NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation and Nature of Operations
Cabot Oil & Gas Corporation and its subsidiaries (the Company) are engaged in the development, exploitation, exploration, production and marketing of natural gas, and to a lesser extent oil and NGLs, exclusively within the continental United States. The Company's exploration and development activities are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs.
The Company operates in
one
segment, natural gas and oil development, exploitation, exploration and production. The Company's oil and gas properties are managed as a whole rather than through discrete operating segments or business units. Operational information is tracked by geographic area; however, financial performance is assessed as a single enterprise and not on a geographic basis. Allocation of resources is made on a project basis across the Company's entire portfolio without regard to geographic areas.
The consolidated financial statements include the accounts of the Company and its subsidiaries after eliminating all significant intercompany balances and transactions. Certain reclassifications have been made to prior year statements to conform with the current year presentation. These reclassifications have no impact on previously reported stockholders' equity, net income (loss) or cash flows.
Recently Adopted Accounting Pronouncements
Revenue Recognition.
In May 2014, the Financial Accounting Standards Boards (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (Accounting Standards Codification (ASC) 606, as subsequently amended). ASC 606 supersedes the revenue recognition requirements in Topic 605 Revenue Recognition (ASC 605), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective transition method.
The adoption of ASC 606 also included the adoption and modification of other guidance, particularly the creation of ASC 340-40 on costs to obtain or fulfill contracts with customers and ASC 610-20 on gains or losses on derecognition of nonfinancial assets. ASC 340-40 provides additional capitalization, amortization and impairment guidance for certain costs associated with obtaining or fulfilling contracts subject to ASC 606. ASC 610-20 provides guidance on the measurement and recognition of gains and losses for disposals of assets that are not the outputs of ordinary activities, such as sales of fixed assets, when they are not businesses or deconsolidation of subsidiaries. The guidance in ASC 610-20 largely aligns with the guidance in ASC 606. It also supersedes most guidance on real estate sales that was contained in ASC 360-20; however, it does not apply to conveyances of oil and gas interests, which continue to be governed by guidance in ASC 932 for oil and gas extractive activities.
There was no material effect from the adoption of ASC 340-40 or ASC 610-20 separate from those discussed from the adoption of ASC 606.
Financial Instruments.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall, as an amendment to ASC Subtopic 825-10. The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Among other items, this update will simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. This impairment assessment reduces the complexity of the other-than-temporary impairment guidance that entities follow currently. The Company adopted ASU 2016-01 as of January 1, 2018. The adoption of this guidance did not have a material effect on the Company's financial position, results of operation or cash flows.
Statement of Cash Flows.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance addresses eight specific cash flow issues for which current accounting guidance is either unclear or does not include specific guidance. The Company adopted this guidance effective January 1, 2018. In conjunction with the adoption, the Company made an accounting policy election to classify distributions it receives from its equity method investees using the cumulative earnings approach in which distributions received are classified as a return on investment (cash inflows from operating activities) unless the investor's cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor. When such an excess
occurs, the current-period distribution up to this excess should be considered a return of investment (cash inflows from investing activities). The adoption of this guidance did not have a material effect on the Company's cash flows.
Accumulated Other Comprehensive Income
. In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides for the reclassification of the stranded tax effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income (AOCI) to retained earnings from the U.S. enacted tax legislation referred to as the Tax Cuts and Jobs Act (the Tax Act). The amendment also includes disclosure requirements regarding an entity's accounting policy for releasing income tax effects from AOCI. The Company elected to early adopt this guidance as of January 1, 2018. The Company had
$0.4 million
of net stranded income tax effects in AOCI within the Consolidated Balance Sheet as a result of the lower U.S. federal corporate tax rate due to the enactment of the Tax Act. The net amount of stranded income tax effects within AOCI was determined under the portfolio approach and was derived from the deferred tax balances on the Company's post-retirement benefit plan. The adoption of the guidance resulted in the transfer of
$0.4 million
of net stranded income tax effects out of AOCI and into retained earnings with no impact to total stockholders' equity or results of operations.
Recently Issued Accounting Pronouncements
Leases.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. This ASU does not apply to leases to explore for or use minerals, oil, natural gas and similar nonregenerative resources, including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities with an optional transition method that permits an entity to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The guidance is effective for interim and annual periods beginning after December 15, 2018. This ASU is to be adopted using a modified retrospective approach. The Company plans to adopt this guidance effective January 1, 2019 by applying the optional transition approach as of the beginning of the period of adoption. Comparative periods, including the disclosures related to those periods, will not be restated.
The Company plans to make use of the following practical expedients which are provided in the leases standard:
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•
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an election not to apply the recognition requirements in the leases standard to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise);
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•
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a package of practical expedients to not reassess whether a contract is or contains a lease, lease classification and initial direct costs;
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•
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a practical expedient to use hindsight when determining the lease term;
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•
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a practical expedient that permits combining lease and non-lease components in a contract and accounting for the combination as a lease (elected by asset class); and
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•
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a practical expedient to not reassess certain land easements in existence prior to January 1, 2019.
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On the adoption date, the Company expects to recognize a right of use asset for operating leases and an operating lease liability of between
$40.0 million
and
$60.0 million
, representing the present value of the minimum payment obligations associated with office leases, drilling rig commitments, surface use agreements and other leases. The Company does not expect the adoption of this guidance to have a material effect on its results of operations or cash flows.
Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with a maturity of three months or less and deposits in money market funds that are readily convertible to cash to be cash equivalents. Cash and cash equivalents were primarily concentrated in
one
financial institution at
December 31, 2018
. The Company periodically assesses the financial condition of its financial institutions and considers any possible credit risk to be minimal.
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts for receivables that the Company determines to be uncollectible based on the specific identification method.
Inventories
Inventories are comprised of tubular goods and well equipment and are carried at average cost.
Equity Method Investments
The Company accounts for its investments in entities over which the Company has significant influence, but not control, using the equity method of accounting. Under the equity method of accounting, the Company increases its investment for contributions made and records its proportionate share of net earnings, declared dividends and partnership distributions based on the most recently available financial statements of the investee. The Company records the activity for its equity method investments on a one month lag. In addition, the Company evaluates its equity method investments for potential impairment whenever events or changes in circumstances indicate that there is a decline in the value of the investment.
Properties and Equipment
The Company uses the successful efforts method of accounting for oil and gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves are capitalized.
Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. The determination is based on a process which relies on interpretations of available geologic, geophysical, and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to exploration expense in the Consolidated Statement of Operations in the period the determination is made. If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending determination of whether reserves have been found only as long as: (i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made and (ii) drilling of an additional exploratory well is under way or firmly planned for the near future. If drilling in the area is not under way or firmly planned, or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired and its costs are charged to exploration expense.
Development costs of proved oil and gas properties, including estimated dismantlement, restoration and abandonment costs and acquisition costs, are depreciated and depleted on a field basis by the units-of-production method using proved developed and proved reserves, respectively. Properties related to gathering and pipeline systems and equipment are depreciated using the straight-line method based on estimated useful lives ranging from
10
to
25
years. Buildings are depreciated on a straight-line basis over
25
to
40
years. Certain other assets are depreciated on a straight-line basis over
3
to
10
years.
Costs of sold or abandoned properties that make up a part of an amortization base (partial field) remain in the amortization base if the units-of-production rate is not significantly affected. If significant, a gain or loss, if any, is recognized and the sold or abandoned properties are retired. A gain or loss, if any, is also recognized when a group of proved properties (entire field) that make up the amortization base has been retired, abandoned or sold.
The Company evaluates its proved oil and gas properties for impairment whenever events or changes in circumstances indicate an asset's carrying amount may not be recoverable. The Company compares expected undiscounted future cash flows to the net book value of the asset. If the future undiscounted expected cash flows, based on estimates of future commodity prices, operating costs and anticipated production from proved reserves and risk-adjusted probable and possible reserves, are lower than the net book value of the asset, the capitalized cost is reduced to fair value. Commodity pricing is estimated by using a combination of assumptions management uses in its budgeting and forecasting process as well as historical and current prices adjusted for geographical location and quality differentials, as well as other factors that management believes will impact realizable prices. Fair value is calculated by discounting the future cash flows. The discount factor used is based on rates utilized by market participants that are commensurate with the risks inherent in the development and production of the underlying natural gas and oil.
Unproved oil and gas properties are assessed periodically for impairment on an aggregate basis through periodic updates to the Company's undeveloped acreage amortization based on past drilling and exploration experience, the Company's expectation of converting leases to held by production and average property lives. Average property lives are determined on a geographical basis and based on the estimated life of unproved property leasehold rights. During
2018
,
2017
and
2016
, amortization associated with the Company's unproved properties was
$82.3 million
,
$52.8 million
and
$25.0 million
, respectively, and is included in depreciation, depletion, and amortization in the Consolidated Statement of Operations.
Asset Retirement Obligations
The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset. The asset retirement costs are depreciated using the units-of-production method. At December 31,
2018
, there were
no
assets legally restricted for purposes of settling asset retirement obligations.
Additional retirement obligations increase the liability associated with new oil and gas wells and other facilities as these obligations are incurred. Accretion expense is included in depreciation, depletion and amortization expense in the Consolidated Statement of Operations.
Derivative Instruments
The Company enters into financial derivative contracts, primarily swaps, collars and basis swaps, to manage its exposure to price fluctuations on a portion of its anticipated future production volumes. The Company’s credit agreement restricts the ability of the Company to enter into commodity derivatives other than to hedge or mitigate risks to which the Company has actual or projected exposure or as permitted under the Company’s risk management policies and where such derivatives do not subject the Company to material speculative risks. All of the Company’s derivatives are used for risk management purposes and are not held for trading purposes. We have elected not to designate our financial derivative instruments as accounting hedges under the accounting guidance.
The Company evaluates all of its physical purchase and sale contracts to determine if they meet the definition of a derivative. For contracts that meet the definition of a derivative, the Company may elect the normal purchase normal sale (NPNS) exception provided under the accounting guidance and account for the contract using the accrual method of accounting. Contracts that do not qualify for or for which the Company elects not to apply the NPNS exception are accounted for at fair value.
All derivatives, except for derivatives that qualify for the NPNS exception, are recognized on the balance sheet and are measured at fair value. At the end of each quarterly period, these derivatives are marked to market. As a result, changes in the fair value of derivatives are recognized in operating revenues in gain (loss) on derivative instruments. The resulting cash flows are reported as cash flows from operating activities.
Fair Value of Assets and Liabilities
The Company follows the authoritative accounting guidance for measuring fair value of assets and liabilities in its financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The Company is able to classify fair value balances based on the observability of these inputs. The authoritative guidance for fair value measurements establishes three levels of the fair value hierarchy, defined as follows:
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Level 1: Unadjusted, quoted prices for identical assets or liabilities in active markets.
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•
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Level 2: Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly for substantially the full term of the asset or liability.
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•
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Level 3: Significant, unobservable inputs for use when little or no market data exists, requiring a significant degree of judgment.
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The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements. Depending on the particular asset or liability, input availability can vary depending on factors such as product type, longevity of a product in the market and other particular transaction conditions. In some cases, certain inputs used to measure fair value may be categorized into different levels of the fair value hierarchy. For disclosure purposes under the accounting guidance, the lowest level that contains significant inputs used in the valuation should be chosen.
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, and the related guidance in ASC 340-40 (the new revenue standard), and related guidance on gains and losses on derecognition of nonfinancial assets ASC 610-20, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Under the modified retrospective method, the Company recognizes the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings; however, no significant adjustment was required as a result of adopting the new revenue standard. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard. The comparative information has not been restated and continues to be reported under the historic accounting standards in effect for those periods. The impact of the adoption of the new revenue standard is expected to be immaterial to the Company’s net income on an ongoing basis.
The Company’s revenue is typically generated from contracts to sell natural gas, crude oil or NGLs produced from interests in oil and gas properties owned by the Company. These contracts generally require the Company to deliver a specific amount of a commodity per day for a specified number of days at a price that is either fixed or variable. The contracts specify a delivery point which represents the point at which control of the product is transferred to the customer. These contracts frequently meet the definition of a derivative under ASC 815, and are accounted for as derivatives unless the Company elects to treat them as normal sales as permitted under that guidance. The Company typically elects to treat contracts to sell oil and gas production as normal sales, which are then accounted for as contracts with customers. The Company has determined that these contracts represent multiple performance obligations which are satisfied when control of the commodity transfers to the customer, typically through the delivery of the specified commodity to a designated delivery point.
Revenue is measured based on consideration specified in the contract with the customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue in the amount that reflects the consideration it expects to be entitled to in exchange for transferring control of those goods to the customer. The contract consideration in the Company’s variable price contracts are typically allocated to specific performance obligations in the contract according to the price stated in the contract. Amounts allocated in the Company’s fixed price contracts are based on the standalone selling price of those products in the context of long-term, fixed price contracts, which generally approximates the contract price. Payment is generally received one or two months after the sale has occurred.
Gain or loss on derivative instruments is outside the scope of ASC 606 and is not considered revenue from contracts with customers subject to ASC 606. The Company may use financial or physical contracts accounted for as derivatives as economic hedges to manage price risk associated with normal sales, or in limited cases may use them for contracts the Company intends to physically settle but do not meet all of the criteria to be treated as normal sales.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from revenue.
Producer Gas Imbalances.
The Company applies the sales method of accounting for natural gas revenue. Under this method, revenues are recognized based on the actual volume of natural gas sold to purchasers. Natural gas production operations may include joint owners who take more or less than the production volumes entitled to them on certain properties. Production volume is monitored to minimize these natural gas imbalances. Under this method, a natural gas imbalance liability is recorded if the Company's excess takes of natural gas exceed its estimated remaining proved developed reserves for these properties at the actual price realized upon the gas sale. A receivable is recognized only to the extent an imbalance cannot be recouped from the reserves in the underlying properties. The Company’s aggregate imbalance positions at
December 31, 2018
and
2017
were not material.
