Cabot Oil & Gas Corporation Reports Third Quarter 2019 Results, Increases Dividend by 11 Percent
HOUSTON, Oct. 24, 2019 /PRNewswire/ -- Cabot Oil & Gas Corporation (NYSE: COG) ("Cabot" or the "Company") today reported financial and operating results for the third quarter of 2019.
"In the third quarter of 2019, Cabot increased free cash flow by over 150 percent compared to the prior-year period, driven by higher production volumes, lower per unit operating expenses, improved basis differentials, and reduced capital spending, despite a 23 percent reduction in NYMEX benchmark prices," stated Dan O. Dinges, Chairman, President and Chief Executive Officer. "Our results highlight the resiliency of Cabot's business model and our ability to deliver strong financial results even in the lows of the natural gas price cycle, while continuing to return capital to our shareholders."
Third Quarter 2019 Highlights
-- Net income of $90.4 million (or $0.22 per share); adjusted net income
(non-GAAP) of $119.7 million (or $0.29 per share)
-- Net cash provided by operating activities of $270.9 million;
discretionary cash flow (non-GAAP) of $275.5 million
-- Free cash flow (non-GAAP) of $72.4 million
-- Return on capital employed (ROCE) (non-GAAP) for the trailing twelve
months of 25.2 percent
-- Returned $227.8 million of capital to shareholders through dividends and
share repurchases
-- Daily production of 2,399 million cubic feet equivalent (Mmcfe) per day,
an increase of 18 percent relative to the prior-year period
-- Improved operating expenses per unit to $1.43 per thousand cubic feet
equivalent (Mcfe), a 15 percent reduction relative to the prior-year
period
-- Previously announced an agreement to sell Cabot's 20 percent ownership
interest in Meade Pipeline Co LLC for $256.0 million, or over 13 times
expected 2019 EBITDAX (non-GAAP), which is expected to close during the
fourth quarter of 2019
-- Announced an 11 percent increase in the Company's quarterly cash
dividend to $0.10 per share
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, and ROCE.
Third Quarter 2019 Financial Results
Third quarter 2019 daily production was 2,399 Mmcfe per day (100 percent natural gas), exceeding the midpoint of the Company's guidance range and representing an 18 percent increase relative to the third quarter of 2018.
Third quarter 2019 net income was $90.4 million, or $0.22 per share, compared to $122.3 million, or $0.28 per share, in the prior-year period. Third quarter 2019 adjusted net income (non-GAAP) was $119.7 million, or $0.29 per share, compared to $108.9 million, or $0.25 per share, in the prior-year period. Third quarter 2019 EBITDAX (non-GAAP) was $283.6 million, compared to $291.6 million in the prior-year period.
Third quarter 2019 net cash provided by operating activities was $270.9 million, compared to $242.2 million in the prior-year period. Third quarter 2019 discretionary cash flow (non-GAAP) was $275.5 million, compared to $298.8 million in the prior-year period. Third quarter 2019 free cash flow (non-GAAP) was $72.4 million, compared to $28.6 million in the prior-year period.
Third quarter 2019 natural gas price realizations, including the impact of derivatives, were $2.11 per thousand cubic feet (Mcf), a decrease of 11 percent compared to the prior-year period. Excluding the impact of derivatives, third quarter 2019 natural gas price realizations were $1.89 per Mcf, representing a $0.34 discount to NYMEX settlement prices compared to a $0.54 discount in the prior-year period.
Third quarter 2019 operating expenses (including interest expense) decreased to $1.43 per Mcfe, a 15 percent improvement compared to the prior-year period. All operating expenses per unit decreased relative to the prior-year period except for direct operations and taxes other than income, which were both flat to the third quarter of 2018.
Cabot incurred a total of $197.5 million of capital expenditures in the third quarter of 2019 including $190.5 million of drilling and facilities capital, $2.0 million of leasehold acquisition capital, and $5.0 million of other capital. Additionally, the Company contributed $3.8 million to its equity method pipeline investments. See the supplemental table at the end of this press release reconciling the capital expenditures during the third quarter of 2019.
Year-To-Date 2019 Financial Results
Daily production for the nine-month period ended September 30, 2019 was 2,342 Mmcfe per day (100 percent natural gas), representing a 21 percent increase relative to the prior-year period.
