8-K
Coterra Energy Inc. (CTRA)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): February 20, 2020
CABOT OIL & GAS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 1-10447 | 04-3072771 | ||||
|---|---|---|---|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | Three Memorial City Plaza | |||
| --- | --- | --- | ||||
| 840 Gessner Road, Suite 1400 | ||||||
| Houston | Texas | 77024 | ||||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (281) 589-4600
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)
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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 2.02 Results of Operations and Financial Condition.
On February 20, 2020, we issued a press release with respect to our 2019 fourth quarter earnings. The press release is furnished as Exhibit 99.1 to this Current Report. The press release contains certain measures (discussed below) which may be deemed “non-GAAP financial measures” as defined in Item 10 of Regulation S-K of the Securities Exchange Act of 1934, as amended (the Exchange Act). In each case, the most directly comparable GAAP financial measure and information reconciling the GAAP and non-GAAP measures is also included in the press release.
Exhibit 99.1 shall not be deemed to be “filed” for the purposes of Section 18 of the Exchange Act, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified as being incorporated therein by reference.
From time to time management discloses Return on Capital Employed, Discretionary Cash Flow, Free Cash Flow, EBITDAX, Adjusted Net Income, Adjusted Earnings per Share, Earnings per Share Excluding Selected Items, Finding and Development Costs and Net Debt calculations and ratios. These non-GAAP financial measures, to the extent included in Exhibit 99.1, are reconciled to the most comparable GAAP financial measures in Exhibit 99.1.
Return on Capital Employed (ROCE) is defined as Adjusted Net Income (defined below) plus after-tax net interest expense divided by average capital employed, which is defined as total debt plus stockholders’ equity. ROCE is presented based on management's belief that this non-GAAP measure is useful information to investors when evaluating our profitability and the efficiency with which management has employed capital over time. ROCE is not a measure of financial performance under GAAP and should not be considered an alternative to net income, as defined by GAAP.
Discretionary Cash Flow is defined as net cash provided by operating activities excluding changes in assets and liabilities. Discretionary Cash Flow is widely accepted as a financial indicator of an oil and gas company’s ability to generate cash which is used to internally fund exploration and development activities, pay dividends and service debt. Discretionary Cash Flow is presented based on management’s belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies that use the full cost method of accounting for oil and gas producing activities or have different financing and capital structures or tax rates. Discretionary Cash Flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities or net income, as defined by GAAP, or as a measure of liquidity.
Free Cash Flow is defined as Discretionary Cash Flow (defined above) less capital expenditures and investment in equity method investments. Free Cash Flow is an indicator of a company's ability to generate cash flow after spending the money required to maintain or expand its asset base. Free Cash Flow is presented based on management's belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies. Free Cash Flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities or net income, as defined by GAAP, or as a measure of liquidity.
EBITDAX is defined as net income plus interest expense, other expense, income tax expense, depreciation, depletion and amortization (including impairments), exploration expense, gain and loss on sale of assets, non-cash gain and loss on derivative instruments, earnings and loss on equity method investments, cash distributions received from equity method investments and stock-based compensation expense. EBITDAX is presented based on management’s belief that this non-GAAP measure is useful information to investors when evaluating our ability to internally fund exploration and development activities and to service or incur debt without regard to financial or capital structure. EBITDAX is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities or net income, as defined by GAAP, or as a measure of liquidity.
Adjusted Net Income and Adjusted Earnings per Share are presented based on management’s belief that these non-GAAP measures enable a user of the financial information to understand the impact of these items on reported results. Adjusted Net Income is defined as net income plus gain and loss on sale of assets, gain and loss on derivative instruments, gain on sale of equity method investment, stock-based compensation expense, severance expense, interest expense related to income tax reserves and tax effect on selected items. Additionally, this presentation provides a beneficial comparison to similarly adjusted measurements of prior periods. Adjusted Net Income and Adjusted Earnings per Share are not measures of financial performance under GAAP and should not be considered as an alternative to net income and earnings per share, as defined by GAAP.
Drill-Bit Finding and Development Cost is defined as costs incurred in exploration and development activities as defined by GAAP divided by reserve extensions, discoveries and other additions. All-Sources Finding and Development Cost is defined as costs incurred in property acquisition, exploration and development activities as defined by GAAP divided by the total of reserve extensions, discoveries and other additions and revision of prior estimates. Drill-Bit Finding and Development
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Cost and All-Sources Finding and Development Cost are presented based on management's belief that these non-GAAP measures are useful information to investors to evaluate how much it costs to add proved reserves. These calculations do not include the future development costs required for the development of proved undeveloped reserves and may not be comparable to similarly titled measurements used by other companies.
The total debt to total capitalization ratio is calculated by dividing total debt by the sum of total debt and total stockholders’ equity. This ratio is a measurement which is presented in our annual and interim filings and management believes this ratio is useful to investors in determining the Company’s leverage. Net Debt and the Net Debt to Adjusted Capitalization ratio are non-GAAP measures which have been presented in Exhibit 99.1. Net Debt is calculated by subtracting cash and cash equivalents from total debt. Management believes that these measurements are also useful to investors since the Company has the ability to and may decide to use a portion of its cash and cash equivalents to retire debt. Additionally, as the Company may incur additional expenditures without increasing debt, it is appropriate to apply cash and cash equivalents to debt in calculating the Net Debt to Adjusted Capitalization ratio.
