Good day, and welcome to the Contango’s Results for Third Quarter 2019 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Wilkie Colyer, President and CEO. Please go ahead, sir..

Thank you. Good morning and welcome to Contango’s third quarter 2019 Earnings Call. My name is Wilkie Colyer, and I’m the President and CEO of Contango. I am joined by Farley Dakan, the company’s Head of Corporate Development; and Joe Grady, the company’s Chief Financial Officer.

I hope everyone has had time to read through this morning’s earnings press release, including the cautionary statements regarding forward-looking information and non-GAAP measures that apply to statements on this call. Since our last update call in early August, a lot has happened at Contango.

To say that this period of time has been transformative for the company would be an understatement.

Since August, we’ve raised equity capital in two transactions and including more than pro-rata support from our largest shareholder, entered into a new five-year credit facility led by JPMorgan; signed agreements and subsequently closed on the assets of Will Energy and White Star Petroleum, and in the process, increased our production and reserve barrel equivalents by 4x and 2.5x, respectively, all while increasing the liquids content of our production.

Those numbers, by the way, do not include any nonproducing reserves on either acquisition or any reserves booked whatsoever at Northeast Bullseye. We appointed our largest shareholder, John Goff, as Chairman of the Board of the company, and we hired Will Energy’s former CEO, Farley Daken, to head up corporate development efforts for Contango.

In short, we’ve enhanced our reserves, cash flow, liquidity, management team and Board since we last spoke. This progress is a testament to the support of our lenders and shareholders and the hard work of the talented employees at Contango, including those we welcome from Will Energy and White Star.

Our very early results from Northeast Bullseye have been encouraging. While we don’t have an IP30 on either well in the project area, the Iron Snake’s 24-hour IP was 1,445 barrels of oil equivalent per day, 83% oil; and the Breakthrough State’s 24-hour IP with 1,622 barrels of oil equivalent per day, 85% oil.

Both are above our expectations and the Breakthrough State represents our highest IP in West Texas in our three-plus-year history in the area. Again, still very early days in Northeast Bullseye, but we’re definitely encouraged by the first two wells.

Once the Old Ironside and State Spearhead come online in Q4, our Northeast Bullseye and Pecos position, as a whole, will have no lease obligation drilling until 2021.

We also acquired several DUCs in connection with the White Star Petroleum acquisition, while we allocated zero value to this DUCs in our underwriting, we will allocate capital to those DUCs, if warranted. One of those DUCs in our STACK area will be completed in Q4 of this year.

We continue to view hedging as an important tool to mitigate risk in the current commodity price environment. Since the closing of our two recent acquisitions, we have layered on additional hedges for those incremental barrels, the details of which you can find in this morning’s press release.

Our eligible PDP production for oil and gas is hedged at 75% through year-end 2020, and 64% through year-end 2021. This will be a focus for us as long as we carry debt on the balance sheet.

At this time, I’d like to turn to the recent acquisitions presentation on our website, I believe it’s titled, November 2019 presentation right now, to discuss White Star and Will Energy in greater detail.

Turning to the presentation Slide 3, pro forma asset overview, and this, I think, just gives everybody a good understanding of what the company looks like pro forma for these two deals that we announced.

And as you can see, we’ve really added a focus – a third focus area in Oklahoma by the acquisition of these two deals, where, really, now our three focus areas for the company will we Oklahoma, the Gulf of Mexico and the Southern Delaware Basin.

We’ll go into some greater detail here, but as you can see in the proved reserves, 67.6 million BOE of proved reserves, $616 million of proofed PV-10 at SEC as of year-end 2018. Turning to Slide 4, a little bit more detail on those pro forma net proved reserves.

We’ll highlight that, again, the Will Energy, White Star and Exaro, those are 100% PDP-only in terms of reserve bookings. And then looking down at some of the proved reserve mix, sort of a nice mix of oil, gas and NGLs.

Again, very little booked outside of PDP, and you can see bottom right, White Star being a very large percentage of now the company’s pro forma reserves. And again, I would highlight, we have no Northeast Bullseye booked in any of those numbers that are reflected here, which we expect to be able to do by year-end.

Turning to Slide 6 to go over the asset acquisitions, starting White Star. 315,000 net acres focused in North Central Oklahoma, 80% HBP, 65% operated, 77% average working interest with, as you can see, that NRI, it’s a lower royalty burden than you see in many other areas. Multiple zones targeted, STACK, Anadarko and Cherokee platform.

Q2 net production of 16.8 MBOE per day, nice mix of oil, NGLs and gas; 85% – 85 owned SWDs, which helps us on our cost side, particularly, in the Cherokee platform. Disposal rate of 108,000 barrels of water per day, with, as you can see, plenty of room of capacity. No midstream minimum volume commitments, drilling commitments or firm tariffs.

We think there’s a lot of upside potential from PDNP and PUDs. And there, at the bottom, transaction highlights the purchase price of $132.5 million, at $60 million in asset-level cash flow over the next 12 months from effective date, so a nice cash flow multiple there. And as I said, effective date 7/1 and the deal was closed on November 1.

