million. There was 0 book overdraft within accounts payable as of December 31, 2019.
Recently Adopted Accounting Pronouncements
Leases.Financial Instruments: Credit Losses. In FebruaryJune 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842)2016-13, Financial Instruments: Credit Losses, which replaces the incurred loss impairment methodology used for certain financial instruments with a methodology that reflects current expected credit losses (CECL). ASU No. 2016-13, along with subsequently issued codification improvements, was effective for the Company on January 1, 2020, and was applied using a modified retrospective approach. The new lease guidance supersedes Topic 840.Company's historical credit losses have not been material, and future expected credit losses under the CECL model are not expected to be material. The core principleadoption of ASU No. 2016-13 did not have a material effect on the guidance is that entities should recognize the assets and liabilities that arise from leases. This ASU doesCompany's financial position, results of operations or cash flows; however, it modified certain disclosure requirements which were not apply to leases to explore for or use minerals, oil, natural gas and similar nonregenerative resources, including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained.material.
Fair Value Measurements. In JulyAugust 2018, the FASB issued ASU No. 2018-11, Leases2018-13, Fair Value Measurement (Topic 842)820): Targeted Improvements, which provides entities with an optional transition method that permits an entity to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustmentDisclosure Framework - Changes to the opening balance of retained earnings inDisclosure Requirements for Fair Value Measurement, which modifies the period of adoption. The guidance is effectivedisclosure requirements by adding, removing and modifying certain required disclosures for interimfair value measurements for assets and annual periods beginning after December 15, 2018. This ASU was adopted using a modified retrospective approach.liabilities disclosed within the fair value hierarchy. The Company adopted this guidanceASU No. 2018-13 effective January 1, 2019 by applying the optional transition approach as of the beginning of the period of adoption. Comparative periods, including the disclosures related to those periods, were not restated.
On the adoption date, the Company elected the following practical expedients which are provided in the lease standard:
an election not to apply the recognition requirements in the lease standard to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise);
a package of practical expedients to not reassess whether a contract is or contains a lease, lease classification and initial direct costs;
a practical expedient to use hindsight when determining the lease term;
a practical expedient that permits combining lease and non-lease components in a contract and accounting for the combination as a lease (elected by asset class); and
a practical expedient to not reassess certain land easements in existence prior to January 1, 2019.
On January 1, 2019, the Company recognized a right of use asset for operating leases and an operating lease liability of $44.6 million, representing the present value of the future minimum lease payment obligations associated with office leases, drilling rig commitments, surface use agreements and other leases.2020. The adoption of this guidanceASU No. 2018-13 did not have an impactany effect on the Company’sCompany's financial position, results of operations or cash flows.flows; however, it modified certain disclosure requirements which were not material.
Refer to Note 8 for more details regarding leases.
2. Properties and Equipment, Net
Properties and equipment, net are comprised of the following:
|
| | | | | | | | |
(In thousands) | | September 30, 2019 | | December 31, 2018 |
Proved oil and gas properties | | $ | 6,339,234 |
| | $ | 5,717,145 |
|
Unproved oil and gas properties | | 164,100 |
| | 194,435 |
|
Land, buildings and other equipment | | 101,901 |
| | 94,797 |
|
| | 6,605,235 |
| | 6,006,377 |
|
Accumulated depreciation, depletion and amortization | | (2,817,654 | ) | | (2,542,771 | ) |
| | $ | 3,787,581 |
| | $ | 3,463,606 |
|
| | | | | | | | | | | | | | |
(In thousands) | | September 30, 2020 | | December 31, 2019 |
Proved oil and gas properties | | $ | 6,983,502 | | | $ | 6,508,443 | |
Unproved oil and gas properties | | 58,329 | | | 133,475 | |
Land, buildings and other equipment | | 108,325 | | | 104,700 | |
| | 7,150,156 | | | 6,746,618 | |
Accumulated depreciation, depletion and amortization | | (3,115,476) | | | (2,890,912) | |
| | $ | 4,034,680 | | | $ | 3,855,706 | |
At September 30, 2019,2020, 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 percent equity interest in Constitution Pipeline Company, LLC (Constitution) and a 20 percent equity interest in Meade Pipeline Co LLC (Meade). Activity related to thesethe Company's equity method investments is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Constitution | | Meade | | Total |
| | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Balance at beginning of period | | $ | — |
| | $ | 732 |
| | $ | 163,181 |
| | $ | 85,345 |
| | $ | 163,181 |
| | $ | 86,077 |
|
Contributions | | 500 |
| | 250 |
| | 8,477 |
| | 72,616 |
| | 8,977 |
| | 72,866 |
|
Distributions | | — |
| | — |
| | (14,266 | ) | | — |
| | (14,266 | ) | | — |
|
Earnings (loss) on equity method investments | | (500 | ) | | (982 | ) | | 11,694 |
| | (27 | ) | | 11,194 |
| | (1,009 | ) |
Balance at end of period | | $ | — |
| | $ | — |
| | $ | 169,086 |
| | $ | 157,934 |
| | $ | 169,086 |
| | $ | 157,934 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Constitution | | Meade | | Total |
| | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Balance at beginning of period | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 163,181 | | | $ | 0 | | | $ | 163,181 | |
Contributions | | 35 | | | 500 | | | 0 | | | 8,477 | | | 35 | | | 8,977 | |
Distributions | | 0 | | | 0 | | | 0 | | | (14,266) | | | 0 | | | (14,266) | |
(Loss) earnings on equity method investments | | (35) | | | (500) | | | (24) | | | 11,694 | | | (59) | | | 11,194 | |
Sale of investment | | 0 | | | 0 | | | 24 | | | 0 | | | 24 | | | 0 | |
Balance at end of period | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 169,086 | | | $ | 0 | | | $ | 169,086 | |
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.
Constitution Pipeline Company, LLC
In August 2019,On February 10, 2020, the Federal Energy Regulatory Committee issued an order concluding the New York Department of Environmental Conservation has waivedCompany sold its authority under Section 40125 percent equity interest in Constitution Pipeline Company, LLC (Constitution) to Williams Partners Operating LLC (Williams). The Company did not receive any proceeds and paid Williams $9.4 million that was previously accrued. Upon closing of the Clean Water Act "to issue or deny a water quality certification" for the proposed Constitution pipeline. This decision removed one of the major remaining regulatory hurdles for the continuation of the project. In light of this decision, in September 2019,sale, the Company the other members of Constitution and Williams Partners L.P., the project sponsor, resumed discussions regarding the construction of the project, including evaluating the commercial feasibility of the project, the remaining legal and regulatory hurdles, projected costs and capital requirements and other aspects of the development and construction of the pipeline. The Company remains committedhas no further obligations with respect to continuing the process of evaluating the next steps for advancing the project.
Meade Pipeline Co LLC
In September 2019, the Company entered into an agreement to sell its 20 percent ownership interest in Meade to a subsidiary of NextEra Energy Partners, LP for $256.0 million. This transaction is expected to close in the fourth quarter of 2019, subject to customary closing conditions and adjustments.
4. Debt and Credit Agreements
The Company’s debt and credit agreements consisted of the following:
| | | | | | | | | | | | | | |
(In thousands) | | September 30, 2020 | | December 31, 2019 |
6.51% weighted-average senior notes(1) | | $ | 37,000 | | | $ | 124,000 | |
5.58% weighted-average senior notes(2) | | 175,000 | | | 175,000 | |
3.65% weighted-average senior notes(3) | | 925,000 | | | 925,000 | |
Revolving credit facility | | 28,000 | | | 0 | |
Unamortized debt issuance costs | | (3,288) | | | (3,975) | |
| | $ | 1,161,712 | | | $ | 1,220,025 | |
|
| | | | | | | | |
(In thousands) | | September 30, 2019 | | December 31, 2018 |
6.51% weighted-average senior notes(1) | | $ | 124,000 |
| | $ | 124,000 |
|
5.58% weighted-average senior notes | | 175,000 |
| | 175,000 |
|
3.65% weighted-average senior notes | | 925,000 |
| | 925,000 |
|
Revolving credit facility | | — |
| | 7,000 |
|
Unamortized debt issuance costs | | (4,210 | ) | | (4,896 | ) |
| | $ | 1,219,790 |
| | $ | 1,226,104 |
|
_______________________________________________________________________________(1)Includes $87.0 million of current portion of long-term debt at December 31, 2019, which the Company repaid in July 2020. | |
(1) | Includes $87.0 million of current portion of long-term debt at September 30, 2019 due in July 2020. |
(2)Includes $88.0 million of current portion of long-term debt at September 30, 2020 due in January 2021.
(3)Includes $100.0 million of current portion of long-term debt at September 30, 2020 due in September 2021.
At September 30, 2019,2020, the Company was in compliance with all restrictive financial covenants for both its revolving credit facility and senior notes.
Revolving Credit Agreement
On April 22, 2019,The borrowing base under the Company entered into a second amended and restated credit agreement (revolving credit facility). Theterms of the Company's revolving credit facility is unsecured and the borrowing base is redetermined annually on April 1.in April. In addition, either the Company or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or divestitures of oil and gas properties. The Company’sEffective April 23, 2020, the borrowing base and available commitments under the revolving credit facility were reaffirmed at $3.2 billion and $1.5 billion, respectively. The maximum revolving credit available to the Company is the lesser of the available commitments or the difference of the borrowing base less outstanding senior notes. The Company's revolving credit facility matures in April 2024 and can be extended by one year upon the agreement of the Company and lenders holding at least 50 percent of the commitments under the revolving credit facility.
Interest rates under the revolving credit facility are based on LIBOR or ABR indications, plus a margin which ranges from 150 to 225 basis points for LIBOR loans and from 50 to 125 basis points for ABR loans when not in an Investment Grade Period (as defined in the amended and restated credit agreement) and from 112.5 to 175 basis points for LIBOR loans and from 12.5 to 75 basis points for ABR loans during an Investment Grade Period. The revolving credit facility also provides for a commitment fee on the unused available balance and is calculated at annual rates ranging from 30 to 42.5 basis points when not in an Investment Grade Period and from 12.5 to 27.5 basis points during an Investment Grade Period. The Company is currently not in an Investment Grade Period.
The revolving credit facility contains various customary covenants, which include the following (with all calculations based on definitions contained in the amended and restated credit agreement):
Maintenance of a minimum asset coverage ratio of 1.75 to 1.0;
Maintenance of a minimum annual coverage ratio of consolidated cash flow to interest expense for the trailing four quarters of 2.8 to 1.0; and
Maintenance of a minimum current ratio of 1.0 to 1.0.
At September 30, 2019,2020, the Company had 0 $28.0 million of borrowings outstanding under its revolving credit facility at a weighted-average interest rate of 4.0 percent and had unused commitments of $1.5 billion. The Company's weighted-average effective interest rate for the revolving credit facility was approximately 4.0 percent for both the three and nine months ended September 30, 2020.
The Company incurred $7.4 million of debt issuance costs in connection with the amended and restated credit agreement, which were capitalized and will be amortized over the term of the amended and restated agreement. The remaining unamortized costs of $3.4 million will also be amortized over the term of the amended and restated agreement in accordance with ASC 470-50, Debt Modifications and Extinguishments.
