UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO FORM 8-K DATED JANUARY 4, 2002
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 8, 2002 (January 4, 2002)
CONTANGO OIL & GAS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 000-24971 95-4079863
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3700 BUFFALO SPEEDWAY, SUITE 960
HOUSTON, TEXAS 77098
(Address of principal executive offices)
(713) 960-1901
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
The undersigned registrant, Contango Oil & Gas Company ("Contango"), hereby
amends Item 7. "Financial Statements, Pro Forma Financial Information and
Exhibits" of its Current Report on Form 8-K, dated January 4, 2002.
The following contains certain "forward-looking statements" as defined by
the Private Securities Litigation Reform Act of 1995 including, without
limitation, estimated and expectation of the properties production, reserves,
future development costs, operating costs, and general and administrative costs,
and energy prices and future tax rates, deductions and credits. Such forward-
looking statements involve estimated, assumptions and uncertainties. No
assurance can be given that Contango's expectations will be realized, and actual
results may differ materially from those expressed in the forward-looking
statements.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Attached hereto as Schedule A is the audited Statement of Combined Revenues
and Direct Operating Expenses of the Oil and Gas Properties Purchased by
Contango from Juneau Exploration, L.P. ("JEX") and other individuals ("Statement
of Combined Revenues and Direct Operating Expenses") for the years ended June
30, 2001 and 2000 and the related notes thereto, together with the Report of
Independent Public Accountants of Arthur Andersen LLP concerning the statement
and related notes. The properties acquired are herein referred to as the
"Acquisitions".
(B) PRO FORMA FINANCIAL INFORMATION
Attached hereto as Schedule B for Contango Oil & Gas Company are the
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year
ended June 30, 2001 and for the three months ended September 30, 2001, the
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30,
2001, and the related notes thereto, adjusted to show the pro forma effects of
the Acquisitions.
(C) FINANCIAL STATEMENTS OF CONTANGO OIL & GAS COMPANY
The financial statements contained in this Form 8-K/A incorporate by
reference the financial statements of Contango contained in its Annual Report on
Form 10-KSB for the year ended June 30, 2001 and in its Quarterly Report on Form
10-QSB for the quarter ended September 30, 2001.
(D) RESERVE INFORMATION
Attached hereto as Schedule C is the proved reserve and net present value
information of the Acquisitions using NYMEX prices for natural gas and oil at
January 4, 2002, adjusted for basis and transportation and discounted at 10%,
which amount was used to determine the acquisition price for the Acquisitions.
2
(E) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Asset Purchase Agreement by and among Juneau Exploration, L.P.
and Contango Oil & Gas Company dated January 4, 2002. (1)
10.2 Purchase Agreement by and among Mark A. Stephens, John Miller,
The Hunter Revocable Trust, Linda G. Ferszt, Scott Archer and The
Archer Revocable Trust and Contango Oil & Gas Company dated
January 9, 2002. (2)
23.1+ Consent of Arthur Andersen LLP.
23.2+ Consent of William M. Cobb & Associates, Inc.
- -------------------
+ Filed herewith.
(1) Filed as an exhibit to the Company's Form 8-K dated January 4, 2002 and
filed with the Securities and Exchange Commission January 18, 2002.
