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MarketScreener Homepage  >  Equities  >  Nyse  >  Cabot Oil & Gas Corporation    COG

CABOT OIL & GAS CORPORATION

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CABOT OIL & GAS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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07/31/2020 | 11:13am EDT
The following review of operations for the three and six month periods ended
June 30, 2020 and 2019 should be read in conjunction with our Condensed
Consolidated Financial Statements and the Notes included in this Quarterly
Report on Form 10-Q (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, 2019
(Form 10-K).
OVERVIEW
Financial and Operating Overview
Financial and operating results for the six months ended June 30, 2020 compared
to the six months ended June 30, 2019 are as follows:
•      Natural gas production decreased 0.8 Bcf, or less than 1 percent, from

418.6 Bcf, or 2,313 Mmcf per day, in 2019 to 417.8 Bcf, or 2,296 Mmcf per

day, in 2020, as a result of the timing of our drilling and completion

       activities in the Marcellus Shale in 2020.


•      Average realized natural gas price was $1.62 per Mcf, 42 percent lower
       than the $2.80 per Mcf realized in the comparable period of the prior
       year.

• Total capital expenditures were $335.6 million compared to $424.7 million

in the comparable period of the prior year.

• Drilled 41 gross wells (36.2 net) with a success rate of 100 percent

compared to 49 gross wells (49.0 net) with a success rate of 100 percent

       for the comparable period of the prior year.


•      Completed 49 gross wells (44.2 net) in 2020 compared to 42 gross wells
       (42.0 net) in 2019.

• Average rig count during 2020 was approximately 2.4 rigs in the Marcellus

Shale, compared to an average rig count of approximately 3.2 rigs during

2019.



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. Our realized prices are also further impacted by our hedging
activities.
Our revenues, operating results, financial condition and ability to borrow funds
or obtain additional capital depend substantially on prevailing commodity
prices, particularly natural gas prices. Since substantially all of our
production and reserves are natural gas, significant declines in natural gas
prices could have a material adverse effect on our operating results, financial
condition, liquidity and ability to obtain financing. Lower natural gas prices
also may reduce the amount of natural gas that we can produce economically.
Historically, natural gas prices have been volatile, with prices fluctuating
widely, and they are likely to continue to be volatile. 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. In addition to
commodity prices and production volumes, finding and developing sufficient
amounts of natural gas reserves at economical costs are critical to our
long-term success.
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.
Natural gas prices have continued to remain low and have declined compared to
2019. The ongoing coronavirus (COVID-19) outbreak, which the World Health
Organization (WHO) declared as a pandemic on March 11, 2020, has reached more
than 200 countries and territories and there continues to be considerable
uncertainty regarding the extent to which COVID-19 will continue to spread and
the extent and duration of governmental and other measures implemented to try to
slow the spread of the virus and alleviate strain on the healthcare system, such
as quarantines, shelter-in-place orders and business and government shutdowns
and the economic impact of such actions. One of the impacts of the COVID-19
pandemic has been a significant reduction in demand for crude oil, and to a
lesser extent, natural gas. The supply/demand imbalance driven by the

