UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
Commission file number 001-16317
CONTANGO OIL & GAS COMPANY
(Exact name of registrant as specified in its charter)
| DELAWARE | 95-4079863 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
3700 BUFFALO SPEEDWAY, SUITE 960
HOUSTON, TEXAS 77098
(Address of principal executive offices)
(713) 960-1901
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The total number of shares of common stock, par value $0.04 per share, outstanding as of May 12, 2004 was 12,110,700.
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE NINE MONTHS ENDED MARCH 31, 2004
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. Consolidated Financial Statements |
||
| Consolidated Balance Sheets as of March 31, 2004 and June 30, 2003 |
3 | |
| Consolidated Statements of Operations for the three and nine months ended March 31, 2004 and 2003 |
5 | |
| Consolidated Statements of Cash Flows for the nine months ended March 31, 2004 and 2003 |
6 | |
| Consolidated Statement of Shareholders’ Equity for the nine months ended March 31, 2004 and 2003 |
7 | |
| 9 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
40 | |
| Item 4. Controls and Procedures |
40 | |
| PART II – OTHER INFORMATION | ||
| Item 1. Legal Proceedings |
40 | |
| Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
40 | |
| Item 3. Defaults Upon Senior Securities |
40 | |
| 40 | ||
| Item 5. Other Information |
40 | |
| Item 6. Exhibits and Reports on Form 8-K |
41 | |
All references in this Form 10-Q to the “Company”, “Contango”, “we”, “us” or “our” are to Contango Oil & Gas Company and Subsidiaries. Unless otherwise noted, all information in this Form 10-Q relating to natural gas and oil reserves and the estimated future net cash flows attributable to those reserves are based on estimates prepared by independent engineers and are net to our interest.
WEBSITE ACCESS TO REPORTS
General information about us can be found on our Website at www.contango.com. Our annual reports on Form 10-KSB, quarterly reports on Form 10-Q, Form 10-QSB and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our Website as soon as reasonably practicable after we file or furnish them to the Securities and Exchange Commission.
2
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
| March 31, 2004 |
June 30, 2003 |
|||||||
| (Unaudited) | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 339,002 | $ | 219,242 | ||||
| Accounts receivable, net |
4,385,623 | 6,039,779 | ||||||
| Prepaid capital costs |
199,005 | — | ||||||
| Marketable equity securities |
— | 676,500 | ||||||
| Other |
155,370 | 96,115 | ||||||
| Total current assets |
5,079,000 | 7,031,636 | ||||||
| PROPERTY, PLANT AND EQUIPMENT: |
||||||||
| Natural gas and oil properties, successful efforts method of accounting: |
||||||||
| Proved properties |
53,180,138 | 55,125,109 | ||||||
| Unproved properties, not being amortized |
3,959,677 | 3,065,188 | ||||||
| Furniture and equipment |
130,524 | 126,388 | ||||||
| Accumulated depreciation, depletion and amortization |
(25,486,409 | ) | (21,574,673 | ) | ||||
| Total property, plant and equipment, net |
31,783,930 | 36,742,012 | ||||||
| OTHER ASSETS: |
||||||||
| Cash held by affiliates |
2,571,278 | 784,656 | ||||||
| Investment in Freeport LNG Project |
1,750,000 | 850,000 | ||||||
| Investment in partnership |
— | 72,500 | ||||||
| Deferred income tax asset |
1,000,650 | 568,024 | ||||||
| Facility fee |
177,279 | 177,500 | ||||||
| Other assets |
101,379 | 78,612 | ||||||
| Total other assets |
5,600,586 | 2,531,292 | ||||||
| TOTAL ASSETS |
$ | 42,463,516 | $ | 46,304,940 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
| March 31, 2004 |
June 30, 2003 |
|||||||
| (Unaudited) | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 410,661 | $ | 681,425 | ||||
| Accrued exploration and development |
— | 1,011,098 | ||||||
| Income taxes payable |
1,098,856 | 734,312 | ||||||
| Price hedge contracts |
— | 58,171 | ||||||
| Short term hedge payable |
— | 102,486 | ||||||
| Other accrued liabilities |
445,535 | 229,937 | ||||||
| Current portion of long-term debt |
— | 5,890,000 | ||||||
| Total current liabilities |
