Attached files
file | filename |
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EX-99.1 - EX-99.1 - CONTANGO OIL & GAS CO | d318106dex991.htm |
EX-23.1 - EX-23.1 - CONTANGO OIL & GAS CO | d318106dex231.htm |
8-K - 8-K - CONTANGO OIL & GAS CO | d318106d8k.htm |
Exhibit 99.2
UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated combined financial statements present the historical consolidated financial statements of Contango Oil & Gas Company and Subsidiaries (Contango) and the historical consolidated financial statements of Michael Merger Sub LLC (successor to Mid-Con Energy Partners, LP) and Subsidiaries (Mid-Con), adjusted to give effect to the following transactions (collectively, the Transactions):
| Contangos acquisition of Mid-Con, which closed on January 21, 2021, in which each Mid-Con unitholder received 1.75 shares of Contangos common stock (a total of 25,409,164 shares of Contango common stock were issued at closing) (the Mid-Con Acquisition), |
| the issuance and sale of 26,451,988 shares of Contango common stock in a private placement completed on October 27, 2020, at a price of $1.50 per common share (the private placement), and |
| additional borrowings under Contangos credit facility in connection with consummation of the Mid-Con Acquisition and repayment of outstanding borrowings under Mid-Cons credit facility. |
The unaudited pro forma consolidated combined statement of operations for the year ended December 31, 2020 combines the historical consolidated statements of operations of Contango and the historical consolidated statements of operations of Mid-Con, giving effect to the Transactions as if they had been consummated on January 1, 2020, the beginning of the earliest period presented. The unaudited pro forma consolidated combined balance sheet combines the historical consolidated balance sheet of Contango and the historical consolidated balance sheet of Mid-Con as of December 31, 2020, giving effect to the Transactions as if they had been consummated on December 31, 2020. The historical consolidated financial statements have been adjusted in the unaudited pro forma consolidated combined financial statements to give pro forma effect to events that are: (1) directly attributable to the Transactions; (2) factually supportable; and (3) with respect to the statement of operations, expected to have a continuing impact on Contangos results following the completion of the Transactions.
The unaudited pro forma consolidated combined financial statements have been developed from and should be read in conjunction with:
| the accompanying notes to the unaudited pro forma consolidated combined financial statements; |
| the historical audited consolidated financial statements of Contango as of and for the year ended December 31, 2020 included in Contangos Annual Report on Form 10-K for the year ended December 31, 2020 (the Contango Form 10-K); |
| the historical audited consolidated financial statements of Mid-Con as of and for the year ended December 31, 2020 included in Exhibit 99.1 attached hereto. |
Contango Oil & Gas Company and Subsidiaries
Unaudited Pro Forma Consolidated Combined Statement of Operations
Year Ended December 31, 2020
(in thousands, except per share amounts)
Historical | Pro Forma | |||||||||||||||||||
Transaction | ||||||||||||||||||||
Accounting | Financing | Pro Forma | ||||||||||||||||||
Contango | Mid-Con | Adjustments | Adjustments | Combined | ||||||||||||||||
(a) | (b) | |||||||||||||||||||
REVENUES |
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Oil and condensate sales |
$ | 62,461 | $ | 38,024 | $ | | $ | | $ | 100,485 | ||||||||||
Natural gas sales |
31,381 | 877 | | | 32,258 | |||||||||||||||
Natural gas liquids sales |
17,078 | | | | 17,078 | |||||||||||||||
Fee for service revenues |
2,000 | | (2,000 | )(c) | | | ||||||||||||||
Other operating revenues |
| 748 | | | 748 | |||||||||||||||
Gain on derivative instruments |
| 16,036 | (16,036 | )(d) | | | ||||||||||||||
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Total revenues |
112,920 | 55,685 | (18,036 | ) | | 150,569 | ||||||||||||||
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EXPENSES |
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Operating expenses |
72,847 | | 28,176 | (e) | | 101,023 | ||||||||||||||
Lease operating expenses |
| 24,039 | (24,039 | )(e) | | | ||||||||||||||
