UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO FORM 8-K DATED MARCH 8, 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) April 23, 2002 (March 8, 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 March 8, 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 estimates, 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"), Other Individuals and the
Southern Ute Indian Tribe ("SUIT") ("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 are the Unaudited Pro Forma
Condensed Consolidated Statements of Operations for the year ended June 30, 2001
and for the three and six months ended December 31, 2001, the Unaudited Pro
Forma Condensed Consolidated Balance Sheet as of December 31, 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 December 31, 2001.
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)
10.3 Asset Purchase Agreement by and among Southern Ute
Indian Tribe doing business as Red Willow Production
Company and Contango Oil & Gas Company dated as of
January 28, 2002. (3)
23.1+ Consent of Arthur Andersen LLP.
23.2+ Consent of William M. Cobb & Associates, Inc.
99.1+ Representation of Arthur Andersen, LLP to Securities and Exchange
Commission dated April 18, 2002.
- ------------------
+ 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 December 31, 2001, as filed with the Securities and Exchange
Commission February 14, 2002.
(3) Filed as an exhibit to the Company's Form 8-K dated March 8, 2002
and filed with the Securities and Exchange Commission March 15,
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: April 23, 2002 By: /s/ KENNETH R. PEAK
-------------------------------------
Kenneth R. Peak
President and Chief Executive Officer
Date: April 23, 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 (the "Company") from Juneau Exploration, L.P., Other Individuals and
SUIT (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., Other Individuals and SUIT 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
April 18, 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., OTHER
INDIVIDUALS AND SUIT
FOR THE FOR THE
FOR THE YEARS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
------------------------ ------------------------- ------------------------
2001 2000 2001 2000 2001 2000
----------- --------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Revenues......................... $11,025,479 $19,839 $2,095,994 $2,347,172 $5,076,728 $2,945,512
Direct operating expenses........ 1,098,945 2,034 502,746 208,087 791,724 256,970
----------- ------- ---------- ---------- ---------- ----------
Excess of revenues over
direct operating expenses........ $ 9,926,534 $17,805 $1,593,248 $2,139,085 $4,285,004 $2,688,542
=========== ======= ========== ========== ========== ==========
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., OTHER INDIVIDUALS AND SUIT
(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. Effective January 1, 2002, the
Company increased its working and net revenue interest ownership in STEP
properties by paying $7.0 million to the Southern Ute Indian Tribe ("SUIT").
The properties acquired are herein referred to as the "Acquisitions". At the
time of the acquisition from SUIT, SUIT owned approximately 22% of Contango's
common stock and was represented by one member of the Company's Board of
Directors.
(2) BASIS FOR PRESENTATION
During the periods presented, the Acquisitions were not accounted for or
operated as a separate division by JEX, by Other Individuals or by SUIT.
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, Other Individuals
and SUIT 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., OTHER INDIVIDUALS AND SUIT
(UNAUDITED)
(4) 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 represent estimates only and should not be
construed as being exact.
GAS OIL
------------ ----------
(MCF) (BBLS)
Total Proved Reserves: (a)
Balance, June 30, 1999................. - -
Production........................... (3,317) (101)
Discoveries.......................... 1,831,873 82,385
---------- -------
Balance, June 30, 2000................. 1,828,556 82,284
---------- -------
Production........................... (1,618,111) (49,423)
Discoveries.......................... 8,488,900 185,186
Revisions............................ 222,126 (42,759)
---------- -------
Balance, June 30, 2001................... 8,921,471 175,288
========== =======
(a) Substantially all proved reserves have been developed.
(5) 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 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
3
factor more representative of time value of money and the risks inherent in
reserve estimates of natural gas and oil producing operations.
