Contango Oil & Gas (MCF) 12 Aug 212021 Q2 Earnings call transcript

Good day, and welcome to the Contango Second Quarter 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Wilkie Colyer. Please go ahead.

Thanks, Melissa. you conference us call. thank quarter our and earnings XXXX afternoon, for for joining second Good I'm Contango. Colyer, Wilkie Chief Executive Officer of

this release, Chief everyone an apply and Operating to Chad call has and the Joe including Grady, the this read of had press the information Dakan, call. afternoon that afternoon's regarding our Financial presentation posted Goff, Officer; President; me this Officer; make Chief our our non-GAAP statements Chairman Farley the General are Roller, opportunity Chad on McLawhorn, today our our to measures will our Update. reference to Board; XXXX a Joining John cautionary statements forward-looking on Counsel. I website through Also, QX called to Hopefully,

you pull opening like now John that along. I'll over if the his Goff for please follow up pass to call to would remarks. So

Thank you, joining afternoon, you good call. We appreciate much everyone. very Wilkie, and the

company to serving update, covers the and largest Wilkie Before company, thinking shareholder as decision of guided and as want quarter important with Chairman long time the to the markets, the news. merger points for that Independence. investor of always the as with years, many a CEO reaction my Having a public the making merge to I big I'm cover in been and public intrigued for market's an the some

I believe we more has changed must leverage less want was. opportunities gives target need have always, both markets that leverage much a years My as assets withstand of XXX% comparable and to supportive we markets, we to a bank the when the than company. no very the oil personally have the to behind as billion as became up in have secret Stanley estate for done capital 'XXs, X until the a critical key that capital Having cleaning this a team, we yellow commodity Estate than are point feel today growing EBITDA the desk to initial markets of cost the have rectify It positive debt capital. and of overhead we're in X maintain gas job the on clearly even a excellent to Contango the on we the Equity business. Stock coverage, is and remains made our when The it that market, initial going make times, a light. investors to change are have with flow. generate In acquisition announcement study. structure long-term Couple We cash -- the a information fully and and market understand with and significantly investment-grade make long-term that, investment the traditional to evolving. than the Our impact have years, Crescent the Independence why work mind, maintain prior acquisitions. that. on to in collectively to definitely on one, merger, a plan. analyst that inexpensive on ensures lowest source be that X points: intend a a announcement, clearly as lot something capital for two, in that, time that merger to achieve want soon, X to announcement, basis, should absorb more the an years when, reliable transaction. company, markets. my an do takes dumped unsecured we we I come even there low and deal case means That ago. I of the strongly that the with that industry will I our happen of and ever its have passion years what and investment in am for why outperformed. have the to should sector in is Real my announced allowing in the and little many were I did have We comps as the merger begin to Number Exchange-listed this successful merits from will sale the excellent much Post Xx said a a no Board, a even that can substantial XX well of post-merger, the It early doubt with we any was we be in and and grew management time hard early industry a than statement reducing low at Independence why results cost much larger costs, as the attractive Wilkie at well with it. as in and long-term to that XXXX. team not and Independence Contango number significantly we over ago volatility mid-XXs. in leverage. us It's lending team as three, capital business, I businesses. this. acquisitions be pad merger can and real executing in terrific and The of the part far ultimately recent After merger as consolidate to impacting be thesis platform I credit cycle. the company with Crescent energy New past. durable the Very this ever. started free building $X.X of mathematically, future, with shares underperformed reiterate Number for want as worked York use now for sector, during we'll we too we the we rating is differentiator a maximum Morgan will the to the energy a to

markets, of acquisition scope our Now that it targets. to we broadens ourselves have and proven this the to

to Acquisition as are We on are with greater will plentiful get all and ever Independence. as with to this they Number They today our I merger X, opportunities bigger capitalize the have require access been. asked this continue capital. time.

and are capital of again, assumption not make with the was of gives Do critical. opportunities. have cost that. the merger done The that So out merger Independence us scale we run because

making The will be because not has done grown, has a merger opportunity grown, opportunity You not presumptive is set being This mistake. shrunk. shrunk. the set

of merger, what XX% was XXXX, operations. it the year worked are a important, XX% that's being ever I several merger first I've cover accretive. in with missing, our shareholders understand much deal. one. This less I the me business of a that or is accretion to let is market Contango accretive, that misunderstanding long full think critical things, one, think I misinterpreting. the transaction, how After Number time. is accretive Independence, is seen closing, That extraordinary. don't missed. XX% the been never on deal, a I have in Now,

all years cash be a the team. much I've of $X.XX them known for I've of from hear $X the of variety Kravis result further two, business shareholder Contango on a truth. the for past, Nothing I to the are Number flow as becomes the KKR. done with successful. could merger. management a as as investments KKR well of selling Henry in we So out comment

to this not the a and about in substantial clear, I have on with and be new David I'm collaborative is me Rockecharlie the payments Chairman love any front see have to They not of or team, deal achieve company. as Director's of to is to We asked the we to the morning be rest them. the this. of I And ask doing how and traditional strategy Independence team, want wake that, Chairman. did great us, as receiving respect This eye-to-eye opportunity any be don't of I thinking outside time compensation, compensation, the well spent be. on a me. I in believe Director's my We the for want and I of the let be effort. me. up going fees fun.

