EXHIBIT 99.1
Contango Reports Year-End Results and Updates Operations
HOUSTON--(BUSINESS WIRE)--Sept. 12, 2006--Contango Oil & Gas
Company (AMEX:MCF) reported a net loss attributable to common stock
for the year ended June 30, 2006 of $0.8 million, or $0.05 per basic
and diluted share, compared to net income attributable to common stock
for the year ended June 30, 2005 of $12 million, or $0.92 per basic
and diluted share. EBITDAX for the year ended June 30, 2006 was $10.0
million compared to $28.5 million for the year ended June 30, 2005.
For the three months ended June 30, 2006, Contango had a net loss
attributable to common stock of $1.2 million, or $0.08 per basic and
diluted share, compared to a net loss attributable to common stock for
the three months ended June 30, 2005 of $1.4 million, or $0.10 per
basic and diluted share. Natural gas and oil sales from continuing and
discontinued operations for the three months ended June 30, 2006 were
$1.1 million, down from $1.3 million for the three months ended June
30, 2005.
Cash Inflow. During the year ended June 30, 2006, we had $49.9
million of cash inflow consisting of: internally generated after-tax
net cash flow from operations of $9.5 million; net cash flow from
financing activities of $20.5 million, which included borrowing $10.0
million of long-term debt, $9.6 million from the issuance of our
Series D convertible preferred equity securities, net of issuance
costs, and $1.9 million from the exercise of stock options and
warrants, offset by $1.0 million paid in preferred stock dividends and
debt issuance costs; $12.9 million in proceeds from the sale of proved
reserves; and $7.0 million from the sale of short term investments.
Cash Outflow. During the year ended June 30, 2006, we invested a
total of $45.8 million consisting of: $34.9 million in exploration and
development activities ($24.7 million offshore and $10.2 million
onshore). We drilled a total of three offshore wells, one of which was
successful (drilling and completion costs of $8.6 million), and two of
which were dry holes (drilling costs of $5.9 million). We also
invested $1.0 million in the acquisition of additional offshore
interests, $7.5 million to purchase additional ownership interests in
REX and COE, $0.2 million in our 10% owned Freeport LNG project and
$2.2 million in alternative energy companies.
Capital Budget. For fiscal year 2007, our capital expenditure
budget calls for us to invest a total of $58.3 million, as we
anticipate significantly increasing our capital commitment for
developing our Arkansas Fayetteville Shale play, drilling our Eugene
Island 10 ("Dutch") exploration well, and bringing our Grand Isle 72
("Liberty") discovery to production.
Of the $58.3 million fiscal year 2007 capital expenditure budget,
$13.0 million is anticipated to be invested in offshore activities.
Our budget calls for us to invest approximately $2.2 million for
production and pipeline facilities for developing Grand Isle 72,
approximately $3.7 million for our share of the dry hole drilling
costs for Eugene Island 10, our "Dutch" prospect, approximately $3.6
million for our share of the drilling and casing costs for Grand Isle
70, our "Red Queen" discovery and $3.5 million in projected future
exploration costs, seismic and delay rentals. In the event we have
exploration success at our Dutch prospect, our capital budget will be
significantly increased as we will incur additional costs to complete
the well and pay for production facilities in addition to follow-on
development wells.
Of the $58.3 million fiscal year 2007 capital expenditure budget,
$45.3 million is expected to be invested in onshore activities. In the
Arkansas Fayetteville Shale, our partners and we have acquired or
received commitments on approximately 44,000 net mineral acres and we
have received Authorization for Expenditures ("AFEs") and committed to
a total of 69 wells in this play as of August 31, 2006. Of these 69
wells, 15 are operated by Alta and 54 are operated by a third party
independent oil and gas exploration company ("Integrated Wells"). We
have an average working interest of 15.19%, and a net revenue interest
of 12.04% in these 69 wells.
Of the 15 Alta wells, one well was drilled during fiscal year
2006. We are budgeting to receive an additional six AFEs from Alta for
wells to be drilled during fiscal year 2007, and therefore expect to
drill 20 Alta wells during fiscal year 2007 at a cost of $23.3
million. This includes drilling, frac, completion and hookup costs for
the wells. Additionally, we expect to invest $3.2 million in
infrastructure, seismic and additional leasehold costs for the
Arkansas Fayetteville Shale. We estimate we will have an average
working interest of 43%, and a net revenue interest of 34% in these 21
Alta wells.