PDP reserves at year-end of $335.1 million. And again, as you can see on bar charts – or on the pie charts down there that depicts sort of the nice mix of commodity – of different hydrocarbons and the Cherokee area is a – the predominant area with reserves and acreage.

Turning to Slide 7, a little bit more on the Cherokee platform because we do think that this is a little bit of a misunderstood asset. 238,000 net acres, 563 wells. The primary reservoir's Osage and Woodford Shale.

The key for us here is that this is – when you think about the Mississippi and this is really shallower depths compared to the place that you hear of more often west of the Nemaha Ridge, which results in lower D&C cost, lower water cuts and higher oil percentage. The Mississippian section is shallower.

And again, more oil rich because of the thermal maturity being slightly lower. And then contrast that to the west of Nemaha Ridge that's gassier and deeper, which results in higher water production and a gassier mix.

So all of that put together, being used to the Nemaha Ridge, plus the owned-SWD network out there, results in higher-margin production of approximately 60%. And that's well north of, I think, what you typically think of when you think of Mississippian production that's sort of on that Western side of the Nemaha Ridge. Turning to Slide 8.

This is, again, I think, just hammering that the home that not all Mississippian is created equal. And as you can see, that Nemaha Ridge there that runs through sort of the middle of Oklahoma is really sort of the line of demarcation between gas front production and oil front production.

As you can see, our White Star/Contango Cherokee platform is east of that Nemaha Ridge. Turning to Slide 9, the Western Anadarko assets we acquired, in conjunction White Star, is 31,800 net acres, 159 wells.

The primary reservoirs are the Cleveland Sands and nice blocked up position over here and it fits nicely with our prior acquisition of Will Energy. So because those are in the same neighborhood, we are able to consolidate field operations between the two companies.

And we also think the Western Anadarko Basin is an interesting area for future consolidations. So we've got a nice base there, net of these two acquisitions. White Star's STACK acreage, 45,000 net acres with 171 wells.

Primarily reservoirs in the Meramec and the Osage, with horizontal development potential and this is the location of the Margaret DUC, which will be completing in Q4 in this STACK position of ours. Slide 11, is Will Energy, which was our first acquisition we announced in early September and closed late October.

Core assets are Northern Louisiana and the Western Antarctica Basin. A lot of acreage, all HBPed, or almost all HBPed. Gassier, certainly, but predominantly being that Western Anadarko Basin asset, but very long-lived and low-decline assets with a low PDP decline rate.

And upside potential that we don't have to go after today, but do have a bunch of HBPed acreage that gives us sort of a call option on upside. And then, again, transaction highlights, purchase price of $23 million, closed October 25. And you can see the acreage position there in Northern Louisiana and Western Anadarko Basin.

So with that, all the initiatives we've completed since our last call have put Contango in a good position to capitalize on the continued deterioration we see in the A&D market, which we view as an opportunity.

In addition to acquiring a good set of assets in the White Star transaction, we demonstrated an ability to be a buyer of choice for a non-natural owner. We are not afraid to seek value in unorthodox places such as a bankruptcy auction, with the ultimate goal being to maximize shareholder value.

We believe, we can leverage the Contango Platform to manage assets more efficiently than can the sellers and most of the rest of the industry, which is overburdened by G&A and large lease obligation requirements.

Well, we are unwilling to discuss our current pipeline of opportunities for competitive reasons, suffice it to say, we feel there is plenty to do in the current market environment. Thanks for your time this morning and for your interest in Contango. With the operator we are ready to open up the line for questions..

Thank you. [Operator Instructions] We will take our first question today from John White from Roth Capital. Please go ahead. Your line is open..

Good morning. And congratulations on all these transactions. It's really been a transformational quarter for the company. You worked on the balance sheet, and you work on the asset base with what looks like some very nice transactions. Also, appreciate the presentation, all the detail in there, that's very helpful.

Looking through the press release, I didn't see any fourth quarter guidance, did I miss that? Or….

No, you didn't, John. With us trying to get all this stuff closed and brought in and I think, we're still kind of working on those tax numbers. And so we're not prepared to offer that just yet, just given everything we've had going on. .

That's very understandable..

John, you get a little perspective from the presentation itself and the contribution that the acquisitions make to the pro forma entity, and we made the comment about production level. But as far as giving comprehensive guidance like what you say, we just don't feel comfortable with doing that so soon after closing the deals. .

With all that's going on, that's very understandable. And again, appreciate the detailed presentation. .

Absolutely John. I appreciate your time..

Thank you. [Operator Instructions] Ladies gentlemen, as we have no further questions, I'd like to turn the call back over to Mr. Colyer for any additional or closing remarks..

Nothing more from us. I appreciate everybody's time this morning and interest in Contango. And we look forward to updating you after our fourth quarter earnings in early next year. But thanks, again. And if anybody has any follow-ups, you know where to find us..

Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect..