Contango Announces Second Quarter 2017 Financial Results and Provides Operational Update

8/3/17

HOUSTON, Aug. 02, 2017 (GLOBE NEWSWIRE) -- Contango Oil & Gas Company (NYSE MKT:MCF) announced today its financial results for the three and six months ended June 30, 2017 and provided an operational update.

Second Quarter Highlights

  • Production of 5.3 Bcfe for the quarter, or 58.0 Mmcfed, within guidance
  • Revenues of $20.3 million for the quarter, up from $19.4 million for the prior year quarter
  • Adjusted EBITDAX of $10.2 million for the quarter and net loss of $6.0 million
  • Brought two additional Southern Delaware Basin wells on production, and are in various stages of drilling/completion on three more

Summary Second Quarter Financial Results

Net loss for the three months ended June 30, 2017 was $6.0 million, or $0.24 per basic and diluted share, compared to a net loss of $17.3 million, or $0.90 per basic and diluted share, for the same period last year. This improvement was attributable primarily to higher revenues from higher commodity prices, lower operating expenses due to cost reduction efforts, lower depreciation, depletion, and amortization (“DD&A”) expense and an improvement in the mark to market valuation of our commodity price hedges. Average weighted shares outstanding were approximately 24.7 million and 19.1 million for the current and prior year quarters, respectively.

Revenues for the current quarter were approximately $20.3 million compared to $19.4 million for the 2016 quarter, despite lower production during the current quarter. The increase in commodity prices was more than sufficient to offset the decline in production resulting from a very limited 2016 drilling program.

The Company reported Adjusted EBITDAX, as defined below, of approximately $10.2 million for the three months ended June 30, 2017, compared to $10.1 million for the same period last year, a slight increase attributable to the increase in revenues and decrease in operating expenses, substantially offset by the decrease in the realized gain on our commodity price hedges.

Production for the second quarter of 2017 was approximately 5.3 Bcfe, or 58.0 Mmcfe per day, within our previously provided guidance, compared to 74.6 Mmcfe per day for the second quarter of 2016. This expected decline in production can be attributed to normal field decline, non-core property sales and 61 days of decreased production rates at Vermilion 170 due to temporary pipeline limitations. The field decline was expected due to minimal new production added from a reduced drilling program during the first half of 2016 in response to the low commodity price environment. Crude oil and natural gas liquids production during the second quarter of 2017 was approximately 3,100 barrels per day, or 32% of total production, compared to approximately 3,800 barrels per day, or 31% of total production, in the second quarter of 2016. Natural gas production during the current quarter was approximately 39.6 Mmcf per day, or 68% of total production, compared to approximately 51.4 Mmcf per day, or 69% of total production, in the previous quarter, a decline also related to the lower onshore capital expenditures in 2016. Our production guidance for the third quarter of 2017 is 56 – 61 Mmcfed, with the mid-point relatively flat with the first and second quarter of 2017 as production from new drilling begins to offset normal field decline. Because new production is primarily liquids, we expect crude oil and natural gas liquids to increase and represent approximately 33% of total production for the third quarter.

The weighted average equivalent sales price during the three months ended June 30, 2017 was $3.84 per Mcfe, compared to $2.85 per Mcfe for the same period last year, as we experienced increases of 9%, 55% and 19% in crude oil, natural gas and natural gas liquids prices, respectively compared to the prior year quarter.

Operating expenses for the three months ended June 30, 2017 were approximately $6.3 million, or $1.20 per Mcfe, compared to $7.0 million, or $1.03 per Mcfe, for the same period last year. Included in operating expenses are direct lease operating expenses, transportation and processing costs, workover expenses and production and ad valorem taxes. Operating expenses for the current quarter, exclusive of production and ad valorem taxes were approximately $5.6 million, or $1.07 per Mcfe, compared to approximately $5.9 million, or $0.86 per Mcfe, for the prior year quarter. Our guidance for operating expenses for the third quarter of 2017, exclusive of production and ad valorem taxes, is between $6.8 to $7.3 million, higher than the recent quarter due to additional workovers scheduled for the upcoming quarter.

DD&A expense for the three months ended June 30, 2017 was $12.7 million, or $2.41 per Mcfe, compared to $17.9 million, or $2.63 per Mcfe, for the prior year quarter, a decrease primarily attributable to lower production during the quarter and the slight improvement in rate.

Impairment and abandonment expense of oil and gas properties was $1.4 million for the current quarter, which related to the partial impairment of two unused offshore platforms. Impairment and abandonment expense of oil and gas properties for the prior year quarter was $1.3 million, with substantially all of that related to non-core, unproved properties and prospects in Fayette and Gonzales counties, Texas.

