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 September 30, 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 Act). Yes ¨ No x
Total number of shares of common stock, par value $0.04 per share, outstanding as of November 11, 2004 was 13,004,950.
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. Consolidated Financial Statements |
||
| Consolidated Balance Sheets as of September 30, 2004 and June 30, 2004 |
2 | |
| Consolidated Statements of Operations for the three months ended September 30, 2004 and 2003 |
4 | |
| Consolidated Statements of Cash Flows for the three months ended September 30, 2004 and 2003 |
5 | |
| 6 | ||
| 7-13 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
30 | |
| Item 4. Controls and Procedures |
30 | |
| PART II – OTHER INFORMATION | ||
| Item 1. Legal Proceedings |
30 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
30 | |
| Item 3. Defaults Upon Senior Securities |
30 | |
| 31 | ||
| Item 5. Other Information |
31 | |
| Item 6. Exhibits |
31 | |
All references in this Form 10-Q to the “Company”, “Contango”, “we”, “us” or “our” are to Contango Oil & Gas Company and its 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-K, quarterly reports on Form 10-Q 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.
1
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
| September 30, 2004 |
June 30, 2004 |
|||||||
| (Unaudited) | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 132,611 | $ | 396,753 | ||||
| Accounts receivable, net |
4,445,962 | 4,715,748 | ||||||
| Other |
259,515 | 139,778 | ||||||
| Total current assets |
4,838,088 | 5,252,279 | ||||||
| PROPERTY, PLANT AND EQUIPMENT: |
||||||||
| Natural gas and oil properties, successful efforts method of accounting: |
||||||||
| Proved properties |
54,469,181 | 54,850,979 | ||||||
| Unproved properties, not being amortized |
5,483,952 | 7,540,678 | ||||||
| Furniture and equipment |
184,373 | 184,508 | ||||||
| Accumulated depreciation, depletion and amortization |
(28,386,229 | ) | (27,282,035 | ) | ||||
| Total property, plant and equipment |
31,751,277 | 35,294,130 | ||||||
| OTHER ASSETS: |
||||||||
| Cash held by affiliates |
2,205,855 | 779,361 | ||||||
| Investment in Freeport LNG project |
2,333,333 | 2,333,333 | ||||||
| Investment in Contango Venture Capital Corporation |
489,012 | 500,000 | ||||||
| Deferred income tax asset |
1,412,640 | 1,188,407 | ||||||
| Facility fee |
157,376 | 157,579 | ||||||
| Other |
5,822 | 5,822 | ||||||
| Total other assets |
6,604,038 | 4,964,502 | ||||||
| TOTAL ASSETS |
$ | 43,193,403 | $ | 45,510,911 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
| September 30, 2004 |
June 30, 2004 |
|||||||
| (Unaudited) | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 801,945 | $ | 810,360 | ||||
| Accrued exploration and development |
1,066,271 | 950,175 | ||||||
| Income taxes payable |
975,560 | 240,758 | ||||||
| Other accrued liabilities |
327,223 | 219,282 | ||||||
| Total current liabilities |
3,170,999 | 2,220,575 | ||||||
| LONG-TERM DEBT |
1,300,000 | 7,089,000 | ||||||
| ASSET RETIREMENT OBLIGATION |
88,677 | 84,805 | ||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Convertible preferred stock, 6%, Series C, $0.04 par value, 4,000 shares authorized, 1,400 shares issued and outstanding at September 30, 2004 and 1,600 shares issued and outstanding at June 30, 2004, liquidation preference of $5,000 per share |
56 | 64 | ||||||
| Common stock, $0.04 par value, 50,000,000 shares authorized, 15,579,950 issued and 13,004,950 outstanding at September 30, 2004 and 14,885,700 issued and 12,310,700 outstanding at June 30, 2004 |
623,198 | 595,428 | ||||||
| Additional paid-in capital |
31,091,499 | 29,979,965 | ||||||
| Treasury stock at cost (2,575,000 shares) |
(6,180,000 | ) | (6,180,000 | ) | ||||
| Retained earnings |
13,098,974 | 11,721,074 | ||||||
| Total stockholders’ equity |
38,633,727 | 36,116,531 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 43,193,403 | $ | 45,510,911 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| REVENUES: |
||||||||
| Natural gas and oil sales |
$ | 6,672,242 | $ | 8,252,504 | ||||
