Hedging | Capital Markets | Drilling Program - Wells | 2020 Guidance

Contango Adjusts Operational Plans for 2020; Details Hedge Position

Share Print Bookmark    |    Thursday,March 12,2020

Contango Oil & Gas Co. has adjusted its 2020 operational plans.

The company has yet to provide an official guidance for 2020.

MidCon Cost Reduction / GOM Delays

The company is evaluating its planned operations for 2020 as follows:

The Company's exploratory test in the shallow waters off the Louisiana coast in Grand Isle will proceed as planned. While Contango does not expect to bring this project online at current prices, even at a $30 flat WTI price, the base forecasted success case for the prospect is 19.2 Mmboe (88% oil) of potential reserves, a 70% IRR, and a fully developed PV-10 of an estimated $178 million (2.7x PV/I). The Company believes this justifies the forecasted $6.3 million (net to the Company) investment to drill the first test well. If the test well is successful, production is not currently expected to commence until 2021.

The Company had already commenced a cost reduction program for its STACK asset it acquired in the fourth quarter last year, primarily the PDP-heavy Oklahoma properties, as well as cost-focused initiatives in its other core areas in the Southern Delaware Basin and Eugene Island 10/11. Those initiatives will continue to be a priority for the Company in 2020.

Hedge Position

Contango currently has hedges in place for 71% and 67% of PDP oil production for 2020 and 2021, respectively, at average floor prices of $55.13 and $51.71 per barrel, respectively.

The Company also has 72% and 54% of currently forecasted hedgeable PDP natural gas production for 2020 and 2021, respectively, hedged at average floor prices of $2.57 and $2.51 per Mcf. Approximately 98% of the Company's hedges are swaps, and the Company has no three way collars or short puts.

Wilkie S. Colyer, the Company's President and Chief Executive Officer, commented, "This depressed and volatile price environment will be a difficult challenge to many in our industry, including ourselves, but our view is that the price protection we have put in place through our hedging program, our regular, ongoing efforts to reduce costs, and our commitment to justifying every capital investment we make through a rigorous return analysis, positions us better than most to weather this storm. We believe our low leverage and free cash flow profile for 2020, even in this price environment, puts us in a position to take advantage of the added stress in the sector and continue to be a consolidator."