For the nine-month period ended September 30, 2019, net income was $534.1 million, or $1.27 per share, compared to $282.0 million, or $0.63 per share, for the prior-year period. Adjusted net income (non-GAAP) for the nine-month period ended September 30, 2019 was $578.0 million, or $1.38 per share, compared to $295.3 million, or $0.66 per share, for the prior-year period. EBITDAX (non-GAAP) for the nine-month period ended September 30, 2019 was $1,108.3 million, compared to $802.3 million for the prior-year period.
For the nine-month period ended September 30, 2019, net cash provided by operating activities was $1,182.8 million, compared to $788.9 million for the prior-year period. Discretionary cash flow (non-GAAP) for the nine-month period ended September 30, 2019 was $1,083.2 million, compared to $775.6 million for the prior-year period. Free cash flow (non-GAAP) was $453.5 million for the nine-month period ended September 30, 2019, compared to $55.2 million for the prior-year period. ROCE (non-GAAP) improved to 25.2 percent for the trailing twelve months ended September 30, 2019, compared to 10.8 percent for the trailing twelve months ended September 30, 2018.
Natural gas price realizations, including the impact of derivatives, were $2.56 per Mcf for the nine-month period ended September 30, 2019, an increase of 10 percent compared to the prior-year period.
For the nine-month period ended September 30, 2019, operating expenses (including interest expense) decreased to $1.44 per Mcfe, a 16 percent improvement compared to the prior-year period. The decrease in operating expenses per unit was primarily driven by a reduction in exploration and depreciation, depletion, and amortization, in addition to improvements in direct operations, transportation and gathering, taxes other than income, general and administrative, and interest expense.
Cabot incurred a total of $622.1 million of capital expenditures during the nine-month period ended September 30, 2019 including $605.9 million of drilling and facilities capital, $5.3 million of leasehold acquisition capital, and $10.9 million of other capital. Additionally, the Company contributed $9.0 million to its equity method pipeline investments during the nine-month period ended September 30, 2019. See the supplemental table at the end of this press release reconciling the capital expenditures during the nine-month period ended September 30, 2019.
Dividend Increase
Cabot's Board of Directors has approved an 11 percent increase in its quarterly cash dividend to $0.10 per share on the Company's common stock, resulting in the fifth dividend increase since May 2017. The dividend will be paid on November 15, 2019 to all shareholders of record as of the close of business on November 6, 2019. "We remain committed to increasing our return of capital to shareholders through the combination of a growing dividend and opportunistic share repurchases," highlighted Dinges. "Our outlook for the continued generation of significant free cash flow over the coming years, even at natural gas prices that are materially below the current forward curve, will allow Cabot to remain a sector leader in returning capital to shareholders."
Share Repurchase Program Update
As previously announced in its September 30, 2019 press release, Cabot repurchased 10.5 million shares at a weighted-average share price of $18.21 during the third quarter of 2019. Since reactivating the share repurchase program in the second quarter of 2017, Cabot has reduced its shares outstanding by over 12 percent to 407.9 million shares. The Company currently has 21.0 million remaining shares authorized under its share repurchase program (or approximately five percent of its current shares outstanding).
Financial Position and Liquidity
As of September 30, 2019, Cabot had total debt of $1.2 billion and cash on hand of $82.3 million. The Company's net debt-to-adjusted capitalization ratio and net debt-to-trailing twelve months EBITDAX ratio were 33.9 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 $1.6 billion of liquidity.
Fourth Quarter and Full-Year 2019 Guidance Update
Cabot has provided its fourth quarter 2019 production guidance range of 2,375 to 2,425 Mmcfe per day. The Company has also updated its full-year 2019 production growth guidance to 17 percent, which is the midpoint of the prior guidance range of 16 to 18 percent. This represents 25 percent growth in production per debt-adjusted share for the year. Cabot has also reaffirmed its 2019 capital budget range of $800 million to $820 million.
Additionally, the Company has updated its full-year 2019 NYMEX price assumption to $2.60 per Mmbtu, which reflects the ten months of actual NYMEX settlements to date and the current forward prices for the remaining two months of the year. The Company has also reaffirmed its estimated key financial metrics for the year based on this NYMEX price assumption in the table below.
Estimated 2019 Key
Financial Metrics (1)
$2.60 NYMEX
---
Adjusted Earnings Per
Share Growth (%) 38% - 42%
Free Cash Flow ($mm)
$500 - $525
Return on Capital
Employed (%) 20% - 22%
(1) Includes the impact of derivative instruments
For further disclosure on Cabot's expected fourth quarter 2019 natural gas pricing exposure by index and cost guidance, please see the current Guidance slide in the Investor Relations section of the Company's website.