Of the 54 Integrated Wells for which we have received an AFE, 16
wells are producing, 19 wells have already been spud, and 19 wells
have yet to be drilled. In addition to these 54 Integrated Wells, we
are budgeting to receive 57 additional AFEs for Integrated Wells
during the remainder of fiscal year 2007 for a total of 111 Integrated
Wells. We anticipate having between 40 to 50 producing Integrated
Wells by December 2006. Our capital budget for Integrated Wells
assumes we will invest $16.6 million in Integrated Wells during fiscal
year 2007, assuming we drill the 76 wells currently budgeted. We
estimate we will have an average working interest of 7.0%, and a net
revenue interest of 6.0% in these 111 Integrated Wells.
Our capital budget also calls for us to invest $2.2 million with
Alta in other onshore prospects in Texas, Louisiana, and Alabama.
Freeport LNG closed a $383.0 million private placement note
issuance in December 2005, and we believe the LNG project will
continue through Phase I construction and Phase II pre-development
expansion with no further significant funds being required from
Contango.
As of September 11, 2006, we have approximately $10.0 million in
cash, cash equivalents, and short term investments. In addition, the
Company has $10.0 million of unutilized borrowing capacity. The
Company has estimated production during August 2006 of approximately
1.4 MMcfe/d.
We will need additional financing to fund our offshore exploration
and Arkansas Fayetteville Shale development programs. We intend to
access our additional funding needs by first seeking a hydrocarbon
borrowing base bank loan. Depending on the terms, conditions and
amount of traditional bank financing made available to us, we may be
further required to pursue mezzanine debt, equity financing, the sale
of assets or seek other financing to fund our opportunities. The
availability of such funds will depend upon prevailing market
conditions and other factors over which we have no control, as well as
our financial condition and results of operations.
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
--------------------------------------
2006 2005 2004
------------ ------------ ------------
REVENUES:
Natural gas and oil sales $920,304 $1,088,933 $106,651
Gain from hedging activities - - 58,171
------------ ------------ ------------
Total revenues 920,304 1,088,933 164,822
------------ ------------ ------------
EXPENSES:
Operating expenses 13,350 19,683 90,336
Exploration expenses 8,202,385 5,870,066 6,365,430
Depreciation, depletion and
amortization 232,702 352,114 40,817
Impairment of natural gas and
oil properties 707,523 236,537 42,995
General and administrative
expense 4,760,662 3,570,957 2,695,592
------------ ------------ ------------
Total expenses 13,916,622 10,049,357 9,235,170
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE OTHER INCOME AND INCOME
TAXES (12,996,318) (8,960,424) (9,070,348)
OTHER INCOME (EXPENSE):
Interest expense (net of
interest capitalized) (54,488) (71,506) (362,127)
Interest income 826,399 431,803 38,182
Gain on sale of marketable
securities - - 710,322
Gain on sale of assets and
other 249,611 705,147 6,187,740
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (11,974,796) (7,894,980) (2,496,231)
Benefit for income taxes 4,248,623 2,748,121 932,174
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (7,726,173) (5,146,859) (1,564,057)
------------ ------------ ------------
DISCONTINUED OPERATIONS
Discontinued operations, net
of income taxes 7,519,210 17,564,795 9,264,406
------------ ------------ ------------
NET INCOME (LOSS) (206,963) 12,417,936 7,700,349
Preferred stock dividends 601,000 420,000 620,000
------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCK $(807,963) $11,997,936 $7,080,349
============ ============ ============
NET INCOME (LOSS) PER SHARE:
Basic
Continuing operations $(0.56) $(0.42) $(0.20)
Discontinued operations 0.51 1.34 0.88
------------ ------------ ------------
Total $(0.05) $0.92 $0.68
============ ============ ============
Diluted
Continuing operations $(0.56) $(0.42) $(0.20)
Discontinued operations 0.51 1.34 0.88
------------ ------------ ------------
Total $(0.05) $0.92 $0.68
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 14,760,268 13,089,332 10,484,078
============ ============ ============
Diluted 14,760,268 13,089,332 10,484,078
============ ============ ============
The summarized financial results for discontinued operations for
each of the periods ended June 30 are as follows:
June 30,
--------------------------------------
2006 2005 2004
------------ ------------ ------------
Revenues $4,874,091 $15,177,774 $27,523,162
Operating (expenses)
credits (a) 1,520,269 (1,215,544) (3,797,848)
Depreciation expenses (966,734) (2,463,868) (6,948,611)
Exploration expenses (1,092,741) (763,894) (3,507,734)
Gain on sale of discontinued
operations 7,233,130 16,288,294 983,964
------------ ------------ ------------
Gain before income taxes $11,568,015 $27,022,762 $14,252,933
Provision for income taxes (4,048,805) (9,457,967) (4,988,527)
------------ ------------ ------------
Gain from discontinued
operations, net of income
taxes $7,519,210 $17,564,795 $9,264,406
============ ============ ============
(a) Credits due to severance tax refunds.
