Contango Announces First Quarter 2020 Financial Results
First Quarter 2020 Highlights
- Production of 1,720 Mboe for the quarter, or 18.9 Mboe per day, a 216% increase from the 6.0 Mboe per day in the prior year quarter, primarily due to additional production from the properties acquired from
White Star Petroleum, LLCand certain affiliates (collectively, “White Star”) and Will Energy Corporation(“Will Energy”) in the fourth quarter of 2019.
- Initiated flowback from the State Spearhead #1H well in
Pecos County, Texas, in the Southern Delaware Basin, in January 2020.
- Net loss of
$105.3 million(including $145.9 millionin pre-tax impairments), compared to a net loss of $8.6 millionin the prior year quarter (including $0.5 millionin pre-tax impairments).
- Recurring Adjusted EBITDAX (a non-GAAP measure, as defined and presented herein) of
$14.9 million, compared to $6.2 millionin the prior year quarter.
We added hedges during the fourth quarter of 2019 and March of 2020, prior to the dramatic collapse in oil prices, and currently have approximately 70% of our total forecasted PDP oil production for 2020 hedged with swaps at an average floor price of
Impact of the COVID-19 Pandemic and 2020 Plan Changes
The COVID-19 pandemic has resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil throughout the world, and has created significant volatility, uncertainty and turmoil in the oil and gas industry. This has led to a significant global oversupply of oil and a subsequent substantial decrease in oil prices. While global oil producers, including the
- implemented work from home initiatives for all but critical staff and put in place social distancing measures;
- implemented a company wide effort to cut costs throughout our operations;
- developed a plan to utilize our available storage capacity where possible to temporarily store a portion of our production in order to market that oil in the near future and capitalize on the contango in the commodity price curve; and
- suspended any further plans for onshore drilling in 2020.
Summary of First Quarter Financial Results
Net loss for the three months ended
Average weighted shares outstanding were approximately 131.1 million and 33.8 million for the current and prior year quarters, respectively.
The Company reported Adjusted EBITDAX, a non-GAAP measure defined below, of approximately
Revenues for the current quarter were approximately
Production for the first quarter was approximately 1,720 Mboe, or 18.9 Mboe per day, compared to 539 Mboe, or 6.0 Mboe per day for the first quarter of 2019. The properties acquired from
The weighted average equivalent sales price during the three months ended
Operating expenses for the three months ended
DD&A expense for the three months ended
Impairment and abandonment expense was
Total G&A expenses were
Gain from our investment in affiliates (i.e., Exaro Energy III (“Exaro”)) for each of three months ended
Gain on derivatives for the three months ended
Operations Activity Update
We brought one well online in the
2020 Capital Program & Capital Resources
Capital costs incurred for the three months ended
We anticipate that the remainder of our 2020 capital budget will be very limited and will be focused primarily on preserving our financial liquidity and flexibility and identifying opportunities for cost efficiencies in all areas of our operations and will also include the Iron Flea exploratory prospect in the shallow waters of the
- Exploratory costs – offshore:
$8.7 millionfor the Iron Flea exploratory prospect. This well was spud in May 2020and drilled to the total targeted depth in early June, but unfortunately was determined not successful. We escrowed the $7.1 million(net to the Company) turnkey cost for the drilling of the well in the first quarter, and incurred $1.1 millionin additional costs for standby time incurred as a result of Tropical Storm Cristobal and other costs, all of which will be recognized as exploration expense in the second quarter of 2020 financial statements. We estimate an additional $0.5 millionfor plugging and abandonment costs.
- Drilling and completion – onshore:
$3.7 millionto for the completion of the State Spearhead #1 H, the drilling and completion of the salt water disposal well and related infrastructure costs in our NE Bullseye area. We have currently suspended any other onshore drilling for the remainder of 2020.
$3.3 millionfor limited workovers which are intended to increase production and cash flow.
- Plugging and abandonment activity:
$ 0.7 millionfor onshore wells.
We may revise our 2020 capital expenditure budget if deemed appropriate in light of changes in commodity prices or economic conditions.
|Oil||Collar||3,442||Bbls||$||52.00 - 65.70||(2)|
(1) Based on Henry Hub NYMEX natural gas prices.
(2) Based on West Texas Intermediate crude oil prices.
