Contango Announces Amendment to its Senior Credit Facility, Certain Operational Updates and the Schedule for its First Quarter 2020 Earnings Release
June 16, 2020
Source: GlobeNewswire
Contango Oil & Gas Company (NYSE American: MCF) (“Contango” or the “Company”) announced today that it has amended certain provisions of its senior credit agreement, results of recent drilling activity and production for the first quarter of 2020, and the expected schedule for its release of first quarter 2020 earnings and related earnings conference call.
Credit Agreement Amendment
On June 9, 2020, the Company entered into the Second Amendment (Credit Agreement Amendment) to the Credit Agreement, dated as of September 17, 2019, by and among the Company, JPMorgan Chase Bank, N.A., as administrative agent, and the other participating lenders thereto. The Credit Agreement Amendment provides for, among other things, a slight increase in the applicable margin of the borrowing base utilization-based pricing grid, a reduction of the borrowing base to $95.0 million on the effective date of the Credit Agreement Amendment, with further $10.0 million automatic borrowing base reductions on each of June 30, 2020 and September 30, 2020, the suspension of testing the current ratio financial covenant until the fiscal quarter ending March 31, 2022. and certain other changes that are more administrative in nature. While the reduction in the borrowing base reflects the dramatic decline in commodity prices the energy sector has experienced during the first half of 2020, the Company continues to maintain a good working relationship with its banks, and with the current ratio covenant waived by the banks until the quarter ending March 31, 2022, believes that it will be positioned to continue its previously disclosed business strategy for 2020. A copy of the Credit Agreement Amendment will be filed on a Form 8-K.
Operational Update
Drilling of Iron Flea Prospect
On Friday, June 12, 2020, the Company reached target depth on the drilling of its previously announced Iron Flea exploratory prospect in the Grand Isle 45 area of the shallow waters of the Gulf of Mexico, and the prospect ended up being unsuccessful. Wilkie Colyer, the Company’s President and CEO, stated, “We are obviously disappointed by the Iron Flea exploratory prospect’s results. Exploration drilling offshore is risky in that these types of things can happen with greater frequency than one would encounter in most onshore, unconventional basins, but we also believe it is well worth the risk. We expect to continue to pursue these types of opportunities in the future with our partners.”
First Quarter 2020 Production
The Company produced an estimated 18,900 barrels of oil equivalent per day during the first quarter of 2020, consisting of approximately 5,719 barrels of oil per day, 3,655 barrels of natural gas liquids per day and 57,159 mmcf of natural gas per day. First quarter production is slightly over three times the 5,893 barrels of oil equivalent per day produced in the first quarter of 2019, an increase due primarily to the White Star Petroleum and Will Energy acquisitions in the fourth quarter of 2019. Estimated first quarter 2020 production is also at the upper end of the guidance of 14,000-19,000 barrels of oil equivalent given for the quarter. Production guidance for the second quarter of 2020 is currently forecasted at a range of 13,000 – 16,000 barrels of oil equivalent, a decline from the first quarter due to to normal field decline and workover related downtime. Oil sales for the second quarter will also be impacted by the Company proactively diverting an approximate 50,000 barrels of April and May oil production to Company storage, as oil prices declined dramatically in the first quarter, with the expectation that those stored barrels will be sold in the third quarter of 2020 at meaningfully higher prices reflected in the current oil futures price forecast.
First Quarter 2020 Earnings Release Schedule
In anticipation of delays expected in finalizing its earnings for the first quarter due to stay-at-home mandates related to COVID-19 and related matters, the Company timely filed an extension for filing its Quarterly Report on Form 10-Q for first quarter of 2020. The Company currently plans to release its first quarter 2020 earnings prior to market opening on Monday, June 22, 2020, and will host a conference call with investors immediately thereafter.
Management Commentary
Wilkie S. Colyer, the Company's President and Chief Executive Officer, said, “Just about every country on the globe and most business segments have been adversely impacted by the effects of the COVID-19 pandemic. The oil and gas sector has not only suffered from a dramatic decline in the demand for oil and gas due to the pandemic, but also from the oil price war initiated by members of OPEC and Russia as the pandemic started to unfold. Fortunately, the Company is well hedged for 2020 and 2021, quickly reacted to the decline in prices by reducing its capex for 2020 and has a good working relationship with its lenders and the investment community. We remain committed to conservatively managing our liquidity, reducing our costs, pursuing PDP-heavy opportunities under creative arrangements and developing new low-capital cost sources of cash flow growth similar to the management services agreement with Mid-Con Energy Partners that we recently disclosed.”
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, exploit, 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.
Contact:
Contango Oil & Gas Company
E. Joseph Grady – 713-236-7400
Senior Vice President and Chief Financial Officer
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