Quarterly Report (10-q)

Date : 04/26/2019 @ 9:00PM
Source : Edgar (US Regulatory)
Stock : Cabot Oil & Gas Corp. (COG)
Quote : 22.63  0.0 (0.00%) @ 9:00AM

Quarterly Report (10-q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
ý       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended  March 31, 2019
o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-10447
 
CABOT OIL & GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
 
04-3072771
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
Three Memorial City Plaza
840 Gessner Road, Suite 1400, Houston, Texas 77024
(Address of principal executive offices including ZIP code)
(281) 589-4600
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes  ý No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of April 24, 2019 , there were 423,286,317 shares of Common Stock, Par Value $0.10 Per Share, outstanding.



CABOT OIL & GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION
ITEM 1.      Financial Statements
CABOT OIL  & GAS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands, except share amounts)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 

 
 

Current assets
 
 

 
 

Cash and cash equivalents
 
$
314,889

 
$
2,287

Accounts receivable, net
 
220,732

 
362,403

Income taxes receivable
 
111,303

 
109,251

Inventories
 
18,277

 
11,076

Derivative instruments
 
14,246

 
57,665

Other current assets
 
744

 
1,863

Total current assets
 
680,191

 
544,545

Properties and equipment, net (Successful efforts method)
 
3,574,622

 
3,463,606

Equity method investments
 
163,964

 
163,181

Other assets
 
62,770

 
27,497

 
 
$
4,481,547

 
$
4,198,829

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

Current liabilities
 
 

 
 

Accounts payable
 
$
204,544

 
$
241,939

Accrued liabilities
 
27,255

 
25,227

Interest payable
 
7,211

 
20,098

Derivative instruments
 
1,305

 

Total current liabilities
 
240,315

 
287,264

Long-term debt, net
 
1,219,338

 
1,226,104

Deferred income taxes
 
546,559

 
458,597

Asset retirement obligations
 
53,701

 
50,622

Postretirement benefits
 
28,421

 
27,912

Other liabilities
 
72,274

 
60,171

Total liabilities
 
2,160,608

 
2,110,670

Commitments and contingencies
 

 

Stockholders' equity
 
 

 
 

Common stock:
 
 

 
 

Authorized — 960,000,000 shares of $0.10 par value in 2019 and 2018, respectively
 
 

 
 

Issued — 476,776,955 shares and 476,094,551 shares in 2019 and 2018, respectively
 
47,678

 
47,610

Additional paid-in capital
 
1,762,861

 
1,763,142

Retained earnings
 
1,840,816

 
1,607,658

Accumulated other comprehensive income
 
4,300

 
4,437

Less treasury stock, at cost:
 
 

 
 

53,409,705 shares and 53,409,705 shares in 2019 and 2018, respectively
 
(1,334,716
)
 
(1,334,688
)
Total stockholders' equity
 
2,320,939

 
2,088,159

 
 
$
4,481,547

 
$
4,198,829


The accompanying notes are an integral part of these condensed consolidated financial statements.

3


CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
 
 
Three Months Ended 
 March 31,
(In thousands, except per share amounts)
 
2019
 
2018
OPERATING REVENUES
 
 

 
 

   Natural gas
 
$
633,174

 
$
412,108

   Crude oil and condensate
 

 
48,722

   Gain on derivative instruments
 
8,257

 
5,577

   Brokered natural gas
 

 
4,950

   Other
 
250

 
1,870

 
 
641,681

 
473,227

OPERATING EXPENSES
 
 

 
 

   Direct operations
 
18,334

 
20,070

   Transportation and gathering
 
137,333

 
112,125

   Brokered natural gas
 

 
4,950

   Taxes other than income
 
5,847

 
7,190

   Exploration
 
6,044

 
3,617

   Depreciation, depletion and amortization
 
92,258

 
82,128

   General and administrative
 
31,090

 
24,060

 
 
290,906

 
254,140

Earnings (loss) on equity method investments
 
3,684

 
(994
)
Loss on sale of assets
 
(1,500
)
 
(41,049
)
INCOME FROM OPERATIONS
 
352,959

 
177,044

Interest expense, net
 
12,181

 
20,058

Other expense
 
144

 
114

Income before income taxes
 
340,634

 
156,872

Income tax expense
 
77,871

 
39,641

NET INCOME
 
$
262,763

 
$
117,231

 
 
 
 
 
Earnings per share
 
 

 
 

Basic
 
$
0.62

 
$
0.26

Diluted
 
$
0.62

 
$
0.25

 
 
 
 
 
Weighted-average common shares outstanding
 
 

 
 

Basic
 
423,116

 
459,715

Diluted
 
425,189

 
461,549

 
 
 
 
 
Dividends per common share
 
$
0.07

 
$
0.06

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


CABOT OIL & GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

  Net income
 
$
262,763

 
$
117,231

  Adjustments to reconcile net income to cash provided by operating activities:
 
 

 
 

Depreciation, depletion and amortization
 
92,258

 
82,128

Deferred income tax expense
 
88,002

 
64,287

Loss on sale of assets
 
1,500

 
41,049

Exploratory dry hole cost
 
13

 
(60
)
Gain on derivative instruments
 
(8,257
)
 
(5,577
)
Net cash received (paid) in settlement of derivative instruments
 
52,980

 
(26,131
)
(Earnings) loss on equity method investments
 
(3,684
)
 
994

Distribution of earnings from equity method investments
 
4,729

 

Amortization of debt issuance costs
 
1,089

 
1,195

Stock-based compensation and other
 
14,474

 
5,184

  Changes in assets and liabilities:
 
 

 
 

Accounts receivable, net
 
141,671

 
50,216

Income taxes
 
6,786

 
(24,646
)
Inventories
 
(7,201
)
 