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
(Unaudited)
Future cash flows.......................... $ 40,691,332 $11,753,695
Future operating expenses.................. (10,720,326) (1,262,536)
Future development costs................... (129,800) (226,633)
Future income tax expense.................. (1,864,456) (2,976,377)
------------ -----------
Future net cash flows...................... 27,976,750 7,288,149
10% discount rate.......................... (6,381,439) (1,273,972)
------------ -----------
Standardized measure of discounted
future net cash flows.................... 21,595,311 6,014,177
============ ===========
Changes in the standardized measure of future net cash flows relating to
proved natural gas and oil reserves are summarized below:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 2001 JUNE 30, 2000
--------------- --------------
(Unaudited)
Beginning of year......................... $ 6,014,177 $ -
Sales, net of production costs............ (9,926,534) (17,805)
Net change in price and production costs.. (2,954,080) -
Extensions and discoveries................ 27,713,544 8,346,786
Changes in future development costs....... 94,385 -
Revision of quantity estimated............ 236,558 -
Accretion of discount..................... 868,056 -
Change in timing of production rates
and other................................ (1,601,687) -
Changes in income taxes................... 1,150,892 (2,314,804)
------------ -----------
End of year............................... $21,595,311 $ 6,014,177
=========== ===========
4
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, the acquisition of the overriding royalty interest
("ORRI") purchased from other individuals effective January 1, 2002 and of the
acquisition of the working and net revenue interests purchased from the Southern
Ute Indian Tribe ("SUIT") 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 December 31,
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 December 31, 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 $11,025,479 $ - $35,574,202
Loss from hedging activities.............................. (557,654) - - (557,654)
----------- ----------- ----------- -----------
Total revenues.......................................... 23,991,069 11,025,479 - 35,016,548
----------- ----------- ----------- -----------
EXPENSES:
Operating expenses........................................ 2,631,905 1,098,945 - 3,730,850
Exploration expenses...................................... 4,167,427 - - 4,167,427
Depreciation, depletion and amortization.................. 4,023,672 - 2,318,378 (a) 6,342,050
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 1,098,945 2,318,378 16,897,214
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS............................... 10,511,178 9,926,534 (2,318,378) 18,119,334
Interest expense............................................ (8,674) - (557,700) (b) (566,374)
Interest income............................................. 414,403 - - 414,403
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........................... 10,916,907 9,926,534 (2,876,078) 17,967,363
Provisions for income taxes................................. 3,179,248 - (1,006,627) (c) 2,172,621
----------- ----------- ----------- -----------
NET INCOME (LOSS)........................................... 7,737,659 9,926,534 (1,869,451) 15,794,742
Preferred stock dividends................................... 475,205 - - 475,205
----------- ----------- ----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK.............. $ 7,262,454 $ 9,926,534 $(1,869,451) $15,319,537
=========== =========== =========== ===========
NET INCOME PER SHARE:
Basic..................................................... $ 0.64 $ 1.36
=========== ===========
Diluted................................................... $ 0.54 $ 1.10
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic..................................................... 11,287,298 11,287,090
=========== ===========
Diluted................................................... 14,381,124 14,381,124
=========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of these statements.
