The following review of operations for the three and nine month periods endedSeptember 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 theCabot Oil & Gas Corporation Annual Report on Form 10-K for the year endedDecember 31, 2019 (Form 10-K). OVERVIEW Financial and Operating Overview Financial and operating results for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 are as follows: •Natural gas production decreased 0.1 Bcf from 639.3 Bcf, or 2,342 Mmcf per day, in 2019 to 639.2 Bcf, or 2,333 Mmcf per day, in 2020. The slight decrease was driven by strategic curtailments of production during the third quarter of 2020 due to weaker natural gas prices offset by higher production during the period prior to such strategic curtailment due to the timing of our drilling and completion activities in theMarcellus Shale in 2020. •Average realized natural gas price was$1.60 per Mcf, 38 percent lower than the$2.56 per Mcf realized in the comparable period of the prior year. •Total capital expenditures were$463.9 million compared to$622.1 million in the comparable period of the prior year. •Drilled 55 gross wells (49.2 net) with a success rate of 100 percent compared to 71 gross wells (71.0 net) with a success rate of 100 percent for the comparable period of the prior year. •Completed 71 gross wells (62.3 net) in 2020 compared to 71 gross wells (71.0 net) in 2019. •Average rig count during 2020 was approximately 2.3 rigs in theMarcellus Shale , compared to an average rig count of approximately 3.1 rigs during 2019. •Repaid$87.0 million of our 6.51% weighted-average senior notes, which matured inJuly 2020 . 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. In addition, in periods of low natural gas prices, we may elect to curtail a portion of our production, such as late in the third quarter of 2020, when we anticipate a more favorable price environment in which to produce our curtailed volumes. 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. The ongoing coronavirus (COVID-19) outbreak, which theWorld Health Organization (WHO ) declared as a pandemic onMarch 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, the development and availability of effective treatments and 16 -------------------------------------------------------------------------------- Table of Contents vaccines 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 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 COVID-19 pandemic, as well as production disagreements among members of theOrganization of Petroleum Exporting Countries and other producer countries (OPEC+), has led to significant global economic contraction generally and continues to have disruptive impacts on the oil and gas industry. While subsequent negotiations between members of OPEC+ led to an agreement to reduce production volumes in an effort to stabilize crude oil prices, crude oil prices remain at depressed levels, as the oversupply and lack of demand in the market persist. Natural gas prices have continued to remain low compared to 2019 and remained challenged during the third quarter of 2020, in part, due to lower seasonal demand during the shoulder season of 2020 and storage levels nearing capacity. In response to the weakness of natural gas prices, we have strategically curtailed our production during the last 13 days of the third quarter of 2020, resulting in an estimated average daily curtailment of approximately 372 Mmcfe per day of gross production. 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 throughoutthe 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 our 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 theCenters for Disease Control and Prevention , theWHO 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, 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 manage our portfolio by strategically curtailing production in periods of weaker natural gas prices. •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 duration, 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, actions taken by governmental authorities, customers, 17 -------------------------------------------------------------------------------- Table of Contents 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 . We expect to fund these capital expenditures with our operating cash flow and, if required, borrowings under our revolving credit facility. At the beginning of 2020, we reduced our planned capital program as a result of the lower natural gas price environment. During the third quarter of 2020, we elected to strategically curtail production in theMarcellus Shale due to weaker natural gas prices; however, we anticipate an increase in production in the fourth quarter of 2020 over the third quarter as a result of an increase in demand during the winter months. 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 theMarcellus Shale , where we expect to drill, complete and place on production approximately 70 net wells. We will continue to assess the natural gas price environment and may increase or decrease our capital expenditures in response to the macro-environment and outlook. This may from time to time also include curtailing a portion of our production. Financial Condition Capital Resources and Liquidity Our primary source of cash for the nine months endedSeptember 30, 2020 was from the sale of natural gas production and net borrowings under our revolving credit facility. These cash flows were used to fund our capital expenditures, principal and interest payments on debt and payment of dividends. See below for additional discussion and analysis of our cash flows. 