Contango Announces First Quarter 2021 Financial Results
First Quarter 2021 Highlights and Recent Developments
- Production sales of 1,773 MBoe for the first quarter of 2021, or 19.7 MBoe per day, an increase from 1,720 MBoe, or 18.9 MBoe per day in the prior year quarter, primarily due to new production from the Mid-Con Acquisition and the Silvertip Acquisition (both as defined below) included in part of the first quarter of 2021. Production sales volumes were also within production guidance for the quarter previously given by the Company.
- Total operating expenses of
$27.5 millionfor the quarter, and operating expenses exclusive of production and ad valorem taxes of $23.9 million, were at approximately the mid-point of guidance due to ongoing internal cost savings initiatives.
- Net loss was
$4.3 million, compared to a net loss of $105.3 million(including $145.9 millionin pre-tax impairments) in the prior year quarter. Net income before taxes, adjusted to exclude non-cash mark-to-market gains and losses from hedges and property impairments, was $9.9 millionfor the current year quarter compared to a $0.4 millionloss for the same quarter last year.
- Recurring Adjusted EBITDAX (a non-GAAP measure, as defined and presented herein) of
$23.8 million, compared to $14.9 millionin the prior year quarter, an increase primarily due to contributions from the Mid-Con Acquisition and the Silvertip Acquisition.
- Completed previously announced acquisition of
Mid-Con Energy Partners, LP(“Mid-Con”) on January 21, 2021(the “Mid-Con Acquisition”). A total of 25,409,164 shares of Contango common stock were issued as consideration in the Mid-Con Acquisition. See Note 3 – “Acquisitions” in our recently filed Form 10-Q for the first quarter of 2021 for further information.
- Completed previously announced acquisition of certain properties in the
Big Horn Basinin Wyomingand Montana, in the Powder River Basinin Wyoming, and in the Permian Basinin Texasand New Mexico(collectively the “Silvertip Acquisition) for consideration of $53.2 million, net of customary closing adjustments. The Silvertip Acquisition closed on February 1, 2021. See Note 3 – “Acquisitions” in our recently filed Form 10-Q for the first quarter of 2021 for further information.
May 4, 2021, the Company entered into the Fifth Amendment to the Credit Agreement with JPMorgan Chase Bank N.A., as administrative agent, and the lenders party thereto (the “Credit Agreement”) under which, among other things, the Company’s borrowing base increased to $250 millionas a result of the regularly scheduled borrowing base redetermination that incorporated the Mid-Con Acquisition and the Silvertip Acquisition, as well as cost savings realized by legacy and new assets.
- Subsequent to quarter end, the Company added
Karen Simonand Janet Pasqueto its Board of Directors.
Maintaining a strong financial profile is a priority for us as we look to potentially take advantage of more acquisition opportunities. We strive to maintain maximum flexibility in our capital structure for financing acquisitions, and we protect our liquidity and cash flow through our aggressive hedging program. For the remainder of 2021 (April through December) we have hedged, primarily through swaps, 1.6 MMBbls of our forecasted PDP production at an average floor price of
Impact of the COVID-19 Pandemic
The COVID-19 pandemic continues to have an adverse impact on worldwide economic activity, significantly disrupting the demand for oil and natural gas throughout the world, and has created significant volatility, uncertainty and turmoil in the oil and natural gas industry. This led to a significant global oversupply of oil and a subsequent substantial decrease in oil prices. While global oil producers, including the
- work from home initiatives for all but critical staff and the implementation of social distancing measures;
- a company-wide effort to cut costs throughout our operations;
- utilization of our available storage capacity to temporarily store a portion of our production for later sale at higher prices when advantageous to do so;
- a continued reduction in our drilling program year over year to only that which provides a significant value add proposition to the Company’s profile;
- suspension of all drilling from the second-half of 2020 through the quarter ended
March 31, 2021, with the expectation to recommence value added drilling in 2021;
- pursuit of additional “fee for service” opportunities similar to the Management Services Agreement entered into in
June 2020with Mid-Con, which was terminated at the closing of the Mid-Con Acquisition on January 21, 2021; and
- potential acquisitions of additional PDP-heavy assets, with attractive, discounted valuations, in stressed/distressed scenarios or from non-natural owners like investment or lender firms that obtained ownership through a corporate restructuring.
Summary of First Quarter Financial Results
Net loss for the three months ended
Average weighted shares outstanding were approximately 192.3 million and 131.3 million for the current and prior year quarters, respectively. Shares outstanding increased due to the sale of approximately 40.6 million shares of common stock of the Company in two offerings in the fourth quarter of 2020 in conjunction with the announcement of the Mid-Con Acquisition and Silvertip Acquisition in the fourth quarter of 2020, and the shares issued to Mid-Con shareholders at the close of the Mid-Con Acquisition in
The Company reported Adjusted EBITDAX, a non-GAAP measure defined below, of approximately
Revenues for the first quarter of 2021 were approximately
Production sales for the three months ended
The weighted average equivalent sales price realized for the three months ended
Operating expenses for the three months ended
DD&A expense for the three months ended
Total G&A expenses were
Loss on derivatives for the three months ended
2021 Capital Program & Capital Resources
Capital costs for the three months ended
Our 2021 planned capital expenditure budget has increased to
(1) Based on West Texas Intermediate crude oil prices.
(2) Based on Henry Hub NYMEX natural gas prices.
Selected Financial and Operating Data
The following table reflects certain comparative financial and operating data for the three months ended
|Three Months Ended|
|Total Volumes Sold:|
|Oil and condensate (MBbls)||650||520||25||%|
|Natural gas (MMcf)||4,983||5,201||(4||)%|
|Natural gas liquids (MBbls)||293||333||(12||)%|
|Thousand barrels of oil equivalent (MBoe)||1,773||1,720||3||%|
|Daily Sales Volumes:|
|Oil and condensate (MBbls)||7.2||5.7||26||%|
|Natural gas (MMcf)||55.4||57.2||(3||)%|
|Natural gas liquids (MBbls)||3.3||3.7||(11||)%|
|Thousand barrels of oil equivalent (MBoe)||19.7||18.9||4||%|
|Average Sales Price:|
|Oil and condensate (per Bbl)||$||56.95||$||43.77||30||%|
|Natural gas (per Mcf)||$||2.91||$||1.57||85||%|
|Natural gas liquids (per Bbl)||$||28.31||$||10.89||160||%|
|Total (per Boe)||$||33.72||$||20.10||68||%|
|Average Selected Costs ($ per Boe)|
|Operating expenses (1)||$||13.50||$||10.18||33||%|
|Production and ad valorem taxes||$||2.00||$||1.02||96||%|
|General and administrative expense (cash)||$||5.40||$||4.24||27||%|
|Net Loss (thousands)||$||(4,293||)||$||(105,255||)|
|Adjusted EBITDAX (2) (thousands)||$||21,983||$||14,128|
|Weighted Average Shares Outstanding (thousands)|
(1) Operating expense includes direct lease operating expenses, transportation, workover and other expense for plants and pipelines.
(2) Adjusted EBITDAX is a non-GAAP financial measure. See below for reconciliation to net loss.
CONDENSED CONSOLIDATED BALANCE SHEETS
|Cash and cash equivalents||$||1,596||$||1,383|
|Accounts receivable, net||54,330||37,862|
|Current derivative asset||2,294||2,996|
|Other current assets||4,413||4,565|
|Net property and equipment||355,045||101,903|
|LIABILITIES AND SHAREHOLDERS’ EQUITY|
|Accounts payable and accrued liabilities||109,823||83,970|
|Other current liabilities||12,930||5,566|
|Asset retirement obligations||109,960||2,624|
|Other non-current liabilities||8,740||50,171|
|Total shareholders’ equity||92,887||15,567|
|TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY||$||436,309||$||170,267|
CONSOLIDATED STATEMENTS OF OPERATIONS
|Three Months Ended|
|Oil and condensate sales||$||36,993||$||22,782|
|Natural gas sales||14,492||8,170|
|Natural gas liquids sales||8,281||3,621|
|Other operating revenues||184||—|
|Depreciation, depletion and amortization||9,143||12,854|
|Impairment and abandonment of oil and natural gas properties||3||145,878|
|General and administrative expenses||11,359||7,651|
|OTHER INCOME (EXPENSE)|
|Gain from investment in affiliates, net of income taxes||—||286|
|Gain from sale of assets||217||27|
|Gain (loss) on derivatives, net||(16,080||)||46,699|
|Total other income (expense)||(15,525||)||46,604|
|NET LOSS BEFORE INCOME TAXES||(3,754||)||(104,861||)|
|Income tax provision||(539||)||(394||)|
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 loss to EBITDAX and Adjusted EBITDAX and Recurring Adjusted EBITDAX for the periods presented:
|Three Months Ended|
|Income tax provision||539||394|
|Depreciation, depletion and amortization||9,143||12,854|
|Impairment of oil and natural gas properties||—||145,878|
|Non-cash mark-to-market loss (gain) on derivative instruments||$||13,639||$||(41,391||)|
|Non-cash stock-based compensation charges||1,779||350|
|Gain on sale of assets and investment in affiliates||(217||)||(313||)|
|Non-recurring business combination expenses and strategic fees||$||1,846||$||783|
|Recurring Adjusted EBITDAX||$||23,829||$||14,911|
In addition to Adjusted EBITDAX and Recurring Adjusted EBITDAX, we may provide additional non-GAAP financial measures, including Operating expenses exclusive of production and ad valorem taxes, Recurring G&A expenses and Recurring Cash G&A expenses, 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.
Guidance for the Second Quarter 2021
|Production sales||21,500 - 23,500 Boe per day|
|LOE (including transportation and workovers)|
|Recurring Cash G&A (non-GAAP)|
We do not provide a reconciliation of Recurring Cash G&A expense guidance to the corresponding GAAP measure because we are unable to predict with reasonable certainty the non-cash stock based compensation expense and non-recurring expenses associated with our strategic initiatives 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 integration of and future plans for its recently closed Mid-Con Acquisition and the Silvertip Acquisition, the Company’s drilling program and capital expenditures and the potential success related to those expenditures, our liquidity and access to capital, expected reduction in overall drilling costs, lease operating cost and G&A costs, the potential impact of the COVID-19 pandemic including reduced demand for oil and natural gas, the low and volatile commodity price environment, the Company’s fee for services platform, the impact of our derivative instruments, the accuracy of our projections of future production, future results of operations, ability to identify and complete acquisitions, ability to realize expected benefits of acquisitions, the quality and nature of the asset base, 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); risks related to our recent Silvertip Acquisition and Mid-Con Acquisition, including the risk that the anticipated benefits from those acquisitions may not be fully realized or may take longer to realize than expected, and that management attention will be diverted to integration-related issues; risks related to the impact of the climate change initiative by President Biden’s administration and
|Senior Vice President and Chief Financial and Accounting Officer|
Source: Contango Oil & Gas