(2) Filed as an exhibit to the Company's Form 10-QSB for the quarter ended June
30, 2002, as filed with the Securities and Exchange Commission February 14,
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONTANGO OIL & GAS COMPANY
Date: March 8, 2002 By: /s/ KENNETH R. PEAK
-------------------
Kenneth R. Peak
President and Chief Executive Officer
Date: March 8, 2002 By: /s/ LESIA BAUTINA
------------------
Lesia Bautina
Controller
(Principal Accounting Officer)
3
SCHEDULE A
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Contango Oil & Gas Company:
We have audited the accompanying statement of combined revenues and direct
operating expenses of the oil and gas properties purchased by Contango Oil & Gas
Company from Juneau Exploration, L.P. and other individuals (as described in
Note 1) for the years ended June 30, 2001 and 2000. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As disclosed in Note 2, the accompanying statement was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form 8-K/A of Contango Oil & Gas Company
and is not intended to be a complete financial presentation of the properties
described above.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the combined revenues and direct operating expenses of
the oil and gas properties purchased by Contango Oil & Gas Company from Juneau
Exploration, L.P. and other individuals for the years ended June 30, 2001 and
2000 in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 4, 2002
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES OF THE OIL AND GAS
PROPERTIES PURCHASED FROM JUNEAU EXPLORATION, L.P. AND OTHER INDIVIDUALS
FOR THE YEARS FOR THE THREE MONTHS
ENDED JUNE 30, ENDED SEPTEMBER 30,
-------------------------- -----------------------------
2001 2000 2001 2000
------ ------ ------ ------
(UNAUDITED)
Revenues........................................... $5,483,997 $5,914 $1,539,378 $182,519
Direct operating expenses.......................... 534,384 572 128,079 14,771
---------- ------ ---------- --------
Excess of revenues over direct operating expenses.. $4,949,613 $5,342 $1,411,299 $167,748
========== ====== ========== ========
The accompanying notes are an integral part of this financial statement.
1
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
NOTES TO STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING
EXPENSES OF THE OIL AND GAS PROPERTIES PURCHASED FROM JUNEAU
EXPLORATION, L.P. AND OTHER INDIVIDUALS
(1) THE PROPERTIES
Effective January 1, 2002, Contango Oil & Gas Company ("Contango" or the
"Company") entered into an agreement with Juneau Exploration, L.P. ("JEX") to
purchase certain working and revenue interests of JEX in South Texas Exploration
Program properties ("STEP"). John B. Juneau is the Sole Manager of Juneau GP,
LLC, the General Partner of JEX, and is one of the directors of the Company.
Contango paid approximately $11 million in cash, subject to normal post-closing
adjustments, and funded the acquisition with cash on hand and increased
availability under an expanded $17 million secured revolving credit facility
provided by Guaranty Bank, FSB. Effective January 1, 2002, the Company increased
its ownership interest in STEP properties by paying $1.8 million for an
overriding royalty interest ("ORRI") to other individuals. Contango acquired
the JEX and ORRI interests in 22 onshore producing natural gas and oil wells,
located in Jim Hogg and Brooks Counties, Texas. The properties acquired are
herein referred to as the "Acquisitions".
(2) BASIS FOR PRESENTATION
During the periods presented, the Acquisitions were not accounted for or
operated as a separate division by JEX or by other individuals. Certain costs,
such as depreciation, depletion and amortization, exploration expenses, general
and administrative expenses, and corporate income taxes were not allocated to
the individual properties. Accordingly, full separate financial statements
prepared in accordance with generally accepted accounting principles do not
exist and are not practicable to obtain in these circumstances.
Revenues and direct operating expenses included in the accompanying
statement represent Contango's acquired net working and revenue interests in the
properties and are presented on the accrual basis of accounting. Depreciation,
depletion and amortization, exploration expenses, general and administrative
expenses, and corporate income taxes have been excluded. Accordingly, the
financial statements and other information presented are not indicative of the
financial condition or results of operations of the Acquisitions going forward
due to the changes in the business and the omission of various operating
expenses.
(3) COMMITMENTS AND CONTINGENCIES
Pursuant to the terms of the Asset Purchase Agreements, JEX and the other
individuals retain any claims, litigation or disputes pending as of the
effective date of January 1, 2002 or any matters arising in connection with
ownership of the Acquisitions prior to the effective date. Notwithstanding this
indemnification, Contango is not aware of any legal, environmental or other
commitments or contingencies that would have a material effect on the statement
of combined revenues and direct operating expenses.