Brokered Natural Gas.
Revenues and expenses related to brokered natural gas are reported gross as part of operating revenues and operating expenses in accordance with applicable accounting standards. The Company buys and sells natural gas utilizing separate purchase and sale transactions whereby the Company or the counterparty obtains control of the natural gas purchased or sold.
Disaggregation of Revenue.
The following table presents revenues disaggregated by product:
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Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
(1)
|
|
2016
(1)
|
OPERATING REVENUES
|
|
|
|
|
|
Natural gas
|
$
|
1,881,150
|
|
|
$
|
1,506,078
|
|
|
$
|
1,022,590
|
|
Crude oil and condensate
|
48,722
|
|
|
212,338
|
|
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151,106
|
|
Brokered natural gas
|
209,530
|
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17,217
|
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|
13,569
|
|
Other
|
4,314
|
|
|
11,660
|
|
|
7,362
|
|
Total revenues from contracts with customers
|
2,143,716
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|
1,747,293
|
|
|
1,194,627
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|
Gain (loss) on derivative instruments
|
44,432
|
|
|
16,926
|
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|
(38,950
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)
|
Total operating revenues
|
$
|
2,188,148
|
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|
$
|
1,764,219
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$
|
1,155,677
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_______________________________________________________________________________
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(1)
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As noted above, prior period amounts have not been adjusted under the modified retrospective method.
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All of the Company’s revenues from contracts with customers represent products transferred at a point in time as control is transferred to the customer and are generated in the United States.
Transaction Price Allocated to Remaining Performance Obligations.
A significant number of the Company’s product sales are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
As of
December 31, 2018
, the Company has
$10.1 billion
of unsatisfied performance obligations related to natural gas sales that have a fixed pricing component and a contract term greater than one year. The Company expects to recognize these obligations over periods ranging from
5
to
20
years.
Contract Balances.
Receivables from contracts with customers are recorded when the right to consideration becomes unconditional, generally when control of the product has been transferred to the customer. Receivables from contracts with customers were
$363.0 million
and
$215.5 million
as of
December 31, 2018
and
2017
, respectively, and are reported in accounts receivable, net on the Consolidated Balance Sheet. The Company currently has no assets or liabilities related to its revenue contracts, including no upfront or rights to deficiency payments.
Practical Expedients.
The Company has made use of certain practical expedients in adopting the new revenue standard, including the value of unsatisfied performance obligations are not disclosed for (i) contracts with an original expected length of one year or less, (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice, (iii) contracts with variable consideration which is allocated entirely to a wholly unsatisfied performance obligation and meets the variable allocation criteria in the standard and (iv) only contracts that are not completed at transition.
The Company has not adjusted the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.
The Company follows the “equity first” approach when applying the limitation for certain executive compensation in excess of $1 million to future compensation. The limitation is first applied to stock-based compensation that vests in future tax years before considering cash compensation paid in a future period. Accordingly, the Company records a deferred tax asset for stock-based compensation expense recorded in the current period, and reverses the temporary difference in the future period, during which the stock-based compensation becomes deductible for tax purposes.
The Company is required to make judgments, including estimating reserves for potential adverse outcomes regarding tax positions that the Company has taken. The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than
50 percent
likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management's estimates of the ultimate outcome of various tax uncertainties.
The Company recognizes accrued interest related to uncertain tax positions in interest expense and accrued penalties related to such positions in general and administrative expense in the Consolidated Statement of Operations.
Stock-Based Compensation
The Company accounts for stock-based compensation under the fair value method of accounting. Under this method, compensation cost is measured at the grant date for equity-classified awards and remeasured each reporting period for liability-classified awards based on the fair value of an award and is recognized over the service period, which is generally the vesting period. To calculate fair value, the Company uses either a Monte Carlo or Black-Scholes valuation model depending on the specific provisions of the award. Stock-based compensation cost for all types of awards is included in general and administrative expense in the Consolidated Statement of Operations.
Effective January 1, 2017, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which requires the Company to record excess tax benefits and tax deficiencies on stock-based compensation in the income statement upon vesting of the respective awards. Prior to the adoption of ASU 2016-09, excess benefits were recorded in additional paid-in capital in the Consolidated Balance Sheet and tax deficiencies reduced additional paid-in capital to the extent they offset previously recorded tax benefits. As a result of the adoption of ASU 2016-09, excess tax benefits and tax deficiencies are included in cash flows from operating activities.
Cash paid by the Company when directly withholding shares from employee stock-based compensation awards for tax-withholding purposes are classified as financing activities in the Consolidated Statement of Cash Flow.
Environmental Matters
Environmental expenditures are expensed or capitalized, as appropriate, depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and that do not have future economic benefit are expensed. Liabilities related to future costs are recorded on an undiscounted basis when environmental assessments and/or remediation activities are probable and the costs can be reasonably estimated. Any insurance recoveries are recorded as assets when received.
Credit and Concentration Risk
Substantially all of the Company's accounts receivable result from the sale of natural gas and oil and joint interest billings to third parties in the oil and gas industry. This concentration of purchasers and joint interest owners may impact the Company's overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. The Company does not anticipate any material impact on its financial results due to non-performance by the third parties.
During the years ended December 31,
2018
,
2017
and
2016
,
three
customers accounted for approximately
20 percent
,
11 percent
and
nine percent
,
two
customers accounted for approximately
18 percent
and
11 percent
and
two
customers accounted for approximately
19 percent
and
10 percent
, respectively, of the Company's total sales. The Company does not believe that the loss of any of these customers would have a material adverse effect because alternative customers are readily available.
Use of Estimates
In preparing financial statements, the Company follows accounting principles generally accepted in the United States. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved natural gas and oil reserves and related cash flow estimates which are used to compute depreciation, depletion and amortization and impairments of proved oil and gas properties. Other significant estimates include natural gas and oil revenues and expenses, fair value of derivative instruments, estimates of expenses related to legal, environmental and other contingencies, asset retirement obligations, postretirement obligations, stock-based compensation and deferred income taxes. Actual results could differ from those estimates.
2. Divestitures
The Company recognized an aggregate net loss on sale of assets of
$16.3 million
,
$11.6 million
and
$1.9 million
for the years ended December 31,
2018
,
2017
and
2016
, respectively.
In July 2018, the Company sold certain proved and unproved oil and gas properties in the Haynesville Shale to a third party for
$30.0 million
. The sales price included a
$5.0 million
deposit that was received in the fourth quarter of 2017. During the fourth quarter of 2017, the Company classified these assets as held for sale. The Company recognized a gain on sale of oil and gas properties of
$29.7 million
.
In February 2018, the Company sold certain proved and unproved oil and gas properties in the Eagle Ford Shale to an affiliate of Venado Oil & Gas LLC for
$765.0 million
. The sales price included a
$76.5 million
deposit that was received in the fourth quarter of 2017. During the fourth quarter of 2017, the Company classified these assets as held for sale and recorded an impairment charge of
$414.3 million
associated with the proposed sale of these properties. The Company recognized a loss on sale of oil and gas properties of
$45.4 million
.
In September 2017, the Company sold certain proved and unproved oil and gas properties and related pipeline assets located in West Virginia, Virginia and Ohio
to
an affiliate of Carbon Natural Gas Company
for
$41.3 million
, and recognized an
$11.9 million
loss on sale of assets. During the second quarter of 2017, the Company had classified these assets as held for sale and recorded an impairment charge of
$68.6 million
associated with the proposed sale of these properties.
In February 2016, the Company completed the divestiture of certain proved and unproved oil and gas properties in east Texas for
$56.4 million
and recognized a
$0.5 million
gain on sale of assets. The purchase price included a
$6.3 million
deposit that was received in the fourth quarter of 2015.
3. Properties and Equipment, Net
Properties and equipment, net are comprised of the following:
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December 31,
|
(In thousands)
|
2018
|
|
2017
|
Proved oil and gas properties
|
$
|
5,717,145
|
|
|
$
|
4,932,512
|
|
Unproved oil and gas properties
|
194,435
|
|
|
190,474
|
|
Gathering and pipeline systems
|
83
|
|
|
1,569
|
|
Land, building and other equipment
|
94,714
|
|
|
82,670
|
|
|
6,006,377
|
|
|
5,207,225
|
|
Accumulated depreciation, depletion and amortization
|
(2,542,771
|
)
|
|
(2,135,021
|
)
|
|
$
|
3,463,606
|
|
|
$
|
3,072,204
|
|
Assets Held for Sale
In December 2017, the Company entered into an agreement to sell certain proved and unproved oil and gas properties in the Haynesville Shale to a third party for
$30.0 million
and classified these assets as held for sale. The Company closed this transaction in July 2018.
In December 2017, the Company entered into an agreement to sell certain proved and unproved oil and gas properties in the Eagle Ford Shale to an affiliate of Venado Oil & Gas LLC for
$765.0 million
and classified these assets as held for sale. The Company closed this transaction in February 2018.
Balance sheet data related to the assets held for sale is as follows:
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2017
|
ASSETS
|
|
|
Inventories
|
|
$
|
1,440
|
|
Properties and equipment, net
|
|
778,855
|
|
|
|
780,295
|
|
LIABILITIES
|
|
|
Accounts payable
|
|
2,352
|
|
Asset retirement obligations
|
|
15,748
|
|
|
|
18,100
|
|
Net assets held for sale
|
|
$
|
762,195
|
|
The assets held for sale as of December 31, 2017 do not qualify for discontinued operations as they do not represent a strategic shift that will have a major effect of the Company's operations or financial results.
Impairment of Oil and Gas Properties
In December 2017, the Company recorded an impairment of
$414.3 million
associated with its Eagle Ford Shale oil and gas properties located in south Texas. The impairment of these properties was due to the anticipated sale of these assets, as demonstrated by the execution of a purchase and sale agreement with a third party on December 19, 2017. These assets were designated as held for sale and were reduced to fair value of approximately
$765.6 million
.
In June 2017, the Company recorded an impairment of
$68.6 million
associated with its proposed sale of oil and gas properties and related pipeline assets located in West Virginia, Virginia and Ohio. These assets were designated as held for sale as of June 30, 2017 and were reduced to fair value of approximately
$37.9 million
.
In December 2016, the Company recorded an impairment of
$435.6 million
associated with oil and gas properties and related pipeline assets located in West Virginia and Virginia. In the fourth quarter of 2016, although oil and natural gas prices had improved since late 2015, the Company performed an impairment test of its West Virginia and Virginia fields because it had then determined that it was more likely than not that the Company would dispose of these assets significantly earlier than their remaining expected useful life. As a result of its step one assessment, which was based on a probability weighted assessment that considered the anticipated disposition of these assets earlier than their remaining expected useful life, the Company determined that these assets were impaired, which resulted in an impairment charge of
$435.6 million
. These assets were reduced to fair value of approximately
$89.2 million
.
The fair value of the impaired assets in 2017 was determined using a market approach that took into consideration the expected sales price included in the respective purchase and sale agreements the Company executed in June and December 2017. Accordingly, the inputs associated with the fair value of these assets were considered Level 3 in the fair value hierarchy. Refer to Note 1 for a description of fair value hierarchy.
The fair value of the impaired assets in 2016 was determined using a market approach that took into consideration the preliminary purchase price included in a draft purchase and sale agreement that was under negotiation with a potential buyer as of December 31, 2016. Accordingly, the inputs associated with the fair value of these assets were considered Level 3 in the fair value hierarchy. Refer to Note 1 for a description of fair value hierarchy.
Capitalized Exploratory Well Costs
The following table reflects the net changes in capitalized exploratory well costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
19,511
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Additions to capitalized exploratory well costs pending the determination of proved reserves
|
—
|
|
|
19,511
|
|
|
—
|
|
Reclassifications to wells, facilities, and equipment based on the determination of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
Capitalized exploratory well costs charged to expense
|
(19,511
|
)
|
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
19,511
|
|
|
$
|
—
|
|
The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Capitalized exploratory well costs that have been capitalized for a period of one year or less
|
$
|
—
|
|
|
$
|
19,511
|
|
|
$
|
—
|
|
Capitalized exploratory well costs that have been capitalized for a period greater than one year
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
19,511
|
|
|
$
|
—
|
|
4. Equity Method Investments
The Company has
two
equity method investments, Constitution Pipeline Company, LLC (Constitution) and Meade Pipeline Co LLC (Meade), which are further described below. Activity related to
these equity method investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constitution
|
|
Meade
|
|
Total
|
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
(In thousands)
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
|
$
|
732
|
|
|
$
|
96,850
|
|
|
$
|
90,345
|
|
|
$
|
85,345
|
|
|
$
|
32,674
|
|
|
$
|
13,172
|
|
|
$
|
86,077
|
|
|
$
|
129,524
|
|
|
$
|
103,517
|
|
Contributions
|
|
500
|
|
|
4,350
|
|
|
8,975
|
|
|
76,763
|
|
|
52,689
|
|
|
19,509
|
|
|
77,263
|
|
|
57,039
|
|
|
28,484
|
|
Distributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,296
|
)
|
|
—
|
|
|
—
|
|
|
(1,296
|
)
|
|
—
|
|
|
—
|
|
Earnings (loss) on equity method investments
|
|
(1,232
|
)
|
|
(100,468
|
)
|
|
(2,470
|
)
|
|
2,369
|
|
|
(18
|
)
|
|
(7
|
)
|
|
1,137
|
|
|
(100,486
|
)
|
|
(2,477
|
)
|
Balance at end of period
|
|
$
|
—
|
|
|
$
|
732
|
|
|
$
|
96,850
|
|
|
$
|
163,181
|
|
|
$
|
85,345
|
|
|
$
|
32,674
|
|
|
$
|
163,181
|
|
|
$
|
86,077
|
|
|
$
|
129,524
|
|
Constitution Pipeline Company, LLC
In April 2012, the Company acquired a
25 percent
equity interest in Constitution, which was formed to develop, construct and operate a
124
-mile large diameter pipeline to transport natural gas from northeast Pennsylvania to both the New England and New York markets. Under the terms of the agreement, the Company agreed to invest its proportionate share of costs associated with the development and construction of the pipeline and related facilities, subject to a contribution cap of
$250 million
.