(4,309
)
Other current assets
 
1,119

 
1,023

Accounts payable and accrued liabilities
 
(27,934
)
 
(14,169
)
Interest payable
 
(12,887
)
 
(15,318
)
Other assets and liabilities
 
(22,134
)
 
(337
)
Net cash provided by operating activities
 
585,287

 
272,760

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Capital expenditures
 
(195,650
)
 
(156,257
)
Proceeds from sale of assets
 
2,346

 
646,545

Investment in equity method investments
 
(1,828
)
 
(35,418
)
Net cash provided by (used in) investing activities
 
(195,132
)
 
454,870

CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Borrowings from debt
 
95,000

 

Repayments of debt
 
(102,000
)
 

Treasury stock repurchases
 
(31,378
)
 
(207,134
)
Dividends paid
 
(29,605
)
 
(27,647
)
Tax withholdings on vesting of stock awards
 
(9,570
)
 
(7,968
)
Net cash used in financing activities
 
(77,553
)
 
(242,749
)
Net increase in cash and cash equivalents
 
312,602

 
484,881

Cash and cash equivalents, beginning of period
 
2,287

 
480,047

Cash and cash equivalents, end of period
 
$
314,889

 
$
964,928

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


CABOT OIL & GAS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

(In thousands, except per share  amounts)
 
Common Shares
 
Common Stock Par
 
Treasury Shares
 
Treasury Stock
 
Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total
Balance at December 31, 2018
 
476,095

 
$
47,610

 
53,410

 
$
(1,334,688
)
 
$
1,763,142

 
$
4,437

 
$
1,607,658

 
$
2,088,159

Net income
 

 

 

 

 

 

 
262,763

 
262,763

Stock amortization and vesting
 
682

 
68

 

 

 
(281
)
 

 

 
(213
)
Purchase of treasury stock
 

 

 

 
(28
)
 

 

 

 
(28
)
Cash dividends at $0.07 per share
 

 

 

 

 

 

 
(29,605
)
 
(29,605
)
Other comprehensive income
 

 

 

 

 

 
(137
)
 

 
(137
)
Balance at March 31, 2019
 
476,777

 
$
47,678

 
53,410

 
$
(1,334,716
)
 
$
1,762,861

 
$
4,300

 
$
1,840,816

 
$
2,320,939


(In thousands, except per share  amounts)
 
Common Shares
 
Common Stock Par
 
Treasury Shares
 
Treasury Stock
 
Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total
Balance at December 31, 2017
 
475,547

 
$
47,555

 
14,936

 
$
(430,576
)
 
$
1,742,419

 
$
2,077

 
$
1,162,430

 
$
2,523,905

Net income
 

 

 

 

 

 

 
117,231

 
117,231

Stock amortization and vesting
 
534

 
53

 

 

 
249

 

 

 
302

Purchase of treasury stock
 

 

 
8,328

 
(207,135
)
 

 

 

 
(207,135
)
Cash dividends at $0.06 per share
 

 

 

 

 

 

 
(27,647
)
 
(27,647
)
Other comprehensive income
 

 

 

 

 

 
306

 

 
306

Cumulative impact from accounting change
 

 

 

 

 

 

 
(446
)
 
(446
)
Balance at March 31, 2018
 
476,081

 
$
47,608

 
23,264

 
$
(637,711
)
 
$
1,742,668

 
$
2,383

 
$
1,251,568

 
$
2,406,516


The accompanying notes are an integral part of these condensed consolidated financial statements.


6



CABOT OIL & GAS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Financial Statement Presentation
During interim periods, Cabot Oil & Gas Corporation (the Company) follows the same accounting policies disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 (Form 10-K) filed with the Securities and Exchange Commission (SEC). The interim financial statements should be read in conjunction with the notes to the consolidated financial statements and information presented in the Form 10-K. In management’s opinion, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair statement. The results for any interim period are not necessarily indicative of the expected results for the entire year.
Recently Adopted Accounting Pronouncements
Leases. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. This ASU does not apply to leases to explore for or use minerals, oil, natural gas and similar nonregenerative resources, including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities with an optional transition method that permits an entity to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The guidance is effective for interim and annual periods beginning after December 15, 2018. This ASU is to be adopted using a modified retrospective approach. The Company adopted this guidance effective January 1, 2019 by applying the optional transition approach as of the beginning of the period of adoption. Comparative periods, including the disclosures related to those periods, were not restated.
On the adoption date, the Company elected the following practical expedients which are provided in the lease standard:
an election not to apply the recognition requirements in the lease standard to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise);
a package of practical expedients to not reassess whether a contract is or contains a lease, lease classification and initial direct costs;
a practical expedient to use hindsight when determining the lease term;
a practical expedient that permits combining lease and non-lease components in a contract and accounting for the combination as a lease (elected by asset class); and
a practical expedient to not reassess certain land easements in existence prior to January 1, 2019.
On January 1, 2019, the Company recognized a right of use asset for operating leases and an operating lease liability of $44.6 million , representing the present value of the future minimum lease payment obligations associated with office leases, drilling rig commitments, surface use agreements and other leases. The adoption of this guidance did not have an impact on the Company’s results of operations or cash flows.
Refer to Note 8 for more details regarding leases.

