10-Q 1 mcf-20190930x10q.htm 10-Q mcf_Current_Folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

Commission file number 001-16317 

 

CONTANGO OIL & GAS COMPANY

(Exact name of registrant as specified in its charter)

 

TEXAS

 

95-4079863

 

 

 

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer
Identification No.)

 

 

 

717 TEXAS AVENUE, SUITE 2900

HOUSTON, TEXAS

 

77002

(Address of principal executive offices)

 

(Zip Code)

 

(713) 236-7400

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.04 per share

MCF

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

 

The total number of shares of common stock, par value $0.04 per share, outstanding as of November 6,  2019 was 89,357,332

 

 

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

    

    

   

Page

PART I—FINANCIAL INFORMATION

 

 

 

 

 

Item 1. 

 

Consolidated Financial Statements

 

 

 

 

Consolidated Balance Sheets (unaudited) as of September 30, 2019 and December 31, 2018

 

3

 

 

Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2019 and 2018

 

4

 

 

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2019 and 2018

 

5

 

 

Consolidated Statement of Shareholders’ Equity (unaudited) for the nine months ended September 30, 2019 and 2018

 

6

 

 

Notes to the Consolidated Financial Statements (unaudited)

 

8

Item 2. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

39

Item 4. 

 

Controls and Procedures

 

39

 

 

 

 

 

PART II—OTHER INFORMATION 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

39

Item 1A. 

 

Risk Factors

 

39

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 3. 

 

Defaults upon Senior Securities

 

39

Item 4. 

 

Mine Safety Disclosures

 

40

Item 5. 

 

Other Information

 

40

Item 6. 

 

Exhibits

 

40

 

All references in this Quarterly Report on Form 10-Q to the “Company”, “Contango”, “we”, “us” or “our” are to Contango Oil & Gas Company and its subsidiaries.

2

Item 1. Consolidated Financial Statements

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2019

    

2018

  

 

 

 

 

 

 

(unaudited)

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,044

 

$

 —

 

Accounts receivable, net

 

 

11,118

 

 

11,531

 

Prepaid expenses

 

 

995

 

 

1,303

 

Current derivative asset

 

 

2,625

 

 

4,600

 

Other current assets

 

 

14,820

 

 

 —

 

Total current assets

 

 

31,602

 

 

17,434

 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

Natural gas and oil properties, successful efforts method of accounting:

 

 

 

 

 

 

 

Proved properties

 

 

1,110,042

 

 

1,095,417

 

Unproved properties

 

 

42,427

 

 

34,612

 

Other property and equipment

 

 

1,331

 

 

1,314

 

Accumulated depreciation, depletion and amortization

 

 

(912,098)

 

 

(898,169)

 

Total property, plant and equipment, net

 

 

241,702

 

 

233,174

 

OTHER NON-CURRENT ASSETS:

 

 

 

 

 

 

 

Investments in affiliates

 

 

5,872

 

 

5,743

 

Long-term derivative asset

 

 

509

 

 

 —

 

Deferred tax asset

 

 

 —

 

 

424

 

Other non-current assets

 

 

1,962

 

 

357

 

Total other non-current assets

 

 

8,343

 

 

6,524

 

TOTAL ASSETS

 

$

281,647

 

$

257,132

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

62,744

 

$

39,506

 

Current derivative liability

 

 

24

 

 

422

 

Current asset retirement obligations

 

 

679

 

 

1,329

 

Current portion of long-term debt

 

 

 —

 

 

60,000

 

Total current liabilities

 

 

63,447

 

 

101,257

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

Long-term debt

 

 

28,100

 

 

 —

 

Asset retirement obligations

 

 

11,636

 

 

12,168

 

Other long-term liabilities

 

 

3,883

 

 

3,318

 

Total non-current liabilities

 

 

43,619

 

 

15,486

 

Total liabilities

 

 

107,066

 

 

116,743

 

COMMITMENTS AND CONTINGENCIES (NOTE 12)

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.04 par value, 789,474 shares authorized, issued and outstanding at September 30, 2019

 

 

32

 

 

 —

 

Common stock, $0.04 par value, 100 million shares authorized, 85,864,463 shares issued and outstanding at September 30, 2019, 39,617,442 shares issued and 34,158,492 shares outstanding at December 31, 2018

 

 

3,423

 

 

1,573

 

Additional paid-in capital

 

 

393,723

 

 

339,981

 

Treasury shares at cost (No shares at September 30, 2019 and 5,458,950 shares at December 31, 2018)

 

 

 —

 

 

(129,030)

 

Accumulated deficit

 

 

(222,597)

 

 

(72,135)

 

Total shareholders’ equity

 

 

174,581

 

 

140,389

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

281,647

 

$

257,132

 

 

The accompanying notes are an integral part of these consolidated financial statements 

3

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2019

    

2018

 

2019

    

2018

 

