Contango Announces Second Quarter 2015 Financial Results and Provides Operations Update
Second Quarter 2015 Summary
- Production of 9.0 Bcfe for the quarter (98.4 Mmcfed; 36% liquids), above the mid-point of guidance
-
Net loss of
$19.5 million and Adjusted EBITDAX of$19.9 million for the quarter -
Discovery and successful completion of our first well in the Muddy
Sandstone formation in
Weston County, Wyoming - Commenced production from four wells drilled from our second multi-well pad using 500 foot spacing in our Chalktown area
-
Lawsuit related to 2010 pipeline damage resolved in
July 2015 with proceeds of approximately$4.8 million , net to Contango, received
Management Commentary
Summary Financial Results for the Quarter Ended
Net loss for the three months ended
The Company reported Adjusted EBITDAX, as defined below, of
approximately
Revenues for the three months ended
Production for the three months ended
The weighted average equivalent sales price during the three months
ended
Total operating expenses for the three months ended
Direct operating expenses (i.e. total operating expenses, excluding
production and ad valorem taxes) for the three months ended
Production and ad valorem tax expense for the three months ended
Exploration expense for the three months ended
DD&A expenses for the three months ended
Impairment and abandonment expense from oil and gas properties for the
quarter ended
G&A expenses for the three months ended
Derivative Instruments
We have the following derivative contracts in place for the remainder of the year with a member of our bank group:
Commodity | Period | Derivative | Volume/Month | Price/Unit (1) | ||||||||
Crude Oil |
|
Collar | 35,000 Bbls |
|
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Crude Oil |
|
Collar | 25,000 Bbls |
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(1) Commodity derivative based on NYMEX West Texas Intermediate crude oil prices. |
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Drilling Activity Update
Woodbine -
The initial three wells completed on 500 foot spacing in the Woodbine
formation commenced production in
We also recently drilled the following well in our Chalktown area:
Total Measured |
30 Day Avg IP |
||||||||||||||||||||
WI % |
Depth (ft.) |
Lateral (ft.) |
Frac Stages |
First Production |
(Boepd) |
% Oil |
|||||||||||||||
Viniarski A 1H | 65% | 16,773 | 7,656 | 30 |
|
797 | 37% | ||||||||||||||
In addition, we recently drilled the Hoke #1 well as a vertical pilot
well in the Chalktown Area with 250' of whole core recovered for
enhanced reservoir analysis. The primary zone of interest is the Lower
Woodbine (
We recently finalized an Upper Lewisville test well in
We drilled the Stokes #1 vertical pilot well in
Eagle Ford -
In late 2014, we drilled a vertical pilot well to evaluate the Eagle
Ford in
Muddy Sandstone -
In
During the fourth quarter of 2014, we drilled the State #1H well in the
As of
2015 Capital Program & Liquidity
Capital expenditures incurred for the three months ended
We currently anticipate that our total capital expenditure program for
2015 will be between
As of
Our revolving credit facility has a borrowing base of
Legal Proceedings
In
In
Selected Financial and Operating Data
The following table reflects certain comparative financial and operating
data for the three and six month periods ended
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
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2015 | 2014 | % | 2015 | 2014 | % | ||||||||||||||||||||