Other operating expenses |
| 1,496 | (1,496 | )(e) | | | ||||||||||||||
Production and ad valorem taxes |
| 2,641 | (2,641 | )(e) | | | ||||||||||||||
Exploration expenses |
11,594 | | 4,290 | (f) | | 15,884 | ||||||||||||||
Depreciation, depletion and amortization |
30,032 | 9,076 | 4,791 | (g), (h) | | 43,899 | ||||||||||||||
Impairment and abandonment of oil and natural gas properties |
168,802 | 19,647 | | | 188,449 | |||||||||||||||
Dry holes and abandonments of unproved properties |
| 4,290 | (4,290 | )(f) | | | ||||||||||||||
Accretion of discount on asset retirement obligations |
| 1,734 | (1,734 | )(h) | | | ||||||||||||||
General and administrative expenses |
24,940 | 10,620 | (2,000 | )(c) | | 33,560 | ||||||||||||||
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Total expenses |
308,215 | 73,543 | 1,057 | | 382,815 | |||||||||||||||
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OTHER INCOME (EXPENSE) |
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Gain from investment in affiliates, net of income taxes |
27 | | | | 27 | |||||||||||||||
Gain from sale of assets |
4,501 | | | | 4,501 | |||||||||||||||
Interest income |
| 1 | (1 | )(i) | | | ||||||||||||||
Interest expense |
(5,022 | ) | (5,137 | ) | | 3,253 | (k) | (6,906 | ) | |||||||||||
Gain on derivatives, net |
27,585 | | 16,036 | (d) | | 43,621 | ||||||||||||||
Loss on settlements of asset retirement obligations |
| (15 | ) | 15 | (h) | | | |||||||||||||
Other expense |
| (39 | ) | | | (39 | ) | |||||||||||||
Other income |
3,609 | | 1 | (i) | | 3,610 | ||||||||||||||
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Total other income (expense), net |
30,700 | (5,190 | ) | 16,051 | 3,253 | 44,814 | ||||||||||||||
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NET LOSS BEFORE INCOME TAXES |
(164,595 | ) | (23,048 | ) | (3,042 | ) | 3,253 | (187,431 | ) | |||||||||||
INCOME TAX PROVISION |
(747 | ) | | | (m) | | (m) | (747 | ) | |||||||||||
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NET LOSS |
$ | (165,342 | ) | $ | (23,048 | ) | $ | (3,042 | ) | $ | 3,253 | $ | (188,178 | ) | ||||||
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Less: Distributions to preferred unitholders |
1,172 | (1,172 | )(j) | | | |||||||||||||||
Less: General partners interest in net loss |
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Limited partners interest in net loss |
(24,220 | ) | (1,870 | ) | 3,253 | (188,178 | ) | |||||||||||||
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NET LOSS PER SHARE |
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Basic |
$ | (1.20 | ) | $ | (1.02 | )(1) | ||||||||||||||
Diluted |
$ | (1.20 | ) | $ | (1.02 | )(1) | ||||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
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Basic |
137,522 | 184,249 | ||||||||||||||||||
Diluted |
137,522 | 184,249 |
Contango Oil & Gas Company and Subsidiaries
Unaudited Pro Forma Consolidated Combined Balance Sheet
As of December 31, 2020
(in thousands, except share and per share amounts)
Historical | Pro Forma | |||||||||||||||||||
Transaction | ||||||||||||||||||||
Accounting | Financing | Pro Forma | ||||||||||||||||||
Contango | Mid-Con | Adjustments | Adjustments | Combined | ||||||||||||||||
(a) | (b) | |||||||||||||||||||
CURRENT ASSETS |
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Cash and cash equivalents |
$ | 1,383 | $ | 776 | $ | | $ | 4,255 | (d) | $ | 6,414 | |||||||||
Accounts receivable, net |
37,862 | 4,398 | | | 42,260 | |||||||||||||||
Prepaid expenses |
3,360 | 162 | | | 3,522 | |||||||||||||||
Current derivative asset |
2,996 | 3,141 | | | 6,137 | |||||||||||||||
Inventory |
442 | | | | 442 | |||||||||||||||
Deposits and other |
763 | | | | 763 | |||||||||||||||
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Total current assets |
46,806 | 8,477 | | 4,255 | 59,538 | |||||||||||||||
PROPERTY, PLANT AND EQUIPMENT |
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Oil and natural gas properties, successful efforts method of accounting: |
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Proved properties |
1,274,508 | 265,144 | (92,537 | )(c) | | 1,447,115 | ||||||||||||||
Unproved properties |
16,201 | | | | 16,201 | |||||||||||||||
Other property and equipment |
1,669 | 916 | (186 | )(c) | | 2,399 | ||||||||||||||
Accumulated depreciation, depletion, amortization and impairment |