2
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES SUPPLEMENTAL OIL AND
GAS INFORMATION OF THE OIL AND GAS PROPERTIES PURCHASED FROM
JUNEAU EXPLORATION, L.P. AND OTHER INDIVIDUALS
(UNAUDITED)
OIL AND GAS RESERVE INFORMATION
Proved oil and gas reserve quantities are based on estimates prepared by
William M. Cobb & Associates, Inc, independent petroleum engineers. Such
estimates have been prepared in accordance with guidelines established by the
Securities and Exchange Commission.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and projecting future rates of production. The following reserve
data related to the Acquisitions represents estimates only and should not be
construed as being exact.
GAS OIL
----- -----
(MCF) (BBLS)
Total Proved Reserves: (a)
Balance, June 30, 1999............... - -
Production......................... (989) (30)
Discoveries........................ 1,220,203 54,893
--------- ------
Balance, June 30, 2000............... 1,219,214 54,863
========= ======
(a) Substantially all proved reserves have been developed.
GAS OIL
----- -----
(MCF) (BBLS)
Total Proved Reserves: (a)
Balance, June 30, 2000............... 1,219,214 54,863
Production......................... (799,000) (25,000)
Discoveries........................ 4,943,000 108,000
Revisions............................ (114,000) (33,000)
--------- -------
Balance, June 30, 2001............... 5,249,214 104,863
========= =======
(a) Substantially all proved reserves have been developed.
FUTURE NET CASH FLOWS
Future cash flows are computed by applying fiscal year-end prices of
natural gas and oil to year-end quantities of proved natural gas and oil
reserves. Future operating expenses and development costs are computed primarily
by the Company's petroleum engineers by estimating the expenditures to be
incurred in developing and producing the Acquisitions' proved natural gas and
oil reserves at the end of the year, based on year end costs and assuming
continuation of existing economic conditions.
Future income taxes are based on year-end statutory rates, adjusted for tax
basis and applicable tax credits and for 2001 is based on Contango's purchase
price. A discount factor of 10 percent was used to reflect the timing of future
net cash flows. The standardized measure of discounted future net cash flows is
not intended to represent the replacement costs or fair value of the
Acquisitions' natural gas and
3
oil properties. An estimate of fair value would take into account, among other
things, the recovery of reserves not presently classified as proved, anticipated
future changes in prices and costs, and a discount factor more representative of
time value of money and the risks inherent in reserve estimates of natural gas
and oil producing operations.
JUNE 30, 2000
-------------
Future cash flows.......................................... $ 7,836,903
Future operating expenses.................................. (843,719)
Future development costs................................... (55,900)
Future income tax expense.................................. (2,016,614)
-----------
Future net cash flows...................................... 4,920,670
10% discount rate.......................................... (870,615)
-----------
Standardized measure of discounted future net cash flows... $ 4,050,055
===========
JUNE 30, 2001
-------------
Future cash flows......................................... $23,984,624
Future operating expenses................................. (6,400,288)
Future development costs................................. (14,375)
Future income tax expenses................................ (800,649)
-----------
Future net cash flows..................................... 16,769,312
10% discount rate......................................... (3,992,807)
-----------
Standardized measure of discounted future net cash flows.. $12,776,505
===========
4
Changes in the standardized measure of future net cash flows relating to
proved natural gas and oil reserves are summarized below:
FOR THE YEAR
ENDED
JUNE 30, 2000
-------------
Beginning of year................................... $ -
Sales, net of production costs...................... (5,342)
Net change in price and production costs............ -
Extensions and discoveries.......................... 5,618,325
Changes in future development costs................. -
Revision of quantity estimated...................... -
Accretion of discount............................... -
Change in timing of production rates and other...... -
Changes in income taxes............................. (1,562,928)
-----------
End of year......................................... $ 4,050,055
===========
FOR THE YEAR
ENDED
JUNE 30, 2001
-------------
Beginning of year................................... $ 4,050,055
Sales, net of production costs...................... (4,949,613)
Net change in price and production costs............ (1,854,943)
Extensions and discoveries.......................... 15,487,370
Changes in future development costs................. 28,250
Revision of quantity estimated...................... 1,075,907
Accretion of discount............................... 561,298
Change in timing of production rates and other..... (2,535,750)
Changes in income taxes............................ 913,931
-----------
End of year........................................ $12,776,505
===========
5
SCHEDULE B
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements and related notes are presented to show effects of the acquisition of
the working and net revenue interests of certain properties purchased by
Contango Oil & Gas Company ("Contango") from Juneau Exploration, L.P. ("JEX")
effective January 1, 2002 and of the acquisition of the overriding royalty
interest ("ORRI") purchased from other individuals on effective January 1, 2002
(collectively, the "Acquisitions").