On April 22, 2016, Constitution announced that the New York State Department of Environmental Conservation (NYSDEC) denied Constitution's application for a Section 401 Water Quality Certification (Certification) for the New York State portion of its proposed
124
-mile route.
Since mid-2016, Constitution has sought relief of NYSDEC’s denial of the Certification by filing petitions in the U.S. Court of Appeals for the Second Circuit, the U.S. District Court for the Northern District of New York and the Federal Energy Regulatory Commission (FERC), all of which have been unsuccessful. On
October 11, 2017, Constitution filed a petition for a declaratory order requesting the FERC to find that, by operation of law, the Section 401 Water Quality Certification requirement for the New York State portion of the pipeline project was waived due to the failure of the NYSDEC to act on Constitution’s application within a reasonable period of time, as required by the Clean Water Act. On January 11, 2018, the FERC denied Constitution’s petition and later denied its subsequent rehearing request. On January 16, 2018, Constitution petitioned the U.S. Supreme Court to review the judgment of the U.S. Court of Appeals for the Second Circuit, which petition was denied on April 30, 2018. On September 14, 2018, Constitution petitioned the U.S. Court of Appeals for the D.C. Circuit to review the FERC’s denial of the petition for declaratory order. On November 5, 2018, the D.C. Circuit ordered that Constitution’s appeal be held in abeyance, pending the disposition of another case with similar issues presented, which was argued to the Court on October 1, 2018. That case,
Hoopa Valley Tribe V. FERC,
was decided by the D.C Circuit on January 25, 2019 in favor of the petitioner, who had asked the Court to find that a state agency had waived its Clean Water Act Section 401 authority by failing to act within a reasonable time and not within the one-year statutory period. The Court held that the petitioner's withdrawal and re-submission of Section 401 Water Quality Certification requests did not trigger new, statutory one-year periods of review for the state agencies. The Court vacated and remanded the underlying orders and ordered the FERC to proceed with its review of petitioner’s hydroelectric license application. Constitution’s appeal remains pending and the impact of the Hoopa Valley case on Constitution’s appeal has not yet been determined. Constitution has stated its intention to continue to pursue this appeal and all available legal challenges to the NYDEC’s denial of the Certification and remains committed to the project. In light of the current status of the remaining litigation and regulatory challenges, Constitution is unable to reasonably estimate its target in-service date.
The Company evaluated its investment in Constitution for other than temporary impairment (OTTI) as of December 31, 2017. The Company’s evaluation considered various factors, including but not limited to prior FERC approval and the related economic viability of the project, the other members’ continued commitment to the project and the preceding legal and regulatory actions. In light of the recent actions taken by the courts and regulators to uphold the NYDEC’s denial of the certification and the Company's estimation of the likelihood of an unfavorable outcome associated with the remaining legal and regulatory challenges, the Company recorded an OTTI of
$95.9 million
in December 2017, reducing its investment in Constitution to its estimated fair value. Fair value was determined using a market approach. The Company will continue to monitor the carrying value of its investment as required.
As of
December 31, 2018
, the Company’s carrying value of its investment in Constitution is less than its proportionate share of Constitution’s net assets by
$95.9 million
. This basis difference is due to the Company’s impairment recorded in the fourth quarter of 2017 and relates entirely to the pipeline assets of Constitution. The Company expects to amortize this basis difference once the related assets of Constitution are placed in service, which may or may not occur, depending on the outcome of the legal and regulatory process.
At this time, the Company remains committed to funding the project in an amount in proportion to its ownership interest for the duration of the remaining legal and regulatory challenges and if successful, the development and construction of the new pipeline.
Meade Pipeline Co LLC
In February 2014, the Company acquired a
20 percent
equity interest in Meade, which was formed to participate in the development and construction of the Central Penn Line, a
177
-mile pipeline operated by Transcontinental Gas Pipe Line Company, LLC (Transco) that transports natural gas from Susquehanna County, Pennsylvania to an interconnect with Transco’s mainline in Lancaster County, Pennsylvania. The Central Penn Line is owned by Transco and Meade in proportion to their respective ownership percentages of approximately
61 percent
and
39 percent
, respectively. The FERC authorized the construction of the new pipeline on February 3, 2017 and the Central Penn Line was placed into service on October 6, 2018.
On August 14, 2018, the Company entered into a precedent agreement with Transco for up to
250,000
Dth per day of firm transportation capacity on Transco's proposed Leidy South expansion project. The Company will also be participating as an equity owner in the expansion project through its ownership in Meade and expects to contribute approximately
$17.1 million
, its proportionate share of the anticipated costs of the expansion project over the next three years. The expansion project is anticipated to be in-service as early as the fourth quarter of 2021, assuming all necessary regulatory approvals are received in a timely manner and construction proceeds on schedule.
5. Debt and Credit Agreements
The Company's debt and credit agreements consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2018
|
|
2017
|
Total debt
|
|
|
|
6.51% weighted-average senior notes
(1)
|
$
|
124,000
|
|
|
$
|
361,000
|
|
9.78% senior notes
(2)
|
—
|
|
|
67,000
|
|
5.58% weighted-average senior notes
|
175,000
|
|
|
175,000
|
|
3.65% weighted-average senior notes
|
925,000
|
|
|
925,000
|
|
Revolving credit facility
|
7,000
|
|
|
—
|
|
Unamortized debt issuance costs
|
(4,896
|
)
|
|
(6,109
|
)
|
|
$
|
1,226,104
|
|
|
$
|
1,521,891
|
|
_______________________________________________________________________________
|
|
(1)
|
Includes
$237.0 million
of current portion of long-term debt at
December 31,
2017
.
|
|
|
(2)
|
Includes
$67.0 million
of current portion of long-term debt at
December 31,
2017
.
|
The Company has debt maturities of
$87.0 million
due in 2020,
$188.0 million
due in 2021 and
$62.0 million
due in 2023 associated with its senior notes. In addition, the revolving credit facility matures in April
2020
. No other tranches of debt are due within the next five years.
At December 31,
2018
, the Company was in compliance with all restrictive financial covenants for both its revolving credit facility and senior notes.
Senior Notes
The Company has various issuances of senior notes. Interest on each of the senior notes is payable semi-annually. Under the terms of the various senior note agreements, the Company may prepay all or any portion of the notes of each series on any date at a price equal to the principal amount thereof plus accrued and unpaid interest plus a make-whole premium.
The Company's agreements provide that the Company maintain a minimum asset coverage ratio of
1.75
to 1.0 and a minimum annual coverage ratio of consolidated cash flow to interest expense for the trailing
four
quarters of
2.8
to 1.0. There are also various other covenants and events of default customarily found in such debt instruments.
6.51% Weighted-Average Senior Notes
In July 2008, the Company issued
$425.0 million
of senior unsecured notes to a group of
41
institutional investors in a private placement. The notes have bullet maturities and were issued in
three
separate tranches as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Term
|
|
Maturity
Date
|
|
Coupon
|
Tranche 1
|
$
|
245,000,000
|
|
|
10 years
|
|
July 2018
|
|
6.44
|
%
|
Tranche 2
|
$
|
100,000,000
|
|
|
12 years
|
|
July 2020
|
|
6.54
|
%
|
Tranche 3
|
$
|
80,000,000
|
|
|
15 years
|
|
July 2023
|
|
6.69
|
%
|
In May 2016, the Company repurchased
$8.0 million
of Tranche 1,
$13.0 million
of Tranche 2 and
$43.0 million
of Tranche 3 for a total of
$64.0 million
for
$68.3 million
. The Company recognized a
$4.7 million
extinguishment loss
associated with the premium paid and the write-off of a portion of the related deferred financing costs due to early repayment
.
As of
December 31, 2018
, the Company has repaid
$301.0 million
of aggregate principal amount associated with the 6.51% weighted-average senior notes.
5.58% Weighted-Average Senior Notes
In December 2010, the Company issued
$175.0 million
of senior unsecured notes to a group of
eight
institutional investors in a private placement. The notes have bullet maturities and were issued in
three
separate tranches as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Term
|
|
Maturity
Date
|
|
Coupon
|
Tranche 1
|
$
|
88,000,000
|
|
|
10 years
|
|
January 2021
|
|
5.42
|
%
|
Tranche 2
|
$
|
25,000,000
|
|
|
12 years
|
|
January 2023
|
|
5.59
|
%
|
Tranche 3
|
$
|
62,000,000
|
|
|
15 years
|
|
January 2026
|
|
5.80
|
%
|
3.65% Weighted‑Average Senior Notes
In September 2014, the Company issued
$925.0 million
of senior unsecured notes to a group of
24
institutional investors in a private placement. The notes have bullet maturities and were issued in
three
separate tranches as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Term
|
|
Maturity
Date
|
|
Coupon
|
Tranche 1
|
$
|
100,000,000
|
|
|
7 years
|
|
September 2021
|
|
3.24
|
%
|
Tranche 2
|
$
|
575,000,000
|
|
|
10 years
|
|
September 2024
|
|
3.67
|
%
|
Tranche 3
|
$
|
250,000,000
|
|
|
12 years
|
|
September 2026
|
|
3.77
|
%
|
Revolving Credit Agreement
The Company's revolving credit facility is unsecured. The borrowing base is redetermined annually under the terms of the revolving credit facility on April 1. In addition, either the Company or the banks may request an interim redetermination twice a year or in conjunction with certain acquisitions or sales of oil and gas properties. Effective
April 18, 2018
, the Company’s borrowing base
and available commitments were reaffirmed at
$3.2 billion
and
$1.7 billion
, respectively. The Company's revolving credit facility matures in April
2020
.
Interest rates under the revolving credit facility are based on
LIBOR
or
ABR
indications, plus a margin which ranges from
50
to
225
basis points, as defined in the agreement
. The revolving credit facility also provides for a commitment fee on the unused available balance at annual rates ranging from
0.30 percent
to
0.50 percent
.
The revolving credit facility contains various other customary covenants, which include the following (with all calculations based on definitions contained in the agreement):
|
|
(a)
|
Maintenance of a minimum asset coverage ratio of
1.75
to 1.0.
|
|
|
(b)
|
Maintenance of a minimum annual coverage ratio of consolidated cash flow to interest expense for the trailing
four
quarters of
2.8
to 1.0.
|
|
|
(c)
|
Maintenance of a minimum current ratio of
1.0
to 1.0.
|
At
December 31, 2018
, the Company had
$7.0 million
of borrowings outstanding under its revolving credit facility and had unused commitments of
$1.8 billion
. The Company's weighted-average effective interest rate for the revolving credit facility during the year ended December 31,
2018
and
2016
was approximately
6.3 percent
and
2.3 percent
, respectively. There were no outstanding borrowings during 2017.
6. Derivative Instruments
As of
December 31, 2018
, the Company had the following outstanding financial commodity derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
Basis Swaps
|
Type of Contract
|
|
Volume (Mmbtu)
|
|
Contract Period
|
|
Weighted- Average ($/Mmbtu)
|
|
Weighted- Average ($/Mmbtu)
|
Natural gas (IFERC TRANSCO Z6 non-NY)
|
|
10,950,000
|
|
|
Jan. 2019 - Dec. 2019
|
|
|
|
|
$
|
0.41
|
|
Natural gas (IFERC TRANSCO Z6 non-NY)
|
|
11,700,000
|
|
|
Jan. 2019 - Mar. 2019
|
|
$
|
7.38
|
|
|
|
Natural gas (IFERC TRANSCO Leidy Line Receipts)
|
|
54,750,000
|
|
|
Jan. 2019 - Dec. 2019
|
|
|
|
|
$
|
(0.53
|
)
|
Natural gas (NYMEX)
|
|
4,500,000
|
|
|
Jan. 2019 - Mar. 2019
|
|
$
|
4.31
|
|
|
|
Natural gas (NYMEX)
|
|
10,700,000
|
|
|
Apr. 2019 - Oct. 2019
|
|
$
|
2.75
|
|
|
|
Natural gas (NYMEX)
|
|
109,500,000
|
|
|
Jan. 2019 - Dec. 2019
|
|
$
|
3.13
|
|
|
|
In early 2019, we entered into the following financial commodity derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
Type of Contract
|
|
Volume (Mmbtu)
|
|
Contract Period
|
|
Weighted- Average ($/Mmbtu)
|
Natural gas (NYMEX)
|
|
42,800,000
|
|
Apr. 2019 - Oct. 2019
|
|
$
|
2.86
|
|
Effect of Derivative Instruments on the Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
|
December 31,
|
|
December 31,
|
(In thousands)
|
|
Balance Sheet Location
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Commodity contracts
|
|
Derivative instruments (current)
|
|
$
|
57,665
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,637
|
|
Commodity contracts
|
|
Derivative instruments (non-current)
|
|
—
|
|
|
2,239
|
|
|
—
|
|
|
—
|
|
|
|
|
|
$
|
57,665
|
|
|
$
|
2,239
|
|
|
$
|
—
|
|
|
$
|
30,637
|
|
Offsetting of Derivative Assets and Liabilities in the Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2018
|
|
2017
|
Derivative assets
|
|
|
|
|
|
|
Gross amounts of recognized assets
|
|
$
|
60,105
|
|
|
$
|
2,239
|
|
Gross amounts offset in the statement of financial position
|
|
(2,440
|
)
|
|
—
|
|
Net amounts of assets presented in the statement of financial position
|
|
57,665
|
|
|
2,239
|
|
Gross amounts of financial instruments not offset in the statement of financial position
|
|
—
|
|
|
—
|
|
Net amount
|
|
$
|
57,665
|
|
|
$
|
2,239
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
Gross amounts of recognized liabilities
|
|
$
|
2,440
|
|
|
$
|
30,637
|
|
Gross amounts offset in the statement of financial position
|
|
(2,440
|
)
|
|
—
|
|
Net amounts of liabilities presented in the statement of financial position
|
|
—
|
|
|
30,637
|
|
Gross amounts of financial instruments not offset in the statement of financial position
|
|
—
|
|
|
241
|
|
Net amount
|
|
$
|
—
|
|
|
$
|
30,878
|
|
Effect of Derivative Instruments on the Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2018
|
|
2017
|
|
2016
|
Cash received (paid) on settlement of derivative instruments
|
|
|
|
|
|
|
Gain (loss) on derivative instruments
|
|
$
|
(41,631
|
)
|
|
$
|
8,056
|
|
|
$
|
(1,682
|
)
|
Non-cash gain (loss) on derivative instruments
|
|
|
|
|
|
|
Gain (loss) on derivative instruments
|
|
86,063
|
|
|
8,870
|
|
|
(37,268
|
)
|
|
|
$
|
44,432
|
|
|
$
|
16,926
|
|
|
$
|
(38,950
|
)
|
Additional Disclosures about Derivative Instruments
The use of derivative instruments involves the risk that the counterparties will be unable to meet their obligations under the agreements. The Company's counterparties are primarily commercial banks and financial service institutions that management believes present minimal credit risk and its derivative contracts are with multiple counterparties to minimize its exposure to any individual counterparty. The Company performs both quantitative and qualitative assessments of these counterparties based on their credit ratings and credit default swap rates where applicable.
