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, 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 and exploration. 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.
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
four
financial institutions at
December 31, 2017
. 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 pipeline imbalances. Tubular goods and well equipment balances are carried at average cost.
Natural gas gathering and pipeline operations normally include imbalance arrangements with the pipeline. The volumes of natural gas due to or from the Company under imbalance arrangements are recorded at actual selling or purchase prices, as the case may be, and are adjusted monthly to market prices.
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 an other than temporary 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 natural gas and crude oil 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
2017
,
2016
and
2015
, amortization associated with the Company's unproved properties was
$52.8 million
,
$25.0 million
and
$41.4 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,
2017
, 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 and Hedging Activities
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 natural gas and crude oil production. 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 oil and gas 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:
|
|
•
|
Level 1: Unadjusted, quoted prices for identical assets or liabilities in active markets.
|
|
|
•
|
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.
|
|
|
•
|
Level 3: Significant, unobservable inputs for use when little or no market data exists, requiring a significant degree of judgment.
|
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
Natural gas and oil sales result from interests in oil and gas properties owned by the Company. Sales of natural gas and oil are recognized when the product is delivered and title transfers to the purchaser. Payment is generally received one to three months after the sale has occurred.
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,
2017
and
2016
were not material.
Brokered Natural Gas.
Revenues and expenses related to brokered natural gas activity 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, typically with separate counterparties, whereby the Company and/or the counterparty takes title to the natural gas purchased or sold.
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 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% 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 Accounting Standards Update (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.
Refer to
Recently Adopted Accounting Pronouncements
that follow for further information with respect to the adoption of ASU 2016-09.
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,
2017
,
2016
and
2015
,
two
customers accounted for approximately
18%
and
11%
,
two
customers accounted for approximately
19%
and
10%
and
two
customers accounted for approximately
16%
and
14%
, 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.
Recently Adopted Accounting Pronouncements
Stock-Based Compensation.
In March 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, as an amendment to ASC Topic 718. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2016. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. The Company elected to apply this guidance on a prospective basis.
The Company adopted this guidance effective January 1, 2017. The recognition of previously unrecognized windfall tax benefits resulted in a cumulative-effect adjustment of
$42.2 million
, which increased retained earnings and decreased net deferred tax liabilities by the same amount as of the beginning of 2017. Effective January 1, 2017, cash paid by the Company when directly withholding shares from employee awards for tax-withholding purposes was classified as a financing activity. This change was recognized retrospectively beginning January 1, 2015. Prior periods have been adjusted as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
Net Cash Provided by Financing Activities
|
(In thousands)
|
|
As Reported
|
|
As Adjusted
|
|
As Reported
|
|
As Adjusted
|
Year ended December 31, 2015
|
|
$
|
740,737
|
|
|
$
|
749,598
|
|
|
$
|
232,157
|
|
|
$
|
223,296
|
|
Year ended December 31, 2016
|
|
392,377
|
|
|
397,441
|
|
|
458,869
|
|
|
453,805
|
|
The remaining provisions of this amendment did not have a material effect on the Company's financial position, results of operations or cash flows.
Accounting Changes and Error Corrections.
In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Venture (Topic 323), which states that registrants should consider additional qualitative disclosures if the impact of an issued but not yet adopted ASU is unknown or cannot be reasonably estimated and to include a description of the effect of the accounting policies that the registrant expects to apply, if determined. Transition guidance in certain issued but not yet adopted ASUs, including Leases and Revenue Recognition, was also updated to reflect this amendment. This guidance was effective immediately. The adoption of this guidance impacted the Company’s disclosures but had no effect on its financial position, results of operations or cash flows.
Retirement Benefits.
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715). The amendments in this update require that an employer report the service cost component of postretirement benefits in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The amendments in this update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic postretirement benefit cost in the
income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic benefit cost in assets.
The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. The Company elected to early adopt this guidance effective January 1, 2017. The reclassification of interest and amortization of prior service cost resulted in an increase in operating income and an increase in other expense (non-operating expense) of
$1.6 million
and
$1.4 million
for the years ended December 31, 2016 and 2015, respectively.
Recently Issued Accounting Pronouncements
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 guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption of this amendment is not permitted. The adoption of this guidance will change the methodology that the Company uses to evaluate its equity method investments for impairment. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, results of operation or cash flows.
Leases.
In February 2016, the FASB issued ASU No. 2016-02, Leases, as a new Topic, ASC Topic 842. The new lease guidance supersedes Topic 840. The core principle of the guidance is that a company 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. 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. To date the Company has determined that right to use assets and related liabilities will increase as a result of the adoption of this guidance; however, the extent to which this increase impacts the financial position, results of operations or cash flows has not yet been determined.
Revenue Recognition.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of ASU No. 2014-09 by one year, making the new standard effective for interim and annual periods beginning after December 15, 2017. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
Additionally, in March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus agent considerations (reporting revenue gross versus net), which clarifies the implementation guidance on principal versus agent considerations on such matters. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying performance obligations and licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-scope improvements and practical expedients, which addresses narrow-scope improvements to the guidance on collectibility, non-cash consideration, and completed contracts at transition. Additionally, the amendments in this update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies the guidance or corrects unintended application of guidance.
The Company plans to adopt this guidance effective January 1, 2018 using the modified retrospective method applied to contracts that are not completed as of that date. The Company has not identified changes to its revenue recognition policies that would result in a material adjustment to the opening balance of retained earnings on January 1, 2018. The Company has also evaluated its agreements with royalty and nonoperated partners for principal versus agent consideration and determined that there are no changes to its existing policies regarding these transactions. Adopting this guidance will result in increased
disclosures related to revenue recognition policies and disaggregation of revenue in future disclosures in the Company’s Consolidated Financial Statements. As allowed by the practical expedients under Topic 606, the Company does not plan to provide expanded disclosures with respect to the value of unsatisfied performance obligations for contracts with variable consideration or with an original term of one year or less
.
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 GAAP is either unclear or does not include specific guidance. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period. This ASU must be adopted using a retrospective transition method.
The Company expects to classify distributions it receives from its equity method investees based on the nature of distributions approach in which distributions received are classified on the basis of the nature of the activity that generated the distribution as either a return on investment (cash inflows from operating activities) or a return of investment (cash inflows from investing activities). The Company is not currently receiving any distributions from its equity method investees; however, if material distributions are received in the future, the impact on its cash flows could be material. The Company plans to adopt this guidance effective January 1, 2018. The Company has not identified any changes to the remaining areas of this guidance that upon adoption will have a material effect on its cash flows.
2. Divestitures
The Company recognized an aggregate net gain (loss) on sale of assets of
$(11.6) million
,
$(1.9) million
and
$3.9 million
for the years ended December 31,
2017
,
2016
and
2015
, respectively.
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 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)
|
2017
|
|
2016
|
Proved oil and gas properties
|
$
|
4,932,512
|
|
|
$
|
7,437,604
|
|
Unproved oil and gas properties
|
190,474
|
|
|
260,543
|
|
Gathering and pipeline systems
|
1,569
|
|
|
187,846
|
|
Land, building and other equipment
|
82,670
|
|
|
84,462
|
|
|
5,207,225
|
|
|
7,970,455
|
|
Accumulated depreciation, depletion and amortization
|
(2,135,021
|
)
|
|
(3,720,330
|
)
|
|
$
|
3,072,204
|
|
|
$
|
4,250,125
|
|
Assets Held for Sale
On December 11, 2017, the Company entered into an agreement to sell its operated and non-operated Haynesville Shale assets to an undisclosed buyer for
$30.0 million
, subject to customary purchase price adjustments, and classified these assets as held for sale. The Company expects to close this transaction in the first half of 2018.
On December 19, 2017, the Company entered into an agreement to sell its operated and non-operated Eagle Ford Shale assets to an affiliate of Venado Oil & Gas LLC for
$765.0 million
, subject to customary closing conditions and purchase price adjustments, and classified these assets as held for sale. The Company expects to close this transaction in the first quarter of 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 and Other Assets
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 we 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 these assets was based on a market approach that considered the preliminary price contained in a draft purchase and sale agreement that was under negotiation with a potential buyer as of December 31, 2016.
In December 2015, the Company recorded an impairment of
$114.9 million
associated with oil and gas properties in
certain fields in south Texas, east Texas and Louisiana
. The impairment of these fields was due to a significant decline in commodity prices in late 2015. These fields were reduced to fair value of approximately
$89.9 million
using discounted future cash flows.
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.
The fair value of the impaired properties in 2015 was determined using an income approach that was based on significant inputs that were not observable in the market and are considered to be Level 3 inputs as defined by ASC 820. Refer to
Note 1
for a description of fair value hierarchy. Key assumptions included (i) reserves, including risk adjustments for probable and possible reserves; (ii) production rates based on the Company's experience with similar properties in which it operates; (iii)
estimated future operating and development costs; (iv) future commodity prices; (v) future cash flows; and (vi) a market-based weighted average cost of capital rate of
10%
.
Capitalized Exploratory Well Costs
The following table reflects the net changes in capitalized exploratory well costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,557
|
|
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
|
—
|
|
|
—
|
|
|
(10,557
|
)
|
Capitalized exploratory well costs charged to expense
|
—
|
|
|
—
|
|
|
—
|
|
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)
|
2017
|
|
2016
|
|
2015
|
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)
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of period
|
|
$
|
96,850
|
|
|
$
|
90,345
|
|
|
$
|
64,268
|
|
|
$
|
32,674
|
|
|
$
|
13,172
|
|
|
$
|
3,761
|
|
|
$
|
129,524
|
|
|
$
|
103,517
|
|
|
$
|
68,029
|
|
Contributions
|
|
4,350
|
|
|
8,975
|
|
|
19,625
|
|
|
52,689
|
|
|
19,509
|
|
|
9,448
|
|
|
57,039
|
|
|
28,484
|
|
|
29,073
|
|
Earnings (loss) on equity method investments
|
|
(100,468
|
)
|
|
(2,470
|
)
|
|
6,452
|
|
|
(18
|
)
|
|
(7
|
)
|
|
(37
|
)
|
|
(100,486
|
)
|
|
(2,477
|
)
|
|
6,415
|
|
Balance at end of period
|
|
$
|
732
|
|
|
$
|
96,850
|
|
|
$
|
90,345
|
|
|
$
|
85,345
|
|
|
$
|
32,674
|
|
|
$
|
13,172
|
|
|
$
|
86,077
|
|
|
$
|
129,524
|
|
|
$
|
103,517
|
|
Constitution Pipeline Company, LLC
In April 2012, the Company acquired a
25%
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. In early 2016, Constitution filed legal actions in the U.S. Court of Appeals for the Second Circuit and the U.S. District Court for the Northern District of New York challenging the legality and appropriateness of the NYSDEC’s decision. On March 16, 2017, the U.S. District Court for the Northern District of New York issued an order
ruling, without prejudice, that it lacked subject matter jurisdiction to hear Constitution’s complaint. On August 18, 2017, the Second Circuit issued a decision denying in part and dismissing in part Constitution’s appeal. The Second Circuit determined that it lacked jurisdiction to address Constitution’s argument that the NYSDEC waived its ability to issue a Certification by unreasonably delaying action on Constitution's application. Instead, the Second Circuit found that jurisdiction over the waiver issue lies exclusively with the United States Court of Appeals for the District of Columbia Circuit. The Second Circuit, however, rejected Constitution’s assertion that the denial of the Certification by the NYSDEC was “arbitrary and capricious” and denied Constitution’s complaint in that regard. On October 11, 2017, Constitution filed a petition for a declaratory order requesting the Federal Energy Regulatory Commission (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. 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, asserting that the Second Circuit’s decision conflicts with the decisions of the U.S. Supreme Court and federal Courts of Appeals on an important question of federal law. The U.S. Supreme Court has not yet determined if it will hear the case. On February 12, 2018, Constitution filed a rehearing request with the FERC of its findings that the NYSDEC did not waive the Section 401 Water Quality Certification requirement. The FERC has not yet ruled on the rehearing.
Constitution stated that it remains committed to pursuing the project and that it intends to pursue all available options to challenge the NYSDEC’s decision. 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 recent 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, 2017, 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 recent 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%
equity interest in Meade, which was formed to participate in the development and construction of a
177
-mile pipeline (Central Penn Line) that will transport natural gas from Susquehanna County, Pennsylvania to an interconnect with Transcontinental Gas Pipe Line Company, LLC’s (Transco) mainline in Lancaster County, Pennsylvania. The new pipeline will be constructed and operated by Transco and will be owned by Transco and Meade in proportion to their respective ownership percentages of approximately
61%
and
39%
, respectively. Under the terms of the Meade LLC agreement, the Company agreed to invest its proportionate share of Meade’s anticipated costs associated with the new pipeline. The Company expects to contribute approximately
$75.0 million
over the next
two years
. By order issued on February 3, 2017, the FERC issued Transco a certificate of public convenience and necessity authorizing the construction of the new pipeline. The in-service date for the new pipeline is expected to be mid-2018.
5. Debt and Credit Agreements
The Company's debt and credit agreements consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2017
|
|
2016
|
Total debt
|
|
|
|
6.51% weighted-average senior notes
(1)
|
$
|
361,000
|
|
|
$
|
361,000
|
|
9.78% senior notes
(2)
|
67,000
|
|
|
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
|
—
|
|
|
—
|
|
Unamortized debt issuance costs
|
(6,109
|
)
|
|
(7,470
|
)
|
|
$
|
1,521,891
|
|
|
$
|
1,520,530
|
|
_______________________________________________________________________________
(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
$304.0 million
due in 2018,
$87.0 million
due in 2020 and
$188.0 million
due in 2021. In addition, the revolving credit facility matures in
2020
. No other tranches of debt are due within the next five years.
At December 31,
2017
, the Company was in compliance with all restrictive financial covenants, as amended, 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 (as amended) provide that the Company maintain a minimum asset coverage ratio of
1.25
to 1.0 through and including December 31, 2017 and
1.75
to 1.0 beginning on January 1, 2018 and thereafter. The amended agreements also introduced a leverage ratio covenant, which was defined in the agreement as the ratio of debt to consolidated EBITDAX and provided for potential increases to the original coupon rates ranging from
0
to
125
basis points depending on the asset coverage and leverage ratios at the end of the respective quarterly period, as defined in the note agreements. These covenants and the potential coupon rate increases were to remain in effect until the Company maintained a leverage ratio below
3.0
to 1.0 for
two
consecutive fiscal quarters ending on or after December 31, 2017, or received an investment grade rating by Standard & Poor's Ratings Services (S&P) or Moody’s Investor Service, Inc (Moody's). As of December 31, 2017, the Company had maintained a leverage ratio below
3.0
to
1.0
for two consecutive fiscal quarters and is no longer subject to this financial covenant or potential coupon rate increases. As of December 31, 2017, 2016 and 2015, there were
no
interest rate adjustments required for the Company's senior notes.
The note agreements also include a minimum annual coverage ratio of consolidated cash flow to interest expense for the trailing
four
quarters of
2.8
to 1.0, which was unchanged by the amendments. There are also various other covenants and events of default customarily found in such debt instruments.
In conjunction with the execution of the amendments, the Company incurred approximately
$1.9 million
of debt issuance costs, which were capitalized and are being amortized over the term of the respective amended agreements.
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
.
9.78% Senior Notes
In December 2008, the Company issued
$67.0 million
aggregate principal amount of
10
year
9.78%
senior unsecured notes to a group of
four
institutional investors in a private placement.
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 11, 2017
, 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
.
In December 2017, the Company entered into an agreement to sell certain of its Eagle Ford Shale assets for
$765.0 million
and expects to close on the sale in the first quarter of 2018. The lenders under the Company's revolving credit facility have agreed to waive the requirement that the borrowing base be reduced upon closing of the Eagle Ford sale provided that the sale of these assets is considered in the Company’s upcoming annual borrowing base redetermination on April 1, 2018.
The Company's revolving credit agreement (as amended) provides that the Company maintain a minimum asset coverage ratio of
1.25
to 1.0 through and including December 31, 2017 and
1.75
to 1.0 beginning on January 1, 2018 and thereafter. The amended agreement also introduced a leverage ratio covenant, which was defined in the agreement as the ratio of debt to consolidated EBITDAX and increased the maximum leverage ratio and associated margins.
Interest rates under the amended revolving credit facility are based on
LIBOR
or
ABR
indications, plus a margin which ranges from
50
to
300
basis points, as defined in the amended agreement
. These covenants and the and the associated margin adjustments were to remain in effect until the Company maintained a leverage ratio below
3.0
to 1.0 for
two
consecutive fiscal quarters ending on or after December 31, 2017, or received an investment grade rating by Standard & Poor's Ratings Services (S&P) or Moody’s Investor Service, Inc (Moody's). As of December 31, 2017, the Company had maintained a leverage ratio below
3.0
to
1.0
for two consecutive fiscal quarters and is no longer subject to this financial covenant and the associated margins reverted back to the pre-amendment levels of
50
to
225
basis points.
The revolving credit facility also contains various other customary covenants that remained unchanged as a result of the amendment, which include the following (with all calculations based on definitions contained in the agreement):
|
|
(a)
|
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.
|
|
|
(b)
|
Maintenance of a minimum current ratio of
1.0
to 1.0.
|
The revolving credit facility also provides for a commitment fee on the unused available balance at annual rates ranging from
0.30%
to
0.50%
. The other terms and conditions of the amended facility are generally consistent with the terms and conditions of the revolving credit facility prior to its amendment.
At
December 31, 2017
, the Company had
no
borrowings outstanding under its revolving credit facility and had unused commitments of
$1.7 billion
. The Company's weighted-average effective interest rates for the revolving credit facility during the years ended December 31,
2016
and
2015
were approximately
2.3%
and
2.2%
, respectively.
6. Derivative Instruments and Hedging Activities
As of
December 31, 2017
, the Company had the following outstanding financial commodity derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collars
|
|
|
|
|
|
|
|
|
|
Floor
|
|
Ceiling
|
|
Basis Swaps
|
Type of Contract
|
|
Volume
|
|
Contract Period
|
|
Range
|
|
Weighted-Average
|
|
Range
|
|
Weighted- Average
|
|
Weighted- Average
|
Financial contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (Leidy)
|
|
17.7
|
|
Bcf
|
|
Jan. 2018 - Dec. 2018
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.71
|
)
|
Natural gas (Transco)
|
|
21.3
|
|
Bcf
|
|
Jan. 2018 - Dec. 2019
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.42
|
|
Crude oil (WTI/LLS)
|
|
2.9
|
|
Mmbbl
|
|
Jan. 2018 - Dec. 2018
|
|
$—
|
|
$
|
55.00
|
|
|
$63.35-$63.80
|
|
$
|
63.62
|
|
|
|
In January 2018, we entered into the following financial commodity derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
Basis Swaps
|
Type of Contract
|
Volume
|
|
Contract Period
|
|
Weighted- Average
|
|
Weighted- Average
|
Financial contracts
|
|
|
|
|
|
|
|
|
|
Natural gas (NYMEX)
|
84.4
|
|
|
Bcf
|
|
Feb. 2018 - Dec. 2018
|
|
$2.93
|
|
|
Natural gas (NYMEX)
|
13.3
|
|
|
Bcf
|
|
Feb. 2018 - Oct. 2018
|
|
$3.10
|
|
|
Natural gas (Leidy)
|
16.2
|
|
|
Bcf
|
|
Feb. 2018 - Dec. 2018
|
|
|
|
$(0.68)
|
In the tables above, natural gas prices are stated per Mcf and crude oil prices are stated per barrel.
As of December 31, 2017, the Company had the following outstanding physical commodity derivatives:
|
|
|
|
|
|
|
|
|
|
|
Type of Contract
|
|
Volume
|
|
Contract Period
|
|
Weighted-Average Fixed Price
|
Physical contracts
|
|
|
|
|
|
|
|
|
Natural gas purchase
|
|
81.2
|
|
|
Bcf
|
|
Jan. 2018 - Oct. 2018
|
|
$3.70
|
Natural gas sales
|
|
11.7
|
|
|
Bcf
|
|
Jan. 2018 - Feb. 2018
|
|
$4.71
|
In the table above, natural gas prices are stated per Mcf.
In January 2018, the Company terminated certain physical purchase contracts prior to their settlement date. The termination did not have a material impact on the Consolidated Financial Statements, as the contracts were previously recognized at fair value.
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
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Commodity contracts
|
|
Other assets (non-current)
|
|
$
|
2,239
|
|
|
$
|
2,991
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity contracts
|
|
Derivative instruments (current)
|
|
—
|
|
|
—
|
|
|
30,637
|
|
|
40,259
|
|
|
|
|
|
$
|
2,239
|
|
|
$
|
2,991
|
|
|
$
|
30,637
|
|
|
$
|
40,259
|
|
Offsetting of Derivative Assets and Liabilities in the Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
Derivative assets
|
|
|
|
|
|
|
Gross amounts of recognized assets
|
|
$
|
2,239
|
|
|
$
|
2,991
|
|
Gross amounts offset in the statement of financial position
|
|
—
|
|
|
—
|
|
Net amounts of assets presented in the statement of financial position
|
|
2,239
|
|
|
2,991
|
|
Gross amounts of financial instruments not offset in the statement of financial position
|
|
—
|
|
|
—
|
|
Net amount
|
|
$
|
2,239
|
|
|
$
|
2,991
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
Gross amounts of recognized liabilities
|
|
$
|
30,637
|
|
|
$
|
40,259
|
|
Gross amounts offset in the statement of financial position
|
|
—
|
|
|
—
|
|
Net amounts of liabilities presented in the statement of financial position
|
|
30,637
|
|
|
40,259
|
|
Gross amounts of financial instruments not offset in the statement of financial position
|
|
241
|
|
|
757
|
|
Net amount
|
|
$
|
30,878
|
|
|
$
|
41,016
|
|
Effect of Derivative Instruments on the Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Cash received (paid) on settlement of derivative instruments
|
|
|
|
|
|
|
Gain (loss) on derivative instruments
|
|
$
|
8,056
|
|
|
$
|
(1,682
|
)
|
|
$
|
194,289
|
|
Non-cash gain (loss) on derivative instruments
|
|
|
|
|
|
|
Gain (loss) on derivative instruments
|
|
8,870
|
|
|
(37,268
|
)
|
|
(137,603
|
)
|
|
|
$
|
16,926
|
|
|
$
|
(38,950
|
)
|
|
$
|
56,686
|
|
Additional Disclosures about Derivative Instruments and Hedging Activities
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2016
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
12,587
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,587
|
|
Derivative instruments
|
—
|
|
|
—
|
|
|
2,991
|
|
|
2,991
|
|
Total assets
|
$
|
12,587
|
|
|
$
|
—
|
|
|
$
|
2,991
|
|
|
$
|
15,578
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
24,169
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,169
|
|
Derivative instruments
|
—
|
|
|
21,400
|
|
|
18,859
|
|
|
40,259
|
|
Total liabilities
|
$
|
24,169
|
|
|
$
|
21,400
|
|
|
$
|
18,859
|
|
|
$
|
64,428
|
|
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 prices for natural gas and crude oil, 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 and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties' valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
(15,868
|
)
|
|
$
|
—
|
|
|
$
|
85,958
|
|
Total gain (loss) included in earnings
|
(1,866
|
)
|
|
(17,886
|
)
|
|
32,864
|
|
Settlement (gain) loss
|
(10,664
|
)
|
|
2,018
|
|
|
(118,822
|
)
|
Balance at end of period
|
$
|
(28,398
|
)
|
|
$
|
(15,868
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period
|
$
|
(28,398
|
)
|
|
$
|
(15,868
|
)
|
|
$
|
—
|
|
There were no transfers between Level 1 and Level 2 fair value measurements for the years ended December 31,
2017
,
2016
and
2015
.