(1,190,475 | ) | (101,026 | ) | 101,026 | (c) | | (1,190,475 | ) | |||||||||||
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Total property, plant and equipment, net |
101,903 | 165,034 | 8,303 | | 275,240 | |||||||||||||||
OTHER NON-CURRENT ASSETS |
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Investments in affiliates |
6,793 | | | | 6,793 | |||||||||||||||
Long-term derivative asset |
497 | | | | 497 | |||||||||||||||
Right-of-use lease assets |
5,448 | | | | 5,448 | |||||||||||||||
Debt issuance costs |
1,782 | | | 962 | (e) | 2,744 | ||||||||||||||
Deposits |
7,038 | | | | 7,038 | |||||||||||||||
Other assets |
| 1,497 | | | 1,497 | |||||||||||||||
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Total other non-current assets |
21,558 | 1,497 | | 962 | 24,017 | |||||||||||||||
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TOTAL ASSETS |
$ | 170,267 | $ | 175,008 | $ | 8,303 | $ | 5,217 | $ | 358,795 | ||||||||||
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CURRENT LIABILITIES |
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Accounts payable and accrued liabilities |
83,970 | | 5,596 | (f) | 4,255 | (g) | 93,821 | |||||||||||||
Accounts payable - trade |
| 648 | (648 | )(f) | | | ||||||||||||||
Accounts payable - related parties |
| 3,392 | (3,392 | )(f) | | | ||||||||||||||
Accrued liabilities and other |
| 1,556 | (1,556 | )(f) | | | ||||||||||||||
Current derivative liability |
1,317 | | | | 1,317 | |||||||||||||||
Current asset retirement obligations |
4,249 | | | | 4,249 | |||||||||||||||
Other current liabilities |
| 457 | | | 457 | |||||||||||||||
Current debt |
| 68,487 | | (68,487 | ) (h) | | ||||||||||||||
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Total current liabilities |
89,536 | 74,540 | | (64,232 | ) | 99,844 | ||||||||||||||
NON-CURRENT LIABILITIES |
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Long-term debt |
12,369 | | | 72,742 | (i) | 85,111 | ||||||||||||||
Long-term derivative liability |
1,648 | | | | 1,648 | |||||||||||||||
Asset retirement obligations |
48,523 | 32,630 | (3,389 | )(c) | | 77,764 | ||||||||||||||
Lease liabilities |
2,624 | | | | 2,624 | |||||||||||||||
Deferred tax liability |
| | | (j) | | | ||||||||||||||
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Total non-current liabilities |
65,164 | 32,630 | (3,389 | ) | 72,742 | 167,147 | ||||||||||||||
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Total liabilities |
154,700 | 107,170 | (3,389 | ) | 8,510 | 266,991 | ||||||||||||||
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SHAREHOLDERS EQUITY |
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Common stock, $0.04 par value, 400 million shares authorized, 173,830,390 shares issued 173,737,816 shares outstanding |
6,941 | | 1,016 | (c) | | 7,957 | ||||||||||||||
Equity, limited partners - 14,311,522 units issued and outstanding |
| 67,838 | (67,838 | )(k) | | | ||||||||||||||
Additional paid-in capital |
535,192 | | 78,514 | (c) | | 613,706 | ||||||||||||||
Treasury shares at cost (92,574 shares) |
(248 | ) | | | | (248 | ) | |||||||||||||
Accumulated deficit |
(526,318 | ) | | | (3,293 | ) (l) | (529,611 | ) | ||||||||||||
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Total shareholders equity |
15,567 | 67,838 | 11,692 | (3,293 | ) | 91,804 | ||||||||||||||
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 170,267 | $ | 175,008 | $ | 8,303 | $ | 5,217 | $ | 358,795 | ||||||||||
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1. Basis of Pro Forma Presentation
The unaudited pro forma consolidated combined financial statements have been prepared assuming the acquisition of Mid-Con is accounted for using the acquisition method of accounting under Financial Accounting Standards Board (FASB) ASC 805, Business Combinations (ASC 805). Under the acquisition method of accounting, the Mid-Con Acquisition will be recorded at fair value measured as of the acquisition date. The pro forma adjustments have been prepared as if the Transactions had taken place on December 31, 2020 in the case of the unaudited pro forma consolidated combined balance sheet and January 1, 2020 in the case of the unaudited pro forma consolidated combined statement of operations.