| Gain from hedging activities |
— | 82,242 | ||||||
| Total revenues |
6,672,242 | 8,334,746 | ||||||
| EXPENSES: |
||||||||
| Operating expenses |
851,862 | 1,652,229 | ||||||
| Exploration expenses |
810,905 | 1,356,113 | ||||||
| Depreciation, depletion and amortization |
1,729,903 | 1,793,836 | ||||||
| Impairment of natural gas and oil properties |
112,000 | — | ||||||
| General and administrative expense |
812,473 | 377,107 | ||||||
| Total expenses |
4,317,143 | 5,179,285 | ||||||
| INCOME FROM OPERATIONS |
2,355,099 | 3,155,461 | ||||||
| Interest expense |
(48,976 | ) | (164,410 | ) | ||||
| Interest income |
17,853 | 14,416 | ||||||
| Gain on sale of marketable securities |
— | 645,299 | ||||||
| Gain (loss) on sale of assets and other |
(40,506 | ) | 1,054,605 | |||||
| INCOME BEFORE INCOME TAXES |
2,283,470 | 4,705,371 | ||||||
| Provision for income taxes |
(800,570 | ) | (1,646,880 | ) | ||||
| NET INCOME |
1,482,900 | 3,058,491 | ||||||
| Preferred stock dividends |
105,000 | 150,000 | ||||||
| NET INCOME ATTRIBUTABLE TO COMMON STOCK |
$ | 1,377,900 | $ | 2,908,491 | ||||
| NET INCOME PER SHARE: |
||||||||
| Basic |
$ | 0.11 | $ | 0.31 | ||||
| Diluted |
$ | 0.10 | $ | 0.25 | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||
| Basic |
12,867,906 | 9,298,650 | ||||||
| Diluted |
14,580,970 | 12,425,936 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 1,482,900 | $ | 3,058,491 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation, depletion and amortization |
1,729,903 | 1,793,836 | ||||||
| Impairment of natural gas and oil properties |
112,000 | — | ||||||
| Exploration expenditures |
473,980 | 370,973 | ||||||
| Benefit for deferred income taxes |
(224,232 | ) | (635,935 | ) | ||||
| (Gain) loss on sale of assets and other |
40,506 | (1,699,904 | ) | |||||
| Unrealized gain on hedges |
— | (82,242 | ) | |||||
| Stock-based compensation |
84,128 | 30,407 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Decrease in accounts receivable and others |
322,061 | 1,853,911 | ||||||
| Increase in prepaid insurance |
(82,012 | ) | (132,961 | ) | ||||
| Increase (decrease) in accounts payable |
201,252 | (359,461 | ) | |||||
| Increase in other accrued liabilities |
365,555 | 167,723 | ||||||
| Increase in taxes payable |
734,801 | 1,573,441 | ||||||
| Other |
228 | 15,381 | ||||||
| Net cash provided by operating activities |
5,241,070 | 5,953,660 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Natural gas and oil exploration and development expenditures |
(909,666 | ) | (166,751 | ) | ||||
| Natural gas and oil exploration and development reimbursement |
2,162,357 | — | ||||||
| Increase in net investment in affiliates |
(1,426,494 | ) | (800,762 | ) | ||||
| Investment in Freeport LNG project |
— | (300,000 | ) | |||||
| Investment in Contango Venture Capital Corporation |
(28,860 | ) | — | |||||
| Purchase of marketable equity securities |
— | (375,000 | ) | |||||
| Proceeds from sales of marketable equity securities |
— | 834,474 | ||||||
| Additions to furniture and equipment |
(2,535 | ) | (4,136 | ) | ||||
| Increase in advances to operators |
(441,182 | ) | (1,827,447 | ) | ||||
| Sales costs |
— | (5,281 | ) | |||||
| Proceeds from sale of assets |
— | 4,034,626 | ||||||
| Net cash (used) provided in investing activities |
(646,380 | ) | 1,389,723 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Borrowings under credit facility |
1,350,000 | 8,097,000 | ||||||
| Repayments under credit facility |
(7,139,000 | ) | (14,516,100 | ) | ||||
| Repurchase/cancellation of stock options, warrants and others |
— | (749,998 | ) | |||||
| Preferred stock dividends |
(105,000 | ) | (150,000 | ) | ||||
| Proceeds from exercised options, warrants and others |
1,055,168 | — | ||||||
| Debt issue costs |
(20,000 | ) | — | |||||
| Net cash used by financing activities |
(4,858,832 | ) | (7,319,098 | ) | ||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(264,142 | ) | 24,285 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
396,753 | 219,242 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 132,611 | $ | 243,527 | ||||
| &nb | ||||||||