2
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
CONTANGO ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
REVENUES:
Natural gas and oil sales.................................. $ 4,206,035 $ 2,095,994 $ - $ 6,302,029
Loss from hedging activities.............................. (429,232) - - (429,232)
----------- ----------- ----------- -----------
Total revenues.......................................... 3,776,803 2,095,994 - 5,872,797
----------- ----------- ----------- -----------
EXPENSES:
Operating expenses........................................ 1,066,693 502,746 - 1,569,439
Exploration expenses...................................... 1,633,223 - - 1,633,223
Depreciation, depletion and amortization.................. 1,533,723 - 1,435,476 (a) 2,969,199
General and administrative expense........................ 426,094 - - 426,094
----------- ----------- ----------- -----------
Total expenses.......................................... 4,659,733 502,746 1,435,476 6,597,955
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS............................... (882,930) 1,593,248 (1,435,476) (725,158)
Interest expense............................................ (45) - (139,425) (b) (139,470)
Gain on sale of assets...................................... 94,161 - - 94,161
Interest income............................................. 64,873 - - 64,873
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........................... (723,941) 1,593,248 (1,574,901) (705,594)
Benefit for income taxes.................................... (251,161) - (551,215) (c) (802,376)
----------- ----------- ----------- -----------
NET INCOME (LOSS)........................................... (472,780) 1,593,248 (1,023,686) 96,782
Preferred stock dividends................................... 150,000 - - 150,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK.............. $ (622,780) $ 1,593,248 $(1,023,686) $ (53,218)
=========== =========== =========== ===========
NET (LOSS) PER SHARE:
Basic..................................................... $ (0.05) $ (0.01)
=========== ===========
Diluted................................................... $ (0.05) $ (0.01)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic..................................................... 11,504,132 11,504,132
=========== ===========
Diluted................................................... 11,504,132 11,504,132
=========== ===========
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 STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2001
CONTANGO ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
REVENUES:
Natural gas and oil sales.................................. $ 9,988,892 $ 5,076,728 $ - $15,065,620
Loss from hedging activities.............................. 4,054,427 - - 4,054,427
----------- ----------- ----------- -----------
Total revenues.......................................... 14,043,319 5,076,728 - 19,120,047
----------- ----------- ----------- -----------
EXPENSES:
Operating expenses........................................ 1,691,746 791,724 - 2,483,470
Exploration expenses...................................... 2,522,836 - - 2,522,836
Depreciation, depletion and amortization.................. 3,113,205 - 2,944,242 (a) 6,057,447
General and administrative expense........................ 805,911 - - 805,911
----------- ----------- ----------- -----------
Total expenses.......................................... 8,133,698 791,724 2,944,242 11,869,664
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS............................... 5,909,621 4,285,004 (2,944,242) 7,250,383
Interest expense............................................ (9,362) - (278,850) (b) (288,212)
Gain on sale of assets...................................... 134,934 - - 134,934
Interest income............................................. 118,920 - - 118,920
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........................... 6,154,113 4,285,004 (3,223,092) 7,216,025
Provision for income taxes.................................. 2,156,158 - (1,128,082) (c) 1,028,076
----------- ----------- ----------- -----------
NET INCOME (LOSS)........................................... 3,997,955 4,285,004 (2,095,010) 6,187,949
Preferred stock dividends................................... 300,000 - - 300,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK.............. $ 3,697,955 $ 4,285,004 $(2,095,010) $ 5,877,949
=========== =========== =========== ===========
NET INCOME PER SHARE:
Basic..................................................... $ 0.32 $ 0.51
=========== ===========
Diluted................................................... $ 0.28 $ 0.43
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic..................................................... 11,503,003 11,503,003
=========== ===========
Diluted................................................... 14,325,108 14,325,108
=========== ===========
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
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT BALANCE SHEETS
As of December 31, 2001
ASSETS
CONTANGO PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
Cash and cash equivalents................................... $ 5,280,488 $(5,280,488) (1) $ -
Other current assets........................................ 4,428,951 - 4,428,951
Net property and equipment.................................. 16,566,859 19,853,310 (1) 36,420,169
280,671 (2) 280,671
Other assets................................................ 7,169,160 - 7,169,160
----------- ----------- -----------
TOTAL ASSETS................................................ $33,445,458 $14,853,493 $48,298,951
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities......................................... $ 1,071,864 $ 280,671 (2) $ 1,352,535
Long-term debt.............................................. - 14,572,822 (1) 14,572,822
Deferred credits and other noncurrent liabilities........... 3,648,499 - 3,648,499
----------- ----------- -----------
Total liabilities........................................... 4,720,363 14,853,493 19,573,856
Shareholders' equity........................................ 28,725,095 - 28,725,095
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $33,445,458 $14,853,493 $48,298,951
=========== =========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of these statements.