7


2. Properties and Equipment, Net
Properties and equipment, net are comprised of the following
(In thousands)
 
March 31,
2019
 
December 31,
2018
Proved oil and gas properties
 
$
5,919,534

 
$
5,717,145

Unproved oil and gas properties
 
186,590

 
194,435

Land, building and other equipment
 
94,305

 
94,797

 
 
6,200,429

 
6,006,377

Accumulated depreciation, depletion and amortization
 
(2,625,807
)
 
(2,542,771
)
 
 
$
3,574,622

 
$
3,463,606

At March 31, 2019 , the Company did not have any projects that had exploratory well costs capitalized for a period of greater than one year after drilling.
3. Equity Method Investments
The Company holds a 25 percent equity interest in Constitution Pipeline Company, LLC (Constitution) and a 20 percent equity interest in Meade Pipeline Co LLC (Meade). Activity related to these equity method investments is as follows:
 
 
Constitution
 
Meade
 
Total
 
 
Three Months Ended March 31,
(In thousands)
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Balance at beginning of period
 
$

 
$
732

 
$
163,181

 
$
85,345

 
$
163,181

 
$
86,077

Contributions
 
250

 
250

 
1,578

 
35,168

 
1,828

 
35,418

Distributions
 

 

 
(4,729
)
 

 
(4,729
)
 

Earnings (loss) on equity method investments
 
(250
)
 
(982
)
 
3,934

 
(12
)
 
3,684

 
(994
)
Balance at end of period
 
$

 
$

 
$
163,964

 
$
120,501

 
$
163,964

 
$
120,501

For further information regarding the Company’s equity method investments, refer to Note 4 of the Notes to the Consolidated Financial Statements in the Form 10-K.
4. Debt and Credit Agreements
The Company’s debt and credit agreements consisted of the following:
(In thousands)
 
March 31,
2019
 
December 31,
2018
Total debt
 
 
 
 
6.51% weighted-average senior notes
 
$
124,000

 
$
124,000

5.58% weighted-average senior notes
 
175,000

 
175,000

3.65% weighted-average senior notes
 
925,000

 
925,000

Revolving credit facility
 

 
7,000

Unamortized debt issuance costs
 
(4,662
)
 
(4,896
)
 
 
$
1,219,338

 
$
1,226,104

The borrowing base under the terms of the Company's revolving credit facility is redetermined annually in April. In addition, either the Company or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or divestitures of oil and gas properties. At March 31, 2019 , the Company had no borrowings outstanding under its revolving credit facility and had unused commitments of $1.8 billion .
At March 31, 2019 , the Company was in compliance with all restrictive financial covenants for both its revolving credit facility and senior notes.

8


Subsequent Event
On April 22, 2019, the Company entered into a second amended and restated credit agreement (the amended and restated credit agreement). The borrowing base under the amended and restated credit agreement remained unchanged at $3.2 billion , while the available commitments were reduced to $1.5 billion . The maximum revolving credit available to the Company is the lesser of the available commitments or the difference of the borrowing base less the outstanding senior notes.
Interest rates under the amended and restated credit agreement are based on LIBOR or ABR indications, plus a margin which ranges from 50 to 125 basis points for ABR loans and 150 to 225 basis points for LIBOR loans when not in an Investment Grade Period (as defined in the amended and restated credit agreement) and from 12.5 to 75 basis points for ABR loans and 112.5 to 175 basis points for LIBOR loans during an Investment Grade Period. The commitment fee on the unused available credit is calculated at annual rates ranging from 30 basis points to 42.5 basis points when not in an Investment Grade Period and from 12.5 to 27.5 basis points during an Investment Grade Period. All other terms and conditions of the amended and restated credit agreement are generally consistent with the Company’s existing revolving credit facility, including debt covenants, which remain unchanged. The new revolving credit facility matures in April 2024 . The maturity date can be extended by one year upon the agreement of the Company and lenders holding at least 50 percent of the commitments under the new revolving credit facility.
There are currently no borrowings outstanding under the amended and restated credit agreement. 

9


5. Derivative Instruments
As of March 31, 2019 , the Company had the following outstanding financial commodity derivatives:
 
 
 
 
 
 
Swaps
 
Basis Swaps
Type of Contract
 
Volume (Mmbtu)
 
Contract Period
 
Weighted-Average ($/Mmbtu)
 
Weighted-Average ($/Mmbtu)

Natural gas (IFERC TRANSCO Z6 non-NY)
 
8,250,000

 
Apr. 2019 - Dec. 2019
 


 
$
0.41

Natural gas (IFERC TRANSCO Z6 non-NY)
 
32,100,000

 
Apr. 2019 - Oct. 2019
 
$
2.61

 

Natural gas (IFERC TRANSCO Leidy Line Receipts)
 
41,250,000

 
Apr. 2019 - Dec. 2019
 


 
$
(0.53
)
Natural gas (NYMEX)
 
74,900,000

 
Apr. 2019 - Oct. 2019
 
$
2.85

 
 
Natural gas (NYMEX)
 
82,500,000

 
Apr. 2019 - Dec. 2019
 
$
2.81

 

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet
 
 
 
 
Derivative Assets
 
Derivative Liabilities
(In thousands)
 
Balance Sheet Location
 
March 31,
2019
 
December 31,
2018
 
March 31,
2019
 
December 31,
2018
Commodity contracts
 
Derivative instruments (current)
 
$
14,246

 
$
57,665

 
$
1,305

 
$

 
 
 
 
$
14,246

 
$
57,665

 
$
1,305

 
$

Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet
(In thousands)
 
March 31,
2019
 
December 31,
2018
Derivative assets
 
 

 
 

Gross amounts of recognized assets
 
$
18,824

 
$
60,105

Gross amounts offset in the statement of financial position
 
(4,578
)
 
(2,440
)
Net amounts of assets presented in the statement of financial position
 
14,246

 
57,665

Gross amounts of financial instruments not offset in the statement of financial position
 

 

Net amount
 
$
14,246

 
$
57,665

 
 
 
 
 
Derivative liabilities
 
 

 
 

Gross amounts of recognized liabilities
 
$
5,883

 
$
2,440

Gross amounts offset in the statement of financial position
 
(4,578
)
 
(2,440
)
Net amounts of liabilities presented in the statement of financial position
 
1,305

 

Gross amounts of financial instruments not offset in the statement of financial position
 

 

Net amount
 
$
1,305

 
$

Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2019
 
2018
Cash received (paid) on settlement of derivative instruments
 
 

 
 

Gain (loss) on derivative instruments
 
$
52,980

 
$
(26,131
)
Non-cash gain (loss) on derivative instruments
 
 

 
 

Gain (loss) on derivative instruments
 
(44,723
)
 
31,708

 
 
$
8,257

 
$
5,577

6. Fair Value Measurements
The Company follows the authoritative guidance for measuring fair value of assets and liabilities in its financial statements. For further information regarding the fair value hierarchy, refer to Note 1 of the Notes to the Consolidated Financial Statements in the Form 10-K.

