Contango Oil & Gas Company (NYSE American: MCF) (“Contango” or
the “Company”) announced today its financial results for the third
quarter ended September 30, 2020.
Third Quarter
2020 Highlights
and Recent Developments
- Achieved run rate LOE savings on
Central Oklahoma properties of 48% since taking over operations in
the fourth quarter of 2019 and 38% savings relative to assumptions
in our 2019 year-end SEC reserves. These savings are expected to
increase the PDP PV-10 of the properties at 2020 year-end by more
than 50% when measured based on 2019 year-end reserves
assumptions.
- Production sales of 1,587 Mboe for
the quarter, or 17.2 Mboe per day, including approximately 0.5 Mboe
per day produced during the second quarter and placed into excess
storage capacity until sold in the third quarter at higher prices.
Excluding this sale of second quarter oil inventory, our production
sales were 1,537 Mboe for the quarter, or 16.7 Mboe per day, nearly
three times the 5.6 Mboe per day produced in the prior year
quarter, primarily due to additional production from the properties
acquired from White Star Petroleum, LLC and certain affiliates
(collectively, “White Star”) and Will Energy Corporation (“Will
Energy”) in the fourth quarter of 2019. Production sales also came
in at the high end of guidance for the quarter.
- Total operating expenses of $17.2
million for the quarter, and operating expenses exclusive of
production and ad valorem taxes of $15.6 million, at approximately
10% below the low end of guidance due to ongoing internal cost
savings initiatives.
- Net loss of $6.8 million compared
to a net loss of $7.8 million in the prior year quarter.
- Recurring Adjusted EBITDAX (a
non-GAAP measure, as defined and presented herein) of $16.2
million, compared to $5.2 million in the prior year quarter
primarily due to the properties acquired from White Star and Will
Energy.
- The previously disclosed Management
Services Agreement (“MSA”) with Mid-Con Energy Partners, LP
(“Mid-Con”), under which the Company provides technical,
management, and administrative services as operator of record on
Mid-Con’s oil and gas properties as part of the Company’s new,
cost-effective “fee for service” management business, became
effective on July 1, 2020. The Company recorded $1.0 million in
revenue related to the MSA in the third quarter of 2020.
- Subsequent to quarter end, the
Company entered into an Agreement and Plan of Merger with Mid-Con
and Mid-Con Energy GP, LLC, the general partner of Mid-Con
(“Mid-Con GP”), pursuant to which Mid-Con will merge with and into
a wholly-owned, direct subsidiary of the Company (the “Mid-Con
Acquisition”). The Mid-Con Acquisition is expected to close in late
2020 or early 2021, at which time the MSA will be terminated. See
Note 13 – “Subsequent Events” in our recently filed Form 10-Q for
the third quarter of 2020 for further information.
- Subsequent to quarter end, the
Company entered into an amendment to its revolving 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 will be increased from
$75 million to $130 million upon the closing of the Mid-Con
Acquisition. See Note 13 – “Subsequent Events” in our recently
filed Form 10-Q for the third quarter of 2020 for further
information.
- Subsequent to quarter end, the
Company completed a private placement with a select group of
institutional and accredited investors for the sale of 26,451,988
shares of the Company’s common stock for gross proceeds of
approximately $39.7 million. The immediate use of those proceeds
was for the repayment of debt outstanding under our Credit
Agreement and general corporate purposes, including costs and fees
of the offering and future producing acquisitions. See Note 13 –
“Subsequent Events” in our recently filed Form 10-Q for the third
quarter of 2020 for further information.
Management
Commentary
Wilkie S. Colyer, the Company’s Chief Executive
Officer, said, “We are quite pleased with our results in the third
quarter. We came in at the high end of guidance on barrels produced
and below the low end of guidance on both LOE and cash G&A. In
spite of the continued downward pressure COVID-19 has put on our
industry, along with many others, Contango has continued to find
ways to accrete value to its shareholders. We were able to execute
a merger agreement subsequent to quarter end at a meaningful
discount to PDP PV-10 which we look forward to closing in the
coming months. In conjunction with the merger, we raised additional
equity capital in a very tough capital markets environment. As
importantly, we were able to realize significant field level cost
savings on assets acquired from White Star Petroleum via a section
363 sale process late last year, resulting in more than a 50%
increase in the value of those producing reserves. We believe this
process can be repeated in future acquisitions, augmenting our
return expectations, particularly on assets held by non-natural
owners. We view these types of costs savings as organic growth
drivers to complement our inorganic acquisition strategy. Lastly,
I’d like to thank our shareholders and lenders, led by JPMorgan,
for their continued support, along with our dedicated
employees.”
“Protecting our liquidity is also a priority for
us as we look to potentially take advantage of acquisition
opportunities in the current environment. Consequently, through our
hedging program we have price protected approximately 71% of our
forecasted PDP oil production for the remainder of 2020 with swaps
at an average floor price of $55.12 per barrel and 67% of
forecasted PDP gas production for the remainder of 2020 at an
average floor price of $2.57 per Mmbtu. In 2021, we have
approximately 69% of total forecasted PDP oil production hedged at
$51.71 per barrel and 58% of currently forecasted PDP natural gas
production hedged at $2.49 per Mmbtu. In October 2020, we entered
into additional gas hedges and currently have approximately 65% of
the first ten months of forecasted 2022 PDP natural gas production
hedged at $2.59 per Mmbtu. We also entered into additional oil
hedges for April through October 2022 and currently have
approximately 37% of forecasted oil production for that time period
hedged at $42.04 per barrel.”
