CONTANGO OIL & GAS CO - FORM 8-K - EX-99.2

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EX-99.1 - EX-99.1 - CONTANGO OIL & GAS CO	d135553dex991.htm
EX-23.1 - EX-23.1 - CONTANGO OIL & GAS CO	d135553dex231.htm
8-K - 8-K - CONTANGO OIL & GAS CO	d135553d8k.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”), the historical consolidated financial statements of Michael Merger Sub LLC (successor to Mid-Con Energy Partners, LP) and subsidiaries (“Mid-Con”), and the historical statement of revenues and direct operating expenses of the oil and natural gas properties Contango acquired on February 1, 2021 from Grizzly Operating, LLC, referred to by Contango as the “Silvertip Acquisition” in previous SEC filings and press releases (“Grizzly”), adjusted to give effect to the following transactions (collectively, the “Transactions”):

•

Contango’s acquisition of Mid-Con, which closed on January 21, 2021, in which each Mid-Con unitholder received 1.75 shares of Contango’s common stock (a total of 25,409,164 shares of Contango common stock were issued at closing) (the “Mid-Con Acquisition”);

•

Contango’s acquisition of oil and natural gas properties from Grizzly, which closed on February 1, 2021 for a total purchase price of $58.0 million adjusted for the results of operations for the period between the effective and closing dates, and other customary closing adjustments, (the “Grizzly 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 “October Private Placement”);

•

the issuance and sale of 14,193,903 shares of Contango common stock in a private placement completed on December 1, 2020, at a price of $1.55 per common share (the “December Private Placement”); and

•

additional borrowings under Contango’s credit facility in connection with consummation of the Mid-Con Acquisition, Grizzly Acquisition, and repayment of outstanding borrowings under Mid-Con’s credit facility.

The unaudited pro forma consolidated combined statement of operations for the year ended December 31, 2020 combines the historical consolidated statement of operations of Contango, the historical consolidated statement of operations of Mid-Con and the historical statement of revenues and direct operating expenses of the oil and natural gas properties Contango acquired in the Grizzly Acquisition, 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 Contango’s 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 and related notes of Contango as of and for the year ended December 31, 2020, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Contango’s 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, which are included in Exhibit 99.1 to Contango’s Current Report on Form 8-K filed on March 10, 2021; and

•

the historical audited statement of revenues and direct operating expenses of the oil and natural gas properties Contango acquired in the Grizzly Acquisition for the year ended December 31, 2020, which are included in Exhibit 99.1 to Contango’s Current Report on Form 8-K filed herewith.

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
	Contango			Mid-Con			Grizzly		Mid-Con Accounting Adjustments			Grizzly Accounting Adjustments			Financing Adjustments			Pro Forma Combined
	(a)			(b)			(c)
REVENUES
Oil and condensate sales	$	62,461		$	38,024		$	42,705	$	—		$	—		$	—		$	143,190
Natural gas sales		31,381			877			3,788		—			—			—			36,046
Natural gas liquids sales		17,078			—			5,380		—			—			—			22,458
Fee for service revenues		2,000			—			—		(2,000	) (d)		—			—			—
Other operating revenues		—			748			—		—			—			—			748
Gain on derivative instruments		—			16,036			—		(16,036	) (e)		—			—			—

Total revenues		112,920			55,685			51,873		(18,036	)		—			—			202,442


EXPENSES
Operating expenses		72,847			—			—		28,176	(f)		41,102	(f)		—			142,125
Lease operating expenses		—			24,039			35,948		(24,039	) (f)		(35,948	) (f)		—			—
Other operating expenses		—			1,496			286		(1,496	) (f)		(286	) (f)		—			—
Production and ad valorem taxes		—			2,641			4,868		(2,641	) (f)		(4,868	) (f)		—			—
Exploration expenses		11,594			—			—		4,290	(g)		—			—			15,884
Depreciation, depletion and amortization		30,032			9,076			—		4,791	(h), (i)		13,117	(o)		—			57,016
Impairment and abandonment of oil and gas properties		168,802			19,647			—		—			—			—			188,449
Dry holes and abandonments of unproved properties		—			4,290			—		(4,290	) (g)		—			—			—
Accretion of discount on asset retirement obligations		—			1,734			—		(1,734	) (i)		—			—			—
General and administrative expenses		24,940			10,620			—		(2,000	) (d)		—			—			33,560