10


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  
 March 31, 2019
Assets
 
 

 
 

 
 

 
 

Deferred compensation plan
 
$
16,818

 
$

 
$

 
$
16,818

Derivative instruments
 

 
9,616

 
9,208

 
18,824

     Total assets
 
$
16,818

 
$
9,616

 
$
9,208

 
$
35,642

Liabilities
 
 
 
 

 
 

 
 

Deferred compensation plan
 
$
29,758

 
$

 
$

 
$
29,758

Derivative instruments
 

 
1,291

 
4,592

 
5,883

     Total liabilities
 
$
29,758

 
$
1,291

 
$
4,592

 
$
35,641

(In thousands)
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
Balance at  
 December 31, 2018
Assets
 
 

 
 

 
 

 
 

Deferred compensation plan
 
$
14,699

 
$

 
$

 
$
14,699

Derivative instruments
 

 
35,689

 
24,416

 
60,105

     Total assets
 
$
14,699

 
$
35,689

 
$
24,416

 
$
74,804

Liabilities
 
 
 
 

 
 

 
 

Deferred compensation plan
 
$
25,780

 
$

 
$

 
$
25,780

Derivative instruments
 

 

 
2,440

 
2,440

     Total liabilities
 
$
25,780

 
$

 
$
2,440

 
$
28,220

The Company's investments associated with its deferred compensation plan consist of mutual funds and deferred shares of the Company's common stock that are publicly traded and for which market prices are readily available.
The derivative instruments were measured based on quotes from the Company's counterparties or internal models. Such quotes and models have been derived using an income approach that considers various inputs including current market and contractual prices for the underlying instruments, quoted forward commodity prices, basis differentials, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. Estimates are derived from or verified using relevant NYMEX futures contracts and/or are compared to multiple quotes obtained from counterparties for reasonableness. The determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The Company measured the non-performance risk of its counterparties by reviewing credit default swap spreads for the various financial institutions with which it has derivative transactions while non-performance risk of the Company is evaluated using a market credit spread provided by the Company's bank. The Company has not incurred any losses related to non-performance risk of its counterparties and does not anticipate any material impact on its financial results due to non-performance by third parties.
The most significant unobservable inputs relative to the Company's Level 3 derivative contracts are basis differentials. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties' valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.

11


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:
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2019
 
2018
Balance at beginning of period
 
$
21,976

 
$
(28,398
)
Total gain (loss) included in earnings
 
4,716

 
6,628

Settlement (gain) loss
 
(22,076
)
 
21,755

Balance at end of period
 
$
4,616

 
$
(15
)
 
 
 
 
 
Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period
 
$
(1,067
)
 
$
2,217

There were no transfers between Level 1 and Level 2 fair value measurements for the three months ended March 31, 2019 and 2018 .
Non-Financial Assets and Liabilities
The Company discloses or recognizes its non-financial assets and liabilities, such as impairments or acquisitions, at fair value on a nonrecurring basis. As none of the Company’s other non-financial assets and liabilities were measured at fair value as of March 31, 2019 , additional disclosures were not required.
The estimated fair value of the Company’s asset retirement obligations at inception is determined by utilizing the income approach by applying a credit-adjusted risk-free rate, which takes into account the Company’s credit risk, the time value of money, and the current economic state to the undiscounted expected abandonment cash flows. Given the unobservable nature of the inputs, the measurement of the asset retirement obligations was classified as Level 3 in the fair value hierarchy.
Fair Value of Other Financial Instruments
The estimated fair value of other financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amount reported in the Condensed 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:
 
 
March 31, 2019
 
December 31, 2018
(In thousands)
 
Carrying
Amount
 
Estimated Fair
Value
 
Carrying
Amount
 
Estimated Fair
Value
Long-term debt
 
$
1,219,338

 
$
1,216,612

 
$
1,226,104

 
$
1,202,994




12


7. Asset Retirement Obligations
Activity related to the Company’s asset retirement obligations is as follows:
(In thousands)
 
Three Months Ended 
 March 31, 2019
Balance at beginning of period (1)
 
$
51,622

Liabilities incurred
 
2,350

Liabilities settled
 
(79
)
Liabilities divested
 
(187
)
Accretion expense
 
995

Balance at end of period (1)
 
$
54,701

_______________________________________________________________________________
(1)
Includes $1.0 million of current asset retirement obligations included in accrued liabilities at March 31, 2019 and December 31, 2018 .
8. Commitments and Contingencies
Contractual Obligations
The Company has various contractual obligations in the normal course of its operations. There have been no material changes to the Company’s contractual obligations described under “Transportation and Gathering Agreements” as disclosed in Note 9 of the Notes to Consolidated Financial Statements in the Form 10-K.
Lease Commitments (Topic 840)
Future minimum rental commitments under non-cancelable leases in effect at December 31, 2018 are as follows:
(In thousands)
 