Certain counterparties to the Company's derivative instruments are also lenders under its revolving credit facility. The Company's revolving credit facility and derivative instruments contain certain cross default and acceleration provisions that may require immediate payment of its derivative liabilities in certain situations. The Company also has netting arrangements with each of its counterparties that allow it to offset assets and liabilities from separate derivative contracts with that counterparty.
7. Fair Value Measurements
Financial Assets and Liabilities
The following fair value hierarchy table presents information about the Company's financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance at
December 31,
2018
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
14,699
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,699
|
|
Derivative instruments
|
—
|
|
|
35,689
|
|
|
24,416
|
|
|
60,105
|
|
Total assets
|
$
|
14,699
|
|
|
$
|
35,689
|
|
|
$
|
24,416
|
|
|
$
|
74,804
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
25,780
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,780
|
|
Derivative instruments
|
—
|
|
|
—
|
|
|
2,440
|
|
|
2,440
|
|
Total liabilities
|
$
|
25,780
|
|
|
$
|
—
|
|
|
$
|
2,440
|
|
|
$
|
28,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance at December 31, 2017
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
14,966
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,966
|
|
Derivative instruments
|
—
|
|
|
—
|
|
|
2,239
|
|
|
2,239
|
|
Total assets
|
$
|
14,966
|
|
|
$
|
—
|
|
|
$
|
2,239
|
|
|
$
|
17,205
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
29,145
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,145
|
|
Derivative instruments
|
—
|
|
|
—
|
|
|
30,637
|
|
|
30,637
|
|
Total liabilities
|
$
|
29,145
|
|
|
$
|
—
|
|
|
$
|
30,637
|
|
|
$
|
59,782
|
|
The Company's investments associated with its deferred compensation plan consist of mutual funds and deferred shares of the Company's common stock that are publicly traded and for which market prices are readily available.
The derivative instruments were measured based on quotes from the Company's counterparties or internal models. Such quotes and models have been derived using an income approach that considers various inputs including current market and contractual prices for the underlying instruments, quoted forward commodity prices, basis differentials, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. Estimates are derived from or verified using relevant NYMEX futures contracts and/or are compared to multiple quotes obtained from counterparties for reasonableness. The determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The Company measured the non-performance risk of its counterparties by reviewing credit default swap spreads for the various financial institutions with which it has derivative transactions while non-performance risk of the Company is evaluated using a market credit spread provided by the Company's bank. The Company has not incurred any losses related to non-performance risk of its counterparties and does not anticipate any material impact on its financial results due to non-performance by third parties.
The most significant unobservable inputs relative to the Company's Level 3 derivative contracts are basis differentials. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties' valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
(28,398
|
)
|
|
$
|
(15,868
|
)
|
|
$
|
—
|
|
Total gain (loss) included in earnings
|
31,184
|
|
|
(1,866
|
)
|
|
(17,886
|
)
|
Settlement (gain) loss
|
19,190
|
|
|
(10,664
|
)
|
|
2,018
|
|
Transfers in and/or out of Level 3
|
—
|
|
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
21,976
|
|
|
$
|
(28,398
|
)
|
|
$
|
(15,868
|
)
|
|
|
|
|
|
|
Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period
|
$
|
19,732
|
|
|
$
|
(28,398
|
)
|
|
$
|
(15,868
|
)
|
There were no transfers between Level 1 and Level 2 fair value measurements for the years ended December 31,
2018
,
2017
and
2016
.
Non-Financial Assets and Liabilities
The Company discloses or recognizes its non-financial assets and liabilities, such as impairments of oil and gas properties or impairments of equity method investments, at fair value on a nonrecurring basis. The Company recorded an impairment charge related to certain oil and gas properties during the years ended December 31,
2017
and
2016
. The Company also recorded an other than temporary impairment of its equity method investment in Constitution during the year ended December 31, 2017. Refer to Notes 3 and 4 for additional disclosures related to fair value associated with the impaired assets. As
none
of the Company’s other non-financial assets and liabilities were measured at fair value as of December 31,
2018
,
2017
and
2016
, additional disclosures were not required.
The estimated fair value of the Company's asset retirement obligations at inception is determined by utilizing the income approach by applying a credit-adjusted risk-free rate, which takes into account the Company's credit risk, the time value of money, and the current economic state to the undiscounted expected abandonment cash flows. Given the unobservable nature of the inputs, the measurement of the asset retirement obligations was classified as Level 3 in the fair value hierarchy.
Fair Value of Other Financial Instruments
The estimated fair value of other financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amount reported in the Consolidated Balance Sheet for cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. Cash and cash equivalents are classified as Level 1 in the fair value hierarchy and the remaining financial instruments are classified as Level 2.
The Company uses available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the estimated amount the Company would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is the Company's default or repayment risk. The credit spread (premium or discount) is determined by comparing the Company's senior notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The fair value of all senior notes and the revolving credit facility is based on interest rates currently available to the Company. The Company's debt is valued using an income approach and classified as Level 3 in the fair value hierarchy.
The carrying amount and fair value of debt is as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
(In thousands)
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
Long-term debt
|
$
|
1,226,104
|
|
|
$
|
1,202,994
|
|
|
$
|
1,521,891
|
|
|
$
|
1,527,624
|
|
Current maturities
|
—
|
|
|
—
|
|
|
(304,000
|
)
|
|
(312,055
|
)
|
Long-term debt, excluding current maturities
|
$
|
1,226,104
|
|
|
$
|
1,202,994
|
|
|
$
|
1,217,891
|
|
|
$
|
1,215,569
|
|
8. Asset Retirement Obligations
Activity related to the Company's asset retirement obligations is as follows:
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31, 2018
|
Balance at beginning of period
(1)
|
|
$
|
48,553
|
|
Liabilities incurred
|
|
5,152
|
|
Liabilities settled
|
|
(1,035
|
)
|
Liabilities divested
|
|
(3,809
|
)
|
Accretion expense
|
|
2,541
|
|
Transferred from held for sale
|
|
220
|
|
Balance at end of period
(2)
|
|
$
|
51,622
|
|
_______________________________________________________________________________
|
|
(1)
|
Includes
$5.0 million
of current asset retirement obligations included in accrued liabilities at
December 31,
2017
.
|
|
|
(2)
|
Includes
$1.0 million
of current asset retirement obligations included in accrued liabilities at
December 31,
2018
.
|
9. Commitments and Contingencies
Transportation and Gathering Agreements
The Company has entered into certain transportation and gathering agreements with various pipeline carriers. Under certain of these agreements, the Company is obligated to ship minimum daily quantities, or pay for any deficiencies at a specified rate. The Company's forecasted production to be shipped on these pipelines is expected to exceed minimum daily quantities provided in the agreements. The Company is also obligated under certain of these arrangements to pay a demand charge for firm capacity rights on pipeline systems regardless of the amount of pipeline capacity utilized by the Company. If the Company does not utilize the capacity, it can release it to others, thus reducing its potential liability.
As of December 31,
2018
, the Company's future minimum obligations under transportation and gathering agreements are as follows:
|
|
|
|
|
(In thousands)
|
|
2019
|
$
|
100,703
|
|
2020
|
145,997
|
|
2021
|
159,286
|
|
2022
|
159,286
|
|
2023
|
142,943
|
|
Thereafter
|
954,740
|
|
|
$
|
1,662,955
|
|
Lease Commitments
The Company leases certain office space, warehouse facilities, machinery and equipment under cancelable and non-cancelable leases. Rent expense under these arrangements totaled
$9.3 million
,
$9.7 million
and
$10.7 million
for the years ended December 31,
2018
,
2017
and
2016
, respectively.
Future minimum rental commitments under non-cancelable leases in effect at December 31,
2018
are as follows:
|
|
|
|
|
(In thousands)
|
|
2019
|
$
|
5,571
|
|
2020
|
5,684
|
|
2021
|
4,777
|
|
2022
|
1,659
|
|
2023
|
1,691
|
|
Thereafter
|
2,852
|
|
|
$
|
22,234
|
|
Legal Matters
The Company is a defendant in various legal proceedings arising in the normal course of business. All known liabilities are accrued when management determines they are probable based on its best estimate of the potential loss. While the outcome and impact of these legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material effect on the Company's financial position, results of operations or cash flows.
Contingency Reserves
.
When deemed necessary, the Company establishes reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional losses with respect to those matters in which reserves have been established. The Company believes that any such amount above the amounts accrued would not be material to the Consolidated Financial Statements. Future changes in facts and circumstances not currently foreseeable could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.
10. Income Taxes
On December 22, 2017, the U.S. enacted the Tax Act which significantly changed U.S. corporate income tax laws beginning, generally, in 2018. These changes included, among others, (i) a permanent reduction of the U.S. corporate income tax rate from a top marginal rate of
35 percent
to a flat rate of
21 percent
, (ii) elimination of the corporate alternative minimum tax, (iii) immediate deductions for certain new investments instead of deductions for depreciation expense over time, (iv) limitation on the tax deduction for interest expense to
30 percent
of adjusted taxable income, (v) limitation of the deduction for net operating losses to
80 percent
of current year taxable income and elimination of net operating loss carrybacks, and (vi) elimination of many business deductions and credits, including the domestic production activities deduction, the deduction for entertainment expenditures, and the deduction for certain executive compensation in excess of $1 million. The 2018 tax provision reflects the legislative changes noted above, including the new corporate tax rate of
21 percent
.
Income tax expense (benefit)
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
$
|
(95,191
|
)
|
|
$
|
(9,531
|
)
|
|
$
|
(9,920
|
)
|
State
|
6,682
|
|
|
1,816
|
|
|
(1,848
|
)
|
|
(88,509
|
)
|
|
(7,715
|
)
|
|
(11,768
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
230,643
|
|
|
(313,938
|
)
|
|
(218,357
|
)
|
State
|
(1,040
|
)
|
|
(7,175
|
)
|
|
(12,350
|
)
|
|
229,603
|
|
|
(321,113
|
)
|
|
(230,707
|
)
|
Income tax expense (benefit)
|
$
|
141,094
|
|
|
$
|
(328,828
|
)
|
|
$
|
(242,475
|
)
|
Income tax expense (benefit)
was different than the amounts computed by applying the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
(In thousands, except rates)
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
Computed "expected" federal income tax
|
$
|
146,609
|
|
|
21.00
|
%
|
|
$
|
(79,952
|
)
|
|
35.00
|
%
|
|
$
|
(230,860
|
)
|
|
35.00
|
%
|
State income tax, net of federal income tax benefit
|
11,850
|
|
|
1.70
|
%
|
|
(4,239
|
)
|
|
1.86
|
%
|
|
(10,888
|
)
|
|
1.65
|
%
|
Deferred tax adjustment related to change in overall state tax rate
|
(15,208
|
)
|
|
(2.18
|
)%
|
|
(48
|
)
|
|
0.02
|
%
|
|
(663
|
)
|
|
0.10
|
%
|
Valuation allowance
|
8,975
|
|
|
1.29
|
%
|
|
(505
|
)
|
|
0.22
|
%
|
|
221
|
|
|
(0.03
|
)%
|
Provision to return adjustments
|
(1,773
|
)
|
|
(0.25
|
)%
|
|
(3,242
|
)
|
|
1.42
|
%
|
|
(121
|
)
|
|
0.02
|
%
|
Excess stock compensation
|
327
|
|
|
0.05
|
%
|
|
2,965
|
|
|
(1.30
|
)%
|
|
—
|
|
|
—
|
%
|
Tax Act
|
(11,367
|
)
|
|
(1.63
|
)%
|
|
(242,875
|
)
|
|
106.32
|
%
|
|
—
|
|
|
—
|
%
|
Other, net
|
1,681
|
|
|
0.24
|
%
|
|
(932
|
)
|
|
0.41
|
%
|
|
(164
|
)
|
|
0.02
|
%
|
Income tax expense (benefit)
|
$
|
141,094
|
|
|
20.21
|
%
|
|
$
|
(328,828
|
)
|
|
143.95
|
%
|
|
$
|
(242,475
|
)
|
|
36.76
|
%
|
In 2018, the Company's overall effective tax rate significantly decreased compared to 2017, primarily due to the Tax Act. As a result of the enactment of the Tax Act, the Company recorded an income tax benefit in December 2017 of
$242.9 million
resulting from the remeasurement of its net deferred tax liabilities based on the new lower corporate income tax rate. The Company recorded an additional
$11.4 million
tax benefit in 2018 for the Tax Act, of which
$10.7 million
relates to the reversal of the valuation allowance for the sequestration reduction on the refundable portion of alternative minimum tax (AMT) credits, and the remainder relates to finalizing certain tax positions with the filing of the 2017 tax returns. The accounting for the income tax effects of the Tax Act has been completed and all adjustments are reflected in our Consolidated Financial Statements as of December 31, 2018.