Total expenses		308,215			73,543			41,102		1,057			13,117			—			437,034


OTHER INCOME (EXPENSE)
Gain from investment in affiliates, net of income taxes		27			—			—		—			—			—			27
Gain from sale of assets		4,501			—			—		—			—			—			4,501
Interest income		—			1			—		(1	) (j)		—			—			—
Interest expense		(5,022	)		(5,137	)		—		—			—			1,803	(l)		(8,356	)
Gain on derivatives, net		27,585			—			—		16,036	(e)		—			—			43,621
Loss on settlements of asset retirement obligations		—			(15	)		—		15	(i)		—			—			—
Other expense		—			(39	)		—		—			—			—			(39	)
Other income		3,609			—			—		1	(j)		—			—			3,610

Total other income (expense), net		30,700			(5,190	)		—		16,051			—			1,803			43,364

NET LOSS BEFORE INCOME TAXES		(164,595	)		(23,048	)		10,771		(3,042	)		(13,117	)		1,803			(191,228	)
INCOME TAX PROVISION		(747	)		—			—		—	(n)		—	(n)		—			(747	)

NET LOSS	$	(165,342	)	$	(23,048	)	$	10,771	$	(3,042	)	$	(13,117	)	$	1,803		$	(191,975	)

Less: Distributions to preferred unitholders					1,172					(1,172	) (k)					—			—
Less: General partner’s interest in net loss					—					—						—			—

Limited partners’ interest in net loss					(24,220	)				(1,870	)					1,803			(191,975	)


NET LOSS PER SHARE
Basic	$	(1.20	)															$	(0.97	) (m)
Diluted	$	(1.20	)															$	(0.97	) (m)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		137,522																	197,241
Diluted		137,522																	197,241

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
	Contango			Mid-Con			Mid-Con Accounting Adjustments			Grizzly Accounting Adjustments			Financing Adjustments			Pro Forma Combined
	(a)			(b)
CURRENT ASSETS
Cash and cash equivalents	$	1,383		$	776		$	—		$	(53,370	) (n)	$	57,516	(d)	$	6,305
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

Total current assets		46,806			8,477			—			(53,370	)		57,516			59,429
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties, successful efforts method of accounting:
Proved properties		1,274,508			265,144			(92,537	) (c)		86,049	(n)		—			1,533,164
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	)

Total property, plant and equipment, net		101,903			165,034			8,303			86,049			—			361,289
OTHER NON-CURRENT ASSETS
Investments in affiliates		6,793			—			—			—			—			6,793
Long-term derivative asset		497			—			—			—			—			497
Right-of-use lease assets		5,448			—			—			1,014	(n)		—			6,462
Debt issuance costs		1,782			—			—			—			962	(e)		2,744
Deposits		7,038			—			—			—			(7,000	) (f)		38
Other assets		—			1,497			—			—			—			1,497

Total other non-current assets		21,558			1,497			—			1,014			(6,038	)		18,031

TOTAL ASSETS	$	170,267		$	175,008		$	8,303		$	33,693		$	51,478		$	438,749


CURRENT LIABILITIES
Accounts payable and accrued liabilities		83,970			—			5,596	(g)		424	(n)		4,255	(h)		94,245
Accounts payable - trade		—			648			(648	) (g)		—			—			—
Accounts payable - related parties		—			3,392			(3,392	) (g)		—			—			—
Accrued liabilities and other		—			1,556			(1,556	) (g)		—			—			—
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	) (i)		—

Total current liabilities		89,536			74,540			—			424			(64,232	)		100,268
NON-CURRENT LIABILITIES
Long-term debt		12,369			—			—			—			119,003	(j)		131,372
Long-term derivative liability		1,648			—			—			—			—			1,648
Asset retirement obligations		48,523			32,630			(3,389	) (c)		32,256	(n)		—			110,020
Lease liabilities		2,624			—			—			1,014	(n)		—			3,638
Deferred tax liability		—			—			—	(k)		—			—			—