2019
$
5,571

2020
5,684

2021
4,777

2022
1,659

2023
1,691

Thereafter
2,852

 
$
22,234


The table above was prepared under the guidance of Topic 840. As discussed in Note 1 above, the Company adopted the guidance of Topic 842 effective January 1, 2019.
Leases (Topic 842)
The Company determines if an arrangement is, or contains, a lease at inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for a period of time. Operating leases are included in operating lease right-of-use assets (ROU assets) and operating lease liabilities (current and noncurrent) on the Condensed Consolidated Balance Sheet. The Company does not have any finance leases at March 31, 2019 .
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. Most leases do not provide an implicit interest rate; therefore, the Company used its incremental borrowing rate based on the information available at the inception date to determine the present value of the lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease cost for lease payments is recognized on a straight-line basis over the lease term. Certain leases have payment terms that vary based on the usage of the underlying assets. Variable lease payments are not included in ROU assets and lease liabilities.
For all operating leases, lease and non-lease components are accounted for as a single lease component.

13


The Company has operating leases for office space, drilling rig commitments, surface use agreements and other leases. The leases have remaining terms ranging from less than one month to 26.8 years, including options to extend leases that the Company is reasonably certain to exercise. During the three months ended March 31, 2019 , the Company recognized operating lease cost and variable lease cost of $3.0 million and $ 1.8 million , respectively.
Short-term leases. The Company leases drilling rigs, fracturing and other equipment under lease terms ranging from 30 days and one year. Lease payments of $ 67.1 million were recognized during the three months ended March 31, 2019 . Certain lease payments are capitalized and included in Properties and equipment, net in the Condensed Consolidated Balance Sheet because they relate to drilling and completion activities while other payments are expensed because they relate to production and administrative activities.
As of March 31, 2019 , the Company’s future undiscounted cash payment obligations for its operating lease liabilities are as follows:
(In thousands)
 
Year Ending December 31,
2019 (excluding the three months ended March 31, 2019)
 
$
8,237

2020
 
4,549

2021
 
4,575

2022
 
4,577

2023
 
4,613

Thereafter
 
29,823

Total undiscounted lease payments
 
56,374

Present value adjustment
 
(14,355
)
Net operating lease liabilities
 
$
42,019

Supplemental cash flow information related to leases was as follows:
(In thousands)
 
Three Months Ended 
 March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
1,123

Investing cash flows from operating leases
 
$
1,791


Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases is summarized below:
 
 
March 31, 2019
Weighted-average remaining lease term (in years)
 
 
Operating leases
 
11.4

Weighted-average discount rate
 
 
Operating leases
 
4.9
%

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

14


such amount above the amounts accrued would not be material to the Condensed 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.
9. Revenue Recognition
Disaggregation of Revenue
The following table presents revenues disaggregated by product:
 
 
Three Months Ended March 31,
(In thousands)
 
2019
 
2018
OPERATING REVENUES
 
 
 
 
   Natural gas
 
$
633,174

 
$
412,108

   Crude oil and condensate
 

 
48,722

   Brokered natural gas
 

 
4,950

   Other
 
250

 
1,870

Total revenues from contracts with customers
 
633,424

 
467,650

   Gain on derivative instruments
 
8,257

 
5,577

Total operating revenues
 
$
641,681

 
$
473,227

All of the Company’s revenues from contracts with customers represent products transferred at a point in time as control is transferred to the customer and generated in the United States.
Transaction Price Allocated to Remaining Performance Obligations
A significant number of the Company’s product sales contracts are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
As of March 31, 2019 , the Company has $10.0 billion of unsatisfied performance obligations related to natural gas sales that have a fixed pricing component and a contract term greater than one year. The Company expects to recognize these obligations over periods ranging from five to 20 years.
Contract Balances
Receivables from contracts with customers are recorded when the right to consideration becomes unconditional, generally when control of the product has been transferred to the customer. Receivables from contracts with customers were $220.6 million and $363.0 million as of March 31, 2019 and December 31, 2018 , respectively, and are reported in accounts receivable, net on the Condensed Consolidated Balance Sheet. The Company currently has no assets or liabilities related to its revenue contracts, including no upfront or rights to deficiency payments.
10. Stock-based Compensation
General
The Company grants certain stock-based compensation awards, including restricted stock awards, restricted stock units and performance share awards. Stock-based compensation expense associated with these awards was $15.1 million and $5.4 million in the first quarter of 2019 and 2018 , respectively. Stock-based compensation expense is included in general and administrative expense in the Condensed Consolidated Statement of Operations.
For the first quarter of 2019, the Company recorded a decrease to tax expense of $1.1 million as a result of federal and state tax deductions exceeding the book compensation expense for employee stock-based compensation awards that vested during the period. For the first quarter of 2018, the Company recorded an increase to tax expense of $0.2 million as a result of book compensation expense exceeding the federal and state tax deductions for employee stock-based compensation awards that vested during the period.
Refer to Note 13 of the Notes to the Consolidated Financial Statements in the Form 10-K for further description of the various types of stock-based compensation awards and the applicable award terms.
Restricted Stock Units
During the first three months of 2019 , 76,232 restricted stock units were granted to non-employee directors of the Company with a weighted-average grant date value of $24.95 per unit. The fair value of these units is measured based on the closing stock price on grant date and compensation expense is recorded immediately. These units immediately vest and are issued when the director ceases to be a director of the Company.
Performance Share Awards
The performance period for the awards granted during the first three months of 2019 commenced on January 1, 2019 and ends on December 31, 2021 . The Company used an annual forfeiture rate assumption ranging from zero percent to five percent for purposes of recognizing stock-based compensation expense for its performance share awards.
Performance Share Awards Based on Internal Performance Metrics
The fair value of performance share award grants based on internal performance metrics is based on the closing stock price on the grant date. Each performance share award represents the right to receive up to 100% of the award in shares of common stock. Based on the Company’s probability assessment at March 31, 2019 , it is considered probable that the criteria for all performance awards based on internal metrics awards will be met.
Employee Performance Share Awards. During the first three months of 2019 , 526,730 Employee Performance Share Awards were granted at a grant date value of $24.95 per share. The 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.
Hybrid Performance Share Awards. During the first three months of 2019 , 315,029 Hybrid Performance Share Awards were granted at a grant date value of $24.95 per share. The 2019 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.
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. During the first three months of 2019 , 536,673 TSR Performance Share Awards were granted and 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 assumptions were used to determine the grant date fair value of the equity component (February 19, 2019 ) and the period-end fair value of the liability component of the TSR Performance Share Awards:
 