Offshore Volumes Sold: | |||||||||||||||||||||||||
Oil and condensate (Mbbls) | 53 | 74 | -28 | % | 107 | 155 | -31 | % | |||||||||||||||||
Natural gas (Mmcf) | 4,267 | 4,893 | -13 | % | 8,927 | 10,263 | -13 | % | |||||||||||||||||
Natural gas liquids (Mbbls) | 126 | 152 | -17 | % | 259 | 318 | -19 | % | |||||||||||||||||
Natural gas equivalents (Mmcfe) | 5,342 | 6,250 | -15 | % | 11,123 | 13,098 | -15 | % | |||||||||||||||||
Onshore Volumes Sold: | |||||||||||||||||||||||||
Oil and condensate (Mbbls) | 222 | 307 | -28 | % | 410 | 583 | -30 | % | |||||||||||||||||
Natural gas (Mmcf) | 1,444 | 1,837 | -21 | % | 2,653 | 3,298 | -20 | % | |||||||||||||||||
Natural gas liquids (Mbbls) | 141 | 105 | 34 | % | 231 | 207 | 12 | % | |||||||||||||||||
Natural gas equivalents (Mmcfe) | 3,616 | 4,310 | -16 | % | 6,500 | 8,038 | -19 | % | |||||||||||||||||
Total Volumes Sold: | |||||||||||||||||||||||||
Oil and condensate (Mbbls) | 275 | 381 | -28 | % | 517 | 738 | -30 | % | |||||||||||||||||
Natural gas (Mmcf) | 5,711 | 6,730 | -15 | % | 11,580 | 13,561 | -15 | % | |||||||||||||||||
Natural gas liquids (Mbbls) | 267 | 257 | 4 | % | 490 | 525 | -7 | % | |||||||||||||||||
Natural gas equivalents (Mmcfe) | 8,958 | 10,560 | -15 | % | 17,623 | 21,136 | -17 | % | |||||||||||||||||
Daily Sales Volumes: | |||||||||||||||||||||||||
Oil and condensate (Mbbls) | 3.0 | 4.2 | -28 | % | 2.9 | 4.1 | -30 | % | |||||||||||||||||
Natural gas (Mmcf) | 62.8 | 74.0 | -15 | % | 64.0 | 74.9 | -15 | % | |||||||||||||||||
Natural gas liquids (Mbbls) | 2.9 | 2.8 | 4 | % | 2.7 | 2.9 | -7 | % | |||||||||||||||||
Natural gas equivalents (Mmcfe) | 98.4 | 116.0 | -15 | % | 97.4 | 116.8 | -17 | % | |||||||||||||||||
Average sales prices: | |||||||||||||||||||||||||
Oil and condensate (per Bbl) | $ | 57.14 | $ | 100.53 | -43 | % | $ | 51.03 | $ | 99.52 | -49 | % | |||||||||||||
Natural gas (per Mcf) | $ | 2.68 | $ | 4.64 | -42 | % | $ | 2.77 | $ | 4.86 | -43 | % | |||||||||||||
Natural gas liquids (per Bbl) | $ | 16.33 | $ | 34.40 | -53 | % | $ | 15.27 | $ | 36.91 | -59 | % | |||||||||||||
Total (per Mcfe) | $ | 3.94 | $ | 7.43 | -47 | % | $ | 3.74 | $ | 7.51 | -50 | % |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
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2015 | 2014 | % | 2015 | 2014 | % | ||||||||||||||||||||
Offshore Selected Costs ($ per Mcfe): | |||||||||||||||||||||||||
Lease operating expenses (1) | $ | 0.60 | $ | 0.41 | 46 | % | $ | 0.62 | $ | 0.47 | 32 | % | |||||||||||||
Production and ad valorem taxes | $ | 0.08 | $ | 0.10 | -20 | % | $ | 0.08 | $ | 0.10 | -20 | % | |||||||||||||
Onshore Selected Costs ($ per Mcfe): | |||||||||||||||||||||||||
Lease operating expenses (1) | $ | 1.65 | $ | 1.36 | 21 | % | $ | 1.70 | $ | 1.30 | 31 | % | |||||||||||||
Production and ad valorem taxes | $ | 0.37 | $ | 0.59 | -37 | % | $ | 0.31 | $ | 0.60 | -48 | % | |||||||||||||
Average Selected Costs ($ per Mcfe): | |||||||||||||||||||||||||
Lease operating expenses (1) | $ | 1.02 | $ | 0.80 | 28 | % | $ | 1.01 | $ | 0.78 | 29 | % | |||||||||||||
Production and ad valorem taxes | $ | 0.20 | $ | 0.30 | -33 | % | $ | 0.17 | $ | 0.29 | -41 | % | |||||||||||||
General and administrative expense (cash) | $ | 0.66 | $ | 0.77 | -14 | % | $ | 0.72 | $ | 0.83 | -13 | % | |||||||||||||
Interest expense | $ | 0.09 | $ | 0.07 | 29 | % | $ | 0.09 | $ | 0.07 | 29 | % | |||||||||||||
Adjusted EBITDAX (2) (thousands) | $ | 19,870 | $ | 56,742 | $ | 33,945 | $ | 114,771 | |||||||||||||||||