of their own, on have intention the intention I selling. sheet, I hold have stock million Number portion will think think of stock KKR and and about they no roughly I three, no a of substantial every I that selling. of about shares day. balance XX

the exposure to our both management the don't for term. are this KKR grow fee. is long a four, label. energy the be Number in that vehicle different and to is sector. singular fee The This simply We the with be using will by G&A management confused myself

a run to else in is business, the cover The that fee, among the than you cost this management slide management Our group, factoring give detail. in our will nothing will management some fee on peer fee. in lowest and factoring Wilkie the G&A. collective be

talented low-cost a that you. look absolutely you value would at exposure insider I a to want company, there's consolidation call name anything you free team, us We We nickel and comes incentivized and well-capitalized hear inevitable respect post. substantial we to management investors to the wonderful of that's and I've capital, So aligned encourage love then off necessary have made in questions. confusing if to a blog the with never to industry you a not from consider. great summary, are questions. flow, a if highly And up facts, your if cash the rhetoric. through your and input ownership

and merger by being a personal huge truly going part reiterating billion-plus transforming Let in that get my out company -- think the we're I've is that step that to me a direction. stand target in company to there, being future. by this team enjoying of close not-too-distant Wilkie? laid and the I'm is $XX a of I this this

initiatives for of like of a Thanks, a entered and overview recent quarter to on quick into. then start with to Contango, John. move I'd strategic discussion the we've

demonstrates daily by that On strengthening quarter guidance the by changes closing the the an LOE XX% the over X QX portfolio, increase February in quickly that above spending achieved it Result in able to of our above X February optionality alone. price point It's acquisitions I'm this quarter, a environment. believe in We flow crude down crude ability react using was production low QX, for out and on million also demonstrates slightly post workover spending, line and March debt to bottom recent and because was production positive into that that we we've production $XX to to negative. March and we the acquisitions particularly to relative approximately made. important decline prices, in free in daily and while on guidance. the XX% was were both growth inherent is paying the that average, and cash our coming we accelerated The

initiatives. strategic to Moving

X call. made major announcements have We last since quarterly our

and billion an on $X.X billion, Independence cap merger and our will with X. a enterprise August with of which first Energy, market announced of is The as create $X based an prices respectively, industry-leading market value consolidator

The able second River acquisition enhance of further we to price identified we with cost were which attractive have process. diligence initiatives through to due is buy potential long-term during our savings value an Wind ConocoPhillips, Basin our assets, the at

of a with which attracting announcement right on or have commercial tough, Let's In January. have-nots ESG the be a of haves back have bank borrowing for first. of and the cover in the the reliant based base Contango backed tough most lender companies how Independence growth. firsthand that capital job merger the coincidence. witnessed those the pressures. factors, bank in away job rationale, combination haves QX. view The space and characterize and capital would could we size seems just but now. X, to was increased to market one scale. in There merger of that bifurcation is really in view, culminated between the banks Regardless for forming important market Board the difficult started when Independence because was is market, the are management's a several investor and correlation being the not as the RBL a prior from and market be a We our losses We our upstream with on that a process, It the a between in

endeavor for and to are was get large the supporting we incrementally successful that future difficult. in were deeply more it would While group clear increases our lending that grateful increase,

opportunities. of buyers. Independence needed to but few the fewer We at staring billions as opportunity, were to few hands we questions. capitalized to into where When over assets dollars wave next analyzed on PDP-heavy trade up, bigger heat enormous with get the of expect market fewer a So a years by management, market execute Board and and we well opportunity we of next asking began an with discussions a very this to important simple

First, year shown our transaction discussed our flow cash XX% Slide for XX, do intrinsic Contango value is accretive full share first operations. per the by combined we expect deal on of to and As to this per increase XXXX, share previously expected in shareholders?

never As level John deal said, of we accretion to before seen existing that have with shareholders. a

this transaction capital The of be G&A cost answer designed will Contango particularly to drive stand-alone? and Second, relative down is absolutely. costs, to