ASC 805 uses the fair value concepts defined in FASB ASC 820, Fair Value Measurements (ASC 820). ASC 820 defines the term fair value, sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined in ASC 820 as 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. This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and seller in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
Under ASC 805, acquisition-related transaction costs are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred, or if related to the issuance of debt, capitalized as debt issuance costs. Acquisition-related transaction costs incurred as part of the Transactions include advisory, legal and credit facility amendment fees. Equity issuance costs are netted against the offering proceeds.
The unaudited pro forma consolidated combined financial statements should be read in conjunction with (i) Contangos historical consolidated financial statements and related notes for the year ended December 31, 2020, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations, included in the Contango Form 10-K and (ii) Mid-Cons historical consolidated financial statements and related notes for the year ended December 31, 2020, included in Exhibit 99.1 attached hereto.
The unaudited pro forma consolidated combined financial statements reflect adjustments, based on available information and certain assumptions that Contango believes are reasonable, attributable to the following:
| the Mid-Con Acquisition, which is accounted for using the acquisition method of accounting, with Contango identified as the acquirer, and the issuance of shares of Contango common stock as merger consideration; |
| the conversion of vested and unvested Mid-Con phantom units through the issuance of shares of Contango common stock in accordance with the merger agreement; |
| the issuance of Contango common stock in the private placement and additional borrowings under Contangos credit facility in connection with consummation of the Mid-Con Acquisition and repayment of outstanding borrowings under Mid-Cons credit facility; |
| adjustments to conform the classification of certain assets and liabilities in Mid-Cons historical consolidated balance sheet to Contangos classification for similar assets and liabilities; |
| adjustments to conform the classification of expenses in Mid-Cons historical consolidated statement of operations to Contangos classification for similar expenses; |
| the incurrence of merger-related expenses; and |
| the recognition of estimated tax impacts of the pro forma adjustments. |
The pro forma adjustments represent managements estimates based on information available as of the date of this filing and are subject to change as additional information becomes available and additional analyses are performed. The pro forma financial statements are provided for illustrative purposes only and are not intended to represent what Contangos financial position or results of operations would have been had the Mid-Con Acquisition actually been consummated on the assumed dates nor do they purport to project the future operating results or financial position of the Contango following the Mid-Con Acquisition. The pro forma financial statements do not reflect future events that may occur after the Mid-Con Acquisition, including, but not limited to, the anticipated realization of ongoing savings from potential operating efficiencies, asset dispositions, cost savings, or economies of scale that Contango may achieve with respect to the combined operations. Specifically, the pro forma statements of operations do not include the synergies expected to be achieved as a result of the Mid-Con Acquisition and any associated costs that may be required to be incurred to achieve the identified synergies. Additionally, Contango cannot assure that charges will not be incurred in excess of those included in the pro forma total consideration related to the Mid-Con Acquisition or Contangos efforts to achieve synergies and integrate the operations of the companies, or that management will be successful in its efforts to integrate the operations of the companies. The pro forma statements of operations also exclude the effects of costs associated with any restructuring, integration activities, and asset dispositions that may result from the Mid-Con Acquisition. Further, the pro forma financial statements do not reflect the effect of any regulatory actions that may impact the results of the Contango following the Mid-Con Acquisition.
Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma financial statements. In Contangos opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The historical consolidated financial statements have been adjusted in the unaudited pro forma financial statements to give effect to the Transactions. These adjustments are directly attributable to the Transactions, factually supportable and, with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the combined results of Contango and Mid-Con following the Mid-Con Acquisition.
2. Pro Forma Adjustments and Assumptions
Pro Forma Adjustments to the Statement of Operations for the year ended December 31, 2020:
a. | Represents Contangos historical consolidated statement of operations for the year ended December 31, 2020. |
b. | Represents Mid-Cons historical consolidated statement of operations for the year ended December 31, 2020. |
c. | Reflects the removal of Contangos fee for service revenues and Mid-Cons general and administrative expenses associated with the management services agreement between Contango and Mid-Con. |
d. | Represents a reclassification of gain on derivative instruments from revenues to other income (expense). |
e. | Represents a reclassification of lease operating expenses, other operating expenses, and production taxes into operating expenses. |
f. | Represents a reclassification of dry holes and abandonments of unproved properties into exploration expenses. |
g. | Includes an increase in depreciation, depletion and amortization based on the allocated fair value of the Mid-Con properties and the reclass of accretion of discount on asset retirement obligations to depreciation, depletion and amortization. |
h. | Represents the reclassification of accretion of discount on asset retirement obligations and loss on settlements of asset retirement obligations to depreciation, depletion and amortization. |
i. | Represents the reclassification of interest income to other income. |
j. | Adjustment eliminates historical distributions to preferred unitholders given the Mid-Con Acquisition. |
k. | Adjustment to eliminate historical interest expense related to borrowings under Mid-Cons credit facility that was not assumed by Contango and to recognize interest expense that would have been incurred with respect to borrowings under Contangos credit facility in connection with the Mid-Con Acquisition, had such acquisition occurred on January 1, 2020, as well as to recognize amortization of credit facility amendment fees associated with increasing Contangos borrowing base in connection with the Mid-Con Acquisition, had such acquisition occurred on January 1, 2020. |
l. | The pro forma basic and diluted net loss per share was computed by dividing pro forma net loss attributable to Contango by the historical weighted average number of shares of common stock outstanding after giving effect to: (i) the issuance of 25,045,164 shares of Contango common stock in connection with the Mid-Con Acquisition, and (ii) the issuance and sale of 26,451,988 shares of Contango common stock in the private placement completed on October 27, 2020, as if those issuances had been completed on January 1, 2020. |
m. | No tax benefit is recognized in the pro forma statement of operations for the incremental pre-tax losses attributable to the Mid-Con Acquisition due to the valuation allowance against Contangos deferred tax assets. |
Pro Forma Adjustments to the Balance Sheet at December 31, 2020:
a. | Represents Contangos historical consolidated balance sheet as of December 31, 2020. |
b. | Represents Mid-Cons historical consolidated balance sheet as of December 31, 2020. |
c. | Reflects the issuance of 25,409,164 shares of Contango common stock at a price of $3.13 per share as consideration in the Mid-Con Acquisition and adjustments to state Mid-Cons assets acquired and liabilities assumed at fair value. A summary of the consideration paid and the preliminary fair value of the assets acquired and liabilities assumed is as follows (in thousands): |