Weighted Average Shares Outstanding (thousands) | |||||||||||||||||||||||||
Basic | 18,939 | 19,074 | 18,939 | 19,073 | |||||||||||||||||||||
Diluted | 18,939 | 19,130 | 18,939 | 19,073 |
(1) | LOE includes transportation and workover expenses | |
(2) | Adjusted EBITDAX is a non-GAAP financial measure. See below for a reconciliation to net loss. |
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2015 | 2014 | |||||||
ASSETS |
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Cash and cash equivalents | $ |
- |
$ |
- |
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Accounts receivable, net | 23,171 | 25,309 | ||||||
Other current assets | 5,441 | 5,731 | ||||||
Net property and equipment | 710,486 | 748,623 | ||||||
Investments in affiliates and other non-current assets | 63,283 | 63,752 | ||||||
TOTAL ASSETS | $ | 802,381 | $ | 843,415 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
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Accounts payable and accrued liabilities | 60,047 | 92,892 | ||||||
Other current liabilities | 4,935 | 4,123 | ||||||
Long-term debt | 111,402 | 63,359 | ||||||
Deferred tax liability | 72,409 | 93,952 | ||||||
Asset retirement obligations | 21,643 | 21,623 | ||||||
Total shareholders' equity | 531,945 | 567,466 | ||||||
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | $ | 802,381 | $ | 843,415 |
Three Months Ended | Six Months Ended | |||||||||||||||||
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2015 | 2014 | 2015 | 2014 | |||||||||||||||
REVENUES | ||||||||||||||||||
Oil and condensate sales | $ | 15,688 | $ | 38,340 | $ | 26,382 | $ | 73,440 | ||||||||||
Natural gas sales | 15,287 | 31,244 | 32,110 | 65,871 | ||||||||||||||
Natural gas liquids sales | 4,359 | 8,835 | 7,489 | 19,365 | ||||||||||||||
Total revenues | 35,334 | 78,419 | 65,981 | 158,676 | ||||||||||||||
EXPENSES | ||||||||||||||||||
Operating expenses | 10,972 | 11,576 | 20,883 | 22,629 | ||||||||||||||
Exploration expenses | 6,924 | 10,853 | 11,407 | 37,784 | ||||||||||||||
Depreciation, depletion and amortization | 38,770 | 39,901 | 73,885 | 74,303 | ||||||||||||||
Impairment and abandonment of oil and gas properties | 236 | 1,371 | 2,517 | 16,566 | ||||||||||||||
General and administrative expenses | 7,351 | 9,207 | 15,179 | 19,664 | ||||||||||||||
Total expenses | 64,253 | 72,908 | 123,871 | 170,946 | ||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||
Gain (loss) from investment in affiliates (net of income taxes) | (745 | ) | 1,478 | (187 | ) | 3,100 | ||||||||||||
Interest expense | (835 | ) | (737 | ) | (1,530 | ) | (1,405 | ) | ||||||||||
Loss on derivatives, net | (10 | ) | (1,263 | ) | (10 | ) | (3,222 | ) | ||||||||||
Other income (expense) | 995 | (196 | ) | 990 | (196 | ) | ||||||||||||
Total other income (expense) | (595 | ) | (718 | ) | (737 | ) | (1,723 | ) | ||||||||||
NET INCOME (LOSS) BEFORE INCOME TAXES | (29,514 | ) | 4,793 | (58,627 | ) | (13,993 | ) | |||||||||||
Income tax benefit (provision) | 9,986 | (212 | ) | 20,535 | 8,381 | |||||||||||||
NET INCOME (LOSS) | $ | (19,528 | ) | $ | 4,581 | $ | (38,092 | ) | $ | (5,612 | ) | |||||||
Non-GAAP Financial Measures
EBITDAX represents net income (loss) before interest expense, taxes, and depreciation, depletion and amortization, and oil & gas expenses. Adjusted EBITDAX represents EBITDAX as further adjusted to reflect the items set forth in the table below, all of which will be required in determining our compliance with financial covenants under the RBC Credit Facility.
