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Mid-Con Energy Partners, LP Announces First Quarter 2020 Operating and Financial Results, and Details of Recently Announced Strategic Recapitalization Transactions
RECENT DEVELOPMENTS
As announced on
- The holders of all of the Partnership’s Class A and B preferred units (collectively, the “Preferred Units”), led by
Goff Capital, Inc. , (“Goff Capital”) converted their Preferred Units to common units at an average conversion price of$3.12 /unit. - The equity holders of the general partner contributed the ownership of the general partner to the Partnership in exchange for common units.
- In connection with these transactions, the limited partnership agreement of the Partnership was amended, the directors of the general partner have resigned, and a new Board of Directors was elected by written consent of affiliates of
Goff Capital that now hold a majority of the outstanding common units. Charles R. Olmstead , Chief Executive Officer, andJeffrey R. Olmstead , most recently Chief Executive Officer and President prior to taking a sabbatical beginningFebruary 1, 2020 , resigned from their positions as officers of the general partner.- Following these transactions, the Partnership had 14,311,522 common units outstanding.
- Completed the spring redetermination of the borrowing base under its senior secured revolving credit facility. Amendment 15 to the credit agreement was effective as of June 1, 2020. Amendment 15 to the credit agreement, among other changes:
- decreased the borrowing base from
$95.0 million to$64.0 million and establishes a repayment schedule for the borrowing base deficiency; - permitted the recapitalization transactions;
- introduced anti-cash hoarding provisions and restrictive covenants on capital and general and administrative spending;
- provided for all loans to bear payment-in-kind interest, capitalized on a quarterly basis;
- excluded certain assumed liabilities from the Current Ratio calculation for the quarters ending
June 30, 2020 ,September 30, 2020 , andDecember 31, 2020 ; and - required the Partnership’s Leverage Ratio of Consolidated Funded Indebtedness to Consolidated EBITDAX not to exceed:
- 5.75 to 1.00 for the quarter ending
June 30, 2020 , - 5.00 to 1.00 for the quarter ending
September 30, 2020 , - 4.50 to 1.00 for the quarter ending
December 31, 2020 , and - 4.25 to 1.00 for the quarter ending
March 31, 2021 and thereafter.
- 5.75 to 1.00 for the quarter ending
- decreased the borrowing base from
Contango Resources, Inc. (“Contango Resources”), a subsidiary of Contango Oil & Gas Company (“Contango”) will be the new operator of the Partnership’s properties, replacingMid-Con Energy Operating, LLC . The transition is expected to be effectiveJuly 1, 2020 and the move is expected to generate pro-forma annual cash savings of approximately$6.5 million compared to 2019.- The Partnership and
Mid-Con Energy Operating, LLC , the existing services provider, entered into an Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”), effectiveJune 1, 2020 . Under the Assignment and Assumption Agreement, the Partnership agreed to assume and release the existing services provider from certain liabilities arising out of the existing services provider’s performance of its obligations as operator of the Partnership’s properties under the existing services agreement.
SELECT FINANCIAL AND OPERATIONAL RESULTS FOR THE QUARTER ENDED
- Net income was
$2.8 million for the first quarter 2020. - Reported negative cash flows from operating activities for the first quarter 2020 of
$0.8 million . - Increased outstanding borrowings on our revolving credit facility by
$6.0 million during first quarter 2020 to$74 million . - Capital expenditures of
$4.8 million across the portfolio during the first quarter 2020. Remainder of 2020 developmental capital is currently delayed due to commodity pricing. - In
Wyoming , at our Pine Tree Shannon Unit, completed chemical treatments and initiated injection on two wells, converted two wells to injection (awaiting treatments), and continued installation of injection facilities and pipelines. At our House Creek Unit, we completed one re-stimulation. - In
Oklahoma , completed 2 producing wells and 1 injection well which were initiated during the fourth quarter 2019 and recompleted four wells. - Conducted 14 capital workovers across the Partnership.
- Shut-in approximately 250 wells during
March 2020 as a result of the drop in oil price.
CRUDE OIL PRICE DECLINES AND OPERATIONAL UPDATE
During the first quarter of 2020, the oil and natural gas industry witnessed a significant decline in oil prices from
FINANCIAL SUMMARY
Production for first quarter 2020 averaged 3,538 Boe/d, compared to 3,609 Boe/d in the fourth quarter 2019 as shutting in wells in
Lease operating expenses (“LOE”) for the first quarter 2020 were
General and administrative expenses (“G&A”) for the first quarter 2020 were
The Partnership spent
The decrease in revenue, primarily caused by a decrease in commodity prices, and increased G&A, slightly offset by a decrease in LOE and increased cash settlements received for matured derivatives, lowered first quarter Adjusted EBITDA(1) to
(1) Non-GAAP financial measure. Please refer to the related disclosure and reconciliation of net income (loss) to Adjusted EBITDA included in this press release.