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 Organization of Petroleum Exporting
Countries (“OPEC”) and other oil producing nations reached an
agreement to cut oil production in April 2020, downward pressure
on, and volatility in, commodity prices has remained and could
continue for the foreseeable future, particularly given concerns
over available storage capacity for oil. We have commodity
derivative instruments in place to mitigate the effects of such
price declines; however, derivatives will not entirely mitigate
lower oil prices. While there has been modest recovery in oil
prices, the length of this demand disruption is still unknown, and
there is significant uncertainty regarding the long-term impact to
global oil demand, which will ultimately depend on various factors
and consequences beyond the Company’s control, such as the duration
and scope of the pandemic, the length and severity of the worldwide
economic downturn, additional actions by businesses and governments
in response to both the pandemic and the decrease in oil prices,
the speed and effectiveness of responses to combat the virus, and
the time necessary to equalize oil supply and demand to restore oil
pricing. In response to these developments, we have continued to
implement measures to mitigate the impact of the COVID-19 pandemic
on our employees, operations and financial position. These measures
include, but are not limited to, the following:
- 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, when appropriate, a portion
of our production in order to market that oil at a later date and
capitalize on the contango in the commodity price curve;
- suspension of any further plans for
operated onshore and offshore drilling in 2020;
- pursuit of additional “fee for
service” opportunities similar to the MSA entered into in June 2020
with Mid-Con, which will be terminated at the closing of the
Mid-Con Acquisition; and
- potential acquisitions of PDP-heavy
assets, with attractive, discounted valuations, in
stressed/distressed scenarios or from non-industry owners.
Summary of
Third Quarter Financial
Results
Net loss for the three months ended September
30, 2020 was $6.8 million, or $(0.05) per basic and diluted share,
compared to a net loss of $7.8 million, or $(0.19) per basic and
diluted share, for the prior year quarter. Pre-tax net loss for the
three months ended September 30, 2020 was $6.1 million, compared to
a pre-tax net loss of $7.8 million for the prior year quarter.
Average weighted shares outstanding were
approximately 131.7 million and 41.8 million for the current and
prior year quarters, respectively.
The Company reported Adjusted EBITDAX, a
non-GAAP measure defined below, of approximately $15.8 million for
the three months ended September 30, 2020, compared to $3.0 million
for the same period last year, an increase attributable primarily
to the incremental contribution from the properties we acquired
from White Star and Will Energy in the fourth quarter of 2019,
offset in part by lower commodity prices. Recurring Adjusted
EBITDAX (defined below as Adjusted EBITDAX exclusive of
non-recurring business combination expenses and strategic advisory
fees and legal judgments) was $16.2 million for the current
quarter, compared to $5.2 million for the prior year quarter.
Revenues for the current quarter were
approximately $31.3 million compared to $12.5 million for the prior
year quarter, an increase also primarily attributable to the
additional production from the acquired Will Energy and White Star
properties, despite the 21% decrease in the weighted average
equivalent sales price in production period over period. Current
quarter revenues also included $1.0 million related to our fee for
service agreement with Mid-Con.
Production sales for the third quarter were
approximately 1,587 Mboe, or 17.2 Mboe per day, at the upper level
of guidance for the quarter, compared to 516 Mboe, or 5.6 Mboe per
day for the third quarter of 2019. The properties acquired from
White Star and Will Energy contributed approximately 12.7 Mboe per
day to the third quarter of 2020. During the second quarter, due to
the extreme variability in oil prices ranging from a low of
($37.63) per Bbl to a high of $40.46 per Bbl, we placed into
available storage approximately 50,000 barrels of oil (net to the
Company) produced during the second quarter, for later sale at
higher prices. These volumes were sold in the third quarter of
2020.
The weighted average equivalent sales price
during the three months ended September 30, 2020 was $19.13 per
Boe, compared to $24.31 per Boe for the same period last year, a
decline attributable to the decrease in all realized commodity
prices in the current year quarter as a result of the decrease in
demand for commodity products due to the COVID-19 pandemic and the
failure of OPEC and Russia to reach any agreement on oil production
quotas until April 2020. In comparison to the third quarter of
2019, we experienced a 29% decline in oil prices, a 31% decline in
natural gas prices and a 23% increase in natural gas liquids prices
in the third quarter of 2020.
Operating expenses for the three months ended
September 30, 2020 were approximately $17.2 million, compared to
$5.4 million for the same period last year, an increase
attributable primarily to the properties acquired from White Star
and Will Energy. Included in operating expenses are direct lease
operating expenses, transportation and processing costs, workover
expenses and production and ad valorem taxes. Operating expenses
exclusive of production and ad valorem taxes of $1.5 million and
$0.7 million, respectively, were approximately $15.6 million for
the current quarter, and below the low end of guidance, compared to
approximately $4.8 million for the prior year quarter. Total unit
costs for operating expenses and G&A expenses improved 33%
quarter over quarter.
DD&A expense for the three months ended
September 30, 2020 was $6.2 million, or $3.90 per Boe, compared to
$8.5 million, or $16.42 per Boe, for the prior year quarter. The
lower depletion expense in the current quarter was a result of
lower depletable property cost as a result of the proved property
impairment recorded during the first quarter of 2020.