Excluding the discrete impact of the Tax Act, the adjusted effective tax rates were
21.8 percent
for 2018 and
37.6 percent
for 2017. The effective tax rate was lower in 2018 than in 2017 primarily due to the reduction of the U.S. corporate income tax rate from
35 percent
to
21 percent
, a reduction in our estimated net state deferred tax liabilities as a result of updated state apportionment factors in the states in which the Company operates, and smaller provision-to-return adjustments in 2018 compared to 2017.
The composition of net deferred tax liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2018
|
|
2017
|
Deferred Tax Assets
|
|
|
|
|
|
Net operating losses
|
$
|
56,769
|
|
|
$
|
207,633
|
|
Alternative minimum tax credits
|
114,149
|
|
|
208,624
|
|
Foreign tax credits
|
3,473
|
|
|
3,541
|
|
Other business credits
|
3,380
|
|
|
3,524
|
|
Derivative instruments
|
—
|
|
|
6,645
|
|
Incentive compensation
|
17,378
|
|
|
15,898
|
|
Deferred compensation
|
5,690
|
|
|
6,065
|
|
Post-retirement benefits
|
6,799
|
|
|
7,265
|
|
Equity method investments
|
20,746
|
|
|
21,812
|
|
Capital loss carryforward
|
8,877
|
|
|
—
|
|
Other
|
2,957
|
|
|
492
|
|
Less: valuation allowance
|
(14,943
|
)
|
|
(16,711
|
)
|
Total
|
225,275
|
|
|
464,788
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
Properties and equipment
|
670,704
|
|
|
691,818
|
|
Derivative instruments
|
13,168
|
|
|
—
|
|
Total
|
683,872
|
|
|
691,818
|
|
Net deferred tax liabilities
|
$
|
458,597
|
|
|
$
|
227,030
|
|
Under the Tax Act of 2017, the Company may claim a refund of 50 percent of its 2017 remaining AMT credits (to the extent the credits exceed regular tax for the year) in 2018, 2019 and 2020. Any AMT credits remaining after 2020 will be refunded in 2021. The Company had recorded a valuation allowance in December 2017 of
$10.7 million
to account for the sequestration reduction the Internal Revenue Service (IRS) would apply to the refundable portion of the AMT credits. This valuation allowance was reversed in December 2018, as the IRS announced that refunds of AMT credits as provided under the 2017 Tax Act will not be subject to sequester.
As of December 31, 2018, the Company reclassified
$114.1 million
of its AMT credit carryforward to current income tax receivable, and has a remaining AMT credit carryforward balance of
$114.1 million
, which will be used to offset regular income taxes in 2019 and 2020 before being fully refunded by 2021.
As of December 31, 2018, the Company had a gross federal net operating loss (NOL) carryforward of
$142.6 million
, which will not begin to expire until 2036. The Company also had gross state NOL carryforwards of
$468.1 million
,
the majority of which will not expire until 2024 through 2037. The Company had
$14.1 million
of state NOL valuation allowances, and believes it is more likely than not that the remainder of the deferred tax benefits associated with federal and state NOL carryforwards will be utilized prior to their expiration.
Unrecognized Tax Benefits
A reconciliation of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
|
$
|
663
|
|
|
$
|
663
|
|
|
$
|
663
|
|
Additions for tax positions of prior years
|
|
16,187
|
|
|
—
|
|
|
—
|
|
Balance at end of year
|
|
$
|
16,850
|
|
|
$
|
663
|
|
|
$
|
663
|
|
As of December 31, 2018, the Company had a
$16.9 million
net reserve for unrecognized tax benefits primarily related to AMT associated with uncertain tax positions, and a
$3.1 million
liability for accrued interest associated with the uncertain tax
positions. Any additional AMT payments could be utilized as credits against future regular tax liabilities and would be fully refunded from 2018 through 2021 under the Tax Act. Accordingly, the uncertain tax positions identified would not have a material impact on the Company's effective tax rate.
The Company files income tax returns in the U.S. federal, various states and other jurisdictions. The Company is no longer subject to examinations by state authorities before 2012 or by federal authorities before 2013. The Company is currently under examination by the Internal Revenue Service for its 2014, 2015, and 2016 tax years. The Company believes that appropriate provisions have been made for all jurisdictions and all open years, and that any assessment on these filings will not have a material impact on the Company's financial position, results of operations or cash flows.
11. Employee Benefit Plans
Postretirement Benefits
The Company provides certain health care benefits for retired employees, including their spouses, eligible dependents and surviving spouses (retirees). These benefits are commonly called postretirement benefits. The health care plans are contributory, with participants' contributions adjusted annually. Most employees become eligible for these benefits if they meet certain age and service requirements at retirement. During the year ended December 31, 2017, the Company amended the plan to reflect a change from a Medicare Supplemental program to a Medicare Advantage program for participants age 65 and older. The coverage continues to be provided under a fully-insured arrangement. During the year ended December 31, 2016, the Company amended the plan to expand the eligibility definition to include those employees who have reached the age of 50 with at least 20 years of service.
The Company provided postretirement benefits to
337
retirees and their dependents at the end of
2018
and
340
retirees and their dependents at the end of
2017
.
Obligations and Funded Status
The funded status represents the difference between the accumulated benefit obligation of the Company's postretirement plan and the fair value of plan assets at December 31. The postretirement plan does not have any plan assets; therefore, the unfunded status is equal to the amount of the December 31 accumulated benefit obligation.
The change in the Company's postretirement benefit obligation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
31,050
|
|
|
$
|
37,482
|
|
|
$
|
36,626
|
|
Service cost
|
1,776
|
|
|
1,508
|
|
|
2,323
|
|
Interest cost
|
1,172
|
|
|
1,097
|
|
|
1,498
|
|
Actuarial (gain) loss
|
(3,165
|
)
|
|
5,156
|
|
|
(2,846
|
)
|
Benefits paid
|
(1,056
|
)
|
|
(1,204
|
)
|
|
(934
|
)
|
Curtailments
(1)
|
—
|
|
|
(4,346
|
)
|
|
—
|
|
Plan amendments
|
—
|
|
|
(8,643
|
)
|
|
815
|
|
Benefit obligation at end of year
|
$
|
29,777
|
|
|
$
|
31,050
|
|
|
$
|
37,482
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
—
|
|
|
—
|
|
|
—
|
|
Funded status at end of year
|
$
|
(29,777
|
)
|
|
$
|
(31,050
|
)
|
|
$
|
(37,482
|
)
|
_______________________________________________________________________________
|
|
(1)
|
During 2017, the Company terminated approximately
100
employees in connection with the sale of oil and gas properties located in West Virginia, Virginia and Ohio. As a result, the employees’ participation in the postretirement plan also terminated, which resulted in a remeasurement and curtailment of the postretirement benefit obligation.
|
Amounts Recognized in the Balance Sheet
Amounts recognized in the balance sheet consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Current liabilities
|
$
|
1,865
|
|
|
$
|
1,654
|
|
|
$
|
1,223
|
|
Long-term liabilities
|
27,912
|
|
|
29,396
|
|
|
36,259
|
|
|
$
|
29,777
|
|
|
$
|
31,050
|
|
|
$
|
37,482
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
Amounts recognized in accumulated other comprehensive income (loss) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Net actuarial (gain) loss
|
$
|
(1,253
|
)
|
|
$
|
1,912
|
|
|
$
|
(2,266
|
)
|
Prior service cost
|
(4,497
|
)
|
|
(5,206
|
)
|
|
704
|
|
|
$
|
(5,750
|
)
|
|
$
|
(3,294
|
)
|
|
$
|
(1,562
|
)
|
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Components of Net Periodic Postretirement Benefit Cost
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
1,776
|
|
|
$
|
1,508
|
|
|
$
|
2,323
|
|
Interest cost
|
1,172
|
|
|
1,097
|
|
|
1,498
|
|
Amortization of prior service cost
|
(709
|
)
|
|
(1,183
|
)
|
|
111
|
|
Net periodic postretirement cost
|
2,239
|
|
|
1,422
|
|
|
3,932
|
|
Recognized curtailment gain
|
—
|
|
|
(4,917
|
)
|
|
—
|
|
Total post retirement cost (income)
|
$
|
2,239
|
|
|
$
|
(3,495
|
)
|
|
$
|
3,932
|
|
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
$
|
(3,165
|
)
|
|
$
|
4,178
|
|
|
$
|
(2,846
|
)
|
Prior service cost
|
—
|
|
|
(8,643
|
)
|
|
815
|
|
Amortization of prior service cost
|
709
|
|
|
2,733
|
|
|
(111
|
)
|
Total recognized in other comprehensive income
|
(2,456
|
)
|
|
(1,732
|
)
|
|
(2,142
|
)
|
Total recognized in net periodic benefit cost (income) and other comprehensive income
|
$
|
(217
|
)
|
|
$
|
(5,227
|
)
|
|
$
|
1,790
|
|
Assumptions
Assumptions used to determine projected postretirement benefit obligations and postretirement costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
|
2016
|
Discount rate
(1)
|
4.45
|
%
|
|
3.85
|
%
|
|
4.30
|
%
|
Health care cost trend rate for medical benefits assumed for next year (pre-65)
|
7.25
|
%
|
|
7.50
|
%
|
|
7.50
|
%
|
Health care cost trend rate for medical benefits assumed for next year (post-65)
|
5.50
|
%
|
|
5.75
|
%
|
|
5.00
|
%
|
Ultimate trend rate (pre-65)
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
Ultimate trend rate (post-65)
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
Year that the rate reaches the ultimate trend rate (pre-65)
|
2030
|
|
|
2030
|
|
|
2023
|
|
Year that the rate reaches the ultimate trend rate (post-65)
|
2023
|
|
|
2023
|
|
|
2018
|
|
_______________________________________________________________________________
|
|
(1)
|
Represents the year end rates used to determine the projected benefit obligation. To compute postretirement cost in
2018
,
2017
and
2016
, respectively, the beginning of year discount rates of
3.85%
,
3.85%
and
4.25%
were used.
|
Coverage provided to participants age 65 and older is under a fully-insured arrangement. The Company subsidy is limited to
60 percent
of the expected annual fully-insured premium for participants age 65 and older. For all participants under age 65, the Company subsidy for all retiree medical and prescription drug benefits, beginning January 1, 2006, was limited to an aggregate annual amount not to exceed
$648,000
. This limit increases by
3.5 percent
annually thereafter.
Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
(In thousands)
|
1-Percentage-Point Increase
|
|
1-Percentage-Point Decrease
|
Effect on total of service and interest cost
|
$
|
668
|
|
|
$
|
(510
|
)
|
Effect on postretirement benefit obligation
|
4,129
|
|
|
(3,310
|
)
|
Cash Flows
Contributions.
The Company expects to contribute approximately
$1.9 million
to the postretirement benefit plan in
2019
.
Estimated Future Benefit Payments.
The following estimated benefit payments under the Company's postretirement plans, which reflect expected future service, are expected to be paid as follows:
|
|
|
|
|
(In thousands)
|
|
2019
|
$
|
1,907
|
|
2020
|
1,954
|
|
2021
|
1,951
|
|
2022
|
2,013
|
|
2023
|
2,012
|
|
Years 2024 - 2028
|
8,993
|
|
Savings Investment Plan
The Company has a Savings Investment Plan (SIP), which is a defined contribution plan. The Company matches a portion of employees' contributions in cash. Participation in the SIP is voluntary and all regular employees of the Company are eligible to participate. The Company matches employee contributions dollar-for-dollar, up to the maximum IRS limit, on the first
six
percent of an employee's pretax earnings. The SIP also provides for discretionary profit sharing contributions in an amount equal to
10 percent
of an eligible plan participant's salary and bonus. During the years ended December 31,
2018
,
2017
and
2016
, the Company made contributions of
$5.9 million
,
$6.5 million
and
$6.5 million
, respectively, which are included in
general and administrative expense in the Consolidated Statement of Operations. The Company's common stock is an investment option within the SIP.
Deferred Compensation Plan
The Company has a deferred compensation plan which is available to officers and certain members of the Company's management group and acts as a supplement to the SIP. The Internal Revenue Code does not cap the amount of compensation that may be taken into account for purposes of determining contributions to the deferred compensation plan and does not impose limitations on the amount of contributions to the deferred compensation plan. At the present time, the Company anticipates making a contribution to the deferred compensation plan on behalf of a participant in the event that Internal Revenue Code limitations cause a participant to receive less than the Company matching contribution under the SIP.
The assets of the deferred compensation plan are held in a rabbi trust and are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.