5. Derivative Instruments
As of September 30, 2019,2020, the Company had the following outstanding financial commodity derivatives:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Collars | | | | |
| | | | | | | Floor | | Ceiling | | Swaps | | |
Type of Contract | | Volume (Mmbtu) | | | Contract Period | | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu) | | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu) | | Weighted-Average ($/Mmbtu) | | |
Natural gas (NYMEX) | | 9,300,000 | | | Oct. 2020 | | | | | | | | | | $ | 2.25 | | | |
Natural gas (NYMEX) | | 15,500,000 | | | Oct. 2020 | | $1.90 - $2.15 | | $ | 2.05 | | | $2.10 - $2.38 | | $ | 2.24 | | | | | |
Natural gas (NYMEX) | | 18,250,000 | | | Jan. 2021-Dec. 2021 | | | | | | | | | | $ | 2.74 | | | |
Natural gas (NYMEX) | | 127,750,000 | | | Jan. 2021-Dec. 2021 | | $2.50 - $2.80 | | $ | 2.64 | | | $2.83 - $3.50 | | $ | 3.02 | | | | | |
Natural gas (NYMEX) | | 10,700,000 | | | Apr. 2021-Oct. 2021 | | $ | — | | | $ | 2.50 | | | $ | — | | | $ | 2.80 | | | | | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | | | | | Swaps | | Basis Swaps |
Type of Contract | | Volume (Mmbtu) | | Contract Period | | Weighted-Average ($/Mmbtu) | | Weighted-Average ($/Mmbtu)
|
Natural gas (IFERC TRANSCO Z6 non-NY) | | 2,760,000 |
| | Oct. 2019 - Dec. 2019 | | | | $ | 0.41 |
|
Natural gas (IFERC TRANSCO Z6 non-NY) | | 4,650,000 |
| | Oct. 2019 | | $ | 2.61 |
| | |
Natural gas (IFERC TRANSCO Leidy Line Receipts) | | 13,800,000 |
| | Oct. 2019 - Dec. 2019 | | | | $ | (0.53 | ) |
Natural gas (NYMEX) | | 10,850,000 |
| | Oct. 2019 | | $ | 2.85 |
| | |
Natural gas (NYMEX) | | 27,600,000 |
| | Oct. 2019 - Dec. 2019 | | $ | 2.86 |
| | |
In October 2020, the Company entered into the following financial commodity derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Collars |
| | | | | | Floor | | Ceiling |
Type of Contract | | Volume (Mmbtu) | | Contract Period | | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu) | | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu) |
Natural gas (NYMEX) | | 36,500,000 | | | Jan. 2021-Dec. 2021 | | $2.80 - $2.85 | | $ | 2.83 | | | $3.00 - $3.94 | | $ | 3.32 | |
Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet
| | | | | | Derivative Assets | | Derivative Liabilities | | | | | Derivative Assets | | Derivative Liabilities |
(In thousands) | | Balance Sheet Location | | September 30, 2019 | | December 31, 2018 | | September 30, 2019 | | December 31, 2018 | (In thousands) | | Balance Sheet Location | | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
Commodity contracts | | Derivative instruments (current) | | $ | 25,700 |
| | $ | 57,665 |
| | $ | — |
| | $ | — |
| Commodity contracts | | Other current assets (current) | | $ | 0 | | | $ | 31 | | | $ | 0 | | | $ | 0 | |
Commodity contracts | | Commodity contracts | | Derivative instruments (current) | | 0 | | | 0 | | | 11,628 | | | 0 | |
Commodity contracts | | Commodity contracts | | Accrued liabilities (current) | | 0 | | | 0 | | | 0 | | | 9 | |
Commodity contracts | | Commodity contracts | | Other liabilities (non-current) | | 0 | | | 0 | | | 4,095 | | | 0 | |
| | $ | 25,700 |
| | $ | 57,665 |
| | $ | — |
| | $ | — |
| | $ | 0 | | | $ | 31 | | | $ | 15,723 | | | $ | 9 | |
Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet
| | | | | | | | | | | | | | |
(In thousands) | | September 30, 2020 | | December 31, 2019 |
Derivative assets | | | | |
Gross amounts of recognized assets | | $ | 1,682 | | | $ | 47 | |
Gross amounts offset in the condensed consolidated balance sheet | | (1,682) | | | (16) | |
Net amounts of assets presented in the condensed consolidated balance sheet | | 0 | | | 31 | |
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet | | 0 | | | 0 | |
Net amount | | $ | 0 | | | $ | 31 | |
| | | | |
Derivative liabilities | | | | |
Gross amounts of recognized liabilities | | $ | 17,405 | | | $ | 25 | |
Gross amounts offset in the condensed consolidated balance sheet | | (1,682) | | | (16) | |
Net amounts of liabilities presented in the condensed consolidated balance sheet | | 15,723 | | | 9 | |
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet | | 0 | | | 0 | |
Net amount | | $ | 15,723 | | | $ | 9 | |
|
| | | | | | | | |
(In thousands) | | September 30, 2019 | | December 31, 2018 |
Derivative assets | | |
| | |
|
Gross amounts of recognized assets | | $ | 25,700 |
| | $ | 60,105 |
|
Gross amounts offset in the statement of financial position | | — |
| | (2,440 | ) |
Net amounts of assets presented in the statement of financial position | | 25,700 |
| | 57,665 |
|
Gross amounts of financial instruments not offset in the statement of financial position | | — |
| | — |
|
Net amount | | $ | 25,700 |
| | $ | 57,665 |
|
| | | | |
Derivative liabilities | | |
| | |
|
Gross amounts of recognized liabilities | | $ | — |
| | $ | 2,440 |
|
Gross amounts offset in the statement of financial position | | — |
| | (2,440 | ) |
Net amounts of liabilities presented in the statement of financial position | | — |
| | — |
|
Gross amounts of financial instruments not offset in the statement of financial position | | — |
| | — |
|
Net amount | | $ | — |
| | $ | — |
|
Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | | 2019 | | 2018 | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Cash received (paid) on settlement of derivative instruments | | |
| | |
| | |
| | |
| Cash received (paid) on settlement of derivative instruments | | | | | | | | |
Gain (loss) on derivative instruments | | $ | 46,555 |
| | $ | (41 | ) | | $ | 114,931 |
| | $ | (20,354 | ) | |
(Loss) gain on derivative instruments | | (Loss) gain on derivative instruments | | $ | 14,106 | | | $ | 46,555 | | | $ | 33,529 | | | $ | 114,931 | |
Non-cash gain (loss) on derivative instruments | | |
| | |
| | |
| | |
| Non-cash gain (loss) on derivative instruments | | | | | | | | |
Gain (loss) on derivative instruments | | (35,495 | ) | | (3,496 | ) | | (31,965 | ) | | 18,726 |
| |
(Loss) gain on derivative instruments | | (Loss) gain on derivative instruments | | (56,359) | | | (35,495) | | | (15,746) | | | (31,965) | |
| | $ | 11,060 |
| | $ | (3,537 | ) | | $ | 82,966 |
| | $ | (1,628 | ) | | | $ | (42,253) | | | $ | 11,060 | | | $ | 17,783 | | | $ | 82,966 | |
6. Fair Value Measurements
The Company follows the authoritative guidance for measuring fair value of assets and liabilities in its financial statements. For further information regarding the fair value hierarchy, refer to Note 1 of the Notes to the Consolidated Financial Statements in the Form 10-K.
Financial Assets and Liabilities
The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance at September 30, 2020 |
Assets | | | | | | | | |
Deferred compensation plan | | $ | 19,882 | | | $ | 0 | | | $ | 0 | | | $ | 19,882 | |
Derivative instruments | | 0 | | | 1,381 | | | 301 | | | 1,682 | |
| | $ | 19,882 | | | $ | 1,381 | | | $ | 301 | | | $ | 21,564 | |
Liabilities | | | | | | | | |
Deferred compensation plan | | $ | 28,489 | | | $ | 0 | | | $ | 0 | | | $ | 28,489 | |
Derivative instruments | | 0 | | | 3,270 | | | 14,135 | | | 17,405 | |
| | $ | 28,489 | | | $ | 3,270 | | | $ | 14,135 | | | $ | 45,894 | |
|
| | | | | | | | | | | | | | | | |
(In thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance at September 30, 2019 |
Assets | | |
| | |
| | |
| | |
|
Deferred compensation plan | | $ | 17,080 |
| | $ | — |
| | $ | — |
| | $ | 17,080 |
|
Derivative instruments | | — |
| | 16,542 |
| | 9,158 |
| | 25,700 |
|
| | $ | 17,080 |
| | $ | 16,542 |
| | $ | 9,158 |
| | $ | 42,780 |
|
Liabilities | | | | |
| | |
| | |
|
Deferred compensation plan | | $ | 25,791 |
| | $ | — |
| | $ | — |
| | $ | 25,791 |
|
Derivative instruments | | — |
| | — |
| | — |
| | — |
|
| | $ | 25,791 |
| | $ | — |
| | $ | — |
| | $ | 25,791 |
|
|
| | | | | | | | | | | | | | | | |
(In thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance at December 31, 2018 |
Assets | | |
| | |
| | |
| | |
|
Deferred compensation plan | | $ | 14,699 |
| | $ | — |
| | $ | — |
| | $ | 14,699 |
|
Derivative instruments | | — |
| | 35,689 |
| | 24,416 |
| | 60,105 |
|
| | $ | 14,699 |
| | $ | 35,689 |
| | $ | 24,416 |
| | $ | 74,804 |
|
Liabilities | | | | |
| | |
| | |
|
Deferred compensation plan | | $ | 25,780 |
| | $ | — |
| | $ | — |
| | $ | 25,780 |
|
Derivative instruments | | — |
| | — |
| | 2,440 |
| | 2,440 |
|
| | $ | 25,780 |
| | $ | — |
| | $ | 2,440 |
| | $ | 28,220 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance at December 31, 2019 |
Assets | | | | | | | | |
Deferred compensation plan | | $ | 18,381 | | | $ | 0 | | | $ | 0 | | | $ | 18,381 | |
Derivative instruments | | 0 | | | 44 | | | 3 | | | 47 | |
| | $ | 18,381 | | | $ | 44 | | | $ | 3 | | | $ | 18,428 | |
Liabilities | | | | | | | | |
Deferred compensation plan | | $ | 27,012 | | | $ | 0 | | | $ | 0 | | | $ | 27,012 | |
Derivative instruments | | 0 | | | 0 | | | 25 | | | 25 | |
| | $ | 27,012 | | | $ | 0 | | | $ | 25 | | | $ | 27,037 | |
The Company's investments associated with its deferred compensation plan consist of mutual funds and deferred shares of the Company's common stock that are publicly traded and for which market prices are readily available.
The derivative instruments were measured based on quotes from the Company's counterparties and/or internal models. Such quotes and models have been derived using an income approach that considers various inputs including current market and contractual prices for the underlying instruments, quoted forward commodity prices, basis differentials, volatility factors and interest rates such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. Estimates are derived from or verified using relevant NYMEX futures contracts and/orand are compared to multiple quotes obtained from counterparties for reasonableness. The determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The
Company measured the non-performance risk of its counterparties by reviewing credit default swap spreads for the various financial institutions with which it has derivative transactions while non-performance risk of the Company is evaluated using a market credit spread provided by the Company's bank.banks. The Company has not incurred any losses related to non-performance risk of its counterparties and does not anticipate any material impact on its financial results due to non-performance by third parties.
The most significant unobservable inputs relative to the Company's Level 3 derivative contracts are basis differentials.volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties' valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
|
| | | | | | | | |
| | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 |
Balance at beginning of period | | $ | 21,976 |
| | $ | (28,398 | ) |
Total gain (loss) included in earnings | | 24,931 |
| | 6,333 |
|
Settlement (gain) loss | | (37,749 | ) | | 17,114 |
|
Balance at end of period | | $ | 9,158 |
| | $ | (4,951 | ) |
| | | | |
Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period | | $ | 7,388 |
| | $ | (6,685 | ) |
There were no transfers between Level 1, Level 2 and Level 3 fair value measurements for the nine months ended September 30, 2019 and 2018. | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 |
Balance at beginning of period | | $ | (22) | | | $ | 21,976 | |
Total gain (loss) included in earnings | | 2,866 | | | 24,931 | |
Settlement (gain) loss | | (16,678) | | | (37,749) | |
Transfers in and/or out of Level 3 | | 0 | | | 0 | |
Balance at end of period | | $ | (13,834) | | | $ | 9,158 | |
| | | | |
Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period | | $ | (13,733) | | | $ | 7,388 | |
Non-Financial Assets and Liabilities
The Company discloses or recognizes its non-financial assets and liabilities, such as impairments or acquisitions, at fair value on a nonrecurring basis. As NaN of the Company’s other non-financial assets and liabilities were measured at fair value as of September 30, 2019,2020, additional disclosures were not required.
The estimated fair value of the Company’s asset retirement obligations at inception is determined by utilizing the income approach by applying a credit-adjusted risk-free rate, which takes into account the Company’s credit risk, the time value of money, and the current economic state to the undiscounted expected abandonment cash flows. Given the unobservable nature of the inputs, the measurement of the asset retirement obligations was classified as Level 3 in the fair value hierarchy.
Fair Value of Other Financial Instruments
The estimated fair value of other financial instruments is the price that wouldamount at which the instrument could be received to sell an asset or paid to transfer a liability in an orderly transactionexchanged currently between market participants at the measurement date.willing parties. The carrying amountamounts reported in the Condensed Consolidated Balance Sheet for cash, and cash equivalents approximatesand restricted cash approximate fair value due to the short-term maturities of these instruments. Cash, and cash equivalents and restricted cash are classified as Level 1 in the fair value hierarchy and the remaining financial instruments are classified as Level 2.
The Company uses available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the estimated amount the Company would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is the Company’s default or repayment risk. The credit spread (premium or discount) is determined by comparing the Company’s senior notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The fair value of all senior notes and the revolving credit facility is based on interest rates currently available to the Company. The Company’s debt is valued using an income approach and classified as Level 3 in the fair value hierarchy.