Pre-tax Present Value of Future Net Cash Flows, discounted at 10% annual rate (Pre-Tax PV-10), is defined as Standardized Measure of Discounted Future Net Cash Flows plus Future Income Tax Expenses, discounted at 10% annual rate. Year-end Pre-Tax PV-10 value is presented based on management’s belief that this non-GAAP measure is useful information to investors and creditors when comparing Pre-Tax PV-10 values as a basis for comparison of our relative size and value of reserves as compared with other companies. Pre-Tax PV-10 is not a measure under GAAP and should not be considered as an alternative to Standardized Measure of Discounted Future Net Cash Flows, as defined by GAAP.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 Press release issued by Cabot Oil & Gas Corporation dated February 20, 2020
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CABOT OIL & GAS CORPORATION | |
|---|---|
| By: | /s/ TODD M. ROEMER |
| Todd M. Roemer | |
| Vice President and Chief Accounting Officer |
Date: February 20, 2020
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Exhibit
Exhibit 99.1
| February 20, 2020 | FOR MORE INFORMATION CONTACT |
|---|---|
| Matt Kerin (281) 589-4642 |
Cabot Oil & Gas Corporation Reports Fourth Quarter and Full-Year 2019 Results
HOUSTON, Feb. 20, 2020 /PRNewswire/ -- Cabot Oil & Gas Corporation (NYSE: COG) (“Cabot” or the “Company”) today reported financial and operating results for the fourth quarter and full-year 2019.
“Our 2019 results highlight the strength of our company, which was demonstrated by the generation of record levels for net income, operating cash flow, free cash flow, production, proved reserves and operating expenses,” said Dan O. Dinges, Chairman, President and Chief Executive Officer. “While we continue to manage through headwinds from lower natural gas prices, our low cost structure and low leverage position will allow us to continue to generate positive free cash flow and economic corporate returns, maintain our financial strength, and return capital to shareholders during these challenging times for the natural gas markets.”
Full-Year 2019 Highlights
| • | Net income of $681.1 million (or $1.64 per share); adjusted net income (non-GAAP) of $698.8 million (or $1.68 per share) |
|---|---|
| • | Free cash flow (non-GAAP) of $563.1 million, marking the fourth consecutive year of positive free cash flow |
| --- | --- |
| • | Return on capital employed (ROCE) (non-GAAP) of 22.2 percent |
| --- | --- |
| • | Returned $665.4 million of capital to shareholders through dividends and share repurchases, including a 43 percent increase in the quarterly dividend per share and a seven percent reduction in weighted-average shares outstanding |
| --- | --- |
| • | Production of 865.3 billion cubic feet equivalent (Bcfe), an increase of 18 percent year-over-year |
| --- | --- |
| • | Proved reserves of 12.9 trillion cubic feet equivalent (Tcfe), an increase of 11 percent year-over-year |
| --- | --- |
| • | Operating expenses per unit of $1.44 per thousand cubic feet equivalent (Mcfe), an 18 percent improvement year-over-year |
| --- | --- |
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| • | All-sources and drill-bit finding and development (F&D) costs (non-GAAP) of $0.36 and $0.37 per Mcfe, respectively |
|---|---|
| • | Reduced net debt-to-EBITDAX (non-GAAP) to 0.7x at year-end 2019 |
| --- | --- |
See the supplemental tables at the end of this press release for a reconciliation of non-GAAP measures including adjusted net income, discretionary cash flow, EBITDAX, free cash flow, net debt to adjusted capitalization ratio, ROCE, pre-tax present value of future net cash flows (pre-tax PV-10) and F&D costs.
Fourth Quarter 2019 Financial Results
Fourth quarter 2019 daily production was 2,457 Mmcfe per day (100 percent natural gas), exceeding the high-end of the Company’s guidance range and representing a 10 percent increase relative to the fourth quarter of 2018.
Fourth quarter 2019 net income was $146.9 million, or $0.36 per share, compared to $275.0 million, or $0.64 per share, in the prior-year period. Fourth quarter 2019 adjusted net income (non-GAAP) was $120.8 million, or $0.30 per share, compared to $235.8 million, or $0.55 per share, in the prior-year period. Fourth quarter 2019 EBITDAX (non-GAAP) was $300.3 million, compared to $464.4 million in the prior-year period.
Fourth quarter 2019 net cash provided by operating activities was $263.0 million, compared to $316.1 million in the prior-year period. Fourth quarter 2019 discretionary cash flow (non-GAAP) was $277.5 million, compared to $492.8 million in the prior-year period. Fourth quarter 2019 free cash flow (non-GAAP) was $109.5 million, compared to $241.4 million in the prior-year period.
Fourth quarter 2019 natural gas price realizations, including the impact of derivatives, were $2.15 per thousand cubic feet (Mcf), a decrease of 31 percent compared to the prior-year period. Excluding the impact of derivatives, fourth quarter 2019 natural gas price realizations were $2.05 per Mcf, representing a $0.45 discount to NYMEX settlement prices compared to a $0.42 discount in the prior-year period.