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COVID-19 pandemic, as well as production disagreements among members of the
Organization of Petroleum Exporting Countries and other producer countries
(OPEC+), has led to significant global economic contraction generally and is
continuing to have disruptive impacts on the oil and gas industry. Subsequent
negotiations between members of OPEC+ led to an agreement to reduce production
volumes in an effort to stabilize crude oil prices. While crude oil prices have
recovered from the lows experienced in April 2020, they remain at depressed
levels, as the oversupply and lack of demand in the market persist. Meanwhile,
NYMEX natural gas futures prices have shown improvements since the
implementation of pandemic-related restrictions and OPEC+ price disagreements.
The improvements in natural gas futures prices are based on market expectations
that declines in future natural gas supplies due to a substantial reduction of
associated gas related to the curtailment of operations in oil basins throughout
the United States will more than offset the lower demand recently experienced
with the COVID-19 pandemic. While the current outlook on natural gas prices is
favorable and our operations have not been significantly impacted in the
short-term, in the event these disruptions continue for an extended period of
time, our operations could be adversely impacted, commodity prices could
continue to decline further and our costs may increase. While we are unable to
predict future commodity prices, at current natural gas price levels, we do not
believe that an impairment of our oil and gas properties is reasonably likely to
occur in the near future; however, in the event that commodity prices
significantly decline from current levels, management would evaluate the
recoverability of the carrying value of its oil and gas properties.
We have implemented preventative measures and developed response plans intended
to minimize unnecessary risk of exposure and prevent infection among our
employees and the communities in which we operate. We also have modified certain
business practices (including those related to non-operational employee work
locations and the cancellation of physical participation in meetings, events and
conferences) to conform to government restrictions and best practices encouraged
by the Centers for Disease Control and Prevention, the WHO and other
governmental and regulatory authorities. In addition, we are continuing to work
with our customers and service providers to understand the potential impacts to
our operations, including to mitigate any disruptions and to plan for
longer-term emergency response protocols. We will continue to monitor
developments affecting our workforce, our customers, our service providers and
the communities in which we operate, including any resurgence in COVID-19
transmission and infection after the loosening of shelter in place orders, and
take additional precautions as we believe are warranted.
Our efforts to respond to the challenges presented by the on-going pandemic, as
well as certain operational decisions we previously implemented such as our
maintenance capital program, have helped to minimize the impact, and any
resulting disruptions, of the pandemic to our business and operations. We have
not required any funding under any federal or other governmental programs to
support our operations, and we do not expect to have to utilize any such
funding. As a result, we currently believe that we are well-positioned to manage
the challenges presented in a lower commodity pricing environment and can endure
the current cyclical downturn in the energy industry and continued volatility in
current and future commodity prices 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.

• 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.



The impact that COVID-19 will have on our business, cash flows, liquidity,
financial condition and results of operations will depend on future
developments, including, among others, the ultimate geographic spread and
severity of the virus, any resurgence in COVID-19 transmission and infection in
affected regions after they have begun to experience an improvement, the
consequences of governmental and other measures designed to mitigate the spread
of the virus and alleviate strain on the healthcare system, the development of
effective treatments, the duration of the outbreak, actions taken by
governmental authorities, customers, suppliers and other third parties,
workforce availability, and the timing and extent to which normal economic and
operating conditions resume.
For information about the impact of realized commodity prices on our revenues,
refer to "Results of Operations" below.
Outlook
Our 2020 capital program is expected to be approximately $575.0 million, a 27
percent reduction from our 2019 capital program of $783.3 million. At the
beginning of 2020, we reduced our planned capital program as a result of the
lower natural

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gas price environment. We expect to fund these capital expenditures with our
cash on hand, operating cash flow and, if required, borrowings under our
revolving credit facility.
In 2019, we drilled 96 gross wells (94.0 net) and completed 99 gross wells (97.0
net), of which 29 gross wells (29.0 net) were drilled but uncompleted in prior
years. For the full year of 2020, our capital program will focus on the
Marcellus Shale, where we expect to drill, complete and place on production 60
to 70 net wells. We will continue to assess the natural gas price environment
and may increase or decrease our capital expenditures accordingly.
Financial Condition
Capital Resources and Liquidity
Our primary source of cash for the six months ended June 30, 2020 was from the
sale of natural gas production. These cash flows were used to fund our capital
expenditures, interest payments on debt 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. Effective April 23,
2020, the borrowing base and available commitments were reaffirmed at $3.2
billion and $1.5 billion, respectively. There were no borrowings outstanding
under our revolving credit facility as of June 30, 2020 and our unused
commitments were $1.5 billion. Refer to Note 4 of the Notes to the Condensed
Consolidated Financial Statements for more information.
A decline in commodity prices could result in the future reduction of our
borrowing base and related commitments under our 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 operating cash flow,
cash on hand and availability under our revolving credit facility, we have the
capacity to fund our spending plans.
At June 30, 2020, we were in compliance with all restrictive financial covenants
for both the revolving credit facility and senior notes. Refer to our Form 10-K
for further discussion of our restrictive financial covenants.
In July 2020, we repaid $87.0 million of maturities associated with our 6.51%
weighted-average senior notes.
Cash Flows
Our cash flows from operating activities, investing activities and financing
activities are as follows:
                                                               Six Months Ended
                                                                    June 30,
(In thousands)                                              2020              2019
Cash flows provided by operating activities            $     341,333     $  