The pro forma condensed consolidated statements of operations are presented
to show net income attributable to common stock as if the Acquisitions occurred
effective July 1, 2000. The pro forma condensed consolidated balance sheet is
based on the assumption that the Acquisitions occurred effective September 30,
2001.
Pro forma data are based on assumptions and include adjustments as
explained in the notes to the unaudited pro forma condensed consolidated
financial statements. The pro forma data are not necessarily indicative of the
financial results that would have been attained had the Acquisitions occurred on
the dates referenced above, and should not be viewed as indicative of operations
in future periods. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the notes thereto, Contango's
Annual Report on Form 10-KSB for the year ended June 30, 2001, its Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2001 and the Statement
of Combined Revenues and Direct Operating Expenses included herein as
Schedule A.
1
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2001
CONTANGO ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
REVENUES:
Natural gas and oil sales.................. $24,548,723 $5,483,997 $ - $30,032,720
Loss from hedging activities............... (557,654) - - (557,654)
----------- ---------- ----------- -----------
Total revenues........................... 23,991,069 5,483,997 - 29,475,066
----------- ---------- ----------- -----------
EXPENSES:
Operating expenses......................... 2,631,905 534,384 - 3,166,289
Exploration expenses....................... 4,167,427 - - 4,167,427
Depreciation, depletion and amortization... 4,023,672 - 1,293,690(a) 5,317,362
Impairment of proved gas and oil properties 300,466 - - 300,466
General and administrative expense......... 2,356,421 - - 2,356,421
----------- ---------- ----------- -----------
Total expenses........................... 13,479,891 534,384 1,293,690 15,307,965
----------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS................ 10,511,178 4,949,613 (1,293,690) 14,167,101
Interest expense............................. (8,674) - (304,200)(b) (312,874)
Interest income.............................. 414,403 - - 414,403
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............ 10,916,907 4,949,613 (1,597,890) 14,268,630
Provision for income taxes................... 3,179,248 - (559,262)(c) 2,619,986
----------- ---------- ----------- -----------
NET INCOME (LOSS)............................ 7,737,659 4,949,613 (1,038,628) 11,648,644
Preferred stock dividends.................... 475,205 - - 475,205
----------- ---------- ----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCK....................................... $ 7,262,454 $4,949,613 $(1,038,628) $11,173,439
=========== ========== =========== ===========
NET INCOME PER SHARE:
Basic...................................... $0.64 $0.99
=========== ===========
Diluted.................................... $0.54 $0.81
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic...................................... 11,287,298 11,287,298
=========== ===========
Diluted.................................... 14,381,124 14,381,124
=========== ===========
2
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of these statements.