 
Grant Date
 
March 31, 2019
Fair value per performance share award
 
$
20.63

 
$11.95 - $24.11
Assumptions:
 
 

 
 
     Stock price volatility
 
31.3
%
 
28.4%-31.8%
     Risk free rate of return
 
2.46
%
 
2.21% - 2.41%
11. 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 awards were

15


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:
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2019
 
2018
Weighted-average shares - basic
 
423,116

 
459,715

Dilution effect of stock awards at end of period
 
2,073

 
1,834

Weighted-average shares - diluted
 
425,189

 
461,549

The following is a calculation of weighted-average shares excluded from diluted EPS due to the anti-dilutive effect:
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2019
 
2018
Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method
 
643

 
608

12. Income Taxes
During the first quarter of 2019, the Company released a $16.3 million net reserve for unrecognized tax benefits related to alternative minimum tax associated with uncertain tax positions and a $3.1 million liability for accrued interest associated with the uncertain tax positions. The release of the net reserve did not have a material impact on the Company's effective tax rate. As of March 31, 2019, the Company had a $0.5 million net reserve for unrecognized tax benefits related to the allocation of certain gains associated with its divestitures for purposes of computing state income taxes. If recognized, the tax benefit of $0.5 million would not have a material effect on the Company’s effective tax rate.

16


13. Additional Balance Sheet Information
Certain balance sheet amounts are comprised of the following:
(In thousands)
 
March 31,
2019
 
December 31,
2018
Accounts receivable, net
 
 

 
 

Trade accounts
 
$
220,612

 
$
362,973

Joint interest accounts
 
198

 
101

Other accounts
 
996

 
567

 
 
221,806

 
363,641

Allowance for doubtful accounts
 
(1,074
)
 
(1,238
)
 
 
$
220,732

 
$
362,403

Other assets
 
 

 
 

Deferred compensation plan
 
$
16,818

 
$
14,699

Debt issuance costs
 
3,718

 
4,572

Income taxes receivable
 

 
8,165

Operating lease right-of-use assets
 
42,174

 

Other accounts
 
60

 
61

 
 
$
62,770

 
$
27,497

Accounts payable
 
 

 
 

Trade accounts
 
$
25,700

 
$
30,033

Natural gas purchases
 
8,661

 

Royalty and other owners
 
37,833

 
61,507

Accrued transportation
 
49,496

 
50,540

Accrued capital costs
 
51,842

 
43,207

Taxes other than income
 
25,455

 
19,824

Income taxes payable
 
1,807

 
1,134

Other accounts
 
3,750

 
35,694

 
 
$
204,544

 
$
241,939

Accrued liabilities
 
 

 
 

Employee benefits
 
$
14,173

 
$
21,761

Taxes other than income
 
3,858

 
1,472

Operating lease liabilities
 
7,517

 

Asset retirement obligations
 
1,000

 
1,000

Other accounts
 
707

 
994

 
 
$
27,255

 
$
25,227

Other liabilities
 
 

 
 

Deferred compensation plan
 
$
29,758

 
$
25,780

Operating lease liabilities
 
34,502

 

Other accounts
 
8,014

 
34,391

 
 
$
72,274

 
$
60,171


17


ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following review of operations for the three month periods ended March 31, 2019 and 2018 should be read in conjunction with our Condensed Consolidated Financial Statements and the Notes included in this Form 10-Q and with the Consolidated Financial Statements, Notes and Management’s Discussion and Analysis included in the Cabot Oil & Gas Corporation Annual Report on Form 10-K for the year ended December 31, 2018 (Form 10-K).
OVERVIEW
Financial and Operating Overview
Financial and operating results for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 are as follows:
Natural gas production increase d 40.2 Bcf, or 24% , from 164.6 Bcf in 2018 to 204.8 Bcf in 2019 , as a result of drilling and completion activities in Pennsylvania.
Crude oil/condensate/NGL production decrease d 0.8 Mmbbls, or 100% , from 0.8 Mmbbls in 2018 . There was no significant crude oil and NGL production in 2019 as result of the sale of our Eagle Ford Shale assets in February 2018.
Equivalent production increase d 35.2 Bcfe, or 21% , from 169.6 Bcfe, or 1,884.2 Mmcfe per day, in 2018 to 204.8 Bcfe, or 2,275.9 Mmcfe per day, in 2019 . The increase is primarily due to drilling and completion activities in Pennsylvania, partially offset by the sale of our Eagle Ford Shale assets in south Texas.
Average realized natural gas price was $3.35 per Mcf, 37% higher than the $2.44 per Mcf realized in the comparable period of the prior year.
Total capital expenditures were $204.3 million compared to $167.3 million in the comparable period of the prior year.
Drilled 25 gross wells ( 25.0 net) with a success rate of 100% compared to 15 gross wells ( 15.0 net) with a success rate of 100% for the comparable period of the prior year.
Completed 14 gross wells ( 14.0 net) in 2019 compared to 11 gross wells ( 11.0 net) in 2018 .
Average rig count during 2019 was approximately 3.3 rigs in the Marcellus Shale, compared to an average rig count in the Marcellus Shale of approximately 2.8 rigs and approximately 1.0 rig in other areas during 2018 .
Market Conditions and Commodity Prices
Our financial results depend on many factors, particularly commodity prices and our ability to market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by pipeline capacity constraints, inventory storage levels, basis differentials, weather conditions and other factors. In addition, our realized prices are further impacted by our hedging activities. As a result, we cannot accurately predict future commodity prices and, therefore, cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our capital program, production volumes or revenues. We expect commodity prices to remain volatile. In addition to production volumes and commodity prices, finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success. For information about the impact of realized commodity prices on our revenues, refer to “Results of Operations” below.
We account for our derivative instruments on a mark-to-market basis with changes in fair value recognized in operating revenues in the Condensed Consolidated Statement of Operations. As a result of these mark-to-market adjustments associated with our derivative instruments, we will experience volatility in our earnings due to commodity price volatility. Refer to “Impact of Derivative Instruments on Operating Revenues” below and Note 5 of the Notes to the Condensed Consolidated Financial Statements for more information.
Commodity prices have been and are expected to remain volatile. We believe that we are well-positioned to manage the challenges presented in a volatile commodity pricing environment by:
Continuing to exercise discipline in our capital program with the expectation of funding our capital expenditures with cash on hand, operating cash flows, and if required, borrowings under our revolving credit facility.
Continuing to optimize our drilling, completion and operational efficiencies, resulting in lower operating costs per unit of production.

