0000858470false00008584702020-10-292020-10-29

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): October 29, 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  
HoustonTexas 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.10 per shareCOGNew 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 October 29, 2020, we issued a press release with respect to our 2020 third 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 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 or loss, 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, return capital to shareholders through dividends and share repurchases, 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 or loss, 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 or loss, as defined by GAAP, or as a measure of liquidity.
EBITDAX is defined as net income or loss plus interest expense, other expense, income tax expense or benefit, 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 or loss, 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 or loss plus gain and loss on sale of assets, gain and loss on derivative instruments, 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 or loss and earnings or loss per share, as defined by GAAP.
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 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 management believes are also useful to investors since we have the ability to and may decide to use a portion of our cash and cash
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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.
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Item 9.01                                           Financial Statements and Exhibits.
(d)                                 Exhibits 
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: October 29, 2020

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Exhibit 99.1
https://cdn.kscope.io/0deba624709d47f908ea2226e74c62dd-image0a071.jpg
October 29, 2020 FOR MORE INFORMATION CONTACT
  Matt Kerin (281) 589-4642
Cabot Oil & Gas Corporation Reports Third Quarter 2020 Results

HOUSTON, Oct. 29, 2020 /PRNewswire/ -- Cabot Oil & Gas Corporation (NYSE: COG) (“Cabot” or the “Company”) today reported financial and operating results for the third quarter of 2020.

“2020 has proven to be the most challenging year for natural gas prices in the last 25 years, resulting from a multi-year trend of overcapitalization of both oil and natural gas assets across our industry,” stated Dan O. Dinges, Chairman, President and Chief Executive Officer. “However, we are optimistic about the path forward as our industry as a whole has begun to adopt a similar philosophy on disciplined capital allocation that has been paramount to Cabot’s strategy for years, which is centered on delivering strong corporate returns, generating free cash flow, returning capital to shareholders, and maintaining a strong balance sheet. We believe this capital discipline, along with rebounding demand largely driven by exports, will continue to move natural gas supply and demand toward a more sustainable balance, allowing Cabot to deliver a significant expansion of free cash flow in 2021 and beyond, while also increasing our return on and of capital.”

Third Quarter 2020 Financial Results

Third quarter 2020 daily production was 2,406 million cubic feet equivalent (Mmcfe) per day (100 percent natural gas). During the third quarter of 2020, the Company drilled 13.0 net wells, completed 18.1 net wells, and placed 28.2 net wells on production.

Third quarter 2020 natural gas price realizations, including the impact of derivatives, were $1.57 per thousand cubic feet (Mcf), a decrease of 26 percent compared to the prior-year period. Excluding the impact of derivatives, third quarter 2020 natural gas price realizations were $1.51 per Mcf, representing a $0.47 discount to NYMEX settlement prices compared to a $0.34 discount in the prior-year period. Third quarter 2020 operating expenses (including interest expense) were $1.41 per thousand cubic feet equivalent (Mcfe), an improvement of one percent compared to the prior-year period.

Third quarter 2020 net loss was $15.0 million, or $0.04 per share, compared to net income of $90.4 million, or $0.22 per share, in the prior-year period. Third quarter 2020 adjusted net income (non-GAAP) was $37.3 million, or $0.09 per share, compared to $119.7 million, or $0.29 per share, in the prior-year period. Third quarter 2020 EBITDAX (non-GAAP) was $163.7 million, compared to $283.6 million in the prior-year period.

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Third quarter 2020 net cash provided by operating activities was $129.1 million, compared to $270.9 million in the prior-year period. Third quarter 2020 discretionary cash flow (non-GAAP) was $146.9 million, compared to $275.5 million in the prior-year period. Third quarter 2020 free cash flow (non-GAAP) was ($0.3) million, compared to $72.4 million in the prior-year period. “Despite lower realized prices and the corresponding impact of strategic price-related curtailments on our production volumes, Cabot was able to deliver a free cash breakeven program during the third quarter,” commented Dinges. “Based on the current NYMEX futures, we expect to generate between $125 and $150 million of free cash flow during the fourth quarter, resulting in our fifth consecutive year of positive free cash flow generation, despite the expectation for the lowest average annual NYMEX natural gas price on record since 1995.”

Cabot incurred a total of $128.4 million of capital expenditures in the third quarter of 2020 including $119.2 million of drilling and facilities capital, $2.0 million of leasehold acquisition capital, and $7.2 million of other capital.