In addition to the above financial derivative instruments, as of
Selected Financial and Operating Data
The following table reflects certain comparative financial and operating data for the three months ended
|Three Months Ended|
|Offshore Volumes Sold:|
|Oil and condensate (Mbbls)||9||13||-31||%|
|Natural gas (Mmcf)||1,263||1,635||-23||%|
|Natural gas liquids (Mbbls)||30||66||-55||%|
|Thousand barrels of oil equivalent (Mboe)||250||352||-29||%|
|Onshore Volumes Sold:|
|Oil and condensate (Mbbls)||511||112||356||%|
|Natural gas (Mmcf)||3,938||258||1426||%|
|Natural gas liquids (Mbbls)||303||32||847||%|
|Thousand barrels of oil equivalent (Mboe)||1,470||187||686||%|
|Total Volumes Sold:|
|Oil and condensate (Mbbls)||520||125||316||%|
|Natural gas (Mmcf)||5,201||1,893||175||%|
|Natural gas liquids (Mbbls)||333||98||240||%|
|Thousand barrels of oil equivalent (Mboe)||1,720||539||219||%|
|Daily Sales Volumes:|
|Oil and condensate (Mbbls)||5.7||1.4||316||%|
|Natural gas (Mmcf)||57.2||21.0||175||%|
|Natural gas liquids (Mbbls)||3.7||1.1||240||%|
|Thousand barrels of oil equivalent (Mboe)||18.9||6.0||219||%|
|Average sales prices:|
|Oil and condensate (per Bbl)||$||43.77||$||51.08||-14||%|
|Natural gas (per Mcf)||$||1.57||$||2.98||-47||%|
|Natural gas liquids (per Bbl)||$||10.89||$||19.96||-45||%|
|Total (per Boe)||$||20.10||$||25.98||-23||%|
|Three Months Ended|
|Offshore Selected Costs ($ per Boe)|
|Lease operating expenses (1)||$||6.18||$||4.41||40||%|
|Production and ad valorem taxes||$||0.44||$||0.44||0||%|
|Onshore Selected Costs ($ per Boe)|
|Lease operating expenses (1)||$||12.37||$||17.39||-29||%|
|Production and ad valorem taxes||$||1.11||$||1.24||-10||%|
|Average Selected Costs ($ per Boe)|
|Lease operating expenses (1)||$||11.47||$||8.91||29||%|
|Production and ad valorem taxes||$||1.02||$||0.72||42||%|
|General and administrative expense (cash)||$||2.95||$||7.33||-60||%|
|Net Loss (thousands)||$||(105,255||)||$||(8,618||)|
|Adjusted EBITDAX (2) (thousands)||$||14,128||$||5,444|
|Weighted Average Shares Outstanding (thousands)|
(1) LOE includes transportation and workover expenses.
(2) Adjusted EBITDAX is a non-GAAP financial measure. See below for reconciliation to net loss.
CONDENSED CONSOLIDATED BALANCE SHEETS
|Cash and cash equivalents||$||1,685||$||1,624|
|Accounts receivable, net||28,565||39,567|
|Current derivative asset||30,980||3,819|
|Other current assets||8,729||1,377|
|Net property and equipment||137,874||291,120|
|Investment in affiliates and other non-current assets||24,966||16,319|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Accounts payable and accrued liabilities||83,742||104,593|
|Other current liabilities||2,211||5,954|
|Asset retirement obligations||50,626||49,662|
|Other non-current liabilities||2,521||4,809|
|Total shareholders’ equity||10,931||116,040|
|TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY||$||232,799||$||353,826|
CONSOLIDATED STATEMENTS OF OPERATIONS
|Three Months Ended|
|Oil and condensate sales||$||22,782||$||6,406|
|Natural gas sales||8,170||5,642|
|Natural gas liquids sales||3,621||1,963|
|Depreciation, depletion and amortization||12,854||7,556|
|Impairment and abandonment of oil and gas properties||145,878||587|
|General and administrative expenses||5,425||5,005|
|OTHER INCOME (EXPENSE)|
|Gain from investment in affiliates, net of income taxes||286||30|
|Gain (loss) from sale of assets||27||(12||)|
|Gain (loss) on derivatives, net||46,699||(2,878||)|
|Other income (expense)||805||(86||)|
|Total other income (expense)||46,604||(4,038||)|
|NET LOSS BEFORE INCOME TAXES||(104,861||)||(8,591||)|
|Income tax provision||(394||)||(27||)|
Non-GAAP Financial Measures
This news release includes certain non-GAAP financial information as defined by
Adjusted EBITDAX represents net income (loss) before interest expense, taxes, depreciation, depletion and amortization, and oil and gas exploration expenses (“EBITDAX”) as further adjusted to reflect the items set forth in the table below and is a measure required to be used in determining our compliance with financial covenants under our credit facility. Recurring Adjusted EBITDAX represents Adjusted EBITDAX exclusive of non-recurring business combination and strategic advisory fees and legal judgments.
We have included Adjusted EBITDAX in this release to provide investors with a supplemental measure of our operating performance and information about the calculation of some of the financial covenants that are contained in our credit agreement. We believe Adjusted EBITDAX is an important supplemental measure of operating performance because it eliminates items that have less bearing on our operating performance and therefore highlights trends in our core business that may not otherwise be apparent when relying solely on GAAP financial measures. We also believe that securities analysts, investors and other interested parties frequently use Adjusted EBITDAX in the evaluation of companies, many of which present Adjusted EBITDAX when reporting their results. Adjusted EBITDAX is a material component of the covenants that are imposed on us by our credit agreement. We are subject to financial covenant ratios that are calculated by reference to Adjusted EBITDAX. Non-compliance with the financial covenants contained in our credit agreement could result in a default, an acceleration in the repayment of amounts outstanding and a termination of lending commitments. Our management and external users of our financial statements, such as investors, commercial banks, research analysts and others, also use Adjusted EBITDAX to assess:
- the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
- the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness;
- our operating performance and return on capital as compared to those of other companies in our industry, without regard to financing or capital structure; and
- the feasibility of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.