Preliminary Full-Year 2020 Guidance
In the Company's second quarter 2019 earnings release, Cabot provided a preliminary 2020 plan ("growth scenario") that is expected to generate full-year production growth of five percent (seven to eight percent growth in full-year production per debt-adjusted share) based on a preliminary capital budget range of $700 million to $725 million, including non-drilling and completion capital. This plan was predicated on a 2020 NYMEX price assumption of $2.50 per Mmbtu. Subsequent to the second quarter earnings release, the 2020 NYMEX forward curve continued to decline to levels below the Company's original budget price assumption. As a result, in addition to its initial preliminary 2020 guidance, Cabot is also evaluating a maintenance capital plan ("maintenance scenario") that holds fourth quarter 2020 production levels flat to the midpoint of the fourth quarter 2019 production guidance range (two to three percent growth in full-year production per debt-adjusted share) based on a $575 million capital program, including non-drilling and completion capital. The growth scenario delivers a fourth quarter 2020 exit growth rate of five percent and is designed to position Cabot for continued growth in 2021, while the maintenance scenario is designed to position the Company for a continued flat production profile in 2021. Both scenarios assume a moderate amount of curtailments during the shoulder seasons based on an expectation of normal pipeline maintenance, higher line pressures, and weaker spot market prices. Cabot will continue to evaluate both scenarios and assess the impact of the winter withdrawal season on the Company's 2020 natural gas price outlook before issuing formal 2020 guidance in the year-end earnings release in February. "We continue to maintain a cautiously optimistic outlook for the natural gas markets in 2020, driven in large part by our expectation for a pronounced decrease in operating activity across North American natural gas basins due to continued price weakness," said Dinges. "However, we are prepared to modify our 2020 plan early next year in response to lower anticipated natural gas prices, if necessary, with a continued focus on delivering a combination of strong free cash flow generation, high return on capital employed, consistent return of capital to shareholders including our recent dividend increase, low financial leverage, and growth in production and reserves per share--all of which are provided by both of the 2020 scenarios we are currently evaluating."
Conference Call Webcast
A conference call is scheduled for Friday, October 25, 2019, at 9:30 a.m. Eastern Time to discuss third quarter 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
OPERATING DATA
Quarter Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
---
PRODUCTION VOLUMES
Natural gas (Bcf) 220.7 186.5 639.3 523.6
Crude oil and
condensate (Mbbl) - 754.0
Natural gas liquids
(NGLs) (Mbbl) - 75.1
Equivalent production
(Bcfe) 220.7 186.5 639.3 528.6
Daily equivalent
production (Mmcfe/
day) 2,399 2,029 2,342 1,936
AVERAGE SALES PRICE
Natural gas, including
hedges ($/Mcf) $
2.11 $
2.36 $
2.56 $
2.32
Natural gas, excluding
hedges ($/Mcf) $
1.89 $
2.36 $
2.38 $
2.33
Crude oil and
condensate, including
hedges ($/Bbl)
$
$
$ $
63.68
Crude oil and
condensate, excluding
hedges ($/Bbl)
$
$
$ $
64.68
NGL ($/Bbl)
$
$
$ $
21.49
AVERAGE UNIT COSTS ($/Mcfe)
Direct operations $
0.09 $
0.09 $
0.09 $
0.10
Transportation and
gathering 0.66 0.69 0.66 0.67
Taxes other than income 0.02 0.02 0.02 0.03
Exploration 0.02 0.05 0.02 0.13
Depreciation, depletion
and amortization 0.50 0.65 0.47 0.55
General and
administrative
(excluding stock-
based compensation) 0.07 0.08 0.08 0.09
Stock-based
compensation 0.01 0.03 0.04 0.03
Interest expense 0.06 0.08 0.06 0.11
$
1.43 $
1.69 $
1.44 $
1.71
WELLS DRILLED (1)
Gross 22 21 71 60
Net 22.0 21.0 71.0 60.0
WELLS COMPLETED (1)
Gross 29 27 71 61
Net 29.0 27.0 71.0 61.0
____________________________________________________________
(1) 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.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Quarter Ended
Nine Months Ended
September 30, September 30,
---
(In thousands, except per
share amounts) 2019 2018 2019 2018
--- ---
OPERATING REVENUES
Natural gas $
418,133 $
440,835 $
1,521,789 $
1,217,603
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
Other (82) 2,026 154 3,775
