Crimson Exploration Announces Second Quarter 2013 Financial Results and Provides Operational Update
Crimson Exploration Announces Second Quarter 2013 Financial Results and Provides Operational Update
HOUSTON--(BUSINESS WIRE)-- Crimson Exploration Inc. (NasdaqGM:CXPO) today announced financial results for the second quarter and first six months of 2013 and provides operational update.
- Revenue of $36.8 million and net income of $0.5 million for the quarter
- Increased oil and liquids production to 3,974 barrels per day, a 29% volume increase over the prior year quarter, 52.4% more than the previous quarter and 54% of total production
- Successfully completed the Grace Hall C #1 and the Payne B #1, both targeting the Woodbine formation, at gross IP rates of 989 Boepd and 1,195 Boepd, respectively.
- Successfully completed the Beeler #2H well, our first in the Buda formation in Dimmit County, TX with a gross IP rate of 859 Boepd (89% oil)
- Committed to a rig for a continuous drilling program in the Buda for the remainder of 2013
- Entered into a stock for stock merger agreement with Contango Oil & Gas that is conditioned on shareholder approval by both parties
Allan D. Keel, President and Chief Executive Officer, commented, "In April, Crimson entered into the previously announced proposed stock for stock merger with Contango Oil & Gas, a transaction that we believe will afford Crimson shareholders the opportunity to participate in the value to be created from our asset base by accelerating the drilling and development of our extensive set of oil and liquids rich resource plays. While we continue to work hard at closing the merger, we were also successful in establishing the Buda formation as another area of meaningful oil rich drilling opportunities. At a minimum, we intend to keep a rig active for the remainder of the year in each of the Woodbine and Buda plays, and may add another rig to test the Eagle Ford in Madison County, Texas or the James Lime in San Augustine County."
Merger Status Update
On April 29, 2013, Crimson entered into an Agreement and Plan of Merger (the "Merger Agreement") with Contango Oil & Gas Company, a Delaware corporation ("Contango"), and Contango Acquisition, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Contango ("Merger Sub"), providing for a strategic business combination of Crimson and Contango. Upon the terms and conditions set forth in the Merger Agreement, Merger Sub will be merged with and into Crimson (the "Merger"), with Crimson continuing as a wholly-owned subsidiary of Contango. The Merger Agreement was approved by each of the board of directors of Crimson and Contango on April 29, 2013.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of Crimson common stock, par value $0.001 per share, issued and outstanding will be converted into the right to receive 0.08288 shares of common stock, par value $0.04 per share, of Contango ("Contango Common Stock") or, in the case of fractional shares, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Contango Common Stock multiplied by (ii) the closing price for a share of Contango Common Stock as reported on the New York Stock Exchange on the first trading day following the date on which the Effective Time occurs (the "Merger Consideration").
The closing of the Merger is subject to the satisfaction or waiver of certain customary conditions, including, among others, (i) the adoption of the Merger Agreement by Crimson's stockholders; (ii) the approval by Contango's stockholders of the issuance of Contango Common Stock in the Merger to Crimson's stockholders (the "Share Issuance"); (iii) the registration statement on Form S-4 used to register the Contango Common Stock to be issued in the Merger being declared effective by the Securities and Exchange Commission (the "SEC"); (iv) the approval for listing on the New York Stock Exchange of the Contango Common Stock to be issued in the Merger; (v) subject to specified materiality standards, the accuracy of the representations and warranties of, and the performance of all covenants by, the parties; (vi) the absence of a material adverse effect with respect to each of Crimson and Contango; and (vii) the delivery of tax opinions that the Merger will be treated as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code.
The Merger Agreement contains certain termination rights for both Crimson and Contango, including, among others, if (i) the Merger is not consummated on or before October 31, 2013; (ii) the requisite approval of the stockholders of either Crimson or Contango is not obtained; and (iii) the other party breaches a representation, warranty or covenant, and such breach results in the failure of closing conditions to be satisfied. The Merger Agreement further provides that for the payment of a termination fee upon the termination of the Merger Agreement under specified circumstances, including termination by Contango or Crimson as a result of (1) an adverse change in the recommendation of the other party's board of directors or (2) a third-party's "superior proposal." The termination fee is $7.0 million (if payable by Crimson) and $28.0 million (if payable by Contango). The Merger Agreement also provides that Crimson or Contango may be required to pay the other party $4.5 million for expense reimbursement if such party's stockholder approval is not obtained.
Contango and Crimson currently expect the closing of the Merger to occur in September or October of 2013. However, as the Merger is subject to the satisfaction or waiver of other conditions described in the Merger Agreement, it is possible that factors outside the control of Contango and Crimson could result in the Merger being completed at an earlier time, a later time or not at all.
