Contango Announces Fourth Quarter and Full Year 2019 Financial Results
Fourth Quarter 2019 Highlights
- Closed on purchase agreements with
Will Energy Corporation(“Will Energy”) and White Star Petroleum, LLCand certain affiliates (“White Star”) to acquire certain producing assets and undeveloped acreage, primarily in Oklahoma, for approximately $14.75 millionin cash and 3.5 million common shares and approximately $95.9 millionin cash, respectively, in each case after closing adjustments. The Will Energy and White Staracquisitions closed on October 25th and November 1st, respectively.
- Completed two equity private placements during the fourth quarter to partially fund the cash portion of the purchase price for the
White Starand Will Energy acquisitions, selling 32.4 million common equivalent shares for net proceeds of $72.3 million.
- Entered into a joint development agreement with
Juneau Oil & Gas, LLC(“Juneau”) in December 2019, which provides the Company the right to acquire an interest in up to six of Juneau’s exploratory prospects located in the Gulf of Mexico, for approximately $1.7 millionin cash and 1.725 million common shares.
- Amended our senior credit facility in November to increase the number of bank`s in our facility and to increase the borrowing base from
$65 millionto $145 million. We had outstanding debt of $72.8 millionat December 31, 2019.
- Production of 8.7 Bcfe for the quarter, or 94.2 Mmcfe per day, 237% of the average rate of 39.8 Mmcfe per day in the prior year quarter.
- Completed and initiated flowback on three wells in
Pecos County, Texas, in the Southern Delaware Basin, with a fourth well initiating flow back in January 2020.
- Completed and brought on production a
Garfield County, Oklahomawell, which we acquired in connection with the White Staracquisition.
- Appointed our largest shareholder and existing director,
John Goff, as Chairman of the Board and added Farley Dakanto the management team as Senior Vice President – Corporate Development to lead our ongoing acquisition efforts.
- Net loss of
$138.4 million(including $124.7 millionin pre-tax impairments), compared to a net loss of $33.8 millionin the prior year quarter (including $27.0 millionin impairments).
- Recurring Adjusted EBITDAX (a non-GAAP measure, as defined and presented herein) of
$17.2 million, compared to $7.4 millionin the prior year quarter. This includes approximately two months of production and cash flow in the current quarter from the White Starand Will Energy acquisitions.
Summary of Fourth Quarter Financial Results
Net loss for the three months ended
Average weighted shares outstanding were approximately 105.2 million and 29.0 million for the current and prior year quarters, respectively.
The Company reported Adjusted EBITDAX, as defined below, of approximately
Revenues for the current quarter were approximately
Production for the fourth quarter was approximately 8.7 Bcfe, or 94.2 Mmcfe per day, compared to 3.7 Bcfe, or 39.8 Mmcfe per day for the fourth quarter of 2018. 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 the three months ended
Loss on derivatives for the three months ended
2019/2020 Capital Program
Capital costs incurred for the three months ended
Our 2020 capital budget will be focused primarily on: (i) preserving our financial position, including limiting capital expenditures to internally generated cash flow and proceeds from the sale of non-core assets; (ii) focusing drilling expenditures on strategic projects that provide good investment returns in the current price environment; and (iii) identifying opportunities for cost efficiencies in all areas of our operations. Our 2020 capital expenditure budget is currently estimated at approximately
- Offshore GOM: the Iron Flea prospect in the Grand Isle Block 45/46 area in the shallow waters off of the
Louisianacoast will require $6.3 millionto drill and $0.8 millionto abandon in the case of dry hole. We expect that capital expenditures will exceed this amount if the prospect is a success due to evaluation and completions costs and the possibility of a second well and /or facilities.
West Texas: $3.3 millionto drill and complete one salt water disposal well and $0.4 millionfor infrastructure costs in our NE Bullseye area. Central Oklahoma: $2.3 millionto complete three previously drilled wells, which we acquired from White Star.
We may revise our 2020 capital expenditure budget if deemed appropriate in light of changes in commodity prices or economic conditions.