Under the deferred compensation plan, the participants direct the deemed investment of amounts credited to their accounts. The trust assets are invested in either mutual funds that cover the investment spectrum from equity to money market, or may include holdings of the Company's common stock, which is funded by the issuance of shares to the trust. The mutual funds are publicly traded and have market prices that are readily available. The Company's common stock is not currently an investment option in the deferred compensation plan. Shares of the Company's stock currently held in the deferred compensation plan represent vested performance share awards that were previously deferred into the rabbi trust. Settlement payments are made to participants in cash, either in a lump sum or in periodic installments. The market value of the trust assets, excluding the Company's common stock, was
$14.7 million
and
$15.0 million
at December 31,
2018
and
2017
, respectively, and is included in other assets in the Consolidated Balance Sheet. Related liabilities, including the Company's common stock, totaled
$25.8 million
and
$29.1 million
at December 31,
2018
and
2017
, respectively, and are included in other liabilities in the Consolidated Balance Sheet. With the exception of the Company's common stock, there is no impact on earnings or earnings per share from the changes in market value of the deferred compensation plan assets because the changes in market value of the trust assets are offset completely by changes in the value of the liability, which represents trust assets belonging to plan participants.
As of December 31,
2018
and
2017
,
495,774
shares and
495,774
shares of the Company's common stock were held in the rabbi trust, respectively. These shares were recorded at the market value on the date of deferral, which totaled
$5.1 million
and
$5.1 million
at December 31,
2018
and
2017
, respectively, and is included in additional paid-in capital in stockholders' equity in the Consolidated Balance Sheet. The Company recognized compensation (benefit) expense of (
$3.1 million
),
$2.6 million
and
$1.8 million
in
2018
,
2017
and
2016
, respectively, which is included in general and administrative expense in the Consolidated Statement of Operations representing the increase (decrease) in the closing price of the Company's shares held in the trust. The Company's common stock issued to the trust is not considered outstanding for purposes of calculating basic earnings per share, but is considered a common stock equivalent in the calculation of diluted earnings per share.
The Company made contributions to the deferred compensation plan of
$1.1 million
,
$1.0 million
and
$0.6 million
in
2018
,
2017
and
2016
, respectively, which are included in general and administrative expense in the Consolidated Statement of Operations.
12. Capital Stock
Common Stock Issuance
On
February 22, 2016
, the Company entered into an underwriting agreement, pursuant to which the Company sold an aggregate of
44.0 million
shares of common stock at a price to the Company of
$19.675
per share. On
February 26, 2016
, the Company received
$865.7 million
in net proceeds, after deducting underwriting discounts and commissions. On
March 2, 2016
, the Company sold an additional
6.6 million
shares of common stock as a result of the exercise of the underwriters’ option to purchase additional shares and received
$129.9 million
in net proceeds. These net proceeds were used for general corporate purposes, including repaying indebtedness under the Company’s revolving credit facility and repurchasing certain of the Company's senior notes.
Incentive Plans
On May 1, 2014, the Company’s shareholders approved the 2014 Incentive Plan. Under the 2014 Incentive Plan, incentive and non-statutory stock options, stock appreciation rights (SARs), stock awards, cash awards and performance share awards may be granted to key employees, consultants and officers of the Company. Non-employee directors of the Company may be granted discretionary awards under the 2014 Incentive Plan consisting of stock options or stock awards. A total of
18.0 million
shares of common stock may be issued under the 2014 Incentive Plan. Under the 2014 Incentive Plan, no more than
10.0 million
shares may be issued pursuant to incentive stock options. No additional awards may be granted under the 2014 Incentive Plan on or after May 1, 2024. At December 31,
2018
, approximately
13.7 million
shares are available for issuance under the 2014 Incentive Plan.
No additional awards will be granted under any of the Company’s prior plans, including the 2004 Incentive Plan. Awards outstanding under the 2004 Incentive Plan will remain outstanding in accordance with their original terms and conditions.
Treasury Stock
In August 1998, the Board of Directors authorized a share repurchase program under which the Company may purchase shares of common stock in the open market or in negotiated transactions. The timing and amount of these stock purchases are determined at the discretion of management. The Company may use the repurchased shares to fund stock compensation programs presently in existence, or for other corporate purposes. All purchases executed to date have been through open market transactions. There is no expiration date associated with the authorization to repurchase shares of the Company.
During the years ended
December 31, 2018
and
2017
, the Company repurchased
38.5 million
shares for a total cost of
$904.1 million
and
5.0 million
shares for a total cost of
$123.7 million
, respectively. During
2016
, there were
no
share repurchases. Since the authorization date and subsequent authorizations, the Company has repurchased
73.4 million
shares, of which
20.0 million
shares have been retired, for a total cost of approximately
$1.4 billion
.
No
treasury shares have been delivered or sold by the Company subsequent to the repurchase.
In February 2018, the Board of Directors authorized an increase of
25.0 million
shares to the Company’s share repurchase program.
In July 2018, the Board of Directors authorized an additional increase of
20.0 million
shares to the Company’s share repurchase program. As of December 31,
2018
,
53.4 million
shares were held as treasury stock, which includes
1.4 million
shares that were repurchased prior to
December 31, 2018
and settled in January 2019. As of
December 31, 2018
,
11.6 million
shares were available for repurchase under the repurchase plan.
Dividend Restrictions
The Board of Directors of the Company determines the amount of future cash dividends, if any, to be declared and paid on the common stock depending on, among other things, the Company's financial condition, funds from operations, the level of its capital and exploration expenditures, and its future business prospects. None of the senior note or credit agreements in place have restricted payment provisions or other provisions limiting dividends.
In January 2018, the Board of Directors approved an increase in the quarterly dividend on the Company's common stock from
$0.05
per share to
$0.06
per share. In October 2018, the Board of Directors approved an additional increase in the quarterly dividend on the Company's common stock from
$0.06
per share
to
$0.07
per share
.
13. Stock-Based Compensation
General
Stock-based compensation expense for the years ended December 31,
2018
,
2017
and
2016
was
$33.1 million
,
$34.0 million
and
$26.0 million
, respectively, and is included in general and administrative expense in the Consolidated Statement of Operations.
For the year ended December 31,
2018
and
2017
, the Company recorded an increase to tax expense of
$0.3 million
and
$3.0 million
, respectively, in the Consolidated Statement of Operations as a result of book compensation cost for employee stock-based compensation exceeding the federal and state tax deductions for awards that vested during the period.
Prior to the adoption of ASU No. 2016-09, windfall tax benefits were recorded in additional paid in capital in the Consolidated Balance Sheet and tax shortfalls reduced additional paid in capital to the extent they offset previously recorded windfall tax benefits. For the year ended December 31, 2016, the Company recorded a tax deficiency of
$2.1 million
, resulting in a reduction of the Company's windfall tax benefit that was recorded in additional paid in capital in the Consolidated Balance
Sheet. The tax deficiency was a result of book compensation cost for employee stock-based compensation exceeding the federal and state tax deductions for certain awards that vested during the period.
Restricted Stock Awards
Restricted stock awards are granted from time to time to employees of the Company. The fair value of restricted stock grants is based on the closing stock price on the grant date. Restricted stock awards generally vest either at the end of a
three
year service period or on a graded or graduated vesting basis at each anniversary date over a
three
or
four
year service period.
For awards that vest at the end of the service period, expense is recognized ratably using a straight-line approach over the service period. Under the graded or graduated approach, the Company recognizes compensation cost ratably over the requisite service period, as applicable, for each separately vesting tranche as though the awards are, in substance, multiple awards. For most restricted stock awards, vesting is dependent upon the employees' continued service with the Company, with the exception of employment termination due to death, disability or retirement. If included in the grant award, the Company accelerates the vesting period for retirement-eligible employees for purposes of recognizing compensation expense in accordance with the vesting provisions of the Company's stock-based compensation programs.
The Company used an annual forfeiture rate assumption of
five percent
to
six percent
for purposes of recognizing stock-based compensation expense for restricted stock awards. The annual forfeiture rates were based on the Company's actual forfeiture history for this type of award to various employee groups.
The following table is a summary of restricted stock award activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
Outstanding at beginning of period
|
161,450
|
|
|
$
|
28.00
|
|
|
43,175
|
|
|
$
|
33.87
|
|
|
49,825
|
|
|
$
|
33.76
|
|
Granted
|
—
|
|
|
—
|
|
|
158,500
|
|
|
28.05
|
|
|
—
|
|
|
—
|
|
Vested
|
(7,157
|
)
|
|
25.17
|
|
|
(40,225
|
)
|
|
34.49
|
|
|
(6,650
|
)
|
|
33.02
|
|
Forfeited
|
(4,000
|
)
|
|
28.45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
(1)(2)
|
150,293
|
|
|
$
|
28.12
|
|
|
161,450
|
|
|
$
|
28.00
|
|
|
43,175
|
|
|
$
|
33.87
|
|
__________________________________________________________________
|
|
(1)
|
As of December 31,
2018
, the aggregate intrinsic value was
$3.4 million
and was calculated by multiplying the closing market price of the Company's stock on December 31,
2018
by the number of non-vested restricted stock awards outstanding.
|
|
|
(2)
|
As of December 31,
2018
, the weighted average remaining contractual term of non-vested restricted stock awards outstanding was
0.4
years.
|
Compensation expense recorded for all restricted stock awards for the years ended December 31,
2018
,
2017
and
2016
was
$2.8 million
,
$0.5 million
and
$0.4 million
, respectively. Unamortized expense as of December 31,
2018
for all outstanding restricted stock awards was
$1.1 million
and will be recognized over the next
0.5 years
.
The total fair value of restricted stock awards that vested during
2018
,
2017
and
2016
was
$0.2 million
,
$0.9 million
and
$0.2 million
, respectively.
Restricted Stock Units
Restricted stock units are granted from time to time to non-employee directors of the Company. The fair value of the restricted stock units is based on the closing stock price on the grant date. These units vest immediately and compensation expense is recorded immediately. Restricted stock units are issued when the director ceases to be a director of the Company.
The following table is a summary of restricted stock unit activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
Outstanding at beginning of period
|
407,563
|
|
|
$
|
16.17
|
|
|
348,538
|
|
|
$
|
15.01
|
|
|
425,438
|
|
|
$
|
13.81
|
|
Granted and fully vested
|
82,852
|
|
|
23.47
|
|
|
59,025
|
|
|
23.04
|
|
|
69,302
|
|
|
20.62
|
|
Issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(146,202
|
)
|
|
14.17
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
(1)(2)
|
490,415
|
|
|
$
|
17.41
|
|
|
407,563
|
|
|
$
|
16.17
|
|
|
348,538
|
|
|
$
|
15.01
|
|
_______________________________________________________________________________
|
|
(1)
|
As of December 31,
2018
, the aggregate intrinsic value was
$11.0 million
and was calculated by multiplying the closing market price of the Company's stock on December 31,
2018
by the number of outstanding restricted stock units.
|
|
|
(2)
|
Due to the immediate vesting of the units and the unknown term of each director, the weighted-average remaining contractual term in years has not been provided.
|
Compensation expense recorded for all restricted stock units for the year ended December 31,
2018
,
2017
and
2016
was
$1.9
million,
$1.4 million
and
$1.4 million
, respectively, which reflects the total fair value of these units.
Stock Appreciation Rights
Stock appreciation rights (SARs) allow the employee to receive any intrinsic value over the grant date market price that may result from the price appreciation of the common shares granted. All of these awards have graded-vesting features and vest over a service period of
three years
, with
one-third of the award becoming exercisable each year on the anniversary date of the grant
and have a contractual term of
seven years
. The Company no longer grants SARs to employees.
The following table is a summary of SAR activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
Outstanding at beginning of period
|
57,144
|
|
|
$
|
17.59
|
|
|
483,286
|
|
|
$
|
13.04
|
|
|
558,546
|
|
|
$
|
12.52
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
(57,144
|
)
|
|
17.59
|
|
|
(426,142
|
)
|
|
12.43
|
|
|
(75,260
|
)
|
|
9.19
|
|
Forfeited or expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
(1)
|
—
|
|
|
$
|
—
|
|
|
57,144
|
|
|
$
|
17.59
|
|
|
483,286
|
|
|
$
|
13.04
|
|
Exercisable at end of period
(2)
|
—
|
|
|
$
|
—
|
|
|
57,144
|
|
|
$
|
17.59
|
|
|
483,286
|
|
|
$
|
13.04
|
|
The expected term was derived by reviewing minimum and maximum expected term outputs from the Black-Scholes model based on award type and employee type. This term represents the period of time that awards granted are expected to be outstanding. The stock price volatility was calculated using historical closing stock price data for the Company for the period associated with the expected term through the grant date of each award. The risk free rate of return percentages are based on the continuously compounded equivalent of the U.S. Treasury within the expected term as measured on the grant date. The expected dividend percentage assumes that the Company will continue to pay a consistent level of dividend each quarter.
Performance Share Awards
The Company grants
three
types of performance share awards:
two
based on performance conditions measured against the Company's internal performance metrics (Employee Performance Share Awards and Hybrid Performance Share Awards) and
one
based on market conditions measured based on the Company's performance relative to a predetermined peer group (TSR
Performance Share Awards). The performance period for these awards commences on January 1 of the respective year in which the award was granted and extends over a
three
-year performance period. For all performance share awards, the Company used an annual forfeiture rate assumption ranging from
zero percent
to
six percent
for purposes of recognizing stock-based compensation expense for its performance share awards.
Performance Share Awards Based on Internal Performance Metrics
The fair value of performance share award grants based on internal performance metrics is based on the closing stock price on the grant date. Each performance share award represents the right to receive up to
100 percent
of the award in shares of common stock.
Employee Performance Share Awards.
The Employee Performance Share Awards vest at the end of the
three
-year performance period.
An employee will earn one-third of the award for each of the three performance metrics that the Company meets
. These performance metrics are set by the Company's Compensation Committee and are based on the Company's average production, average finding costs and average reserve replacement over a
three
-year performance period. Based on the Company's probability assessment at December 31,
2018
, it is considered probable that all of the criteria for these awards will be met.