18


Continuing to manage our balance sheet, which we believe provides sufficient availability under our revolving credit facility and existing cash balances to meet our capital requirements and maintain compliance with our debt covenants.
Continuing to manage price risk by strategically hedging our production.
While we are unable to predict future commodity prices, in the event that commodity prices significantly decline, management would test the recoverability of the carrying value of its oil and gas properties and, if necessary, record an impairment charge.
Outlook
Our 2019 capital program is expected to be approximately $800.0 million . We expect to fund these expenditures with our operating cash flow and, if required, borrowings under our revolving credit facility.
In 2018 , we drilled 97 gross wells ( 95.1 net) and completed 94 gross wells ( 93.0 net), of which 27 gross wells ( 27.0 net) were drilled but uncompleted in prior years. For the full year of 2019 , our capital program will focus on the Marcellus Shale, where we expect to drill and complete 85 to 90 net wells and place 80 to 85 net wells on production. We will continue to assess the natural gas environment along with our liquidity position and may increase or decrease our capital expenditures accordingly.
Financial Condition
Capital Resources and Liquidity
Our primary sources of cash for the three months ended March 31, 2019 were primarily from the sale of natural gas production. These cash flows were used to fund our capital expenditures, contributions to our equity method investments, interest payments on debt, repurchases of shares of common stock and payment of dividends. See below for additional discussion and analysis of cash flow.
The borrowing base under the terms of our revolving credit facility is redetermined annually in April. In addition, either we or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or divestitures of oil and gas properties. As of March 31, 2019 , there were no borrowings outstanding under our revolving credit facility and our unused commitments were $1.8 billion .
On April 22, 2019, we entered into a second amended and restated credit facility (the amended and restated credit agreement). The borrowing base under the amended and restated credit agreement remained unchanged at $3.2 billion , while the available commitments were reduced to $1.5 billion. The new revolving credit facility matures in April 2024 . The maturity date can be extended by one year upon agreement between us and the lenders holding at least 50 percent of the commitments under the revolving credit facility.
There are currently no borrowings outstanding under the new revolving credit facility.
A decline in commodity prices could result in the future reduction of our borrowing base and related commitments under the revolving credit facility. Unless commodity prices decline significantly from current levels, we do not believe that any such reductions would have a significant impact on our ability to service our debt and fund our drilling program and related operations.
We strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity. Our revolving credit facility includes a covenant limiting our total debt. We believe that, with internally generated cash flow, operating cash flow and availability under our revolving credit facility, we have the capacity to fund our spending plans.
At March 31, 2019 , we were in compliance with all restrictive financial covenants for both the revolving credit facility and senior notes. See our Form 10-K for further discussion of our restrictive financial covenants.

19


Cash Flows
Our cash flows from operating activities, investing activities and financing activities are as follows:
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2019
 
2018
Cash flows provided by operating activities
 
$
585,287

 
$
272,760

Cash flows (used in) provided by investing activities
 
(195,132
)
 
454,870

Cash flows used in financing activities
 
(77,553
)
 