Total non-current liabilities		65,164			32,630			(3,389	)		33,269			119,003			246,677

Total liabilities		154,700			107,170			(3,389	)		33,693			54,771			346,945

SHAREHOLDERS’ EQUITY
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	) (l)		—			—			—
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	) (m)		(529,611	)

Total shareholders’ equity		15,567			67,838			11,692			—			(3,293	)		91,804

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	170,267		$	175,008		$	8,303		$	33,693		$	51,478		$	438,749

1.	Basis of Pro Forma Presentation

The unaudited pro forma consolidated combined financial statements have been prepared assuming the Mid-Con Acquisition is accounted for as a business combination using the acquisition method of accounting under Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations (“ASC 805”) and assuming the Grizzly Acquisition is accounted for using the accounting for asset acquisitions under ASC 805. Under the acquisition method of accounting, the Mid-Con Acquisition will be recorded at fair value measured as of the acquisition date. Under the accounting for asset acquisitions, the Grizzly Acquisition will be recorded using a cost accumulation and allocation model under which the cost of the acquisition is allocated on a relative fair value basis to the assets acquired and liabilities assumed. 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.

For business combinations 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. For asset acquisitions under ASC 805, acquisition-related transaction costs are capitalized as a component of the cost of the assets acquired.

The unaudited pro forma consolidated combined financial statements have been developed from and should be read in conjunction with (i) the accompanying notes to the unaudited pro forma combined financial statements (ii) Contango’s historical audited consolidated financial statements and related notes for the year ended December 31, 2020, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Contango Form 10-K, (iii) Mid-Con’s historical audited consolidated financial statements and related notes for the year ended December 31, 2020, which are included in Exhibit 99.1 to Contango’s Current Report on Form 8-K filed on March 10, 2021, and (iv) the historical audited statement of revenues and direct operating expenses of the oil and natural gas properties Contango acquired in the Grizzly Acquisition for the year ended December 31, 2020, which are included in Exhibit 99.1 to Contango’s Current Report on Form 8-K filed herewith.

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 as a business combination, with Contango identified as the acquirer, and the issuance of shares of Contango common stock as merger consideration;

•

the Grizzly Acquisition, which is accounted for as an asset acquisition;

•

the conversion of vested and unvested Mid-Con phantom units through the issuance of shares of Contango common stock in accordance with the Mid-Con merger agreement;

•

the issuance of Contango common stock in the October Private Placement, the December Private Placement, additional borrowings under Contango’s credit facility in connection with consummation of the Mid-Con Acquisition and Grizzly Acquisition, and repayment of outstanding borrowings under Mid-Con’s credit facility;

•

adjustments to conform the classification of certain assets and liabilities in Mid-Con’s historical consolidated balance sheet to Contango’s classification for similar assets and liabilities;

•

adjustments to conform the classification of expenses in Mid-Con’s historical consolidated statement of operations and the historical statement of revenues and direct operating expenses of the oil and natural gas properties Contango acquired on February 1, 2021 from Grizzly to Contango’s classification for similar expenses;

•

the incurrence of acquisition-related expenses; and

•

the recognition of estimated tax impacts of the pro forma adjustments.

The pro forma adjustments represent management’s 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 Contango’s financial position or results of operations would have been had the Mid-Con Acquisition and Grizzly Acquisition actually been consummated on the assumed dates nor do they purport to project the future operating results or financial position of Contango following the Mid-Con Acquisition and Grizzly Acquisition. The pro forma financial statements do not reflect future events that may occur after the Mid-Con Acquisition and Grizzly 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 Grizzly Acquisition and any associated costs that may 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 and Grizzly Acquisition, Contango’s efforts to achieve operational synergies, or that management will be successful in its efforts to integrate the operations. The pro forma statement of operations also excludes the effects of costs associated with any restructuring, integration activities, and asset dispositions that may result from the Mid-Con Acquisition and Grizzly Acquisition. Further, the pro forma financial statements do not reflect the effect of any regulatory actions that may impact the results of Contango following the Mid-Con Acquisition and the Grizzly 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 consolidated combined financial statements. In Contango’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The historical financial statements have been adjusted in the unaudited pro forma consolidated combined 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 consolidated combined statements of operations, expected to have a continuing impact on Contango following the Mid-Con Acquisition and the Grizzly Acquisition.