Preliminary Consideration: |
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Mid-Con outstanding units |
14,520 | |||
Exchange ratio of Contango shares for Mid-Con common units |
1.75 | |||
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Contango common stock issued to Mid-Con unitholders |
25,409 | |||
Issued price |
$ | 3.13 | ||
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Total consideration |
$ | 79,530 | ||
Preliminary fair value of assets acquired: |
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Current assets |
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Cash and cash equivalents |
$ | 776 | ||
Accounts receivable |
4,398 | |||
Current derivative asset |
3,141 | |||
Prepaid expenses |
162 | |||
Oil and natural gas properties |
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Proved properties |
$ | 172,607 | ||
Other property and equipment |
730 | |||
Other long-term assets |
1,497 | |||
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Total preliminary fair value of assets acquired |
$ | 183,311 | ||
Preliminary fair value of liabilities assumed: |
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Current liabilities |
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Accounts payable and accrued liabilities |
$ | (5,596 | ) | |
Other current liabilities |
(457 | ) | ||
Revolving credit facility |
(68,487 | ) | ||
Asset retirement obligations assumed |
(29,241 | ) | ||
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Total preliminary fair value of liabilities assumed |
$ | (103,781 | ) | |
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Net Assets acquired and liabilities assumed |
$ | 79,530 | ||
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d. | Reflects net proceeds received by Contango from additional borrowings under Contangos credit facility and repayment of outstanding borrowings under Mid-Cons credit facility in connection with consummation of the Mid-Con Acquisition. |
e. | Represents credit facility amendment fees associated with increasing Contangos borrowing base in connection with the Mid-Con Acquisition. |
f. | Represents the reclassification of accounts payable trade, accounts payable related parties, and accrued liabilities and other into accounts payable and accrued liabilities. |
g. | Represents the accrual of approximately $3.3 million in estimated legal and advisory fees and approximately $1.0 million in credit facility amendment fees that are payable as a result of the Mid-Con Acquisition, which were not reflected in either Contangos or Mid-Cons historical financial statements. |
h. | Represents the repayment of outstanding borrowings under Mid-Cons credit facility by Contango in connection with consummation of the Mid-Con Acquisition. |
i. | Represents the receipt of proceeds from additional borrowings under Contangos revolving credit facility. |
j. | No deferred tax benefit is recognized in the pro forma balance sheet due to the historical valuation allowance historically recognized against Contangos deferred tax assets. |
k. | Represents the elimination of Mid-Cons historical equity balances. |
l. | Represents the accrual of approximately $3.3 million in estimated legal and advisory fees that are payable as a result of the Mid-Con Acquisition, which were not reflected in either Contangos or Mid-Cons historical financial statements. |
3. Supplementary Disclosure of Oil and Natural Gas Operations
Oil and Natural Gas Reserve Quantities
The following tables provide a pro forma rollforward of the crude oil, natural gas, natural gas liquids and total proved reserves for the year ended December 31, 2020, as well as pro forma proved developed and undeveloped reserves at the beginning and end of the year, as if the Mid-Con Acquisition occurred on January 1, 2020.