 

 

(unaudited)

 

(unaudited)

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and condensate sales

 

$

7,281

 

$

8,558

 

$

21,126

 

$

26,976

 

Natural gas sales

 

 

4,293

 

 

7,128

 

 

13,792

 

 

21,585

 

Natural gas liquids sales

 

 

973

 

 

3,822

 

 

4,402

 

 

9,832

 

Total revenues

 

 

12,547

 

 

19,508

 

 

39,320

 

 

58,393

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

5,435

 

 

6,382

 

 

16,321

 

 

19,787

 

Exploration expenses

 

 

218

 

 

425

 

 

691

 

 

1,288

 

Depreciation, depletion and amortization

 

 

8,473

 

 

12,853

 

 

23,602

 

 

32,836

 

Impairment and abandonment of oil and gas properties

 

 

1,336

 

 

72,524

 

 

3,170

 

 

76,628

 

General and administrative expenses

 

 

5,879

 

 

6,724

 

 

15,340

 

 

18,804

 

Total expenses

 

 

21,341

 

 

98,908

 

 

59,124

 

 

149,343

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from investment in affiliates, net of income taxes

 

 

(608)

 

 

(270)

 

 

(151)

 

 

(38)

 

Gain from sale of assets

 

 

192

 

 

498

 

 

601

 

 

11,315

 

Interest expense

 

 

(998)

 

 

(1,411)

 

 

(3,169)

 

 

(4,082)

 

Gain (loss) on derivatives, net

 

 

1,881

 

 

(1,319)

 

 

1,068

 

 

(4,961)

 

Other income

 

 

519

 

 

357

 

 

522

 

 

1,239

 

Total other income (expense)

 

 

986

 

 

(2,145)

 

 

(1,129)

 

 

3,473

 

NET LOSS BEFORE INCOME TAXES

 

 

(7,808)

 

 

(81,545)

 

 

(20,933)

 

 

(87,477)

 

Income tax benefit (provision)

 

 

(30)

 

 

21

 

 

(484)

 

 

(288)

 

NET LOSS

 

$

(7,838)

 

$

(81,524)

 

$

(21,417)

 

$

(87,765)

 

NET LOSS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.19)

 

$

(3.26)

 

$

(0.59)

 

$

(3.52)

 

Diluted

 

$

(0.19)

 

$

(3.26)

 

$

(0.59)

 

$

(3.52)

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

41,786

 

 

25,001

 

 

36,518

 

 

24,910

 

Diluted

 

 

41,786

 

 

25,001

 

 

36,518

 

 

24,910

 

 

The accompanying notes are an integral part of these consolidated financial statements 

4

 

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

(21,417)

 

$

(87,765)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

23,602

 

 

32,836

 

Impairment of natural gas and oil properties

 

 

2,246

 

 

76,175

 

Deferred income taxes

 

 

424

 

 

 —

 

Gain on sale of assets

 

 

(601)

 

 

(11,315)

 

Loss from investment in affiliates

 

 

151

 

 

38

 

Stock-based compensation

 

 

2,193

 

 

3,772

 

Unrealized loss on derivative instruments

 

 

1,068

 

 

2,551

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Decrease in accounts receivable & other receivables

 

 

590

 

 

355

 

Decrease in prepaids

 

 

308

 

 

702

 

Increase in accounts payable & advances from joint owners

 

 

14,871

 

 

3,571

 

Increase in other accrued liabilities

 

 

1,211

 

 

964

 

Increase in income taxes receivable, net

 

 

(454)

 

 

 —

 

Increase (decrease) in income taxes payable, net

 

 

(126)

 

 

208

 

Decrease (increase) in deposits and other

 

 

(14,819)

 

 

3,051

 

Net cash provided by operating activities

 

$

9,247

 

$

25,143

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Natural gas and oil exploration and development expenditures

 

$

(27,309)

 

$

(43,223)

 

Additions to furniture & equipment

 

 

(17)

 

 

 —

 

Sale of oil & gas properties

 

 

10

 

 

21,562

 

Sale of energy credits

 

 

 —

 

 

497

 

Net cash used in investing activities

 

$

(27,316)

 

$

(21,164)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Borrowings under credit facility

 

$

137,655

 

$

182,319

 

Repayments under credit facility

 

 

(169,554)

 

 

(185,928)

 

Net proceeds from equity offerings

 

 

53,650

 

 

 —

 

Purchase of treasury stock

 

 

(236)

 

 

(370)

 

Debt issuance costs

 

 

(1,402)

 

 

 —

 

Net cash provided by (used in) financing activities

 

$

20,113

 

$

(3,979)

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

$

2,044

 

$

 —

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

 —

 

 

 —

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

2,044

 

$

 —

 

 

The accompanying notes are an integral part of these consolidated financial statements 

5

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the nine months ended September 30, 2019

(in thousands, except number of shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A