Operations Activity Update
We brought three wells online in the
We also completed and brought on production the Margaret 35-23N-5W #1MH, a
2019 Year End Reserves
Our proved developed reserves for the year ended
Our proved undeveloped reserves (“PUD”) for the year ended
The above estimates do not include net proved reserves of approximately 23.0 Bcfe and 26.6 Bcfe attributable to our 37% equity ownership interest in Exaro as of
The following table summarizes Contango’s total proved reserves as of
|Category||(MBbl)||(MBbl)||(Mmcf)||(Mmcfe)||at 10% (
(1) These estimates do not include net reserves of approximately 23.0 Bcfe (PV-10 of approximately
We currently have hedges in place for 70% and 67% of currently forecasted PDP oil production for 2020 and 2021, respectively, at average floor prices of
|Natural Gas||Collar||225,000||Mmbtus||$||2.45 -
|Oil|| Jan 2020 -
(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
(1) 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 and twelve months ended
|Three Months Ended||Year ended|
|Offshore Volumes Sold:|
|Oil and condensate (Mbbls)||11||17||-35||%||43||73||-41||%|
|Natural gas (Mmcf)||1,402||1,769||-21||%||5,908||7,704||-23||%|
|Natural gas liquids (Mbbls)||46||76||-39||%||210||287||-27||%|
|Natural gas equivalents (Mmcfe)||1,741||2,327||-25||%||7,424||9,865||-25||%|
|Onshore Volumes Sold:|
|Oil and condensate (Mbbls)||396||123||222||%||748||496||51||%|
|Natural gas (Mmcf)||2,741||358||666||%||3,615||2,075||74||%|
|Natural gas liquids (Mbbls)||301||41||634||%||402||187||115||%|
|Natural gas equivalents (Mmcfe)||6,924||1,339||417||%||10,516||6,174||70||%|
|Total Volumes Sold:|
|Oil and condensate (Mbbls)||407||140||191||%||791||569||39||%|
|Natural gas (Mmcf)||4,143||2,127||95||%||9,523||9,779||-3||%|
|Natural gas liquids (Mbbls)||347||117||197||%||612||474||29||%|
|Natural gas equivalents (Mmcfe)||8,665||3,666||136||%||17,940||16,039||12||%|
|Daily Sales Volumes:|
|Oil and condensate (Mbbls)||4.4||1.5||191||%||2.2||1.6||39||%|
|Natural gas (Mmcf)||45.0||23.1||95||%||26.1||26.8||-3||%|
|Natural gas liquids (Mbbls)||3.8||1.3||197||%||1.7||1.3||29||%|
|Natural gas equivalents (Mmcfe)||94.2||39.8||136||%||49.2||43.9||12||%|
|Average sales prices:|
|Oil and condensate (per Bbl)||$||57.92||$||53.25||9||%||$||56.55||$||60.43||-6||%|
|Natural gas (per Mcf)||$||2.07||$||3.87||-47||%||$||2.35||$||3.05||-23||%|
|Natural gas liquids (per Bbl)||$||14.50||$||25.78||-44||%||$||15.39||$||27.04||-43||%|
|Total (per Mcfe)||$||4.29||$||5.10||-16||%||$||4.26||$||4.80||-11||%|
|Three Months Ended||Year Ended|
|Offshore Selected Costs ($ per Mcfe)|
|Lease operating expenses (1)||$||0.87||$||0.80||9||%||$||0.85||$||0.84||1||%|
|Production and ad valorem taxes||$||0.06||$||0.06||0||%||$||0.07||$||0.07||0||%|
|Onshore Selected Costs ($ per Mcfe)|
|Lease operating expenses (1)||$||1.95||$||2.43||-20||%||$||2.21||$||2.30||-4||%|
|Production and ad valorem taxes||$||0.26||$||0.39||-33||%||$||0.29||$||0.39||-26||%|
|Average Selected Costs ($ per Mcfe)|
|Lease operating expenses (1)||$||1.73||$||1.39||24||%||$||1.65||$||1.40||18||%|
|Production and ad valorem taxes||$||0.22||$||0.18||22||%||$||0.20||$||0.19||5||%|
|General and administrative expense (cash)||$||1.09||$||1.19||-8||%||$||1.26||$||1.21||4||%|
|Net Loss (thousands)||$||(138,379||)||$||(33,803||)||$||(159,796||)||$||(121,568||)|
|Adjusted EBITDAX (2) (thousands)||$||12,270||$||7,450||$||23,859||$||29,400|
|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||$||1,624||$||—|
|Accounts receivable, net||39,567||11,531|
|Other current assets||5,196||5,903|