Total G&A expenses were $6.1 million for the
three months ended September 30, 2020, compared to $5.9 million for
the prior year quarter. Recurring G&A expenses (defined as
G&A expenses exclusive of business combination expenses and
non-recurring strategic advisory fees of $0.3 million and legal
judgments of $0.1 million for the current quarter) were $5.7
million, or $3.60 per Boe for the current quarter. Recurring
G&A expenses exclusive of business combination expenses and
non-recurring strategic advisory fees of $0.1 million and legal
judgments of $2.1 million for the prior year quarter were $3.7
million, or $7.08 per Boe. The increase from the prior year is
primarily due to the costs of additional personnel, systems costs
and other administrative expenses added in conjunction with the
acquired Will Energy and White Star properties which more than
tripled our production base. Recurring Cash G&A expenses
(defined as recurring G&A expenses exclusive of non-cash
stock-based compensation of $1.8 million and $0.6 million for the
respective current and prior-year quarters) were $4.0 million for
the current quarter, compared to $3.1 million for the prior year
quarter.
Loss from our investment in affiliates (i.e.,
Exaro Energy III (“Exaro”)) for the three months ended September
30, 2020 was approximately $0.1 million, compared to $0.6 million
for the three months ended September 30, 2019.
Loss on derivatives for the three months ended
September 30, 2020 was approximately $7.4 million. Of this amount,
$13.0 million was non-cash, unrealized mark-to-market losses
attributable to improvement in benchmark commodity prices at the
end of the current quarter compared to the benchmark prices at the
end of the second quarter of 2020, offset in part by $5.6 million
in realized gains on derivative settlements during the current
quarter. Gain on derivatives for the three months ended September
30, 2019 was approximately $1.9 million, of which $1.0 million was
non-cash, unrealized mark-to-market gains, and the remaining $0.9
million were realized gains.
2020 Capital
Program & Capital Resources
Capital costs for the three months ended
September 30, 2020 were approximately $1.6 million, of which $0.8
million was related to the completion of a salt water disposal well
and associated facilities in the Southern Delaware Basin in Pecos
County, Texas. The remaining costs were primarily related to
capitalized workovers and leasehold acquisition costs.
We anticipate that the remainder of our 2020
capital budget will be very limited, with our focus being on
preserving our financial liquidity, flexibility and identifying
opportunities for cost efficiencies in all areas of our operations.
Our total 2020 capital expenditure budget is currently estimated at
approximately $18.7 million, including $7.7 million of the
exploration expenses related to the Iron Flea prospect incurred in
2020. For the remainder of 2020, we currently expect to limit our
onshore capital expenditures to $1.4 million for workovers intended
to increase cashflow through enhanced production or reductions in
recurring costs. We currently expect that our offshore expenditures
for the remainder of 2020, which are expected to be non-material,
will be focused on the evaluation and development of another
exploratory prospect. We may revise our 2020 capital expenditure
budget if deemed appropriate in light of changes in commodity
prices or economic conditions.
As of September 30, 2020, we had approximately
$66.0 million outstanding under the Company’s Credit Agreement,
$1.9 million in an outstanding letter of credit and $3.0 million in
cash. The borrowing base was $75 million as of September 30, 2020,
with a borrowing availability of $7.1 million.
On October 25, 2020, the Company and Mid-Con
entered into the Mid-Con Acquisition providing for the Company’s
acquisition of Mid-Con in an all-stock merger transaction in which
Mid-Con will become a direct, wholly owned subsidiary of Contango.
The Mid-Con Acquisition is expected to close in late 2020 or early
2021, at which time the MSA with Mid-Con will be terminated.
Concurrently with the announcement of the Mid-Con Acquisition, we
announced the execution of an agreement with a select group of
institutional and accredited investors to sell 26,451,988 shares of
the Company’s common stock for gross proceeds of approximately
$39.7 million. The proceeds were immediately used for the repayment
of debt outstanding under our Credit Agreement and general
corporate purposes, including costs and fees of the offering and
future producing acquisitions. See Note 13 – “Subsequent Events” in
our recently filed Form 10-Q for the third quarter of 2020 for
further information.
On October 30, 2020, we entered into the Third
Amendment to the Credit Agreement (the “Third Amendment”) under
which the Company’s borrowing base will be increased from $75
million to $130 million, effective upon the closing of the Mid-Con
Acquisition. The Third Amendment also provides for, among other
things, a $10 million automatic reduction in the borrowing base on
March 31, 2021, and postpones the November 1, 2020 scheduled
borrowing base redetermination required under the Credit Agreement
until December 31, 2020. See Note 13 – “Subsequent Events” in our
recently filed Form 10-Q for the third quarter of 2020 for further
information. The borrowing base may also be adjusted by certain
events, including the incurrence of any senior unsecured debt,
material asset dispositions or liquidation of hedges in excess of
certain thresholds. The Credit Agreement matures on
September 17, 2024. See Note 10 – “Long-Term Debt” in our
recently filed Form 10-Q for the third quarter of 2020 for further
information.
Derivative Instruments
As of September 30, 2020, we had the following
financial derivative contracts in place with members of our bank
group or third-party counterparties under an unsecured line of
credit with no margin call provisions. These contracts represent
approximately 71% of our currently forecasted remaining 2020 oil
production from proved developed reserves (“PDP”) and 67% of our
currently forecasted remaining 2020 natural gas production from
PDP. We also have hedged approximately 69% of our currently
forecasted 2021 PDP oil production and 58% of our currently
forecasted 2021 PDP natural gas production.