 

 

 

Additional

 

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Treasury

 

Accumulated

 

Shareholders’

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Stock

    

Deficit

    

Equity

 

 

 

 

 

 

 

 

(unaudited)

 

Balance at December 31, 2018

 

 —

 

$

 —

 

34,158,492

 

$

1,573

 

$

339,981

 

$

(129,030)

 

$

(72,135)

 

$

140,389

 

Equity offering - common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(86)

 

 

 —

 

 

 —

 

 

(86)

 

Treasury shares at cost

 

 —

 

 

 —

 

(49,415)

 

 

 —

 

 

 —

 

 

(186)

 

 

 —

 

 

(186)

 

Restricted shares activity

 

 —

 

 

 —

 

307,650

 

 

12

 

 

(12)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,052

 

 

 —

 

 

 —

 

 

1,052

 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,618)

 

 

(8,618)

 

Balance at March 31, 2019

 

 —

 

$

 —

 

34,416,727

 

$

1,585

 

$

340,935

 

$

(129,216)

 

$

(80,753)

 

$

132,551

 

Equity offering - common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

45

 

 

 —

 

 

 —

 

 

45

 

Treasury shares at cost

 

 —

 

 

 —

 

(16,133)

 

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

(50)

 

Restricted shares activity

 

 —

 

 

 —

 

42,249

 

 

 2

 

 

(2)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

585

 

 

 —

 

 

 —

 

 

585

 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,961)

 

 

(4,961)

 

Balance at June 30, 2019

 

 —

 

$

 —

 

34,442,843

 

$

1,587

 

$

341,563

 

$

(129,266)

 

$

(85,714)

 

$

128,170

 

Equity offering - preferred stock

 

789,474

 

 

32

 

 —

 

 

 —

 

 

7,420

 

 

 —

 

 

 —

 

 

7,452

 

Equity offering - common stock

 

 —

 

 

 —

 

45,922,870

 

 

2,058

 

 

44,181

 

 

 —

 

 

 —

 

 

46,239

 

Treasury shares reissuance

 

 —

 

 

 —

 

5,524,498

 

 

(221)

 

 

 —

 

 

129,266

 

 

(129,045)

 

 

 —

 

Restricted shares activity

 

 —

 

 

 —

 

(25,748)

 

 

(1)

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

558

 

 

 —

 

 

 —

 

 

558

 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(7,838)

 

 

(7,838)

 

Balance at September 30, 2019

 

789,474

 

$

32

 

85,864,463

 

$

3,423

 

$

393,723

 

$

 —

 

$

(222,597)

 

$

174,581

 

 

The accompanying notes are an integral part of these consolidated financial statements 

 

 

 

 

6

 

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the nine months ended September 30, 2018

(in thousands, except number of shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Treasury

 

Retained Earnings

 

Shareholders’

 

 

    

Shares

    

Amount

    

Capital

    

Stock

    

Accumulated (Deficit)

    

Equity

 

 

 

(unaudited)

 

Balance at December 31, 2017

 

25,505,715

 

$

1,223

 

$

302,527

 

$

(128,583)

 

$

49,433

 

$

224,600

 

Treasury shares at cost

 

(16,032)

 

 

 —

 

 

 —

 

 

(71)

 

 

 —

 

 

(71)

 

Restricted shares activity

 

206,114

 

 

 8

 

 

(8)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

1,424

 

 

 —

 

 

 —

 

 

1,424

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

937

 

 

937

 

Balance at March 31, 2018

 

25,695,797

 

$

1,231

 

$

303,943

 

$

(128,654)

 

$

50,370

 

$

226,890

 

Treasury shares at cost

 

(33,703)

 

 

 —

 

 

 —

 

 

(124)

 

 

 —

 

 

(124)

 

Restricted shares activity

 

77,188

 

 

 4

 

 

(4)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

1,584

 

 

 —

 

 

 —

 

 

1,584

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(7,178)

 

 

(7,178)

 

Balance at June 30, 2018

 

25,739,282

 

$

1,235

 

$

305,523

 

$

(128,778)

 

$

43,192

 

$

221,172

 

Treasury shares at cost

 

(27,860)

 

 

 —

 

 

 —

 

 

(175)

 

 

 —

 

 

(175)

 

Restricted shares activity

 

(127,314)

 

 

(6)

 

 

 6

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

764

 

 

 —

 

 

 —

 

 

764

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(81,524)

 

 

(81,524)

 

Balance at September 30, 2018

 

25,584,108

 

$

1,229

 

$

306,293

 

$

(128,953)

 

$

(38,332)

 

$

140,237

 

 

 

The accompanying notes are an integral part of these consolidated financial statements 

 

 

 

7

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Business

 

Contango Oil & Gas Company (collectively with its subsidiaries, “Contango” or the “Company”) is a Houston, Texas based, independent oil and natural gas company. The Company’s business is to maximize production and cash flow from its offshore properties in the shallow waters of the Gulf of Mexico (“GOM”) and onshore Texas and Wyoming properties and use that cash flow to explore, develop, exploit, increase production from and acquire crude oil and natural gas properties across the United States. On June 14, 2019, following approval by the Company’s stockholders at the 2019 annual meeting of stockholders, the Company changed its state of incorporation from the State of Delaware to the State of Texas and increased the Company’s number of authorized shares of common stock from 50 million to 100 million. 

 

In September 2019, the Company entered into a purchase agreement with Will Energy Corporation (“Will Energy”) and a purchase agreement with White Star Petroleum, LLC and certain of its affiliates (collectively, “White Star”) to purchase certain producing assets and undeveloped acreage, primarily in Oklahoma. These transactions closed subsequent to September 30, 2019. See Note 3 – “Acquisitions and Dispositions” for more information.

 

Also in September 2019, the Company entered into a new revolving credit agreement with JPMorgan Chase Bank and other lenders (the “Credit Agreement”). In connection with the entry into the Credit Agreement, the Company repaid all obligations and terminated its previous credit agreement with Royal Bank of Canada, which had an October 1, 2019 maturity. The new revolving credit agreement was amended on November 1, 2019, in conjunction with the closing of the Will Energy and White Star acquisitions on October 25 and November 1, 2019, respectively, to add two additional lenders and increase the borrowing base thereunder to $145 million.  See Note 10 – “Long-Term Debt” for more information.

 

The following table lists the Company’s primary producing areas as of September 30, 2019:

 

Location

    

Formation

Gulf of Mexico

 

Offshore Louisiana - water depths less than 300 feet

Southern Delaware Basin, Pecos County, Texas

 

Wolfcamp A and B

Madison and Grimes counties, Texas

 

Woodbine (Upper Lewisville)

Zavala and Dimmit counties, Texas

 

Buda / Eagle Ford / Georgetown

San Augustine County, Texas

 

Haynesville shale, Mid Bossier shale and James Lime formations

Other Texas Gulf Coast

 

Conventional and smaller unconventional formations

Weston County, Wyoming

 

Muddy Sandstone

Sublette County, Wyoming

 

Jonah Field (1)


(1)

Through a 37% equity investment in Exaro Energy III LLC (“Exaro”). Production associated with this investment is not included in the Company’s reported production results for all periods shown in this report.

 

Since 2016, the Company has been focused on the development of its Southern Delaware Basin acreage in Pecos County, Texas, which is expected to continue to generate positive returns in the current price environment. As of September 30, 2019, the Company was producing from fourteen wells over its approximate 17,400 gross operated  (8,400 total net) acre position in this West Texas area,  prospective for the Wolfcamp A, Wolfcamp B and Second Bone Spring formations. In October 2019, the Company brought two more West Texas wells online and finished completing another West Texas well, which is expected to begin producing in mid-November 2019. Additionally, the Company is currently preparing to begin completion operations on a drilled but uncompleted well which it acquired in connection with the White Star acquisition. See Note 3 – “Acquisitions and Dispositions” for more information.

 

The Company currently plans to limit its near-term drilling program expenditures, in West Texas and other areas, to only those necessary to fulfill leasehold commitments, preserve core acreage and, where determined appropriate to do so, expand its presence in those existing areas, or to add production and cash flow at attractive rates of return. The Company will continue to make balance sheet strength a priority in 2019 and will continue to identify opportunities for cost reductions and operating efficiencies in all areas of its operations, while also searching for new resource acquisition opportunities. Acquisition efforts will be focused on areas in which the Company can leverage its geological and operational experience and expertise to exploit identified drilling opportunities and where it can develop an inventory of additional drilling prospects that the Company believes will enable it to economically grow production and add reserves.

8

 

On September 12, 2019, the Company completed an underwritten public offering (the “Public Offering”) of 51,447,368 shares of its common stock (of which 5,524,498 was reissued treasury shares) for net proceeds of approximately $46.2 million, after deducting the underwriting discount and fees and expenses. Net proceeds from the Series A Private Placement (defined below) and Public Offering were used to fund the cash portion of the purchase price for the Will Energy acquisition and to reduce borrowings under the Company’s revolving credit facility then in effect.

 

In conjunction with the Public Offering, also on September 12, 2019, the Company entered into a purchase agreement with affiliates of John C. Goff, a director and significant shareholder of the Company, to issue and sell in a private placement (the “Series A Private Placement”) 789,474 shares of Series A contingent convertible preferred stock, which resulted in net proceeds of approximately $7.5 million. On November 1, 2019, the Company completed a private placement of 1,102,838 shares of Series B contingent convertible preferred stock, which resulted in net proceeds of approximately $21 million (the “Series B Private Placement”). Net proceeds from the Series B Private Placement were used to fund a portion of the purchase price and related transaction expenses for the White Star acquisition.