The following table reconciles net income to EBITDAX and Adjusted EBITDAX and Recurring Adjusted EBITDAX for the periods presented:
|Three Months Ended|
|Income tax provision||394||27|
|Depreciation, depletion and amortization||12,854||7,556|
|Unrealized loss (gain) on derivative instruments||$||(41,391||)||$||3,646|
|Non-cash stock-based compensation charges||350||1,052|
|Impairment of oil and gas properties||145,878||483|
|Gain on sale of assets and investment in affiliates||(313||)||(18||)|
|Non-recurring business combination expenses and strategic fees||$||783||$||751|
|Recurring Adjusted EBITDAX||$||14,911||$||6,195|
In addition to Adjusted EBITDAX and Recurring Adjusted EBITDAX, we may provide additional non-GAAP financial measures, including Net loss excluding pre-tax impairments, Operating expenses exclusive of production and ad valorem taxes, Recurring G&A expenses and Recurring Cash G&A, because our management believes providing investors with this information gives additional insights into our profitability, cash flows and expenses.
Adjusted EBITDAX, Recurring Adjusted EBITDAX and other non-GAAP measures in this release are not presentations made in accordance with generally accepted accounting principles, or GAAP. As discussed above, we believe that the presentation of non-GAAP financial measures in this release is appropriate. However, when evaluating our results, you should not consider the non-GAAP financial measures in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as net loss. For example, Adjusted EBITDAX has material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate Adjusted EBITDAX differently than we do, Adjusted EBITDAX as presented in this release is not, comparable to similarly-titled measures reported by other companies.
PV-10 at year-end is a non-GAAP financial measure and represents the present value, discounted at 10% per year, of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs using pricing assumptions in effect at the end of the period. PV-10 differs from Standardized Measure of Discounted Net Cash Flows because it does not include the effects of income taxes on future net revenues. Neither PV-10 nor Standardized Measure of Discounted Net Cash Flows represents an estimate of fair market value of our natural gas and oil properties. PV-10 is used by the industry and by our management as an arbitrary reserve asset value measure to compare against past reserve bases and the reserve bases of other business entities that are not dependent on the taxpaying status of the entity.
Guidance for the Second Quarter 2020
|Production||13,000 - 16,000 Boe per day|
|LOE (including transportation and workovers)|
We do not provide a reconciliation of Cash G&A guidance to the corresponding GAAP measure because we are unable to predict with reasonable certainty the non-cash stock based compensation expense without unreasonable effort. These items are uncertain and depend on various factors and are not expected to be material to the results computed in accordance with GAAP.
Contango management will hold a conference call to discuss the information described in this press release on
Contango Oil &
Forward-Looking Statements and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on Contango’s current expectations and include statements regarding our estimates of future production and other guidance (including information regarding production, lease operating expenses, cash G&A expenses, and DD&A Rate), the Company’s drilling program and capital expenditures, our liquidity and access to capital, expected reduction in overall drilling costs, the potential impact of the COVID-19 pandemic and the low and volatile commodity price environment, potential acquisitions and divestitures, future results of operations, the quality and nature of the asset base, our outlook in the current downturn, opportunities for consolidation, the assumptions upon which estimates are based and other expectations, beliefs, plans, objectives, assumptions, strategies or statements about future events or performance. Words and phrases used to identify our forward-looking statements include terms such as “guidance”, "expects", “projects”, "anticipates", “believes”, "plans", "estimates", "potential", "possible", "probable", "intends", “forecasts”, “view”, “efforts”, “goal”, “positions” or words and phrases stating that certain actions, events or results "may", "will", "should", or "could" be taken, occur or be achieved. Statements concerning oil and gas reserves also may be deemed to be forward looking statements in that they reflect estimates based on certain assumptions that the resources involved can be economically exploited. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those, reflected in the statements. These risks include, but are not limited to: the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather such as hurricanes and other natural disasters); increased relative costs and the speculative nature of offshore prospects; uncertainties as to the availability and cost of financing; our relationships with lenders; our ability to comply with financial covenants in our debt instruments, repay indebtedness and access new sources of indebtedness and/or provide additional liquidity for future capital expenditures; expected reduction in our borrowing base and our ability to avoid or repay excess borrowings as a result of such reduction; our ability to execute on our strategy, including execution of any changes in our strategy or our new fee for service offering; fluctuations in or sustained low commodity prices; availability and effect of storage of production; expected benefits of and risks associated with derivative positions; our ability to realize expected value from acquisitions and to complete strategic dispositions of assets and realize the benefits of such dispositions; the need to take impairments on properties due to lower commodity prices; the limited trading volume of our common stock and general trading market volatility; outbreaks and pandemics, even outside our areas of operation, including COVID-19; the ability of our management team to execute its plans or to meet its goals; shortages of drilling equipment, oil field personnel and services; unavailability of gathering systems, pipelines and processing facilities; the possibility that government policies may change or governmental approvals may be delayed or withheld; and the other factors discussed in our reports filed or furnished with the
|Senior Vice President and Chief Financial and Accounting Officer|
Source: Contango Oil & Gas