10-Q 1 mcf-20210331x10q.htm 10-Q

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 March 31, 2021

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.)

111 E. 5th Street, Suite 300

Fort Worth, Texas

76102

(Address of principal executive offices)

(Zip Code)

(817) 529-0059

(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 May 10, 2021 was 200,686,671.


CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2021

TABLE OF CONTENTS

    

    

   

Page

PART I—FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

3

Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2021 and 2020

4

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2021 and 2020

5

Consolidated Statement of Shareholders’ Equity (unaudited) for the three months ended March 31, 2021 and 2020

6

Notes to the Consolidated Financial Statements (unaudited)

8

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

41

Item 4.

Controls and Procedures

41

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

43

Item 6.

Exhibits

43

Unless the context requires otherwise or unless otherwise noted, 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 wholly owned subsidiaries.

2


Item 1. Consolidated Financial Statements

CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

March 31, 

December 31, 

    

2021

    

2020

  

(unaudited)

CURRENT ASSETS:

Cash and cash equivalents

$

1,596

$

1,383

Accounts receivable, net

54,330

37,862

Prepaid expenses

3,778

3,360

Current derivative asset

2,294

2,996

Inventory

535

442

Deposits and other

100

763

Total current assets

62,633

46,806

PROPERTY, PLANT AND EQUIPMENT:

Oil and natural gas properties, successful efforts method of accounting:

Proved properties

1,534,757

1,274,508

Unproved properties

16,280

16,201

Other property & equipment

1,912

1,669

Accumulated depreciation, depletion, amortization and impairment

(1,197,904)

(1,190,475)

Total property, plant and equipment, net

355,045

101,903

OTHER NON-CURRENT ASSETS:

Investments in affiliates

6,793

6,793

Long-term derivative asset

128

497

Right-of-use lease assets

7,404

5,448

Debt issuance costs

2,493

1,782

Deposits

1,813

7,038

Total other non-current assets

18,631

21,558

TOTAL ASSETS

$

436,309

$

170,267

CURRENT LIABILITIES:

Accounts payable and accrued liabilities

$

109,823

$

83,970

Current derivative liability

8,733

1,317

Current asset retirement obligations

4,197

4,249

Total current liabilities

122,753

89,536

NON-CURRENT LIABILITIES:

Long-term debt

101,969

12,369

Long-term derivative liability

5,258

1,648

Asset retirement obligations

109,960

48,523

Lease liabilities

3,482

2,624

Total non-current liabilities

220,669

65,164

TOTAL LIABILITIES

343,422

154,700

COMMITMENTS AND CONTINGENCIES (NOTE 12)

SHAREHOLDERS’ EQUITY:

Common stock, $0.04 par value, 400,000,000 shares authorized, 199,393,595 shares issued and 199,267,434 shares outstanding at March 31, 2021, 173,830,390 shares issued and 173,737,816 shares outstanding at December 31, 2020

7,963

6,941

Additional paid-in capital

615,949

535,192

Treasury shares at cost (126,161 shares at March 31, 2021 and 92,574 shares at December 31, 2020)

(414)

(248)

Accumulated deficit

(530,611)

(526,318)

Total shareholders’ equity

92,887

15,567

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

436,309

$

170,267

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

March 31, 

    

2021

    

2020

 

(unaudited)

REVENUES:

Oil and condensate sales

$

36,993

$

22,782

Natural gas sales

14,492

8,170

Natural gas liquids sales

8,281

3,621

Other operating revenues

184

Total revenues

59,950

34,573

EXPENSES:

Operating expenses

27,478

19,257

Exploration expenses

196

398

Depreciation, depletion and amortization

9,143

12,854

Impairment and abandonment of oil and natural gas properties

3

145,878

General and administrative expenses

11,359

7,651

Total expenses

48,179

186,038

OTHER INCOME (EXPENSE):

Gain from investment in affiliates, net of income taxes

286

Gain from sale of assets

217

27

Interest expense

(1,197)

(1,213)

Gain (loss) on derivatives, net

(16,080)

46,699

Other income

1,535

805

Total other income (expense)

(15,525)

46,604

NET LOSS BEFORE INCOME TAXES

(3,754)

(104,861)

Income tax provision

(539)

(394)

NET LOSS

$

(4,293)

$

(105,255)

NET LOSS PER SHARE:

Basic

$

(0.02)

$

(0.80)

Diluted

$

(0.02)

$

(0.80)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

Basic

192,271

131,338

Diluted

192,271

131,338

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)

Three Months Ended

March 31, 

    

2021

    

2020

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(4,293)