2.	Pro Forma Adjustments and Assumptions

Pro Forma Adjustments to the Statement of Operations for the year ended December 31, 2020:

Represents Contango’s historical consolidated statement of operations for the year ended December 31, 2020.

Represents Mid-Con’s historical consolidated statement of operations for the year ended December 31, 2020.

Represents the historical statement of revenues and direct operating expenses of the oil and natural gas properties Contango acquired in the Grizzly Acquisition for the year ended December 31, 2020.

Reflects the removal of Contango’s fee for service revenues and Mid-Con’s general and administrative expenses associated with the management services agreement between Contango and Mid-Con.

Represents a reclassification of gain on derivative instruments from revenues to other income (expense).

Represents a reclassification of lease operating expenses, other operating expenses, and production taxes into operating expenses.

Represents a reclassification of dry holes and abandonments of unproved properties into exploration expenses.

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.

Represents the reclassification of accretion of discount on asset retirement obligations and loss on settlements of asset retirement obligations to depreciation, depletion and amortization.

Represents the reclassification of interest income to other income.

Adjustment eliminates historical distributions to preferred unitholders given the Mid-Con Acquisition.

Adjustment to eliminate historical interest expense related to borrowings under Mid-Con’s credit facility that was not assumed by Contango and to recognize interest expense that would have been incurred with respect to borrowings under Contango’s credit facility in connection with the Mid-Con Acquisition and the Grizzly Acquisition, had such acquisitions occurred on January 1, 2020, as well as to recognize amortization of credit facility amendment fees associated with increasing Contango’s borrowing base in connection with the Mid-Con Acquisition, had such acquisition occurred on January 1, 2020.

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, (ii) the issuance and sale of 26,451,988 shares of Contango common stock in the October Private Placement completed on October 27, 2020, and (iii) the issuance and sale of 14,193,903 shares of Contango common stock in the December Private Placement, as if those issuances had been completed on January 1, 2020.

No tax benefit is recognized in the pro forma statement of operations for the incremental pre-tax losses attributable to the Mid-Con Acquisition and the Grizzly Acquisition due to the valuation allowance against Contango’s deferred tax assets.

Represents an increase in depreciation, depletion and amortization based on the relative fair value of the Grizzly properties and the accretion of asset retirement obligations.

Pro Forma Adjustments to the Balance Sheet at December 31, 2020:

Represents Contango’s historical consolidated balance sheet as of December 31, 2020.

Represents Mid-Con’s historical consolidated balance sheet as of December 31, 2020.

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-Con’s 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:
Mid-Con outstanding units		14,520
Exchange ratio of Contango shares for Mid-Con common units		1.75

Contango common stock issued to Mid-Con unitholders		25,409
Issued price	$	3.13

Total consideration	$	79,530

Preliminary fair value of assets acquired:
Current assets
Cash and cash equivalents	$	776
Accounts receivable		4,398
Current derivative asset		3,141
Prepaid expenses		162
Oil and natural gas properties
Proved properties	$	172,607
Other property and equipment		730
Other long-term assets		1,497

Total preliminary fair value of assets acquired	$	183,311
Preliminary fair value of liabilities assumed:
Current liabilities
Accounts payable and accrued liabilities	$	(5,596	)
Other current liabilities		(457	)
Revolving credit facility		(68,487	)
Asset retirement obligations assumed		(29,241	)

Total preliminary fair value of liabilities assumed	$	(103,781	)

Net Assets acquired and liabilities assumed	$	79,530

Reflects net proceeds received by Contango from additional borrowings under Contango’s credit facility and repayment of outstanding borrowings under Mid-Con’s credit facility in connection with consummation of the Mid-Con Acquisition and the Grizzly Acquisition.