Fourth quarter 2019 operating expenses (including interest expense) decreased to $1.43 per Mcfe, a 24 percent improvement compared to the prior-year period. All operating expenses per unit decreased relative to the prior-year period except for direct operations, which increased slightly primarily due to higher workover expense compared to the prior-year period.
Cabot incurred a total of $161.1 million of capital expenditures in the fourth quarter of 2019 including $155.5 million of drilling and facilities capital, $0.8 million of leasehold acquisition capital, and $4.8 million of other capital. Additionally, the Company contributed $0.4 million to its recently divested equity method pipeline
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investments. See the supplemental table at the end of this press release reconciling the capital expenditures during the fourth quarter of 2019.
Full-Year 2019 Financial Results
Full-year 2019 daily production was 2,371 Mmcfe per day (100 percent natural gas), representing an 18 percent increase relative to the prior-year period.
Full-year 2019 net income was $681.1 million, or $1.64 per share, compared to $557.0 million, or $1.25 per share, for the prior-year period. Adjusted net income (non-GAAP) for the full-year 2019 was $698.8 million, or $1.68 per share, compared to $531.2 million, or $1.19 per share, for the prior-year period. Full-year 2019 EBITDAX (non-GAAP) was $1.4 billion, compared to $1.3 billion for the prior-year period.
For the full-year 2019, net cash provided by operating activities was $1.4 billion, compared to $1.1 billion for the prior-year period. Full-year 2019 discretionary cash flow (non-GAAP) was $1.4 billion, compared to $1.3 billion for the prior-year period. Full-year 2019 free cash flow (non-GAAP) was $563.1 million, compared to $296.6 million for the prior-year period. Full-year 2019 ROCE (non-GAAP) improved to 22.2 percent, compared to 15.9 percent for the prior-year period.
Full-year 2019 natural gas price realizations, including the impact of derivatives, were $2.45 per Mcf, a decrease of four percent compared to the prior-year period.
Full-year 2019 operating expenses (including interest expense) decreased to $1.44 per Mcfe, an 18 percent improvement compared to the prior-year period. All operating expenses per unit decreased relative to the prior-year period.
Cabot incurred a total of $783.3 million of capital expenditures in 2019 including $761.5 million of drilling and facilities capital, $6.1 million of leasehold acquisition capital, and $15.7 million of other capital. Additionally, the Company contributed $9.3 million to its recently divested equity method pipeline investments in 2019. See the supplemental table at the end of this press release reconciling the capital expenditures for the year.
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Return of Capital
Cabot returned $665.4 million of capital to shareholders through dividends and share repurchases in 2019, representing 118 percent of the Company’s free cash flow. During the year, Cabot increased its quarterly dividend per share by 43 percent and repurchased 25.5 million shares. Since reactivating the share repurchase program in the second quarter of 2017, Cabot has reduced its shares outstanding by over 14 percent to 398.6 million shares. The Company currently has 11.0 million remaining shares authorized under its share repurchase program (or approximately three percent of its current shares outstanding). Cabot continues to target a minimum return of capital of at least 50 percent of free cash flow annually.
Financial Position and Liquidity
As of December 31, 2019, Cabot had total debt of $1.2 billion and cash on hand of $200.2 million. The Company's net debt-to-adjusted capitalization ratio and net debt-to-trailing twelve months EBITDAX ratio were 32.2 percent and 0.7x, respectively, compared to 37.0 percent and 1.0x as of December 31, 2018. The Company currently has no debt outstanding under its credit facility, resulting in approximately $1.7 billion of liquidity.
Upper Marcellus Operations Update
During 2018 and 2019, Cabot placed 25 Upper Marcellus wells on production. Excluding four wells that were located on a pad where the Company had an underperforming lateral placement pilot test, the average estimated ultimate recovery (EUR) per thousand lateral feet was 2.7 Bcf. "We believe the results from our recent Upper Marcellus wells highlight the Upper Marcellus as a distinct, economic interval that exceeds the average well productivity across the basin,” stated Dinges. “Our prolific acreage position in northeast Pennsylvania provides us with over two decades of remaining drilling locations, including nine years of remaining Lower Marcellus inventory.” The Company plans to test an additional five Upper Marcellus wells in 2020 to further optimize lateral placement and completion design.
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Year-End 2019 Proved Reserves
Cabot reported year-end proved reserves of 12.9 Tcfe, an increase of 11 percent over year-end 2018. The table below reconciles the components driving the 2019 reserve increase:
| Proved Reserves Reconciliation (in Bcfe) | |||
|---|---|---|---|
| Balance at December 31, 2018 | 11,605 | ||
| Revisions of prior estimates | 47 | ||
| Extensions, discoveries and other additions | 2,116 | ||
| Production | (865 | ) | ) |
| Balance at December 31, 2019 | 12,903 |
As of December 31, 2019, 100 percent of Cabot’s year-end proved reserves were natural gas and were located in the Marcellus Shale. Approximately 62 percent of the year-end proved reserves were classified as proved developed and 38 percent were classified as proved undeveloped (PUD), including six percent of drilled and uncompleted PUDs
Total costs incurred during 2019 were $787.7 million, which included $761.3 million for development costs, $20.3 million for exploration costs, and $6.1 million for lease acquisition costs. All-sources F&D costs (non-GAAP) were $0.36 per Mcfe, while drill-bit F&D costs (non-GAAP) were $0.37 per Mcfe in 2019.