The carrying amount and fair value of debt is as follows:
| | | | September 30, 2019 | | December 31, 2018 | | | September 30, 2020 | | December 31, 2019 |
(In thousands) | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | (In thousands) | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Long-term debt | | $ | 1,219,790 |
| | $ | 1,258,674 |
| | $ | 1,226,104 |
| | $ | 1,202,994 |
| Long-term debt | | $ | 1,161,712 | | | $ | 1,213,402 | | | $ | 1,220,025 | | | $ | 1,260,259 | |
Current maturities | | (87,000 | ) | | (89,210 | ) | | — |
| | — |
| Current maturities | | (188,000) | | | (189,501) | | | (87,000) | | | (88,704) | |
Long-term debt, excluding current maturities | | $ | 1,132,790 |
| | $ | 1,169,464 |
| | $ | 1,226,104 |
| | $ | 1,202,994 |
| Long-term debt, excluding current maturities | | $ | 973,712 | | | $ | 1,023,901 | | | $ | 1,133,025 | | | $ | 1,171,555 | |
7. Asset Retirement Obligations
Activity related to the Company’s asset retirement obligations is as follows:
|
| | | | |
(In thousands) | | Nine Months Ended September 30, 2019 |
Balance at beginning of period(1) | | $ | 51,622 |
|
Liabilities incurred | | 4,776 |
|
Liabilities settled | | (1,232 | ) |
Liabilities divested | | (187 | ) |
Accretion expense | | 2,489 |
|
Balance at end of period(2) | | $ | 57,468 |
|
_______________________________________________________________________________ | | | | | | | | |
(1)(In thousands) | Includes $1.0 million | Nine Months Ended September 30, 2020 |
Balance at beginning of period | | $ | 72,098 | |
Liabilities incurred | | 8,976 | |
Liabilities settled | | (8) | |
| | |
| | |
| | |
Accretion expense | | 3,104 | |
Balance at end of period | | 84,170 | |
Less: current asset retirement obligations included in accrued liabilities at December 31, 2018. |
| (500) | |
(2) | Includes $0.5 million of currentNoncurrent asset retirement obligations included in accrued liabilities at September 30, 2019. | | $ | 83,670 | |
8. Commitments and Contingencies
Contractual Obligations
The Company has various contractual obligations in the normal course of its operations. There have been no material changes to the Company’s contractual obligations described under “Transportation and Gathering Agreements” as disclosed in Note 9 of the Notes to Consolidated Financial Statements in the Form 10-K.
Lease Commitments (Topic 840)
Future minimum rental commitmentsThere have been no material changes to the Company’s operating lease obligations described under non-cancelable leases“Lease Commitments” as disclosed in effect at December 31, 2018 are as follows:Note 9 of the Notes to Consolidated Financial Statements in the Form 10-K.
|
| | | |
(In thousands) | |
2019 | $ | 5,571 |
|
2020 | 5,684 |
|
2021 | 4,777 |
|
2022 | 1,659 |
|
2023 | 1,691 |
|
Thereafter | 2,852 |
|
| $ | 22,234 |
|
Legal Matters
Pennsylvania Office of Attorney General Matter
The table above was prepared underIn June 2020, the guidanceOffice of Topic 840. As discussed in Note 1 above,Attorney General of the Commonwealth of Pennsylvania informed the Company adoptedthat it will pursue certain misdemeanor and felony charges against the guidanceCompany related to alleged violations of Topic 842 effective January 1, 2019.
Leases (Topic 842)
the Pennsylvania Clean Streams Law, which prohibits discharge of industrial wastes. The Company determines if an arrangement is vigorously defending itself against such charges; however, the proceedings could result in fines or contains, a lease at inception based on whether that contract conveyspenalties against the right to control the use of an identified asset in exchange for consideration for a period of time. Operating leases are included in operating lease right-of-use assets (ROU assets) and operating lease liabilities (current and noncurrent) on the Condensed Consolidated Balance Sheet. The Company does not have any finance leases at September 30, 2019.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. Most leases do not provide an implicit interest rate; therefore, the Company used its incremental borrowing rate based on the information available at the inception date to determine the present value of the lease payments. Lease terms include options to extend the lease whenCompany. At this time, it is not possible to estimate the amount of any fines or penalties, or the range of such fines or penalties, that are reasonably certain that the Company will exercise that option. Lease cost for lease payments is recognized on a straight-line basis over the lease term. Certain leases have payment terms that vary based on the usage of the underlying assets. Variable lease payments are not includedpossible in ROU assets and lease liabilities.this case.
For all operating leases, lease and non-lease components are accounted for as a single lease component.
The Company has operating leases for office space, drilling rig commitments, surface use agreements, compressor services and other leases. The leases have remaining terms ranging from two months to 26.3 years, including options to extend leases that the Company is reasonably certain to exercise. During the nine months ended September 30, 2019, the Company recognized operating lease cost and variable lease cost of $9.0 million and $3.7 million, respectively.
Short-term leases. The Company leases drilling rigs, fracturing and other equipment under lease terms ranging from 30 days to one year. Lease cost of $224.0 million was recognized on short-term leases during the nine months ended September 30, 2019. Certain lease costs are capitalized and included in Properties and equipment, net in the Condensed Consolidated Balance Sheet because they relate to drilling and completion activities, while other costs are expensed because they relate to production and administrative activities.
As of September 30, 2019, the Company’s future undiscounted minimum cash payment obligations for its operating lease liabilities are as follows:
|
| | | | |
(In thousands) | | Year Ending December 31, |
2019 (excluding the nine months ended September 30, 2019) | | $ | 2,419 |
|
2020 | | 4,819 |
|
2021 | | 4,755 |
|
2022 | | 4,577 |
|
2023 | | 4,613 |
|
Thereafter | | 29,824 |
|
Total undiscounted lease payments | | 51,007 |
|
Present value adjustment | | (13,401 | ) |
Net operating lease liabilities | | $ | 37,606 |
|
Supplemental cash flow information related to leases was as follows:
|
| | | | | | | | |
(In thousands) | | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 1,149 |
| | $ | 3,395 |
|
Investing cash flows from operating leases | | $ | 1,831 |
| | $ | 5,433 |
|
Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases is summarized below:
|
| | | |
| | September 30, 2019 |
Weighted-average remaining lease term (in years) | | |
Operating leases | | 11.9 |
|
Weighted-average discount rate | | |
Operating leases | | 5.0 | % |
Legal MattersOther
The Company is a defendant in various other legal proceedings arising in the normal course of business. All known liabilities are accrued when management determines they are probable based on its best estimate of the potential loss. While the outcome and impact of these legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material effect on the Company’sCompany's financial position, results of operations or cash flows.
Contingency Reserves.Reserves
When deemed necessary, the Company establishes reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional losses with respect to those matters for which reserves have been established. The Company believes that any
such amount above the
amounts accrued would not be material to the Condensed Consolidated Financial Statements. Future changes in facts and circumstances not currently foreseeable could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.
9. Revenue Recognition
Disaggregation of Revenue
The following table presents revenues from contracts with customers disaggregated by product:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
OPERATING REVENUES | | | | | | | | |
Natural gas | | $ | 418,133 |
| | $ | 440,835 |
| | $ | 1,521,789 |
| | $ | 1,217,603 |
|
Crude oil and condensate | | — |
| | — |
| | — |
| | 48,722 |
|
Brokered natural gas | | — |
| | 105,849 |
| | — |
| | 203,375 |
|
Other | | (82 | ) | | 2,026 |
| | 154 |
| | 3,775 |
|
Total revenue from contracts with customers | | 418,051 |
| | 548,710 |
| | 1,521,943 |
| | 1,473,475 |
|
Gain (loss) on derivative instruments | | 11,060 |
| | (3,537 | ) | | 82,966 |
| | (1,628 | ) |
| | $ | 429,111 |
| | $ | 545,173 |
| | $ | 1,604,909 |
| | $ | 1,471,847 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | |
Natural gas | | $ | 333,256 | | | $ | 418,133 | | | $ | 991,882 | | | $ | 1,521,789 | |
Other | | 38 | | | (82) | | | 181 | | | 154 | |
| | $ | 333,294 | | | $ | 418,051 | | | $ | 992,063 | | | $ | 1,521,943 | |
All of the Company’s revenues from contracts with customers represent products transferred at a point in time as control is transferred to the customer and generated in the United States of America.
Transaction Price Allocated to Remaining Performance Obligations
A significant number of the Company’s product sales contracts are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
As of September 30, 2019,2020, the Company has $9.7$9.1 billion of unsatisfied performance obligations related to natural gas sales that have a fixed pricing component and a contract term greater than one year. The Company expects to recognize these obligations over periods ranging from threefour to 19 18 years.
Contract Balances
Receivables from contracts with customers are recorded when the right to consideration becomes unconditional, generally when control of the product has been transferred to the customer. Receivables from contracts with customers were $159.2$136.7 million and $363.0$209.2 million as of September 30, 20192020 and December 31, 2018,2019, respectively, and are reported in accounts receivable, net on the Condensed Consolidated Balance Sheet. The Company currently has no assets or liabilities related to its revenue contracts, including no upfront payments or rights to deficiency payments.
10. Capital Stock
Treasury Stock
In July 2019, the Board of Directors authorized an increase of 25.0 million shares to the Company’s share repurchase program. During the firstninemonths of2019, the Company repurchased 15.5 million shares for a total cost of $316.1 million. As ofSeptember 30, 2019, 21.0 million shares were available for repurchase under the share repurchase program.
Dividends
In April 2019, the Board of Directors approved an increase in the quarterly dividend on the Company's common stock from $0.07 per share to $0.09 per share. In October 2019, the Board of Directors approved an additional increase in the quarterly dividend on the Company's common stock from $0.09 per share to $0.10 per share.
11. Stock-basedStock-Based Compensation
General
The Company grants certain stock-based compensation awards, including restricted stock awards, restricted stock units and performance share awards. Stock-based compensation expense associated with these awards was $2.1$11.4 million and $6.5$2.1 million in the third quarter of 20192020 and 2018,2019, respectively, and $24.0$36.0 million and $17.6$24.0 million during the first nine months of
2019 2020 and 2018,2019, respectively. Stock-based compensation expense is included in general and administrative expense in the Condensed Consolidated Statement of Operations.
For the first nine months of 2019, the Company recorded a decrease to tax expense of $0.9 million as a result of federal and state tax deductions exceeding the book compensation expense for employee stock-based compensation awards that vested during the period. For the first nine months of 2018, the Company recorded an increase to tax expense of $0.3 million as a result of book compensation expense exceeding the federal and state tax deductions for employee stock-based compensation awards that vested during the period.
Refer to Note 1314 of the Notes to the Consolidated Financial Statements in the Form 10-K for further description of the various types of stock-based compensation awards and the applicable award terms.
Restricted Stock Units
During the first nine months of 2019, 80,6752020, 127,165 restricted stock units were granted to non-employee directors of the Company with a weighted-average grant date value of $24.96$15.80 per unit. The fair value of these units is measured based on the closing stock price on grant date and compensation expense is recorded immediately. These units immediately vest and are issued when the director ceases to be a director of the Company.
Performance Share Awards
The performance period for the awards granted during the first nine months of 20192020 commenced on January 1, 20192020 and ends on December 31, 2021.2022. The Company used an annual forfeiture rate assumption ranging from 0 percent to 7 percent5 for purposes of recognizing stock-based compensation expense for its performance share awards.
Performance Share Awards Based on Internal Performance Metrics
The fair value of performance share award grants based on internal performance metrics is based on the closing stock price on the grant date. Each performance share award represents the right to receive up to 100 percent of the award in shares of common stock. Based on the Company’s probability assessment at September 30, 2019,2020, it is considered probable that the criteria for all performance awards based on internal metrics awards will be met.
Employee Performance Share Awards. During the first nine months of 2019, 526,7302020, 722,500 Employee Performance Share Awards were granted at a grant date value of $24.95$15.60 per share. The 2020 awards vest 100 percent on the third anniversary, provided that the Company averages $100 million or more of operating cash flow during the three-year performance metrics areperiod, as set by the Company’s compensation committee and are basedcommittee. If the Company does not meet the performance metric for the applicable period, then the performance shares that would have been issued on the Company’s average production, average finding costs and average reserve replacement over a three-year performance period.anniversary date will be forfeited.
Hybrid Performance Share Awards. During the first nine months of 2019, 315,0292020, 506,412 Hybrid Performance Share Awards were granted at a grant date value of $24.95$15.60 per share. The 20192020 awards vest 25 percent on each of the first and second anniversary dates and 50 percent on the third anniversary, provided that the Company has $100 million or more of operating cash flow for the year preceding the vesting date, as set by the Company’s compensation committee. If the Company does not meet the performance metric for the applicable period, then the portion of the performance shares that would have been issued on that anniversary date will be forfeited.
Performance Share Awards Based on Market Conditions
These awards have both an equity and liability component, with the right to receive up to the first 100 percent of the award in shares of common stock and the right to receive up to an additional 100 percent of the value of the award in excess of the equity component in cash. The equity portion of these awards is valued on the grant date and is not marked to market, while the liability portion of the awards is valued as of the end of each reporting period on a mark-to-market basis. The Company calculates the fair value of the equity and liability portions of the awards using a Monte Carlo simulation model.
TSR Performance Share Awards. During the first nine months of 2019, 536,6732020, 862,180 TSR Performance Share Awards were granted and are earned, or not earned, based on the comparative performance of the Company’s common stock measured against a predetermined group of companies in the Company’s peer group over a three-year performance period.