5
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"), other individuals and the Southern Ute Indian Tribe ("SUIT") for the
year ended June 30, 2001, and the adjustments and assumptions described below.
The unaudited pro forma statement of operations for the three and six
months ended December 31, 2001 and the unaudited pro forma balance sheet as of
December 31, 2001 are based on the unaudited financial statements of Contango as
of and for the three and six months ended December 30, 2001, the unaudited
statement of combined revenues and direct operating expenses for properties
purchased from JEX, other individuals and from SUIT for the three and six months
ended December 31, 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 depletion and amortization expense ("DD&A") using
the units-of-production method, resulting from the purchase of
properties from JEX, other individuals and SUIT.
b. Record interest expense associated with debt of approximately $14.6
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 and six months ended December 31, 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 and
tax attributes of the properties purchased.
The unaudited pro forma balance sheet reflects the following adjustments:
1. Record the purchase price of properties from JEX, other individuals and
SUIT, totaling $19,853,310 funded with:
. Available cash on hand.
. Proceeds from borrowings of approximately $14.6 million under an
expanded secured oil and gas revolving credit facility.
2. Record transaction costs, primarily legal and accounting fees, relating
to the purchase of properties from JEX, other individuals and SUIT.
6
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, other individuals and SUIT as if
they 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
Contango Acquisitions Pro Forma
-------- ------------ ---------
(MMcf)
Proved Developed and Undeveloped Reserves:
Balance, June 30, 2000........................ 2,686 1,828 4,514
Discoveries................................. 17,146 8,489 25,635
Revisions................................... (128) 222 94
Production.................................. (3,570) (1,618) (5,188)
------ ------ ------
Balance, June 30, 2001........................ 16,134 8,921 25,055
====== ====== ======
Proved Developed Reserves:
Balance, June 30, 2000........................ 1,206 1,828 3,034
Balance, June 30, 2001........................ 14,013 8,921 22,934
Oil
----------------------------------
Contango Acquisitions Pro Forma
-------- ------------ ---------
(MBbls)
Proved Developed and Undeveloped Reserves:
Balance, June 30, 2000........................ 137 82 219
Discoveries................................. 280 185 465
Revisions................................... 40 (43) (3)
Production.................................. (122) (49) (171)
---- --- ----
Balance, June 30, 2001........................ 335 175 510
==== === ====
Proved Developed Reserves:
Balance, June 30, 2000........................ 70 82 152
Balance, June 30, 2001........................ 300 175 475
7
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, other individual and SUIT properties as if they 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, other individuals and
SUIT. 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 $ 40,691,332 $114,553,183
Production and development costs.................... (19,894,046) (10,850,126) (30,744,172)
Income tax expense.................................. (12,516,200) (1,864,456) (14,380,656)
------------ ------------ ------------
Future net cash flows............................... 41,451,605 27,976,750 69,428,355
10% discount rate................................... (8,305,000) (6,381,439) (14,686,439)
------------ ------------ ------------
Discounted future net cash flows.................... $ 33,146,605 $ 21,595,311 $ 54,741,916
============ ============ ============
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 $ 6,014,177 $ 16,240,811
Sales, net of production costs.................... (21,916,818) (9,926,534) (31,843,352)
Net change in price and production costs.......... (2,794,442) (2,954,080) (5,748,522)
Extensions and discoveries........................ 53,366,000 27,713,544 81,079,544
Change in future development costs................ 327,231 94,385 421,616
Revision of quantities estimated.................. 1,181,000 236,558 1,417,558
Accretion of discount............................. 1,226,000 868,056 2,094,056
Change in timing of production rates and other.... (1,024,000) (1,601,687) (2,625,687)
Changes in income taxes........................... (7,445,000) 1,150,892 (6,294,108)
------------ ------------ ------------
End of year......................................... $ 33,146,605 $ 21,595,311 $ 54,741,916
============ ============ ============
8