Represents credit facility amendment fees associated with increasing Contango’s borrowing base in connection with the Mid-Con Acquisition.

Represents the removal of Contango’s $7.0 million deposit with Grizzly as this deposit would be applied against the purchase price if the Grizzly Acquisition closed on December 31, 2020.

Represents the reclassification of accounts payable – trade, accounts payable – related parties, and accrued liabilities and other into accounts payable and accrued liabilities.

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 Contango’s or Mid-Con’s historical financial statements.

Represents the repayment of outstanding borrowings under Mid-Con’s credit facility by Contango in connection with consummation of the Mid-Con Acquisition.

Represents the receipt of proceeds from additional borrowings under Contango’s revolving credit facility.

No deferred tax benefit is recognized in the pro forma balance sheet due to the historical valuation allowance historically recognized against Contango’s deferred tax assets.

Represents the elimination of Mid-Con’s historical equity balances.

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 Contango’s or Mid-Con’s historical financial statements.

Reflects the cash payments made for the Grizzly Acquisition, including the deposits of $7.0 million, and the allocation of the cost of the Grizzly Acquisition on a relative fair value basis to the assets acquired and liabilities assumed. A summary of the consideration paid and the preliminary relative fair value of the assets acquired and liabilities assumed is as follows (in thousands):


Preliminary Consideration:
Purchase price	$	58,000
Closing adjustments		(4,739	)

Total consideration	$	53,261
Acquisition transaction costs		109

Total cash paid	$	53,370

Preliminary relative fair value of assets acquired:
Oil and natural gas properties
Proved properties	$	86,049
Right-of-use lease assets		1,014

Total preliminary relative fair value of assets acquired	$	87,063
Preliminary relative fair value of liabilities assumed:
Asset retirement obligations assumed	$	(32,256	)
Lease liabilities		(1,014	)
Suspended funds liability		(424	)

Total preliminary relative fair value of liabilities assumed	$	(33,693	)

Net Assets acquired and liabilities assumed	$	53,370

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 and the Grizzly Acquisition occurred on January 1, 2020. Proved reserves are the estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions and current regulatory practices. Proved developed reserves are proved reserves which are expected to be produced from existing completion intervals with existing equipment and operating methods. For Contango and Mid-Con, proved oil and natural gas reserve quantities at December 31, 2020 and January 1, 2020 are based on estimates prepared by independent petroleum engineering consultants, and for Grizzly, proved oil and natural gas reserve quantities at December 31, 2020 and January 1, 2020 are based on internal estimates prepared by Grizzly. All estimates have been prepared in accordance with guidelines established by the Securities and Exchange Commission, including prices based on the first-day-of-the-month prices for the previous 12 months.


	Oil and Condensate (Mbbls)
	Contango			Mid-Con			Grizzly			Pro Forma
Proved developed and undeveloped reserves as of:
January 1, 2020		19,085			24,943			22,666			66,694
Sales of minerals in place		(142	)		—			—			(142	)
Extensions and discoveries		2,074			—			40			2,114
Revisions of previous estimates		(6,339	)		(6,973	)		(8,698	)		(22,010	)
Production		(1,674	)		(1,017	)		(1,242	)		(3,933	)

December 31, 2020		13,004			16,953			12,766			42,723

Proved developed reserves as of:
January 1, 2020		9,819			19,213			18,343			47,375
December 31, 2020		7,166			13,361			12,766			33,293
Proved undeveloped reserves as of:
January 1, 2020		9,266			5,730			4,323			19,319
December 31, 2020		5,838			3,592			—			9,430


	Natural Gas (MMcf)
	Contango			Mid-Con			Grizzly			Pro Forma
Proved developed and undeveloped reserves as of:
January 1, 2020		131,300			4,221			38,864			174,385
Sales of minerals in place		(4,754	)		—			—			(4,754	)
Extensions and discoveries		423			—			99			522
Revisions of previous estimates		(23,520	)		(1,670	)		(13,310	)		(38,500	)
Production		(18,967	)		(518	)		(6,998	)		(26,483	)