|Net property and equipment||291,120||233,174|
|Investment in affiliates and other non-current assets||16,319||6,524|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Accounts payable and accrued liabilities||104,593||39,506|
|Current portion of long-term debt||—||60,000|
|Other current liabilities||5,954||1,751|
|Asset retirement obligations||49,662||12,168|
|Other non-current liabilities||4,809||3,318|
|Total shareholders’ equity||116,040||140,389|
|TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY||$||353,826||$||257,132|
|CONSOLIDATED STATEMENTS OF OPERATIONS|
|Three Months Ended||Year Ended|
|Oil and condensate sales||$||23,579||$||7,437||$||44,705||$||34,413|
|Natural gas sales||8,589||8,239||22,380||29,824|
|Natural gas liquids sales||5,025||3,018||9,427||12,850|
|Depreciation, depletion and amortization||16,204||8,821||39,807||41,657|
|Impairment and abandonment of oil and gas properties||125,120||27,104||128,290||103,732|
|General and administrative expenses||9,599||5,353||24,938||24,157|
|OTHER INCOME (EXPENSE)|
|Gain (loss) from investment in affiliates, net of income taxes||894||(12,683||)||742||(12,721||)|
|Gain (loss) from sale of assets||(82||)||1,909||518||13,224|
|Gain (loss) on derivatives, net||(4,425||)||6,900||(3,357||)||1,939|
|Total other expense||(7,717||)||(5,273||)||(8,845||)||(1,800||)|
|NET LOSS BEFORE INCOME TAXES||(138,643||)||(33,971||)||(159,576||)||(121,448||)|
|Income tax benefit (provision)||264||168||(220||)||(120||)|
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||Year Ended|
|Income tax provision (benefit)||(264||)||(168||)||220||120|
|Depreciation, depletion and amortization||16,204||8,821||39,807||41,657|
|Unrealized loss (gain) on derivative instruments||$||4,905||$||(7,972||)||$||5,973||$||(5,421||)|
|Non-cash stock-based compensation charges||158||994||2,352||4,766|
|Impairment of oil and gas properties||124,718||26,989||126,964||103,164|
|Loss (gain) on sale of assets and investment in affiliates||(812||)||10,774||(1,260||)||(503||)|
|Non-recurring business combination expenses and strategic fees||$||2,132||$||—||$||3,962||$||—|
|Non-recurring legal judgements||2,839||—||4,973||—|
|Recurring Adjusted EBITDAX||$||17,241||$||7,450||$||32,794||$||29,400|
In addition to Adjusted EBITDAX and Recurring Adjusted EBITDAX, we may provide additional non-GAAP financial measures 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.
The following table provides a reconciliation of our Standardized Measure to PV-10 (in thousands):
|Standardized measure of discounted future net cash flows||$||257,842||$||218,944|
|Future income taxes, discounted at 10%||28,711||1,563|
|Pre-tax net present value, discounted at 10%||$||286,553||$||220,507|
Guidance for the First Quarter 2020
|Production||84,000 - 114,000 Mcfe per day|
|LOE (including transportation and workovers)|
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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, expected reduction in overall drilling costs, potential acquisitions and divestitures, future results of operations, 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", or "intends", “forecasts”, “view”, “efforts”, “goal” 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); uncertainties as to the availability and cost of financing; 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; fluctuations in or sustained low commodity prices; 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 under the “Risk Factors” heading in our annual report on Form 10-K for the year ended
|Senior Vice President and Chief Financial Officer|
Source: Contango Oil & Gas