The SEC price used for reporting Cabot's year-end 2019 proved reserves, which has been adjusted for basis and quality differentials, was $2.35 per Mcf, a nine percent year-over-year decrease. Assuming the SEC price, the pre-tax PV-10 (non-GAAP) of the year-end 2019 proved reserves was $7.5 billion, an eight percent decrease compared to $8.1 billion at year-end 2018.
First Quarter and Full-Year 2020 Guidance
Cabot has provided its first quarter 2020 production guidance range of 2,350 to 2,400 Mmcfe per day, representing a three percent sequential decline at the midpoint of the range relative to the fourth quarter of 2019. Based on the timing of wells being placed on production throughout the year, the Company anticipates an additional sequential decline in the second quarter of 2020 before increasing volumes in the second half of the year.
Cabot has also reaffirmed its recently announced plan to deliver an average net production rate of approximately 2,400 Mmcfe per day in 2020 from a capital program of $575 million. Based on the current NYMEX futures curve, this plan is expected to generate enough free cash flow to cover the Company’s dividend while also providing a modest amount of excess free cash flow for further return of capital to
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shareholders or debt repayment. At a $2.25 average NYMEX price, the plan is expected to deliver between $275 and $300 million of free cash flow and generate a return on capital employed between 11 and 12 percent. The Company continues to analyze the outlook for the natural gas markets in 2020 and beyond and is prepared to reduce capital spending further if market conditions warrant it.
Conference Call Webcast
A conference call is scheduled for Friday, February 21, 2020, at 9:30 a.m. Eastern Time to discuss fourth quarter and full-year 2019 financial and operating results. To access the live audio webcast, please visit the Investor Relations section of the Company's website. A replay of the call will also be available on the Company's website.
Cabot Oil & Gas Corporation, headquartered in Houston, Texas, is a leading independent natural gas producer with its entire resource base located in the continental United States. For additional information, visit the Company's website at www.cabotog.com.
This press release includes forward‐looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The statements regarding future financial and operating performance and results, returns to shareholders, 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", “outlook”, "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, 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 (SEC) filings. See "Risk Factors" in Item 1A of the Form 10-K and subsequent public filings 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. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company does not undertake any obligation to correct or update any forward-looking statement, whether as the result of new information, future events or otherwise, except as required by applicable law.
FOR MORE INFORMATION CONTACT
Matt Kerin (281) 589-4642
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OPERATING DATA
| Twelve Months Ended<br><br>December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2018 | |||||
| PRODUCTION VOLUMES | |||||||
| Natural gas (Bcf) | 206.3 | 865.3 | 729.9 | ||||
| Crude oil and condensate (Mbbl) | — | — | 754.0 | ||||
| Natural gas liquids (NGLs) (Mbbl) | — | — | 75.1 | ||||
| Equivalent production (Bcfe) | 206.3 | 865.3 | 735.0 | ||||
| Daily equivalent production (Mmcfe/day) | 2,243 | 2,371 | 2,014 | ||||
| AVERAGE SALES PRICE | |||||||
| Natural gas, including hedges (/Mcf) | 2.15 | $ | 3.11 | $ | 2.45 | $ | 2.54 |
| Natural gas, excluding hedges (/Mcf) | 2.05 | $ | 3.22 | $ | 2.29 | $ | 2.58 |
| Crude oil and condensate, including hedges (/Bbl) | — | $ | — | $ | — | $ | 63.68 |
| Crude oil and condensate, excluding hedges (/Bbl) | — | $ | — | $ | — | $ | 64.68 |
| NGL (/Bbl) | — | $ | — | $ | — | $ | 21.51 |
| AVERAGE UNIT COSTS (/Mcfe)(1) | |||||||
| Direct operations | 0.09 | $ | 0.08 | $ | 0.09 | $ | 0.09 |
| Transportation and gathering | 0.68 | 0.66 | 0.68 | ||||
| Taxes other than income | 0.03 | 0.02 | 0.03 | ||||
| Exploration | 0.22 | 0.02 | 0.15 | ||||
| Depreciation, depletion and amortization | 0.63 | 0.47 | 0.57 | ||||
| General and administrative (excluding stock-based compensation) | 0.07 | 0.07 | 0.09 | ||||
| Stock-based compensation | 0.08 | 0.04 | 0.05 | ||||
| Interest expense | 0.08 | 0.06 | 0.10 | ||||
| 1.43 | $ | 1.87 | $ | 1.44 | $ | 1.76 | |
| WELLS DRILLED(2) | |||||||
| Gross | 37 | 96 | 97 | ||||
| Net | 35.1 | 94.0 | 95.1 | ||||
| WELLS COMPLETED(2) | |||||||
| Gross | 33 | 99 | 94 | ||||
| Net | 32.0 | 97.0 | 93.0 |
All values are in US Dollars.
