Contango Oil & Gas Company (NYSE American: MCF) (“Contango” or
the “Company”) announced today its financial results for the third
quarter ended September 30, 2021.
Third Quarter 2021 Highlights and Recent
Developments
- Production sales of 2,426 MBoe for
the third quarter of 2021, or 26.4 MBoe per day, compared to 1,587
MBoe, or 17.2 MBoe per day in the prior year quarter.
- Net loss was $15.2 million for the
current year quarter, compared to a net loss of $6.8 million in the
prior year quarter. Adjusting both quarters to exclude pre-tax,
non-cash mark-to-market losses related to our commodity price
derivatives of $35.5 million and $13.0 million, respectively, net
income before income taxes would have been approximately $19.2
million and $6.9 million for the current and prior year quarters,
respectively.
- Adjusted EBITDAX (a non-GAAP
measure, as defined and presented herein) for the current year
quarter of $31.6 million, compared to $15.8 million in the prior
year quarter.
- On August 31, 2021, the Company
closed on the acquisition from ConocoPhillips of low decline,
conventional gas assets in the Wind River Basin of Wyoming (the
“Wind River Basin Acquisition”). Upon closing, Contango acquired an
estimated 446 Bcfe of PDP reserves for a net consideration paid,
after customary closing adjustments, of approximately $62.6
million. See Note 3 – “Acquisitions and Dispositions” in our
recently filed Form 10-Q for the third quarter of 2021 for further
information.
- In light of the Pending
Independence Merger (defined below), on October 28, 2021, the
Company and the lenders under its credit agreement entered into a
waiver letter which, among other things, postpones the November
scheduled redetermination of the Company’s borrowing base until on
or about February 1, 2022. As of September 30, 2021, the Company
had availability under its credit agreement of $129.1 million. See
Note 10 – “Long-Term Debt” and Note 13 – “Subsequent Events” in our
recently filed Form 10-Q for the third quarter of 2021 for further
information.
- On November 3, 2021, the Company
filed and mailed its definitive proxy statement for the Special
Meeting of the Stockholders of the Company in connection with the
definitive agreement to combine with Independence Energy, LLC
(“Independence”) in an all-stock transaction (the “Pending
Independence Merger”). The Special Meeting of the Stockholders to
vote on the approval of the Pending Independence Merger has been
scheduled for December 6, 2021. In light of the Pending
Independence Merger, Contango no longer plans to update financial
guidance. See Note 3 – “Acquisitions and Dispositions” and Note 13
– “Subsequent Events” in our recently filed Form 10-Q for the third
quarter of 2021 for further information.
Management Commentary
Wilkie S. Colyer, the Company’s Chief Executive
Officer, said, “Our team has been very busy in identifying, closing
and integrating acquisitions during the current year, as evidenced
by the closing of the Mid-Con and Silvertip acquisitions in the
first quarter, the signing and closing of the acquisition of the
Wind River Basin assets from ConocoPhillips in the third quarter
and the signing of the transaction agreement for the Company’s
pending merger with Independence Energy LLC, a subsidiary of KKR,
in the second quarter. Assuming the Pending Independence Merger is
approved by Contango stockholders at the Special Meeting of the
Stockholders on December 6, 2021, the Pending Independence Merger
is expected to close the following day, and the combined team will
be strategically and financially positioned to continue a very
active role in the consolidation of the energy sector. Contango’s
success in closing attractive, PDP-heavy acquisitions, cutting
costs on both legacy and acquired properties, and increasing cash
flow through low risk, high return capital spending, has allowed it
to greatly expand our financial flexibility and acquisition dry
powder, and increase the value of our reserves. Through the pending
combination of Contango and Independence, Contango shareholders are
positioned to participate in the combined company’s ability to
pursue its consolidation strategy on a much larger scale and at a
meaningfully lower cost of capital. Our team at Contango is excited
about playing a large part in that industry consolidator role on
behalf of Contango and Independence shareholders as a subsidiary of
the combined business.”
Summary of Third Quarter Financial
Results
Net loss for the three months ended September
30, 2021 was $15.2 million, or $(0.08) per basic and diluted share,
compared to a net loss of $6.8 million, or $(0.05) per basic and
diluted share, for the prior year quarter. Pre-tax net loss for the
three months ended September 30, 2021 was $16.3 million, compared
to a pre-tax net loss of $6.1 million for the prior year quarter.
Adjusting the comparable 2021 and 2020 quarters for pre-tax,
non-cash mark-to-market losses related to our commodity price
derivatives of $35.5 million and $13.0 million, respectively, net
income before income taxes would have been approximately $19.2
million for the current year quarter compared to net income before
income taxes of $6.9 million for the comparable 2020 quarter.
