Contango Oil & Gas (MCF) 10 Mar 212020 Q4 Earnings call transcript

Good day, and welcome to the Contango’s Q4 2020 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Wilkie Colyer. Please go ahead.

Good morning, and thank you for joining us for our fourth quarter and full year 2020 earnings call. Colyer, the Wilkie of Executive is Contango. name and Chief I’m Officer My

morning are had I Officer; the Company’s cautionary me Counsel. measures morning’s on presentation including and on that the website Joining statements this make Also, that Company’s the this XXXX. call to Company’s Financial March Roller, to General read Company’s release, information Chad this McLawhorn, the everyone President; the Farley our opportunity non-GAAP Chief Grady, company regarding is a press and and Operating to statements has Joe apply the call. Hopefully, Chief to Officer; on presentation will an Chad reference forward-looking the overview, the posted Dakan, header investor through Contango

capital are baseline and have by our heels Partners. Mid-Con expectations. recent building to our level in we late our time field to expenses you’d follow like rise So I handy, assets complemented and those record given oily of of the but November, the in development. be with track of of if merger you low-risk very prices, proved a to attractive assets in the enhanced which Energy further Silvertip we timely, cost with will please These along. that at cut on review the acquisitions later on prices, acquisition has are low spoke history operating call, ability decline, return acquisition we then purchases asset commodity announced our Last announcement cutting

front. hedging the on diligent remain we always, As

at gas and PDP we at have production oil XX% this of For the production of XX% year, PDP last our three hedged $X.XX. forecasted of forecasted $XX.XX hedged quarters

$X.XX. oil we PDP year, at of hedged XX% $XX.XX hedged on GAAP PDP on and XX% Next are

and of two of oil Lastly, the XX% we XXXX. gas hedged months in have and XX% first

percentage expect production portion what way that capital environment. just expect oil be mentioned, us in moderately our or than to high-return to a hedges protect mind our of include hedges that Keep does using as are on year commodity this a colors. our forecasted higher incremental not our I in We hedge which PDP we realization oil given discuss this via a volatile the downside I’ll bring moment, acquisitions. hedges Expect to to in online continue projects, our price

came results, LOE terms In in quarter. and guidance fourth we the production, of G&A on within for

was growth While we those are assets quarter certainly integration inorganic and of proud really about onto of this that, platform. Contango all the

on a presentation, than company around our to have Insider industry, entire transactions paramount it across and is be that’s terms in now ownership minimize. terms in want the peer-leading would that slides overview Slide some short company, really to but I you we’re as really, think way being Cash always we at company top ownership larger we starting bit. and shareholders. the months to near of as of you are ownership. insider company. way important high-end that for and something enough, value long-term closed, few create presentation G&A, to the and And salaries talked do or we’ll and better like take knowing really the really having But see, it way of Recurring in than we to if that’s little and strategy can Silvertip have ago. run this think our there’s G&A the on right key ownership, no insider about better as know, XXX to even to were we tenant about materially times, wouldn’t the of but alignment a skip X incentives, We now a through I’d we and walk opportunity today turn the MCEP outlook this

see salaries us can enterprise of keep are low. you our G&A our that our and to top so value helps about on peer And average group, XX% right,

that you allows think continue a value, percentage of that manage because the that as number We percentage make of up just incremental less with platform than As acquisitions operating single more to an that platform see, drive our asset. is as a on efficiently can we X.X%. can much down scale us a have to we someone continue or basis, assets standing with to enterprise we

the really management would like to and the the based we performance our our be team continue employee get get expect that paid down to be is to paid stock. So drive able way to to going or on of not and base that overtime

So anywhere our times performance multiyear grant, of and to the from our the grants performance versus peers that’s our and X executive of performance more compensation an in and share PSUs, stock’s my LTIPs are on PSU X be of which and form absolute been PSUs, basis specifically is a have based period. can XXX% and over heavily weighted the towards those ultimately LTIPs units. on

So of the think we incentives in Slide us Turning to managing assets the these got alignment between X. we’ve now proper [indiscernible]

Wyoming it prolific the a And over you time. have specifically in the find that These period we’ve long predominantly But our assets, key best Basin. fields diversified in of vantage place do three and the we look although the Permian where oil you Mid-Continent longer-lived our areas will asset at unconventional on Rockies, other is basins conventional focus other the country areas really, we got believe than now we before. will the are are where and the a at and be of conventional can very Oklahoma, found see, look to assets, probably in base, old been then As oil most now. focus we is

areas not again. won’t at say other look we to let’s So

really main is anticipate on cash strategy we here and company will areas. to be a we my those we’re not during I our areas. substantial on of a our areas have that that’s there’s spring but where increase we We in and do lots areas, other base to for liquidity look opportunities existing and bulk these borrowing But continue flow, up continue ample cash significant X, will flow three redetermination. reliant fund to increases And is to the at liquidity think think focus value being being base Slide free around focus generate that borrowing said, our outspend.