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Commodity |
|
Period |
|
Derivative |
|
Volume/Month |
|
Price/Unit |
Oil |
|
Oct 2020 |
|
Collar |
|
3,442 |
Bbls |
|
$ |
52.00 - 65.70 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
Oct 2020 - Dec 2020 |
|
Swap |
|
15,000 |
Bbls |
|
$ |
57.74 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
Oct 2020 |
|
Swap |
|
2,500 |
Bbls |
|
$ |
54.33 |
(1) |
Oil |
|
Nov 2020 - Dec 2020 |
|
Swap |
|
3,500 |
Bbls |
|
$ |
54.33 |
(1) |
|
|
|
|
|
|
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|
|
|
|
|
|
|
Oil |
|
Oct 2020 - Dec 2020 |
|
Swap |
|
35,000 |
Bbls |
|
$ |
54.70 |
(1) |
|
|
|
|
|
|
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|
|
|
Oil |
|
Oct 2020 - Dec 2020 |
|
Swap |
|
35,000 |
Bbls |
|
$ |
54.58 |
(1) |
|
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|
Oil |
|
Jan 2021 - March 2021 |
|
Swap |
|
19,000 |
Bbls |
|
$ |
50.00 |
(1) |
Oil |
|
April 2021 - July 2021 |
|
Swap |
|
12,000 |
Bbls |
|
$ |
50.00 |
(1) |
Oil |
|
Aug 2021 - Sept 2021 |
|
Swap |
|
10,000 |
Bbls |
|
$ |
50.00 |
(1) |
|
|
|
|
|
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|
Oil |
|
Jan 2021 - July 2021 |
|
Swap |
|
62,000 |
Bbls |
|
$ |
52.00 |
(1) |
Oil |
|
Aug 2021 - Sept 2021 |
|
Swap |
|
55,000 |
Bbls |
|
$ |
52.00 |
(1) |
Oil |
|
Oct 2021 - Dec 2021 |
|
Swap |
|
64,000 |
Bbls |
|
$ |
52.00 |
(1) |
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|
|
|
|
|
|
|
Natural Gas |
|
Oct 2020 |
|
Swap |
|
40,000 |
Mmbtus |
|
$ |
2.532 |
(2) |
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|
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|
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Natural Gas |
|
Nov 2020 - Dec 2020 |
|
Swap |
|
375,000 |
Mmbtus |
|
$ |
2.696 |
(2) |
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Natural Gas |
|
Oct 2020 - Dec 2020 |
|
Swap |
|
350,000 |
Mmbtus |
|
$ |
2.53 |
(2) |
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|
|
Natural Gas |
|
Oct 2020 - Dec 2020 |
|
Swap |
|
350,000 |
Mmbtus |
|
$ |
2.532 |
(2) |
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|
|
|
|
|
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|
|
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|
Natural Gas |
|
Jan 2021 - March 2021 |
|
Swap |
|
185,000 |
Mmbtus |
|
$ |
2.505 |
(2) |
Natural Gas |
|
April 2021 - July 2021 |
|
Swap |
|
120,000 |
Mmbtus |
|
$ |
2.505 |
(2) |
Natural Gas |
|
Aug 2021 - Sept 2021 |
|
Swap |
|
10,000 |
Mmbtus |
|
$ |
2.505 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas |
|
Jan 2021 - March 2021 |
|
Swap |
|
185,000 |
Mmbtus |
|
$ |
2.508 |
(2) |
Natural Gas |
|
April 2021 - July 2021 |
|
Swap |
|
120,000 |
Mmbtus |
|
$ |
2.508 |
(2) |
Natural Gas |
|
Aug 2021 - Sept 2021 |
|
Swap |
|
10,000 |
Mmbtus |
|
$ |
2.508 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas |
|
Jan 2021 - March 2021 |
|
Swap |
|
650,000 |
Mmbtus |
|
$ |
2.508 |
(2) |
Natural Gas |
|
April 2021 - Oct 2021 |
|
Swap |
|
400,000 |
Mmbtus |
|
$ |
2.508 |
(2) |
Natural Gas |
|
Nov 2021 - Dec 2021 |
|
Swap |
|
580,000 |
Mmbtus |
|
$ |
2.508 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas |
|
April 2021 - Nov 2021 |
|
Swap |
|
70,000 |
Mmbtus |
|
$ |
2.36 |
(2) |
Natural Gas |
|
Dec 2021 |
|
Swap |
|
350,000 |
Mmbtus |
|
$ |
2.36 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas |
|
Jan 2022 - March 2022 |
|
Swap |
|
780,000 |
Mmbtus |
|
$ |
2.542 |
(2) |
(1) Based on West Texas Intermediate crude
oil prices. (2) Based on Henry Hub NYMEX natural gas
prices.
In addition to the above financial derivative
instruments, as of September 30, 2020, we had a costless swap
agreement with a Midland WTI - Cushing oil differential swap price
of $0.05 per barrel of crude oil. The agreement fixes the Company’s
exposure to that differential on 10,000 barrels per month for
October 2020 through December 2020.
As of September 30, 2020, based on strip prices at that time,
the mark to market value of our hedge portfolio was $6.4 million,
as reflected in the Company’s balance sheet as of September 30,
2020.