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. EffectiveApril 23, 2020 , the borrowing base and available commitments were reaffirmed at$3.2 billion and$1.5 billion , respectively. AtSeptember 30, 2020 , we had$28.0 million of borrowings outstanding under our revolving credit facility and our unused commitments were$1.5 billion . Refer to Note 4 of the Notes to the Condensed Consolidated Financial Statements for more information. A decline in commodity prices could result in the future reduction of our borrowing base and related commitments under our revolving credit facility. Unless commodity prices decline significantly from current levels, we do not believe that any such reductions would have a significant impact on our ability to service our debt and fund our drilling program and related operations. We strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity. Our revolving credit facility includes a covenant limiting our total debt. We believe that, with operating cash flow and availability under our revolving credit facility, we have the capacity to fund our spending plans. AtSeptember 30, 2020 , we were in compliance with all restrictive financial covenants for both our revolving credit facility and senior notes. Refer to our Form 10-K for further discussion of our restrictive financial covenants. Cash Flows Our cash flows from operating activities, investing activities and financing activities are as follows: Nine Months Ended September 30, (In thousands) 2020 2019 Cash flows provided by operating activities$ 470,393 $ 1,182,811 Cash flows used in investing activities (487,546) (625,616) Cash flows used in financing activities (184,882) (477,166)
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(202,035)
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 18 -------------------------------------------------------------------------------- Table of Contents 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. AtSeptember 30, 2020 andDecember 31, 2019 , we had a working capital deficit of$63.4 million and a surplus of$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. Net cash provided by operating activities in the first nine months of 2020 decreased by$712.4 million compared to the first nine 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 natural gas production. Average realized natural gas prices decreased by 38 percent for the first nine months of 2020 compared to the first nine months of 2019. Natural gas production decreased slightly for the first nine months of 2020 compared to the first nine months of 2019 due to strategic curtailments of production during the third quarter of 2020 due to weaker natural gas prices offset by higher production during the period prior to such strategic curtailment due to the timing of our drilling and completion activities in theMarcellus 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$138.1 million for the first nine months of 2020 compared to the first nine months of 2019. The decrease was primarily due to$142.3 million of lower capital expenditures as a result of the implementation of our maintenance capital program in 2020. This decrease was partially offset by an increase in net cash outflows of$2.1 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$292.3 million for the first nine months of 2020 compared to the first nine months of 2019. This decrease was primarily due to$347.4 million of lower repurchases of our common stock in 2020 compared to 2019,$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$52.0 million higher net repayments of debt and$14.8 million higher dividend payments related to an increase in our quarterly dividend rate from$0.25 per share in the first nine months of 2019 to$0.30 per share in the first nine months of 2020. Share repurchases in 2019 include$31.4 million of share repurchases that were accrued in 2018 and paid in 2019. Capitalization Information about our capitalization is as follows: September 30, December 31, (In thousands) 2020 2019 Debt (1)$ 1,161,712 $ 1,220,025 Stockholders' equity 2,118,488 2,151,487 Total capitalization$ 3,280,200 $ 3,371,512 Debt to total capitalization 35 % 36 % Cash and cash equivalents$ 170 $ 200,227
_______________________________________________________________________________ (1)Includes$188.0 million and$87.0 million of current portion of long-term debt atSeptember 30, 2020 andDecember 31, 2019 , respectively. Includes$28.0 million of borrowings outstanding under our revolving credit facility as ofSeptember 30, 2020 . There were no borrowings outstanding under our revolving credit facility as ofDecember 31, 2019 . We did not repurchase any shares of our common stock during the first nine months of 2020. During the first nine months of 2019, we repurchased 15.5 million shares of our common stock for$316.1 million . During the first nine months of 2020 and 19 -------------------------------------------------------------------------------- Table of Contents 2019, we paid dividends of$119.5 million ($0.30 per share) and$104.7 million ($0.25 per share), respectively, on our common stock. Capital and Exploration Expenditures On an annual basis, we generally fund most of our capital expenditures, excluding any significant property acquisitions, with cash on hand, cash generated from operations, and if required, borrowings under our revolving credit facility. We budget these expenditures based on our projected cash flows for the year. The following table presents major components of our capital and exploration expenditures: Nine Months Ended September 30, (In thousands) 