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 other than temporary 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 and other assets during the years ended December 31,
2017
,
2016
and
2015
. 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,
2017
,
2016
and
2015
, additional disclosures were not required.
The estimated fair value of the Company's asset retirement obligation 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, 2017
|
|
December 31, 2016
|
(In thousands)
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
Long-term debt
|
$
|
1,521,891
|
|
|
$
|
1,527,624
|
|
|
$
|
1,520,530
|
|
|
$
|
1,463,643
|
|
Current maturities
|
(304,000
|
)
|
|
(312,055
|
)
|
|
—
|
|
|
—
|
|
Long-term debt, excluding current maturities
|
$
|
1,217,891
|
|
|
$
|
1,215,569
|
|
|
$
|
1,520,530
|
|
|
$
|
1,463,643
|
|
8. Asset Retirement Obligations
Activity related to the Company's asset retirement obligations is as follows:
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31, 2017
|
Balance at beginning of period
(1)
|
|
$
|
133,733
|
|
Liabilities incurred
|
|
4,653
|
|
Liabilities settled
|
|
(1,293
|
)
|
Liabilities divested
|
|
(77,965
|
)
|
Liabilities transferred to liabilities held for sale
|
|
(15,748
|
)
|
Accretion expense
|
|
5,173
|
|
Balance at end of period
(2)
|
|
$
|
48,553
|
|
____________________________________________
(1) Includes
$2.0 million
of current asset retirement obligations included in accrued liabilities at
December 31,
2016
.
(2) Includes
$5.0 million
of current asset retirement obligations included in accrued liabilities at
December 31,
2017
.
9. Commitments and Contingencies
Transportation and Gathering Agreements
The Company has entered into certain natural gas and oil 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,
2017
, the Company's future minimum obligations under transportation and gathering agreements are as follows:
|
|
|
|
|
(In thousands)
|
|
2018
|
$
|
105,478
|
|
2019
|
163,017
|
|
2020
|
157,654
|
|
2021
|
157,224
|
|
2022
|
157,224
|
|
Thereafter
|
1,004,087
|
|
|
$
|
1,744,684
|
|
Lease Commitments
The Company leases certain office space, warehouse facilities, vehicles, machinery and equipment under cancelable and non-cancelable leases. Rent expense under these arrangements totaled
$9.7 million
,
$10.7 million
and
$13.9 million
for the years ended December 31,
2017
,
2016
and
2015
, respectively.
Future minimum rental commitments under non-cancelable leases in effect at December 31,
2017
are as follows:
|
|
|
|
|
(In thousands)
|
|
2018
|
$
|
6,541
|
|
2019
|
6,308
|
|
2020
|
5,990
|
|
2021
|
4,903
|
|
2022
|
1,720
|
|
Thereafter
|
4,543
|
|
|
$
|
30,005
|
|
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 tax legislation referred to as the Tax Cuts and Jobs Act (the "Tax Act") which significantly changes U.S. corporate income tax laws beginning, generally, in 2018. These changes include, among others, (i) a permanent reduction of the U.S. corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, (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% of adjusted taxable income, (v) limitation of the deduction for net operating losses to 80% 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. Overall, the Company expects the provisions of the Tax Act to favorably impact its future effective tax rate, after-tax earnings, and cash flows.
Income tax benefit
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
$
|
(9,531
|
)
|
|
$
|
(9,920
|
)
|
|
$
|
983
|
|
State
|
1,816
|
|
|
(1,848
|
)
|
|
(1,397
|
)
|
|
(7,715
|
)
|
|
(11,768
|
)
|
|
(414
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
(313,938
|
)
|
|
(218,357
|
)
|
|
(72,869
|
)
|
State
|
(7,175
|
)
|
|
(12,350
|
)
|
|
(99
|
)
|
|
(321,113
|
)
|
|
(230,707
|
)
|
|
(72,968
|
)
|
Income tax benefit
|
$
|
(328,828
|
)
|
|
$
|
(242,475
|
)
|
|
$
|
(73,382
|
)
|
Income tax benefit
was different than the amounts computed by applying the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
(In thousands, except rates)
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
Computed "expected" federal income tax
|
$
|
(79,952
|
)
|
|
35.00
|
%
|
|
$
|
(230,860
|
)
|
|
35.00
|
%
|
|
$
|
(65,546
|
)
|
|
35.00
|
%
|
State income tax, net of federal income tax benefit
|
(4,239
|
)
|
|
1.86
|
%
|
|
(10,888
|
)
|
|
1.65
|
%
|
|
(3,152
|
)
|
|
1.68
|
%
|
Deferred tax adjustment related to change in overall state tax rate
|
(48
|
)
|
|
0.02
|
%
|
|
(663
|
)
|
|
0.10
|
%
|
|
2,822
|
|
|
(1.51
|
)%
|
Valuation allowance
|
(505
|
)
|
|
0.22
|
%
|
|
221
|
|
|
(0.03
|
)%
|
|
187
|
|
|
(0.10
|
)%
|
Provision to return adjustments
|
(3,242
|
)
|
|
1.42
|
%
|
|
(121
|
)
|
|
0.02
|
%
|
|
(6,326
|
)
|
|
3.38
|
%
|
Excess stock compensation
|
2,965
|
|
|
(1.30
|
)%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Tax Act
|
(242,875
|
)
|
|
106.32
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Other, net
|
(932
|
)
|
|
0.41
|
%
|
|
(164
|
)
|
|
0.02
|
%
|
|
(1,367
|
)
|
|
0.73
|
%
|
Income tax benefit
|
$
|
(328,828
|
)
|
|
143.95
|
%
|
|
$
|
(242,475
|
)
|
|
36.76
|
%
|
|
$
|
(73,382
|
)
|
|
39.18
|
%
|
In 2017, the Company's overall effective tax rate significantly increased compared to 2016, primarily due to the Tax Act. As a result of the enactment of the Tax Act, we recorded an income tax benefit in December 2017 of
$242.9 million
resulting from the remeasurement of our net deferred tax liabilities based on the new lower corporate income tax rate. Although the
$242.9 million
tax benefit represents what we believe is a reasonable estimate of the impact of the income tax effects of the Tax Act on our Consolidated Financial Statements as of December 31, 2017, it should be considered provisional. Once we finalize certain positions when we file our 2017 tax returns, we will be able to conclude whether any further adjustments are required to our net deferred tax liability balance. Any adjustments to this provisional amount will be reported in the period in which any such adjustments are determined.
Excluding the impact of the Tax Act, the effective tax rate for 2017 was
37.6%
. The effective tax rate was higher in 2015 than in 2016 and 2017 (excluding the impact of the Tax Act), primarily due to larger provision-to-return adjustments in 2015 compared to 2016 and 2017.
The composition of net deferred tax liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2017
|
|
2016
|
Deferred Tax Assets
|
|
|
|
|
|
Net operating losses
|
$
|
207,633
|
|
|
$
|
352,001
|
|
Alternative minimum tax credits
|
208,624
|
|
|
218,773
|
|
Foreign tax credits
|
3,541
|
|
|
3,816
|
|
Other business credits
|
3,524
|
|
|
—
|
|
Derivative instruments
|
6,645
|
|
|
13,771
|
|
Incentive compensation
|
15,898
|
|
|
22,852
|
|
Deferred compensation
|
6,065
|
|
|
8,217
|
|
Post-retirement benefits
|
7,265
|
|
|
13,865
|
|
Equity method investments
|
21,812
|
|
|
—
|
|
Other
|
492
|
|
|
2,743
|
|
Less: valuation allowance
|
(16,711
|
)
|
|
(5,186
|
)
|
Total
|
464,788
|
|
|
630,852
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
Properties and equipment
|
691,818
|
|
|
1,207,545
|
|
Equity method investments
|
—
|
|
|
2,754
|
|
Total
|
691,818
|
|
|
1,210,299
|
|
Net deferred tax liabilities
|
$
|
227,030
|
|
|
$
|
579,447
|
|
As of December 31, 2017, the Company had alternative minimum tax ("AMT") credit carryforwards of
$208.6 million
, which do not expire and can be used to offset regular income taxes in future years. Under the new Tax Act, the Company may claim a refund of 50% of the 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 recorded a valuation allowance in December 2017 of
$10.7 million
to account for the sequestration reduction the Internal Revenue Service will apply to the refundable portion of the AMT credits.