429,111 545,173 1,604,909 1,471,847
OPERATING EXPENSES
Direct operations 19,181 17,030 55,608 52,757
Transportation and
gathering 145,681 129,534 424,703 355,848
Brokered natural gas - 93,405 178,437
Taxes other than income 4,607 2,852 14,094 15,434
Exploration 4,481 10,049 15,029 68,166
Depreciation, depletion
and amortization 110,889 121,172 299,294 288,210
General and administrative
(excluding stock-based
compensation) 16,272 14,235 48,398 48,382
Stock-based
compensation(1) 2,119 6,489 23,972 17,631
303,230 394,766 881,098 1,024,865
Earnings (loss) on equity
method investments 3,860 (11) 11,194 (1,009)
Gain (loss) on sale of
assets 36 25,655 (1,464) (14,850)
INCOME FROM OPERATIONS 129,777 176,051 733,541 431,123
Interest expense, net 13,554 14,191 40,302 57,577
Other expense 143 115 430 347
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
Earnings per share -Basic $
0.22 $
0.28 $
1.27 $
0.63
Weighted-average common
shares outstanding 412,456 440,772 419,199 450,445
______________________________________________________________
(1)
Includes the impact of our performance share awards and restricted stock.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands) September 30, December 31,
2019 2018
--- ---
ASSETS
Current assets $
421,679 $
544,545
Properties and equipment, net (Successful efforts method) 3,787,581 3,463,606
Other assets 233,405 190,678
$
4,442,665 $
4,198,829
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $
294,785 $
287,264
Long-term debt, net (excluding current maturities) 1,132,790 1,226,104
Deferred income taxes 647,473 458,597
Other liabilities 154,041 138,705
Stockholders' equity 2,213,576 2,088,159
$
4,442,665 $
4,198,829
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
(In thousands) 2019 2018 2019 2018
--- ---
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $
90,358 $
122,337 $
534,130 $
281,998
Deferred income
tax expense 36,350 64,823 188,997 131,799
(Gain) loss on
sale of assets (36) (25,655) 1,464 14,850
Exploratory dry
hole cost - 5,340 16 56,425
(Gain) loss on
derivative
instruments (11,060) 3,537 (82,966) 1,628
Net cash received
(paid) in
settlement of
derivative
instruments 46,555 (41) 114,931 (20,354)
Income charges not
requiring cash 113,305 128,422 326,649 309,212
Changes in assets
and liabilities (4,598) (56,569) 99,590 13,294
Net cash provided
by operating
activities 270,874 242,194 1,182,811 788,852
CASH FLOWS FROM INVESTING ACTIVITIES
Capital
expenditures (199,196) (260,232) (620,696) (647,503)
Proceeds from sale
of assets 55 28,657 2,401 675,525
Investment in
equity method
investments (3,846) (9,961) (8,977) (72,866)
Distribution of
investment from
equity method
investments 898 1,656
Net cash used in
investing
activities (202,089) (241,536) (625,616) (44,844)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings
(repayments) of
debt - (237,000) (7,000) (237,000)
Treasury stock
repurchases (190,808) (162,071) (347,446) (581,725)
Dividends paid (37,025) (26,467) (104,722) (81,185)
Tax withholdings
on vesting of
stock awards (30) (37) (10,587) (8,068)
Capitalized debt
issuance costs - (7,411)
Net cash used in
financing
activities (227,863) (425,575) (477,166) (907,978)
Net (decrease)
increase in cash
and cash
equivalents $
(159,078) $
(424,917) $
80,029 $
(163,970)
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, the results of our peers and 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. 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 Nine Months Ended
September 30, September 30,
(In thousands, except per
share amounts) 2019 2018 2019 2018
---
As reported -net income $
90,358 $
122,337 $
534,130 $
281,998
Reversal of selected
items:
(Gain) loss on sale of
assets (36) (25,655) 1,464 14,850
(Gain) loss on derivative
instruments(1) 35,495 3,496 31,965 (18,726)
Stock-based compensation
expense 2,119 6,489 23,972 17,631
Severance expense 398 2,521 28
Interest expense related
to income tax reserves (1,863) (3,052) 3,654
Tax effect on selected
items (8,672) 4,127 (12,986) (4,104)
Adjusted net income $
119,662 $
108,931 $
578,014 $
295,331
As reported -earnings
per share $
0.22 $
0.28 $
1.27 $
0.63
Per share impact of
selected items 0.07 (0.03) 0.11 0.03
Adjusted earnings per
share $
0.29 $
0.25 $
1.38 $
0.66
Weighted-average common
shares outstanding 412,456 440,772 419,199 450,445
___________________________________________________________________
(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.