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2001
CONTANGO ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ---------
REVENUES:
Natural gas and oil sales.................. $ 5,782,857 $1,539,378 $ - $ 7,322,235
Gain from hedging activities............... 4,483,659 - - 4,483,659
----------- ---------- ----------- -----------
Total revenues........................... 10,266,516 1,539,378 - 11,805,894
----------- ---------- ----------- -----------
EXPENSES:
Operating expenses......................... 625,053 128,079 - 753,132
Exploration expenses....................... 889,613 - - 889,613
Depreciation, depletion and amortization... 1,579,482 - 937,926 (a) 2,517,408
General and administrative expense......... 379,817 - - 379,817
----------- ---------- ----------- -----------
Total expenses........................... 3,473,965 128,079 937,926 4,539,970
----------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS................ 6,792,551 1,411,299 (937,926) 7,265,924
Interest expense............................. (9,317) - (76,050)(b) (85,367)
Gain on sale of assets....................... 54,047 - - 54,047
Interest income.............................. 40,773 - - 40,773
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............ 6,878,054 1,411,299 (1,013,976) 7,275,377
Provision for income taxes................... 2,407,319 - (354,892)(c) 2,052,427
----------- ---------- ----------- -----------
NET INCOME (LOSS)............................ 4,470,735 1,411,299 (659,084) 5,222,950
Preferred stock dividends.................... 150,000 - - 150,000
----------- ---------- ----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCK....................................... $ 4,320,735 $1,411,299 $ (659,084) $ 5,072,950
=========== ========== =========== ===========
NET INCOME PER SHARE:
Basic...................................... $0.38 $0.44
=========== ===========
Diluted.................................... $0.31 $0.36
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic...................................... 11,502,332 11,502,332
=========== ===========
Diluted.................................... 14,414,119 14,414,119
=========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of these statements.
3
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
ASSETS
CONTANGO PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
Cash and cash equivalents........................ $ 7,564,215 $(5,089,296)(1) $ 2,474,919
Other current assets............................. 5,491,262 - 5,491,262
Net property and equipment....................... 17,271,270 12,889,296 (1) 30,386,066
225,500 (2)
Other assets..................................... 6,709,682 - 6,709,682
----------- ----------- -----------
TOTAL ASSETS..................................... $37,036,429 $ 8,025,500 $45,061,929
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities.............................. $ 3,814,112 $ 225,500 (2) $ 4,039,612
Long-term debt................................... - 7,800,000 (1) 7,800,000
Deferred credits and other noncurrent liabilities 3,877,928 - 3,877,928
----------- ----------- -----------
Total liabilities................................ 7,692,040 8,025,500 15,717,540
Shareholders' equity............................. 29,344,389 - 29,344,389
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $37,036,429 $ 8,025,500 $45,061,929
=========== =========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of these statements.
4
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma statement of operations for the year ended June 30,
2001, is based on the audited financial statements of Contango for the year
ended June 30, 2001, the audited statement of combined revenues and direct
operating expenses for properties purchased from Juneau Exploration, L.P.
("JEX") and other individuals for the year ended June 30, 2001, and the
adjustments and assumptions described below.
The unaudited pro forma statement of operations for the three months ended
September 30, 2001 and the unaudited pro forma balance sheet as of September 30,
2001 are based on the unaudited financial statements of Contango as of and for
the three months ended September 30, 2001, the unaudited statement of combined
revenues and direct operating expenses for properties purchased from JEX and
other individuals for the three months ended September 30, 2001, and the
adjustments and assumptions described below.
PRO FORMA ADJUSTMENTS
The unaudited pro forma statements of operations reflect the following
adjustments:
a. Record incremental depreciation, depletion and amortization expense
("DD&A") using the units-of-production method, resulting from the
purchase of properties from JEX and other individuals.
b. Record interest expense associated with debt of approximately $7.8
million incurred under Contango's revolving credit facility to fund a
portion of the purchase price. Applicable interest rates on the
facility were 3.9 percent for the year ended June 30, 2001 and for the
quarter ended September 30, 2001. The effect of debt financing is based
on the current interest rate for which Contango has a commitment.
c. Record a pro forma income tax provision, assuming a 35 percent rate,
based on the pro forma change in income (loss) before income taxes.
The unaudited pro forma balance sheet reflects the following adjustments:
1. Record the purchase price of properties from JEX and other individuals,
totaling $12,889,296 funded with:
. Available cash on hand.
. Proceeds from borrowings of approximately $7.8 million under an
expanded secured oil and gas revolving credit facility.
2. Record transaction costs, primarily legal and auditing fees, relating
to the purchase of properties from JEX and other individuals.