Average weighted shares outstanding were
approximately 199.1 million and 131.7 million for the current and
prior year quarters, respectively. Shares outstanding increased
primarily due to the sale of approximately 40.6 million shares of
common stock of the Company in two offerings in the fourth quarter
of 2020 in conjunction with the announcement of the Mid-Con
Acquisition and the Silvertip Acquisition in that quarter and
approximately 25.5 million shares of common stock issued to Mid-Con
shareholders at the close of the Mid-Con Acquisition in January
2021.
The Company reported Adjusted EBITDAX, a
non-GAAP measure defined below, of approximately $31.6 million for
the three months ended September 30, 2021, compared to $15.8
million for the same period last year, an increase attributable
primarily to the incremental contribution from the properties we
acquired in the Mid-Con Acquisition and the Silvertip Acquisition
in the first quarter of 2021 and the Wind River Basin Acquisition
in the third quarter of 2021. Recurring Adjusted EBITDAX (defined
below as Adjusted EBITDAX exclusive of non-recurring business
combination expenses and strategic advisory fees and legal
judgments) was $35.2 million for the 2021 quarter, compared to
$16.2 million for the 2020 quarter.
Revenues for the third quarter of 2021 were
approximately $99.9 million compared to $31.3 million for the third
quarter of 2020, an increase attributable primarily to higher
commodity prices and an approximate 53% increase in production
sales resulting from the properties acquired in the Mid-Con
Acquisition, the Silvertip Acquisition, and the Wind River Basin
Acquisition.
Production sales for the three months ended
September 30, 2021 were approximately 2.4 MMBoe (52% liquids), or
26.4 MBoe per day, compared to approximately 1.6 MMBoe (48%
liquids), or 17.2 MBoe per day in the prior year quarter. The third
quarter production sales were higher than the upper end of guidance
provided by the Company for the quarter, primarily as a result of
the properties acquired in the Wind River Basin Acquisition, which
closed on August 31, 2021. Net oil production sales were
approximately 9,000 barrels per day for the three months ended
September 30, 2021, compared to approximately 4,800 barrels per day
in the prior year quarter, an increase attributable to the
production from the properties acquired in the Mid-Con Acquisition
and the Silvertip Acquisition, which closed on January 21, 2021 and
February 1, 2021, respectively. Net natural gas production sales
increased to approximately 76.7 MMcf per day during the three
months ended September 30, 2021, compared with approximately 53.8
MMcf per day during the three months ended September 30, 2020
primarily due to production from the properties acquired in the
Wind River Basin Acquisition. Net natural gas liquids (“NGLs”)
production sales increased to approximately 4,500 barrels per day
during the three months ended September 30, 2021, compared to
approximately 3,500 barrels per day in the prior year quarter due
to the new, higher liquid content production acquired in the
Silvertip Acquisition.
The weighted average equivalent sales price
realized for the three months ended September 30, 2021 was $40.18
per Boe compared to $19.13 per Boe for the three months ended
September 30, 2020. The increase in the third quarter 2021 realized
prices was primarily attributable to an improvement in the economy
and higher realized commodity prices in 2021 brought about by
domestic vaccination programs that have helped reduce the spread of
COVID-19. The lower prior year prices were attributable to the
decline in realized commodity prices in early 2020 as a result of
the spread of the COVID-19 pandemic and its negative impact on the
global demand for oil and natural gas. The realized price of crude
oil averaged $67.39 per Bbl in the current year quarter compared to
an average $39.30 per Bbl in the prior year quarter. The realized
price of natural gas averaged $3.72 per Mcf in the current year
quarter compared to an average of $1.60 per Mcf in the prior year
quarter, and the realized price of NGLs averaged $36.30 per Bbl in
the current year quarter compared to an average of $15.73 per Bbl
in the prior year quarter.
Operating expenses for the three months ended
September 30, 2021 were approximately $44.9 million, compared to
$14.6 million for the same period last year, an increase
attributable primarily to the properties acquired in the Mid-Con
Acquisition, the Silvertip Acquisition, and the Wind River Basin
Acquisition. Included in operating expenses are direct lease
operating expenses, transportation and processing costs, workover
expenses, production and ad valorem taxes and other expenses
related to plants and pipelines. Operating expenses, exclusive of
production and ad valorem taxes of $6.9 million and $1.5 million
for the respective 2021 and 2020 quarters, were approximately $38.0
million for the 2021 quarter compared to approximately $13.1
million for the prior year quarter. The third quarter operating
expenses were higher than the upper end of guidance provided by the
Company for the quarter, primarily as a result of the production
enhancing workovers.
DD&A expense for the three months ended
September 30, 2021 was $9.8 million, or $4.03 per Boe, compared to
$6.2 million, or $3.90 per Boe, for the 2020 quarter. The higher
depletion expense and rate per Boe in the current year quarter was
primarily due to the liquids-heavy properties acquired in the
Mid-Con Acquisition and the Silvertip Acquisition.
Total G&A expenses were $14.6 million, or
$6.02 per Boe, for the three months ended September 30, 2021,
compared to $8.7 million, or $5.48 per Boe, for the prior year
quarter. Recurring G&A expenses (defined as Total G&A
expenses, exclusive of business combination expenses and
non-recurring strategic advisory fees of $2.9 million and $0.3
million for the current year and prior year quarters, respectively,
and legal judgments of $0.7 million and $0.1 million for the
current year and prior year quarters, respectively) were $11.0
million, or $4.52 per Boe, for the current year quarter compared to
Recurring G&A expenses of $8.3 million, or $5.22 per Boe for
the prior year quarter. The increase from the prior year is
primarily due to the costs of additional personnel, systems costs
and other administrative expenses resulting from growth related to
the Mid-Con Acquisition and the Silvertip Acquisition, as well as
higher non-cash stock-based compensation expense in the current
year quarter due to annual incentive grants being awarded to a
larger employee base. Recurring Cash G&A expenses (defined as
Recurring G&A expenses exclusive of non-cash stock-based
compensation of $3.2 million and $1.8 million for the respective
2021 and 2020 quarters) were $7.8 million for the current year
quarter, compared to $6.5 million for the prior year quarter.
Loss on derivatives for the three months ended
September 30, 2021 was approximately $48.4 million. Of this amount,
$35.5 million was attributable to a non-cash mark-to-market loss
resulting from the reduction in the value of our hedges due to the
improvement in benchmark commodity prices and to $12.9 million in
realized losses on derivative settlements during the quarter. Loss
on derivatives for the three months ended September 30, 2020 was
approximately $7.4 million, of which $13.0 million was a non-cash
mark-to-market loss, partially offset by $5.6 million in realized
gains.
2021 Capital Program & Capital
Resources
Due to strengthening oil prices in 2021, and our
identification of more cost-efficient methods of drilling and
completing our Permian Basin wells, in the second quarter of 2021,
we resumed a conservative, one-rig drilling program in the Southern
Delaware Basin. In May 2021, we began drilling the first of three
single-pad wells originally planned in the Permian region. Based on
recent success by other operators adjacent to our position, we
decided to drill one of the three wells in this first pad to the
Second Bone Spring formation, which is our first well drilled to
that formation. Due to the success and efficiency in the drilling
of these first three wells and the improved oil price market, we
commenced spudding a second three-well pad in July 2021 as part of
our 2021 Permian drilling program. The first two wells, both
drilled to the Wolfcamp A formation, were drilled to an average
total measured depth of 20,440 feet with an average lateral length
of 9,700 feet and 48 stages of fracture stimulation. The third
well, drilled to the Second Bone Spring formation, was drilled to a
total measured depth of 19,090 feet with a lateral length of 9,574
feet and 47 stages of fracture stimulation. These three wells were
brought online in mid-October and are still being evaluated at this
time. We plan to begin completion operations on the second three
wells in late November, with first production expected in January
2022.
Capital costs for the three months ended
September 30, 2021 were approximately $12.2 million and included
$8.0 million in expenditures related to the drilling of the
Southern Delaware Basin wells and $3.8 million in expenditures
related to redevelopment activities on recently acquired properties
in our Midcontinent, Permian and Rockies regions. We also incurred
$0.4 million in expenditures in unproved offshore prospect costs
during the third quarter of 2021.
We currently forecast our total 2021 capital
expenditure budget to be approximately $30.0 - $34.0 million,
including planned expenditures for the recompletion and
redevelopment of shut-in wells acquired in the Mid-Con Acquisition,
the Silvertip Acquisition, and the Wind River Basin Acquisition,
facility upgrades in numerous areas, waterflood development in our
Mid-Continent region and select drilling in the West Texas Permian
(expected 3 net locations, 6 gross locations), among other things.
This forecast does not account for the Pending Independence Merger.
The capital expenditure program will continue to be evaluated for
revision throughout the remainder of the year. We believe that we
will have the financial resources to further increase the currently
planned 2021 capital expenditure budget, when and if deemed
appropriate, including as a result of changes in commodity prices,
economic conditions or operational factors.
On August 6, 2021, we received notice from the
Small Business Administration that our loan received from the
Paycheck Protection Program in 2020 for approximately $3.4 million
was forgiven in its entirety. For the three and nine months ended
September 30, 2021, we recorded other income of $3.4 million for
the loan forgiveness within “Gain on extinguishment of debt” on our
consolidated statements of operations. See Note 10 – “Long-Term
Debt” in our recently filed Form 10-Q for the third quarter of 2021
for further information.
As of September 30, 2021, we had $118.0 million
outstanding under the Company’s Credit Agreement, $2.9 million in
outstanding letters of credit and borrowing availability of
approximately $129.1 million. The Credit Agreement matures on
September 17, 2024. We were in compliance with the covenants
to our Credit Agreement as of September 30, 2021.
In light of the Pending Independence Merger, on
October 28, 2021, the Company and the lenders under its Credit
Agreement entered into a waiver letter which, among other things,
postpones the November scheduled redetermination of the Company’s
borrowing base until on or about February 1, 2022. See Note 10 –
“Long-Term Debt” and Note 13 – “Subsequent Events” in our recently
filed Form 10-Q for the third quarter of 2021 for further
information.
Derivative Instruments
As of September 30, 2021, we had the following
financial derivative contracts in place with members of our bank
group, or with third-party counterparties under an unsecured line
of credit with no collateral requirements or margin call
provisions.
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Weighted Average |
Commodity |
|
Period |
|
Derivative |
|
Volume/Quarter |
|
Price/Unit |
Oil |
|
Q4 2021 |
|
Swap |
|
547,251 |
|
Bbls |
|
$ |
57.06 |
(1) |
Oil |
|
Q1 2022 |
|
Swap |
|
585,000 |
|
Bbls |
|
$ |
56.34 |
(1) |
Oil |
|
Q2 2022 |
|
Swap |
|
473,000 |
|
Bbls |
|
$ |
52.92 |
(1) |
Oil |
|
Q3 2022 |
|
Swap |
|
417,000 |
|
Bbls |
|
$ |
51.27 |
(1) |
Oil |
|
Q4 2022 |
|
Swap |
|
407,000 |
|
Bbls |
|
$ |
51.86 |
(1) |
Oil |
|
Q1 2023 |
|
Swap |
|
380,000 |
|
Bbls |
|
$ |
53.15 |
(1) |
Oil |
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Q2 2023 |
|
Swap |
|
150,000 |
|
Bbls |
|
$ |
58.43 |
(1) |
Oil |
|
Q4 2021 |
|
Collar |
|
60,251 |
|
Bbls |
|
$ |
52.00 |
- |
58.80 |
(1) |
Natural Gas |
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Q4 2021 |
|
Swap |
|
3,975,000 |
|
MMBtus |
|
$ |
2.89 |
(2) |
Natural Gas |
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Q1 2022 |
|
Swap |
|
3,990,000 |
|
MMBtus |
|
$ |
2.78 |
(2) |
Natural Gas |
|
Q2 2022 |
|
Swap |
|
4,375,000 |
|
MMBtus |
|
$ |
2.77 |
(2) |
Natural Gas |
|
Q3 2022 |
|
Swap |
|
3,650,000 |
|
MMBtus |
|
$ |
2.73 |
(2) |
Natural Gas |
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Q4 2022 |
|
Swap |
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3,800,000 |
|
MMBtus |
|
$ |
2.57 |
(2) |
Natural Gas |
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Q1 2023 |
|
Swap |
|
2,850,000 |
|
MMBtus |
|
$ |
2.73 |
(2) |
Natural Gas |
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Q2 2023 |
|
Swap |
|
3,000,000 |
|
MMBtus |
|
$ |
2.73 |
(2) |
Natural Gas |
|
Q4 2021 |
|
Collar |
|
400,000 |
|
MMBtus |
|
$ |
3.00 |
- |
3.41 |
(2) |
Natural Gas |
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Q1 2022 |
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Collar |
|
510,000 |
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MMBtus |
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$ |
3.00 |
- |
3.41 |
(2) |
Natural Gas |
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Q1 2023 |
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Collar |
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550,000 |
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MMBtus |
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$ |
2.63 |
- |
3.01 |
(2) |
__________________________(1) Based on West
Texas Intermediate crude oil prices. (2) Based on
Henry Hub NYMEX natural gas prices.
As of September 30, 2021, the mark to market
value of our hedge portfolio was a net liability of $94.2 million,
as reflected in the Company’s balance sheet as of September 30,
2021.
As of September 30, 2021, the Company’s oil
derivative contracts include hedges for 0.6 MMBbls of remaining
2021 production with an average floor price of $56.56 per barrel,
1.9 MMBbls of 2022 production with an average floor price of $53.39
per barrel and 0.5 MMBbls of production during the first half of
2023 with an average floor price of $54.64 per barrel. As of
September 30, 2021, the Company’s natural gas derivative contracts
include 4.4 Bcf of remaining 2021 production with an average floor
price of $2.90 per MMBtu, 16.3 Bcf of 2022 production with an
average floor price of $2.78 per MMBtu and 6.4 Bcf of natural gas
during the first half of 2023 at an average floor price of $2.72
per MMBtu. Approximately 95% of the Company’s hedges are swaps, and
the Company has no three-way collars or short puts.
Selected Financial and Operating Data
The following table reflects certain comparative
financial and operating data for the three and nine months ended
September 30, 2021 and 2020:
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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% Change |
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2021 |
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2020 |
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% Change |
Total Volumes Sold: |
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Oil and condensate (MBbls) |
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832 |
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443 |
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88 |
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% |
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2,373 |
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1,309 |
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81 |
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% |
Natural gas (MMcf) |
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7,056 |
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4,953 |
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42 |
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% |
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17,081 |
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15,068 |
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13 |
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% |
Natural gas liquids (MBbls) |
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418 |
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318 |
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31 |
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% |
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1,175 |
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956 |
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23 |
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% |
Thousand barrels of oil equivalent (MBoe) |
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2,426 |
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1,587 |
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53 |
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% |
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6,395 |
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4,776 |
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34 |
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% |
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Daily Sales Volumes: |
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Oil and condensate (MBbls) |
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9.0 |
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4.8 |
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88 |
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% |
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8.7 |
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4.8 |
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81 |
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% |
Natural gas (MMcf) |
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76.7 |
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53.8 |
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43 |
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% |
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62.6 |
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55.0 |
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14 |
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% |
Natural gas liquids (MBbls) |
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4.5 |
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3.5 |
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29 |
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% |
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4.3 |
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3.5 |
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23 |
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% |
Thousand barrels of oil equivalent (MBoe) |
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26.4 |
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17.2 |
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53 |
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% |
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23.4 |
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17.4 |
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34 |
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% |
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Average Sales Price: |
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Oil and condensate (per Bbl) |
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$ |
67.39 |
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$ |
39.30 |
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71 |
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% |
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$ |
62.89 |
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$ |
36.76 |
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71 |
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% |
Natural gas (per Mcf) |
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$ |
3.72 |
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$ |
1.60 |
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133 |
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% |
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$ |
3.25 |
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$ |
1.51 |
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115 |
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% |
Natural gas liquids (per Bbl) |
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$ |
36.30 |
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$ |
15.73 |
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131 |
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% |
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$ |
30.42 |
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$ |
12.47 |
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144 |
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% |
Total (per Boe) |
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$ |
40.18 |
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$ |
19.13 |
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|
110 |
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% |
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$ |
37.62 |
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$ |
17.33 |
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|
117 |
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% |
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Average Selected Costs ($ per
Boe) |
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Operating expenses (1) |
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$ |
15.64 |
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$ |
8.23 |
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|
90 |
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% |
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$ |
14.40 |
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$ |
9.38 |
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54 |
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% |
Production and ad valorem taxes |
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$ |
2.86 |
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$ |
0.97 |
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195 |
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% |
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$ |
2.63 |
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$ |
0.86 |
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|
206 |
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% |
General and administrative expense (cash) |
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$ |
4.70 |
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$ |
4.37 |
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8 |
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% |
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$ |
4.90 |
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$ |
4.57 |
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7 |
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% |
Interest expense |
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$ |
0.66 |
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$ |
0.67 |
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(1 |
) |
% |
|
$ |
0.65 |
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$ |
0.93 |
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(30 |
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% |
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Net Loss (thousands) |
|
$ |
(15,200 |
) |
|
$ |
(6,805 |
) |
|
|
|
|
$ |
(52,135 |
) |
|
$ |
(140,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAX (2)
(thousands) |
|
$ |
31,610 |
|
|
$ |
15,827 |
|
|
|
|
|
$ |
84,734 |
|
|
$ |
36,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares
Outstanding (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
199,136 |
|
|
|
131,686 |
|
|
|
|
|
|
196,867 |
|
|
|
131,493 |
|
|
|
|
Diluted |
|
|
199,136 |
|
|
|
131,686 |
|
|
|
|
|
|
196,867 |
|
|
|
131,493 |
|
|
|
|
_____________________________(1) Operating
expense includes direct lease operating expenses, transportation,
workover and other expense for plants and
pipelines.(2) Adjusted EBITDAX is a non-GAAP
financial measure. See below for reconciliation to net loss.
|
CONTANGO OIL & GAS COMPANYCONDENSED CONSOLIDATED BALANCE
SHEETS(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2021 |
|
2020 |
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,084 |
|
|
$ |
1,383 |
|
Accounts receivable, net |
|
|
101,271 |
|
|
|
37,862 |
|
Current derivative asset |
|
|
— |
|
|
|
2,996 |
|
Other current assets |
|
|
7,372 |
|
|
|
4,565 |
|
Net property and equipment |
|
|
443,928 |
|
|
|
101,903 |
|
Non-current assets |
|
|
17,428 |
|
|
|
21,558 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
573,083 |
|
|
$ |
170,267 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY |
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
|
173,608 |
|
|
|
83,970 |
|
Current derivative
liability |
|
|
71,702 |
|
|
|
1,317 |
|
Current asset retirement
obligations |
|
|
5,193 |
|
|
|
4,249 |
|
Long-term debt |
|
|
118,000 |
|
|
|
12,369 |
|
Long-term derivative
liability |
|
|
22,467 |
|
|
|
1,648 |
|
Asset retirement
obligations |
|
|
126,076 |
|
|
|
48,523 |
|
Lease liabilities |
|
|
3,673 |
|
|
|
2,624 |
|
Total shareholders’
equity |
|
|
52,364 |
|
|
|
15,567 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES &
SHAREHOLDERS’ EQUITY |
|
$ |
573,083 |
|
|
$ |
170,267 |
|
|
|
|
|
|
|
|
|
|
|
CONTANGO OIL & GAS COMPANYCONSOLIDATED STATEMENTS OF
OPERATIONS(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
(unaudited) |
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
Oil and condensate sales |
|
$ |
56,044 |
|
|
$ |
17,415 |
|
|
$ |
149,246 |
|
|
$ |
48,127 |
|
Natural gas sales |
|
|
26,241 |
|
|
|
7,930 |
|
|
|
55,556 |
|
|
|
22,718 |
|
Natural gas liquids sales |
|
|
15,175 |
|
|
|
5,003 |
|
|
|
35,735 |
|
|
|
11,918 |
|
Other operating revenues |
|
|
2,467 |
|
|
|
1,000 |
|
|
|
2,980 |
|
|
|
1,000 |
|
Total revenues |
|
|
99,927 |
|
|
|
31,348 |
|
|
|
243,517 |
|
|
|
83,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
44,916 |
|
|
|
14,586 |
|
|
|
108,901 |
|
|
|
48,859 |
|
Exploration expenses |
|
|
174 |
|
|
|
(227 |
) |
|
|
458 |
|
|
|
11,344 |
|
Depreciation, depletion and amortization |
|
|
9,792 |
|
|
|
6,185 |
|
|
|
30,391 |
|
|
|
24,131 |
|
Impairment and abandonment of oil and natural gas properties |
|
|
258 |
|
|
|
47 |
|
|
|
712 |
|
|
|
145,925 |
|
General and administrative expenses |
|
|
14,599 |
|
|
|
8,699 |
|
|
|
39,441 |
|
|
|
24,186 |
|
Total expenses |
|
|
69,739 |
|
|
|
29,290 |
|
|
|
179,903 |
|
|
|
254,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investment in affiliates, net of income taxes |
|
|
(1,093 |
) |
|
|
(126 |
) |
|
|
(1,897 |
) |
|
|
(13 |
) |
Gain from sale of assets |
|
|
113 |
|
|
|
38 |
|
|
|
461 |
|
|
|
4,471 |
|
Interest expense |
|
|
(1,598 |
) |
|
|
(1,057 |
) |
|
|
(4,156 |
) |
|
|
(4,421 |
) |
Gain (loss) on derivatives, net |
|
|
(48,390 |
) |
|
|
(7,369 |
) |
|
|
(117,951 |
) |
|
|
30,526 |
|
Gain on extinguishment of debt |
|
|
3,369 |
|
|
|
— |
|
|
|
3,369 |
|
|
|
— |
|
Other income |
|
|
1,145 |
|
|
|
319 |
|
|
|
3,714 |
|
|
|
1,456 |
|
Total other income (expense) |
|
|
(46,454 |
) |
|
|
(8,195 |
) |
|
|
(116,460 |
) |
|
|
32,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME
TAXES |
|
|
(16,266 |
) |
|
|
(6,137 |
) |
|
|
(52,846 |
) |
|
|
(138,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision) |
|
|
1,066 |
|
|
|
(668 |
) |
|
|
711 |
|
|
|
(1,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(15,200 |
) |
|
$ |
(6,805 |
) |
|
$ |
(52,135 |
) |
|
$ |
(140,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
This news release includes certain non-GAAP
financial information as defined by the U.S. Securities and
Exchange Commission (the “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, impairment of properties and oil and gas exploration
expenses (“EBITDAX”) as further adjusted to reflect the items set
forth in the table below and is a measure required to be used in
determining our compliance with financial covenants under our
credit facility. Recurring Adjusted EBITDAX represents Adjusted
EBITDAX exclusive of non-recurring business combination and
strategic advisory fees and legal judgments.
We have included Adjusted EBITDAX in this
release to provide investors with a supplemental measure of our
operating performance and information about the calculation of some
of the financial covenants that are contained in our credit
agreement. We believe Adjusted EBITDAX is an important supplemental
measure of operating performance because it eliminates items that
have less bearing on our operating performance and therefore
highlights trends in our core business that may not otherwise be
apparent when relying solely on GAAP financial measures. We also
believe that securities analysts, investors and other interested
parties frequently use Adjusted EBITDAX in the evaluation of
companies, many of which present Adjusted EBITDAX when reporting
their results. Adjusted EBITDAX is a material component of the
covenants that are imposed on us by our credit agreement. We are
subject to financial covenant ratios that are calculated by
reference to Adjusted EBITDAX. Non-compliance with the financial
covenants contained in our credit agreement could result in a
default, an acceleration in the repayment of amounts outstanding
and a termination of lending commitments. Our management and
external users of our financial statements, such as investors,
commercial banks, research analysts and others, also use Adjusted
EBITDAX to assess:
- the financial performance of our
assets without regard to financing methods, capital structure or
historical cost basis;
- the ability of our assets to
generate cash sufficient to pay interest costs and support our
indebtedness;
- our operating performance and
return on capital as compared to those of other companies in our
industry, without regard to financing or capital structure;
and
- the feasibility of acquisitions and
capital expenditure projects and the overall rates of return on
alternative investment opportunities.
The following table reconciles net loss to
EBITDAX, Adjusted EBITDAX and Recurring Adjusted EBITDAX for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
(in thousands) |
Net loss |
|
$ |
(15,200 |
) |
|
$ |
(6,805 |
) |
|
$ |
(52,135 |
) |
|
$ |
(140,094 |
) |
Interest expense |
|
|
1,598 |
|
|
|
1,057 |
|
|
|
4,156 |
|
|
|
4,421 |
|
Income tax provision
(benefit) |
|
|
(1,066 |
) |
|
|
668 |
|
|
|
(711 |
) |
|
|
1,431 |
|
Depreciation, depletion and
amortization |
|
|
9,792 |
|
|
|
6,185 |
|
|
|
30,391 |
|
|
|
24,131 |
|
Impairment of oil and natural
gas properties |
|
|
— |
|
|
|
60 |
|
|
|
178 |
|
|
|
145,938 |
|
Exploration expense |
|
|
174 |
|
|
|
(227 |
) |
|
|
458 |
|
|
|
11,344 |
|
EBITDAX |
|
$ |
(4,702 |
) |
|
$ |
938 |
|
|
$ |
(17,663 |
) |
|
$ |
47,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash mark-to-market loss
(gain) on derivative instruments |
|
$ |
35,500 |
|
|
$ |
13,037 |
|
|
$ |
96,240 |
|
|
$ |
(8,155 |
) |
Non-cash stock-based
compensation charges |
|
|
3,201 |
|
|
|
1,764 |
|
|
|
8,090 |
|
|
|
2,378 |
|
Loss (gain) on sale of assets
and investment in affiliates |
|
|
980 |
|
|
|
88 |
|
|
|
1,436 |
|
|
|
(4,458 |
) |
Gain on extinguishment of
debt |
|
|
(3,369 |
) |
|
|
— |
|
|
|
(3,369 |
) |
|
|
— |
|
Adjusted EBITDAX |
|
$ |
31,610 |
|
|
$ |
15,827 |
|
|
$ |
84,734 |
|
|
$ |
36,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring business
combination expenses and strategic fees |
|
$ |
2,914 |
|
|
$ |
326 |
|
|
$ |
6,667 |
|
|
$ |
2,553 |
|
Non-recurring legal
judgments |
|
|
708 |
|
|
|
90 |
|
|
|
708 |
|
|
|
246 |
|
Recurring Adjusted EBITDAX |
|
$ |
35,232 |
|
|
$ |
16,243 |
|
|
$ |
92,109 |
|
|
$ |
39,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, net income before income taxes adjusted for
pre-tax, non-cash mark-to-market losses related to commodity price
derivatives, 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.
Teleconference Call
In light of the previously announced Special
Meeting of Shareholders of Contango scheduled to be held on
December 6, 2021, whereby Contango shareholders will vote on the
Proposed Merger with Independence Energy, LLC, the Company will not
host a conference call to discuss the contents of the third quarter
earnings release.
About Contango Oil & Gas Company
Contango Oil & Gas Company is a Fort
Worth, Texas based, independent oil and natural gas company whose
business is to maximize production and cash flow from its onshore
properties primarily located in its Midcontinent, Permian, Rockies
and other smaller onshore areas and its offshore properties in the
shallow waters of the Gulf of Mexico and utilize that cash flow to
explore, develop and acquire oil and natural gas properties across
the United States. 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 offering
or solicitation material in respect of the proposed merger (the
“Proposed Merger”). The Proposed Merger will be submitted to the
stockholders of Contango for their consideration. In connection
with the Proposed Merger, New PubCo and Contango have filed (1) a
definitive proxy statement/prospectus (the “Proxy
Statement/Prospectus”) with the SEC in connection with the Company
Stockholder Approval (as defined in the Transaction Agreement) and
(2) a registration statement on Form S-4 (the “Registration
Statement”) with the SEC, in which the Proxy Statement/Prospectus
is included as a prospectus of New PubCo. New PubCo and Contango
also intend to file other relevant documents with the SEC regarding
the Proposed Merger. The definitive Proxy Statement/Prospectus has
been mailed to Contango’s stockholders. BEFORE MAKING ANY VOTING OR
INVESTMENT DECISION WITH RESPECT TO THE PROPOSED MERGER, INVESTORS
AND STOCKHOLDERS OF CONTANGO ARE URGED TO READ THE DEFINITIVE 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 Proxy Statement/Prospectus, any amendments
or supplements thereto and other relevant materials, may be
obtained with the SEC free of charge at the SEC’s website at
www.sec.gov.