1,955,052 | 8,707,429 | ||||||
| LONG-TERM DEBT |
3,850,528 | 16,460,000 | ||||||
| ASSET RETIREMENT OBLIGATION |
85,582 | 191,664 | ||||||
| DEFERRED CREDITS |
— | 208,333 | ||||||
| SHAREHOLDERS’ EQUITY: |
||||||||
| Convertible preferred stock, 8%, Series A, $0.04 par value, 5,000 shares authorized, 2,500 shares issued and outstanding at June 30, 2003, liquidation preference of $1,000 per share |
— | 100 | ||||||
| Convertible preferred stock, 8%, Series B, $0.04 par value, 10,000 shares authorized, 5,000 shares issued and outstanding at June 30, 2003, liquidation preference of $1,000 per share |
— | 200 | ||||||
| Convertible preferred stock, 6%, Series C, $0.04 par value, 4,000 shares authorized, 1,600 shares issued and outstanding at March 31, 2004, liquidating preference of $5,000 per share |
64 | — | ||||||
| Common stock, $0.04 par value, 50,000,000 shares authorized, 14,675,700 shares issued and 12,100,700 outstanding at March 31, 2004, 11,871,076 shares issued and 9,296,076 outstanding at June 30, 2003 |
571,204 | 473,399 | ||||||
| Additional paid-in capital |
29,339,791 | 21,803,090 | ||||||
| Treasury stock at cost (2,575,000 shares) |
(6,180,000 | ) | (6,180,000 | ) | ||||
| Retained earnings |
12,841,295 | 4,640,725 | ||||||
| Total shareholders’ equity |
36,572,354 | 20,737,514 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 42,463,516 | $ | 46,304,940 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| REVENUES: |
||||||||||||||||
| Natural gas and oil sales |
$ | 6,611,139 | $ | 10,061,351 | $ | 20,843,951 | $ | 24,793,109 | ||||||||
| Gain (loss) from hedging activities |
— | (5,230,672 | ) | 58,171 | (5,416,998 | ) | ||||||||||
| Total revenues |
6,611,139 | 4,830,679 | 20,902,122 | 19,376,111 | ||||||||||||
| EXPENSES: |
||||||||||||||||
| Operating expenses |
493,008 | 1,448,367 | 3,061,922 | 4,179,166 | ||||||||||||
| Exploration expenses |
1,737,499 | 3,588,654 | 5,225,497 | 15,496,798 | ||||||||||||
| Depreciation, depletion and amortization |
1,747,527 | 1,942,144 | 5,160,262 | 6,518,654 | ||||||||||||
| Impairment of natural gas and oil properties |
— | — | 42,995 | — | ||||||||||||
| General and administrative expenses |
662,898 | 391,483 | 1,808,478 | 1,464,576 | ||||||||||||
| Total expenses |
4,640,932 | 7,370,648 | 15,299,154 | 27,659,194 | ||||||||||||
| INCOME (LOSS) FROM OPERATIONS |
1,970,207 | (2,539,969 | ) | 5,602,968 | (8,283,083 | ) | ||||||||||
| Interest expense |
(28,804 | ) | (177,860 | ) | (308,449 | ) | (531,763 | ) | ||||||||
| Interest income |
12,263 | 6,498 | 31,929 | 27,663 | ||||||||||||
| Gain on sale of marketable securities |
— | — | 710,322 | — | ||||||||||||
| Gain on sale of assets and other |
128,904 | — | 7,245,314 | 36,150 | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES |
2,082,570 | (2,711,331 | ) | 13,282,084 | (8,751,033 | ) | ||||||||||
| (Provision) benefit for income taxes |
(728,900 | ) | 948,966 | (4,581,514 | ) | 3,061,216 | ||||||||||
| NET INCOME (LOSS) |
1,353,670 | (1,762,365 | ) | 8,700,570 | (5,689,817 | ) | ||||||||||
| Preferred stock dividends |
173,333 | 150,000 | 500,000 | 450,000 | ||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK |
$ | 1,180,337 | $ | (1,912,365 | ) | $ | 8,200,570 | $ | (6,139,817 | ) | ||||||
| NET INCOME (LOSS) PER SHARE: |
||||||||||||||||
| Basic |
$ | 0.11 | $ | (0.21 | ) | $ | 0.83 | $ | (0.68 | ) | ||||||
| Diluted |
$ | 0.09 | $ | (0.21 | ) | $ | 0.67 | $ | (0.68 | ) | ||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||||||||||
| Basic |
11,145,896 | 9,158,755 | 9,927,796 | 9,080,392 | ||||||||||||
| Diluted |
14,392,811 | 9,158,755 | 13,029,200 | 9,080,392 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ | 8,700,570 | $ | (5,689,817 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation, depletion and amortization |
5,160,262 | 6,518,654 | ||||||
| Impairment of natural gas and oil properties |
42,995 | — | ||||||
| Exploration expenditures |
5,099,292 | 4,578,620 | ||||||
| Deferred income taxes |
(432,626 | ) | (4,632,215 | ) | ||||
| Gain on sale of assets and other |
(7,955,636 | ) | (36,150 | ) | ||||
| Unrealized hedging gain |
(58,171 | ) | (88,292 | ) | ||||