December 31, 2020		84,482			2,033			18,655			105,170

Proved developed reserves as of:
January 1, 2020		122,691			3,965			31,999			158,655
December 31, 2020		82,788			2,033			18,655			103,476
Proved undeveloped reserves as of:
January 1, 2020		8,609			256			6,865			15,730
December 31, 2020		1,694			—			—			1,694


	Natural Gas Liquids (Mbbls)
	Contango			Mid-Con		Grizzly			Pro Forma
Proved developed and undeveloped reserves as of:
January 1, 2020		11,764			—		5,513			17,277
Sales of minerals in place		(238	)		—		—			(238	)
Extensions and discoveries		184			—		16			200
Revisions of previous estimates		(3,294	)		—		(2,355	)		(5,649	)
Production		(1,262	)		—		(408	)		(1,670	)

December 31, 2020		7,154			—		2,766			9,920

Proved developed reserves as of:
January 1, 2020		10,484			—		4,140			14,624
December 31, 2020		6,595			—		2,766			9,361
Proved undeveloped reserves as of:
January 1, 2020		1,280			—		1,373			2,653
December 31, 2020		559			—		—			559


	Total (Mboe)
	Contango			Mid-Con			Grizzly			Pro Forma
Proved developed and undeveloped reserves as of:
January 1, 2020		52,731			25,647			34,656			113,034
Sales of minerals in place		(1,172	)		—			—			(1,172	)
Extensions and discoveries		2,328			—			72			2,400
Revisions of previous estimates		(13,552	)		(7,252	)		(13,271	)		(34,075	)
Production		(6,097	)		(1,103	)		(2,816	)		(10,016	)

December 31, 2020		34,238			17,292			18,641			70,171

Proved developed reserves as of:
January 1, 2020		40,752			19,874			27,816			88,442
December 31, 2020		27,558			13,700			18,641			59,899
Proved undeveloped reserves as of:
January 1, 2020		11,979			5,773			6,840			24,592
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 and Grizzly 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 management’s 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			Grizzly			Adjustments			Pro Forma
Future cash inflows	$	721,395		$	629,774		$	460,730		$	—		$	1,811,899
Future production costs		(411,069	)		(360,315	)		(288,270	)		—			(1,059,654	)
Future development costs		(101,723	)		(40,723	)		(50,563	)		—			(193,009	)
Future income tax expenses		(18,901	)		—			—			(44,156	) (a)		(63,057	)

Future net cash flows		189,702			228,736			121,897			(44,156	)		496,179
10% annual discount for estimated timing of cash flows		(74,115	)		(115,103	)		(54,304	)		21,021			(222,501	)

Standardized measure of discounted future net cash flows	$	115,587		$	113,633		$	67,593		$	(23,134	)	$	273,679

(a)	Reflects the income tax effect associated with the Mid-Con Acquisition and the Grizzly 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			Grizzly			Adjustments			Pro Forma
Balance at January 1, 2020	$	257,842		$	241,204		$	201,230		$	—		$	700,276
Changes in standardized measure due to current year operation:
Sales of oil and natural gas produced during the year, net of production expenses		(68,787	)		(12,221	)		(10,771	)		—			(91,779	)
Extensions and discoveries		4,729			—			1,588			—			6,317
Net change in prices and production costs		(78,046	)		(101,117	)		(143,226	)		—			(322,389	)
Changes in estimated future development costs		9,360			21,721			58,739			—			89,820
Revisions in quantity estimates		(48,609	)		(60,774	)		(54,902	)		—			(164,285	)
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			20,123			—			72,898
Change in income taxes		17,922			—			—			(23,134	) (a)		(5,212	)
Changes in the timing of production rates and other		(4,220	)		(3,073	)		(5,188	)		—			(12,481	)

Balance at December 31, 2020	$	115,587		$	113,633		$	67,593		$	(23,134	)	$	273,679

(a)	Reflects the income tax effect associated with the Mid-Con Acquisition and the Grizzly Acquisition using an assumed combined federal and state statutory tax rate of approximately 24.3%.

CONTANGO OIL & GAS CO - FORM 8-K - EX-99.2 - April 9, 2021

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CONTANGO OIL & GAS CO Reports