$

(105,255)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation, depletion and amortization

9,143

12,854

Impairment of oil and natural gas properties

145,878

Amortization of debt issuance costs

178

177

Gain on sale of assets

(217)

(27)

Gain from investment in affiliates

(286)

Stock-based compensation

1,779

350

Non-cash mark-to-market loss (gain) on derivative instruments

13,639

(41,391)

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable & other receivables

(12,139)

10,761

Increase in prepaid expenses

(194)

(245)

Increase in inventory

(93)

(1)

Increase (decrease) in accounts payable & advances from joint owners

11,016

(14,326)

Increase (decrease) in other accrued liabilities

4,304

(1,951)

Decrease in income taxes receivable, net

241

Increase in income taxes payable, net

578

192

Decrease (increase) in deposits and other

7,038

(7,219)

Net cash provided by (used in) operating activities

$

30,739

$

(248)

CASH FLOWS FROM INVESTING ACTIVITIES:

Oil and natural gas exploration and development expenditures

$

(1,862)

$

(9,492)

Acquisition of oil & natural gas properties

(117,555)

Sale of oil & natural gas properties

199

5

Write off of fully depreciated oil & natural gas properties

(307)

Net cash used in investing activities

$

(119,525)

$

(9,487)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under Credit Agreement

$

127,000

$

37,000

Repayments under Credit Agreement

(37,400)

(27,000)

Net proceeds (costs) from equity offering

453

(47)

Purchase of treasury stock

(166)

(157)

Debt issuance costs

(888)

Net cash provided by financing activities

$

88,999

$

9,796

NET CHANGE IN CASH AND CASH EQUIVALENTS

$

213

$

61

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1,383

1,624

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

1,596

$

1,685

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 three months ended March 31, 2021

(in thousands, except number of shares)

Additional

Total

Common Stock

Paid-in

Treasury

Accumulated

Shareholders’

    

Shares

    

Amount

    

Capital

    

Stock

    

Deficit

    

Equity

 

(unaudited)

Balance at December 31, 2020

173,737,816

$

6,941

$

535,192

$

(248)

$

(526,318)

$

15,567

Equity offering - common stock

117,000

5

448

453

Mid-Con Acquisition

25,409,164

1,015

78,514

79,529

Treasury shares at cost

(33,587)

(166)

(166)

Restricted shares activity

37,041

2

(2)

Stock-based compensation

1,797

1,797

Net loss

(4,293)

(4,293)

Balance at March 31, 2021

199,267,434

$

7,963

$

615,949

$

(414)

$

(530,611)

$

92,887

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 three months ended March 31, 2020

(in thousands, except number of shares)

Series C

Additional

Total

Preferred Stock

Common Stock

Paid-in

Treasury

Accumulated

Shareholders’

Shares

Amount

Shares

    

Amount

    

Capital

    

Stock

    

Deficit

    

Equity

 

(unaudited)

Balance at December 31, 2019

2,700,000

$

108

128,977,816

$

5,148

$

471,778

$

(18)

$

(360,976)

$

116,040

Equity offering - common stock

(47)

(47)

Treasury shares at cost

(49,474)

(157)

(157)

Restricted shares activity

77,485

3

(3)

Stock-based compensation

350

350

Net loss

(105,255)

(105,255)

Balance at March 31, 2020

2,700,000

$

108

129,005,827

$

5,151

$

472,078

$

(175)

$

(466,231)

$

10,931

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 Fort Worth, Texas based independent oil and natural gas company. The Company’s business is to maximize production and cash flow from its onshore properties primarily located in its Midcontinent, Permian, Rockies and other smaller onshore areas and its offshore properties in the shallow waters of the Gulf of Mexico and use that cash flow to explore, develop and acquire oil and natural gas properties across the United States.

The following table lists the Company’s primary producing regions as of March 31, 2021:

Region

Formation

Midcontinent

Cleveland, Bartlesville, Mississippian, Woodford and others

Permian

San Andres, Yeso, Bone Springs, Wolfcamp and others

Rockies

Sussex, Shannon, Muddy, Phosphoria, Embar-Tensleep, Madison and others

Other

Woodbine, Lewisville, Buda, Georgetown, Eagleford and Offshore Gulf of Mexico properties in water depths off of Louisiana in less than 300 feet