_______________________________________________________________________________
| (1) | Total unit cost may differ from the sum of the individual costs due to rounding. |
|---|---|
| (2) | Wells drilled represents wells drilled to total depth during the period. Wells completed includes wells completed during the period, regardless of when they were drilled. |
| --- | --- |
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
| Quarter Ended<br><br>December 31, | Twelve Months Ended<br><br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||
| OPERATING REVENUES | ||||||||||||
| Natural gas | $ | 463,451 | $ | 663,547 | $ | 1,985,240 | $ | 1,881,150 | ||||
| Crude oil and condensate | — | — | — | 48,722 | ||||||||
| Gain (loss) on derivative instruments | (2,158 | ) | 46,060 | 80,808 | 44,432 | |||||||
| Brokered natural gas | — | 6,155 | — | 209,530 | ||||||||
| Other | 75 | 539 | 229 | 4,314 | ||||||||
| 461,368 | 716,301 | 2,066,277 | 2,188,148 | |||||||||
| OPERATING EXPENSES | ||||||||||||
| Direct operations | 21,350 | 16,889 | 76,958 | 69,646 | ||||||||
| Transportation and gathering | 149,974 | 140,883 | 574,677 | 496,731 | ||||||||
| Brokered natural gas | — | 5,761 | — | 184,198 | ||||||||
| Taxes other than income | 2,959 | 7,208 | 17,053 | 22,642 | ||||||||
| Exploration | 5,241 | 45,654 | 20,270 | 113,820 | ||||||||
| Depreciation, depletion and amortization | 106,439 | 129,269 | 405,733 | 417,479 | ||||||||
| General and administrative (excluding stock-based compensation) | 15,692 | 15,113 | 64,090 | 63,494 | ||||||||
| Stock-based compensation^(1)^ | 6,808 | 15,516 | 30,780 | 33,147 | ||||||||
| 308,463 | 376,293 | 1,189,561 | 1,401,157 | |||||||||
| Earnings on equity method investments | 69,302 | 2,146 | 80,496 | 1,137 | ||||||||
| Gain (loss) on sale of assets | 2 | (1,477 | ) | (1,462 | ) | (16,327 | ) | |||||
| INCOME FROM OPERATIONS | 222,209 | 340,677 | 955,750 | 771,801 | ||||||||
| Interest expense, net | 14,650 | 15,624 | 54,952 | 73,201 | ||||||||
| Other expense | 144 | 116 | 574 | 463 | ||||||||
| Income before income taxes | 207,415 | 324,937 | 900,224 | 698,137 | ||||||||
| Income tax expense | 60,475 | 49,893 | 219,154 | 141,094 | ||||||||
| NET INCOME | $ | 146,940 | $ | 275,044 | $ | 681,070 | $ | 557,043 | ||||
| Earnings per share - Basic | $ | 0.36 | $ | 0.64 | $ | 1.64 | $ | 1.25 | ||||
| Weighted-average common shares outstanding | 404,581 | 430,978 | 415,514 | 445,538 |
_______________________________________________________________________________
| (1) | Includes the impact of our performance share awards and restricted stock. |
|---|
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CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
| (In thousands) | December 31, <br>2019 | December 31, <br>2018 | ||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | $ | 568,248 | $ | 544,545 |
| Properties and equipment, net (Successful efforts method) | 3,855,706 | 3,463,606 | ||
| Other assets | 63,291 | 190,678 | ||
| $ | 4,487,245 | $ | 4,198,829 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current liabilities | 241,034 | $ | 287,264 | |
| Current portion of long-term debt | 87,000 | — | ||
| Long-term debt, net (excluding current maturities) | 1,133,025 | 1,226,104 | ||
| Deferred income taxes | 702,104 | 458,597 | ||
| Other liabilities | 172,595 | 138,705 | ||
| Stockholders’ equity | 2,151,487 | 2,088,159 | ||
| $ | 4,487,245 | $ | 4,198,829 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
| Quarter Ended<br><br>December 31, | Twelve Months Ended<br><br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 146,940 | $ | 275,044 | $ | 681,070 | $ | 557,043 | ||||
| Deferred income tax expense | 55,421 | 97,804 | 244,418 | 229,603 | ||||||||
| (Gain) loss on sale of assets | (2 | ) | 1,477 | 1,462 | 16,327 | |||||||
| Exploratory dry hole cost | 2,220 | 41,316 | 2,236 | 97,741 | ||||||||
| (Gain) loss on derivative instruments | 2,158 | (46,060 | ) | (80,808 | ) | (44,432 | ) | |||||
| Net cash received (paid) in settlement of derivative instruments | 23,519 | (21,277 | ) | 138,450 | (41,631 | ) | ||||||
| Distribution of earnings from equity method investments | 3,115 | 1,296 | 15,725 | 1,296 | ||||||||
| Income charges not requiring cash | 44,173 | 143,204 | 358,212 | 452,416 | ||||||||
| Changes in assets and liabilities | (14,564 | ) | (176,753 | ) | 85,026 | (163,460 | ) | |||||
| Net cash provided by operating activities | 262,980 | 316,051 | 1,445,791 | 1,104,903 | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Capital expenditures | (167,672 | ) | (246,967 | ) | (788,368 | ) | (894,470 | ) | ||||
| Proceeds from sale of assets | 199 | 2,825 | 2,600 | 678,350 | ||||||||
| Investment in equity method investments | (361 | ) | (4,397 | ) | (9,338 | ) | (77,263 | ) | ||||
| Distribution of investment from equity method investments | 72 | — | 1,728 | — | ||||||||