Total G&A expenses, i.e. inclusive of stock expense, for the three months ended June 30, 2017 were $5.8 million, or $1.11 per Mcfe, compared to $5.4 million, or $0.79 per Mcfe, for the prior year quarter. G&A expenses for the current and prior year quarters, exclusive of $1.6 million and $1.3 million, respectively, in non-cash stock compensation expense, were comparable for both periods. For the third quarter of 2017, we have provided guidance of $4.5 million to $5.1 million for general and administrative expenses, exclusive of non-cash stock compensation (“Cash G&A”).

Gain from affiliates (Exaro Energy III, LLC) for the three months ended June 30, 2017 was approximately $0.2 million, compared to $1.3 million for the same period last year.

2017 Capital Program

Capital costs incurred for the three months ended June 30, 2017 were approximately $13.9 million, including $0.8 million in paid and accrued leasehold acquisition costs and $13.1 million for the drilling and completion of wells in the Southern Delaware Basin in Pecos County, Texas. Our capital expenditure budget for 2017 was originally forecasted to be $46.3 million, including $36.6 million to drill and/or complete nine gross wells (4.0 net) on our Southern Delaware Basin acreage. We have revised our 2017 budget to approximately $55 million, to include an additional $9.0 million in drilling and completion costs for one additional gross well (0.5 net), a saltwater disposal well, and anticipated increases in the cost of vendor goods and services.

As of June 30, 2017, we had approximately $71.3 million of debt outstanding under our credit facility. Effective May, 4, 2017, the borrowing base under our facility was redetermined at $125 million, which reflects the impact of lower commodity prices, our limited drilling program in 2016 as well as no current benefit from our 2017 drilling program as the borrowing base was redetermined based on the 2016 year-end reserves.

Drilling Activity Update

The derisking and development of our Southern Delaware Basin acreage in Pecos County, Texas continued through the second quarter. Specific highlights, through the date of this release, were as follows:

Rude Ram

As previously disclosed, the Rude Ram #1H, our second well in the Southern Delaware Basin, was drilled from a common surface location with the Ripper State #1H targeting the Upper Wolfcamp A. The well was completed in April 2017, and after 30 days of flowback, reached a maximum 24-hour IP rate of 1,304 Boed (69% oil) with a 30 day average rate of 1,065 Boed (68% oil).

Ripper State

As previously disclosed, the Ripper State #1H was drilled from a common surface location with the Rude Ram #1H, targeting the Middle Wolfcamp A. The well was completed in April 2017, and after 30 days of flowback, reached a maximum 24-hour IP rate of 1,131 Boed (73% oil) with a 30 day average rate of 806 Boed (73% oil).

Gunner

The Gunner #2H was drilled to a TMD of 20,430 feet, including a 10,600 foot lateral, targeting the Lower Wolfcamp A. The well has been completed with 50 stages of fracture stimulation and we are currently drilling out the frac plugs to initiate flowback, which is expected to begin in early August.

Crusader and Fighting Ace

Both the Crusader #1H and Fighting Ace #1H were spud in June 2017 from the same pad, allowing us to easily skid the rig from one well to the other. The Crusader is currently drilling at a measured depth of 11,139 feet. Once this well is finished, we will skid back to the Fighting Ace and finish the lateral section. Both wells will be drilled to a total measured depth of approximately 20,000 feet, including a 10,000 foot lateral with 50 stages of frac. Completion operations on both wells are expected to commence in late September, with initial production expected in the fourth quarter.

Upon completion of these two wells, we expect to move the rig to our seventh horizontal well, the Ragin Bull #1H, which will be on the same pad as the Lonestar Gunfighter well.

Management Commentary

Allan D. Keel, the Company’s President and Chief Executive Officer, said “With three wells producing and three more wells scheduled to come on-line soon, we continue to be encouraged by the development of our Southern Delaware Basin acreage. With the Gunner #2H well expected to commence production in early August, our Fighting Ace #1H and Crusader #1H wells expected to commence completion operations later this quarter, and our upcoming drilling schedule, we have budgeted to have eight Southern Delaware Basin wells on production by the end of the year.”

Contango Oil & Gas Company is a Houston, Texas based, independent energy company engaged in the acquisition, exploration, development, exploitation and production of crude oil and natural gas offshore in the shallow waters of the Gulf of Mexico and in the onshore Texas and Rocky Mountain regions of the United States. Additional information is available on the Company's website at http://contango.com

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