The following assumptions were used to determine the grant date fair value of the equity component (February 19, 2019)2020) and the period-end fair value of the liability component of the TSR Performance Share Awards:
|
| | | | | | |
| | Grant Date | | September 30, 2019 |
Fair value per performance share award | | $ | 20.63 |
| | $7.92-$16.23 |
Assumptions: | | |
| | |
Stock price volatility | | 31.3 | % | | 29.0%-37.1% |
Risk free rate of return | | 2.46 | % | | 1.61%-1.87% |
| | | | | | | | | | | | | | |
| | Grant Date | | September 30, 2020 |
Fair value per performance share award | | $ | 13.79 | | | $13.28 - $17.30 |
Assumptions: | | | | |
Stock price volatility | | 29.5 | % | | 36.8% - 48.4% |
Risk free rate of return | | 1.39 | % | | 0.10% - 0.14% |
12.11. Earnings per Common Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is similarly calculated except that the common shares outstanding for the period is increased using the treasury stock method to reflect the potential dilution that could occur if outstanding stock awards were vested at the end of the applicable period. Anti-dilutive shares represent potentially dilutive securities that are excluded from the computation of diluted income or loss per share as their impact would be anti-dilutive.
The following is a calculation of basic and diluted weighted-average shares outstanding:
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Weighted-average shares - basic | | 412,456 |
| | 440,772 |
| | 419,199 |
| | 450,445 |
|
Dilution effect of stock awards at end of period | | 2,006 |
| | 2,338 |
| | 1,902 |
| | 1,868 |
|
Weighted-average shares - diluted | | 414,462 |
| | 443,110 |
| | 421,101 |
| | 452,313 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Weighted-average shares - basic | | 398,580 | | | 412,456 | | | 398,500 | | | 419,199 | |
Dilution effect of stock awards at end of period | | 0 | | | 2,006 | | | 2,128 | | | 1,902 | |
Weighted-average shares - diluted | | 398,580 | | | 414,462 | | | 400,628 | | | 421,101 | |
The following is a calculation of weighted-average shares excluded from diluted EPS due to the anti-dilutive effect:
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method | | 484 |
| | 1 |
| | 633 |
| | 1 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect due to net loss | | 3,009 | | | 0 | | | 0 | | | 0 | |
Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method | | 0 | | | 484 | | | 51 | | | 633 | |
| | 3,009 | | | 484 | | | 51 | | | 633 | |
13.12. Additional Balance Sheet Information
Certain balance sheet amounts are comprised of the following:
| | (In thousands) | | September 30, 2019 | | December 31, 2018 | (In thousands) | | September 30, 2020 | | December 31, 2019 |
Accounts receivable, net | | |
| | |
| Accounts receivable, net | | | | |
Trade accounts | | $ | 159,167 |
| | $ | 362,973 |
| Trade accounts | | $ | 136,740 | | | $ | 209,200 | |
Joint interest accounts | | 393 |
| | 101 |
| |
| Other accounts | | 863 |
| | 567 |
| Other accounts | | 1,037 | | | 1,007 | |
| | 160,423 |
| | 363,641 |
| | | 137,777 | | | 210,207 | |
Allowance for doubtful accounts | | (1,184 | ) | | (1,238 | ) | Allowance for doubtful accounts | | (1,039) | | | (1,184) | |
| | $ | 159,239 |
| | $ | 362,403 |
| | | $ | 136,738 | | | $ | 209,023 | |
| Other assets | | |
| | |
| Other assets | | | | |
Deferred compensation plan | | $ | 17,080 |
| | $ | 14,699 |
| Deferred compensation plan | | $ | 19,882 | | | $ | 18,381�� | |
Debt issuance costs | | 9,450 |
| | 4,572 |
| Debt issuance costs | | 7,391 | | | 8,938 | |
Income taxes receivable | | — |
| | 8,165 |
| |
| Operating lease right-of-use assets | | 37,715 |
| | — |
| Operating lease right-of-use assets | | 34,721 | | | 35,916 | |
Other accounts | | 74 |
| | 61 |
| Other accounts | | 79 | | | 56 | |
| | $ | 64,319 |
| | $ | 27,497 |
| | | $ | 62,073 | | | $ | 63,291 | |
| Accounts payable | | |
| | |
| Accounts payable | | | | |
Trade accounts | | $ | 29,157 |
| | $ | 30,033 |
| Trade accounts | | $ | 20,789 | | | $ | 21,663 | |
| Royalty and other owners | | 30,242 |
| | 61,507 |
| Royalty and other owners | | 25,836 | | | 36,191 | |
Accrued transportation | | 50,795 |
| | 50,540 |
| Accrued transportation | | 50,999 | | | 55,586 | |
Accrued capital costs | | 44,643 |
| | 43,207 |
| Accrued capital costs | | 27,850 | | | 40,337 | |
Taxes other than income | | 13,105 |
| | 19,824 |
| Taxes other than income | | 10,262 | | | 16,971 | |
Income taxes payable | | — |
| | 1,134 |
| |
| Other accounts | | 4,790 |
| | 35,694 |
| Other accounts | | 15,926 | | | 19,063 | |
| | | | $ | 151,662 | | | $ | 189,811 | |
| | $ | 172,732 |
| | $ | 241,939 |
| |
Accrued liabilities | | |
| | |
| Accrued liabilities | | | | |
Employee benefits | | $ | 18,411 |
| | $ | 21,761 |
| Employee benefits | | $ | 19,822 | | | $ | 22,727 | |
Taxes other than income | | 3,660 |
| | 1,472 |
| Taxes other than income | | 3,243 | | | 3,850 | |
| Operating lease liabilities | | 4,280 |
| | — |
| Operating lease liabilities | | 4,027 | | | 3,124 | |
Asset retirement obligations | | 500 |
| | 1,000 |
| |
| Other accounts | | 929 |
| | 994 |
| Other accounts | | 1,304 | | | 1,589 | |
| | | | $ | 28,396 | | | $ | 31,290 | |
| | $ | 27,780 |
| | $ | 25,227 |
| |
Other liabilities | | |
| | |
| Other liabilities | | | | |
Deferred compensation plan | | $ | 25,791 |
| | $ | 25,780 |
| Deferred compensation plan | | $ | 28,489 | | | $ | 27,012 | |
Derivative instruments | | Derivative instruments | | 4,095 | | | 0 | |
Operating lease liabilities | | 33,326 |
| | — |
| Operating lease liabilities | | 30,594 | | | 32,677 | |
Other accounts | | 8,529 |
| | 34,391 |
| Other accounts | | 12,091 | | | 8,595 | |
| | $ | 67,646 |
| | $ | 60,171 |
| | | $ | 75,269 | | | $ | 68,284 | |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following review of operations for the three and nine month periods ended September 30, 20192020 and 20182019 should be read in conjunction with our Condensed Consolidated Financial Statements and the Notes included in this Quarterly Report on Form 10-Q (Form 10-Q) and with the Consolidated Financial Statements, Notes and Management’s Discussion and Analysis included in the Cabot Oil & Gas Corporation Annual Report on Form 10-K for the year ended December 31, 20182019 (Form 10-K).
OVERVIEW
Financial and Operating Overview
Financial and operating results for the nine months ended September 30, 20192020 compared to the nine months ended September 30, 20182019 are as follows:
•Natural gas production increased 115.7decreased 0.1 Bcf from 639.3 Bcf, or 22 percent, from 523.6 Bcf in 2018 to 639.3 Bcf2,342 Mmcf per day, in 2019 as a resultto 639.2 Bcf, or 2,333 Mmcf per day, in 2020. The slight decrease was driven by strategic curtailments of production during the third quarter of 2020 due to weaker natural gas prices offset by higher production during the period prior to such strategic curtailment due to the timing of our drilling and completion activities in Pennsylvania.the Marcellus Shale in 2020.
Equivalent production increased 110.7 Bcfe, or 21 percent, from 528.6 Bcfe, or 1,936.4 Mmcfe per day, in 2018 to 639.3 Bcfe, or 2,341.8 Mmcfe per day, in 2019. The increase is primarily due to drilling and completion activities in Pennsylvania, partially offset by the sale of our Eagle Ford Shale assets in south Texas in February 2018.
•Average realized natural gas price was $2.56$1.60 per Mcf, 1038 percent higherlower than the $2.32$2.56 per Mcf realized in the comparable period of the prior year.
•Total capital expenditures were $622.1$463.9 million compared to $593.1$622.1 million in the comparable period of the prior year.
•Drilled 55 gross wells (49.2 net) with a success rate of 100 percent compared to 71 gross wells (71.0 net) with a success rate of 100 percent compared to 60 gross wells (60.0 net) with a success rate of 91.7 percent for the comparable period of the prior year.
•Completed 71 gross wells (62.3 net) in 2020 compared to 71 gross wells (71.0 net) in 2019 compared to 61 gross wells (61.0 net) in 2018.2019.
•Average rig count during 20192020 was approximately 3.12.3 rigs in the Marcellus Shale, compared to an average rig count in the Marcellus Shale of approximately 3.33.1 rigs and approximately 0.7 rigsduring 2019.
•Repaid $87.0 million of our 6.51% weighted-average senior notes, which matured in other areas during 2018.
| |
• | Repurchased 15.5 million shares of our common stock for a total cost of $316.1 million in 2019.July 2020.
|
Market Conditions and Commodity Prices
Our financial results depend on many factors, particularly commodity prices and our ability to market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by pipeline capacity constraints, inventory storage levels, basis differentials, weather conditions and other factors. In addition, ourOur realized prices are also further impacted by our hedging activities.
Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing commodity prices, particularly natural gas prices. Since substantially all of our production and reserves are natural gas, significant declines in natural gas prices could have a material adverse effect on our operating results, financial condition, liquidity and ability to obtain financing. Lower natural gas prices also may reduce the amount of natural gas that we can produce economically. In addition, in periods of low natural gas prices, we may elect to curtail a portion of our production, such as late in the third quarter of 2020, when we anticipate a more favorable price environment in which to produce our curtailed volumes. Historically, natural gas prices have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile. As a result, we cannot accurately predict future commodity prices and, therefore, cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our capital program, production volumes or revenues. We expect commodity prices to remain volatile. In addition to commodity prices and production volumes, and commodity prices, finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success. For information about the impact of realized commodity prices on our revenues, refer to “Results of Operations” below.
We account for our derivative instruments on a mark-to-market basis with changes in fair value recognized in operating revenues in the Condensed Consolidated Statement of Operations. As a result of these mark-to-market adjustments associated with our derivative instruments, we will experience volatility in our earnings due to commodity price volatility. Refer to “Impact“Impact of Derivative Instruments on Operating Revenues”Revenues” below and Note 5 of the Notes to the Condensed Consolidated Financial Statements for more information.
The ongoing coronavirus (COVID-19) outbreak, which the World Health Organization (WHO) declared as a pandemic on March 11, 2020, has reached more than 200 countries and territories and there continues to be considerable uncertainty regarding the extent to which COVID-19 will continue to spread, the development and availability of effective treatments and
Commodityvaccines and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus and alleviate strain on the healthcare system and the economic impact of such actions. One of the impacts of the COVID-19 pandemic has been a significant reduction in demand for crude oil, and to a lesser extent, natural gas. The supply/demand imbalance driven by the COVID-19 pandemic, as well as production disagreements among members of the Organization of Petroleum Exporting Countries and other producer countries (OPEC+), has led to significant global economic contraction generally and continues to have disruptive impacts on the oil and gas industry. While subsequent negotiations between members of OPEC+ led to an agreement to reduce production volumes in an effort to stabilize crude oil prices, crude oil prices remain at depressed levels, as the oversupply and lack of demand in the market persist. Natural gas prices have been and are expectedcontinued to remain volatile. low compared to 2019 and remained challenged during the third quarter of 2020, in part, due to lower seasonal demand during the shoulder season of 2020 and storage levels nearing capacity. In response to the weakness of natural gas prices, we have strategically curtailed our production during the last 13 days of the third quarter of 2020, resulting in an estimated average daily curtailment of approximately 372 Mmcfe per day of gross production.
Meanwhile, NYMEX natural gas futures prices have shown improvements since the implementation of pandemic-related restrictions and OPEC+ price disagreements. The improvements in natural gas futures prices are based on market expectations that declines in future natural gas supplies due to a substantial reduction of associated gas related to the curtailment of operations in oil basins throughout the United States will more than offset the lower demand recently experienced with the COVID-19 pandemic. While the current outlook on natural gas prices is favorable and our operations have not been significantly impacted in the short-term, in the event these disruptions continue for an extended period of time, our operations could be adversely impacted, commodity prices could continue to decline further and our costs may increase. While we are unable to predict future commodity prices, at current natural gas price levels, we do not believe that an impairment of our oil and gas properties is reasonably likely to occur in the near future; however, in the event that commodity prices significantly decline from current levels, management would evaluate the recoverability of the carrying value of our oil and gas properties.
We have implemented preventative measures and developed response plans intended to minimize unnecessary risk of exposure and prevent infection among our employees and the communities in which we operate. We also have modified certain business practices (including those related to non-operational employee work locations and the cancellation of physical participation in meetings, events and conferences) to conform to government restrictions and best practices encouraged by the Centers for Disease Control and Prevention, the WHO and other governmental and regulatory authorities. In addition, we are continuing to work with our customers and service providers to understand the potential impacts to our operations, including to mitigate any disruptions and to plan for longer-term emergency response protocols. We will continue to monitor developments affecting our workforce, our customers, our service providers and the communities in which we operate, including any resurgence in COVID-19 transmission and infection, and take additional precautions as we believe are warranted.