In October 2020, and subsequent to the end of the third quarter,
we entered into the following additional derivative contracts:
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Commodity |
|
Period |
|
Derivative |
|
Volume/Month |
|
Price/Unit |
Oil |
|
April 2022 - Oct 2022 |
|
Swap |
|
25,000 |
Bbls |
|
$ |
42.04 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas |
|
April 2022 - July 2022 |
|
Swap |
|
650,000 |
Mmbtus |
|
$ |
2.515 |
(2) |
Natural Gas |
|
Aug 2022 - Oct 2022 |
|
Swap |
|
350,000 |
Mmbtus |
|
$ |
2.515 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas |
|
Jan 2022 - March 2022 |
|
Swap |
|
250,000 |
Mmbtus |
|
$ |
3.149 |
(2) |
(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 and nine months ended
September 30, 2020 and 2019:
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|
Three Months Ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
|
% |
|
2020 |
|
2019 |
|
% |
Offshore Volumes Sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and condensate (Mbbls) |
|
|
7 |
|
|
9 |
|
-22 |
% |
|
|
25 |
|
|
32 |
|
-22 |
% |
Natural gas (Mmcf) |
|
|
1,365 |
|
|
1,545 |
|
-12 |
% |
|
|
3,849 |
|
|
4,506 |
|
-15 |
% |
Natural gas liquids (Mbbls) |
|
|
21 |
|
|
40 |
|
-48 |
% |
|
|
88 |
|
|
164 |
|
-46 |
% |
Thousand barrels of oil equivalent (Mboe) |
|
|
256 |
|
|
306 |
|
-16 |
% |
|
|
754 |
|
|
947 |
|
-20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore Volumes Sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and condensate (Mbbls) |
|
|
436 |
|
|
122 |
|
257 |
% |
|
|
1,284 |
|
|
351 |
|
266 |
% |
Natural gas (Mmcf) |
|
|
3,588 |
|
|
313 |
|
1046 |
% |
|
|
11,219 |
|
|
873 |
|
1185 |
% |
Natural gas liquids (Mbbls) |
|
|
297 |
|
|
36 |
|
725 |
% |
|
|
868 |
|
|
102 |
|
751 |
% |
Thousand barrels of oil equivalent (Mboe) |
|
|
1,331 |
|
|
210 |
|
534 |
% |
|
|
4,022 |
|
|
599 |
|
571 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Volumes Sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and condensate (Mbbls) |
|
|
443 |
|
|
131 |
|
238 |
% |
|
|
1,309 |
|
|
383 |
|
242 |
% |
Natural gas (Mmcf) |
|
|
4,953 |
|
|
1,858 |
|
167 |
% |
|
|
15,068 |
|
|
5,379 |
|
180 |
% |
Natural gas liquids (Mbbls) |
|
|
318 |
|
|
76 |
|
318 |
% |
|
|
956 |
|
|
266 |
|
259 |
% |
Thousand barrels of oil equivalent (Mboe) |
|
|
1,587 |
|
|
516 |
|
208 |
% |
|
|
4,776 |
|
|
1,546 |
|
209 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Sales Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and condensate (Mbbls) |
|
|
4.8 |
|
|
1.4 |
|
243 |
% |
|
|
4.8 |
|
|
1.4 |
|
243 |
% |
Natural gas (Mmcf) |
|
|
53.8 |
|
|
20.2 |
|
166 |
% |
|
|
55.0 |
|
|
19.7 |
|
179 |
% |
Natural gas liquids (Mbbls) |
|
|
3.5 |
|
|
0.8 |
|
338 |
% |
|
|
3.5 |
|
|
1.0 |
|
250 |
% |
Thousand barrels of oil equivalent (Mboe) |
|
|
17.2 |
|
|
5.6 |
|
207 |
% |
|
|
17.4 |
|
|
5.7 |
|
205 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sales prices: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and condensate (per Bbl) |
|
$ |
39.30 |
|
$ |
55.73 |
|
-29 |
% |
|
$ |
36.76 |
|
$ |
55.10 |
|
-33 |
% |
Natural gas (per Mcf) |
|
$ |
1.60 |
|
$ |
2.31 |
|
-31 |
% |
|
$ |
1.51 |
|
$ |
2.56 |
|
-41 |
% |
Natural gas liquids (per Bbl) |
|
$ |
15.73 |
|
$ |
12.82 |
|
23 |
% |
|
$ |
12.47 |
|
$ |
16.56 |
|
-25 |
% |
Total (per Boe) |
|
$ |
19.13 |
|
$ |
24.31 |
|
-21 |
% |
|
$ |
17.33 |
|
$ |
25.44 |
|
-32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
|
2019 |
|
|
% |
|
2020 |
|
|
2019 |
|
|
% |
Offshore Selected Costs ($ per
Boe) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (1) |
|
$ |
6.78 |
|
|
$ |
5.89 |
|
|
15 |
% |
|
$ |
6.05 |
|
|
$ |
5.10 |
|
|
19 |
% |
Production and ad valorem taxes |
|
$ |
0.27 |
|
|
$ |
0.44 |
|
|
-39 |
% |
|
$ |
0.36 |
|
|
$ |
0.46 |
|
|
-22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore Selected Costs ($ per
Boe) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (1) |
|
$ |
10.43 |
|
|
$ |
14.15 |
|
|
-26 |
% |
|
$ |
11.71 |
|
|
$ |
16.34 |
|
|
-28 |
% |
Production and ad valorem taxes |
|
$ |
1.10 |
|
|
$ |
2.51 |
|
|
-56 |
% |
|
$ |
0.95 |
|
|
$ |
2.13 |
|
|
-55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Selected Costs ($ per
Boe) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (1) |
|
$ |
9.85 |
|
|
$ |
9.25 |
|
|
6 |
% |
|
$ |
10.82 |
|
|
$ |
9.46 |
|
|
14 |
% |
Production and ad valorem taxes |
|
$ |
0.97 |
|
|
$ |
1.28 |
|
|
-24 |
% |
|
$ |
0.86 |
|
|
$ |
1.10 |
|
|
-22 |
% |
General and administrative expense (cash) |
|
$ |
2.75 |
|
|
$ |
10.31 |