911,937

Cash flows used in investing activities                     (340,367 )        (423,527 )
Cash flows used in financing activities                      (86,007 )        (249,303 )
Net (decrease) increase in cash, cash equivalents
and restricted cash                                    $     (85,041 )   $  

239,107



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, pipeline infrastructure constraints, basis
differentials, inventory storage levels, seasonal influences and other factors.
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, payment of dividends, 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 June 30, 2020 and December 31,
2019, we had a working capital surplus of $82.5 million and $240.2 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.

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Net cash provided by operating activities in the first six months of 2020
decreased by $570.6 million compared to the first six months of 2019. This
decrease was primarily due to lower natural gas revenues, lower derivative
settlement gains and unfavorable changes in working capital compared to the
prior year. The decrease in natural gas revenues was primarily due to lower
realized natural gas prices and marginally lower equivalent production. Average
realized natural gas prices decreased by 42 percent for the first six months of
2020 compared to the first six months of 2019. Equivalent production decreased
by less than 1 percent for the first six months of 2020 compared to the first
six months of 2019 as a result of the timing of our drilling and completion
activities in the Marcellus Shale in 2020.
Refer to "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 decreased by $83.2
million for the first six months of 2020 compared to the first six months of
2019. The decrease was primarily due to $90.3 million lower capital expenditures
as a result of the implementation of our maintenance capital program in 2020.
This decrease was partially offset by a decrease in contributions and proceeds
of $4.3 million related to the sale of our equity method investments and a
decrease in proceeds from the sale of assets of $2.1 million.
Financing Activities. Cash flows used in financing activities decreased by
$163.3 million for the first six months of 2020 compared to the first six months
of 2019. This decrease was primarily due to $156.6 million of lower repurchases
of our common stock in 2020 compared to 2019, $7.0 million of lower net
repayments of debt, $7.4 million of lower debt issuance costs associated with
the amendment of our revolving credit facility in 2019 and $4.2 million of lower
tax withholdings on vesting of stock awards. These decreases were partially
offset by higher dividend payments of $12.0 million related to an increase in
our quarterly dividend rate from $0.16 per share in the first six months of 2019
to $0.20 per share in the first six months of 2020. Share repurchases in 2019
include $31.4 million of share repurchases that were accrued in 2018 and paid in
2019.
Capitalization
Information about our capitalization is as follows:
                                 June 30,       December 31,
(In thousands)                     2020             2019
Debt (1)                       $ 1,220,495     $  1,220,025
Stockholders' equity             2,165,979        2,151,487
Total capitalization           $ 3,386,474     $  3,371,512
Debt to total capitalization            36 %             36 %
Cash and cash equivalents      $   117,164     $    200,227

_______________________________________________________________________________

(1) Includes $175.0 million and $87.0 million of current portion of long-term

debt at June 30, 2020 and December 31, 2019, respectively. There were no

borrowings outstanding under our revolving credit facility as of June 30,

2020 and December 31, 2019.



We did not repurchase any shares of our common stock during the first six months
of 2020. During the first six months of 2019, we repurchased 5.1 million shares
of our common stock for $125.3 million. During the first six months of 2020 and
2019, we paid dividends of $79.7 million ($0.20 per share) and $67.7 million
($0.16 per share), respectively, on our common stock.
Capital and Exploration Expenditures
On an annual basis, we generally fund most of our capital expenditures,
excluding any significant property acquisitions, with cash on hand, 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.

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The following table presents major components of our capital and exploration
expenditures:
                                 Six Months Ended
                                      June 30,
(In thousands)                   2020         2019
Capital expenditures
Drilling and facilities       $ 329,843    $ 415,431
Leasehold acquisitions            1,331        3,246
Other                             4,395        5,975
                                335,569      424,652

Exploration expenditures(1) 6,769 10,548

                              $ 342,338    $ 435,200



(1) Exploration expenditures include $2.0 million of exploratory dry hole cost

       for the first six months of 2020. Exploratory dry hole cost for the first
       six months of 2019 was not significant.



For the full year of 2020, we plan to allocate substantially all of our capital
to the Marcellus Shale, where we expect to drill, complete and place on
production 60 to 70 net wells. Our 2020 capital program is expected to be
approximately $575.0 million. Refer to "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.
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. Refer to 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
Second Quarters of 2020 and 2019 Compared
We reported net income in the second quarter of 2020 of $30.4 million, or $0.08
per share, compared to net income of $181.0 million, or $0.43 per share, in the
second quarter of 2019. The decrease in net income was primarily due to lower
operating revenues, partially offset by lower operating expenses and income tax
expense.

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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 June 30,               Variance
(In thousands)                             2020             2019          Amount         Percent
Operating Revenues
  Natural gas                        $      288,286     $  470,482     $ (182,196 )          (39 )%
  Gain on derivative instruments             43,974         63,649        (19,675 )          (31 )%
  Other                                          88            (14 )          102            729  %
                                     $      332,348     $  534,117     $ (201,769 )          (38 )%


Natural Gas Revenues

                                   Three Months Ended June 30,             Variance                Increase
                                                                                                  (Decrease)
                                        2020            2019         Amount        Percent      (In thousands)
Price variance (Mcf)              $         1.42     $    2.20     $   (0.78 )        (35 )%   $      (158,262 )
Volume variance (Bcf)                      202.9         213.8         (10.9 )         (5 )%           (23,934 )
Total                                                                                          $      (182,196 )


The decrease in natural gas revenues of $182.2 million was due to lower natural
gas prices and lower production. The decrease in production was a result of the
timing of our drilling and completion activities in the Marcellus Shale in 2020.
Impact of Derivative Instruments on Operating Revenues
                                                                      Three Months Ended
                                                                            June 30,
(In thousands)                                                       2020              2019

Cash received (paid) on settlement of derivative instruments Gain (loss) on derivative instruments

                          $     19,423        $    15,397
Non-cash gain (loss) on derivative instruments
Gain (loss) on derivative instruments                                24,551             48,252
                                                               $     43,974        $    63,649



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Operating and Other Expenses

                                          Three Months Ended June 30,                  Variance
(In thousands)                             2020                 2019            Amount         Percent
Operating and Other Expenses
  Direct operations                  $       17,423       $       18,093     $     (670 )           (4 )%
  Transportation and gathering              135,249              141,689         (6,440 )           (5 )%
  Taxes other than income                     3,352                3,640           (288 )           (8 )%
  Exploration                                 4,579                4,504             75              2  %
  Depreciation, depletion and
amortization                                 94,622               96,147         (1,525 )           (2 )%
  General and administrative                 23,166               22,889            277              1  %
                                     $      278,391       $      286,962     $   (8,571 )           (3 )%

Earnings on equity method
investments                          $            -       $        3,650     $   (3,650 )         (100 )%
Loss on sale of assets                         (241 )                  -            241            100  %
Interest expense, net                        14,543               14,567            (24 )            -  %
Other expense                                    48                  143            (95 )          (66 )%
Income tax expense                            8,751               55,086        (46,335 )          (84 )%


Total costs and expenses from operations decreased by $8.6 million in the second
quarter of 2020 compared to the same period of 2019. The primary reasons for
this fluctuation are as follows:
•         Direct operations decreased $0.7 million primarily driven by lower
          Marcellus Shale production.


•         Transportation and gathering decreased $6.4 million due to lower
          Marcellus Shale production.


•         Depreciation, depletion and amortization decreased $1.5 million
          primarily due to lower amortization of unproved properties of $2.1
          million, partially offset by higher DD&A of $0.2 million in the second

quarter of 2020 compared to 2019. The increase in DD&A was primarily

          due to an increase of $4.8 million due to a higher DD&A rate of $0.44
          per Mcfe in the second quarter of 2020 compared to $0.42 per Mcfe for

the second quarter of 2019, partially offset by $4.6 million related to

          lower production volumes in the Marcellus Shale. The higher DD&A rate
          was due to higher cost reserve additions.