A reconciliation of EBITDAX to income (loss) from operations and
operating results for discontinued operations for the periods
indicated is presented below.
Year ended June 30, ($000)
--------------------------------
2006 2005 2004
---------- ---------- ----------
Income (loss) from continuing
operations $(12,996) $(8,960) $(9,070)
Exploration expenses 8,202 5,870 6,365
Depreciation, depletion and
amortization 233 352 41
Impairment of natural gas and oil
properties 708 236 43
Gain on sale of marketable securities - - 710
Gain on sale of assets and other 250 705 6,188
---------- ---------- ----------
EBITDAX from continuing operations (3,603) (1,797) 4,277
Income from discontinued operations
before taxes 11,568 27,023 14,253
Exploration expenses 1,093 764 3,508
Depreciation, depletion and
amortization 967 2,464 6,948
Impairment of natural gas and oil
properties - - -
---------- ---------- ----------
EBITDAX (1) $10,025 $28,454 $28,986
========== ========== ==========
(1) EBITDAX represents earnings before interest, income taxes,
depreciation, depletion and amortization, impairment expenses,
exploration expenses, including gain (loss) from hedging
activities, and sale of assets and other. We have reported EBITDAX
because we believe EBITDAX is a measure commonly reported and
widely used by investors as an indicator of a company's operating
performance and ability to incur and service debt. We believe
EBITDAX assists investors in comparing a company's performance on
a consistent basis without regard to depreciation, depletion and
amortization, impairment of natural gas and oil properties and
exploration expenses, which can vary significantly depending upon
accounting methods. EBITDAX is not a calculation based on U.S.
generally accepted accounting principles and should not be
considered an alternative to net income (loss) in measuring our
performance or used as an exclusive measure of cash flow because
it does not consider the impact of working capital growth, capital
expenditures, debt principal reductions and other sources and uses
of cash, which are disclosed in our statements of cash flows.
Investors should carefully consider the specific items included in
our computation of EBITDAX. While we have disclosed our EBITDAX to
permit a more complete comparative analysis of our operating
performance and debt servicing ability relative to other
companies, investors should be cautioned that EBITDAX as reported
by us may not be comparable in all instances to EBITDAX as
reported by other companies. EBITDAX amounts may not be fully
available for management's discretionary use, due to requirements
to conserve funds for capital expenditures, debt service,
preferred stock dividends and other commitments.
Production, Prices, Operating Expenses and Other
Year Ended June 30,
-----------------------------
2006 2005 2004
--------- --------- ---------
Production Data:
Natural gas (million cubic feet) 456 2,124 4,329
Oil and condensate (thousand barrels) 37 51 99
Total (million cubic feet equivalent) 678 2,430 4,923
Natural gas (thousand cubic feet per
day) 1,249 5,820 11,827
Oil and condensate (barrels per day) 100 139 272
Total (thousand cubic feet equivalent
per day) 1,849 6,654 13,459
Average sales price:
Natural gas (per thousand cubic feet) $8.24 $6.53 $5.65
Oil and condensate (per barrel) $55.74 $48.13 $31.99
Selected data per Mcfe:
Production and severance taxes $(2.59) $(0.25) $0.16
Lease operating expenses $0.36 $0.76 $0.63
General and administrative expenses $7.05 $1.47 $0.55
Depreciation, depletion and
amortization of natural gas and
oil properties $1.63 $1.13 $1.39
Proved Reserve Data:
Total proved reserves (Mmcfe) 3,430 1,373 17,422
Pre-tax net present value (SEC at 10%) $8,852 $7,081 $59,767
Contango is a Houston-based, independent natural gas and oil
company. The Company's core business is to explore, develop, produce
and acquire natural gas and oil properties primarily offshore in the
Gulf of Mexico and onshore in the Arkansas Fayetteville Shale. The
Company operates certain offshore prospects through our wholly-owned
subsidiary, Contango Operators, Inc. ("COI"). The Company also owns a
10% interest in a limited partnership formed to develop an LNG
receiving terminal in Freeport, Texas, and holds investments in
companies focused on commercializing environmentally preferred energy
technologies. Additional information can be found on our web page at
www.contango.com.
This press release contains forward-looking statements that
involve risks and uncertainties, and actual events or results may
differ materially from Contango's expectations. The statements reflect
Contango's current views with respect to future events that involve
risks and uncertainties, including those related to successful
negotiations with other parties, oil and gas exploration risks, price
volatility, production levels, closing of transactions, capital
availability, operational and other risks, uncertainties and factors
described from time to time in Contango's publicly available reports
filed with the Securities and Exchange Commission.
CONTACT: Contango Oil & Gas Company, Houston
Kenneth R. Peak, 713-960-1901
www.contango.com