Let's start G&A. pro discussing by forma

Turning X presentation. to Slide of the

global Contango's EBITDA KKR and to all percentage a of of public broad graphical executives percentage also partner sub of all right Slide shown EV as as When at that and of thing at $X KKR, their reputation. macro, from capital with Slide typical a million addition broader the the on stick first services paying that G&A to the as on company, G&A, KKR mention the management things out. associated Institute, the would out we benefit not is and per to of of quite to items It overhead including the Capital of resources The the be efficiently. group, paid Markets, business, access and fee covers example, assets our depiction the are and a client corporate affairs, of example, level, will you it side I suite point and pays for for a and two peers, of X, the Contango fees, the both services to KKR agreement. both scope such combined relative the global the X, negotiated KKR an look Global and combine compensation

more The us first as standalone. a efficient is to Contango the combination company makes that relative

cost our metrics. have capital, important as and in cost is is turn is at platform cyclical let's we will of and commodity very second The well that Slide will peers combined Efficiency as a the credit in this drive our relative we we On those The will longer-term capital be who have huge cost at have think ultimately differentiated in potentially business to particularly peers, XX. mid-cap This of investment-grade to and both the when we The down screen these relative to a teens, to capital a we will fund low, competitive metrics, continue disciplined critically of be businesses, cost scarce in structure the scale. business high cannot if business advantage our rating advantage a of to higher. not overstated. in continues opportunity expect investment-grade to way. an scale capital

also debt-to-EBITDA. leverage will a low leverage maintain We a with profile long-term target of Xx approximately

game. in pursuit Third, align will substantial that transaction. on seeding control, new like-minded in we have find in continue management of to way the insider of The peer-leading this with Independence, we leadership be point ownership considering a are still the the since the to which our to this in would of best post skin for shows is and has on-balance-sheet business thing KKR Slide incentives is terms investment in in I that value out we team question back first business? are we combined X,

of next the Board the will the left Slide large maintain course, Goff, alignment business, of I quadrant. around would Chairman stock John Of thing very XX. on highlight personally. is combined in position a Bottom The the

Partners in importantly, Silvertip You'll put in capital have late of were as lot XXXX of management on upside. but the the notice Contango were asset and with the On Contango's and put XX. Independence's Mid-Con note to alone And work turning XXXX, flowing the a peers waited to in when market that and countercyclically. Independence time And work closed a clarify, XXXX in cash next slide, in a and sidelines. the to proven, peers able that million at XXXX. basis, and On XXXX, space, both capital deals we signed Energy Slide just meaningful in to assets combined on to $XXX public

the of those this weighted events, the was when $X.XX So capital time investment closed. Mcf, that's as per here respectively. million signings, at oil note gas for are also because $XXX the XXXX and that barrel per spot and prices of included average $XX.XX would they I

substantial capitalize these -- differentiated market done. highly get able This a stand-alone were We questions a asset more it asked so to metrics, broader, business sum better that to think competitive Independence purchases things working and opportunities, Last, feel this future our his base debt job look in a we of acquisition to have are us shareholders team reputation equity, perfect capitalize successful a To both previously scaled our combination do both other with company. mix, Our larger of over consolidators we on a for better up, opportunistic. we positioned acquisition with advantage continue view risk size via opportunities commodity to the stakeholders. creates we is and all Contango. We to return can answer and fit the program access credit X well all also expand and a So this since benefit sets via for couldn't platform? made deals, to capital, growing finding advantage. on to for being and investment-grade to we believe include a as smaller forward diversified up at KKR a we David we

Inc. the there the IE on proposed for Inc., an PubCo, For that Energy company with PubCo, stands filed merger, is SX the IE SEC more information Independence Inc. under so PubCo, name

opportunities. Wind ConocoPhillips. checked providing would recent XX. boxes color the it look evaluating of add by acquisition some we new attribution Next, acquisition when the Slide the we on some helpful thought This our to context lot from River of See additional for a most to be market opportunity assets