• General and administrative increased $0.3 million primarily due to $1.6

million higher stock-based compensation expense associated with certain

of our market-based performance awards and a $1.1 million increase in

hardware and software costs. These increases were partially offset by

$2.1 million of severance costs incurred in the second quarter of 2019.

The remaining changes in other general and administrative expenses were

not individually significant.



Earnings on Equity Method Investments
Earnings on equity method investments decreased $3.7 million primarily due to
the sale of our investments in Meade Pipeline Co LLC (Meade) in November 2019
and Constitution Pipeline Company, LLC (Constitution) in February 2020.
Income Tax Expense
Income tax expense decreased $46.3 million due to lower pre-tax income and a
lower effective tax rate. The effective tax rates for the second quarter of 2020
and 2019 were 22.4 percent and 23.3 percent, respectively. The effective tax
rate was lower for the second quarter of 2020 compared to the second quarter of
2019 due to the reimbursement of sequestration charges on AMT credits refunded
in prior years that was recorded in the second quarter of 2020.
First Six Months of 2020 and 2019 Compared
We reported net income in the first six months of 2020 of $84.3 million, or
$0.21 per share, compared to net income of $443.8 million, or $1.05 per share,
in the first six months of 2019. The decrease in net income was primarily due to
lower operating revenues and earnings on equity method investments, partially
offset by lower income tax expense.

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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.
                                        Six Months Ended June 30,                    Variance
(In thousands)                             2020               2019           Amount          Percent
Operating Revenues
  Natural gas                      $     658,626          $ 1,103,656     $  (445,030 )           (40 )%
  Gain on derivative instruments          60,036               71,906         (11,870 )           (17 )%
  Other                                      143                  236             (93 )           (39 )%
                                   $     718,805          $ 1,175,798     $  (456,993 )           (39 )%


Natural Gas Revenues

                                     Six Months Ended June 30,             Variance               Increase
                                                                                                 (Decrease)
                                        2020             2019         Amount      Percent      (In thousands)
Price variance (Mcf)              $         1.58     $     2.64     $  (1.06 )       (40 )%   $      (443,115 )
Volume variance (Bcf)                      417.8          418.6         (0.8 )         -  %            (1,915 )
Total                                                                                         $      (445,030 )


The decrease in natural gas revenues of $445.0 million was due to lower natural
gas prices coupled with a decrease in production. The decrease in production was
a result of the timing of our drilling and completion activities in the
Marcellus Shale in 2020.
Impact of Derivative Instruments on Operating Revenues
                                                                  Six Months Ended
                                                                       June 30,
(In thousands)                                                    2020         2019

Cash received (paid) on settlement of derivative instruments Gain (loss) on derivative instruments

                          $   19,423    $ 68,377
Non-cash gain (loss) on derivative instruments
Gain (loss) on derivative instruments                              40,613       3,529
                                                               $   60,036    $ 71,906


Operating and Other Expenses
                                         Six Months Ended June 30,                 Variance
(In thousands)                              2020              2019          Amount         Percent
Operating and Other Expenses
  Direct operations                   $      34,667       $   36,427     $    (1,760 )          (5 )%
  Transportation and gathering              278,581          279,022            (441 )           -  %
  Taxes other than income                     7,090            9,487          (2,397 )         (25 )%
  Exploration                                 6,769           10,548          (3,779 )         (36 )%
  Depreciation, depletion and
amortization                                194,757          188,405           6,352             3  %
  General and administrative                 56,595           53,979           2,616             5  %
                                      $     578,459       $  577,868     $       591             -  %

(Loss) earnings on equity method
investments                           $         (59 )     $    7,334     $    (7,393 )        (101 )%
Loss on sale of assets                         (170 )         (1,500 )        (1,330 )         (89 )%
Interest expense, net                        28,754           26,748           2,006             7  %
Other expense                                   114              287            (173 )         (60 )%
Income tax expense                           26,965          132,957        (105,992 )         (80 )%



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Total costs and expenses from operations increased by $0.6 million in the first
six months of 2020 compared to the same period of 2019. The primary reasons for
this fluctuation are as follows:
•      Direct operations decreased $1.8 million due to a decrease in production

and continued efficiencies in our operations in the Marcellus Shale.