Our efforts to respond to the challenges presented by the on-going pandemic, as well as certain operational decisions we previously implemented such as our maintenance capital program, have helped to minimize the impact, and any resulting disruptions, of the pandemic to our business and operations. We have not required any funding under any federal or other governmental programs to support our operations, and we do not expect to have to utilize any such funding. As a result, we currently believe that we are well-positioned to manage the challenges presented in a volatilelower commodity pricing environment and can endure the current cyclical downturn in the energy industry and continued volatility in current and future commodity prices by:
•Continuing to exercise discipline in our capital program with the expectation of funding our capital expenditures with cash on hand, operating cash flows, and if required, borrowings under our revolving credit facility.
•Continuing to manage our portfolio by strategically curtailing production in periods of weaker natural gas prices.
•Continuing to optimize our drilling, completion and operational efficiencies, resulting in lower operating costs per unit of production.
•Continuing to manage our balance sheet, which we believe provides sufficient availability under our revolving credit facility and existing cash balances to meet our capital requirements and maintain compliance with our debt covenants.
•Continuing to manage price risk by strategically hedging our production.
While we are unableThe impact that COVID-19 will have on our business, cash flows, liquidity, financial condition and results of operations will depend on future developments, including, among others, the duration, ultimate geographic spread and severity of the virus, any resurgence in COVID-19 transmission and infection in affected regions after they have begun to predict futureexperience an improvement, the consequences of governmental and other measures designed to mitigate the spread of the virus and alleviate strain on the healthcare system, the development of effective treatments, actions taken by governmental authorities, customers,
suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.
For information about the impact of realized commodity prices in the event that commodity prices significantly decline, management would test the recoverabilityon our revenues, refer to “Results of the carrying value of its oil and gas properties and, if necessary, record an impairment charge.Operations” below.
Outlook
Our 20192020 capital program is expected to be approximately $800.0$575.0 million, to $820.0a 27 percent reduction from our 2019 capital program of $783.3 million. We expect to fund these capital expenditures with our cash on hand, operating cash flow and, if required, borrowings under our revolving credit facility. At the beginning of 2020, we reduced our planned capital program as a result of the lower natural gas price environment. During the third quarter of 2020, we elected to strategically curtail production in the Marcellus Shale due to weaker natural gas prices; however, we anticipate an increase in production in the fourth quarter of 2020 over the third quarter as a result of an increase in demand during the winter months.
In 2018,2019, we drilled 9796 gross wells (95.1(94.0 net) and completed 9499 gross wells (93.0(97.0 net), of which 2729 gross wells (27.0(29.0 net) were drilled but uncompleted in prior years. For the full year of 2019,2020, our capital program will focus on the Marcellus Shale, where we expect to drill, and complete approximately 90.0 net wells and place on production approximately 9070 net wells on production.wells. We will continue to assess the natural gas price environment along with our liquidity position and may increase or decrease our capital expenditures accordingly.in response to the macro-environment and outlook. This may from time to time also include curtailing a portion of our production.
Financial Condition
Capital Resources and Liquidity
Our primary sourcessource of cash for the nine months ended September 30, 2019 were2020 was from the sale of natural gas production.production and net borrowings under our revolving credit facility. These cash flows were used to fund our capital expenditures, principal and interest payments on debt and payment of dividends, repurchases of shares of common stock and contributions to our equity method investments.dividends. See below for additional discussion and analysis of our cash flow.flows.
On April 22, 2019, we entered into a second amended and restated credit agreement (revolving credit facility) . The borrowing base under the terms of our revolving credit facility is redetermined annually in April. In addition, either we or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or divestitures of oil and gas properties. As ofEffective April 23, 2020, the borrowing base and available commitments were reaffirmed at $3.2 billion and $1.5 billion, respectively. At September 30, 2019, there were no2020, we had $28.0 million of borrowings outstanding under our revolving credit facility and our unused commitments were $1.5 billion. Refer to Note 4 of the Notes to the Condensed Consolidated Financial Statements for more information.
A decline in commodity prices could result in the future reduction of our borrowing base and related commitments under our revolving credit facility. Unless commodity prices decline significantly from current levels, we do not believe that any such reductions would have a significant impact on our ability to service our debt and fund our drilling program and related operations.
We strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity. Our revolving credit facility includes a covenant limiting our total debt. We believe that, with operating cash flow cash on hand and availability under our revolving credit facility, we have the capacity to fund our spending plans.
At September 30, 2019,2020, we were in compliance with all restrictive financial covenants for both theour revolving credit facility and senior notes. SeeRefer to our Form 10-K for further discussion of our restrictive financial covenants.
Cash Flows
Our cash flows from operating activities, investing activities and financing activities are as follows:
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | (In thousands) | | 2020 | | 2019 |
Cash flows provided by operating activities | | $ | 1,182,811 |
| | $ | 788,852 |
| Cash flows provided by operating activities | | $ | 470,393 | | | $ | 1,182,811 | |
Cash flows used in investing activities | | (625,616 | ) | | (44,844 | ) | Cash flows used in investing activities | | (487,546) | | | (625,616) | |
Cash flows used in financing activities | | (477,166 | ) | | (907,978 | ) | Cash flows used in financing activities | | (184,882) | | | (477,166) | |
Net increase (decrease) in cash and cash equivalents | | $ | 80,029 |
| | $ | (163,970 | ) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | | $ | (202,035) | | | $ | 80,029 | |
Operating Activities. Operating cash flow fluctuations are substantially driven by commodity prices, changes in our production volumes and operating expenses. Commodity prices have historically been volatile, primarily as a result of supply
and demand for natural gas, and crude oil, pipeline infrastructure constraints, basis differentials, inventory storage levels, seasonal influences and seasonal influences.other factors. In addition, fluctuations in cash flow may result in an increase or decrease in our capital expenditures.
Our working capital is substantially influenced by the variables discussed above and fluctuates based on the timing and amount of borrowings and repayments under our revolving credit facility, repayments of debt, the timing of cash collections and payments on our trade accounts receivable and payable, respectively, payment of dividends, repurchases of our securities and changes in the fair value of our commodity derivative activity. From time to time, our working capital will reflect a deficit, while at other times it will reflect a surplus. This fluctuation is not unusual. At September 30, 20192020 and December 31, 2018,2019, we had a working capital deficit of $63.4 million and a surplus of $126.9 million and $257.3$240.2 million, respectively. We believe that we have adequate liquidity and availability under our revolving credit facility to meet our working capital requirements over the next twelve months.
Net cash provided by operating activities in the first nine months of 2019 increased2020 decreased by $394.0$712.4 million compared to the first nine months of 2018.2019. This increasedecrease was primarily due to higher operatinglower natural gas revenues, lower derivative settlement gains and favorableunfavorable changes in working capital partially offset by higher operating expenses.compared to the prior year. The increasedecrease in operatingnatural gas revenues was primarily due to higher equivalent production and higherlower realized natural gas prices.prices and marginally lower natural gas production. Average realized natural gas prices increaseddecreased by 1038 percent for the first nine months of 20192020 compared to the first nine months of 2018. Equivalent2019. Natural gas production increased by 21 percentdecreased slightly for the first nine months of 20192020 compared to the first nine months of 20182019 due to higherstrategic curtailments of production during the third quarter of 2020 due to weaker natural gas prices offset by higher production during the period prior to such strategic curtailment due to the timing of our drilling and completion activities in the Marcellus Shale.Shale in 2020.
SeeRefer to “Results of Operations” for additional information relative to commodity price, production and operating expense fluctuations. We are unable to predict future commodity prices and, as a result, cannot provide any assurance about future levels of net cash provided by operating activities.
Investing Activities. Cash flows used in investing activities increaseddecreased by $580.8$138.1 million for the first nine months of 20192020 compared to the first nine months of 2018.2019. The increasedecrease was primarily due to $673.1$142.3 million of lower capital expenditures as a result of the implementation of our maintenance capital program in 2020. This decrease was partially offset by an increase in net cash outflows of $2.1 million related to the sale of our equity method investments and a decrease in proceeds from the sale of assets. This increase was partially offset by $26.8 million lower capital expenditures and $63.9 million lower capital contributions associated with our equity method investments.assets of $2.1 million.
Financing Activities. Cash flows used in financing activities decreased by $430.8$292.3 million for the first nine months of 20192020 compared to the first nine months of 2018.2019. This decrease was primarily due to $234.3$347.4 million of lower repurchases of our common stock in 2020 compared to 2019, $7.4 million of lower debt issuance costs associated with the amendment of our revolving credit facility in 2019 and $230.0$4.2 million of lower tax withholdings on vesting of stock awards. These decreases were partially offset by $52.0 million higher net repayments of debt primarily related to maturities of certain of our senior notes during 2018. This decrease was partially offset by $23.5and $14.8 million higher dividend payments related to an increase in our quarterly dividend rate from $0.18 per share in the first nine months of 2018 to $0.25 per share in the first nine months of 2019 a $7.4 million increaseto $0.30 per share in debt issuance costs related to amending our revolving credit facility in early 2019 and $2.5 million higher tax withholdings on vesting stock awards. Treasury stock repurchases for the first nine months ended September 30,of 2020. Share repurchases in 2019 include $31.4 million of share repurchases that were accrued in 2018 and paid in 2019.
Capitalization
Information about our capitalization is as follows:
| | | | | | | | | | | | | | |
(In thousands) | | September 30, 2020 | | December 31, 2019 |
Debt (1) | | $ | 1,161,712 | | | $ | 1,220,025 | |
Stockholders' equity | | 2,118,488 | | | 2,151,487 | |
Total capitalization | | $ | 3,280,200 | | | $ | 3,371,512 | |
Debt to total capitalization | | 35 | % | | 36 | % |
Cash and cash equivalents | | $ | 170 | | | $ | 200,227 | |
|
| | | | | | | | |
(In thousands) | | September 30, 2019 | | December 31, 2018 |
Debt (1) | | $ | 1,219,790 |
| | $ | 1,226,104 |
|
Stockholders' equity | | 2,213,576 |
| | 2,088,159 |
|
Total capitalization | | $ | 3,433,366 |
| | $ | 3,314,263 |
|
Debt to total capitalization | | 36 | % | | 37 | % |
Cash and cash equivalents | | $ | 82,316 |
| | $ | 2,287 |
|
_______________________________________________________________________________(1)Includes $188.0 million and $87.0 million of current portion of long-term debt at September 30, 2020 and December 31, 2019, respectively. Includes $28.0 million of borrowings outstanding under our revolving credit facility as of September 30, 2020. There were no borrowings outstanding under our revolving credit facility as of December 31, 2019. | |
(1) | Includes $87.0 million of current portion of long-term debt at September 30, 2019. Includes $7.0 million of borrowings outstanding under our revolving credit facility as of December 31, 2018. |
We did not repurchase any shares of our common stock during the first nine months of 2020. During the first nine months of 2019, and 2018, we repurchased 15.5 million shares of our common stock for $316.1 million and 27.1 million shares of our common stock for $644.2 million, respectively.million. During the first nine months of 2020 and
2019, and 2018, we paid dividends of $119.5 million ($0.30 per share) and $104.7 million ($0.25 per share) and $81.2 million ($0.18 per share), respectively, on our common stock.
In April 2019, the Board of Directors approved an increase in the quarterly dividend on our common stock from $0.07 per share to $0.09 per share. In October 2019, the Board of Directors approved an additional increase in the quarterly dividend on our common stock from $0.09 per share to $0.10 per share.
Capital and Exploration Expenditures
On an annual basis, we generally fund most of our capital expenditures, excluding any significant property acquisitions, with cash on hand, cash generated from operations, and if required, borrowings under our revolving credit facility. We budget these expenditures based on our projected cash flows for the year.
The following table presents major components of our capital and exploration expenditures:
|
| | | | | | | | |
| | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 |
Capital expenditures | | |
| | |
|
Drilling and facilities | | $ | 605,938 |
| | $ | 551,351 |
|
Leasehold acquisitions | | 5,261 |
| | 27,487 |
|
Other | | 10,917 |
| | 14,260 |
|
| | 622,116 |
| | 593,098 |
|
Exploration expenditures(1) | | 15,029 |
| | 68,166 |
|
| | $ | 637,145 |
| | $ | 661,264 |
|
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 |
Capital expenditures | | | | |
Drilling and facilities | | $ | 449,045 | | | $ | 605,938 | |
Leasehold acquisitions | | 3,258 | | | 5,261 | |
| | | | |
| | | | |
Other | | 11,622 | | | 10,917 | |
| | 463,925 | | | 622,116 | |
Exploration expenditures(1) | | 10,669 | | | 15,029 | |
| | $ | 474,594 | | | $ | 637,145 | |
| |
(1) | Exploratory dry hole expenditures included in exploration expenditures for the first nine months of 2019 were not significant. Exploration expenditures include $56.4 million of exploratory dry hole expenditures for the first nine months of 2018. |
(1)Exploration expenditures include $2.0 million of exploratory dry hole cost for the first nine months of 2020. Exploratory dry hole cost for the first nine months of 2019 was not significant.