 

Each of the series A and series B preferred shares are a new class of equity interests that rank equal to the common shares with respect to dividend rights and rights upon liquidation. The preferred shares will be entitled to vote on an as-converted basis on all matters submitted to a vote of the Company’s stockholders, with voting rights of the series A preferred shares equal to 19.99% of the common shares outstanding prior to the closing of the Public Offering and the series B preferred shares voting on an as-converted basis. Each series A preferred share and series B preferred share will then automatically convert into the number of common shares the purchaser would have received if the purchaser had purchased such common shares in the Public Offering and Series B Private Placement, respectively, for the same gross proceeds (the “Conversion”) and, upon the Conversion, the outstanding preferred shares will be cancelled. As of November 1, 2019, the Company has obtained approval of, or written agreements to approve, such increase in the number of authorized shares, and the issuance of the common shares underlying the series A preferred shares, from holders of a majority of the voting power of its capital stock, and will complete that process as soon as practicably possible. 

 

 

2. Summary of Significant Accounting Policies

 

The accounting policies followed by the Company are set forth in the notes to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”). Please refer to the notes to the financial statements included in the 2018 Form 10-K for additional details of the Company’s financial condition, results of operations and cash flows. No material items included in those notes have changed except as a result of normal transactions in the interim or as disclosed within this interim report.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, pursuant to the rules and regulations of the SEC, including instructions to Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the unaudited consolidated financial statements have been included. All such adjustments are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the 2018 Form 10-K. These unaudited interim consolidated results of operations for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.

 

The Company’s consolidated financial statements include the accounts of Contango Oil & Gas Company and its subsidiaries, after elimination of all material intercompany balances and transactions. All wholly owned subsidiaries are consolidated. The investment in Exaro by the Company’s wholly owned subsidiary, Contaro Company, is accounted for using the equity method of accounting, and therefore, the Company does not include its share of individual operating results or production in those reported for the Company’s consolidated results of operations.

9

Oil and Gas Properties - Successful Efforts

The Company’s application of the successful efforts method of accounting for its natural gas and oil exploration and production activities requires judgment as to whether particular wells are developmental or exploratory, since exploratory costs and the costs related to exploratory wells that are determined to not have proved reserves must be expensed, whereas developmental costs are capitalized. The results from a drilling operation can take considerable time to analyze, and the determination that commercial reserves have been discovered requires both judgment and application of industry experience. Wells may be completed that are assumed to be productive and actually deliver natural gas and oil in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. On occasion, wells are drilled which have targeted geologic structures that are both developmental and exploratory in nature, and in such instances an allocation of costs is required to properly account for the results. Delineation seismic costs incurred to select development locations within a productive natural gas and oil field are typically treated as development costs and capitalized, but often these seismic programs extend beyond the proved reserve areas, and therefore, management must estimate the portion of seismic costs to expense as exploratory. The evaluation of natural gas and oil leasehold acquisition costs included in unproved properties requires management's judgment of exploratory costs related to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

 

Impairment of Long-Lived Assets

 

Pursuant to GAAP, when circumstances indicate that proved properties may be impaired, the Company compares expected undiscounted future cash flows on a field by field basis to the unamortized capitalized cost of the asset. If the estimated future undiscounted cash flows based on the Company’s estimate of future reserves, natural gas and oil prices, operating costs and production levels from oil and natural gas reserves, are lower than the unamortized capitalized cost, then the capitalized cost is reduced to fair value. The factors used to determine fair value include, but are not limited to, estimates of proved, probable and possible reserves, future commodity prices, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties. Additionally, the Company may use appropriate market data to determine fair value. During the nine months ended September 30, 2019, the Company recognized $0.2 million in non-cash proved property impairment related to leases in Wyoming and an onshore non-operated property in an area previously impaired due to revised reserve estimates made during the quarter ended December 31, 2018. No impairment expense was recognized during the three months ended September 30, 2019.

 

During the three and nine months ended September 30, 2018, the Company recognized $72.2 million and $74.9 million in total offshore and onshore non-cash proved property impairment charges, respectively. Included in offshore proved property impairment expense for the three and nine months ended September 30, 2018 was a $59.4 million impairment of the carrying costs of the Company’s Gulf of Mexico properties primarily due to revised proved reserve estimates made during the quarter ended September 30, 2018, as a result of new bottom hole pressure data gathered during the planned installation of a second stage of compression in the Eugene Island 11 field. Offshore non-cash proved property impairment expense for the nine months ended September 30, 2018 included an additional $2.3 million related to the Company’s Vermilion 170 offshore property, which was subsequently sold effective December 1, 2018. The three and nine months ended September 30, 2018 also included onshore proved property impairment expense of $12.8 million and $13.2 million, respectively, substantially all of which was related to the reduction in fair value on certain of the Company’s non-core properties in Southeast Texas, as a result of a planned sale. See Note 3 – “Acquisitions and Dispositions” for further information regarding the sale of these certain non-core properties in Southeast Texas.

