Contango Oil & Gas Company (NYSE MKT: MCF) (“Contango”) announced today
an operational update for the three months ended December 31, 2015.
Fourth Quarter 2015 Summary
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Estimated production of approximately 8.0 Bcfe for the quarter (87
Mmcfed; 32% liquids); within guidance
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Completion of the Popham #1H well in our North Cheyenne prospect, in
Weston County, Wyoming, testing at a peak 24-hour maximum rate of 970
BOEPD
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Year-end debt of $115.4 million, substantially flat with the third
quarter outstanding balance
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Hedged approximately 60% of forecasted PDP natural gas production for
2016 with a floor price of $2.53/mmbtu
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Received final judgment in our favor on our appeal to the Louisiana
Supreme Court on a previously disclosed legal dispute originally filed
in Jefferson Davis Parish, Louisiana
Management Commentary
Allan D. Keel, the Company’s President and Chief Executive Officer,
said, “We continued to pursue a very conservative strategy during the
fourth quarter due to the challenging commodity price environment. We
completed and placed on production the Popham #1H well, our second of
two wells drilled in our North Cheyenne prospect where we are targeting
the Muddy Sandstone formation. The Popham well had a maximum 24-hour IP
rate of 970 barrels of oil equivalent per day (98% oil), and after
adjusting for down time related to pump installations, produced 26,500
barrels of oil for the first 60 full days of production. That
performance-to-date from the Popham well is very encouraging and
solidifies our increasing enthusiasm for that play. We limited the
expenditure of other capital during the quarter to the acquisition or
renewal of acreage in our existing areas in order to maintain our
healthy balance sheet in this low and uncertain price environment. We
have not yet finalized our 2016 capital program; however, until we see
what we believe to be more stable and optimistic trends for both oil and
natural gas prices, we will continue to be very conservative in our
capital program, and expect to use excess free cash flow to lower our
revolver debt during the year. We believe that 2016 will continue to be
plagued by low natural gas prices, so in January we took advantage of
what we believed to be an attractive market opportunity to acquire
commodity price protection on a significant portion of our forecasted
natural gas production for calendar year 2016. During the year ahead, we
will also continue to focus on being efficient in our operations and
prudent in managing our costs, both in the field and in the office.”
Fourth Quarter Production
Estimated production for the quarter ended December 31, 2015 was
approximately 8.0 Bcfe, or 87 Mmcfed, within our previous guidance of
85-90,000 mcfed for the quarter. Current quarter production was less
than the 9.8 Bcfe, or 106 Mmcfed, for the same period last year due to
the dramatic reduction in our capital expenditure program for 2015. As
we have communicated to the market during the year, we limited our 2015
capital program to only projects that provide strategic value to the
Company, i.e. derisking unproven prospects, testing new concepts on our
existing properties and preserving leaseholds in our existing areas. As
a result of our decision to limit our capex to preserve our financial
flexibility, we conceded that we would emphasize financial strength
rather than pursue flat or increased production in this price
environment. Production for the quarter was approximately 68% natural
gas and 32% oil and natural gas liquids compared to the prior year
quarter of 68% natural gas and 32% crude oil and natural gas liquids.
Natural gas production for the quarter is preliminarily estimated at
approximately 59,300 mmcfed compared to 72,600 mmcfed for the prior year
quarter, and crude oil and natural gas liquids production during the
current period is preliminarily estimated at 2,100 and 2,475 barrels per
day, respectively, compared to 2,942 and 2,664 barrels per day,
respectively for the same quarter last year.
Drilling Activity Update
Our drilling activity during the quarter was designed to maintain a flat
debt level and focus on further delineating our Wyoming acreage.
Muddy Sandstone - Weston County, Wyoming
In late 2014 we acquired the rights to 49,000 gross (35,000 net) acres
in Weston County, Wyoming and have an 80% working interest in the
acreage, commonly referred to as our North Cheyenne prospect. Our
initial discovery well for the prospect, the Elliott #1H, was drilled in
early 2015 and results were announced in June. Following the results of
that well, two additional wells, the Popham #1H and the Christiensen #1H
were drilled in Q3 and Q4 2015. In order to maximize well results, we
experimented with various aspects of the completion and lift on the
Popham well, and deferred the Christiensen completion until results of
the Popham could be evaluated. The Popham well was drilled to a total
measured depth of 13,357 feet with a 6,711 foot effective lateral. The
completion design was enhanced to include 40 stages of frac compared to
25 stages of frac for the Elliott well. The Popham exhibited much
stronger initial flow characteristics and had a maximum 24-hour IP rate
of 970 BOEPD (98% oil) and had an IP 60 of 449 BOEPD; however, the last
30 days have averaged approximately 500 BOEPD due to installation of a
right-sized pump. By comparison, the initial Elliott well had an IP 60
of 302 BOEPD. Based on these encouraging results, the Christiensen well
will be completed in Q1 2016 with more completion enhancements planned.
Drill and complete costs are expected to be below $5MM per well and
early Popham performance data indicates performance exceeding our
original estimated pre-drill type curve of 250 MBO per well. There are
approximately 200-300 Muddy horizontal locations prospective across the
acreage based on three to four wells per 640 acres. Additional
prospective horizons in this area will be evaluated during the
delineation phase with additional log and core data which could also add
significantly to the total number of potential horizontal locations.