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 return on capital employed (ROCE).

Year-to-Date 2020 Financial Results

Daily equivalent production for the nine-month period ended September 30, 2020 was 2,333 Mmcfe per day (100 percent natural gas). During the nine-month period ended September 30, 2020, the Company drilled 49.2 net wells, completed 62.3 net wells, and placed 62.2 net wells on production.

Natural gas price realizations, including the impact of derivatives, were $1.60 per Mcf for the nine-month period ended September 30, 2020, a decrease of 38 percent compared to the prior-year period. For the nine-month period ended September 30, 2020, operating expenses (including interest expense) were $1.44 per Mcfe.

For the nine-month period ended September 30, 2020, net income was $69.3 million, or $0.17 per share, compared to $534.1 million, or $1.27 per share, in the prior-year period. Adjusted net income (non-GAAP) was $109.3 million, or $0.27 per share, compared to $578.0 million, or $1.38 per share, in the prior-year period. EBITDAX (non-GAAP) for the nine-month period ended September 30, 2020 was $489.6 million, compared to $1,108.3 million in the prior-year period.

For the nine-month period ended September 30, 2020, net cash provided by operating activities was $470.4 million, compared to $1,182.8 million in the prior-year period. Discretionary cash flow (non-GAAP) for the nine-month period ended September 30, 2020 was $464.6 million, compared to $1,083.2 million in the prior-year period. Free cash flow (non-GAAP) for the nine-month period ended September 30, 2020 was ($13.8) million, compared to $453.5 million in the prior-year period.

Cabot incurred a total of $463.9 million of capital expenditures during the nine-month period ended September 30, 2020 including $449.0 million of drilling and facilities capital, $3.3 million of leasehold acquisition capital, and $11.6 million of other capital.

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Financial Position and Liquidity

As of September 30, 2020, Cabot had total debt of $1.2 billion and cash on hand of $0.2 million. The Company's debt-to-total capitalization ratio and debt-to-trailing twelve months EBITDAX ratio (non-GAAP) were 35.4 percent and 1.5x, respectively, compared to 36.2 percent and 0.9x as of December 31, 2019. As of September 30, 2020, the Company had $28.0 million outstanding under its credit facility, resulting in approximately $1.5 billion of liquidity. “While our leverage ratio has increased moderately throughout 2020 as a result of reduced EBITDAX due to lower price realizations, we anticipate a significant reduction in our leverage in 2021 through a combination of higher EBITDAX resulting from improved price realizations and lower absolute debt levels as we plan to utilize a portion of our expected free cash flow to retire our 2021 debt maturities,” said Dinges.

Upper Marcellus Operations Update

Cabot has placed five Upper Marcellus wells on production during 2020, which have been producing for an average of 140 days. These wells are located across the eastern, western, and northern areas of the Company’s acreage position and are offset to currently producing Lower Marcellus wells. Based on the production history to date, on average these wells are currently exceeding the estimated ultimate recovery (EUR) of 2.7 billion cubic feet (Bcf) per thousand lateral feet that was reported at year-end for Cabot’s 2018 and 2019 Upper Marcellus wells. "We believe these results continue to demonstrate the productivity of this distinct, economic interval across our 173,000 net acre position in the core of the dry gas window in northeast Pennsylvania,” noted Dinges. “We plan to continue to allocate a modest amount of capital to the Upper Marcellus annually as we continue to optimize our well design and lateral placement across this interval, with the intent of moving to full development of our Upper Marcellus inventory at the tail end of this decade. We expect to develop the Upper Marcellus at an average lateral length greater than 10,000 feet, which would provide significant well cost savings, further improving the economics of our Upper Marcellus inventory.”

Fourth Quarter / Full-Year 2020 and Preliminary 2021 Guidance

Cabot has reaffirmed its fourth quarter 2020 production guidance range of 2,300 to 2,350 Mmcfe per day, which includes the impact of previously announced price-related curtailments during the quarter. The Company has also reaffirmed its full-year 2020 production guidance range of 2,325 to 2,340 Mmcfe per day based on a capital program of $575 million.