And you rather increase cash left outspend. in I’d in up that to so free used quadrant, our fund cash liquidity being that we the the acquire be anticipate assets PDP will used X, bottom flow flow Slide point to conjunction additional decline. with to than

forecasting no which a five-year are metric. is XX%, a at than believe less spending. we we So That peer-leading oil corporate importantly involved capital decline decline

that free capital to you’re having the to lot than close use really rate generate flat a but – in to flow our keep but reinvestment other right be to And the to cash whatever to assets on that on is bottom flow left. generate XX% the or CapEx allows or further without use rather consolidate spend is further to to want also continue peer use. you spend you to on dollars decline and the it production that having leading, really cash to acquire metric the that seeing used see arrest do profile So that will us EBITDA

second the an this months. really that’s this in design presentation. of important, company. everybody four most think the now slide really, XX, completed really give record I to Slide And is we’re track wanted this that we important transactions and how really, trying slide to or probably we’ve XX most So think, last of that’s we the outline or important our XX

we’ll and I are XXX the are was that. see transaction And variety first our it dates Mid-Con main as off, a Regions, effective sale. that that price, will in to look that times, M&A several that announced sale on bank-owned the regions a And the of steps. was can Silvertip obviously was bought these these bilateral types, reorganized following regions. elsewhere, company for of a the about. really cases, back-dated be of M&A bank-owned of are will headline Star involved and you then liquidation a focus was company many then talked the continue we those purchase and things be while a And in then Will Energy these So this dynamic. nature. the couple deal quarter White our numbers. again,

pretty So But adjustments. also date are pretty you relative numbers – numbers. effective to those is see, purchase price asset PDP can metrics as it’s there all these some type and PV-XX

of based that So at on of but us and those looking because the one. we’ve acquire which performance success. X.X assets acquisition assets all efficient to looking structures below PV-XX, And them, metrics, at the down of the we’ve make these the the all TEV, cost is the Once about And lot when to average, maximize are those attractive. value we a had more metrics, companies the lowering very on LOE PDP acquired on to PDP. important times,

per obviously assets in achieve the less of now, cost So on would in other been a expect three or owned able we average, LOE for achieve of drop further transactions. LOE those is we’ve note that an to matter on experienced Boe, been than and to But only decrease as savings Silvertip, which that’s managing we’ve weeks but been a XX% I well.

White the down flow we acquisitions anticipated which were prior Star spent we lower Will line million than to purchase of to cash Cash Energy $XXX million, the the punch of at $XX acquisitions the have these and with is closing. price bottom So because on of COVID. is adjusted would

have PV-XX, the we is But value So any had material we assets of would only at flow off PDP those we the have that’s the last – otherwise asset cash transaction. end year, even expected. much million of that of still still has as didn’t that Mid-Con $XXX sort at of price as year-end

that’s to PV-XX. really million, very PDP, that close $XXX – So

to $XXX able cash million million create of So that worth at we’ve $XXX of value closing. been out required about of

to a drilling any that, ROI profit. you’re times to into when a look you’re metric So attractive very, take your that having you at we is of way – geological not risks or to very that drill risk if going is think X.X sort take just having to they’re discounted

we anybody kind period has – think that’s we record time. that So I Slide in of aware think we over that’s this And don’t realm something not important, that of track that we’re the XX. really and it’s public repeatable. of

of producing here asset of Oklahoma many largest we year White focus drill of to the out in the existing wells. from able the almost the acquired were how cut shifting assets. to the we wells XX% or team the LOE is value And package, sticks central we key the do can the really of and was this So how Star maximize

is prices So production make I’d and note at basically which of just generated it to that LOE able to replace in X bar decreases increases pricing cuts steep running right cash really the And the shape shows is bottom reserves the decreases pretty the the near-term cost is from the drilling. strip, were this really than last with is this One flow does a increases it so no What year that at reduction and more we actually bar. cash flow generation XXXX backwardation. dated, with March that backward and being curve discounted bar.

you one pronounced looked really months again, be, a in low not to if is to that how if give a we we replace impressive say, but would may a XX the we of XX, wanted terms and, organic Slide of we’re the ago, is we were to more slide, several in this one can development much And very replicate at flow of the this would I and we So nevertheless, a relative the think reserves the proud way. be generated. future. it But everyone risk about two. think in very, able of cash of sense this that to number really combination most important amount continue

we’ve owned over the capital year for we’ve a spend far thus assets. what and as and month, have this been MCEP learning on Silvertip this We to is about just more decided

MCEP. the lot that can we to reserves sexy about activity Tree bottom And they up they projects you reserves think $XXX to do asset the that really, as highly looking not a million means. $XX expect wells for we PV-X $XX,XXX I So this into million able is well have on of It’s but booked developed be and of via production business. And as investment as the not at we any capital main a lot $XXX,XXX, jobs, acquired on these spending. that we see, would metric of about are as and by capital proved are say, add return to add focus $XXX,XXX our efficient. is of return table, Pine And we

– acquire it been we XX, Slide that really may some talk distressed. we TLC neglected opportunity either the is set. this assets them So we about what or have putting into referenced when when

months large commodity at substantial past this liquidations, near-term the We A&D Bank acquire are a and large. head see last prices to the opportunities executed in in attractive and best in in time morning just in but still set good that with very the operator, plan the via that, some While a opportunities is still start and way prices. head opportunity for We line on opportunities and opportunities the forward. and inorganic the the months, feel post because like on I the execute of have consolidation will pandemic, that the your is And it’s of four reorder opportunity public keeping for few the Contango. run billions. think for for we Thanks middle market. to pre a transactions have that continuing we tens and so bilateral, our open interest distressed XX up we capitalize company questions. and organic with our your opinion we’ve down And assets on to M&A and going in is

Instructions] we’ll ahead. our take please question. And first Caller, [Operator go

pressure outlined that It’s to Wilkie. affects two are Jeff the projects? for – higher? And any are any the go seeing move with question more Good things. on morning, and on commodity the Robertson. prices upward the work on sellers distressed of prices assets A you’ve ahead you now capital as that prices service – assets over created urgency in rise secondly, One maybe

the for Thanks Jeff. question,

proved to of job, certainly can oil can because costs. first biggest are focus smaller we do work-over-work cost service the And of We ours see I service seeing have see you just inflation. on do against much the the on And lot protect a more cost think in in the that we we But the increase big our in-house. those like the I from it, increases one, think service So think is feel not seen really without to it. expect is inflation. that’s why when reserves we about the develop benefit view going prices ourselves a

So you’re horizontal the or $XX lot drilling I bunch not prices a think going to owning drill that companies get need a some on, costs. leasehold you need once margins to and fracking just better recoup a crude sure to wells of $XX of on go companies their we’re higher

how I’m was So that’s then not think a definitive answer, And I guess, anyway. again? about Jeff, what your question but we sorry, that’s second it

them Has the accelerate divest higher to assets, assets that of theoretically of caused it all you cause they obviously rise or owners can in the price the commodity a distressed properties some prices the to plans those does a target on get now their based maybe strip?

think question. so. – Good we certainly we mean, Yes. I

more I certainly we’ve those I to strip and owners think that made is are think materialized higher, have a weren’t We executed the since likely Jeff. we that obviously assets but COVID. through certainly owners we’ll this oil non-natural on that’s prices, anything haven’t designed to now case, that in bit think expectation, but the that’s little our – of see. things, – fairly it just divest certainly

if about Last How and can. opportunities? debt use think for acquisitions. right of do I you Financing equity the incremental question, for

mean, to have we our I on amount have the question. fair will very liquidity post a or fair our It’s of we is revolver expect Yes. first redetermination. a thing is

is to afraid the for to share not the trying at day, that’s of equity accretive past, capital. end value the intrinsic assets. as acquisition acquire we’re analyze use of use shown the per not the whether our one And to or shareholders. in So to we’ve we’re Really,

of think is, we won’t. then it’s if we’re proposition the so not, a do And And going it kind relative And there. to deal. value we it’s if really

with and So again, that. the issue a just we balance we’re over probably but afraid given we equity, more think at sheet not equitized are, certainly debt to on are bit little that comfortable the moment,

half in And of being year turn. press net position. we of next would As be new end QX release, XXXX do no a a anticipate, cash sub debt-free leverage we anticipate year-end and the to by the we deals, we stated then at assuming

So incremental spot, we’re profile our really to on in a good execute liquidity further given acquisitions.

Wilkie. my taking for question, Thanks

Thanks, Jeff.