We have included EBITDAX and 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 agreements. We believe EBITDAX is an important supplemental measure of operating performance because it eliminates items that have less bearing on our operating performance and so 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 EBITDAX in the evaluation of companies, many of which present EBITDAX when reporting their results. Adjusted EBITDAX is a material component of the covenants that are imposed on us by our credit agreements. We are subject to financial covenant ratios that are calculated by reference to Adjusted EBITDAX. Non-compliance with the financial covenants contained in these credit agreements 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 EBITDAX and 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.
EBITDAX and Adjusted EBITDAX are not presentations made in accordance with generally accepted accounting principles, or GAAP. As discussed above, we believe that the presentation of EBITDAX and Adjusted EBITDAX in this release is appropriate. However, when evaluating our results, you should not consider EBITDAX and Adjusted EBITDAX in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as net income (loss). EBITDAX and Adjusted EBITDAX have material limitations as performance measures because they exclude items that are necessary elements of our costs and operations. Because other companies may calculate EBITDAX and Adjusted EBITDAX differently than we do, EBITDAX may not be, and Adjusted EBITDAX as presented in this release is not, comparable to similarly-titled measures reported by other companies.
The following table reconciles net loss to EBITDAX and Adjusted EBITDAX for the periods presented:
Three Months Ended | Six Months Ended | |||||||||||||||||
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2015 | 2014 | 2015 | 2014 | |||||||||||||||
Net income (loss) | $ | (19,528 | ) | $ | 4,581 | $ | (38,092 | ) | $ | (5,612 | ) | |||||||
Interest expense | 835 | 737 | 1,530 | 1,405 | ||||||||||||||
Income tax provision (benefit) | (9,986 | ) | 212 | (20,535 | ) | (8,381 | ) | |||||||||||
Depreciation, depletion and amortization | 38,770 | 39,901 | 73,885 | 74,303 | ||||||||||||||
Exploration expenses | 6,924 | 10,853 | 11,407 | 37,784 | ||||||||||||||
EBITDAX | $ | 17,015 | $ | 56,284 | $ | 28,195 | $ | 99,499 | ||||||||||
Unrealized loss on derivative instruments | $ | 10 | $ | 212 | $ | 10 | $ | 469 | ||||||||||
Non-cash stock-based compensation charges | 1,438 | 1,028 | 2,578 | 2,115 | ||||||||||||||
Impairment of oil and gas properties | 239 | 500 | 2,544 | 15,592 | ||||||||||||||
Loss (gain) on sale of assets and investment in affiliates | 1,168 | (1,282 | ) | 618 | (2,904 | ) | ||||||||||||
Adjusted EBITDAX | $ | 19,870 | $ | 56,742 | $ | 33,945 | $ | 114,771 | ||||||||||
Guidance for Third Quarter 2015
The Company is providing the following guidance for the third calendar quarter of 2015.
Third quarter 2015 production | 90,000 - 95,000 Mcfe per day | ||||
LOE (including transportation and workovers) |
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Production and ad valorem taxes | 5.5% | ||||
(% of Revenue) | |||||
Cash G&A |
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DD&A rate |
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Teleconference Call
Contango management will hold a conference call to discuss the
information described in this press release on
This press release contains forward-looking statements regarding
Contango that are intended to be covered by the safe harbor
"forward-looking statements" provided by the Private Securities
Litigation Reform Act of 1995, based on Contango's current expectations
and includes statements regarding acquisitions and divestitures,
estimates of future production, future results of operations, 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 (often, but
not always, using words such as "expects", "projects", "anticipates",
"plans", "estimates", "potential", "possible", "probable", or "intends",
or 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; fluctuations
in oil and gas prices; risks associated with derivative positions;
inability to realize expected value from acquisitions, inability of our
management team to execute its plans to meet its goals, shortages of
drilling equipment, oil field personnel and services, unavailability of
gathering systems, pipelines and processing facilities and the
possibility that government policies may change or governmental
approvals may be delayed or withheld. Additional information on these
and other factors which could affect Contango's operations or financial
results are included in Contango's other reports on file with the
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Senior
Vice President and Chief Financial Officer
or
Vice President and Treasurer
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