Cabot has also provided preliminary 2021 production guidance of 2,350 Mmcfe per day from a capital program of $530 to $540 million, representing a seven percent reduction in capital spending year-over-year at the midpoint of the range. “Despite the expectation for higher price realizations and cash flow in 2021, our capital allocation priorities remain focused on maintaining our current production levels, funding our current dividend, retiring our 2021 debt maturities, and opportunistically returning incremental free cash flow to shareholders as we continue to target a minimum return of capital of at least 50 percent of free cash flow annually,” stated Dinges. “While we will continue to analyze the natural gas market outlook as we evaluate the potential for disciplined investment in modest levels of growth capital in the future, it is our belief that the natural gas price futures for 2022 and beyond, which are currently in backwardation, do not warrant incremental levels of capital investment above our current maintenance capital requirements at this time.”
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Inaugural Sustainability Accounting Standards Board (SASB) Report

Cabot today issued its inaugural SASB report, highlighting the Company’s commitment to environmental responsibility, workforce health and safety, business ethics, and risk management. The report is available at www.cabotog.com/corporate-responsibility. “At Cabot, we strive not only to be a leading independent producer of natural gas, but to also be a leader in safe, responsible operations, to minimize our impact on the environment, and to be a valued partner to our employees and communities,” commented Dinges. “We believe this commitment, along with our operational success, continues to create value for our shareholders and other stakeholders in our communities. With the issuance of this inaugural SASB report, we are adding transparency into our environmental, social and governance programs, further highlighting our focus on sustainable and responsible operations.”

Conference Call Webcast

A conference call is scheduled for Friday, October 30, 2020, at 9:30 a.m. Eastern Time to discuss third quarter 2020 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, the continuing effects of the COVID-19 pandemic and the impact thereof on the Company’s business, financial condition and results of operations, the availability of cash on hand and other sources of liquidity to fund our capital expenditures, the repayment of our debt maturities and our dividends, actions by, or disputes among or between, the Organization of Petroleum Exporting Countries and other producer countries, 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 Company's most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q 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
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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
Quarter Ended 
September 30,
Nine Months Ended 
September 30,
 2020201920202019
PRODUCTION VOLUMES
Natural gas (Bcf)221.4 220.7 639.2 639.3 
Equivalent production (Bcfe)221.4 220.7 639.2 639.3 
Daily equivalent production (Mmcfe/day)2,406 2,399 2,333 2,342 
AVERAGE SALES PRICE
Natural gas, including hedges ($/Mcf)$1.57 $2.11 $1.60 $2.56 
Natural gas, excluding hedges ($/Mcf)$1.51 $1.89 $1.55 $2.38 
AVERAGE UNIT COSTS ($/Mcfe)(1)
Direct operations$0.09 $0.09 $0.09 $0.09 
Transportation and gathering0.66 0.66 0.67 0.66 
Taxes other than income 0.02 0.02 0.02 0.02 
Exploration 0.02 0.02 0.02 0.02 
Depreciation, depletion and amortization 0.45 0.50 0.46 0.47 
General and administrative (excluding stock-based compensation)0.06 0.07 0.07 0.08 
Stock-based compensation0.05 0.01 0.06 0.04 
Interest expense0.06 0.06 0.07 0.06 
$1.41 $1.43 $1.44 $1.44 
WELLS DRILLED (2)
Gross14 22 55 71 
Net13.0 22.0 49.2 71.0 
WELLS COMPLETED (2)
Gross22 29 71 71 
Net18.1 29.0 62.3 71.0 
_______________________________________________________________________________
(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 
September 30,
Nine Months Ended 
September 30,
(In thousands, except per share amounts)2020201920202019
OPERATING REVENUES    
Natural gas$333,256 $418,133 $991,882 $1,521,789 
(Loss) gain on derivative instruments(42,253)11,060 17,783 82,966 
Other 38 (82)181 154 
 291,041 429,111 1,009,846 1,604,909 
OPERATING EXPENSES    
Direct operations20,197 19,181 54,864 55,608 
Transportation and gathering146,982 145,681 425,563 424,703 
Taxes other than income 3,615 4,607 10,705 14,094 
Exploration 3,900 4,481 10,669 15,029 
Depreciation, depletion and amortization 99,649 110,889 294,406 299,294 
General and administrative (excluding stock-based compensation)12,890 16,272 44,901 48,398 
Stock-based compensation(1)
11,372 2,119 35,956 23,972 
 298,605 303,230 877,064 881,098 
Earnings (loss) on equity method investments— 3,860 (59)11,194 
Gain (loss) on sale of assets 31 36 (139)(1,464)
(LOSS) INCOME FROM OPERATIONS (7,533)129,777 132,584 733,541 
Interest expense, net14,389 13,554 43,143 40,302 
Other expense57 143 171 430 
(Loss) income before income taxes (21,979)116,080 89,270 692,809 
Income tax (benefit) expense(7,018)25,722 19,947 158,679 
NET (LOSS) INCOME$(14,961)$90,358 $69,323 $534,130 
(Loss) earnings per share - Basic$(0.04)$0.22 $0.17 $1.27 
Weighted-average common shares outstanding398,580 412,456 398,500 419,199 
_______________________________________________________________________________
(1)Includes the impact of our performance share awards and restricted stock.