2020 2019 Capital expenditures Drilling and facilities$ 449,045 $ 605,938 Leasehold acquisitions 3,258 5,261 Other 11,622 10,917 463,925 622,116 Exploration expenditures(1) 10,669 15,029$ 474,594 $ 637,145
_______________________________________________________________________________ (1)Exploration expenditures include$2.0 million of exploratory dry hole cost for the first nine months of 2020. Exploratory dry hole cost for the first nine months of 2019 was not significant. For the full year of 2020, we plan to allocate substantially all of our capital to theMarcellus Shale , where we expect to drill, complete and place on production approximately 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 inthe 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 recently adopted accounting pronouncements that affect us. Results of Operations Third Quarters of 2020 and 2019 Compared We reported a net loss in the third quarter of 2020 of$15.0 million , or$0.04 per share, compared to net income of$90.4 million , or$0.22 per share, in the third quarter of 2019. The decrease in net income was primarily due to lower operating revenues, partially offset by lower operating expenses and income tax expense. 20 -------------------------------------------------------------------------------- Table of Contents Revenue, Price and Volume Variances Our revenues vary from year to year as a result of changes in commodity prices and production volumes. Below is a discussion of revenue, price and volume variances. Three Months Ended September 30, Variance (In thousands) 2020 2019 Amount Percent Operating Revenues Natural gas$ 333,256 $ 418,133 $ (84,877) (20) % (Loss) gain on derivative instruments (42,253) 11,060 (53,313) (482) % Other 38 (82) 120 (146) %$ 291,041 $ 429,111 $ (138,070) (32) % Natural Gas Revenues Three Months Ended September Increase 30, Variance (Decrease) 2020 2019 Amount Percent (In thousands) Price variance ($/Mcf)$ 1.51 $ 1.89 $ (0.38) (20) %$ (86,200) Volume variance (Bcf) 221.4 220.7 0.7 - % 1,323 Total$ (84,877) The decrease in natural gas revenues of$84.9 million was primarily due to lower natural gas prices, partially offset by a slight increase in production. Production increased slightly as a result of the timing of our drilling and completion activities in theMarcellus Shale in 2020 offset by strategic curtailments of production during the third quarter of 2020 due to weaker natural gas prices. Impact of Derivative Instruments on Operating Revenues Three Months Ended September 30, (In thousands) 2020 2019
Cash received (paid) on settlement of derivative instruments (Loss) gain on derivative instruments
$ 14,106 $ 46,555 Non-cash gain (loss) on derivative instruments (Loss) gain on derivative instruments (56,359) (35,495)$ (42,253) $ 11,060 21
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Table of Contents Operating and Other Expenses Three Months Ended September 30, Variance (In thousands) 2020 2019 Amount Percent Operating and Other Expenses Direct operations$ 20,197 $ 19,181 $ 1,016 5 % Transportation and gathering 146,982 145,681 1,301 1 % Taxes other than income 3,615 4,607 (992) (22) % Exploration 3,900 4,481 (581) (13) % Depreciation, depletion and amortization 99,649 110,889 (11,240) (10) % General and administrative 24,262 18,391 5,871 32 %$ 298,605 $ 303,230 $ (4,625) (2) % Earnings on equity method investments $ -$ 3,860 $ (3,860) (100) % Gain on sale of assets 31 36 (5) (14) % Interest expense, net 14,389 13,554 835 6 % Other expense 57 143 (86) (60) % Income tax (benefit) expense (7,018) 25,722 (32,740) (127) % Total costs and expenses from operations decreased by$4.6 million in the third quarter of 2020 compared to the same period of 2019. The primary reasons for this fluctuation are as follows: •Direct operations increased$1.0 million primarily driven by higher workover expense. •Transportation and gathering increased$1.3 million due to higher demand charges. •Depreciation, depletion and amortization decreased$11.2 million primarily due to lower amortization of unproved properties of$14.0 million , partially offset by higher DD&A of$2.3 million in the third quarter of 2020 compared to 2019. Amortization of unproved properties decreased due to lower amortization rates. The increase in DD&A was primarily due to an increase of$2.0 million due to a higher DD&A rate of$0.43 per Mcfe in the third quarter of 2020 compared to$0.42 per Mcfe for the third quarter of 2019. The higher DD&A rate was due to higher cost reserve additions. •General and administrative increased$5.9 million primarily due to$9.3 million higher stock-based compensation expense associated with certain of our market-based performance awards partially offset by a$1.2 million decrease in hardware and software costs. The remaining changes in other general and administrative expenses were not individually significant. Earnings on Equity Method Investments Earnings on equity method investments decreased$3.9 million primarily due to the sale of our investments inMeade Pipeline Co LLC (Meade) inNovember 2019 andConstitution Pipeline Company, LLC (Constitution ) inFebruary 2020 . Income Tax (Benefit) Expense Income tax expense decreased$32.7 million due to lower pre-tax income and a higher effective tax rate. The effective tax rates for the third quarter of 2020 and 2019 were 31.9 percent and 22.2 percent, respectively. The effective tax rate was higher for the third quarter of 2020, where we recorded an income tax benefit, compared to the third quarter of 2019, where we recorded an income tax expense, due to the impact of non-recurring discrete items related to additional tax credits recorded during the third quarter of 2020. First Nine Months of 2020 and 2019 Compared We reported net income in the first nine months of 2020 of$69.3 million , or$0.17 per share, compared to net income of$534.1 million , or$1.27 per share, in the first nine 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. 