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Edited Transcript of MCF earnings conference call or presentation 9-May-19 1:30pm GMT

Q1 2019 Contango Oil & Gas Co Earnings Call

HOUSTON May 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Contango Oil & Gas Co earnings conference call or presentation Thursday, May 9, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Wilkie S. Colyer

Contango Oil & Gas Company - President, CEO & Director

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Conference Call Participants

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* Ronald Eugene Mills

Johnson Rice & Company, L.L.C., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Contango Oil & Gas first quarter results call. (Operator Instructions) As a reminder, today's conference is being recorded.

I'd now like to turn the conference over to Wilkie Colyer. Please go ahead.

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Wilkie S. Colyer, Contango Oil & Gas Company - President, CEO & Director [2]

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Thank you. Before we begin, I want to remind everybody that the earnings press release and the related discussion this morning may contain forward-looking statements as defined by the Securities and Exchange Commission, which may include comments and assumptions concerning Contango's strategic plans, expectations and objectives for future operations. Such statements are based on assumptions we believe to be appropriate under the circumstances. However, those statements are just estimates, are not guarantees of future performance or results and, therefore, should be considered in that context.

Good morning, and welcome to Contango's First Quarter 2019 Earnings Call. My name is Wilkie Colyer, and I'm President and CEO of Contango. I hope everyone has had time to read through yesterday's earnings press release, including cautionary statements regarding forward-looking information and non-GAAP measures that apply to the statements on this call. So again, I will not repeat what's in the press release and move on to color around our progress at the company since our last update, which is only a matter of weeks ago.

A big focus of ours, as you know, has been around controlling G&A costs to better align with our asset base. Our progress on that front met our expectations during the first quarter with a 36% decrease in recurring cash G&A expenses. April marks the first month under our new office lease, so those cost savings will be reflected in our results starting with the second quarter.

Around the time of our last call, we had just begun drilling operations for our first well in our Northeast Bullseye position. Subsequent to the end of the quarter, we have TD-ed that 10,000-foot lateral, the Iron Snake #1H. We were pretty excited by the oil shares we saw during drilling, and we look forward to completion and flowback of the well during Q3.

Our precision rig has moved down to legacy Bullseye and is currently drilling the American Hornet #1H. The rig will then head back to Northeast Bullseye to drill 2 to 3 more wells before our expected rig release. The results from offset operators near Northeast Bullseye have continued to be very impressive, and we expect this area will be a valuable addition to our portfolio.

We continue to make hedging a priority at the company as a risk management tool. Last quarter, we said we would look to add hedges to the portfolio for 2020, and we've since done that. We are now hedged and close to the maximum extent allowable for both 2019 and 2020. Additionally, we have hedged our base's exposure in West Texas for next year as a precautionary measure at $0.05. We don't have a crystal ball with respect to Mid-Cush differentials, but the base's hedges represent an asymmetrical risk return profile in case pipe capacity out of the basin is delayed. Hedging is something you should continue seeing from us in the future to protect our downside.

We are making great progress on the initiatives we laid out over the last several quarters in controlling costs, intelligent allocation of capital and risk management. We will also continue to look for ways in which to play offense during this period of dislocation in the energy markets. This company continues to enjoy large insider ownership of its stock, and that creates the right incentive structure to increase value for the benefit of all shareholders.

Thanks for your time today and for your interest in Contango. With that, operator, I'm ready to open the line up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from the line of Ron Mills with Johnson Rice.

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Ronald Eugene Mills, Johnson Rice & Company, L.L.C., Research Division - Analyst [2]

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One quick question. As it relates to your borrowing base and the availability under it, can you just expand a little bit on the fact that you have a $22 million or so liquidity, but it sounds like -- is that borrowing base currently under review? Or kind of what's going on with the refinancing talks of -- with this issue of the facility?

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Wilkie S. Colyer, Contango Oil & Gas Company - President, CEO & Director [3]

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Yes. We are undergoing currently our regularly scheduled redetermination, but no information or report on that thus far. We're still kind of going through the process, as we normally do. But as you've alluded to, we've got -- that facility matures in Q4 this year, and so it's something that is very high in our list of priorities in terms of getting that thing refinanced.

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Ronald Eugene Mills, Johnson Rice & Company, L.L.C., Research Division - Analyst [4]

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And is the thought process -- similar credit -- are BL-type facility with other options in terms of the second lien? Or is any and everything on the table?

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Wilkie S. Colyer, Contango Oil & Gas Company - President, CEO & Director [5]

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Yes. I mean I think, anything and everything should be on the table. It just depends on the risk profile of your capital allocation plans in terms of how that cap structure ends up looking.

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Ronald Eugene Mills, Johnson Rice & Company, L.L.C., Research Division - Analyst [6]

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And then once that is cleared up, and then is -- from that point forward, is that when you'll start to formulate a more concrete plan for the latter part of this year and 2020? I guess I don't know what your obligations are from a drilling standpoint in 2020, but I'm assuming that those plans will come together once the debt situation gets resolved.

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Wilkie S. Colyer, Contango Oil & Gas Company - President, CEO & Director [7]

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Yes, Ron. That's a good question. So we've got these wells that we're drilling this year, which are lease obligation wells in Northeast Bullseye. 2020 is obviously a little bit of ways away. We haven't made any decisions on budgeting for 2020. But I will tell you that we have very, very little in the way of lease obligation wells that are on our schedule for 2020. It's -- I believe it's 0. There may be 1. But at least in Northeast Bullseye, we have no lease obligation wells. So that just gives us a lot of flexibility in terms of looking at where to spend our capital. So again, too early to say anything definitive about 2020, but I will say that we've got a lot of flexibility there.

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Operator [8]

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And we have no further questions in queue.

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Wilkie S. Colyer, Contango Oil & Gas Company - President, CEO & Director [9]

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Great. Well, I want to thank everybody for their time, and I hope I didn't take too much of it. But look forward to catching up with you guys again and -- after our Q2 results. So thanks, again. Have a great morning.

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Operator [10]

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And ladies and gentlemen, that does conclude today's conference. I want to thank you for your participation. You may now disconnect.