|
|
-73 |
% |
|
$ |
3.12 |
|
|
$ |
8.50 |
|
|
-63 |
% |
Interest expense |
|
$ |
0.67 |
|
|
$ |
1.93 |
|
|
-65 |
% |
|
$ |
0.93 |
|
|
$ |
2.05 |
|
|
-55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss (thousands) |
|
$ |
(6,805 |
) |
|
$ |
(7,838 |
) |
|
|
|
$ |
(140,094 |
) |
|
$ |
(21,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAX (2)
(thousands) |
|
$ |
15,827 |
|
|
$ |
3,011 |
|
|
|
|
$ |
36,936 |
|
|
$ |
11,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares
Outstanding (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
131,686 |
|
|
|
41,786 |
|
|
|
|
|
131,493 |
|
|
|
36,518 |
|
|
|
Diluted |
|
|
131,686 |
|
|
|
41,786 |
|
|
|
|
|
131,493 |
|
|
|
36,518 |
|
|
|
(1) Operating expense includes direct lease operating expenses,
transportation and workover expenses.
(2) Adjusted EBITDAX is a non-GAAP financial
measure. See below for reconciliation to net loss.
CONTANGO OIL & GAS COMPANYCONDENSED
CONSOLIDATED BALANCE SHEETS(in thousands)
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2020 |
|
2019 |
ASSETS |
|
|
(unaudited) |
|
|
|
Cash and cash equivalents |
|
$ |
2,969 |
|
|
$ |
1,624 |
Accounts receivable, net |
|
|
31,797 |
|
|
|
39,567 |
Current derivative asset |
|
|
10,509 |
|
|
|
3,819 |
Other current assets |
|
|
3,904 |
|
|
|
1,377 |
Net property and equipment |
|
|
127,088 |
|
|
|
291,120 |
Investment in affiliates and other non-current assets |
|
|
16,552 |
|
|
|
16,319 |
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
192,819 |
|
|
$ |
353,826 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) |
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
|
87,223 |
|
|
|
104,593 |
Other current liabilities |
|
|
6,054 |
|
|
|
5,954 |
Long-term debt |
|
|
69,369 |
|
|
|
72,768 |
Asset retirement obligations |
|
|
45,998 |
|
|
|
49,662 |
Other non-current liabilities |
|
|
5,629 |
|
|
|
4,809 |
Total shareholders’ equity (deficit) |
|
|
(21,454 |
) |
|
|
116,040 |
|
|
|
|
|
|
|
TOTAL LIABILITIES &
SHAREHOLDERS’ EQUITY (DEFICIT) |
|
$ |
192,819 |
|
|
$ |
353,826 |
CONTANGO OIL & GAS COMPANYCONSOLIDATED
STATEMENTS OF OPERATIONS(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(unaudited) |
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
Oil and condensate sales |
|
$ |
17,415 |
|
|
$ |
7,281 |
|
|
$ |
48,127 |
|
|
$ |
21,126 |
|
Natural gas sales |
|
|
7,930 |
|
|
|
4,293 |
|
|
|
22,718 |
|
|
|
13,792 |
|
Natural gas liquids sales |
|
|
5,003 |
|
|
|
973 |
|
|
|
11,918 |
|
|
|
4,402 |
|
Fee for service revenues |
|
|
1,000 |
|
|
|
— |
|
|
|
1,000 |
|
|
|
— |
|
Total revenues |
|
|
31,348 |
|
|
|
12,547 |
|
|
|
83,763 |
|
|
|
39,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
17,155 |
|
|
|
5,435 |
|
|
|
55,777 |
|
|
|
16,321 |
|
Exploration expenses |
|
|
(227 |
) |
|
|
218 |
|
|
|
11,344 |
|
|
|
691 |
|
Depreciation, depletion and amortization |
|
|
6,185 |
|
|
|
8,473 |
|
|
|
24,131 |
|
|
|
23,602 |
|
Impairment and abandonment of oil and gas properties |
|
|
47 |
|
|
|
1,336 |
|
|
|
145,925 |
|
|
|
3,170 |
|
General and administrative expenses |
|
|
6,130 |
|
|
|
5,879 |
|
|
|
17,268 |
|
|
|
15,340 |
|
Total expenses |
|
|
29,290 |
|
|
|
21,341 |
|
|
|
254,445 |
|
|
|
59,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investment in affiliates, net of income taxes |
|
|
(126 |
) |
|
|
(608 |
) |
|
|
(13 |
) |
|
|
(151 |
) |
Gain from sale of assets |
|
|
38 |
|
|
|
192 |
|
|
|
4,471 |
|
|
|
601 |
|
Interest expense |
|
|
(1,057 |
) |
|
|
(998 |
) |
|
|
(4,421 |
) |
|
|
(3,169 |
) |
Gain (loss) on derivatives, net |
|
|
(7,369 |
) |
|
|
1,881 |
|
|
|
30,526 |
|
|
|
1,068 |
|
Other income |
|
|
319 |
|
|
|
519 |
|
|
|
1,456 |
|
|
|
522 |
|
Total other income (expense) |
|
|
(8,195 |
) |
|
|
986 |
|
|
|
32,019 |
|
|
|
(1,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME
TAXES |
|
|
(6,137 |
) |
|
|
(7,808 |
) |
|
|
(138,663 |
) |
|
|
(20,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
(668 |
) |
|
|
(30 |
) |
|
|
(1,431 |
) |
|
|
(484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(6,805 |
) |
|
$ |
(7,838 |
) |
|
$ |
(140,094 |
) |
|
$ |
(21,417 |
) |
Non-GAAP Financial Measures
This news release includes certain non-GAAP
financial information as defined by Securities and Exchange
Commission (“SEC”) rules. Pursuant to SEC requirements,
reconciliations of non-GAAP financial measures to the most directly
comparable financial measures calculated and presented in
accordance with generally accepted accounting principles (GAAP) are
included in this press release.