As of December 31, 2017, the Company had gross federal net operating loss ("NOL") carryforwards of
$839.3 million
, which will not begin to expire until 2032. The Company also had gross state NOL carryforwards of
$543.7 million
, the majority of which will not expire until 2023 through 2037. The Company had
$5.0 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
The Company has unrecognized tax benefits of
$0.7 million
related to the allocation of certain gains associated with its divestitures for purposes of computing state income taxes. There was no change to the Company's unrecognized tax benefits during 2017, 2016 or 2015. If recognized, the net tax benefit of
$0.7 million
would not have a material effect 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 not currently under examination by the Internal Revenue Service. 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
340
retirees and their dependents at the end of
2017
and
310
retirees and their dependents at the end of
2016
.
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)
|
2017
|
|
2016
|
|
2015
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
37,482
|
|
|
$
|
36,626
|
|
|
$
|
37,076
|
|
Service cost
|
1,508
|
|
|
2,323
|
|
|
1,808
|
|
Interest cost
|
1,097
|
|
|
1,498
|
|
|
1,448
|
|
Actuarial (gain) loss
|
5,156
|
|
|
(2,846
|
)
|
|
(2,829
|
)
|
Benefits paid
|
(1,204
|
)
|
|
(934
|
)
|
|
(877
|
)
|
Curtailments
(1)
|
(4,346
|
)
|
|
—
|
|
|
—
|
|
Plan amendments
|
(8,643
|
)
|
|
815
|
|
|
—
|
|
Benefit obligation at end of year
|
$
|
31,050
|
|
|
$
|
37,482
|
|
|
$
|
36,626
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
—
|
|
|
—
|
|
|
—
|
|
Funded status at end of year
|
$
|
(31,050
|
)
|
|
$
|
(37,482
|
)
|
|
$
|
(36,626
|
)
|
_______________________________________________________________________________
(1) During 2017, in conjunction with its sale of properties located in West Virginia, Virginia and Ohio, the Company terminated approximately
100
employees. 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)
|
2017
|
|
2016
|
|
2015
|
Current liabilities
|
$
|
1,654
|
|
|
$
|
1,223
|
|
|
$
|
1,333
|
|
Long-term liabilities
|
29,396
|
|
|
36,259
|
|
|
35,293
|
|
|
$
|
31,050
|
|
|
$
|
37,482
|
|
|
$
|
36,626
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
Amounts recognized in accumulated other comprehensive income (loss) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Net actuarial (gain) loss
|
$
|
1,912
|
|
|
$
|
(2,266
|
)
|
|
$
|
580
|
|
Prior service cost
|
(5,206
|
)
|
|
704
|
|
|
—
|
|
|
$
|
(3,294
|
)
|
|
$
|
(1,562
|
)
|
|
$
|
580
|
|
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Components of Net Periodic Postretirement Benefit Cost
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
1,508
|
|
|
$
|
2,323
|
|
|
$
|
1,808
|
|
Interest cost
|
1,097
|
|
|
1,498
|
|
|
1,448
|
|
Amortization of prior service cost
|
(1,183
|
)
|
|
111
|
|
|
—
|
|
Net periodic postretirement cost
|
1,422
|
|
|
3,932
|
|
|
3,256
|
|
Recognized curtailment gain
|
(4,917
|
)
|
|
—
|
|
|
—
|
|
Total post retirement cost (income)
|
$
|
(3,495
|
)
|
|
$
|
3,932
|
|
|
$
|
3,256
|
|
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
$
|
4,178
|
|
|
$
|
(2,846
|
)
|
|
$
|
(2,829
|
)
|
Prior service cost
|
(8,643
|
)
|
|
815
|
|
|
—
|
|
Amortization of prior service cost
|
2,733
|
|
|
(111
|
)
|
|
—
|
|
Total recognized in other comprehensive income
|
(1,732
|
)
|
|
(2,142
|
)
|
|
(2,829
|
)
|
Total recognized in net periodic benefit cost (income) and other comprehensive income
|
$
|
(5,227
|
)
|
|
$
|
1,790
|
|
|
$
|
427
|
|
Assumptions
Assumptions used to determine projected postretirement benefit obligations and postretirement costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
(1)
|
3.85
|
%
|
|
4.30
|
%
|
|
4.25
|
%
|
Health care cost trend rate for medical benefits assumed for next year (pre-65)
|
7.50
|
%
|
|
7.50
|
%
|
|
5.50
|
%
|
Health care cost trend rate for medical benefits assumed for next year (post-65)
|
5.75
|
%
|
|
5.00
|
%
|
|
5.50
|
%
|
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
|
|
|
2023
|
|
|
2018
|
|
Year that the rate reaches the ultimate trend rate (post-65)
|
2023
|
|
|
2018
|
|
|
2018
|
|
_______________________________________________________________________________
|
|
(1)
|
Represents the year end rates used to determine the projected benefit obligation. To compute postretirement cost in
2017
,
2016
and
2015
, respectively, the beginning of year discount rates of
3.85%
,
4.25%
and
4.00%
were used.
|
Coverage provided to participants age 65 and older is under a fully-insured arrangement. The Company subsidy is limited to
60%
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%
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
|
$
|
141
|
|
|
$
|
(106
|
)
|
Effect on postretirement benefit obligation
|
4,689
|
|
|
(3,716
|
)
|
Cash Flows
Contributions.
The Company expects to contribute approximately
$1.7 million
to the postretirement benefit plan in
2018
.
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)
|
|
2018
|
$
|
1,686
|
|
2019
|
1,816
|
|
2020
|
1,873
|
|
2021
|
1,898
|
|
2022
|
2,002
|
|
Years 2023 - 2027
|
9,237
|
|
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
nine
percent of an eligible plan participant's salary and bonus. In November 2017, the Compensation Committee of the Board of Directors approved an increase in the discretionary profit sharing contribution from
9 percent
to
10 percent
for 2018 contributions. During the years ended December 31,
2017
,
2016
and
2015
, the Company made contributions of
$6.5 million
,
$6.5 million
and
$7.1 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
$15.0 million
and
$12.6 million
at December 31,
2017
and
2016
, respectively, and is included in other assets in the Consolidated Balance Sheet. Related liabilities, including the Company's common stock, totaled
$29.1 million
and
$24.2 million
at December 31,
2017
and
2016
, 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,
2017
and
2016
,
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,
2017
and
2016
, respectively, and is included in additional paid-in capital in stockholders' equity in the Consolidated Balance Sheet. The Company recognized compensation expense (benefit) of
$2.6 million
,
$1.8 million
and
$(6.4) million
in
2017
,
2016
and
2015
, 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
$1.0 million
,
$0.6 million
and
$1.0 million
in
2017
,
2016
and
2015
, 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, which replaced the 2004 Incentive Plan that expired on April 29, 2014. 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,
2017
, approximately
14.8 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 year ended
December 31, 2017
, the Company repurchased
5.0 million
shares for a total cost of
$123.7 million
. During 2016 and 2015, there were
no
share repurchases. Since the authorization date, the Company has repurchased
34.9 million
shares of the
40.0 million
total shares authorized, of which
20.0 million
shares have been retired, for a total cost of approximately
$512.1 million
.
No
treasury shares have been delivered or sold by the Company subsequent to the repurchase. As of December 31,
2017
,
14.9 million
shares were held as treasury stock.