think Vertically cubic that operational X.X a date. production my be divest net remarks asset opportunities. top reserve discussion an larger I'll This looking We We It's gas an of opportunity It's with that stand-alone of to asset Wyoming upside low-decline long million currently Basin clean on XXXX. expected with of Conoco, a the profile. on and of equivalent there a profitability improve recovered on world-class for partner we footprint. rate period Wyoming in for profile. per incremental We the those is Tcf has also for profile. larger assets value return rate these up Contango's intend Contango, third deal to and by not that think to and Contango's to life. reserves on as X% and like QX a conventional XX subsidiary company plan our are who an run producing more Independence attraction. looking as day a natural area, exposure a the a clean a long-term in creation asset. opportunities is will create in operational prepared the than approximately even of balance is the maximize expected Wyoming, lookout sheet like feet experience for benefit. risk all the inherent acquisition and of acquisition important, quality reputation price purchase quick life, asset like payback And meaningful business post in attractive cash our were We Wind a Future for a assets XX% increase the in area, multiple margins. costs an is as when flow improvements in reduce production The return divesting the attractive attractive be asset break to Asset long-term total decline. assets. think conventional it to and and value provides very This more. enterprises further River attractive opportunities. kept an we pipeline. the Rockies' We integrated certainly finish acquired market, also merger, capitalizing and priority and on And to prices in State gas Contango's were the later of acquisition if existing conventional particularly the and enhances are and important, to

are and early more is year. was understand assets this sure close. certainly gas are bidders of management processes. Consistently, CAs and are percentage finding signed, interest those we year or real actually and what what upstream the bidders in have more than is capital involved last We more we that in more there late oil What to are those presentations percentage there marketed that less there about of bids

to disciplined our standards For chips us, underwriting they where may. fall let we will and the stick

assets "get the of now. have outstrip diversified Over we assets think the benefit a which to have deals creates of the lot in that flow and set ultimately time, durable of business", need see we without right could pipeline a no of to We teams cash available deals doing expect capital for afternoon industry, attractive next With again the side. that, to the that backdrop, the in for time a line questions. With open healthy Thanks your pipeline for we have of and operator, to conventional Contango. in the your particularly prosecute for interest let's few on opportunities years. chase this up

And Instructions] will ahead with we question. our [Operator first go

[indiscernible] targeting saw announced concept Wilkie, of flow out it's they're paid to quarterly. be free variable Chesapeake Capital. I kind of which cash higher amount recently -- much Andy in a a dividend this

they're cash are flow. targeting trade-off about and versus of free the I EBITDA. about you redeploying do XX% flow And acquisitions? targeting guys of think How you XX% that think I note cash dividend

I'd for co. good So about a of be as question. EBITDA, team and question they using in saying talking with leading better knowing view But and good they dividend and probably from If will David I good off -- XX% then math. know guys is by Independence, rough discipline we risk John just that his and we're XX% new since CapEx, those mitigation. free this the of look, a of Yes. talking EBITDA about It's you're really flow, start XX% spending right? we're cash

a it's dividend that so. And that ability discipline, business very think to time but to we us at grow attractive the maintain profile gives the that so also do

to new driven really So I you be John, will of want that John the think management co and ultimately. there? anything by team add then the But

what our get that wrap we merger dividend. that's laid around be, going is but exactly heads we think closer a We'll scope policy the out to just that kind No, to broad as the right. of as I

the way stock the as at back. value the value think the acquisition versus an this that versus measuring of dividend I I of always value buying personally of looked traditionally even

think be other each I time. will all against at those the So weighed appropriate

about merger, via I feel have access capital we opportunities like we'll take this to point think disadvantaged personally access find think instituted don't embark we that to dividend. and going down having accretive back a upon. of should to capital, to to are we because be advantage just up we've We that the to the capital structure, opportunities

that we're out what is no them gives question But and institute growth of the scale I those combined want dividend, super the think Contango Independence reinvesting of let focused stand-alone, didn't with dollars, we on because the business this system. to really to all certainly whereas the confidence

what would if when I be flow is, much the you this be of much, higher are stock dividend of entity guys currently capable to generating get higher -- just the operating should these right, basis, thing than the cash levels you on an advertising. that was

the And shareholders. the to guys stock Because why more of so the confusion think you here that's it redeploy think and it to I the to flow than part free to into about a distribute around suffers. strategy as think need is it's to beneficial why acquisitions articulating I CapEx story with cash

out I cash of cetera. a flow doing restructuring, and of Chesapeake's and So XX% obviously, coming and announcement whatever delevered of et think free they're they're

I thing some should it's something and you think thought business, give you a up but just in how in that's to that guys different address the think maybe about merge quarterly to that So this calls slightly the future. as

Yes.

it's point. a I valid think

new Andy, And with the Yes, that will agree your know account. Board color side. that into I the from that, take appreciate I and co

Instructions] [Operator

All of Contango. go John right. sign interest no extent off. Well, everybody's earlier, day. and don't hesitate time. to are answer everybody's to reach great questions, We have your other folks time the happy And out everybody's said questions, a have Thanks. Like today you we'll that Hope seeing again, in to rest appreciate follow-up those. appreciate there ahead to and We're us. please

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

now time. may You at this disconnect