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 |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(in thousands) |
Net loss |
|
$ |
(6,805 |
) |
|
$ |
(7,838 |
) |
|
$ |
(140,094 |
) |
|
$ |
(21,417 |
) |
Interest expense |
|
|
1,057 |
|
|
|
998 |
|
|
|
4,421 |
|
|
|
3,169 |
|
Income tax provision |
|
|
668 |
|
|
|
30 |
|
|
|
1,431 |
|
|
|
484 |
|
Depreciation, depletion and amortization |
|
|
6,185 |
|
|
|
8,473 |
|
|
|
24,131 |
|
|
|
23,602 |
|
Impairment of oil and gas properties |
|
|
60 |
|
|
|
1,167 |
|
|
|
145,938 |
|
|
|
2,246 |
|
Exploration expense |
|
|
(227 |
) |
|
|
218 |
|
|
|
11,344 |
|
|
|
691 |
|
EBITDAX |
|
$ |
938 |
|
|
$ |
3,048 |
|
|
$ |
47,171 |
|
|
$ |
8,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on derivative instruments |
|
$ |
13,037 |
|
|
$ |
(1,010 |
) |
|
$ |
(8,155 |
) |
|
$ |
1,068 |
|
Non-cash stock-based compensation charges |
|
|
1,764 |
|
|
|
557 |
|
|
|
2,378 |
|
|
|
2,193 |
|
Loss (gain) on sale of assets and investment in affiliates |
|
|
88 |
|
|
|
416 |
|
|
|
(4,458 |
) |
|
|
(450 |
) |
Adjusted EBITDAX |
|
$ |
15,827 |
|
|
$ |
3,011 |
|
|
$ |
36,936 |
|
|
$ |
11,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring business combination expenses and strategic fees |
|
$ |
326 |
|
|
$ |
94 |
|
|
$ |
2,553 |
|
|
$ |
1,830 |
|
Non-recurring legal judgments |
|
|
90 |
|
|
|
2,134 |
|
|
|
246 |
|
|
|
2,134 |
|
Recurring Adjusted EBITDAX |
|
$ |
16,243 |
|
|
$ |
5,239 |
|
|
$ |
39,735 |
|
|
$ |
15,550 |
|
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, Recurring Cash
G&A expenses and production sales in the current period
exclusive of second quarter oil inventory, 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 Fourth Quarter 2020
|
|
|
Production sales |
|
14,000 - 16,000 Boe per day |
|
|
|
LOE (including transportation and workovers) |
|
$15.4 million - $17.6 million |
|
|
|
Recurring Cash G&A (non-GAAP) |
|
$5.3 million - $5.8 million |
|
|
|
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.
Teleconference Call
Contango management will hold a conference call
to discuss the information described in this press release on
Monday, November 16, 2020 at 4:00 pm Central Standard Time. A brief
presentation related to certain items to be discussed on the call
will be posted to the Company’s website at ir.contango.com prior to
the call. Those interested in participating in the earnings
conference call may do so by clicking here to join and entering
your information to be connected. The link becomes active 15
minutes prior to the scheduled start time, and the conference will
call you. If you are not at a computer, you can join by dialing
1-800-309-1256, (International 1-323-347-3622) and entering
participation code 732123. A replay of the call will be
available Monday, November 16, 2020 at 7:00 pm CDT through Monday,
November 23, 2020 at 7:00 pm CDT by clicking here.
About Contango Oil & Gas Company
Contango Oil & Gas Company is a
Houston, Texas based, independent oil and natural gas company whose
business is to maximize production and cash flow from its offshore
properties in the shallow waters of the Gulf of Mexico and onshore
properties in Texas, Oklahoma, Louisiana and Wyoming and, when
determined appropriate, to use that cash flow to explore, develop,
and increase production from its existing properties, to acquire
additional PDP-heavy crude oil and natural gas properties or to pay
down debt. Additional information is available on the Company's
website at http://contango.com. Information on our website is not
part of this release.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication may be deemed to be
solicitation material in respect of the proposed merger (the
“Proposed Merger”). The Proposed Merger will be submitted to
Contango’s shareholders and Mid-Con’s unitholders for their
consideration. Contango and Mid-Con intend to file a preliminary
consent statement/proxy statement/prospectus (the “Consent
Statement/Proxy Statement/Prospectus”) with the Securities and
Exchange Commission (the “SEC”) in connection with the Partnership
Unitholder Approval and the Contango Shareholder Approval (each as
defined in the Merger Agreement) in connection with the Proposed
Merger. Contango intends to file a registration statement on Form
S-4 (the “Form S-4”) with the SEC, in which the Consent
Statement/Proxy Statement/Prospectus will be included as a
prospectus. Contango and Mid-Con also intend to file other relevant
documents with the SEC regarding the Proposed Merger. After the
Form S-4 is declared effective by the SEC, the definitive Consent
Statement/Proxy Statement/Prospectus will be mailed to Contango’s
shareholders and Mid-Con’s unitholders. BEFORE MAKING ANY VOTING OR
INVESTMENT DECISION WITH RESPECT TO THE PROPOSED MERGER, INVESTORS
AND SHAREHOLDERS OF CONTANGO AND INVESTORS AND UNITHOLDERS OF
MID-CON ARE URGED TO READ THE DEFINITIVE CONSENT STATEMENT/PROXY
STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER (INCLUDING ANY
AMENDMENTS OR SUPPLEMENTS THERETO) AND OTHER RELEVANT MATERIALS
CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
MERGER.
The Consent Statement/Proxy
Statement/Prospectus, any amendments or supplements thereto and
other relevant materials, and any other documents filed by Contango
or Mid-Con with the SEC, may be obtained once such documents are
filed with the SEC free of charge at the SEC’s website at
www.sec.gov or free of charge from Contango at www.contango.com or
by directing a request to Contango’s Investor Relations Department
at investorrelations@contango.com or free of charge from Mid-Con at
www.mceplp.com or by directing a request to Mid-Con’s Investor
Relations Department at MSA.OwnerRelations@Contango.com.
NO OFFER OR SOLICITATION
This communication does not constitute an offer
to sell or the solicitation of an offer to buy any securities, or a
solicitation of any vote or approval, nor shall there be any sale
of securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such jurisdiction. No offering of
securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the Securities Act of 1933, as
amended.
PARTICIPANTS IN THE SOLICITATION
Contango, Mid-Con and certain of their
respective executive officers, directors, other members of
management and employees may, under the rules of the SEC, be deemed
to be “participants” in the solicitation of proxies in connection
with the Mid-Con Acquisition. Information regarding Contango’s
directors and executive officers is available in its Proxy
Statement on Schedule 14A for its 2020 Annual Meeting of
Shareholders, filed with the SEC on April 28, 2020 and in its
Annual Report on Form 10-K for the year ended December 31, 2019,
filed with the SEC on March 20, 2020. Information regarding
Mid-Con’s directors and executive officers is available in its
Annual Report on Form 10-K for the year ended December 31, 2019,
filed with the SEC on March 12, 2020 and its Current Reports on
Form 8-K, filed with the SEC on June 10, 2020 and August 6, 2020.
These documents may be obtained free of charge from the sources
indicated above. Other information regarding the participants in
the proxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the Form S-4, the Consent Statement/Proxy
Statement/Prospectus and other relevant materials relating to the
Mid-Con Acquisition to be filed with the SEC when they become
available. Shareholders, unitholders, potential investors and other
readers should read the Consent Statement/Proxy
Statement/Prospectus carefully when it becomes available before
making any voting or investment decisions.
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 pending acquisition of
Mid-Con, amendments to and borrowing base of the Company’s Credit
Agreement, 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
including reduced demand for oil and natural gas, the low and
volatile commodity price environment, our new fee for services
offering, 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, our outlook in the current industry downturn, 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 relating to the Company’s
pending acquisition of Mid-Con, including the risk that the
acquisition will not be completed on the timeline or terms
currently contemplated, that the Company’s and Mid-Con’s businesses
will not be integrated successfully, that the cost savings,
synergies and growth from the acquisition may not be fully realized
or may take longer to realize than expected, and that management
attention will be diverted to transaction-related issues; potential
liability resulting from litigation related to the Mid-Con
acquisition; the risk that transaction costs for the Mid-Con
Acquisition may be higher than anticipated; the effect of our
pending acquisition (or announcement thereof) of Mid-Con on our
stock price or Mid-Con’s unit price; 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; any 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
acquisitions, any changes in our strategy or our 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 cost savings; our ability to execute on and 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
and the resulting economic slowdown, governmental actions,
stay-at-home orders, and other interruptions to our operations; 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 SEC, including under the “Risk Factors” heading in our annual
report on Form 10-K for the year ended December 31, 2019 and our
quarterly reports on Form 10-Q filed with the SEC. Additional
information on these and other factors, many of which may be
unknown or unpredictable at this time, which could affect
Contango’s operations or financial results are included in
Contango’s reports on file with the SEC. 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 speak only as of the date they were made
and 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, except
as required by law. Initial production rates are subject to decline
over time and should not be regarded as reflective of sustained
production levels. Initial production rates of wells and initial
indications of formation performance or the benefits of any
transaction are not necessarily indicative of future or long-term
results. Reserves and PV-10 are not necessarily representative of
future cash flows and production.
|
|
Contact: |
|
Contango Oil & Gas Company |
|
E. Joseph Grady – 713-236-7400 |
|
Senior Vice President and Chief Financial and Accounting
Officer |
|
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