For the full year of 2019,2020, we plan to allocate substantially all of our capital program will focus onto the Marcellus Shale, where we expect to drill, and complete approximately 90.0 net wells and place on production approximately 9070 net wells on production. In 2019, our drillingwells. Our 2020 capital program includesis expected to be approximately $800.0 million$575.0 million. Refer to $820.0 million in total capital expenditures compared to $816.1 million in 2018. See “Outlook”“Outlook” for additional information regarding the current year drilling program. We will continue to assess the commodity price environment and may increase or decrease our capital expenditures accordingly.
Contractual Obligations
We have various contractual obligations in the normal course of our operations. There have been no material changes to our contractual obligations described under “Transportation and Gathering Agreements” and “Lease Commitments” as disclosed in Note 9 of the Notes to the Consolidated Financial Statements and the obligations described under “Contractual Obligations” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. SeeRefer to our Form 10-K for further discussion of our critical accounting policies.
Recently Adopted Accounting Pronouncements
Refer to Note 1 of the Notes to the Condensed Consolidated Financial Statements, “Financial Statement Presentation,” for a discussion of newrecently adopted accounting pronouncements that affect us.
Results of Operations
Third Quarters of 20192020 and 20182019 Compared
We reported a net incomeloss in the third quarter of 20192020 of $15.0 million, or $0.04 per share, compared to net income of $90.4 million, or $0.22 per share, compared to net income of $122.3 million, or $0.28 per share, in the third quarter of 2018.2019. The decrease in net income was primarily due to lower operating revenues, and gain on sale of assets, partially offset by lower operating expenses and income tax expense.
Revenue, Price and Volume Variances
Our revenues vary from year to year as a result of changes in commodity prices and production volumes. Below is a discussion of revenue, price and volume variances.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Variance |
(In thousands) | | 2019 | | 2018 | | Amount | | Percent |
Operating Revenues | | | | | | | | |
Natural gas | | $ | 418,133 |
| | $ | 440,835 |
| | $ | (22,702 | ) | | (5 | )% |
Gain (loss) on derivative instruments | | 11,060 |
| | (3,537 | ) | | 14,597 |
| | 413 | % |
Brokered natural gas | | — |
| | 105,849 |
| | (105,849 | ) | | (100 | )% |
Other | | (82 | ) | | 2,026 |
| | (2,108 | ) | | (104 | )% |
| | $ | 429,111 |
| | $ | 545,173 |
| | $ | (116,062 | ) | | (21 | )% |
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Variance | | Increase (Decrease) (In thousands) |
| | 2019 | | 2018 | | Amount | | Percent | |
Price Variances | | |
| | |
| | |
| | |
| | |
|
Natural gas | | $ | 1.89 |
| | $ | 2.36 |
| | $ | (0.47 | ) | | (20 | )% | | $ | (103,414 | ) |
Volume Variances | | |
| | |
| | |
| | |
| | |
|
Natural gas (Bcf) | | 220.7 |
| | 186.5 |
| | 34.2 |
| | 18 | % | | $ | 80,712 |
|
Total | | |
| | |
| | |
| | |
| | $ | (22,702 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Variance |
(In thousands) | | 2020 | | 2019 | | Amount | | Percent |
Operating Revenues | | | | | | | | |
Natural gas | | $ | 333,256 | | | $ | 418,133 | | | $ | (84,877) | | | (20) | % |
| | | | | | | | |
(Loss) gain on derivative instruments | | (42,253) | | | 11,060 | | | (53,313) | | | (482) | % |
Other | | 38 | | | (82) | | | 120 | | | (146) | % |
| | $ | 291,041 | | | $ | 429,111 | | | $ | (138,070) | | | (32) | % |
Natural Gas Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Variance | | Increase (Decrease) (In thousands) |
| | 2020 | | 2019 | | Amount | | Percent | |
Price variance ($/Mcf) | | $ | 1.51 | | | $ | 1.89 | | | $ | (0.38) | | | (20) | % | | $ | (86,200) | |
Volume variance (Bcf) | | 221.4 | | | 220.7 | | | 0.7 | | | — | % | | 1,323 | |
Total | | | | | | | | | | $ | (84,877) | |
The decrease in natural gas revenues of $22.7$84.9 million was primarily due to lower natural gas prices, partially offset by higher production. Thea slight increase in production wasproduction. Production increased slightly as a result of an increase inthe timing of our drilling and completion activities in Pennsylvania.the Marcellus Shale in 2020 offset by strategic curtailments of production during the third quarter of 2020 due to weaker natural gas prices.
Impact of Derivative Instruments on Operating Revenues
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
(In thousands) | | 2020 | | 2019 |
Cash received (paid) on settlement of derivative instruments | | | | |
(Loss) gain on derivative instruments | | $ | 14,106 | | | $ | 46,555 | |
Non-cash gain (loss) on derivative instruments | | | | |
(Loss) gain on derivative instruments | | (56,359) | | | (35,495) | |
| | $ | (42,253) | | | $ | 11,060 | |
|
| | | | | | | | |
| | Three Months Ended September 30, |
(In thousands) | | 2019 | | 2018 |
Cash received (paid) on settlement of derivative instruments | | |
| | |
|
Gain (loss) on derivative instruments | | $ | 46,555 |
| | $ | (41 | ) |
Non-cash gain (loss) on derivative instruments | | |
| | |
|
Gain (loss) on derivative instruments | | (35,495 | ) | | (3,496 | ) |
| | $ | 11,060 |
| | $ | (3,537 | ) |
Brokered Natural Gas
Brokered natural gas decreased $105.8 million. There was no brokered natural gas activity in the current period.
Operating and Other Expenses | | | | Three Months Ended September 30, | | Variance | | | Three Months Ended September 30, | | Variance |
(In thousands) | | 2019 | | 2018 | | Amount | | Percent | (In thousands) | | 2020 | | 2019 | | Amount | | Percent |
Operating and Other Expenses | | |
| | |
| | |
| | |
| Operating and Other Expenses | | | | | | | | |
Direct operations | | $ | 19,181 |
| | $ | 17,030 |
| | $ | 2,151 |
| | 13 | % | Direct operations | | $ | 20,197 | | | $ | 19,181 | | | $ | 1,016 | | | 5 | % |
Transportation and gathering | | 145,681 |
| | 129,534 |
| | 16,147 |
| | 12 | % | Transportation and gathering | | 146,982 | | | 145,681 | | | 1,301 | | | 1 | % |
Brokered natural gas | | — |
| | 93,405 |
| | (93,405 | ) | | (100 | )% | |
Taxes other than income | | 4,607 |
| | 2,852 |
| | 1,755 |
| | 62 | % | Taxes other than income | | 3,615 | | | 4,607 | | | (992) | | | (22) | % |
Exploration | | 4,481 |
| | 10,049 |
| | (5,568 | ) | | (55 | )% | Exploration | | 3,900 | | | 4,481 | | | (581) | | | (13) | % |
Depreciation, depletion and amortization | | 110,889 |
| | 121,172 |
| | (10,283 | ) | | (8 | )% | Depreciation, depletion and amortization | | 99,649 | | | 110,889 | | | (11,240) | | | (10) | % |
| General and administrative | | 18,391 |
| | 20,724 |
| | (2,333 | ) | | (11 | )% | General and administrative | | 24,262 | | | 18,391 | | | 5,871 | | | 32 | % |
| | $ | 303,230 |
| | $ | 394,766 |
| | $ | (91,536 | ) | | (23 | )% | | $ | 298,605 | | | $ | 303,230 | | | $ | (4,625) | | | (2) | % |
| | | | | | | | | |
Earnings (loss) on equity method investments | | $ | 3,860 |
| | $ | (11 | ) | | $ | 3,871 |
| | 35,191 | % | |
Earnings on equity method investments | | Earnings on equity method investments | | $ | — | | | $ | 3,860 | | | $ | (3,860) | | | (100) | % |
Gain on sale of assets | | 36 |
| | 25,655 |
| | (25,619 | ) | | (100 | )% | Gain on sale of assets | | 31 | | | 36 | | | (5) | | | (14) | % |
| Interest expense, net | | 13,554 |
| | 14,191 |
| | (637 | ) | | (4 | )% | Interest expense, net | | 14,389 | | | 13,554 | | | 835 | | | 6 | % |
Other expense | | 143 |
| | 115 |
| | 28 |
| | 24 | % | Other expense | | 57 | | | 143 | | | (86) | | | (60) | % |
Income tax expense | | 25,722 |
| | 39,408 |
| | (13,686 | ) | | (35 | )% | |
Income tax (benefit) expense | | Income tax (benefit) expense | | (7,018) | | | 25,722 | | | (32,740) | | | (127) | % |
Total costs and expenses from operations decreased by $91.5$4.6 million or 23 percent, in the third quarter of 20192020 compared to the same period of 2018.2019. The primary reasons for this fluctuation are as follows:
•Direct operations increased $2.2$1.0 million primarily driven by higher Marcellus Shale production.workover expense.
•Transportation and gathering increased $16.1$1.3 million due to higher Marcellus Shale production.demand charges.
Brokered natural gas decreased $93.4 million. There was no brokered natural gas activity in the current period.
Taxes other than income increased $1.8 million primarily due to $2.0 million higher drilling impact fees as a result of an increase in drilling activity in Pennsylvania.
Exploration decreased $5.6 million due to a decrease in exploratory dry hole costs of $5.3 million. The exploratory dry hole costs in 2018 were related to our activities in west Texas.
•Depreciation, depletion and amortization decreased $10.3$11.2 million primarily due to lower amortization of unproved properties of $16.5$14.0 million, partially offset by higher DD&A of $6.1$2.3 million in the third quarter of 2020 compared to 2019. Amortization of unproved properties decreased due to lower amortization rates. The increase in DD&A was primarily due to an increase of $15.9$2.0 million related to higher production volumes in the Marcellus Shale, partially offset by a $9.8 million decrease due to a lowerhigher DD&A rate of $0.43 per Mcfe in the third quarter of 2020 compared to $0.42 per Mcfe for the third quarter of 2019 compared to $0.46 per Mcfe for the third quarter of 2018.2019. The lowerhigher DD&A rate was due to positivehigher cost reserve revisions related to our year end reserve estimation process. Amortization of unproved properties decreased due to lower amortization rates as a result of a decrease in exploratory activities.additions.
•General and administrative decreased $2.3increased $5.9 million primarily due to $4.4$9.3 million lowerhigher stock-based compensation expense associated with certain of our market-based performance awards in the third quarter of 2019. This decrease was partially offset by a $1.2 million decrease in hardware and software costs. The remaining changes in other general and administrative expenses that were not individually significant.
Earnings (Loss) on Equity Method Investments
Earnings on equity method investments increaseddecreased $3.9 million as a result of an increase in our proportionate share of net income from our equity method investments during the third quarter of 2019 compared to the third quarter of 2018 primarily from our investment in Meade, which commenced operations in late 2018.
Gain on Sale of Assets
There were no significant sales of assets in the third quarter of 2019. During the third quarter of 2018, we recognized a net aggregate gain of $25.7 million primarily due to the sale of certain of our oilinvestments in Meade Pipeline Co LLC (Meade) in November 2019 and gas assetsConstitution Pipeline Company, LLC (Constitution) in east Texas.
Interest Expense, net
Interest expense, net decreased $0.6 million due to $2.2 million lower interest expense resulting from the repayment of $237.0 million of our 6.51% weighted-average senior notes which matured in July 2018 and $67.0 million of our 9.78% senior notes which matured in December 2018 and a decrease in commitment fees on our revolving credit facility of $0.9 million. These decreases are offset by a decrease in reversals of interest expense related to certain income tax reserves of $1.9 million and a $1.0 million decrease in interest income.February 2020.
Income Tax (Benefit) Expense
Income tax expense decreased $13.7$32.7 million due to lower pre-tax income and a lowerhigher effective tax rate. The effective tax rates for the third quarter of 2020 and 2019 and 2018 were 22.231.9 percent and 24.422.2 percent, respectively. The effective tax rate was lowerhigher for the third quarter of 2020, where we recorded an income tax benefit, compared to the third quarter of 2019, where we recorded an income tax expense, due to the impact of non-recurring discrete items related to additional tax credits recorded during the third quarter of 2019 as compared to the third quarter of 2018.2020.
First Nine Months of 20192020 and 20182019 Compared
We reported net income in the first nine months of 20192020 of $534.1$69.3 million, or $1.27$0.17 per share, compared to net income of $282.0$534.1 million, or $0.63$1.27 per share, in the first nine months of 2018.2019. The increasedecrease in net income was primarily due to higherlower operating revenues and earnings on equity method investments, and lower operating expenses, interest expense and loss on sale of assets, partially offset by higherlower income tax expense.