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CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands)September 30,
2020
December 31,
2019
ASSETS  
Current assets$322,552 $568,248 
Properties and equipment, net (Successful efforts method) 4,034,680 3,855,706 
Other assets62,073 63,291 
$4,419,305 $4,487,245 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities$197,928 $241,034 
Current portion of long-term debt188,000 87,000 
Long-term debt, net (excluding current maturities)973,712 1,133,025 
Deferred income taxes 748,489 702,104 
Other liabilities 192,688 172,595 
Stockholders' equity2,118,488 2,151,487 
$4,419,305 $4,487,245 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Quarter Ended 
September 30,
Nine Months Ended 
September 30,
(In thousands)2020201920202019
CASH FLOWS FROM OPERATING ACTIVITIES    
  Net (loss) income$(14,961)$90,358 $69,323 $534,130 
Depreciation, depletion and amortization99,649 110,889 294,406 299,294 
Deferred income tax (benefit) expense(5,576)36,350 46,513 188,997 
(Gain) loss on sale of assets(31)(36)139 1,464 
Exploratory dry hole cost— — 2,011 16 
Loss (gain) on derivative instruments42,253 (11,060)(17,783)(82,966)
Net cash received in settlement of derivative instruments14,106 46,555 33,529 114,931 
Stock-based compensation and other10,741 1,662 34,204 22,720 
Income charges not requiring cash733 754 2,293 4,635 
Changes in assets and liabilities(17,854)(4,598)5,758 99,590 
Net cash provided by operating activities129,060 270,874 470,393 1,182,811 
CASH FLOWS FROM INVESTING ACTIVITIES    
Capital expenditures(147,239)(199,196)(478,422)(620,696)
Proceeds from sale of assets60 55 335 2,401 
Investment in equity method investments— (3,846)(35)(8,977)
Distribution of investment from equity method investments— 898 — 1,656 
Proceeds from sale of equity method investments— — (9,424)— 
Net cash used in investing activities(147,179)(202,089)(487,546)(625,616)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net borrowings (repayments) of debt(59,000)— (59,000)(7,000)
Treasury stock repurchases— (190,808)— (347,446)
Dividends paid(39,857)(37,025)(119,532)(104,722)
Tax withholdings on vesting of stock awards(18)(30)(6,350)(10,587)
Capitalized debt issuance costs— — — (7,411)
Net cash used in financing activities(98,875)(227,863)(184,882)(477,166)
Net (decrease) increase in cash, cash equivalents and restricted cash$(116,994)$(159,078)$(202,035)$80,029 
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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 (Loss) 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 or loss plus gain and loss on sale of assets, gain and loss on derivative instruments, 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 or loss and earnings or loss per share, as defined by GAAP.
Quarter Ended 
September 30,
Nine Months Ended 
September 30,
(In thousands, except per share amounts)2020201920202019
As reported - net (loss) income$(14,961)$90,358 $69,323 $534,130 
Reversal of selected items:    
(Gain) loss on sale of assets(31)(36)139 1,464 
Loss on derivative instruments(1)
56,359 35,495 15,746 31,965 
Stock-based compensation expense11,372 2,119 35,956 23,972 
Severance expense— 398 — 2,521 
Interest expense related to income tax reserves— — — (3,052)
Tax effect on selected items(15,442)(8,672)(11,825)(12,986)
Adjusted net income$37,297 $119,662 $109,339 $578,014 
As reported - (loss) earnings per share$(0.04)$0.22 $0.17 $1.27 
Per share impact of selected items0.13 0.07 0.10 0.11 
Adjusted earnings per share $0.09 $0.29 $0.27 $1.38 
Weighted-average common shares outstanding398,580 412,456 398,500 419,199 
_______________________________________________________________________________
(1)This amount represents the non-cash mark-to-market changes of our commodity derivative instruments recorded in (Loss) gain on derivative instruments in the Condensed Consolidated Statement of Operations.
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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 or loss, as defined by GAAP.
Twelve Months Ended September 30,
(In thousands)20202019
Interest expense, net$57,793 $55,926 
Interest expense related to income tax reserves (1)
— 3,590 
Tax benefit(13,183)(13,590)
After-tax interest expense, net (A)44,610 45,926 
As reported - net income216,263 809,174 
Adjustments to as reported - net income, net of tax13,826 4,622 
Adjusted net income (B)230,089 813,796 
Adjusted net income before interest expense, net (A + B)$274,699 $859,722 
Total debt - beginning of twelve month period$1,219,790 $1,285,848 
Stockholders’ equity - beginning of twelve month period2,213,576 2,094,147 
Capital employed - beginning of twelve month period3,433,366 3,379,995 
Total debt - end of twelve month period1,161,712 1,219,790 
Stockholders’ equity - end of twelve month period2,118,488 2,213,576 
Capital employed - end of twelve month period3,280,200 3,433,366 
Average capital employed (C)$3,356,783 $3,406,681 
Return on average capital employed (ROCE) (A + B) / C8.2 %25.2 %
_______________________________________________________________________________
(1)Interest expense related to income tax reserves is included in the adjustments to as reported - net income, net of tax.