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
Independence, Contango 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 Proposed Merger. Information regarding Contango’s
directors and executive officers is available in its Proxy
Statement on Schedule 14A for its 2021 Annual Meeting of
Stockholders, filed with the SEC on April 30, 2021 and in its
Annual Report on Form 10-K for the year ended December 31, 2020,
filed with the SEC on March 10, 2021. Information regarding
Independence’s directors and executive officers is available in the
Registration Statement. These documents may be obtained free of
charge from the SEC’s website at www.sec.gov. Other information
regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security
holdings or otherwise, is also contained in the Form S-4, the Proxy
Statement/Prospectus and other relevant materials relating to the
Proposed Merger to be filed with the SEC when they become
available. Stockholders, potential investors and other readers
should read the Proxy Statement/Prospectus carefully 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 Independence
Merger and Wind River Basin Acquisition, the Company’s drilling
program and capital expenditures and the potential timing and
success related to those expenditures, including the timing of
expected production and expected well lateral lengths, our
liquidity and access to capital, expected overall drilling costs,
lease operating cost and G&A costs, the potential impact of the
COVID-19 pandemic including reduced demand for oil and natural gas,
the volatile commodity price environment, the impact of our
derivative instruments, the accuracy of our projections of future
production, future results of operations, ability to identify,
complete and integrate acquisitions, ability to realize expected
benefits of acquisitions, the quality and nature of the asset base,
the assumptions upon which estimates are based and other
expectations, beliefs, plans, objectives, assumptions, strategies
or statements about future events or performance. Words and phrases
used to identify our forward-looking statements include terms such
as “guidance”, “expects”, “projects”, “anticipates”, “believes”,
“plans”, “estimates”, “potential”, “possible”, “probable”,
“intends”, “forecasts”, “view”, “efforts”, “goal”, “positions”,
“future” or words and phrases stating that certain actions, events
or results “may”, “will”, “should”, or “could” be taken, occur or
be achieved. Statements concerning oil and gas reserves also may be
deemed to be forward-looking statements in that they reflect
estimates based on certain assumptions that the resources involved
can be economically exploited. Forward-looking statements are based
on current expectations, estimates and projections that involve a
number of risks and uncertainties, which could cause actual results
to differ materially from those reflected in the statements. These
risks include, but are not limited to: the risks of the oil and gas
industry (for example, operational risks in exploring for,
developing and producing crude oil and natural gas; risks and
uncertainties involving geology of oil and gas deposits; the
uncertainty of reserve estimates; the uncertainty of estimates and
projections relating to future production, costs and expenses;
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures; health, safety and
environmental risks and risks related to weather such as hurricanes
and other natural disasters); risks related to drilling into
formations that are new to us; risks related to the Pending
Independence Merger, including the risk that the transaction will
not be completed on the timeline or terms currently contemplated,
the businesses and assets will not be integrated successfully, that
the anticipated cost savings, synergies, intrinsic value, access to
capital and growth from the transactions may not be fully realized
or may take longer to realize than expected, and that management
attention will be diverted; potential liability resulting from any
future litigation related to the Pending Independence Merger and
the Wind River Basin Acquisition; risks related to the Silvertip
Acquisition, the Mid-Con Acquisition and the Wind River Basin
Acquisition, including the risk that the anticipated benefits from
those acquisitions may not be fully realized or may take longer to
realize than expected, and that management attention will be
diverted to integration-related issues; risks related to the impact
of the climate change initiative by President Biden’s
administration and Congress, including, as an example, the January
2021 executive order imposing a moratorium on new oil and natural
gas leasing on federal lands and offshore waters pending completion
of a comprehensive review and reconsideration of federal oil and
natural gas permitting and leasing practices; 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; fluctuations in commodity prices; 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 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 impact of
the COVID-19 pandemic, including reduced demand for oil and natural
gas, economic slowdown, governmental and societal actions taken in
response to the COVID-19 pandemic, stay-at-home orders and
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, 2020 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.
Contact:Contango Oil & Gas
Company E. Joseph Grady – 713-236-7400Senior Vice President and
Chief Financial and Accounting Officer
Contango Oil and Gas (AMEX:MCF)
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