22 -------------------------------------------------------------------------------- Table of Contents 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. Nine Months Ended September 30, Variance (In thousands) 2020 2019 Amount Percent Operating Revenues Natural gas $ 991,882$ 1,521,789 $ (529,907) (35) % Gain on derivative instruments 17,783 82,966 (65,183) (79) % Other 181 154 27 18 %$ 1,009,846 $ 1,604,909 $ (595,063) (37) % Natural Gas Revenues Nine Months Ended September 30, Variance Increase (Decrease) 2020 2019 Amount Percent (In thousands) Price variance ($/Mcf)$ 1.55 $ 2.38 $ (0.83) (35) %$ (529,770) Volume variance (Bcf) 639.2 639.3 (0.1) - % (137) Total$ (529,907) The decrease in natural gas revenues of$529.9 million was primarily due to lower natural gas prices and, to a lesser extent, slightly lower production. The slight decrease in production was due to strategic curtailments of production during the third quarter of 2020 due to weaker natural gas prices offset by higher production during the period prior to such strategic curtailment due to the timing of our drilling and completion activities in theMarcellus Shale in 2020. Impact of Derivative Instruments on Operating Revenues Nine Months Ended September 30, (In thousands) 2020 2019
Cash received (paid) on settlement of derivative instruments (Loss) gain on derivative instruments
$ 33,529 $ 114,931 Non-cash gain (loss) on derivative instruments (Loss) gain on derivative instruments (15,746) (31,965)$ 17,783 $ 82,966
Operating and Other Expenses
Nine Months Ended September 30, Variance (In thousands) 2020 2019 Amount Percent
Operating and Other Expenses
Direct operations$ 54,864 $ 55,608 $ (744) (1) % Transportation and gathering 425,563 424,703 860 - % Taxes other than income 10,705 14,094 (3,389) (24) % Exploration 10,669 15,029 (4,360) (29) % Depreciation, depletion and amortization 294,406 299,294 (4,888) (2) % General and administrative 80,857 72,370 8,487 12 %$ 877,064 $ 881,098 $ (4,034) - % (Loss) earnings on equity method investments$ (59) $ 11,194 $ (11,253) (101) % Gain (loss) on sale of assets (139) (1,464) (1,325) (91) % Interest expense, net 43,143 40,302 2,841 7 % Other expense 171 430 (259) (60) % Income tax expense 19,947 158,679 (138,732) (87) % 23
-------------------------------------------------------------------------------- Table of Contents Total costs and expenses from operations decreased by$4.0 million in the first nine months of 2020 compared to the same period of 2019. The primary reasons for this fluctuation are as follows: •Direct operations decreased$0.7 million due to a decrease in production and continued efficiencies in our operations in theMarcellus Shale . This decrease was offset by higher workover expenses during the period. •Transportation and gathering increased$0.9 million due to higher demand charges. •Taxes other than income decreased$3.4 million primarily due to$3.1 million lower drilling impact fees driven by a decrease in rates associated with lower natural gas prices and a decrease in drilling activities during 2020. •Exploration decreased$4.4 million primarily due to a$3.6 million decrease in geological and geophysical expenses and a$1.4 million decrease in employee costs. These decreases were partially offset by higher in exploratory dry hole costs of$2.0 million . •Depreciation, depletion and amortization decreased$4.9 million primarily due to lower amortization of unproved properties of$17.0 million , partially offset by higher DD&A of$11.1 million . Amortization of unproved properties decreased due to lower amortization rates. The increase in DD&A was due to a higher DD&A rate of$0.44 per Mcfe for the first nine months of 2020 compared to$0.42 per Mcfe for the first nine months of 2019. The higher DD&A rate was due to higher cost reserve additions. •General and administrative increased$8.5 million primarily due to higher stock-based compensation expense of$12.0 million associated with certain of our market-based performance awards and a$1.8 million increase in legal expenses. These increases were partially offset by$2.5 million of lower severance costs that were incurred in the third quarter of 2019 and a$1.7 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$11.3 million primarily due to the sale of our investments in Meade inNovember 2019 andConstitution inFebruary 2020 . Interest Expense, net Interest expense, net increased$2.8 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$138.7 million due to lower pre-tax income and a lower effective tax rate. The effective tax rates for the first nine months of 2020 and 2019 were 22.3 percent and 22.9 percent, respectively. The effective tax rate was lower for the first nine months of 2020 compared to the first nine months of 2019 due to the impact of non-recurring discrete items related to additional tax credits recorded in 2020 partially offset by 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 otherSecurities and Exchange Commission filings. Refer to "Risk Factors" in Item 1A of our Form 10-K and in our Quarterly Reports on Form 10-Q for the quarters endedMarch 31, 2020 andJune 30, 2020 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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