Oil and Condensate (Mbbls) | ||||||||||||
Contango | Mid-Con | Pro Forma | ||||||||||
Proved developed and undeveloped reserves as of: |
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January 1, 2020 |
19,085 | 24,943 | 44,028 | |||||||||
Sales of minerals in place |
(142 | ) | | (142 | ) | |||||||
Extensions and discoveries |
2,074 | | 2,074 | |||||||||
Revisions of previous estimates |
(6,339 | ) | (6,973 | ) | (13,312 | ) | ||||||
Production |
(1,674 | ) | (1,017 | ) | (2,691 | ) | ||||||
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December 31, 2020 |
13,004 | 16,953 | 29,957 | |||||||||
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Proved developed reserves as of: |
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January 1, 2020 |
9,819 | 19,213 | 29,032 | |||||||||
December 31, 2020 |
7,166 | 13,361 | 20,527 | |||||||||
Proved undeveloped reserves as of: |
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January 1, 2020 |
9,266 | 5,730 | 14,996 | |||||||||
December 31, 2020 |
5,838 | 3,592 | 9,430 |
Natural Gas (MMcf) | ||||||||||||
Contango | Mid-Con | Pro Forma | ||||||||||
Proved developed and undeveloped reserves as of: |
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January 1, 2020 |
131,300 | 4,221 | 135,521 | |||||||||
Sales of minerals in place |
(4,754 | ) | | (4,754 | ) | |||||||
Extensions and discoveries |
423 | | 423 | |||||||||
Revisions of previous estimates |
(23,520 | ) | (1,670 | ) | (25,190 | ) | ||||||
Production |
(18,967 | ) | (518 | ) | (19,485 | ) | ||||||
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December 31, 2020 |
84,482 | 2,033 | 86,515 | |||||||||
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Proved developed reserves as of: |
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January 1, 2020 |
122,691 | 3,965 | 126,656 | |||||||||
December 31, 2020 |
82,788 | 2,033 | 84,821 | |||||||||
Proved undeveloped reserves as of: | ||||||||||||
January 1, 2020 |
8,609 | 256 | 8,865 | |||||||||
December 31, 2020 |
1,694 | | 1,694 |
Natural Gas Liquids (Mbbls) | ||||||||||||
Contango | Mid-Con | Pro Forma | ||||||||||
Proved developed and undeveloped reserves as of: |
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January 1, 2020 |
11,764 | | 11,764 | |||||||||
Sales of minerals in place |
(238 | ) | | (238 | ) | |||||||
Extensions and discoveries |
184 | | 184 | |||||||||
Revisions of previous estimates |
(3,294 | ) | | (3,294 | ) | |||||||
Production |
(1,262 | ) | | (1,262 | ) | |||||||
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December 31, 2020 |
7,154 | | 7,154 | |||||||||
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Proved developed reserves as of: | ||||||||||||
January 1, 2020 |
10,484 | | 10,484 | |||||||||
December 31, 2020 |
6,595 | | 6,595 | |||||||||
Proved undeveloped reserves as of: | ||||||||||||
January 1, 2020 |
1,280 | | 1,280 | |||||||||
December 31, 2020 |
559 | | 559 |
Total (Mboe) | ||||||||||||
Contango | Mid-Con | Pro Forma | ||||||||||
Proved developed and undeveloped reserves as of: |
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January 1, 2020 |
52,731 | 25,647 | 78,378 | |||||||||
Sales of minerals in place |
(1,172 | ) | | (1,172 | ) | |||||||
Extensions and discoveries |
2,328 | | 2,328 | |||||||||
Revisions of previous estimates |
(13,552 | ) | (7,252 | ) | (20,804 | ) | ||||||
Production |
(6,097 | ) | (1,103 | ) | (7,200 | ) | ||||||
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December 31, 2020 |
34,238 | 17,292 | 51,530 | |||||||||
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Proved developed reserves as of: | ||||||||||||
January 1, 2020 |
40,752 | 19,874 | 60,626 | |||||||||
December 31, 2020 |
27,558 | 13,700 | 41,258 | |||||||||
Proved undeveloped reserves as of: | ||||||||||||
January 1, 2020 |
11,979 | 5,773 | 17,752 | |||||||||
December 31, 2020 |
6,680 | 3,592 | 10,272 |
Standardized Measure of Discounted Future Net Cash Flows
The following pro forma standardized measure of the discounted net future cash flows and changes applicable to proved reserves reflect the effect of income taxes assuming Mid-Con had been subject to federal income tax. The future cash flows are discounted at 10% per year and assume continuation of existing economic conditions.