(242,749
)
Net increase in cash and cash equivalents
 
$
312,602

 
$
484,881

Operating Activities .   Operating cash flow fluctuations are substantially driven by commodity prices, changes in our production volumes and operating expenses. Commodity prices have historically been volatile, primarily as a result of supply and demand for natural gas and crude oil, pipeline infrastructure constraints, basis differentials, inventory storage levels and seasonal influences. In addition, fluctuations in cash flow may result in an increase or decrease in our capital expenditures.
Our working capital is substantially influenced by the variables discussed above and fluctuates based on the timing and amount of borrowings and repayments under our revolving credit facility, repayments of debt, the timing of cash collections and payments on our trade accounts receivable and payable, respectively, repurchases of our securities and changes in the fair value of our commodity derivative activity. From time to time, our working capital will reflect a deficit, while at other times it will reflect a surplus. This fluctuation is not unusual. At March 31, 2019 and December 31, 2018 , we had a working capital surplus of $439.9 million and $257.3 million , respectively. We believe that we have adequate liquidity and availability under our revolving credit facility to meet our working capital requirements over the next twelve months.
Net cash provided by operating activities in the first three months of 2019 increase d by $312.5 million compared to the first three months of 2018 . This increase was primarily due to higher operating revenues and favorable changes in working capital and other assets and liabilities, partially offset by higher cash operating expenses. The increase in operating revenues was primarily due to higher equivalent production and higher realized natural gas prices. Average realized natural gas prices increase d by 37% for the first three months of 2019 compared to the first three months of 2018 . Equivalent production increase d by 21% for the first three months of 2019 compared to the first three months of 2018 due to higher natural gas production in the Marcellus Shale, offset by lower crude oil production due to the Eagle Ford Shale divestiture in February 2018.
See “Results of Operations” for additional information relative to commodity price, production and operating expense fluctuations. We are unable to predict future commodity prices and, as a result, cannot provide any assurance about future levels of net cash provided by operating activities.
Investing Activities . Cash flows used in investing activities increase d by $650.0 million for the first three months of 2019 compared to the first three months of 2018 . The increase was due to $644.2 million lower proceeds from the sale of assets and $39.4 million higher capital expenditures. These changes were partially offset by $33.6 million lower capital contributions associated with our equity method investments.
Financing Activities . Cash flows used in financing activities decrease d by $165.2 million for the first three months of 2019 compared to the first three months of 2018 . This decrease was primarily due to $175.8 million of lower repurchases of our common stock in 2019 compared to 2018 . This decrease was partially offset by $2.0 million of higher dividend payments related to an increase in our dividend rate from $0.06 per share for the first three months of 2018 to $0.07 per share in the first three months of 2019 and $1.6 million higher tax withholdings on vesting stock awards. During the three months ended March 31, 2019 , we repaid $7.0 million of net borrowings under our revolving credit facility. Treasury stock repurchases for the three months ended March 31, 2019 include $31.4 million of share repurchases that were accrued in 2018 .

20


Capitalization
Information about our capitalization is as follows:
(In thousands)
 
March 31,
2019
 
December 31,
2018
Debt   (1)
 
$
1,219,338

 
$
1,226,104

Stockholders' equity
 
2,320,939

 
2,088,159

Total capitalization
 
$
3,540,277

 
$
3,314,263

Debt to total capitalization
 
34
%
 
37
%
Cash and cash equivalents
 
$
314,889

 
$
2,287

_______________________________________________________________________________
(1)
Includes $7.0 million of borrowings outstanding under our revolving credit facility as of December 31, 2018 .
During the first three months of 2018 , we repurchased 8.3 million shares of our common stock for $207.1 million, respectively. We did not repurchase any shares of our common stock during the three months ended March 31, 2019 . During the first three months of 2019 and 2018 , we paid dividends of $29.6 million ( $0.07 per share) and $27.6 million ( $0.06 per share), respectively, on our common stock.
In April 2019, the Board of Directors approved an increase in the quarterly dividend on our common stock from $0.07 per share to $0.09 per share.
Capital and Exploration Expenditures
On an annual basis, we generally fund most of our capital expenditures, excluding any significant property acquisitions, with cash generated from operations, and if required, borrowings under our revolving credit facility. We budget these expenditures based on our projected cash flows for the year.
The following table presents major components of our capital and exploration expenditures:
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2019
 
2018
Capital expenditures
 
 

 
 

Drilling and facilities
 
$
202,394

 
$
158,156

Leasehold acquisitions
 
630

 
7,369

Other
 
1,247

 
1,824

 
 
204,271

 
167,349

Exploration expenditures (1)
 
6,044

 
3,617

Total
 
$
210,315

 
$
170,966

 
_______________________________________________________________________________
(1)
Exploratory dry hole expenditures included in exploration expenditures for the first three months of 2019 and 2018 were not significant.
For the full year of 2019 , our capital program will focus on the Marcellus Shale, where we expect to drill and complete 85.0 to 90.0 net wells and place 80 to 85 net wells on production. In 2019 , our drilling program includes approximately $800.0 million in total capital expenditures compared to $816.1 million in 2018 . See “Outlook” for additional information regarding the current year drilling program. We will continue to assess the commodity price environment and may increase or decrease our capital expenditures accordingly. 
Contractual Obligations
We have various contractual obligations in the normal course of our operations. There have been no material changes to our contractual obligations described under “Transportation and Gathering Agreements” and “Lease Commitments” as disclosed in Note 9 of the Notes to the Consolidated Financial Statements and the obligations described under “Contractual Obligations” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K.

21


Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. See our Form 10-K for further discussion of our critical accounting policies.
Recently Adopted Accounting Pronouncements
Refer to Note 1 of the Notes to the Condensed Consolidated Financial Statements, “Financial Statement Presentation,” for a discussion of new accounting pronouncements that affect us.
Results of Operations
First Three Months of 2019 and 2018 Compared
We reported net income in the first three months of 2019 of $262.8 million , or $0.62 per share, compared to net income of $117.2 million, or $0.26 per share, in the first three months of 2018 . The increase in net income was primarily due to higher operating revenues and a lower loss on sale of assets, partially offset by higher operating expenses and higher income tax expense.
Revenue, Price and Volume Variances
Our revenues vary from year to year as a result of changes in commodity prices and production volumes. Below is a discussion of revenue, price and volume variances.
 
 
Three Months Ended March 31,
 
Variance
Revenue Variances (In thousands)
 
2019
 
2018
 
Amount
 
Percent
   Natural gas
 
$
633,174

 
$
412,108

 
$
221,066

 
54
 %
   Crude oil and condensate
 

 
48,722

 
(48,722
)
 
(100
)%
   Gain on derivative instruments
 
8,257

 
5,577

 
2,680

 
48
 %
   Brokered natural gas
 

 
4,950

 
(4,950
)
 
(100
)%
   Other
 
250

 
1,870

 
(1,620
)
 
(87
)%
 
 
$
641,681