Contango Oil & Gas Company (NYSE MKT:MCF) (“Contango”)
announced today a drilling update, guidance on its 2017 capital
program and the addition of 2017 oil and natural gas hedges.
Southern Delaware Basin Drilling Program
– Pecos County, Texas
We previously disclosed the acquisition, from a
private seller, of one-half of their interest in approximately
12,100 gross acres (5,000 net, to Contango) in Pecos County, Texas
within the Southern Delaware Basin, with the seller continuing as
an equal partner through the development of our acreage
position. We have an average 48.8% operated working interest
in the first 3 wells. Since the closing of that transaction
in late July 2016, we and our partner have increased our leasehold
footprint to approximately 6,250 acres, net to Contango. With
the additional acreage, we currently estimate that we now have
close to 200 gross drilling locations, initially targeting the
Wolfcamp A, Wolfcamp B and Second Bone Spring formations.
Substantially all of the locations can accommodate 10,000’
laterals.
In late November, we completed the drilling
phase of our initial well on our Pecos County acreage, the
Lonestar-Gunfighter #1H, an Upper Wolfcamp test that is currently
being completed. The location of this well is in the
northwest portion of our lease position. The well was drilled
to a total depth of approximately 20,800 feet in 38 days (exclusive
of formation evaluation) with a 10,500 foot lateral section drilled
in 9 of the 38 days, and is currently being completed with 50
stages of fracture stimulation. Initial production from the
well is expected to commence in mid/late January, with reported
results planned for approximately 30 days later.
After the drilling of the Lonestar-Gunfighter
well, the drilling rig was moved to the central portion of our
acreage where the next two wells are being batch drilled and will
be completed concurrently from a common surface location, each well
also targeting the Upper Wolfcamp. The second and third wells, the
Rude Ram #1H and the Ripper State #1H, respectively, have been
drilled and cased to horizontal landing point, and drilling
of the laterals continues. Similar to the
Lonestar-Gunfighter, these two wells will also be drilled to a
total measured depth of approximately 21,000 feet, including a
10,000 foot lateral with approximately 50 stages of fracture
stimulation. Completion operations on the Rude Ram and the
Ripper State wells, utilizing a zipper frac strategy, are currently
scheduled to begin in mid-March, with initial production expected
to commence in mid-April.
Our current development plan is to drill and
complete four wells in sequence, take a pause in drilling to assess
initial production performance from those first four wells, and
then recommence drilling operations after making any appropriate
adjustments to our completion techniques with the goal of
maximizing well performance and ultimate recovery. We
currently estimate that we will resume drilling in July and expect
to drill five more Southern Delaware Basin wells over the remainder
of 2017.
We currently forecast a total capital budget for
2017 of approximately $46.3 million, including $36.6 million for
drilling and/or completing nine gross wells in Pecos County.
Consistent with our past philosophy, we will initially limit our
2017 capital expenditures to those that are generally funded by
internally generated cash flow. To the extent that well performance
exceeds our expectations, or commodity prices increase
significantly, however, we possess the financial flexibility to
expand our program during the year.
Management Commentary
Allan D. Keel, the Company’s President and Chief
Executive Officer, said “We were truly fortunate to have been able
to acquire such a high quality position in the expanding Southern
Delaware Basin this year, and at a very attractive entry price; and
we are extremely excited about the commencement of the development
of that position. While our initial focus will be on the Wolfcamp A
and B and Second Bone Spring formations, we also believe that there
could be a number of other prospective formations in our
area. The Delaware Basin is one of the few domestic plays
that provide return-justified drilling opportunities in the current
price environment. There have also been a number of recently
announced asset transactions nearby at prices in the range of
$30,000 per undeveloped acre, after adjusting for production, that
make us optimistic about the inherent value of our position. We
believe that our current acreage position in the Delaware has the
potential to be very impactful for our shareholders.”
Derivative Instruments
Update
As commodity prices began to rise in early
December, we took advantage of that strength in the price
environment to add additional minimum price protection, through
swaps, for the following forecasted monthly production volumes
during 2017. Specific amounts of new hedges were as
follows:
Commodity |
|
Period |
|
Derivative |
|
Volume/Month |
|
Price/Unit (1) |
Natural Gas |
|
Jan – July 2017 |
|
Swap |
|
300,000 mmbtu |
|
$ |
3.505 |
|
|
Aug – Oct 2017 |
|
Swap |
|
70,000 mmbtu |
|
$ |
3.505 |
|
|
Nov – Dec 2017 |
|
Swap |
|
300,000 mmbtu |
|
$ |
3.505 |
(1) Commodity derivative based on NYMEX (Henry
Hub) pricing.
Inclusive of natural gas hedges already in place
for 2017, the above swaps provide price protection on approximately
50% of our currently forecasted PDP natural gas production for
2017.
We also took advantage of the increase in crude
oil prices to add the following swaps for 2017. These crude
oil swaps provide minimum price protection for approximately 54% of
currently forecasted PDP crude production for 2017.
Commodity |
|
Period |
|
Derivative |
|
Volume/Month |
|
Price/Unit (2) |
Crude Oil |
|
Jan - July 2017 |
|
Swap |
|
9,000 barrels |
|
$ |
53.95 |
|
|
Aug - Oct 2017 |
|
Swap |
|
6,000 barrels |
|
$ |
53.95 |
|
|
Nov - Dec 2017 |
|
Swap |
|
8,000 barrels |
|
$ |
53.95 |
|
|
|
|
|
|
|
|
|
Crude Oil |
|
Jan - Dec 2017 |
|
Swap |
|
9,000 barrels |
|
$ |
56.20 |
(2) Commodity derivative based on NYMEX (WTI) pricing.
Contango Oil & Gas Company is a Houston,
Texas based, independent energy company engaged in the acquisition,
exploration, development, exploitation and production of crude oil
and natural gas offshore in the shallow waters of the Gulf of
Mexico and in the onshore Texas and Rocky Mountain regions of the
United States. Additional information is available on the Company's
website at http://contango.com.
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 Securities and Exchange Commission. Investors are
cautioned that any forward-looking statements are not guarantees of
future performance and actual results or developments may differ
materially from the projections in the forward-looking statements.
Forward-looking statements are based on the estimates and opinions
of management at the time the statements are made. Contango does
not assume any obligation to update forward-looking statements
should circumstances or management's estimates or opinions change.
Initial production rates are subject to decline over time and
should not be regarded as reflective of sustained production
levels.
Contact:
Contango Oil & Gas Company
E. Joseph Grady – 713-236-7400
Senior Vice President and Chief Financial Officer
Sergio Castro – 713-236-7400
Vice President and Treasurer