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 comparing our profitability and the efficiency with which we have employed capital over time relative to other companies. ROCE is not a measure of financial performance under GAAP and should not be considered an alternative to net income.
Twelve Months Ended September 30,
(In thousands) 2019 2018
---
Interest expense, net $
55,926 $
77,987
Interest expense related to income tax reserves (1) 3,590 (3,654)
Tax benefit (13,590) (20,233)
After-tax interest expense, net (A) 45,926 54,100
As reported - net income 809,174 237,558
Adjustments to as reported - net income, net of tax 4,622 117,228
Adjusted net income (B) 813,796 354,786
Adjusted net income before interest expense, net (A + B) $
859,722 $
408,886
Total debt - beginning of twelve month period $
1,285,848 $
1,521,551
Stockholders' equity - beginning of twelve month period 2,094,147 2,644,594
Capital employed - beginning of twelve month period 3,379,995 4,166,145
Total debt - end of twelve month period 1,219,790 1,285,848
Stockholders' equity - end of twelve month period 2,213,576 2,094,147
Capital employed - end of twelve month period 3,433,366 3,379,995
Average capital employed (C) $
3,406,681 $
3,773,070
Return on average capital employed (ROCE) (A+B) / C 25.2
% 10.8
%
_______________________________________________________________
(1)
Interest expense related to income tax reserves is included in the adjustments to as reported - net income, net of tax.
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 Nine Months Ended
September 30, September 30,
(In thousands) 2019 2018 2019 2018
---
Net cash provided
by operating
activities $
270,874 $
242,194 $
1,182,811 $
788,852
Changes in assets
and liabilities 4,598 56,569 (99,590) (13,294)
Discretionary cash
flow 275,472 298,763 1,083,221 775,558
Capital
expenditures (199,196) (260,232) (620,696) (647,503)
Investment in
equity method
investments (3,846) (9,961) (8,977) (72,866)
Free cash flow $
72,430 $
28,570 $
453,548 $
55,189
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 Nine Months Ended
September 30,
September 30,
(In thousands) 2019 2018 2019 2018
---
Net income $
90,358 $
122,337 $
534,130 $
281,998
Plus (less):
Interest expense, net 13,554 14,191 40,302 57,577
Other expense 143 115 430 347
Income tax expense 25,722 39,408 158,679 91,201
Depreciation, depletion
and amortization 110,889 121,172 299,294 288,210
Exploration 4,481 10,049 15,029 68,166
(Gain) loss on sale of
assets (36) (25,655) 1,464 14,850
Non-cash (gain) loss on
derivative instruments 35,495 3,496 31,965 (18,726)
(Earnings) loss on equity
method investments (3,860) 11 (11,194) 1,009
Equity method investment
distributions 4,758 14,266
Stock-based compensation 2,119 6,489 23,972 17,631
EBITDAX $
283,623 $
291,613 $
1,108,337 $
802,263
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) September 30, December 31,
2019 2018
---
Current portion of long-term debt $
87,000
$
Long-term debt, net 1,132,790 1,226,104
Total debt $
1,219,790 $
1,226,104
Stockholders' equity 2,213,576 2,088,159
Total capitalization $
3,433,366 $
3,314,263
Total debt $
1,219,790 $
1,226,104
Less: Cash and cash equivalents (82,316) (2,287)
Net debt $
1,137,474 $
1,223,817
Net debt $
1,137,474 $
1,223,817
Stockholders' equity 2,213,576 2,088,159
Total adjusted capitalization $
3,351,050 $
3,311,976
Total debt to total capitalization ratio 35.5
% 37.0
%
Less: Impact of cash and cash equivalents 1.6
% %
Net debt to adjusted capitalization ratio 33.9
% 37.0
%
Capital Expenditures
Quarter Ended Nine Months Ended
September 30, September 30,
(In thousands) 2019 2018 2019 2018
--- ---
Cash paid for
capital
expenditures $
199,196 $
260,232 $
620,696 $
647,503
Change in accrued
capital costs (1,732) 8,296 1,436 2,020
Exploratory dry
hole cost - (5,340) (16) (56,425)
Capital
expenditures $
197,464 $
263,188 $
622,116 $
593,098
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SOURCE Cabot Oil & Gas Corporation