In February 2018, the Board of Directors authorized an increase of
25.0 million
shares to the Company’s share repurchase program. After this authorization, the total number of shares available for repurchase is
30.1 million
shares.
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.
13. Stock-Based Compensation
General
Stock-based compensation expense for the years ended December 31,
2017
,
2016
and
2015
was
$34.0 million
,
$26.0 million
and
$13.7 million
, respectively, and is included in general and administrative expense in the Consolidated Statement of Operations.
As described in Note 1 to the Consolidated Financial Statements, effective January 1, 2017, the Company adopted ASU No. 2016-09, which requires that excess tax benefits and tax deficiencies on stock-based compensation be recorded in the income statement. For the year ended December 31, 2017, the Company recorded an increase to tax expense of
$3.0 million
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. There was
no
tax benefit or deficiency recognized from stock-based compensation vesting during the year ended December 31, 2015.
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
5.0%
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,
|
|
2017
|
|
2016
|
|
2015
|
|
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
|
43,175
|
|
|
$
|
33.87
|
|
|
49,825
|
|
|
$
|
33.76
|
|
|
49,869
|
|
|
$
|
33.40
|
|
Granted
|
158,500
|
|
|
28.05
|
|
|
—
|
|
|
—
|
|
|
5,900
|
|
|
25.44
|
|
Vested
|
(40,225
|
)
|
|
34.49
|
|
|
(6,650
|
)
|
|
33.02
|
|
|
(5,944
|
)
|
|
22.55
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
(1)(2)
|
161,450
|
|
|
$
|
28.00
|
|
|
43,175
|
|
|
$
|
33.87
|
|
|
49,825
|
|
|
$
|
33.76
|
|
_______________________________________________________________________________
|
|
(1)
|
As of December 31,
2017
, the aggregate intrinsic value was
$4.6 million
and was calculated by multiplying the closing market price of the Company's stock on December 31,
2017
by the number of non-vested restricted stock awards outstanding.
|
|
|
(2)
|
As of December 31,
2017
, the weighted average remaining contractual term of non-vested restricted stock awards outstanding was
1.4 years
.
|
Compensation expense recorded for all restricted stock awards for the years ended December 31,
2017
,
2016
and
2015
was
$0.5 million
,
$0.4 million
and
$0.4 million
, respectively. Unamortized expense as of December 31,
2017
for all outstanding restricted stock awards was
$4.0 million
and will be recognized over the next
two years
.
The total fair value of restricted stock awards that vested during
2017
,
2016
and
2015
was
$0.9 million
,
$0.2 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,
|
|
2017
|
|
2016
|
|
2015
|
|
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
|
348,538
|
|
|
$
|
15.01
|
|
|
425,438
|
|
|
$
|
13.81
|
|
|
604,214
|
|
|
$
|
12.48
|
|
Granted and fully vested
|
59,025
|
|
|
23.04
|
|
|
69,302
|
|
|
20.62
|
|
|
51,292
|
|
|
27.87
|
|
Issued
|
—
|
|
|
—
|
|
|
(146,202
|
)
|
|
14.17
|
|
|
(230,068
|
)
|
|
13.45
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
(1)(2)
|
407,563
|
|
|
$
|
16.17
|
|
|
348,538
|
|
|
$
|
15.01
|
|
|
425,438
|
|
|
$
|
13.81
|
|
_______________________________________________________________________________
|
|
(1)
|
As of December 31,
2017
, the aggregate intrinsic value was
$11.7 million
and was calculated by multiplying the closing market price of the Company's stock on December 31,
2017
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,
2017
,
2016
and
2015
was
$1.4 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,
|
|
2017
|
|
2016
|
|
2015
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
Outstanding at beginning of period
|
483,286
|
|
|
$
|
13.04
|
|
|
558,546
|
|
|
$
|
12.52
|
|
|
667,764
|
|
|
$
|
12.63
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
(426,142
|
)
|
|
12.43
|
|
|
(75,260
|
)
|
|
9.19
|
|
|
(109,218
|
)
|
|
13.19
|
|
Forfeited or expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
(1)
|
57,144
|
|
|
$
|
17.59
|
|
|
483,286
|
|
|
$
|
13.04
|
|
|
558,546
|
|
|
$
|
12.52
|
|
Exercisable at end of period
(2)
|
57,144
|
|
|
$
|
17.59
|
|
|
483,286
|
|
|
$
|
13.04
|
|
|
558,546
|
|
|
$
|
12.52
|
|
_______________________________________________________________________________
|
|
(1)
|
The intrinsic value of a SAR is the amount which the current market value of the underlying stock exceeds the exercise price of the SAR. As of December 31,
2017
, the aggregate intrinsic value and weighted-average remaining contractual term of SARs outstanding was
$0.6 million
and
1.1 years
, respectively.
|
|
|
(2)
|
As of December 31,
2017
, the aggregate intrinsic value and weighted-average remaining contractual term of SARs exercisable was
$0.6 million
and
1.1 years
, respectively.
|
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
0%
to
5%
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%
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,
2017
, 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,
|
|
2017
|
|
2016
|
|
2015
|
|
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
|
993,530
|
|
|
$
|
27.26
|
|
|
925,590
|
|
|
$
|
30.23
|
|
|
1,088,960
|
|
|
$
|
25.18
|
|
Granted
|
406,460
|
|
|
22.60
|
|
|
435,990
|
|
|
20.49
|
|
|
349,780
|
|
|
27.71
|
|
Issued and fully vested
|
(225,780
|
)
|
|
39.43
|
|
|
(340,960
|
)
|
|
26.62
|
|
|
(504,620
|
)
|
|
17.59
|
|
Forfeited
|
(78,240
|
)
|
|
23.20
|
|
|
(27,090
|
)
|
|
27.77
|
|
|
(8,530
|
)
|
|
31.11
|
|
Outstanding at end of period
|
1,095,970
|
|
|
$
|
23.31
|
|
|
993,530
|
|
|
$
|
27.26
|
|
|
925,590
|
|
|
$
|
30.23
|
|
Hybrid Performance Share Awards.
The Hybrid Performance Share Awards have a
three
-year graded performance period. The awards vest
25%
on each of the first and second anniversary dates and
50%
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,
2017
, 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,
|
|
2017
|
|
2016
|
|
2015
|
|
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
|
479,784
|
|
|
$
|
25.12
|
|
|
372,385
|
|
|
$
|
30.37
|
|
|
329,061
|
|
|
$
|
29.27
|
|
Granted
|
272,920
|
|
|
22.60
|
|
|
271,938
|
|
|
20.49
|
|
|
194,947
|
|
|
27.71
|
|
Issued and fully vested
|
(178,350
|
)
|
|
29.01
|
|
|
(164,539
|
)
|
|
29.34
|
|
|
(151,623
|
)
|
|
24.56
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
|
574,354
|
|
|
$
|
22.72
|
|
|
479,784
|
|
|
$
|
25.12
|
|
|
372,385
|
|
|
$
|
30.37
|
|
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%
of the award in shares of common stock and the right to receive up to an additional
100%
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,
|
|
2017
|
|
2016
|
|
2015
|
|
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
|
885,213
|
|
|
$
|
21.62
|
|
|
732,286
|
|
|
$
|
23.82
|
|
|
674,787
|
|
|
$
|
22.42
|
|
Granted
|
409,380
|
|
|
19.85
|
|
|
407,907
|
|
|
18.57
|
|
|
292,421
|
|
|
19.29
|
|
Issued and fully vested
|
(157,147
|
)
|
|
32.04
|
|
|
(254,980
|
)
|
|
23.06
|
|
|
(234,922
|
)
|
|
14.16
|
|
Forfeited
|
(27,738
|
)
|
|
32.04
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
|
1,109,708
|
|
|
$
|
19.23
|
|
|
885,213
|
|
|
$
|
21.62
|
|
|
732,286
|
|
|
$
|
23.82
|
|
_________________________________________________________________________
(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, 2017 was
$3.3 million
. There was
no
current liability as of December 31, 2016. 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,
2017
and
2016
, was
$6.6 million
and
$2.1 million
, respectively. The Company made cash payments during the years ended December 31,
2016
and
2015
of
$1.8 million
and
$7.0 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,
|
|
2017
|
|
2016
|
|
2015
|
Fair value per performance share award granted during the period
|
$
|
19.85
|
|
|
$
|
18.57
|
|
|
$
|
19.29
|
|
Assumptions
|
|
|
|
|
|
|
|
|
Stock price volatility
|
37.8
|
%
|
|
34.4
|
%
|
|
32.3
|
%
|
Risk free rate of return
|
1.4
|
%
|
|
0.9
|
%
|
|
1.0
|
%
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
|
0.3
|
%
|
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,
|
|
2017
|
|
2016
|
|
2015
|
Fair value per performance share award at the end of the period
|
$13.23 - $21.64
|
|
$5.59 - $7.10
|
|
$2.49 - $6.39
|
Assumptions
|
|
|
|
|
|
Stock price volatility
|
29.1% - 36.7%
|
|
40.4% - 43.0%
|
|
33.5% - 37.5%
|
Risk free rate of return
|
1.8% - 1.9%
|
|
0.9% - 1.2%
|
|
0.7% - 1.1%
|
Expected dividend yield
|
—%
|
|
—%
|
|
—%
|
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,
2017
,
2016
and
2015
was
$29.1 million
,
$21.3 million
and
$18.3 million
, respectively. Total unamortized compensation expense related to the equity component of performance shares at December 31,
2017
was
$20.7 million
and will be recognized over the next
0.9 years
.