Summary Financial Results
The Company reported net income of $0.5 million, or $0.01 per basic share, for the second quarter of 2013 compared to net income of $3.9 million, or $0.09 per basic share, for the second quarter of 2012. Both quarters included special non-recurring items that impact that comparison. The 2013 quarter includes $1.1 million in special charges to G&A expense related to the merger, a $2.6 million non-cash gain related to the mark-to-market valuation requirement on our commodity price hedges and a $0.8 million leasehold impairment charge. Special items impacting the 2012 quarter were a $4.0 million refund for a portion of 2007-2011 severance taxes received from the State of Texas for certain marketing cost deductions, an unrealized pre-tax gain of $3.0 million related to the mark-to-market valuation requirement on our commodity price hedges and a $0.8 million leasehold impairment charge. Exclusive of these special cash and non-cash items, net income for the 2013 quarter was $0.1 million, compared to a net loss for the second quarter of 2012 of $0.1 million. Adjusted EBITDAX, as defined below, was $24.9 million in the second quarter of 2013, a 2% decrease over adjusted EBITDAX for the prior year quarter of $25.5 million. Exclusive of the merger-related charges in 2013 and the severance tax refund in 2012, adjusted EBITDAX for the 2013 quarter would have been $26.0 million compared to $21.4 million for the 2012 quarter.
Revenues for the second quarter of 2013 were $36.8 million compared to revenues of $30.5 million in the second quarter of 2012. Revenue for the quarter benefited from higher production, a higher percentage of oil and liquids production and higher natural gas prices, offset in part by lower natural gas liquids prices.
Production for the second quarter of 2013 was approximately 4.0 Bcfe, or 44.2 Mmcfe per day, compared to production of approximately 3.7 Bcfe, or 40.4 Mmcfe per day, in the second quarter of 2012. Crude oil and natural gas liquids production averaged 3,974 barrels per day for the second quarter, up 29% over the average in the second quarter of 2012. The increase in total production, as well as in crude and liquids production, was a direct result of our continued success in the Woodbine in Madison and Grimes counties, and initial production from our first Buda well in South Texas.
The weighted average field sales price in the second quarter of 2013 (before the effects of realized gains/losses on our commodity price hedges) was $9.01 per Mcfe compared to an average sales price of $7.60 for the second quarter of 2012. The weighted average realized sales price in the second quarter (including the effects of realized gains/losses on our commodity price hedges) was $9.14 per Mcfe compared to a weighted average realized sales price of $8.30 per Mcfe for the prior year quarter, an increase resulting from the increase in oil and liquids as a percentage of total production and a 31% increase in natural gas prices, offset in part by a 4% decrease in realized oil prices and a 21% decline in natural gas liquids prices.
Direct lease operating expenses for the second quarter of 2013 were $3.3 million, or $0.82 per Mcfe, compared to $3.6 million, or $0.98 per Mcfe, in the second quarter of 2012. Lease operating expenses increased slightly due to the addition of new producing properties, with the improvement in the per unit rate resulting from the addition of those same more cost efficient new properties.
Production and ad valorem tax expenses for the second quarter of 2013 were $2.4 million, or $0.59 per mcfe, compared to a credit of $2.5 million, or ($0.68) per Mcfe in the prior year quarter. The credit in 2012 was due to a $4.0 million refund received from the State of Texas related to allowed marketing cost deductions on certain 2007-2011 severance taxes.
Depreciation, depletion and amortization ("DD&A") expense for the second quarter of 2013 was $18.6 million, or $4.62 per Mcfe, compared to $14.7 million, or $3.99 per Mcfe, for the second quarter of 2012, with the increase in expense due to higher production and the slightly higher rate resulting from our transition to drilling only higher-margin crude oil wells.
General and administrative expense in the second quarter of 2013 was $6.8 million, or $1.70 per Mcfe, compared to $4.5 million, or $1.23 per Mcfe, in the prior year quarter. Cash general and administrative expenses for the second quarter of 2013, i.e. exclusive of non-cash stock option expense, was $6.1 million, or $1.53 per Mcfe, compared to $3.9 million, or $1.06 per Mcfe, for the second quarter of 2012. Expenses in the second quarter of 2013 increased primarily due to higher personnel costs and merger-related professional fees.
Capital expenditures for the second quarter of 2013 were $19.3 million, consisting of approximately $15.4 million in Southeast Texas targeting the Woodbine formation and $1.9 million in South Texas targeting the Buda formation. Year to date, Crimson has invested approximately $30.4 million in its capital program, with $24.7 million invested in the Woodbine and $1.9 million in the Buda.