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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, return capital to shareholders through dividends and share repurchases, 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 or net income or loss, 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 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 or net income or loss, as defined by GAAP, or as a measure of liquidity.
Quarter Ended 
September 30,
Nine Months Ended 
September 30,
(In thousands)2020201920202019
Net cash provided by operating activities$129,060 $270,874 $470,393 $1,182,811 
Changes in assets and liabilities17,854 4,598 (5,758)(99,590)
Discretionary cash flow146,914 275,472 464,635 1,083,221 
Capital expenditures(147,239)(199,196)(478,422)(620,696)
Investment in equity method investments— (3,846)(35)(8,977)
Free cash flow$(325)$72,430 $(13,822)$453,548 

EBITDAX Calculation and Reconciliation
    
EBITDAX is defined as net income or loss plus interest expense, other expense, income tax expense and benefit, 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 or loss, as defined by GAAP, or as a measure of liquidity.
Quarter Ended 
September 30,
Nine Months Ended 
September 30,
(In thousands)2020201920202019
Net (loss) income$(14,961)$90,358 $69,323 $534,130 
Plus (less):
Interest expense, net14,389 13,554 43,143 40,302 
Other expense57 143 171 430 
Income tax (benefit) expense(7,018)25,722 19,947 158,679 
Depreciation, depletion and amortization 99,649 110,889 294,406 299,294 
Exploration 3,900 4,481 10,669 15,029 
(Gain) loss on sale of assets(31)(36)139 1,464 
Non-cash gain (loss) on derivative instruments56,359 35,495 15,746 31,965 
(Earnings) loss on equity method investments— (3,860)59 (11,194)
Equity method investment distributions— 4,758 — 14,266 
Stock-based compensation11,372 2,119 35,956 23,972 
EBITDAX$163,716 $283,623 $489,559 $1,108,337 
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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,
2020
December 31,
2019
Current portion of long-term debt$188,000 $87,000 
Long-term debt, net973,712 1,133,025 
Total debt$1,161,712 $1,220,025 
Stockholders’ equity2,118,488 2,151,487 
Total capitalization$3,280,200 $3,371,512 
Total debt$1,161,712 $1,220,025 
Less: Cash and cash equivalents(170)(200,227)
Net debt$1,161,542 $1,019,798 
Net debt$1,161,542 $1,019,798 
Stockholders’ equity2,118,488 2,151,487 
Total adjusted capitalization$3,280,030 $3,171,285 
Total debt to total capitalization ratio35.4 %36.2 %
Less: Impact of cash and cash equivalents— %4.0 %
Net debt to adjusted capitalization ratio35.4 %32.2 %
Capital Expenditures
Quarter Ended 
September 30,
Nine Months Ended 
September 30,
(In thousands)2020201920202019
Cash paid for capital expenditures$147,239 $199,196 $478,422 $620,696 
Change in accrued capital costs(18,883)(1,732)(12,486)1,436 
Exploratory dry hole cost— — (2,011)(16)
Capital expenditures$128,356 $197,464 $463,925 $622,116 

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