Impact of the COVID-19 Pandemic    

The coronavirus (“COVID-19”) pandemic has significantly affected the global economy, disrupted global supply chains and created significant volatility in the financial markets. In addition, the COVID-19 pandemic has resulted in travel restrictions, business closures and other restrictions that have disrupted the demand for oil throughout the world and, when combined with the oil supply increase attributable to the battle for market share among the Organization of Petroleum Exporting Countries (“OPEC”), Russia and other oil producing nations, resulted in oil prices declining significantly beginning in late February 2020. While there has been a modest recovery in oil prices in recent months, the length of this demand disruption is unknown, and there is significant uncertainty regarding the long-term impact to global oil demand. Due to the extreme volatility in oil prices and the impact of the COVID-19 pandemic on the financial condition of the Company’s upstream peers, the Company suspended its onshore drilling program in the Southern Delaware Basin in the first quarter of 2020 and further suspended all drilling in the second quarter of 2020 and has focused since then on certain measures that included, but were not limited to, the following:

work from home initiatives for all but critical staff and the implementation of social distancing measures;
a company-wide effort to cut costs throughout the Company’s operations;
utilization of the Company’s available storage capacity to temporarily store a portion of its production for later sale at higher prices when advantageous to do so;
suspension of all drilling from the second-half of 2020 through the quarter ended March 31, 2021, with the expectation to recommence value added drilling in 2021;
potential acquisitions of PDP-heavy assets, with attractive, discounted valuations, in stressed/distressed scenarios or from non-natural owners like investment or lender firms that obtained ownership through a corporate restructuring.

Capital Allocation Strategy

From the Company’s initial entry into the Southern Delaware Basin in 2016 and through early 2019, the Company was focused on the development of its Southern Delaware Basin acreage in Pecos County, Texas. In the first quarter of 2020, the Company suspended further drilling in this area in response to the dramatic decline in oil prices and further suspended all drilling in the second quarter of 2020. As of March 31, 2021, the Company was producing from eighteen wells over its approximate 16,200 gross operated (7,500 company net) acre position in West Texas, prospective for the Wolfcamp A, Wolfcamp B and Second Bone Spring formations.

The Company’s planned 2021 capital expenditure budget has increased to $24 - $27 million from previous guidance of $13 - $16 million for recompletions, facility upgrades, waterflood development and select drilling in West Texas (expected 1.5 net locations, 3 gross locations), among other things. The increase in planned capital expenditures

8


reflects, in part, development opportunities in the Company’s recently acquired properties as part of the Mid-Con Acquisition and the Silvertip Acquisition (both as defined below), coupled with recent strength in crude oil prices. The capital expenditure program will continue to be evaluated for revision throughout the year. During the three months ended March 31, 2021, the Company incurred capital expenditures of approximately $1.6 million primarily related to redevelopment activities of newly acquired properties in its Midcontinent region. The Company believes that its internally generated cash flow will be more than adequate to fund its initial capital expenditure budget and any increase to such initial 2021 capital expenditure budget, when and if such increase is deemed appropriate. The Company plans to retain the flexibility to be more aggressive in its drilling plans should results exceed expectations, commodity prices continue to improve or if the Company reduces drilling and completion costs in certain areas, thereby making an expansion of its drilling program an appropriate business decision.

The Company plans to continue to make balance sheet strength a priority in 2021 and intends to continue to evaluate certain acquisition opportunities that may arise in this challenging commodity price environment. The Company will also aim to pursue additional “fee for service” opportunities similar to that entered into with Mid-Con (defined below) in June 2020 prior to its later acquisition, as well as pursue growth through the acquisition of PDP-heavy assets. Any excess cash flow will likely be used to reduce borrowings outstanding under the Company’s Credit Agreement (as defined below). The Company intends to keenly focus on continuing to reduce lease operating costs on its legacy and newly-acquired assets, reducing general and administrative expenses, improving cash margins and lowering its exposure to asset retirement obligations through the possible sale of non-core properties.

On January 21, 2021, the Company closed on the acquisition of Mid-Con Energy Partners, LP (“Mid-Con”), in an all-stock merger transaction in which Mid-Con became a direct, wholly owned subsidiary of Contango (the “Mid-Con Acquisition”). A total of 25,409,164 shares of Contango common stock were issued as consideration in the Mid-Con Acquisition. Effective upon the closing of the Mid-Con Acquisition, the Company’s borrowing base under its Credit Agreement increased from $75.0 million to $130.0 million, with an automatic $10.0 million reduction in the borrowing base on March 31, 2021. See Note 3 – “Acquisitions” and Note 10 – “Long-Term Debt” for further details.  

On February 1, 2021, the Company closed on the acquisition of certain oil and natural gas properties located in the Big Horn Basin in Wyoming and Montana, in the Powder River Basin in Wyoming and in the Permian Basin in West Texas and New Mexico (collectively the “Silvertip Acquisition”) for aggregate consideration of approximately $58.0 million. After customary closing adjustments, including the results of operations during the period between the effective date of August 1, 2020 and the closing date, the net consideration paid was approximately $53.2 million. See Note 3 – “Acquisitions” for more information.