The following table is a summary of activity for Employee Performance Share Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
Outstanding at beginning of period
|
1,095,970
|
|
|
$
|
23.31
|
|
|
993,530
|
|
|
$
|
27.26
|
|
|
925,590
|
|
|
$
|
30.23
|
|
Granted
|
531,670
|
|
|
23.25
|
|
|
406,460
|
|
|
22.60
|
|
|
435,990
|
|
|
20.49
|
|
Issued and fully vested
|
(315,970
|
)
|
|
27.71
|
|
|
(225,780
|
)
|
|
39.43
|
|
|
(340,960
|
)
|
|
26.62
|
|
Forfeited
|
(31,649
|
)
|
|
22.33
|
|
|
(78,240
|
)
|
|
23.20
|
|
|
(27,090
|
)
|
|
27.77
|
|
Outstanding at end of period
|
1,280,021
|
|
|
$
|
22.22
|
|
|
1,095,970
|
|
|
$
|
23.31
|
|
|
993,530
|
|
|
$
|
27.26
|
|
Hybrid Performance Share Awards.
The Hybrid Performance Share Awards have a
three
-year graded performance period. The awards vest
25 percent
on each of the first and second anniversary dates and
50 percent
on the third anniversary provided that the Company has
$100 million
or more of operating cash flow for the year preceding the vesting date, as set by the Company's Compensation Committee. If the Company does not meet the performance metric for the applicable period, then the portion of the performance shares that would have been issued on that anniversary date will be forfeited. Based on the Company's probability assessment at December 31,
2018
, it is considered probable that the criteria for these awards will be met.
The following table is a summary of activity for the Hybrid Performance Share Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
Outstanding at beginning of period
|
574,354
|
|
|
$
|
22.72
|
|
|
479,784
|
|
|
$
|
25.12
|
|
|
372,385
|
|
|
$
|
30.37
|
|
Granted
|
321,720
|
|
|
23.25
|
|
|
272,920
|
|
|
22.60
|
|
|
271,938
|
|
|
20.49
|
|
Issued and fully vested
|
(233,686
|
)
|
|
24.12
|
|
|
(178,350
|
)
|
|
29.01
|
|
|
(164,539
|
)
|
|
29.34
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
|
662,388
|
|
|
$
|
22.48
|
|
|
574,354
|
|
|
$
|
22.72
|
|
|
479,784
|
|
|
$
|
25.12
|
|
Performance Share Awards Based on Market Conditions
These awards have both an equity and liability component, with the right to receive up to the first
100 percent
of the award in shares of common stock and the right to receive up to an additional
100 percent
of the value of the award in excess of the equity component in cash. The equity portion of these awards is valued on the grant date and is not marked to market, while the liability portion of the awards is valued as of the end of each reporting period on a mark-to-market basis. The Company calculates the fair value of the equity and liability portions of the awards using a Monte Carlo simulation model.
TSR Performance Share Awards.
The TSR Performance Share Awards granted are earned, or not earned, based on the comparative performance of the Company's common stock measured against a predetermined group of companies in the Company's peer group over a
three
-year performance period.
The following table is a summary of activity for the TSR Performance Share Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
(1)
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
(1)
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
(1)
|
Outstanding at beginning of period
|
1,109,708
|
|
|
$
|
19.23
|
|
|
885,213
|
|
|
$
|
21.62
|
|
|
732,286
|
|
|
$
|
23.82
|
|
Granted
|
482,581
|
|
|
19.92
|
|
|
409,380
|
|
|
19.85
|
|
|
407,907
|
|
|
18.57
|
|
Issued and fully vested
|
(292,421
|
)
|
|
19.29
|
|
|
(157,147
|
)
|
|
32.04
|
|
|
(254,980
|
)
|
|
23.06
|
|
Forfeited
|
—
|
|
|
—
|
|
|
(27,738
|
)
|
|
32.04
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
|
1,299,868
|
|
|
$
|
19.47
|
|
|
1,109,708
|
|
|
$
|
19.23
|
|
|
885,213
|
|
|
$
|
21.62
|
|
_______________________________________________________________________________
|
|
(1)
|
The grant date fair value figures in this table represent the fair value of the equity component of the performance share awards.
|
The current portion of the liability, included in accrued liabilities in the Consolidated Balance Sheet at December 31,
2018
and
2017
was
$5.0 million
and
$3.3 million
, respectively. The non-current portion of the liability for the TSR Performance Share Awards, included in other liabilities in the Consolidated Balance Sheet at December 31,
2018
and
2017
, was
$7.9 million
and
$6.6 million
, respectively. The Company made cash payments during the years ended December 31,
2018
and
2016
of
$3.3 million
and
$1.8 million
, respectively. There were
no
cash payments made during the year ended
December 31, 2017
.
The following assumptions were used to determine the grant date fair value of the equity component of the TSR Performance Share Awards for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Fair value per performance share award granted during the period
|
$
|
19.92
|
|
|
$
|
19.85
|
|
|
$
|
18.57
|
|
Assumptions
|
|
|
|
|
|
|
|
|
Stock price volatility
|
37.3
|
%
|
|
37.8
|
%
|
|
34.4
|
%
|
Risk free rate of return
|
2.4
|
%
|
|
1.4
|
%
|
|
0.9
|
%
|
The following assumptions were used to determine the fair value of the liability component of the TSR Performance Share Awards for the respective periods:
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
|
2016
|
Fair value per performance share award at the end of the period
|
$15.15 - $20.12
|
|
$13.23 - $21.64
|
|
$5.59 - $7.10
|
Assumptions
|
|
|
|
|
|
Stock price volatility
|
29.9% - 31.1%
|
|
29.1% - 36.7%
|
|
40.4% - 43.0%
|
Risk free rate of return
|
2.5% - 2.6%
|
|
1.8% - 1.9%
|
|
0.9% - 1.2%
|
The stock price volatility was calculated using historical closing stock price data for the Company for the period associated with the expected term through the grant date of each award. The risk free rate of return percentages are based on the continuously compounded equivalent of the U.S. Treasury within the expected term as measured on the grant date. The expected dividend percentage assumes that the Company will continue to pay a consistent level of dividend each quarter.
Other Information
Compensation expense recorded for both the equity and liability components of all performance share awards for the years ended December 31,
2018
,
2017
and
2016
was
$30.6 million
,
$29.1 million
and
$21.3 million
, respectively. Total unamortized compensation expense related to the equity component of performance shares at December 31,
2018
was
$24.7 million
and will be recognized over the next
0.9 years
.
As of December 31,
2018
, the aggregate intrinsic value for all performance share awards was
$72.5 million
and was calculated by multiplying the closing market price of the Company's stock on December 31,
2018
by the number of unvested performance share awards outstanding. As of December 31,
2018
, the weighted average remaining contractual term of unvested performance share awards outstanding was approximately
1.2 years
On December 31,
2018
, the performance period ended for
two
types of performance share awards that were granted in
2016
. For the Employee Performance Share Awards, the calculation of the
three
-year average of the three internal performance metrics was completed in the first quarter of
2019
and was certified by the Compensation Committee in February
2019
. As the Company achieved the
three
performance metrics,
389,920
shares with a grant date fair value of
$7.9 million
were issued in February
2019
. For the TSR Performance Share Awards,
407,907
shares with a grant date fair value of
$7.6 million
were issued in January
2019
based on the Company's ranking relative to a predetermined peer group. Cash payments associated with these awards in the amount of
$5.0 million
were also made in January
2019
due to the Company's ranking relative to the peer group. The calculation of the award payout was certified by the Compensation Committee on January 3,
2019
.
Deferred Performance Shares
As of December 31,
2018
,
495,774
shares of the Company's common stock representing vested performance share awards were deferred into the deferred compensation plan. During
2018
, no shares were sold out of the plan. During
2018
, a decrease to the deferred compensation liability of
$3.1 million
was recognized, which represents the increase in the closing price of the Company's shares held in the trust during the period. The decrease in compensation expense was included in general and administrative expense in the Consolidated Statement of Operations.
14. Earnings per Common Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is similarly calculated except that the common shares outstanding for the period is increased using the treasury stock method to reflect the potential dilution that could occur if outstanding stock appreciation rights were exercised and stock awards were vested at the end of the applicable period. Anti-dilutive shares represent potentially dilutive securities that are excluded from the computation of diluted income or loss per share as their impact would be anti-dilutive.
The following is a calculation of basic and diluted weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2018
|
|
2017
|
|
2016
|
Weighted-average shares - basic
|
|
445,538
|
|
|
463,735
|
|
|
456,847
|
|
Dilution effect of stock appreciation rights and stock awards at end of period
|
|
2,030
|
|
|
1,816
|
|
|
—
|
|
Weighted-average shares - diluted
|
|
447,568
|
|
|
465,551
|
|
|
456,847
|
|
The following is a calculation of weighted-average shares excluded from diluted EPS due to the anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2018
|
|
2017
|
|
2016
|
Weighted-average stock appreciation rights and stock awards excluded from diluted EPS due to the anti-dilutive effect due to net loss
|
|
—
|
|
|
—
|
|
|
1,478
|
|
Weighted-average stock appreciation rights and stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method
|
|
3
|
|
|
28
|
|
|
1
|
|
Weighted-average stock appreciation rights and stock awards excluded from diluted EPS due to the anti-dilutive effect
|
|
3
|
|
|
28
|
|
|
1,479
|
|
15. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component, net of tax, were as follows:
|
|
|
|
|
(In thousands)
|
Postretirement
Benefits
|
Balance at December 31, 2015
|
$
|
(365
|
)
|
Other comprehensive income (loss) before reclassifications
|
1,280
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
70
|
|
Net current-period other comprehensive income (loss)
|
1,350
|
|
Balance at December 31, 2016
|
$
|
985
|
|
Other comprehensive income (loss) before reclassifications
|
2,815
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(1,723
|
)
|
Net current-period other comprehensive income
|
1,092
|
|
Balance at December 31, 2017
|
$
|
2,077
|
|
Other comprehensive income (loss) before reclassifications
|
2,461
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(101
|
)
|
Net current-period other comprehensive income
|
2,360
|
|
Balance at December 31, 2018
|
$
|
4,437
|
|
Amounts reclassified from accumulated other comprehensive income (loss) into the Consolidated Statement of Operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Affected Line Item in the
Consolidated Statement of Operations
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
|
Postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
$
|
709
|
|
|
$
|
2,733
|
|
|
$
|
(111
|
)
|
|
General and administrative expense
|
Total before tax
|
709
|
|
|
2,733
|
|
|
(111
|
)
|
|
Income (loss) before income taxes
|
|
(162
|
)
|
|
(1,010
|
)
|
|
41
|
|
|
Income tax benefit (expense)
|
Cumulative effect of adoption of ASU 2018-02 reclassified to retained earnings
|
(446
|
)
|
|
—
|
|
|
—
|
|
|
Retained earnings
|
Total reclassifications for the period
|
$
|
101
|
|
|
$
|
1,723
|
|
|
$
|
(70
|
)
|
|
Net income (loss)
|
16. Additional Balance Sheet Information
Certain balance sheet amounts are comprised of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2018
|
|
2017
|
Accounts receivable, net
|
|
|
|
|
|
Trade accounts
|
$
|
362,973
|
|
|
$
|
215,511
|
|
Joint interest accounts
|
101
|
|
|
467
|
|
Other accounts
|
567
|
|
|
1,312
|
|
|
363,641
|
|
|
217,290
|
|
Allowance for doubtful accounts
|
(1,238
|
)
|
|
(1,286
|
)
|
|
$
|
362,403
|
|
|
$
|
216,004
|
|
Other assets
|
|
|
|
Deferred compensation plan
|
$
|
14,699
|
|
|
$
|
14,966
|
|
Debt issuance cost
|
4,572
|
|
|
7,990
|
|
Income taxes receivable
|
8,165
|
|
|
—
|
|
Other accounts
|
61
|
|
|
56
|
|
|
$
|
27,497
|
|
|
$
|
23,012
|
|
Accounts payable
|
|
|
|
|
|
Trade accounts
|
$
|
30,033
|
|
|
$
|
7,815
|
|
Natural gas purchases
|
—
|
|
|
4,299
|
|
Royalty and other owners
|
61,507
|
|
|
39,207
|
|
Accrued transportation
|
50,540
|
|
|
51,433
|
|
Accrued capital costs
|
43,207
|
|
|
31,130
|
|
Taxes other than income
|
19,824
|
|
|
16,801
|
|
Income taxes payable
|
1,134
|
|
|
—
|
|
Deposits received for asset sales
|
—
|
|
|
81,500
|
|
Other accounts
|
35,694
|
|
|
5,860
|
|
|
$
|
241,939
|
|
|
$
|
238,045
|
|
Accrued liabilities
|
|
|
|
|
|
Employee benefits
|
$
|
21,761
|
|
|
$
|
20,645
|
|
Taxes other than income
|
1,472
|
|
|
550
|
|
Asset retirement obligations
|
1,000
|
|
|
4,952
|
|
Other accounts
|
994
|
|
|
1,294
|
|
|
$
|
25,227
|
|
|
$
|
27,441
|
|
Other liabilities
|
|
|
|
|
|
Deferred compensation plan
|
$
|
25,780
|
|
|
$
|
29,145
|
|
Other accounts
|
34,391
|
|
|
10,578
|
|
|
$
|
60,171
|
|
|
$
|
39,723
|
|
17. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Cash paid for interest and income taxes
|
|
|
|
|
|
Interest
|
$
|
80,069
|
|
|
$
|
79,846
|
|
|
$
|
86,723
|
|
Income taxes
|
4,635
|
|
|
40,626
|
|
|
688
|
|
CABOT OIL & GAS CORPORATION
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Oil and Gas Reserves
Users of this information should be aware that the process of estimating quantities of "proved" and "proved developed" natural gas and crude oil reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.