• Transportation and gathering decreased $0.4 million due to lower Marcellus

       Shale production.


•      Taxes other than income decreased $2.4 million due to $2.2 million lower
       drilling impact fees driven by a decrease in rates associated with lower
       natural gas prices.


•      Exploration decreased $3.8 million due to a $3.1 million decrease in
       geological and geophysical expenses and a $1.4 million decrease in
       employee costs, partially offset by an increase in exploratory dry hole
       costs of $2.0 million.

• Depreciation, depletion and amortization increased $6.4 million primarily

due to higher DD&A of $8.8 million, partially offset by lower amortization

of unproved properties of $3.0 million. The increase in DD&A was due to an

increase of $9.1 million due to a higher DD&A rate of $0.44 per Mcfe for

the first six months of 2020 compared to $0.42 per Mcfe for the first six

months of 2019. The higher DD&A rate was due to higher cost reserve

additions. Amortization of unproved properties decreased due to lower

amortization rates.

• General and administrative increased $2.6 million primarily due to higher

stock-based compensation expense of $2.7 million associated with certain

of our market-based performance awards, a $1.9 million increase in legal

expenses and a $1.1 million increase in hardware and software costs. These

       increases were partially offset by $2.1 million of severance costs
       incurred in the second quarter of 2019 and a $1.4 million decrease in
       employee-related expenses. The remaining changes in other general and
       administrative expenses were not individually significant.


(Loss) Earnings on Equity Method Investments
Earnings on equity method investments decreased $7.4 million primarily due to
the sale of our investments in Meade in November 2019 and Constitution in
February 2020.
Interest Expense, net
Interest expense, net increased $2.0 million primarily due to the reversal of
interest expense in 2019 related to certain income tax reserves recorded in
prior periods.
Income Tax Expense
Income tax expense decreased $106.0 million due to lower pre-tax income,
partially offset by a higher effective tax rate. The effective tax rates for the
first six months of 2020 and 2019 were 24.2 percent and 23.1 percent,
respectively. The effective tax rate was higher for the first six months of 2020
compared to the first six months of 2019 due to an increase in tax expense 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.
Forward-Looking Information
The statements regarding future financial and operating performance and results,
strategic pursuits and goals, market prices, future hedging and risk management
activities, and other statements that are not historical facts contained in this
report are forward-looking statements. The words "expect," "project,"
"estimate," "believe," "anticipate," "intend," "budget," "plan," "forecast,"
"target," "predict," "may," "should," "could," "will" and similar expressions
are also intended to identify forward-looking statements. Such statements
involve risks and uncertainties, including, but not limited to, the continuing
effects of the COVID-19 pandemic and the impact thereof on our business,
financial condition and results of operations, the availability of cash on hand
and other sources of liquidity to fund our capital expenditures, actions by, or
disputes among or between, members of OPEC+, market factors, market prices
(including geographic basis differentials) of natural gas, results of future
drilling and marketing activity, future production and costs, legislative and
regulatory initiatives, electronic, cyber or physical security breaches and
other factors detailed herein and in our other Securities and Exchange
Commission filings. Refer to "Risk Factors" in Item 1A of the Form 10-K, in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in this
Quarterly Report on Form 10-Q for additional information about these risks and
uncertainties. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.

                                       24

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Sales 2020 1 531 M - -
Net income 2020 203 M - -
Net Debt 2020 997 M - -
P/E ratio 2020 35,9x
Yield 2020 1,95%
Capitalization 8 207 M 8 207 M -
EV / Sales 2020 6,01x
EV / Sales 2021 4,24x
Nbr of Employees 547
Free-Float 81,8%
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Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 21,86 $
Last Close Price 20,59 $
Spread / Highest target 31,1%
Spread / Average Target 6,17%
Spread / Lowest Target -12,6%
EPS Revisions
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NameTitle
Dan O. Dinges Chairman, President & Chief Executive Officer
Phillip L. Stalnaker Senior Vice President-Operations
Scott C. Schroeder Chief Financial Officer & Executive Vice President
Steven W. Lindeman Senior Vice President-EHS & Engineering
Robert Kelley Lead Independent Director
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