Revenue, Price and Volume Variances
Our revenues vary from year to year as a result of changes in commodity prices and production volumes. Below is a discussion of revenue, price and volume variances.
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Variance |
(In thousands) | | 2019 | | 2018 | | Amount | | Percent |
Operating Revenues | | | | | | | | |
Natural gas | | $ | 1,521,789 |
| | $ | 1,217,603 |
| | $ | 304,186 |
| | 25 | % |
Crude oil and condensate | | — |
| | 48,722 |
| | (48,722 | ) | | (100 | )% |
Gain (loss) on derivative instruments | | 82,966 |
| | (1,628 | ) | | 84,594 |
| | 5,196 | % |
Brokered natural gas | | — |
| | 203,375 |
| | (203,375 | ) | | (100 | )% |
Other | | 154 |
| | 3,775 |
| | (3,621 | ) | | (96 | )% |
| | $ | 1,604,909 |
| | $ | 1,471,847 |
| | $ | 133,062 |
| | 9 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Variance | | Increase (Decrease) (In thousands) |
| | 2019 | | 2018 | | Amount | | Percent | |
Price Variances | | |
| | |
| | |
| | |
| | |
|
Natural gas | | $ | 2.38 |
| | $ | 2.33 |
| | $ | 0.05 |
| | 2 | % | | $ | 34,605 |
|
Crude oil and condensate | | $ | — |
| | $ | 64.68 |
| | $ | (64.68 | ) | | (100 | )% | | — |
|
Total | | |
| | |
| | |
| | |
| | $ | 34,605 |
|
Volume Variances | | |
| | |
| | |
| | |
| | |
|
Natural gas (Bcf) | | 639.3 |
| | 523.6 |
| | 115.7 |
| | 22 | % | | $ | 269,581 |
|
Crude oil and condensate (Mbbl) | | — |
| | 754 |
| | (754 | ) | | (100 | )% | | (48,722 | ) |
Total | | |
| | |
| | |
| | |
| | $ | 220,859 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Variance |
(In thousands) | | 2020 | | 2019 | | Amount | | Percent |
Operating Revenues | | | | | | | | |
Natural gas | | $ | 991,882 | | | $ | 1,521,789 | | | $ | (529,907) | | | (35) | % |
| | | | | | | | |
Gain on derivative instruments | | 17,783 | | | 82,966 | | | (65,183) | | | (79) | % |
Other | | 181 | | | 154 | | | 27 | | | 18 | % |
| | $ | 1,009,846 | | | $ | 1,604,909 | | | $ | (595,063) | | | (37) | % |
Natural Gas Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Variance | | Increase (Decrease) (In thousands) |
| | 2020 | | 2019 | | Amount | | Percent | |
Price variance ($/Mcf) | | $ | 1.55 | | | $ | 2.38 | | | $ | (0.83) | | | (35) | % | | $ | (529,770) | |
| | | | | | | | | | |
Volume variance (Bcf) | | 639.2 | | | 639.3 | | | (0.1) | | | — | % | | (137) | |
Total | | | | | | | | | | $ | (529,907) | |
The increasedecrease in natural gas revenues of $304.2$529.9 million was primarily due to lower natural gas prices and, to a lesser extent, slightly lower production. The slight decrease in production was due to an increase instrategic curtailments of production and higherduring the third quarter of 2020 due to weaker natural gas prices. The increase inprices offset by higher production was a resultduring the period prior to such strategic curtailment due to the timing of an increase in our drilling and completion activities in Pennsylvania.the Marcellus Shale in 2020.
Crude Oil and Condensate Revenues
The decrease in crude oil and condensate revenues of $48.7 million was primarily due to the sale of our Eagle Ford Shale assets in February 2018.
Impact of Derivative Instruments on Operating Revenues | | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, |
(In thousands) | | 2019 | | 2018 | (In thousands) | | 2020 | | 2019 |
Cash received (paid) on settlement of derivative instruments | | |
| | |
| Cash received (paid) on settlement of derivative instruments | | | | |
Gain (loss) on derivative instruments | | $ | 114,931 |
| | $ | (20,354 | ) | |
(Loss) gain on derivative instruments | | (Loss) gain on derivative instruments | | $ | 33,529 | | | $ | 114,931 | |
Non-cash gain (loss) on derivative instruments | | | | | Non-cash gain (loss) on derivative instruments | |
Gain (loss) on derivative instruments | | (31,965 | ) | | 18,726 |
| |
(Loss) gain on derivative instruments | | (Loss) gain on derivative instruments | | (15,746) | | | (31,965) | |
| | $ | 82,966 |
| | $ | (1,628 | ) | | | $ | 17,783 | | | $ | 82,966 | |
Brokered Natural Gas
Brokered natural gas decreased $203.4 million. There was no brokered natural gas activity in the current period.
Operating and Other Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Variance |
(In thousands) | | 2020 | | 2019 | | Amount | | Percent |
Operating and Other Expenses | | | | | | | | |
Direct operations | | $ | 54,864 | | | $ | 55,608 | | | $ | (744) | | | (1) | % |
Transportation and gathering | | 425,563 | | | 424,703 | | | 860 | | | — | % |
Taxes other than income | | 10,705 | | | 14,094 | | | (3,389) | | | (24) | % |
Exploration | | 10,669 | | | 15,029 | | | (4,360) | | | (29) | % |
Depreciation, depletion and amortization | | 294,406 | | | 299,294 | | | (4,888) | | | (2) | % |
| | | | | | | | |
General and administrative | | 80,857 | | | 72,370 | | | 8,487 | | | 12 | % |
| | $ | 877,064 | | | $ | 881,098 | | | $ | (4,034) | | | — | % |
| | | | | | | | |
(Loss) earnings on equity method investments | | $ | (59) | | | $ | 11,194 | | | $ | (11,253) | | | (101) | % |
Gain (loss) on sale of assets | | (139) | | | (1,464) | | | (1,325) | | | (91) | % |
Interest expense, net | | 43,143 | | | 40,302 | | | 2,841 | | | 7 | % |
| | | | | | | | |
Other expense | | 171 | | | 430 | | | (259) | | | (60) | % |
Income tax expense | | 19,947 | | | 158,679 | | | (138,732) | | | (87) | % |
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Variance |
(In thousands) | | 2019 | | 2018 | | Amount | | Percent |
Operating and Other Expenses | | |
| | |
| | |
| | |
|
Direct operations | | $ | 55,608 |
| | $ | 52,757 |
| | $ | 2,851 |
| | 5 | % |
Transportation and gathering | | 424,703 |
| | 355,848 |
| | 68,855 |
| | 19 | % |
Brokered natural gas | | — |
| | 178,437 |
| | (178,437 | ) | | (100 | )% |
Taxes other than income | | 14,094 |
| | 15,434 |
| | (1,340 | ) | | (9 | )% |
Exploration | | 15,029 |
| | 68,166 |
| | (53,137 | ) | | (78 | )% |
Depreciation, depletion and amortization | | 299,294 |
| | 288,210 |
| | 11,084 |
| | 4 | % |
General and administrative | | 72,370 |
| | 66,013 |
| | 6,357 |
| | 10 | % |
| | $ | 881,098 |
| | $ | 1,024,865 |
| | $ | (143,767 | ) | | (14 | )% |
| | | | | | | | |
Earnings (loss) on equity method investments | | $ | 11,194 |
| | $ | (1,009 | ) | | $ | 12,203 |
| | 1,209 | % |
Loss on sale of assets | | (1,464 | ) | | (14,850 | ) | | (13,386 | ) | | (90 | )% |
Interest expense, net | | 40,302 |
| | 57,577 |
| | (17,275 | ) | | (30 | )% |
Other expense | | 430 |
| | 347 |
| | 83 |
| | 24 | % |
Income tax expense | | 158,679 |
| | 91,201 |
| | 67,478 |
| | 74 | % |
Total costs and expenses from operations decreased by $143.8$4.0 million or 14 percent, in the first nine months of 20192020 compared to the same period of 2018.2019. The primary reasons for this fluctuation are as follows:
| |
• | •Direct operations increased $2.9 million primarily driven by $13.0 million higher operating costs due to higher Marcellus Shale production partially offset by lower operating costs of $10.2 million primarily as a result of the the sale of our Eagle Ford Shale assets in February 2018. |
Transportation and gathering increased $68.9 million largely due to higher Marcellus Shale production.
Brokered natural gas decreased $178.4 million. There was no brokered natural gas activity in the current period.
Taxes other than income decreased $1.3 million primarily due to $2.4 million lower production taxes resulting from the sale of our Eagle Ford Shale assets in February 2018 partially offset by $1.5 million higher drilling impact fees due to increased drilling activity in Pennsylvania.
Exploration decreased $53.1$0.7 million due to a decrease in production and continued efficiencies in our operations in the Marcellus Shale. This decrease was offset by higher workover expenses during the period.
•Transportation and gathering increased $0.9 million due to higher demand charges.
•Taxes other than income decreased $3.4 million primarily due to $3.1 million lower drilling impact fees driven by a decrease in rates associated with lower natural gas prices and a decrease in drilling activities during 2020.
•Exploration decreased $4.4 million primarily due to a $3.6 million decrease in geological and geophysical expenses and a $1.4 million decrease in employee costs. These decreases were partially offset by higher in exploratory dry hole costs of $56.4 million, partially offset by an increase of $4.7 million in geological and geophysical expenses. The exploratory dry hole costs in 2018 were related to our activities in west Texas.$2.0 million.
•Depreciation, depletion and amortization increased $11.1decreased $4.9 million primarily due to higher DD&A of $31.3 million, partially offset by lower amortization of unproved properties of $20.9$17.0 million, partially offset by higher DD&A of $11.1 million. Amortization of unproved properties decreased due to lower amortization rates. The increase in DD&A was primarily
due to an increase of $49.8 million related toa higher production volumes in the Marcellus Shale, partially offset by a decrease of $18.5 million related to a lower DD&A rate of $0.44 per Mcfe for the first nine months of 2020 compared to $0.42 per Mcfe for the first nine months of 2019 compared to $0.45 per Mcfe for the first nine months of 2018.2019. The lowerhigher DD&A rate was due to positivehigher cost reserve revisions related to our year end reserve estimation process. Amortization of unproved properties decreased due to lower amortization rates as a result of a decrease in exploratory activities.additions.
•General and administrative increased $6.4$8.5 million primarily due to higher stock-based compensation expense of $6.3$12.0 million associated with certain of our market-based performance awards $2.5and a $1.8 million of severance costs and $2.6 million of higher employee costs.increase in legal expenses. These increases were partially offset by $6.3$2.5 million of lower professional servicesseverance costs that were incurred in the third quarter of 2019 and legal fees.a $1.7 million decrease in employee-related expenses. The remaining changes in other general and administrative expenses were not individually significant.
(Loss) Earnings (Loss) on Equity Method Investments
Earnings on equity method investments increased $12.2 million as a result of an increase in our proportionate share of net income from our equity method investments in the first nine months of 2019 compared to the first nine months of 2018 primarily from our investment in Meade, which commenced operations in late 2018.
Gain (Loss) on Sale of Assets
There were no significant asset sales during the first nine months of 2019. During the first nine months of 2018, we recognized a net aggregate loss of $14.9decreased $11.3 million primarily due to the sale of our Eagle Ford Shale assets, partially offset by a gain on the sale of oilinvestments in Meade in November 2019 and gas propertiesConstitution in east Texas.February 2020.
Interest Expense, net
Interest expense, net decreased $17.3increased $2.8 million primarily due to $13.0 million lowerthe reversal of interest expense resulting from the repayment of $237.0 million of our 6.51% weighted-average senior notes which matured in July 2018 and $67.0 million of our 9.78% senior notes that matured in December 2018 and a $6.7 million decrease2019 related to certain income tax reserves. These decreases are partially offset by a $3.2 million decreasereserves recorded in interest income.prior periods.
Income Tax Expense
Income tax expense increased $67.5decreased $138.7 million due to higherlower pre-tax income partially offset byand a lower effective tax rate. The effective tax rates for the first nine months of 2020 and 2019 and 2018 were 22.922.3 percent and 24.422.9 percent, respectively. The effective tax rate was higherlower for the first nine months of 2018 due2020 compared to an increase in the blended state statutory tax rate as a result of changes in our state apportionment factors attributable to the Eagle Ford Shale asset divestiture in February 2018. There were no significant apportionment changes recorded during the first nine months of 2019.2019 due to the impact of non-recurring discrete items related to additional tax credits recorded in 2020 partially offset by an increase in tax expense as a result of book compensation expense exceeding the federal and state tax deductions for employee stock-based compensation awards that vested during the period.