As of December 31,
2017
, the aggregate intrinsic value for all performance share awards was
$79.5 million
and was calculated by multiplying the closing market price of the Company's stock on December 31,
2017
by the number of unvested performance share awards outstanding. As of December 31,
2017
, the weighted average remaining contractual term of unvested performance share awards outstanding was approximately
1.2 years
On December 31,
2017
, the performance period ended for
two
types of performance share awards that were granted in
2015
. 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
2018
and was certified by the Compensation Committee in February
2018
. As the Company achieved the
three
performance metrics,
317,790
shares with a grant date fair value of
$8.8 million
were issued in February
2018
. For the TSR Performance Share Awards,
292,421
shares with a grant date fair value of
$5.6 million
were issued in January 2018 based on the Company's ranking relative to a predetermined peer group. Cash payments associated with these awards in the amount of
$3.3 million
were also made in January 2018 due to the Company's ranking relative to the peer group being above the median. The calculation of the award payout was certified by the Compensation Committee on January 5,
2018
.
Deferred Performance Shares
As of December 31,
2017
,
495,774
shares of the Company's common stock representing vested performance share awards were deferred into the deferred compensation plan. During
2017
,
0
shares were sold out of the plan. During
2017
, an increase to the deferred compensation liability of
$2.6 million
was recognized, which represents the increase in the closing price of the Company's shares held in the trust during the period. The increase 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)
|
|
2017
|
|
2016
|
|
2015
|
Weighted-average shares - basic
|
|
463,735
|
|
|
456,847
|
|
|
413,696
|
|
Dilution effect of stock appreciation rights and stock awards at end of period
|
|
1,816
|
|
|
—
|
|
|
—
|
|
Weighted-average shares - diluted
|
|
465,551
|
|
|
456,847
|
|
|
413,696
|
|
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)
|
|
2017
|
|
2016
|
|
2015
|
Weighted-average stock appreciation rights and stock awards excluded from diluted EPS due to the anti-dilutive effect due to net loss
|
|
—
|
|
|
1,478
|
|
|
1,481
|
|
Weighted-average stock appreciation rights and stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method
|
|
28
|
|
|
1
|
|
|
2
|
|
Weighted-average stock appreciation rights and stock awards excluded from diluted EPS due to the anti-dilutive effect
|
|
28
|
|
|
1,479
|
|
|
1,483
|
|
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, 2014
|
$
|
(2,151
|
)
|
Other comprehensive income (loss) before reclassifications
|
1,786
|
|
Net current-period other comprehensive income (loss)
|
1,786
|
|
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
|
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
|
|
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)
|
2017
|
|
2016
|
|
2015
|
|
Postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
2,733
|
|
|
(111
|
)
|
|
—
|
|
|
General and administrative expense
|
Total before tax
|
2,733
|
|
|
(111
|
)
|
|
—
|
|
|
Income (loss) before income taxes
|
|
(1,010
|
)
|
|
41
|
|
|
—
|
|
|
Income tax benefit (expense)
|
Total reclassifications for the period
|
$
|
1,723
|
|
|
$
|
(70
|
)
|
|
$
|
—
|
|
|
Net income (loss)
|
16. Additional Balance Sheet Information
Certain balance sheet amounts are comprised of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2017
|
|
2016
|
Accounts receivable, net
|
|
|
|
|
|
Trade accounts
|
$
|
215,511
|
|
|
$
|
185,594
|
|
Joint interest accounts
|
467
|
|
|
1,359
|
|
Other accounts
|
1,312
|
|
|
5,335
|
|
|
217,290
|
|
|
192,288
|
|
Allowance for doubtful accounts
|
(1,286
|
)
|
|
(1,243
|
)
|
|
$
|
216,004
|
|
|
$
|
191,045
|
|
Inventories
|
|
|
|
|
|
Tubular goods and well equipment
|
$
|
8,006
|
|
|
$
|
11,005
|
|
Natural gas in storage
|
—
|
|
|
2,299
|
|
|
$
|
8,006
|
|
|
$
|
13,304
|
|
Other assets
|
|
|
|
Deferred compensation plan
|
$
|
14,966
|
|
|
$
|
12,587
|
|
Debt issuance cost
|
7,990
|
|
|
11,403
|
|
Derivative instruments
|
2,239
|
|
|
2,991
|
|
Other accounts
|
56
|
|
|
58
|
|
|
$
|
25,251
|
|
|
$
|
27,039
|
|
Accounts payable
|
|
|
|
|
|
Trade accounts
|
$
|
7,815
|
|
|
$
|
27,355
|
|
Natural gas purchases
|
4,299
|
|
|
2,231
|
|
Royalty and other owners
|
39,207
|
|
|
36,472
|
|
Accrued transportation
|
51,433
|
|
|
48,977
|
|
Accrued capital costs
|
31,130
|
|
|
34,647
|
|
Taxes other than income
|
16,801
|
|
|
13,827
|
|
Deposits received for asset sales
|
81,500
|
|
|
—
|
|
Other accounts
|
5,860
|
|
|
4,902
|
|
|
$
|
238,045
|
|
|
$
|
168,411
|
|
Accrued liabilities
|
|
|
|
|
|
Employee benefits
|
$
|
20,645
|
|
|
$
|
14,153
|
|
Taxes other than income
|
550
|
|
|
3,829
|
|
Asset retirement obligations
|
4,952
|
|
|
2,000
|
|
Other accounts
|
1,294
|
|
|
1,510
|
|
|
$
|
27,441
|
|
|
$
|
21,492
|
|
Other liabilities
|
|
|
|
|
|
Deferred compensation plan
|
$
|
29,145
|
|
|
$
|
24,169
|
|
Other accounts
|
10,578
|
|
|
4,952
|
|
|
$
|
39,723
|
|
|
$
|
29,121
|
|
17. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Cash paid for interest and income taxes
|
|
|
|
|
|
Interest
|
$
|
79,846
|
|
|
$
|
86,723
|
|
|
$
|
92,749
|
|
Income taxes
|
40,626
|
|
|
688
|
|
|
7,550
|
|
Non-cash investing activities
|
|
|
|
|
|
Change in accrued capital costs
|
(3,516
|
)
|
|
7,168
|
|
|
(194,947
|
)
|
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,
2017
,
2016
and
2015
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,
2017
, 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, 2014
|
7,082
|
|
|
53,136
|
|
|
7,401
|
|
Revision of prior estimates
(3)
|
444
|
|
|
(3,008
|
)
|
|
426
|
|
Extensions, discoveries and other additions
(4)
|
896
|
|
|
11,511
|
|
|
965
|
|
Production
|
(566
|
)
|
|
(6,096
|
)
|
|
(603
|
)
|
Purchases of reserves in place
|
—
|
|
|
187
|
|
|
1
|
|
December 31, 2015
|
7,856
|
|
|
55,730
|
|
|
8,190
|
|
Revision of prior estimates
(5)
|
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
(6)
|
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
(7)
|
(328
|
)
|
|
(188
|
)
|
|
(329
|
)
|
December 31, 2017
|
9,353
|
|
|
62,252
|
|
|
9,726
|
|
Proved Developed Reserves
(8)
|
|
|
|
|
|
|
|
|
December 31, 2014
|
4,339
|
|
|
27,221
|
|
|
4,502
|
|
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
|
|
Proved Undeveloped Reserves
(9)
|
|
|
|
|
|
|
|
|
December 31, 2014
|
2,743
|
|
|
25,915
|
|
|
2,898
|
|
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
|
|
_______________________________________________________________________________
|
|
(1)
|
NGL reserves were less than
1.0%
of the Company's total proved equivalent reserves for
2017
,
2016
and
2015
and
13.7%
, 13.6% and 16.1% of the Company's proved crude oil and NGL reserves for
2017
,
2016
and
2015
, 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 425.6 Bcfe was primarily due to an upward performance revision of 702.9 Bcfe associated with positive drilling results in the Dimock field in northeast Pennsylvania, partially offset by a downward revision of 277.3 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 1,129.2 Bcfe, 647.7 Bcfe and 890.6 Bcfe of proved reserves in this field in
2017
,
2016
and
2015
, respectively.