On May 3, 2021, the Company entered into the Fifth Amendment to the Credit Agreement which provides for, among other things, an increase in the Company’s borrowing base from $120.0 million to $250.0 million, effective May 3, 2021, expands the bank group from nine to eleven banks and includes less restrictive hedge requirements and certain modifications to financial covenants. See Note 13 – “Subsequent Events” for further details.  

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, 2020 (“2020 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”). Please refer to the notes to the financial statements included in the 2020 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 2020 Form 10-K. These unaudited interim

9


consolidated results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021.

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 Company’s investment in Exaro Energy III LLC (“Exaro”), through its 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, production or reserves in those reported for the Company’s consolidated results of operations.

Certain amounts in prior-period financial statements have been reclassified to conform to the current period’s presentation. On the consolidated statements of operations, the Company’s working interest percentage share of the overhead billed to the 8/8s joint account for wells it operates has been reclassified from operating expenses to general and administrative expenses.

Oil and Natural Gas Properties - Successful Efforts

The Company’s application of the successful efforts method of accounting for its oil and natural gas exploration and production activities requires judgment as to whether particular wells are developmental or exploratory, since lease acquisition costs and all development costs are capitalized, whereas exploratory drilling costs are continuously capitalized until the results are determined. If proved reserves are not discovered, the drilling costs are expensed as exploration costs. Other exploration related costs, such as seismic costs and other geological and geophysical expenses, are expensed as incurred.

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, but then actually deliver oil and natural gas in quantities insufficient to be economic, which may result in the abandonment and/or impairment 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 oil or natural gas 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 oil and natural gas leasehold acquisition costs included in unproved properties for write-off or impairment requires management’s judgment on 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 assets in that field. If the estimated future undiscounted cash flows, based on the Company’s estimate of future reserves, oil and natural gas 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 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 natural gas properties. Additionally, the Company may use appropriate market data to determine fair value. No impairment of proved properties was recorded during the three months ended March 31, 2021.

In the first quarter of 2020, the COVID-19 pandemic and the resulting deterioration in the global demand for oil, combined with the failure by OPEC and Russia to reach an agreement on lower production quotas until April 2020, caused a dramatic increase in the supply of oil, a corresponding decrease in commodity prices, and reduced the demand for all commodity products. Consequently, during the three months ended March 31, 2020, the Company recorded a $143.3 million non-cash charge for proved property impairment of its onshore properties related to the dramatic decline in commodity prices, the “PV-10” (present value, discounted at a 10% rate) of its proved reserves, and the associated change in its then forecasted development plans for its proved, undeveloped locations.

10


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. No impairment of unproved properties was recorded during the three months ended March 31, 2021. The Company recorded a $2.6 million non-cash charge for unproved impairment expense during the three months ended March 31, 2020 related to expiring leases in the Company’s Midcontinent region.

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 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. The Company excluded 42,518 shares or units, and 366,749 shares or units of potentially dilutive securities during the three months ended March 31, 2021 and 2020, respectively, as they were antidilutive.

Subsidiary Guarantees

Contango Oil & Gas Company, as the parent company of its subsidiaries, filed a registration statement on Form S-3 on December 18, 2020 with the SEC to register, among other securities, debt securities that the Company may issue from time to time. Contango Resources, Inc., Contango Midstream Company, Contango Operators, Inc., Contaro Company, Contango Alta Investments, Inc. and any other of the Company’s future subsidiaries specified in any future prospectus supplement (each a “Subsidiary Guarantor”) are co-registrants with the Company under the registration statement, and the registration statement also registered guarantees of debt securities by such Subsidiary Guarantors. The Subsidiary Guarantors are wholly-owned by the Company, either directly or indirectly, and any guarantee by the Subsidiary Guarantors will be full and unconditional. The 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 Company. Finally, the 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 Company in the form of loans, advances or cash dividends by such subsidiary without the consent of a third party.

Revenue Recognition  

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. Generally, the Company’s gas processing and purchase agreements indicate that the processors take control of the Company’s 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.  

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 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. Based upon the Company’s past experience with its current purchasers 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.

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 following 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. The Company will continue to review all new or modified revenue contracts on a quarterly basis for proper treatment.