| Proceeds from sale of equity method investments | 249,463 | — | 249,463 | — | ||||||||
| Net cash provided by (used in) investing activities | 81,701 | (248,539 | ) | (543,915 | ) | (293,383 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Net borrowings (repayments) of debt | — | (60,000 | ) | (7,000 | ) | (297,000 | ) | |||||
| Treasury stock repurchases | (172,417 | ) | (291,036 | ) | (519,863 | ) | (872,761 | ) | ||||
| Dividends paid | (40,793 | ) | (30,184 | ) | (145,515 | ) | (111,369 | ) | ||||
| Tax withholding on vesting of stock awards | (3 | ) | (82 | ) | (10,590 | ) | (8,150 | ) | ||||
| Capitalized debt issuance costs | (1 | ) | — | (7,412 | ) | — | ||||||
| Net cash used in financing activities | (213,214 | ) | (381,302 | ) | (690,380 | ) | (1,289,280 | ) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 131,467 | $ | (313,790 | ) | $ | 211,496 | $ | (477,760 | ) |
9
Explanation and Reconciliation of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States (GAAP). However, we believe certain non-GAAP performance measures may provide financial statement users with additional meaningful comparisons between current results and results of prior periods. In addition, we believe these measures are used by analysts and others in the valuation, rating and investment recommendations of companies within the oil and natural gas exploration and production industry. See the reconciliations throughout this release of GAAP financial measures to non-GAAP financial measures for the periods indicated.
We have also included herein certain forward-looking non-GAAP financial measures. Due to the forward-looking nature of these non-GAAP financial measures, we cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as future impairments and future changes in capital. Accordingly, we are unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Reconciling items in future periods could be significant.
Reconciliation of Net Income to Adjusted Net Income and Adjusted Earnings Per Share
Adjusted Net Income and Adjusted Earnings per Share are presented based on our belief that these non-GAAP measures enable a user of the financial information to understand the impact of these items on reported results. Adjusted Net Income is defined as net income plus gain and loss on sale of assets, gain and loss on derivative instruments, gain on sale of equity method investment, stock-based compensation expense, severance expense, interest expense related to income tax reserves and tax effect on selected items. Additionally, this presentation provides a beneficial comparison to similarly adjusted measurements of prior periods. Adjusted Net Income and Adjusted Earnings per Share are not measures of financial performance under GAAP and should not be considered as alternatives to net income and earnings per share, as defined by GAAP.
| Quarter Ended<br><br>December 31, | Twelve Months Ended<br><br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||
| As reported - net income | $ | 146,940 | $ | 275,044 | $ | 681,070 | $ | 557,043 | ||||
| Reversal of selected items: | ||||||||||||
| (Gain) loss on sale of assets | (2 | ) | 1,477 | 1,462 | 16,327 | |||||||
| (Gain) loss on derivative instruments^(1)^ | 25,677 | (67,337 | ) | 57,642 | (86,063 | ) | ||||||
| Gain on sale of equity method investment | (66,412 | ) | — | (66,412 | ) | — | ||||||
| Stock-based compensation expense | 6,808 | 15,516 | 30,780 | 33,147 | ||||||||
| Severance expense | — | — | 2,521 | 28 | ||||||||
| Interest expense related to income tax reserves | — | (538 | ) | (3,052 | ) | 3,116 | ||||||
| Tax effect on selected items | 7,739 | 11,619 | (5,233 | ) | 7,637 | |||||||
| Adjusted net income | $ | 120,750 | $ | 235,781 | $ | 698,778 | $ | 531,235 | ||||
| As reported - earnings per share | $ | 0.36 | $ | 0.64 | $ | 1.64 | $ | 1.25 | ||||
| Per share impact of selected items | (0.06 | ) | (0.09 | ) | 0.04 | (0.06 | ) | |||||
| Adjusted earnings per share | $ | 0.30 | $ | 0.55 | $ | 1.68 | $ | 1.19 | ||||
| Weighted-average common shares outstanding | 404,581 | 430,978 | 415,514 | 445,538 |
_______________________________________________________________________________
| (1) | This amount represents the non-cash mark-to-market changes of our commodity derivative instruments recorded in Gain (loss) on derivative instruments in the Condensed Consolidated Statement of Operations. |
|---|
10
Return on Capital Employed
Return on Capital Employed (ROCE) is defined as Adjusted Net Income (defined above) plus after-tax net interest expense divided by average capital employed, which is defined as total debt plus stockholders’ equity. ROCE is presented based on our belief that this non-GAAP measure is useful information to investors when evaluating our profitability and the efficiency with which we have employed capital over time. ROCE is not a measure of financial performance under GAAP and should not be considered an alternative to net income.