 

Unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value of those properties, with any such impairment charged to expense in the period. The Company recognized non-cash impairment expense of approximately $1.2 million and approximately $2.0 million for the three and nine months ended September 30, 2019, respectively,  related to impairment of certain unproved properties primarily due to expiring leases. The Company recognized non-cash impairment expense of approximately $0.1 million and approximately $1.3 million for the three and nine months ended September 30, 2018, respectively, also related to impairment of certain non-core unproved properties primarily due to expiring leases.

 

Net Loss Per Common Share 

 

Basic net loss per common share is computed by dividing the net loss attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net loss per common share reflects the

10

potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Potentially dilutive securities, including unexercised stock options, performance stock units and unvested restricted stock, have not been considered when their effect would be antidilutive. For the three and nine months ended September 30, 2019, the Company excluded 2,621,614 shares or units and 1,115,719 shares or units, respectively, of potentially dilutive securities, as they were antidilutive. For the three and nine months ended September 30, 2018, the Company excluded 884,948 shares or units and 1,328,884 shares or units, respectively, of potentially dilutive securities, as they were antidilutive.

 

Subsidiary Guarantees

 

Contango Oil & Gas Company, as the parent company (the “Parent Company”), has filed a registration statement on Form S-3 with the SEC to register, among other securities, debt securities that the Parent Company may issue from time to time. Any such debt securities would likely be guaranteed on a joint and several and full and unconditional basis by each of the Company’s current subsidiaries and any future subsidiaries specified in any future prospectus supplement (each a “Subsidiary Guarantor”). Each of the Subsidiary Guarantors is wholly owned by the Parent Company, either directly or indirectly. The Parent Company has no assets or operations independent of the Subsidiary Guarantors, and there are no significant restrictions upon the ability of the Subsidiary Guarantors to distribute funds to the Parent Company. The Parent Company has one wholly owned subsidiary that is inactive and not a Subsidiary Guarantor. The Parent Company’s wholly owned subsidiaries do not have restricted assets that exceed 25% of net assets as of the most recent fiscal year end that may not be transferred to the Parent Company in the form of loans, advances or cash dividends by such subsidiary without the consent of a third party.

 

 

 

Revenue Recognition

 

Adoption of ASC 606

 

As of January 1, 2018, the Company adopted Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers (“ASC 606”), which supersedes the revenue recognition requirements and industry-specific guidance under Accounting Standards Codification Topic 605 – Revenue Recognition (“ASC 605”). The Company adopted ASC 606 using the modified retrospective method which allows the Company to apply the new standard to all new contracts entered into after December 31, 2017 and all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance prior to December 31, 2017. The Company identified no material impact on its historical revenues upon initial application of ASC 606, and as such did not recognize any cumulative catch-up effect to the opening balance of the Company’s shareholders’ equity as of January 1, 2018. ASC 606 supersedes previous revenue recognition requirements in ASC 605 and includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

 

Revenue from Contracts with Customers

 

Sales of oil, condensate, natural gas and natural gas liquids (“NGLs”) are recognized at the time control of the products are transferred to the customer. Based upon the Company’s current purchasers’ past experience and expertise in the market, collectability is probable, and there have not been payment issues with the Company’s purchasers over the past year or currently. Generally, the Company’s gas processing and purchase agreements indicate that the processors take control of the gas at the inlet of the plant and that control of residue gas is returned to the Company at the outlet of the plant. The midstream processing entity gathers and processes the natural gas and remits proceeds to the Company for the resulting sales of NGLs. The Company delivers oil and condensate to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes custody, title and risk of loss of the product. 

 

When sales volumes exceed the Company’s entitled share, a production imbalance occurs. If a  production imbalance exceeds the Company’s share of the remaining estimated proved natural gas reserves for a given property, the Company records a liability. Production imbalances have not had and currently do not have a material impact on the financial statements, and this did not change with the adoption of ASC 606.

 

11

Transaction Price Allocated to Remaining Performance Obligations

 

Generally, the Company’s contracts have an initial term of one year or longer but continue month to month unless written notification of termination in a specified time period is provided by either party to the contract. The Company has used the practical expedient in ASC 606 which states that the Company is not required to disclose that transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligation is not required.

 

Contract Balances

 

The Company receives purchaser statements from the majority of its customers, but there are a few contracts where the Company prepares the invoice. Payment is unconditional upon receipt of the statement or invoice. Accordingly, the Company’s product sales contracts do not give rise to contract assets or liabilities under ASC 606. The majority of the Company’s contract pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil or natural gas, and supply and demand conditions. The price of these commodities fluctuates to remain competitive with supply.