5
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURES
(UNAUDITED)
The following table sets forth certain unaudited pro forma information
concerning Contango's proved oil and gas reserves as of June 30, 2001, giving
effect to the purchase of properties from JEX and other individuals as if it had
occurred on July 1, 2000. There are numerous uncertainties inherent in
estimating the quantities of proved reserves and projection of future rates of
production and timing of development expenditures. The following reserve data
represents estimates only and should not be construed as being exact.
PROVED OIL AND NATURAL GAS RESERVES
NATURAL GAS
---------------------------------------------------
CONTANGO ACQUISITIONS PRO FORMA
--------------- --------------- ---------------
Proved Developed and Undeveloped Reserves: (MMcf)
Balance, June 30, 2000................................ 2,686 1,219 3,905
Discoveries.......................................... 17,146 4,943 22,089
Revisions............................................ (128) (114) (242)
Production........................................... (3,570) (799) (4,369)
------ ----- ------
Balance, June 30, 2001................................. 16,134 5,249 21,383
====== ===== ======
Proved Developed Reserves:
Balance, June 30, 2000................................ 1,206 1,219 2,425
Balance, June 30, 2001................................ 14,013 5,249 19,262
OIL
---------------------------------------------------
CONTANGO ACQUISITIONS PRO FORMA
--------------- --------------- ---------------
Proved Developed and Undeveloped Reserves: (MBbls)
Balance, June 30, 2000................................ 137 55 192
Discoveries.......................................... 280 108 388
Revisions............................................ 40 (33) 7
Production........................................... (122) (25) (147)
---- --- ----
Balance, June 30, 2001................................ 335 105 440
==== === ====
Proved Developed Reserves:
Balance, June 30, 2000................................ 70 55 125
Balance, June 30, 2001................................ 300 105 405
6
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURES - (CONTINUED)
(UNAUDITED)
The following table sets forth unaudited pro forma information concerning
the discounted future net cash flows from proved oil and gas reserves of
Contango as of June 30, 2001, net of income tax expense, and giving effect to
the acquisition of the JEX and other individual properties as if it had occurred
on July 1, 2000. Income tax expense has been computed using assumptions relating
to the future tax rates and the permanent differences and credits under the tax
laws relating to oil and gas activities at June 30, 2001. Cash flows relating to
the Acquisitions are based on William M. Cobb & Associates Inc., evaluation of
reserves and on information provided by JEX and other individuals. Future income
tax expense on the Acquisitions is based on Contango's purchase price. The
information should be viewed only as a form of standardized disclosure
concerning possible future cash flows that would result under the assumptions
used but should not be viewed as indicative of fair market value. Reference
should be made to Contango's financial statements for the fiscal year ended June
30, 2001, and the Statement of Combined Revenues and Direct Operating Expenses
included herein as Schedule A, for a discussion of the assumptions used in
preparing the information presented.
FUTURE NET CASH FLOWS CONTANGO ACQUISITIONS PRO FORMA
- ----------------------------------------------------- ---------------- ---------------- ----------------
Cash inflows......................................... $ 73,861,851 $23,984,624 $ 97,846,475
Production and development costs..................... (19,894,046) (6,414,663) (26,308,709)
Income tax expense................................... (12,516,200) (800,649) (13,316,849)
------------ ----------- ------------
Future net cash flows............................... 41,451,605 16,769,312 58,220,917
10% discount rate.................................... (8,305,000) (3,992,807) (12,297,807)
------------ ----------- ------------
Discounted future net cash flows..................... $ 33,146,605 $12,776,505 $ 45,923,110
============ =========== ============
The following table sets forth the principal sources of change in
discounted future net cash flows:
FUTURE NET CASH FLOWS CONTANGO ACQUISITIONS PRO FORMA
- ---------------------------------------------------- ---------------- ---------------- ----------------
Beginning of year................................... $ 10,226,634 $ 4,050,055 $ 14,276,689
Sales, net of production costs.................... (21,916,818) (4,949,613) (26,866,431)
Net change in price and production costs.......... (2,794,442) (1,854,943) (4,649,385)
Extensions and discoveries........................ 53,366,000 15,487,370 68,853,370
Change in future development costs................ 327,231 28,250 355,481
Revision of quantities estimated.................. 1,181,000 1,075,907 2,256,907
Accretion of discount............................. 1,226,000 561,298 1,787,298
Change in timing of production rates and other.... (1,024,000) (2,535,750) (3,559,750)
Changes in income taxes........................... (7,445,000) 913,931 (6,531,069)
------------ ----------- ------------
End of year......................................... $ 33,146,605 $12,776,505 $ 45,923,110
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7
SCHEDULE C
The table below sets forth the proved reserve and net present value
information of the Acquisitions using NYMEX prices for natural gas and oil at
January 4, 2002, adjusted for basis and transportation and discounted at 10%,
which amount was used to determine the acquisition price for the Acquisitions.