| Twelve Months Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| (In thousands) | 2019 | 2018 | ||||
| Interest expense, net | $ | 54,952 | $ | 73,201 | ||
| Interest expense related to income tax reserves^(1)^ | 3,052 | (3,116 | ) | |||
| Tax benefit | (13,241 | ) | (16,004 | ) | ||
| After-tax interest expense, net (A) | 44,763 | 54,081 | ||||
| As reported - net income | 681,070 | 557,043 | ||||
| Adjustments to as reported - net income, net of tax | 17,708 | (25,808 | ) | |||
| Adjusted net income (B) | 698,778 | 531,235 | ||||
| Adjusted net income before interest expense, net (A + B) | $ | 743,541 | $ | 585,316 | ||
| Total debt - beginning | $ | 1,226,104 | $ | 1,521,891 | ||
| Stockholders’ equity - beginning | 2,088,159 | 2,523,905 | ||||
| Capital employed - beginning | 3,314,263 | 4,045,796 | ||||
| Total debt - ending | 1,220,025 | 1,226,104 | ||||
| Stockholders’ equity - ending | 2,151,487 | 2,088,159 | ||||
| Capital employed - ending | 3,371,512 | 3,314,263 | ||||
| Average capital employed (C) | $ | 3,342,888 | $ | 3,680,030 | ||
| Return on average capital employed (ROCE) (A + B) / C | 22.2 | % | 15.9 | % |
_______________________________________________________________________________
| (1) | Interest expense related to income tax reserves is included in the adjustments to as reported - net income, net of tax. |
|---|
11
Discretionary Cash Flow and Free Cash Flow Calculation and Reconciliation
Discretionary Cash Flow is defined as net cash provided by operating activities excluding changes in assets and liabilities. Discretionary Cash Flow is widely accepted as a financial indicator of an oil and gas company’s ability to generate cash which is used to internally fund exploration and development activities, pay dividends and service debt. Discretionary Cash Flow is presented based on our belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies that use the full cost method of accounting for oil and gas producing activities or have different financing and capital structures or tax rates. Discretionary Cash Flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities, as defined by GAAP, or as a measure of liquidity, or an alternative to net income.
Free Cash Flow is defined as Discretionary Cash Flow (defined above) less capital expenditures and investment in equity method investments. Free Cash Flow is an indicator of a company's ability to generate cash flow after spending the money required to maintain or expand its asset base. Free Cash Flow is presented based on our belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies. Free Cash Flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities, as defined by GAAP, or as a measure of liquidity, or an alternative to net income.
| Quarter Ended <br> December 31, | Twelve Months Ended<br><br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||
| Net cash provided by operating activities | $ | 262,980 | $ | 316,051 | $ | 1,445,791 | $ | 1,104,903 | ||||
| Changes in assets and liabilities | 14,564 | 176,753 | (85,026 | ) | 163,460 | |||||||
| Discretionary cash flow | 277,544 | 492,804 | 1,360,765 | 1,268,363 | ||||||||
| Capital expenditures | (167,672 | ) | (246,967 | ) | (788,368 | ) | (894,470 | ) | ||||
| Investment in equity method investments | (361 | ) | (4,397 | ) | (9,338 | ) | (77,263 | ) | ||||
| Free cash flow | $ | 109,511 | $ | 241,440 | $ | 563,059 | $ | 296,630 |
EBITDAX Calculation and Reconciliation
EBITDAX is defined as net income plus interest expense, other expense, income tax expense, depreciation, depletion and amortization (including impairments), exploration expense, gain and loss on sale of assets, non-cash gain and loss on derivative instruments, earnings and loss on equity method investments, cash distributions received from equity method investments, and stock-based compensation expense. EBITDAX is presented based on our belief that this non-GAAP measure is useful information to investors when evaluating our ability to internally fund exploration and development activities and to service or incur debt without regard to financial or capital structure. EBITDAX is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities or net income, as defined by GAAP, or as a measure of liquidity.
| Quarter Ended<br><br>December 31, | Twelve Months Ended<br><br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||
| Net income | $ | 146,940 | $ | 275,044 | $ | 681,070 | $ | 557,043 | ||||
| Plus (less): | ||||||||||||
| Interest expense, net | 14,650 | 15,624 | 54,952 | 73,201 | ||||||||
| Other expense | 144 | 116 | 574 | 463 | ||||||||
| Income tax expense | 60,475 | 49,893 | 219,154 | 141,094 | ||||||||
| Depreciation, depletion and amortization | 106,439 | 129,269 | 405,733 | 417,479 | ||||||||
| Exploration | 5,241 | 45,654 | 20,270 | 113,820 | ||||||||
| (Gain) loss on sale of assets | (2 | ) | 1,477 | 1,462 | 16,327 | |||||||
| Non-cash (gain) loss on derivative instruments | 25,677 | (67,337 | ) | 57,642 | (86,063 | ) | ||||||
| Earnings on equity method investments | (69,302 | ) | (2,146 | ) | (80,496 | ) | (1,137 | ) | ||||
| Equity method investment distributions | 3,187 | 1,296 | 17,453 | 1,296 | ||||||||
| Stock-based compensation | 6,808 | 15,516 | 30,780 | 33,147 | ||||||||