The standardized measure of discounted future net cash flows, in managements opinion, should be examined with caution. The basis for this table is the reserve studies prepared by independent petroleum engineering consultants, which contain imprecise estimates of quantities and rates of production of reserves. Revisions of previous year estimates can have a significant impact on these results. Also, exploration costs in one year may lead to significant discoveries in later years and may significantly change previous estimates of proved reserves and their valuation. Therefore, the standardized measure of discounted future net cash flow is not necessarily indicative of the fair value of proved oil and gas properties.
The data presented should not be viewed as representing the expected cash flow from or current value of existing proved reserves since the computations are based on a large number of estimates and arbitrary assumptions. Reserve quantities cannot be measured with precision and their estimation requires many judgmental determinations and frequent revisions. Actual future prices and costs are likely to be substantially different from the prices and costs utilized in the computation of reported amounts.
The pro forma standardized measure of discounted estimated net cash flows related to proved oil and gas reserves was as follows as of December 31, 2020 (in thousands):
Contango | Mid-Con | Adjustments | Pro Forma | |||||||||||||
Future cash inflows |
$ | 721,395 | $ | 629,774 | $ | | $ | 1,351,169 | ||||||||
Future production costs |
(411,069 | ) | (360,315 | ) | | (771,384 | ) | |||||||||
Future development costs |
(101,723 | ) | (40,723 | ) | | (142,446 | ) | |||||||||
Future income tax expenses |
(18,901 | ) | | (27,113 | )(a) | (46,014 | ) | |||||||||
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Future net cash flows |
189,702 | 228,736 | (27,113 | ) | 391,325 | |||||||||||
10% annual discount for estimated timing of cash flows |
(74,115 | ) | (115,103 | ) | 14,066 | (175,152 | ) | |||||||||
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Standardized measure of discounted future net cash flows |
$ | 115,587 | $ | 113,633 | $ | (13,047 | ) | $ | 216,173 | |||||||
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(a) | Reflects the income tax effect associated with the Mid-Con Acquisition using an assumed combined federal and state statutory tax rate of approximately 24.3%. |
The changes in the pro forma standardized measure of discounted estimated future net cash flows were as follows for the year ended December 31, 2020 (in thousands):
Contango | Mid-Con | Adjustments | Pro Forma | |||||||||||||
Balance at January 1, 2020 |
$ | 257,842 | $ | 241,204 | $ | | $ | 499,046 | ||||||||
Changes in standardized measure due to current year operation: |
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Sales of oil and natural gas produced during the year, net of production expenses |
(68,787 | ) | (12,221 | ) | | (81,008 | ) | |||||||||
Extensions and discoveries |
4,729 | | | 4,729 | ||||||||||||
Net change in prices and production costs |
(78,046 | ) | (101,117 | ) | | (179,163 | ) | |||||||||
Changes in estimated future development costs |
9,360 | 21,721 | | 31,081 | ||||||||||||
Revisions in quantity estimates |
(48,609 | ) | (60,774 | ) | | (109,383 | ) | |||||||||
Purchase of reserves |
| | | | ||||||||||||
Sale of reserves |
(3,259 | ) | | | (3,259 | ) | ||||||||||
Previously estimated development costs incurred |
| 3,773 | | 3,773 | ||||||||||||
Accretion of discount |
28,655 | 24,120 | | 52,775 | ||||||||||||
Change in income taxes |
17,922 | | (13,047 | )(a) | 4,875 | |||||||||||
Changes in the timing of production rates and other |
(4,220 | ) | (3,073 | ) | | (7,293 | ) | |||||||||
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Balance at December 31, 2020 |
$ | 115,587 | $ | 113,633 | $ | (13,047 | ) | $ | 216,173 | |||||||
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(a) | Reflects the income tax effect associated with the Mid-Con Acquisition using an assumed combined federal and state statutory tax rate of approximately 24.3%. |