CONTANGO OIL & GAS COMPANY
NET RESERVES AND ECONOMICS
(Unaudited)
01/01/2002 EFFECTIVE DATE PROPERTIES
Juneau Exploration, L.P. + ORRI Interests
(Dollars in Thousands)
FUTURE NET REVENUES
NET PRODUCTION PRODUCTION PRICES FUTURE NET REVENUES DISCOUNTED AT 10%
------------------ ----------------- -----------------------------------------------
END OIL/COND GAS OIL GAS
MO-YEAR MBBLS MMCF $/BBL $/MCF REVENUES EXPENSES ANNUAL CUMULATIVE ANNUAL CUMULATIVE
- ------- ----- ---- ----- ----- -------- -------- ------ ---------- ---------- ----------
Dec-02 34.407 1,388.0 18.80 2.784 4,510.890 735.001 3,775.889 3,775.889 3,607.020 3,607.020
Dec-03 22.997 950.7 19.13 3.351 3,625.623 654.406 2,971.217 6,747.106 2,583.425 6,190.445
Dec-04 16.708 693.4 18.91 3.530 2,763.830 534.618 2,229.212 8,976.318 1,760.822 7,951.267
Dec-05 12.984 541.5 18.69 3.599 2,191.322 448.928 1,742.394 10,718.712 1,250.983 9,202.250
Dec-06 10.592 442.8 19.17 3.687 1,835.945 398.726 1,437.219 12,155.931 937.811 10,140.061
Dec-07 8.902 373.2 18.45 3.784 1,576.340 363.545 1,212.795 13,368.726 719.305 10,859.366
Dec-08 7.552 317.7 18.45 3.784 1,341.502 332.472 1,009.030 14,377.756 544.074 11,403.440
Dec-09 6.400 270.0 18.45 3.784 1,139.924 305.791 834.133 15,211.889 408.897 11,812.337
Dec-10 5.426 229.5 18.45 3.784 968.664 283.119 685.545 15,897.434 305.523 12,117.860
Dec-11 4.600 195.1 18.45 3.784 823.156 263.852 559.304 16,456.738 226.617 12,344.477
Dec-12 3.902 165.8 18.45 3.784 699.522 247.479 452.043 16,908.781 166.520 12,510.997
Dec-13 3.310 141.0 18.45 3.784 594.469 233.564 360.905 17,269.686 120.875 12,631.872
Dec-14 2.777 118.4 18.45 3.787 499.430 215.704 283.726 17,553.412 86.398 12,718.270
Dec-15 2.278 97.3 18.45 3.787 410.373 190.762 219.611 17,773.023 60.802 12,779.072
Dec-16 1.895 81.4 18.45 3.788 343.412 176.644 166.768 17,939.791 41.983 12,821.055
------- ------- ---------- --------- ---------- ----------
Sub Total 144.730 6,005.8 18.77 3.431 23,324.402 5,384.611 17,939.791 17,939.791 12,821.055 12,821.055
After 5.539 241.6 18.45 3.781 1,015.714 678.195 337.519 18,277.310 68.242 12,889.297
------- ------- ---------- --------- ---------- ----------
Total 150.269 6,247.4 18.76 3.445 24,340.116 6,062.806 18,277.310 18,277.310 12,889.297 12,889.297
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