Estimates of total proved reserves at December 31,
2018
,
2017
and
2016
were based on studies performed by the Company's petroleum engineering staff. The estimates were computed using the 12-month average index price for the respective commodity, calculated as the unweighted arithmetic average for the first day of the month price for each month during the respective year. The estimates were audited by Miller and Lents, Ltd. (Miller and Lents), who indicated that based on their investigation and subject to the limitations described in their audit letter, they believe the results of those estimates and projections were reasonable in the aggregate.
No major discovery or other favorable or unfavorable event after December 31,
2018
, is believed to have caused a material change in the estimates of proved or proved developed reserves as of that date.
The following tables illustrate the Company's net proved reserves, including changes, and proved developed and proved undeveloped reserves for the periods indicated, as estimated by the Company's engineering staff. All reserves are located within the continental United States.
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
(Bcf)
|
|
Crude Oil &
NGLs
(Mbbl)
(1)
|
|
Total
(Bcfe)
(2)
|
December 31, 2015
|
7,856
|
|
|
55,730
|
|
|
8,190
|
|
Revision of prior estimates
(3)
|
405
|
|
|
(5,867
|
)
|
|
370
|
|
Extensions, discoveries and other additions
(4)
|
650
|
|
|
5,540
|
|
|
684
|
|
Production
|
(600
|
)
|
|
(4,454
|
)
|
|
(627
|
)
|
Sales of reserves in place
|
(30
|
)
|
|
(1,777
|
)
|
|
(41
|
)
|
December 31, 2016
|
8,281
|
|
|
49,172
|
|
|
8,576
|
|
Revision of prior estimates
(5)
|
917
|
|
|
1,892
|
|
|
928
|
|
Extensions, discoveries and other additions
(4)
|
1,138
|
|
|
16,329
|
|
|
1,236
|
|
Production
|
(655
|
)
|
|
(4,953
|
)
|
|
(685
|
)
|
Sales of reserves in place
(6)
|
(328
|
)
|
|
(188
|
)
|
|
(329
|
)
|
December 31, 2017
|
9,353
|
|
|
62,252
|
|
|
9,726
|
|
Revision of prior estimates
(7)
|
776
|
|
|
677
|
|
|
780
|
|
Extensions, discoveries and other additions
(4)
|
2,243
|
|
|
—
|
|
|
2,244
|
|
Production
|
(730
|
)
|
|
(829
|
)
|
|
(735
|
)
|
Sales of reserves in place
(8)
|
(38
|
)
|
|
(61,980
|
)
|
|
(410
|
)
|
December 31, 2018
|
11,604
|
|
|
120
|
|
|
11,605
|
|
Proved Developed Reserves
|
|
|
|
|
|
|
|
|
December 31, 2015
|
4,676
|
|
|
25,586
|
|
|
4,829
|
|
December 31, 2016
|
5,500
|
|
|
20,442
|
|
|
5,623
|
|
December 31, 2017
|
6,001
|
|
|
31,066
|
|
|
6,187
|
|
December 31, 2018
|
7,402
|
|
|
107
|
|
|
7,403
|
|
Proved Undeveloped Reserves
|
|
|
|
|
|
|
|
|
December 31, 2015
|
3,180
|
|
|
30,144
|
|
|
3,361
|
|
December 31, 2016
|
2,781
|
|
|
28,730
|
|
|
2,953
|
|
December 31, 2017
|
3,352
|
|
|
31,186
|
|
|
3,539
|
|
December 31, 2018
|
4,202
|
|
|
13
|
|
|
4,202
|
|
_______________________________________________________________________________
|
|
(1)
|
NGL reserves were less than
1.0%
of the Company's total proved equivalent reserves for
2018
,
2017
and
2016
and 15.8%, 13.7% and 13.6% of the Company's proved crude oil and NGL reserves for
2018
,
2017
and
2016
, respectively.
|
|
|
(2)
|
Includes natural gas and natural gas equivalents determined by using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil, condensate or NGLs.
|
|
|
(3)
|
The net upward revision of 370.1 Bcfe was primarily due to an upward performance revision of 658.7 Bcfe associated with positive drilling results in the Dimock field in northeast Pennsylvania, partially offset by a downward revision of 246.0 Bcfe associated with proved undeveloped (PUD) reserves reclassifications and 42.6 Bcfe associated with lower commodity prices.
|
|
|
(4)
|
Extensions, discoveries and other additions were primarily related to drilling activity in the Dimock field located in northeast Pennsylvania. The Company added 2,243.5 Bcfe, 1,129.2 Bcfe and 647.7 Bcfe of proved reserves in this field in
2018
,
2017
and
2016
, respectively.
|
|
|
(5)
|
The net upward revision of 928.5 Bcfe was primarily due to an upward revision of 863.8 Bcfe associated with positive drilling results in the Dimock field in northeast Pennsylvania and 103.0 Bcfe associated with higher commodity prices, partially offset by a downward revision of 38.3 Bcfe associated with PUD reclassifications.
|
|
|
(6)
|
Sales of reserves in place were primarily related to the divestiture of certain oil and gas properties in West Virginia, Virginia and Ohio in September 2017 which represented 321.8 Bcfe.
|
|
|
(7)
|
The net upward revision of 780.4 Bcfe was primarily due to an upward revision of 1,123.0 Bcfe associated with positive drilling results in the Dimock field in northeast Pennsylvania, partially offset by a downward revision of 344.6 Bcfe associated with PUD reclassifications.
|
|
|
(8)
|
Sales of reserves in place were primarily related to the divestiture of certain oil and gas properties in Eagle Ford Shale in February 2018 and the Haynesville Shale in July 2018 which represented 404.0 Bcfe and 6.1 Bcfe, respectively.
|
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs relating to oil and gas producing activities and related accumulated depreciation, depletion and amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Aggregate capitalized costs relating to oil and gas producing activities
|
$
|
5,995,194
|
|
|
$
|
7,472,653
|
|
|
$
|
7,958,548
|
|
Aggregate accumulated depreciation, depletion and amortization
|
(2,540,068
|
)
|
|
(3,630,855
|
)
|
|
(3,717,342
|
)
|
Net capitalized costs
|
$
|
3,455,126
|
|
|
$
|
3,841,798
|
|
|
$
|
4,241,206
|
|
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities
Costs incurred in property acquisition, exploration and development activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Property acquisition costs, proved
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Property acquisition costs, unproved
|
29,851
|
|
|
102,265
|
|
|
2,703
|
|
Exploration costs
|
94,309
|
|
|
41,232
|
|
|
27,640
|
|
Development costs
|
778,574
|
|
|
617,500
|
|
|
359,501
|
|
Total costs
|
$
|
902,734
|
|
|
$
|
760,997
|
|
|
$
|
389,844
|
|
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following information has been developed based on natural gas and crude oil reserve and production volumes estimated by the Company's engineering staff. It can be used for some comparisons, but should not be the only method used to evaluate the Company or its performance. Further, the information in the following table may not represent realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows (Standardized Measure) be viewed as representative of the current value of the Company.
The Company believes that the following factors should be taken into account when reviewing the following information:
|
|
•
|
Future costs and selling prices will differ from those required to be used in these calculations.
|
|
|
•
|
Due to future market conditions and governmental regulations, actual rates of production in future years may vary significantly from the rate of production assumed in the calculations.
|
|
|
•
|
Selection of a
10 percent
discount rate is arbitrary and may not be a reasonable measure of the relative risk that is part of realizing future net oil and gas revenues.
|
|
|
•
|
Future net revenues may be subject to different rates of income taxation.
|
Under the Standardized Measure, future cash inflows were estimated by using the 12-month average index price for the respective commodity, calculated as the unweighted arithmetic average for the first day of the month price for each month during the year.
The average prices (adjusted for basis and quality differentials) related to proved reserves are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Natural gas
|
$
|
2.58
|
|
|
$
|
2.33
|
|
|
$
|
1.74
|
|
Crude oil
|
$
|
65.21
|
|
|
$
|
49.26
|
|
|
$
|
37.54
|
|
NGLs
|
$
|
21.64
|
|
|
$
|
20.64
|
|
|
$
|
10.69
|
|
In the above table, natural gas prices are stated per Mcf and crude oil and NGL prices are stated per barrel.
Future cash inflows were reduced by estimated future development and production costs based on year end costs to arrive at net cash flow before tax. Future income tax expense was computed by applying year end statutory tax rates to future pretax net cash flows, less the tax basis of the properties involved and utilization of available tax carryforwards related to oil and gas operations. The applicable accounting standards require the use of a
10 percent
discount rate.
Management does not solely use the following information when making investment and operating decisions. These decisions are based on a number of factors, including estimates of proved reserves, and varying price and cost assumptions considered more representative of a range of anticipated economic conditions.
Standardized Measure is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Future cash inflows
|
$
|
29,904,474
|
|
|
$
|
24,602,423
|
|
|
$
|
16,078,109
|
|
Future production costs
|
(8,702,734
|
)
|
|
(9,080,268
|
)
|
|
(7,821,889
|
)
|
Future development costs
(1)
|
(1,766,796
|
)
|
|
(1,901,647
|
)
|
|
(1,926,465
|
)
|
Future income tax expenses
|
(4,166,089
|
)
|
|
(2,585,022
|
)
|
|
(1,441,425
|
)
|
Future net cash flows
|
15,268,855
|
|
|
11,035,486
|
|
|
4,888,330
|
|
10% annual discount for estimated timing of cash flows
|
(8,785,547
|
)
|
|
(6,025,040
|
)
|
|
(2,653,563
|
)
|
Standardized measure of discounted future net cash flows
|
$
|
6,483,308
|
|
|
$
|
5,010,446
|
|
|
$
|
2,234,767
|
|
_______________________________________________________________________________
|
|
(1)
|
Includes $193.5 million, $396.7 million and $405.1 million in plugging and abandonment costs for the years ended December 31, 2018, 2017 and 2016, respectively.
|
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following is an analysis of the changes in the Standardized Measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Beginning of year
|
$
|
5,010,446
|
|
|
$
|
2,234,767
|
|
|
$
|
2,858,832
|
|
Discoveries and extensions, net of related future costs
|
1,280,499
|
|
|
729,429
|
|
|
147,664
|
|
Net changes in prices and production costs
|
2,078,479
|
|
|
2,709,183
|
|
|
(240,050
|
)
|
Accretion of discount
|
596,569
|
|
|
261,504
|
|
|
285,883
|
|
Revisions of previous quantity estimates
|
586,494
|
|
|
538,318
|
|
|
120,800
|
|
Timing and other
|
(76,761
|
)
|
|
(71,407
|
)
|
|
(154,966
|
)
|
Development costs incurred
|
338,297
|
|
|
405,264
|
|
|
238,118
|
|
Sales and transfers, net of production costs
|
(1,343,872
|
)
|
|
(1,126,520
|
)
|
|
(631,912
|
)
|
Net purchases (sales) of reserves in place
|
(1,290,594
|
)
|
|
(95,128
|
)
|
|
(9,326
|
)
|
Net change in income taxes
|
(696,249
|
)
|
|
(574,964
|
)
|
|
(380,276
|
)
|
End of year
|
$
|
6,483,308
|
|
|
$
|
5,010,446
|
|
|
$
|
2,234,767
|
|
CABOT OIL & GAS CORPORATION
SELECTED DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
473,227
|
|
|
$
|
453,447
|
|
|
$
|
545,173
|
|
|
$
|
716,301
|
|
|
$
|
2,188,148
|
|
Operating income
|
177,044
|
|
|
78,029
|
|
|
176,051
|
|
|
340,677
|
|
|
771,801
|
|
Net income
|
117,231
|
|
|
42,431
|
|
|
122,337
|
|
|
275,044
|
|
|
557,043
|
|
Basic earnings per share
|
0.26
|
|
|
0.09
|
|
|
0.28
|
|
|
0.64
|
|
|
1.25
|
|
Diluted earnings per share
|
0.25
|
|
|
0.09
|
|
|
0.28
|
|
|
0.63
|
|
|
1.24
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
517,843
|
|
|
$
|
460,457
|
|
|
$
|
385,416
|
|
|
$
|
400,503
|
|
|
$
|
1,764,219
|
|
Impairment of oil and gas properties
(1)
|
—
|
|
|
68,555
|
|
|
—
|
|
|
414,256
|
|
|
482,811
|
|
Loss on equity method investments
(2)
|
(1,283
|
)
|
|
(1,286
|
)
|
|
(1,417
|
)
|
|
(96,500
|
)
|
|
(100,486
|
)
|
Operating income (loss)
|
190,120
|
|
|
57,440
|
|
|
39,986
|
|
|
(438,806
|
)
|
|
(151,260
|
)
|
Net income (loss)
(3)
|
105,720
|
|
|
21,527
|
|
|
17,587
|
|
|
(44,441
|
)
|
|
100,393
|
|
Basic earnings (loss) per share
|
0.23
|
|
|
0.05
|
|
|
0.04
|
|
|
(0.10
|
)
|
|
0.22
|
|
Diluted earnings (loss) per share
|
0.23
|
|
|
0.05
|
|
|
0.04
|
|
|
(0.10
|
)
|
|
0.22
|
|
_______________________________________________________________________________
|
|
(1)
|
For discussion of impairment of oil and gas properties, refer to
Note 3
.
|
|
|
(2)
|
Loss on equity method investments in fourth quarter of 2017 includes an other than temporary impairment of
$95.9 million
associated with the Company's investment in Constitution.
|
|
|
(3)
|
Net income (loss) in the fourth quarter of 2017 includes an income tax benefit of
$242.9 million
as a result of the remeasurement of the Company's net deferred income tax liabilities based on the new lower corporate income tax rate associated with the Tax Act that was enacted in December 2017.
|