Forward-Looking Information
The statements regarding future financial and operating performance and results, strategic pursuits and goals, market prices, future hedging and risk management activities, and other statements that are not historical facts contained in this report are forward-looking statements. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “budget,” “plan,” “forecast,” “target,” “predict,” “may,” “should,” “could,” “will”"expect," "project," "estimate," "believe," "anticipate," "intend," "budget," "plan," "forecast," "target," "predict," "may," "should," "could," "will" and similar expressions are also intended to identify forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, the continuing effects of the COVID-19 pandemic and the impact thereof on our business, financial condition and results of operations, the availability of cash on hand and other sources of liquidity to fund our capital expenditures, actions by, or disputes among or between, members of OPEC+, market factors, market prices (including geographic basis differentials) of natural gas, and crude oil, results of future drilling and marketing activity, future production and costs, pipeline projects, legislative and regulatory initiatives, electronic, cyber or physical security breaches and other factors detailed herein and in our other Securities and Exchange Commission filings. SeeRefer to “Risk Factors” in Item 1A of theour Form 10-K and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 for additional information about these risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Our primary market risk is exposure to natural gas prices. Realized prices are mainly driven by spot market prices for North American natural gas production, which can be volatile and unpredictable.
Derivative Instruments and Risk Management Activities
Our risk management strategy is designed to reduce the risk of commodity price volatility for our production in the natural gas markets through the use of financial commodity derivatives. A committee that consists of members of senior
management oversees our risk management activities. Our financial commodity derivatives generally cover a portion of our production and provide only partial price protection by limiting the benefit to us of increases in prices, while protecting us in the event of price declines. Further, if any of our counterparties defaulted, this protection might be limited as we might not receive the full benefit of our financial commodity derivatives. Please read the discussion below as well as Note 6 of the Notes to the Consolidated Financial Statements in our Form 10-K for a more detailed discussion of our derivative instruments.
Periodically, we enter into financial commodity derivatives including collar swap and basis swap agreements, to protect against exposure to commodity price declines related to our natural gas production. Our credit agreement restricts our ability to enter into financial commodity derivatives other than to hedge or mitigate risks to which we have actual or projected exposure or as permitted under our risk management policies and not subjecting us to material speculative risks. All of our financial derivatives are used for risk management purposes and are not held for trading purposes. Under the collar agreements, if the index price rises above the ceiling price, we pay the counterparty. If the index price falls below the floor price, the counterparty pays us. Under the swap agreements, we receive a fixed price on a notional quantity of natural gas in exchange for paying a variable price based on a market-based index, such as the NYMEX natural gas futures.
As of September 30, 2019,2020, we had the following outstanding financial commodity derivatives:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Collars | | | | | | Estimated Fair Value Asset (Liability) (In thousands) |
| | | | | | | Floor | | Ceiling | | Swaps | | | |
Type of Contract | | Volume (Mmbtu) | | | Contract Period | | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu)
| | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu)
| | Weighted-Average ($/Mmbtu) | | | |
Natural gas (NYMEX) | | 9,300,000 | | | Oct. 2020 | | | | | | | | | | $ | 2.25 | | | | | $ | 1,387 | |
Natural gas (NYMEX) | | 15,500,000 | | | Oct. 2020 | | $1.90 - $2.15 | | $ | 2.05 | | | $2.10 - $2.38 | | $ | 2.24 | | | | | | | 303 | |
Natural gas (NYMEX) | | 18,250,000 | | | Jan. 2021-Dec. 2021 | | | | | | | | | | $ | 2.74 | | | | | (3,291) | |
Natural gas (NYMEX) | | 127,750,000 | | | Jan. 2021-Dec. 2021 | | $2.50 - $2.80 | | $ | 2.64 | | | $2.83 - $3.50 | | $ | 3.02 | | | | | | | (12,507) | |
Natural gas (NYMEX) | | 10,700,000 | | | Apr. 2021-Oct. 2021 | | $ | — | | | $ | 2.50 | | | $ | — | | | $ | 2.80 | | | | | | | (1,736) | |
| | | | | | | | | | | | | | | | | | | $ | (15,844) | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | Swaps | | Basis Swaps | | Estimated Fair Value Asset (Liability) (In thousands) |
| | | | | | | |
Type of Contract | | Volume (Mmbtu) | | Contract Period | | Weighted-Average ($/Mmbtu) | | Weighted-Average ($/Mmbtu) | |
Natural gas (IFERC TRANSCO Z6 non-NY) | | 2,760,000 |
| | Oct. 2019 - Dec. 2019 | | | | $ | 0.41 |
| | $ | 1,477 |
|
Natural gas (IFERC TRANSCO Z6 non-NY) | | 4,650,000 |
| | Oct. 2019 | | $ | 2.61 |
| | | | 5,253 |
|
Natural gas (IFERC TRANSCO Leidy Line Receipts) | | 13,800,000 |
| | Oct. 2019 - Dec. 2019 | | | | $ | (0.53 | ) | | 2,429 |
|
Natural gas (NYMEX) | | 10,850,000 |
| | Oct. 2019 | | $ | 2.85 |
| | | | 4,553 |
|
Natural gas (NYMEX) | | 27,600,000 |
| | Oct. 2019 - Dec. 2019 | | $ | 2.86 |
| | | | 11,993 |
|
| | | | | | | | | | $ | 25,705 |
|
In October 2020, the Company entered into the following financial commodity derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Collars |
| | | | | | Floor | | Ceiling |
Type of Contract | | Volume (Mmbtu) | | Contract Period | | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu) | | Range ($/Mmbtu) | | Weighted-Average ($/Mmbtu) |
Natural gas (NYMEX) | | 36,500,000 | | | Jan. 2021-Dec. 2021 | | $2.80 - $2.85 | | $ | 2.83 | | | $3.00 - $3.94 | | $ | 3.32 | |
The amounts set forth in the table above represent our total unrealized derivative position at September 30, 20192020 and exclude the impact of non-performance risk. Non-performance risk is considered in the fair value of our derivative instruments that are recorded in our Condensed Consolidated Financial Statements and is primarily evaluated by reviewing credit default swap spreads for the various financial institutions with which we have derivative contracts, while our non-performance risk is evaluated using a market credit spread provided by oneseveral of our banks.
A significant portion of our expected natural gas production for 2020 and beyond is currently unhedged and directly exposed to the volatility in natural gas prices, whether favorable or unfavorable.
During the first nine months of 2019,2020, natural gas basiscollars with floor prices ranging from $1.90 to $2.15 per Mmbtu and ceiling prices ranging from $2.10 to $2.38 per Mmbtu covered 77.2 Bcf, or twelve percent of natural gas production at a
weighted-average price of $2.09 per Mmbtu. Natural gas swaps covered 47.744.5 Bcf, or seven percent of natural gas production at an averagea weighted-average price of $2.36$2.24 per Mcf. Natural gas swaps covered 184.2 Bcf, or 29 percent, of natural gas production at an average price of $3.39 per Mcf.Mmbtu.
We are exposed to market risk on financial commodity derivative instruments to the extent of changes in market prices of natural gas. However, the market risk exposure on these derivative contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity. Although notional contract amounts are used to express the volume of natural gas agreements, the amounts that can be subject to credit risk in the event of non-performance by third parties are substantially smaller. Our counterparties are primarily commercial banks and financial service institutions that management believes present minimal credit risk and our derivative contracts are with multiple counterparties to minimize our exposure to any individual counterparty. We perform both quantitative and qualitative assessments of these counterparties based on their credit ratings and credit default swap rates where applicable. We have not incurred any losses related to non-performance risk of our counterparties and we do not anticipate any material impact on our financial results due to non-performance by third parties. However, we cannot be certain that we will not experience such losses in the future.
The preceding paragraphs contain forward-looking information concerning future production and projected gains and losses, which may be impacted both by production and by changes in the future commodity prices. SeeRefer to “Forward-Looking Information” for further details.
Fair Value of Other Financial Instruments
The estimated fair value of other financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amount reported in the Condensed Consolidated Balance Sheet for cash, and cash equivalents and restricted cash approximates fair value due to the short-term maturities of these instruments.
We use available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the estimated amount we would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is our default or repayment risk. The credit spread (premium or discount) is determined by comparing our senior notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The fair value of all senior notes and the revolving credit facility is based on interest rates currently available to us.
The carrying amount and fair value of debt is as follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
(In thousands) | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Long-term debt | | $ | 1,161,712 | | | $ | 1,213,402 | | | $ | 1,220,025 | | | $ | 1,260,259 | |
Current maturities | | (188,000) | | | (189,501) | | | (87,000) | | | (88,704) | |
Long-term debt, excluding current maturities | | $ | 973,712 | | | $ | 1,023,901 | | | $ | 1,133,025 | | | $ | 1,171,555 | |
|
| | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
(In thousands) | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Long-term debt | | $ | 1,219,790 |
| | $ | 1,258,674 |
| | $ | 1,226,104 |
| | $ | 1,202,994 |
|
Current maturities | | (87,000 | ) | | (89,210 | ) | | — |
| | — |
|
Long-term debt, excluding current maturities | | $ | 1,132,790 |
| | $ | 1,169,464 |
| | $ | 1,226,104 |
| | $ | 1,202,994 |
|
ITEM 4. Controls and Procedures
As of September 30, 2019,2020, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective, in all material respects, with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and forms, of information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
There were no changes in the Company's internal control over financial reporting that occurred during the third quarter of 20192020 that have materially affected, or are reasonably likely to materiallyhave a material effect on, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Legal Matters
The information set forth under the heading “Legal Matters” in Note 8 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q is incorporated by reference in response to this item.
Environmental Matters
On June 17, 2019, we received two proposed Consent Order and Agreements (“CO&A”)(CO&A) from the Pennsylvania Department of Environmental Protection (PaDEP) relating to gas migration allegations in areas surrounding several wells owned and operated by us in Susquehanna County, Pennsylvania. The allegations relating to these wells were initially raised by residents in the area in March and June 2017, respectively, in the form of complaints about their drinking water supply. Since then, we have been engaged with the PaDEP in investigating the incidents and have performed appropriate remediation efforts, including the provision of alternative sources of drinking water to the affected residents. We received Notices of Violation (“NOV”)(NOV) from the PaDEP in June and November, 2017, respectively, for failure to prevent the migration of gas into fresh groundwater sources in the area surrounding these wells. With regard to the June 2017 NOV, we believe these water quality complaints have been resolved, and we are working with the PaDEP to reach agreement on the disposition of this matter. The proposed CO&A is the culmination of this effort and, if finalized, would result in the payment of a civil monetary penalty in an amount likely to exceed $100,000, up to approximately $215,000. We will continue to work with the PaDEP to finalize the CO&A, and to bring this matter to a close. With regard to the November 2017 NOV, Thethe proposed CO&A, if finalized as drafted, would require Cabot to submit a detailed written remediation plan, continue water sampling and other investigative measures and restore or replace affected water supplies and would result in the payment of a civil monetary penalty in an amount likely to exceed $100,000, up to approximately $355,000. We will continue to work with the PaDEP to finalize the CO&A, and to complete the ongoing investigation and remediation.
From time to time we receive notices of violation from governmental and regulatory authorities in areas in which we operate relating to alleged violations of environmental statutes or the rules and regulations promulgated thereunder. While we cannot predict with certainty whether these notices of violation will result in fines and/or penalties, if fines and/or penalties are imposed, they may result in monetary sanctions, individually or in the aggregate, in excess of $100,000.
ITEM 1A. Risk Factors
For additional information about the risk factors that affect us, see Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019 and Item 1A of Part II of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Our Board of Directors has authorized a share repurchase program under which we may purchase shares of common stock in the open market or in negotiated transactions. There is no expiration date associated with the authorization. In July 2019, our BoardThere were no repurchases during the quarter ended September 30, 2020. The maximum number of Directors authorized an increase of 25.0 millionremaining shares tothat may be purchased under our share repurchase program. After this authorization, the total number of shares available for repurchase was 31.5 million shares. The shares included in the table below were purchased on the open market and were held as treasury stockprogram as of September 30, 2019.2020 was 11.0 million shares.
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| | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs |
July 2019 | | 4,200,000 |
| | $ | 19.22 |
| | 4,200,000 |
| | 27,299,362 |
|
August 2019 | | 6,259,780 |
| | $ | 17.53 |
| | 6,259,780 |
| | 21,039,582 |
|
September 2019 | | 6,900 |
| | $ | 16.99 |
| | 6,900 |
| | 21,032,682 |
|
Total | | 10,466,680 |
| | | | 10,466,680 |
| | |
ITEM 6. Exhibits
| | | | | | | | |
Exhibit Number | | Description |
| | |
Exhibit
| | Description |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
101.INS | | XBRL Instance Document. TheThe instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
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.
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| | | | | | | |
| CABOT OIL & GAS CORPORATION |
| (Registrant) |
| |
October 25, 201930, 2020 | By: | /s/ DAN O. DINGES |
| | Dan O. Dinges |
| | Chairman, President and Chief Executive Officer |
| | (Principal Executive Officer) |
| |
October 25, 201930, 2020 | By: | /s/ SCOTT C. SCHROEDER |
| | Scott C. Schroeder |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial Officer) |
| |
October 25, 201930, 2020 | By: | /s/ TODD M. ROEMER |
| | Todd M. Roemer |
| | Vice President and Chief Accounting Officer |
| | (Principal Accounting Officer) |