[Operator question. now please Instructions] ahead. We’ll go next Caller, take our

is This can morning. me, [indiscernible] Good you Wilkie? hear

Yes, I can. morning. Good

morning. expected Good in the profile has a Thank best and Question your this I the that is understand of number light acquisition acquisitions recent you call luck for one, company doing of Could with to I new the closed. efforts. for barrels numbers new confirm in forward seems day, just mix. at going oil the looking terms kind about a of of XXXX. the production in some XX,XXX XX% appendix approximately of I’m be It

off basic the what terms to CapEx of how And to per and want numbers just use barrel other the Just planned I these of confirm production far cost properties? expected in am? have then kind on you

Yes.

So think I we this production for on given don’t year. guidance have

spending. We have capital on guidance given

$XX presentation, that As have million. acquisitions. believe the spending developed million of I $XX you off create million guidance what, capital reserves of or million the expected proved see could about is, to in midpoint recent our we’ll that’s $XX of of $XXX

identified just the when given obviously, it. million Grizzly’s on the of that we that from there will I from – assets. million don’t then inventory non-op. that get we legacy timing So are And high it’s we’ve got control largely Grimes return additional are million be, those and but And of really Zavala about another have it’s believe, We highest couple AFE signed rate Contango projects that $X is also But non-operated other $X you’ve or we in counties return, wells our it’s of in portfolio. that a about the in half assets. some the the

replace we amount to but reserves reserves and additional create additive. think a Grizzly, which spending, really we that to will before our significant capital savings during LOE at off low think very teeth the year, into of be rolling the expect that’s be will So

a just this a follow-up, And people-related Okay. is question.

managed when just of acquired them You’re you are under on effectively basically and clearly, these the staff need return operating – you’re acquiring production more that retaining versus geology to their extent. staff what portion kind of have beforehand? and of portion been – they people companies and an be Can be have you because assets explain the to been suggesting operations the practices to how of able you’re operated. get capital-oriented And just operation and are they what in retained I’m to your how essence, wondering being how change overseen to, what were

been Yes. I would really very keep It’s we their got usually ideas. to They’ve to do ones, tend What try we the much a good them of staff. is many these just a is majority have to field say what neglected cases, pretty in and assets. listen question. that And good with

wells making this lot a try can just day two asset the we be a the that there’s I wells, completion So on maximize or where, more the think case, of up. as And we not about because lot structure on meaningful costs about of much focus larger trading lot we’re a field. cost shift think production? and a work And head we when drill And I lot of a acreage can broadly, in until related year? focused reasons. not of capital really we as many do we can for on to in controlling our spending our design, at for per kind more got But headquarters really and mean, program – really a drill you of companies bunch best mindset. development wells a into design, them how more geology then there’s sure can it. change doing land we’re company, things: and we’re that when a a a it drilling so on efficient sure small focus that’s BOE being it any the as to much that, then of we various I can from we in getting very to really block field. of how to we’re attention drilling flip think let’s asset say, And these And its focus it’s just our might time

duplicative. So decisions empower to we the them in really can. the as of of But the push is the we’re of of pretty make a the feel sufficient many not staff tend far a in change those decisions to incremental is to that cases, lot drilling as fact is because majority usually And think, to we the the staff field keep and company, strategy really down our of and already we part want existing a and And we have completion manage like assets. the value platform, and that’s big really, that infrastructure. all we G&A

the so having the that us really increase assets. in helps without to G&A grow And grow with commensurate

of what at And I’m Okay. old an higher you’re them value effort Energy, any wondering you maybe is, What to to just prior are time that Resolute realized for? drilled better there drilling, finally, you conventionally which when looking at you or started at horizontal done? looking differently you realize your and not old one a the acquisitions, owners new I’m properties, additional of production was you in assets are that try doing is, as reserves. hidden benefits of at ways have What alluding there been realization fields had led took sort look at and the looking to much

in weren’t that up once structure you’ve that the that the we find lowered tend is I you it cost I a opens the sauce. little really because cutting what that, a one secret can and of it of think idea not when at try to have field. go lot we on number be focus and that And then of that too kind be, bit cost. mean, do do is exacting what but decent maybe and in Yes. sure you that’s even you a I of it look But opportunities existed

kind of that’s approach – how we it. we So

Great. thank of you. luck, Listen, best

for much the very you Thank call.

have currently further we And questions. no

your Contango. And great Great. day. in again anyone Well, have a everybody’s team. when follow-up hesitate And May, you morning look for in reach first our if our don’t really out Everybody, to report we to questions, speaking this quarter please we and appreciate any time forward interest earnings. to to has

your today’s call. you Thank concludes for participation. This

You may disconnect. now