 

Prior Period Performance Obligations

 

The Company records revenue in the month production is delivered to the purchaser. Settlement statements may not be received for 30 to 90 days after the date production is delivered, and therefore the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. Differences between the Company’s estimates and the actual amounts received for product sales are generally recorded in the month that payment is received. Any differences between the Company’s revenue estimates and actual revenue received historically have not been significant. The Company has internal controls in place for its revenue estimation accrual process.

 

Impact of Adoption of ASC 606

 

The Company has reviewed all of its natural gas, NGLs, residue gas, condensate and crude oil sales contracts to assess the impact of the provisions of ASC 606. Based upon the Company’s review, there were no required changes to the recording of residue gas or condensate and crude oil contracts. Certain NGL and natural gas contracts would require insignificant changes to the recording of transportation, gathering and processing fees as net to revenue or as an expense. The Company concluded that these minor changes were not material to its operating results on a quantitative or qualitative basis. Therefore, there was no impact to its results of operations for the nine months ended September 30, 2019. The Company has modified procedures to its existing internal controls relating to revenue by reviewing for any significant increase in sales level, primarily on gas processing or gas purchasing contracts, on a quarterly basis to monitor the significance of gross revenue versus net revenue and expenses under ASC 606. As under previous revenue guidance, the Company will continue to review all new or modified revenue contracts on a quarterly basis for proper treatment.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13 – Fair Value Measurement (“Topic 820”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The provisions of this update are not expected to have a material impact on the Company’s financial position or results of operations.

 

3. Acquisitions and Dispositions  

 

On March 28, 2018, the Company sold its operated Eagle Ford Shale assets located in Karnes County, Texas for a cash purchase price of $21.0 million. The Company recorded a net gain of $9.5 million, after final closing adjustments.

 

On May 25, 2018, the Company sold its non-operated assets located in Starr County, Texas for a cash purchase price of $0.6 million. The Company recorded a gain of $1.3 million after removal of the asset retirement obligations associated with the sold properties and final closing adjustments.

12

 

On September 11, 2018, the Company entered into a definitive agreement to divest certain of its non-core assets in Liberty and Hardin counties in Southeast Texas. As a result of the sale, the Company reduced the value of the assets to their purchase price and recorded an impairment of approximately $12.8 million during the three months ended September 30, 2018. The sale was completed on November 2, 2018 for cash proceeds of $6.0 million.

 

On June 10, 2019, the Company sold certain minor, non-core operated assets located in Lavaca and Wharton counties, Texas in exchange for the buyer’s assumption of the plugging and abandonment liabilities of the properties. The Company recorded a gain of $0.4 million after removal of the asset retirement obligations associated with the sold properties.

 

On July 1, 2019, the Company sold certain minor, non-core operated assets located in Frio and Zavala counties, Texas in exchange for the buyer’s assumption of the plugging and abandonment liabilities of the properties. The Company recorded a gain of $0.2 million after removal of the asset retirement obligations associated with the sold properties.

 

On September 12, 2019, the Company announced it entered into a contribution and purchase agreement with Will Energy to acquire approximately 159,872 net acres located in North Louisiana (12,560 net acres) and the Western Anadarko Basin in Western Oklahoma and the Texas Panhandle (147,312 net acres). As of September 30, 2019, the Company paid a $1.6 million deposit which is included in “Other current assets” on the Company’s consolidated balance sheet and as “Decrease (increase) in deposits and other” on the Company’s consolidated statement of cash flows. Closing of the Will Energy acquisition occurred on October 25,  2019, for a total aggregate consideration of $23 million.  Following adjustments for recent sales of non-core, non-operated Louisiana properties by Will Energy, the results of operations for the period between the effective and closing dates, and other estimated, customary closing adjustments, the net consideration paid consisted of $14.75 million in cash, including the $1.6 million deposit, and 3.5 million shares of common stock.

 

On September 30, 2019, the Company entered into an asset purchase and sale agreement with White Star to acquire certain assets and liabilities, including approximately 315,000 net acres located in the STACK, Anadarko and Cherokee operating districts in Oklahoma. As of September 30, 2019, the Company paid a $12.5 million deposit which is included in “Other current assets” on the Company’s consolidated balance sheet and as “Decrease (increase) in deposits and other” on the Company’s consolidated statement of cash flows. Closing of the White Star acquisition occurred on November 1, 2019, for a total aggregate consideration of $132.5 million. Following adjustments for the results of operations for the period between the effective and closing dates, and other estimated, customary closing adjustments, the net consideration paid was approximately $95.6 million in cash, including the $12.5 million deposit. 

 

4. Fair Value Measurements

 

The Company's determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company's consolidated balance sheets, but also the impact of the Company's nonperformance risk on its own liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). A  fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2019.  A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have been no transfers between Level 1, Level 2 or Level 3.