11


Leases

The Company recognizes a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term on the Company’s consolidated balance sheet. The Company does not include leases with an initial term of less than twelve months on the balance sheet. The Company recognizes payments on these leases within “Operating expenses” on its consolidated statements of operations. The Company has modified procedures to its existing internal controls to review any new contracts which contain a physical asset on a quarterly basis and determine if an arrangement is, or contains, a lease at inception. The Company will continue to review all new or modified contracts on a quarterly basis for proper treatment. See Note 7 – “Leases” for additional information.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) related to the calculation of credit losses on financial instruments. All financial instruments not accounted for at fair value will be impacted, including the Company’s trade and joint interest billing receivables. Allowances are to be measured using a current expected credit loss model as of the reporting date that is based on historical experience, current conditions and reasonable and supportable forecasts. This is significantly different from the current model that increases the allowance when losses are probable. Initially, ASU 2016-13 was effective for all public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and will be applied with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The FASB subsequently issued ASU 2019-04 (“ASU 2019-04”), Codification Improvements to Financial Instruments - Credit Losses (Topic 326), Derivatives (Topic 815) and Financial Instruments (Topic 825) and ASU 2019-05 (“ASU 2019-05”), Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. ASU 2019-04 and ASU 2019-05 provide certain codification improvements related to implementation of ASU 2016-13 and targeted transition relief consisting of an option to irrevocably elect the fair value option for eligible instruments. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates. This amendment deferred the effective date of ASU 2016-13 from January 1, 2020 to January 1, 2023 for calendar year-end smaller reporting companies, which includes the Company. The Company plans to defer the implementation of ASU 2016-13, and the related updates.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. ASU 2020-04 will be in effect through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which further clarifies certain topics in ASU 2020-04, such as expedients and exceptions. The Company is currently assessing the potential impact of ASU 2020-04 and ASU 2021-01 on its consolidated financial statements.

3. Acquisitions

Mid-Con Acquisition

On October 25, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement’) with Mid-Con and Mid-Con Energy GP, LLC, the general partner of Mid-Con (“Mid-Con GP”), pursuant to which Mid-Con would merge with and into Michael Merger Sub LLC, a Delaware limited liability company and a wholly-owned, direct subsidiary of the Company. The Mid-Con Acquisition, which closed on January 21, 2021, was unanimously approved by the conflicts committee of the board of directors of Mid-Con, by the full board of directors of Mid-Con, by the disinterested directors of the board of directors of the Company and was subject to shareholder and unitholder approvals and other customary conditions to closing. At the effective time of the Mid-Con Acquisition (the “Effective Time”), each common unit representing limited partner interests in Mid-Con issued and outstanding immediately prior to the Effective Time (other than treasury units or units held by Mid-Con GP) was converted automatically into the right to receive 1.75 shares of the Company’s common stock. A total of 25,409,164 shares of Contango common stock were issued as consideration in the Mid-Con Acquisition. As of January 21, 2021, John C. Goff, Chairman of the Board of Directors of the Company, beneficially owned approximately 56.4% of the common units of Mid-Con, and Travis Goff, John C. Goff’s son and the President of Goff Capital, Inc., served on the board of directors of the general partner of Mid-Con. The

12


Company’s senior management team is running the combined company, and Contango’s board of directors remains intact as the board of directors of the combined company. The combined company is headquartered in Fort Worth, Texas.

The Mid-Con Acquisition was accounted for as a business combination using the acquisition method of accounting under FASB ASC 805, Business Combinations (“ASC 805”). Therefore, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated acquisition date fair values based on then currently available information. A combination of a discounted cash flow model and market data was used by the Company in determining the fair value of the oil and natural gas properties. Significant inputs into the calculation included future commodity prices, estimated volumes of oil and natural gas reserves, expectations for the timing and amount of future development and operating costs, future plugging and abandonment costs and a risk adjusted discount rate. The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing of the Mid-Con Acquisition.  

The following table sets forth the Company’s preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date (in thousands):

    

Purchase Price Allocation

Consideration:

Cash

$

14,520

Exchange ratio of Contango shares for Mid-Con common units

1.75

Contango common stock to be issued to Mid-Con unitholders

25,409

Issue price

$

3.13

Stock consideration

79,530

Payment of revolving credit facility

68,667

Total consideration

$

148,197

Fair value of liabilities assumed:

Accounts payable

$

8,892

Asset retirement obligations

28,252

Total fair value of liabilities assumed

$

37,144

Fair value of assets acquired:

Cash and cash equivalents

$

3,110

Accounts receivable

5,191

Current derivative asset

1,544

Prepaid expenses

225

Proved oil and natural gas properties

173,878

Other property and equipment

243

Other non-current assets

1,150

Total fair value of assets acquired

$

185,341

Silvertip Acquisition

On November 27, 2020, the Company entered into a purchase agreement  (“the Purchase Agreement”) to acquire certain oil and natural gas properties located in the Big Horn Basin in Wyoming and Montana, in the Powder River Basin in Wyoming and in the Permian Basin in West Texas and New Mexico, for aggregate consideration of approximately $58.0 million in cash. In connection with the execution of the Purchase Agreement, the Company paid $7.0 million as a deposit for its obligations under the Purchase Agreement, which is included in the consolidated balance sheet as of December 31, 2020. The Silvertip Acquisition closed on February 1, 2021, and a balance of $46.2 million was paid upon closing, after customary closing adjustments, including the results of operations during the period between the effective date of August 1, 2020 and the closing date.

The Silvertip Acquisition was accounted for using the accounting for asset acquisitions under ASC 805. Under the accounting for asset acquisitions, the Silvertip Acquisition was recorded using a cost accumulation and allocation model under which the cost of the acquisition was allocated on a relative fair value basis to the assets acquired and liabilities assumed. For asset acquisitions under ASC 805, acquisition-related transaction costs are capitalized as a component of the cost of the assets acquired.

13


A summary of the consideration paid and the preliminary relative fair value of the assets acquired and liabilities assumed, which is subject to change based upon the final settlement statement that is expected to be provided to Contango in the second quarter of 2021, is as follows (in thousands):

    

Purchase Price Allocation

Consideration:

Purchase price

$

58,000

Closing adjustments

(4,739)

Total consideration

53,261

Acquisition transaction costs

109

Total cash paid

$

53,370

Fair value of liabilities assumed:

Accounts payable

$

423

Lease liabilities

1,014

Asset retirement obligations

32,367

Total relative fair value of liabilities assumed

$

33,804

Fair value of assets acquired:

Proved oil and natural gas properties

$

86,160

Right-of-use lease assets

1,014

Total relative fair value of assets acquired

$

87,174

Pro Forma Information

The following unaudited pro forma combined condensed financial data for the year ended December 31, 2020 was derived from the historical financial statements of the Company after giving effect to the Mid-Con Acquisition and the Silvertip Acquisition, as if they had occurred on January 1, 2020. The below information reflects pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including the depletion of the fair-valued proved oil and natural gas properties acquired in the Mid-Con Acquisition and the Silvertip Acquisition. The pro forma results of operations do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by the Company to integrate the assets acquired. The pro forma consolidated statement of operations data has been included for comparative purposes only, is not necessarily indicative of the results that might have occurred had the acquisition taken place on January 1, 2020 and is not intended to be a projection of future results.

(In thousands except for per share amounts)

    

Year Ended December 31, 2020

Revenues

$

202,442

Net loss

$

(191,975)

Basic loss per share

$

(0.97)

Diluted loss per share

$

(0.97)

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.

14


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 March 31, 2021. 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.

Fair value information for financial assets and liabilities was as follows as of March 31, 2021 (in thousands):

Total

Fair Value Measurements Using

    

Carrying Value

    

Level 1

    

Level 2

    

Level 3

 

Derivatives

Commodity price contracts - assets

$

2,422

$

$

2,422

$

Commodity price contracts - liabilities

$

(13,991)

$

$

(13,991)

$

Derivatives listed above are recorded in “Current derivative asset or liability” and “Long-term derivative asset or liability” 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 March 31, 2021, the Company’s derivative contracts were all with major institutions with investment grade credit ratings which are believed to have minimal credit risk, which primarily are lenders within the Company’s bank group. 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 natural 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 natural 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 natural gas properties. The factors used to determine fair value include, but are not limited to, estimated future plugging and abandonment costs and

15


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.

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 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 program in light of changes in production, market conditions, commodity price forecasts and requirements under its Credit Agreement.

As of March 31, 2021, the Company’s oil and natural gas 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 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 (as defined below) 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.

The Company currently has derivative contracts in place to cover production periods through the first quarter of 2023, which include hedges novated from Mid-Con and additional hedges entered into in the first quarter of 2021. As of March 31, 2021, the Company’s oil derivative contracts include hedges for 1.6 MMBbls of remaining 2021 production with an average floor price of $55.16 per barrel and 1.4 MMBbls of 2022 production with an average floor price of $50.24 per barrel. As of March 31, 2021, the Company’s natural gas derivative contracts include 9.2 Bcf of remaining 2021 production with an average floor price of $2.66 per MMBtu and 10.1 Bcf of 2022 production with an average floor price of $2.60 per MMBtu. Approximately 97% of the Company’s hedges are swaps, and the Company has no three-way collars or short puts.

As of March 31, 2021, the following financial derivative instruments were in place (fair value in thousands):

Commodity

    

Period

    

Derivative

    

Volume/Month

    

Price/Unit

 

Fair Value

 

Oil

April 2021 - July 2021

Swap

12,000

Bbls

$

50.00

(1)

(429)

Oil

Aug 2021 - Sept 2021

Swap

10,000

Bbls

$

50.00

(1)

(157)

Oil

April 2021 - July 2021

Swap

62,000

Bbls

$

52.00

(1)

(1,720)

Oil

Aug 2021 - Sept 2021

Swap

55,000

Bbls

$

52.00

(1)

(642)

Oil

Oct 2021 - Dec 2021

Swap

64,000

Bbls

$

52.00

(1)

(904)

Oil

April 2021

Swap

20,647

Bbls

$

55.78

(1)

(70)

Oil

May 2021

Swap

20,563

Bbls

$

55.78

(1)

(69)

Oil

June 2021

Swap

20,487

Bbls

$

55.78

(1)

(65)

Oil

July 2021

Swap

20,412

Bbls

$

55.78

(1)

(56)

16


Commodity

    

Period

    

Derivative

    

Volume/Month

    

Price/Unit

 

Fair Value

 

Oil

Aug 2021

Swap

20,301

Bbls

$

55.78

(1)

(47)

Oil

Sept 2021

Swap

20,228

Bbls

$

55.78

(1)

(37)

Oil

Oct 2021

Swap

20,155

Bbls

$

55.78

(1)

(27)

Oil

Nov 2021

Swap

20,084

Bbls

$

55.78

(1)

(19)

Oil

Dec 2021

Swap

20,012

Bbls

$

55.78

(1)

(9)

Oil

April 2021

Collar

20,647

Bbls

$

52.00

-

58.80

(1)

(38)

Oil

May 2021

Collar

20,563

Bbls

$

52.00

-

58.80

(1)

(48)

Oil

June 2021

Collar

20,487

Bbls

$

52.00

-

58.80

(1)

(49)

Oil

July 2021

Collar

20,412

Bbls

$

52.00

-

58.80

(1)

(45)

Oil

Aug 2021

Collar

20,301

Bbls

$

52.00

-

58.80

(1)

(40)

Oil

Sept 2021

Collar

20,228

Bbls

$

52.00

-

58.80

(1)

(33)

Oil

Oct 2021

Collar

20,155

Bbls

$

52.00

-

58.80

(1)

(27)

Oil

Nov 2021

Collar

20,084

Bbls

$

52.00

-

58.80

(1)

(20)

Oil

Dec 2021

Collar

20,012

Bbls

$

52.00

-

58.80

(1)

(12)

Oil

April 2021 - Oct 2021

Swap

25,000

Bbls

$

54.77

(1)

(630)

Oil

Nov 2021 - Dec 2021

Swap

15,000

Bbls

$

54.77

(1)

(52)

Oil

April 2021

Swap

50,000

Bbls

$

63.13

(1)

198

Oil

May 2021

Swap

50,000

Bbls

$

62.71

(1)

179

Oil

June 2021

Swap

50,000

Bbls

$

62.17

(1)

162

Oil

July 2021

Swap

50,000

Bbls

$

61.50

(1)

149

Oil

Aug 2021

Swap

50,000

Bbls

$

60.94

(1)

143

Oil

Sep 2021

Swap

50,000

Bbls

$

60.38

(1)

139

Oil

Oct 2021

Swap

50,000

Bbls

$

59.89

(1)

137

Oil

Nov 2021

Swap

50,000

Bbls

$

59.46

(1)

136

Oil

Dec 2021

Swap

50,000

Bbls

$

59.01

(1)

136

Oil

April 2022 - Oct 2022

Swap

25,000

Bbls

$

42.04

(1)

(2,098)

Oil

Jan 2022

Swap

60,000

Bbls

$

52.94

(1)

(177)

Oil

Feb 2022

Swap

60,000

Bbls

$

52.65

(1)

(175)

Oil

March 2022

Swap

60,000

Bbls

$

52.29

(1)

(175)

Oil

April 2022

Swap

47,500

Bbls

$

51.98

(1)

(139)

Oil

May 2022

Swap

45,000

Bbls

$

51.71

(1)

(131)

Oil

June 2022

Swap

45,000

Bbls

$

51.41

(1)

(130)

Oil

July 2022

Swap

45,000

Bbls

$

51.13

(1)

(129)