|
|
|
(5)
|
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 PUD reclassifications and 42.6 Bcfe associated with lower commodity prices.
|
|
|
(6)
|
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.
|
|
|
(7)
|
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.
|
|
|
(8)
|
Includes proved developed reserves of 20.3 natural gas (Bcf), 31.1 (Mbbl) and 206.7 (Total Bcfe), which were classified as held for sale at December 31, 2017.
|
|
|
(9)
|
Includes proved undeveloped reserves of 17.6 natural gas (Bcf), 31.2 (Mbbl) and 204.8 (Total Bcfe), which were classified as held for sale at December 31, 2017.
|
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)
|
2017
|
|
2016
|
|
2015
|
Aggregate capitalized costs relating to oil and gas producing activities
|
$
|
7,472,653
|
|
|
$
|
7,958,548
|
|
|
$
|
9,554,584
|
|
Aggregate accumulated depreciation, depletion and amortization
|
(3,630,855
|
)
|
|
(3,717,342
|
)
|
|
(4,586,958
|
)
|
Net capitalized costs
|
$
|
3,841,798
|
|
|
$
|
4,241,206
|
|
|
$
|
4,967,626
|
|
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)
|
2017
|
|
2016
|
|
2015
|
Property acquisition costs, proved
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,312
|
|
Property acquisition costs, unproved
|
102,265
|
|
|
2,703
|
|
|
20,097
|
|
Exploration costs
|
41,232
|
|
|
27,640
|
|
|
34,003
|
|
Development costs
|
617,500
|
|
|
359,501
|
|
|
723,451
|
|
Total costs
|
$
|
760,997
|
|
|
$
|
389,844
|
|
|
$
|
793,863
|
|
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% 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,
|
|
2017
|
|
2016
|
|
2015
|
Natural gas
|
$
|
2.33
|
|
|
$
|
1.74
|
|
|
$
|
1.81
|
|
Crude oil
|
$
|
49.26
|
|
|
$
|
37.54
|
|
|
$
|
47.10
|
|
NGLs
|
$
|
20.64
|
|
|
$
|
10.69
|
|
|
$
|
12.98
|
|
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% 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)
|
2017
|
|
2016
|
|
2015
|
Future cash inflows
|
$
|
24,602,423
|
|
|
$
|
16,078,109
|
|
|
$
|
16,516,696
|
|
Future production costs
|
(9,080,268
|
)
|
|
(7,821,889
|
)
|
|
(7,934,427
|
)
|
Future development costs
|
(1,901,647
|
)
|
|
(1,926,465
|
)
|
|
(2,053,562
|
)
|
Future income tax expenses
|
(2,585,022
|
)
|
|
(1,441,425
|
)
|
|
(1,263,452
|
)
|
Future net cash flows
|
11,035,486
|
|
|
4,888,330
|
|
|
5,265,255
|
|
10% annual discount for estimated timing of cash flows
|
(6,025,040
|
)
|
|
(2,653,563
|
)
|
|
(2,406,423
|
)
|
Standardized measure of discounted future net cash flows
|
$
|
5,010,446
|
|
|
$
|
2,234,767
|
|
|
$
|
2,858,832
|
|
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)
|
2017
|
|
2016
|
|
2015
|
Beginning of year
|
$
|
2,234,767
|
|
|
$
|
2,858,832
|
|
|
$
|
6,493,006
|
|
Discoveries and extensions, net of related future costs
|
729,429
|
|
|
147,664
|
|
|
305,607
|
|
Net changes in prices and production costs
|
2,709,183
|
|
|
(240,050
|
)
|
|
(7,329,445
|
)
|
Accretion of discount
|
261,504
|
|
|
285,883
|
|
|
862,078
|
|
Revisions of previous quantity estimates
|
538,318
|
|
|
120,800
|
|
|
161,379
|
|
Timing and other
|
(71,407
|
)
|
|
(154,966
|
)
|
|
427,073
|
|
Development costs incurred
|
405,264
|
|
|
238,118
|
|
|
498,350
|
|
Sales and transfers, net of production costs
|
(1,126,520
|
)
|
|
(631,912
|
)
|
|
(690,618
|
)
|
Net purchases (sales) of reserves in place
|
(95,128
|
)
|
|
(9,326
|
)
|
|
3,623
|
|
Net change in income taxes
|
(574,964
|
)
|
|
(380,276
|
)
|
|
2,127,779
|
|
End of year
|
$
|
5,010,446
|
|
|
$
|
2,234,767
|
|
|
$
|
2,858,832
|
|
CABOT OIL & GAS CORPORATION
SELECTED DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
517,843
|
|
|
$
|
460,457
|
|
|
$
|
385,416
|
|
|
$
|
400,503
|
|
|
$
|
1,764,219
|
|
Impairment of oil and gas properties and other assets
(1)
|
—
|
|
|
68,555
|
|
|
—
|
|
|
414,256
|
|
|
482,811
|
|
Earnings (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
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
281,941
|
|
|
$
|
246,816
|
|
|
$
|
310,429
|
|
|
$
|
316,491
|
|
|
$
|
1,155,677
|
|
Impairment of oil and gas properties
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
435,619
|
|
|
435,619
|
|
Operating income (loss)
|
(55,086
|
)
|
|
(70,382
|
)
|
|
3,598
|
|
|
(443,075
|
)
|
|
(564,945
|
)
|
Net income (loss)
|
(51,194
|
)
|
|
(62,910
|
)
|
|
(10,260
|
)
|
|
(292,760
|
)
|
|
(417,124
|
)
|
Basic earnings (loss) per share
|
(0.12
|
)
|
|
(0.14
|
)
|
|
(0.02
|
)
|
|
(0.63
|
)
|
|
(0.91
|
)
|
Diluted earnings (loss) per share
|
(0.12
|
)
|
|
(0.14
|
)
|
|
(0.02
|
)
|
|
(0.63
|
)
|
|
(0.91
|
)
|
_______________________________________________________________________________
|
|
(1)
|
For discussion of impairment of oil and gas properties and other assets, refer to
Note 3
of the Notes to the Consolidated Financial Statements.
|
|
|
(2)
|
Earnings (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. Refer to
Note 4
of the Notes to the Consolidated Financial Statements.
|
|
|
(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 enacted in December 2017.
|