 

13

Fair value information for financial assets and liabilities was as follows as of September 30, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Fair Value Measurements Using

 

 

    

Carrying Value

    

Level 1

    

Level 2

    

Level 3

 

Derivatives

 

 

 

 

 

 

 

 

 

Commodity price contracts - assets

 

$

3,134

 

$

 —

 

$

3,134

 

$

 —

 

Commodity price contracts - liabilities

 

$

(24)

 

$

 —

 

$

(24)

 

$

 —

 

 

Derivatives listed above are recorded in “Current derivative asset or liability” and “Long-term derivative asset” on the Company’s consolidated balance sheet and include swaps and costless collars that are carried at fair value. The Company records the net change in the fair value of these positions in "Gain (loss) on derivatives, net" in its consolidated statements of operations. The Company is able to value the assets and liabilities based on observable market data for similar instruments, which resulted in reporting its derivatives as Level 2. This observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 5 – "Derivative Instruments" for additional discussion of derivatives.

 

As of September 30, 2019, the Company's derivative contracts were all with major institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts discussed above; however, the Company does not anticipate such nonperformance.

 

Estimates of the fair value of financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. The estimated fair value of the Company's Credit Agreement approximates carrying value because the facility interest rate approximates current market rates and is reset at least every quarter.  See Note 10 – “Long-Term Debt” for further information.

 

Impairments

 

The Company tests proved oil and natural gas properties for impairment when events and circumstances indicate a decline in the recoverability of the carrying value of such properties, such as a downward revision of the reserve estimates or lower commodity prices. The Company estimates the undiscounted future cash flows expected in connection with the oil and gas properties on a field by field basis and compares such future cash flows to the unamortized capitalized costs of the properties. If the estimated future undiscounted cash flows are lower than the unamortized capitalized cost, the capitalized cost is reduced to its fair value. The factors used to determine fair value include, but are not limited to, estimates of proved, probable and possible reserves, future commodity prices, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties. Additionally, the Company may use appropriate market data to determine fair value. Because these significant fair value inputs are typically not observable, impairments of long-lived assets are classified as a Level 3 fair value measure.

 

Unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value, with any such impairment charged to expense in the period.

 

Asset Retirement Obligations

 

The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties. The factors used to determine fair value include, but are not limited to, estimated future plugging and abandonment costs and expected lives of the related reserves. As there is no corroborating market activity to support the assumptions used, the Company has designated these liabilities as Level 3.

 

14

5. Derivative Instruments

 

The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk. Derivative contracts are typically utilized to hedge the Company's exposure to price fluctuations and reduce the variability in the Company's cash flows associated with anticipated sales of future oil and natural gas production. The Company typically hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods. The Company believes that these derivative arrangements, although not free of risk, allow it to achieve a more predictable cash flow and to reduce exposure to commodity price fluctuations. However, derivative arrangements limit the benefit of increases in the prices of crude oil, natural gas and natural gas liquids sales. Moreover, because its derivative arrangements apply only to a portion of its production, the Company’s strategy provides only partial protection against declines in commodity prices. Such arrangements may expose the Company to risk of financial loss in certain circumstances. The Company continuously reevaluates its hedging programs in light of changes in production, market conditions and commodity price forecasts.

 

As of September 30, 2019, the Company’s natural gas and oil derivative positions consisted of swaps and costless collars. Swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. A costless collar consists of a purchased put option and a sold call option, which establishes a minimum and maximum price, respectively, that the Company will receive for the volumes under the contract.

 

It is the Company's policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competent and competitive market makers. The Company does not post collateral, nor is it exposed to potential margin calls, under any of these contracts, as they are secured under the Credit Agreement or under unsecured lines of credit with non-bank counterparties. See Note 10 – “Long-Term Debt” for further information regarding the Credit Agreement.

 

The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, derivatives are carried at fair value on the consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the consolidated statements of operations for the period in which the change occurs. The Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Gain (loss) on derivatives, net” on the consolidated statements of operations.

 

15

As of September 30, 2019, the following financial derivative instruments were in place (fair value in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

    

Period

    

Derivative

    

Volume/Month

    

Price/Unit

    

Fair Value

 

Natural Gas

 

Nov 2019 - Dec 2019

 

Swap

 

445,000

Mmbtus

 

$

2.62

(1)

 

$

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil

 

Oct 2019 - Dec 2019

 

Collar

 

7,000

Bbls

 

$

50.00

-

58.00

(2)

 

$

(24)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil

 

Oct 2019 - Dec 2019

 

Collar

 

4,000

Bbls

 

$

52.00

-

59.45

(3)

 

$

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil

 

Oct 2019

 

Swap

 

9,000

Bbls

 

$

72.10

(3)

 

$

162

 

Crude Oil

 

Nov 2019 - Dec 2019

 

Swap

 

12,000

Bbls

 

$

72.10

(3)

 

$

439