Crimson continues to mitigate commodity price risk through the use of derivative contracts in an effort to achieve a more predictable cash flow. Consistent with this strategy, in July the following derivative contracts were added to further mitigate crude oil and natural gas liquid price risk for the remainder of 2013:
|July 2013-Dec 2013||Swap||40,000 Bbls||$99.00 (WTI)|
In Madison County, Texas, the Grace Hall C (Allocation) Unit #1H (62.6% WI) well, targeting the Woodbine formation, was successfully completed at a total measured depth of 15,215 feet, including a 6,165 foot lateral, with 22 stages of fracture stimulation, and commenced production in June at an initial rate of 989 boepd (87.7% oil).
Additionally in Madison County, the Payne B #1H (84.1% WI) well, targeting the Woodbine formation, was successfully completed at a total measured depth of 15,900 feet, including a 6,668 foot lateral, with 24 stages of fracture stimulation, and commenced production in May at an initial rate of 1,195 Boepd (87% oil).
Upon completion of drilling operations on the Grace Hall, the rig moved approximately 9 miles southeast to begin drilling the Stuckey-Upchurch #1H (72% WI) well in Crimson's Iola-Grimes Area, another Woodbine target. The Stuckey well was drilled to a total measured depth of 14,963 feet with a 5,100 foot lateral. Completion operations are scheduled to begin in early August, and are planned to include 19 stages of fracture stimulation.
After completion of the drilling phase on the Stuckey-Upchurch well, the rig was moved back to the Force Area in Madison County to commence the drilling of the Crow A-1 (74.2% WI) well, also targeting the Woodbine. The well is currently drilling at a depth of 9,140 feet, with drilling and completion operations expected to be completed by mid-September. Crimson expects this rig to stay active in the Madison and Grimes area for the remainder of the year.
As previously disclosed in June, Crimson successfully drilled the Beeler #2H (50% WI), its first well targeting the Buda formation in Dimmit County, Texas. The well was drilled to a total measured depth of 11,013 feet, including an approximate 3,700 foot lateral, was completed naturally without fracture stimulation, and commenced production at an initial rate of 859 boepd (89% oil). The well averaged a gross rate of 693 Boepd for its first 83 days of production.
Crimson has spud its second well in the area, the Beeler #3H (50% WI), and is currently drilling at a depth of 3,245 feet with drilling and completion operations expected to be completed in early September. Crimson expects this rig to remain active in the area for the rest of the year.
Crimson is very encouraged about the Buda potential, and views this area as another opportunity for oil and liquids growth. The Beeler #2H is located in Crimson's Booth-Tortuga Area where the Company currently has approximately 10,140 gross acres.
Selected Financial and Operating Data
The following table reflects certain comparative financial and operating data for the three and six month periods ended June 30, 2013 and 2012:
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Total Volumes Sold:||2013||2012||%||2013||2012||%|
|Crude oil (barrels)||253,457||197,185||29||%||406,499||355,818||14||%|
|Natural gas liquids (barrels)||108,182||82,520||31||%||189,905||145,056||31||%|
|Natural gas (Mcf)||1,855,336||2,001,086||-7||%||3,679,888||4,165,211||-12||%|
|Natural gas equivalents (Mcfe)||4,025,170||3,679,316||9||%||7,258,312||7,170,455||1||%|
|Daily Sales Volumes:|
|Crude oil (barrels)||2,785||2,167||29||%||2,246||1,955||15||%|
|Natural gas liquids (barrels)||1,189||907||31||%||1,049||797||32||%|
|Natural gas (Mcf)||20,388||21,990||-7||%||20,331||22,886||-11||%|
|Natural gas equivalents (Mcfe)||44,233||40,432||9||%||40,101||39,398||2||%|
|Average sales prices (before hedging):|
|Average sales price (after hedging):|
|Selected Costs ($ per Mcfe):|
|Lease operating expenses||$||0.82||$||0.98||-16||%||$||0.90||$||1.15||-22||%|
|Production and ad valorem taxes||$||0.59||$||(0.68||)|
|Depreciation and depletion expense||$||4.62||$||3.99||16||%||$||4.33||$||4.06||7||%|
|General and administrative expense - Total||$||1.70||$||1.23||38||%||$||1.54||$||1.30||19||%|
|General and administrative expense - Cash||$||1.53||$||1.06||44||%||$||1.35||$||1.13||20||%|
|Weighted Average Shares Outstanding|
(1) Adjusted EBITDAX is a non-GAAP financial measure. See below for a reconciliation to net income (loss).
CRIMSON EXPLORATION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|June 30,||December 31,|
|Current mark to market value of derivatives||2,084,643||1,892,744|
|Other current assets||79
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