Other
As mentioned previously, we have not yet finalized our budget for 2016,
including our capital expenditure plans. We anticipate having that
exercise completed by the end of January, at which time we will share
those plans with the investment community. Also as previously disclosed,
until we see improvement in commodity prices, and stability in those
markets, we will employ a very conservative capital program that is
focused on maintaining our balance sheet strength through the use of
excess cash flow to repay debt outstanding, while selectively derisking
portions of our current portfolio to position us for organic growth once
the price markets improve.
Liquidity
Long-term debt at December 31, 2015 was approximately $115.4
million, all under our revolving credit facility, substantially flat
with the third quarter debt level. At year-end, we had approximately
$72.6 million of availability under our revolver that has a $190 million
borrowing base through April 30, 2016. We believe that our financial
capacity provides us the flexibility to maintain our financial strength
through these difficult times, while also allowing us to prudently
expend capital on projects that can provide future growth in a better
price environment. That capacity also positions us to potentially
exploit stressed or distressed acquisition opportunities that might
arise in the marketplace during 2016.
Derivative Instruments
We took advantage of the strength in the natural gas futures market in
early January to acquire price production, through swaps, for
approximately 60% of our currently forecasted PDP natural gas production
for the 2016 year, with a member of our bank group. Specific amounts
hedged, by month, were as follows:
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Commodity
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Period
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Derivative
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Volume/Month
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Price/Unit (1)
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Natural Gas
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February 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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March 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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April 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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May 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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June 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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July 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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August 2016
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Swap
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250,000 mmbtu
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$2.53/mmbtu
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September 2016
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Swap
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250,000 mmbtu
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$2.53/mmbtu
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October 2016
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Swap
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250,000 mmbtu
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$2.53/mmbtu
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November 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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December 2016
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Swap
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1,300,000 mmbtu
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$2.53/mmbtu
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(1) Commodity derivative based on NYMEX (Henry Hub).
Legal Proceedings
On December 8, 2015 the Supreme Court of Louisiana handed down its
opinion in Hayes Fund for the First United Methodist Church of Welsh,
LLC, et al. vs. Kerr-McGee Rocky Mountain, LLC, et al. reversing the
opinion from the Court of Appeals and reinstated the trial court’s
judgment of dismissal. The Louisiana Supreme Court’s decision brings
proceedings in this case to a close, absolves a subsidiary of the
Company and its co-defendants from liability associated with the case
and nullifies precedent established by the Court of Appeals opinion that
may have been detrimental to the oil and gas industry.
Year-end Earnings Release Schedule
Contango expects to issue its fourth quarter 2015 earnings press release
on Monday, March 14, 2016. In conjunction with the release, Contango
will conduct a conference call to discuss the contents of that release
on Tuesday, March 15, 2016 at 9:30 a.m. Central Daylight Time.
Those interested in participating in the earnings conference call may do
so by calling the following phone number: 1-877-876-9177, (International
1-785-424-1666) and entering the following participation code: 6445139.
A replay of the call will be available from Tuesday, March 15, 2016 at
12:30 p.m. CDT through Tuesday, March 22, 2016 at 12:30 p.m. CDT by
dialing toll free 1-888-203-1112, (International 1-719-457-0820) and
asking for replay ID code 6445139.
This press release contains forward-looking statements regarding
Contango that are intended to be covered by the safe harbor
"forward-looking statements" provided by the Private Securities
Litigation Reform Act of 1995, based on Contango’s current expectations
and includes statements regarding acquisitions and divestitures,
estimates of future production, future results of operations, quality
and nature of the asset base, the assumptions upon which estimates are
based and other expectations, beliefs, plans, objectives, assumptions,
strategies or statements about future events or performance (often, but
not always, using words such as "expects", “projects”, "anticipates",
"plans", "estimates", "potential", "possible", "probable", or "intends",
or stating that certain actions, events or results "may", "will",
"should", or "could" be taken, occur or be achieved). Statements
concerning oil and gas reserves also may be deemed to be forward looking
statements in that they reflect estimates based on certain assumptions
that the resources involved can be economically exploited.
Forward-looking statements are based on current expectations, estimates
and projections that involve a number of risks and uncertainties, which
could cause actual results to differ materially from those, reflected in
the statements. These risks include, but are not limited to: the risks
of the oil and gas industry (for example, operational risks in exploring
for, developing and producing crude oil and natural gas; risks and
uncertainties involving geology of oil and gas deposits; the uncertainty
of reserve estimates; the uncertainty of estimates and projections
relating to future production, costs and expenses; potential delays or
changes in plans with respect to exploration or development projects or
capital expenditures; health, safety and environmental risks and risks
related to weather such as hurricanes and other natural disasters);
uncertainties as to the availability and cost of financing; fluctuations
in oil and gas prices; risks associated with derivative positions;
inability to realize expected value from acquisitions, inability of our
management team to execute its plans to meet its goals, shortages of
drilling equipment, oil field personnel and services, unavailability of
gathering systems, pipelines and processing facilities and the
possibility that government policies may change or governmental
approvals may be delayed or withheld. Additional information on these
and other factors which could affect Contango’s operations or financial
results are included in Contango’s other reports on file with the
Securities and Exchange Commission. Investors are cautioned that any
forward-looking statements are not guarantees of future performance and
actual results or developments may differ materially from the
projections in the forward-looking statements. Forward-looking
statements are based on the estimates and opinions of management at the
time the statements are made. Contango does not assume any obligation to
update forward-looking statements should circumstances or management's
estimates or opinions change. Initial production rates are subject to
decline over time and should not be regarded as reflective of sustained
production levels.
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