| EBITDAX | $ | 300,257 | $ | 464,406 | $ | 1,408,594 | $ | 1,266,670 |
Net Debt Reconciliation
| The total debt to total capitalization ratio is calculated by dividing total debt by the sum of total debt and total stockholders’ equity. This ratio is a measurement which is presented in our annual and interim filings and we believe this ratio is useful to investors in determining our leverage. Net Debt is calculated by subtracting cash and cash equivalents from total debt. Net Debt and the Net Debt to Adjusted Capitalization ratio are non-GAAP measures which we believe are also useful to investors since we have the ability to and may decide to use a portion of our cash and cash equivalents to retire debt. Additionally, as we may incur additional expenditures without increasing debt, it is appropriate to apply cash and cash equivalents to debt in calculating the Net Debt to Adjusted Capitalization ratio. | (In thousands) | December 31, <br>2019 | December 31, <br>2018 | ||||
|---|---|---|---|---|---|---|---|
| Current portion of long-term debt | $ | 87,000 | $ | — | |||
| Long-term debt, net | 1,133,025 | 1,226,104 | |||||
| Total debt | $ | 1,220,025 | $ | 1,226,104 | |||
| Stockholders’ equity | 2,151,487 | 2,088,159 | |||||
| Total capitalization | $ | 3,371,512 | $ | 3,314,263 | |||
| Total debt | $ | 1,220,025 | $ | 1,226,104 | |||
| Less: Cash and cash equivalents | (200,227 | ) | (2,287 | ) | |||
| Net debt | $ | 1,019,798 | $ | 1,223,817 | |||
| Net debt | $ | 1,019,798 | $ | 1,223,817 | |||
| Stockholders’ equity | 2,151,487 | 2,088,159 | |||||
| Total adjusted capitalization | $ | 3,171,285 | $ | 3,311,976 | |||
| Total debt to total capitalization ratio | 36.2 | % | 37.0 | % | |||
| Less: Impact of cash and cash equivalents | 4.0 | % | — | % | |||
| Net debt to adjusted capitalization ratio | 32.2 | % | 37.0 | % |
| Capital Expenditures | Quarter Ended December 31, | Twelve Months Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||
| Cash paid for capital expenditures | $ | 167,672 | $ | 246,967 | $ | 788,368 | $ | 894,470 | |||||
| Change in accrued capital costs | (4,306 | ) | 17,326 | (2,870 | ) | 19,346 | |||||||
| Exploratory dry hole cost | (2,220 | ) | (41,316 | ) | (2,236 | ) | (97,741 | ) | |||||
| Capital expenditures | $ | 161,146 | $ | 222,977 | $ | 783,262 | $ | 816,075 |
12
Finding and Development Costs
Drill-Bit Finding and Development Cost is defined as costs incurred in exploration and development activities as defined by GAAP divided by reserve extensions, discoveries and other additions. All-Sources Finding and Development Cost is defined as costs incurred in property acquisition, exploration and development activities, as defined by GAAP, divided by the total of reserve extensions, discoveries and other additions and revision of prior estimates. Drill-Bit Finding and Development Cost and All-Sources Finding and Development Cost are presented based on management's belief that these non-GAAP measures are useful information to investors to evaluate how much it costs to add proved reserves. These calculations do not include the future development costs required for the development of proved undeveloped reserves and may not be comparable to similarly titled measurements used by other companies.
| Year Ended December 31, | ||||
|---|---|---|---|---|
| 2019 | 2018 | |||
| Costs incurred in oil and gas property acquisition, exploration and development activities (In thousands) | ||||
| Exploration costs | $ | 20,270 | $ | 94,309 |
| Development costs | 761,326 | 778,574 | ||
| Exploration and development costs (A) | 781,596 | 872,883 | ||
| Property acquisition costs, unproved | 6,072 | 29,851 | ||
| Total costs incurred (B) | 787,668 | 902,734 | ||
| Extensions, discoveries and other additions (Bcfe) (C) | 2,116 | 2,244 | ||
| Revision of prior estimates (Bcfe) (D) | 47 | 780 | ||
| Drill-bit finding and development costs ($ per Mcfe) (A) / (C) | $ | 0.37 | $ | 0.39 |
| All-sources finding and development costs ($ per Mcfe) (B) / (C + D) | $ | 0.36 | $ | 0.30 |
Pre-Tax Present Value of Future Net Cash Flows Calculation and Reconciliation
| Pre-Tax Present Value of Future Net Cash Flows, discounted at 10% annual rate (Pre-Tax PV-10), is defined as Standardized Measure of Discounted Future Net Cash Flows plus Future Income Tax Expenses, discounted at 10% annual rate. Year-end Pre-Tax PV-10 value is presented based on our belief that this non-GAAP measure is useful information to investors and creditors when comparing Pre-Tax PV-10 values as a basis for comparison of our relative size and value of reserves as compared with other companies. Pre-Tax PV-10 is not a measure under GAAP and should not be considered as alternative to Standardized Measure of Discounted Future Net Cash Flows, as defined by GAAP. | (In thousands) | December 31, <br>2019 | December 31, <br>2018 | ||
|---|---|---|---|---|---|
| Standardized Measure of Discounted Future Net Cash Flows | $ | 5,861,117 | $ | 6,483,308 | |
| Plus: Future Income Tax Expenses, discounted at 10% annual rate | 1,639,288 | 1,651,488 | |||
| Pre-tax Present Value of Future Net Cash Flows, discounted at 10% annual rate | $ | 7,500,405 | $ | 8,134,796 |
13