Oil

Aug 2022

Swap

45,000

Bbls

$

50.89

(1)

(128)

Oil

Sep 2022

Swap

45,000

Bbls

$

50.65

(1)

(127)

Oil

Oct 2022

Swap

45,000

Bbls

$

50.45

(1)

(128)

Oil

Nov 2022

Swap

55,000

Bbls

$

50.26

(1)

(153)

Oil

Dec 2022

Swap

55,000

Bbls

$

50.22

(1)

(151)

Oil

Jan 2023

Swap

57,500

Bbls

$

49.81

(1)

(157)

Oil

Feb 2023

Swap

57,500

Bbls

$

49.63

(1)

(155)

Oil

Jan 2022

Swap

60,000

Bbls

$

52.96

(1)

(176)

Oil

Feb 2022

Swap

60,000

Bbls

$

52.66

(1)

(175)

Oil

March 2022

Swap

60,000

Bbls

$

52.27

(1)

(176)

Oil

April 2022

Swap

47,500

Bbls

$

51.96

(1)

(140)

Oil

May 2022

Swap

45,000

Bbls

$

51.72

(1)

(131)

Oil

June 2022

Swap

45,000

Bbls

$

51.42

(1)

(130)

Oil

July 2022

Swap

45,000

Bbls

$

51.13

(1)

(129)

Oil

Aug 2022

Swap

45,000

Bbls

$

50.90

(1)

(128)

17


Commodity

    

Period

    

Derivative

    

Volume/Month

    

Price/Unit

 

Fair Value

 

Oil

Sep 2022

Swap

45,000

Bbls

$

50.66

(1)

(127)

Oil

Oct 2022

Swap

45,000

Bbls

$

50.47

(1)

(125)

Oil

Nov 2022

Swap

55,000

Bbls

$

50.26

(1)

(153)

Oil

Dec 2022

Swap

55,000

Bbls

$

50.01

(1)

(152)

Oil

Jan 2023

Swap

57,500

Bbls

$

49.79

(1)

(158)

Oil

Feb 2023

Swap

57,500

Bbls

$

49.62

(1)

(156)

Natural Gas

April 2021 - July 2021

Swap

120,000

MMBtus

$

2.51

(2)

(66)

Natural Gas

Aug 2021 - Sept 2021

Swap

10,000

MMBtus

$

2.51

(2)

(5)

Natural Gas

April 2021 - July 2021

Swap

120,000

MMBtus

$

2.51

(2)

(69)

Natural Gas

Aug 2021 - Sept 2021

Swap

10,000

MMBtus

$

2.51

(2)

(5)

Natural Gas

April 2021 - Oct 2021

Swap

400,000

MMBtus

$

2.51

(2)

(514)

Natural Gas

Nov 2021 - Dec 2021

Swap

580,000

MMBtus

$

2.51

(2)

(448)

Natural Gas

April 2021 - Nov 2021

Swap

70,000

MMBtus

$

2.36

(2)

(197)

Natural Gas

Dec 2021

Swap

350,000

MMBtus

$

2.36

(2)

(211)

Natural Gas

April 2021 - July 2021

Swap

350,000

MMBtus

$

2.96

(2)

436

Natural Gas

Aug 2021 - Oct 2021

Swap

500,000

MMBtus

$

2.96

(2)

316

Natural Gas

Nov 2021

Swap

450,000

MMBtus

$

2.96

(2)

58

Natural Gas

Jan 2022 - March 2022

Swap

780,000

MMBtus

$

2.54

(2)

(960)

Natural Gas

April 2022 - July 2022

Swap

650,000

MMBtus

$

2.52

(2)

100

Natural Gas

Aug 2022 - Oct 2022

Swap

350,000

MMBtus

$

2.52

(2)

3

Natural Gas

Jan 2022 - March 2022

Swap

250,000

MMBtus

$

3.15

(2)

148

Natural Gas

April 2022

Swap

175,000

MMBtus

$

2.51

(2)

5

Natural Gas

May 2022 - July 2022

Swap

150,000

MMBtus

$

2.51

(2)

18

Natural Gas

Aug 2022 - Oct 2022

Swap

400,000

MMBtus

$

2.51

(2)

2

Natural Gas

Nov 2022 - Feb 2023

Swap

750,000

MMBtus

$

2.72

(2)

(105)

Total net fair value of derivative instruments (in thousands)

$

(11,569)


(1)Based on West Texas Intermediate oil prices.
(2)Based on Henry Hub NYMEX natural gas prices.

18


The following summarizes the fair value of commodity derivatives outstanding on a gross and net basis as of March 31, 2021 (in thousands):