HEDGING SUMMARY
As of
Period Covered | Weighted Average Fixed Price |
Weighted Average Floor Price |
Weighted Average Ceiling Price |
Total Bbls Hedged/day |
Index | |||||||||
Swaps - 2020 | $ | 55.87 | $ | — | $ | — | $ | 1,882 | NYMEX-WTI | |||||
Swaps - 2021 | $ | 55.78 | $ | — | $ | — | $ | 672 | NYMEX-WTI | |||||
Collars - 2021 | $ | — | $ | 52.00 | $ | 58.80 | $ | 672 | NYMEX-WTI |
ABOUT
FORWARD-LOOKING STATEMENTS
This press release includes “forward-looking statements” — that is, statements related to future, not past, events within meaning of the federal securities laws. Forward-looking statements are based on current expectations and include any statement that does not directly relate to a current or historical fact. In this context, forward-looking statements often address expected future business and financial performance, and often contain words such as “anticipate,” “believe,” “estimate,” “intend,” “expect,” “plan,” “project,” “should,” “goal,” “forecast,” “guidance,” “could,” “may,” “continue,” “might,” “potential,” “scheduled,” “pursue,” “target,” “will” and the negative of such terms or other comparable terminology. These forward-looking statements involve certain risks and uncertainties and ultimately may not prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements due to a number of factors including but not limited to our ability to continue as a going concern; volatility of commodity prices; supply and demand of oil and natural gas; revisions to oil and natural gas reserves estimates as a result of changes in commodity prices; effectiveness of risk management activities; business strategies; future financial and operating results; our ability to pay distributions; our ability to replace the reserves we produce through acquisitions and the development of our properties; future capital requirements and availability of financing; technology and cybersecurity; realized oil and natural gas prices; production volumes; lease operating expenses; general and administrative expenses; cash flow and liquidity; availability of production equipment; availability of oil field labor; capital expenditures; availability and terms of capital; marketing of oil and natural gas; general economic conditions; world-wide epidemics, including COVID-19, and the related effects of sheltering in place; competition in the oil and natural gas industry; environmental liabilities; counterparty credit risk; governmental regulation and taxation; compliance with NASDAQ listing requirements; developments in oil and natural gas producing countries, including increases and decreases in supply from
Condensed Consolidated Balance Sheets | ||||||||
(in thousands, except number of units) | ||||||||
(Unaudited) | ||||||||
March 31, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 213 | $ | 255 | ||||
Accounts receivable | 4,780 | 6,853 | ||||||
Derivative financial instruments | 15,731 | — | ||||||
Prepaid expenses | 202 | 87 | ||||||
Assets held for sale | — | 365 | ||||||
Total current assets | 20,926 | 7,560 | ||||||
Property and equipment | ||||||||
Oil and natural gas properties, successful efforts method | ||||||||
Proved properties | 264,490 | 261,375 | ||||||
Unproved properties | 4,266 | 3,125 | ||||||
Other property and equipment | 1,220 | 1,262 | ||||||
Accumulated depletion, depreciation, amortization and impairment | (93,472 | ) | (72,303 | ) | ||||
Total property and equipment, net | 176,504 | 193,459 | ||||||
Derivative financial instruments | 6,225 | 730 | ||||||
Other assets | 870 | 1,020 | ||||||
Total assets | $ | 204,525 | $ | 202,769 | ||||
LIABILITIES, CONVERTIBLE PREFERRED UNITS AND EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | ||||||||
Trade | $ | 630 | $ | 320 | ||||
Related parties | 1,914 | 6,902 | ||||||
Derivative financial instruments | — | 1,944 | ||||||
Accrued liabilities | 187 | 795 | ||||||
Other current liabilities | 438 | 430 | ||||||
Current debt | 74,000 | — | ||||||
Total current liabilities | 77,169 | 10,391 | ||||||
Long-term debt | — | 68,000 | ||||||
Other long-term liabilities | 344 | 457 | ||||||
Asset retirement obligations | 31,296 | 30,265 | ||||||
Commitments and contingencies | ||||||||
Class A convertible preferred units - 11,627,906 issued and outstanding, respectively | 23,287 | 22,964 | ||||||
Class B convertible preferred units - 9,803,921 issued and outstanding, respectively | 14,877 | 14,829 | ||||||
Equity, per accompanying statements | ||||||||
General partner | (762 | ) | (793 | ) | ||||
Limited partners - 1,557,851 and 1,541,215 units issued and outstanding, respectively | 58,314 | 56,656 | ||||||
Total equity | 57,552 | 55,863 | ||||||
Total liabilities, convertible preferred units and equity | $ | 204,525 | $ | 202,769 | ||||
Condensed Consolidated Statements of Operations | ||||||||
(in thousands, except per unit data) | ||||||||
(Unaudited) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Revenues | ||||||||
Oil sales | $ | 12,982 | $ | 14,594 | ||||
Natural gas sales | 283 | 250 | ||||||
Other operating revenues | 238 | 372 | ||||||
Gain (loss) on derivatives, net | 24,952 | (12,198 | ) | |||||
Total revenues | 38,455 | 3,018 | ||||||
Operating costs and expenses | ||||||||
Lease operating expenses | 8,138 | 6,830 | ||||||
Production and ad valorem taxes | 1,070 | 1,282 | ||||||
Other operating expenses | 584 | 473 | ||||||
Impairment of proved oil and natural gas properties | 18,332 | — | ||||||
Depreciation, depletion and amortization | 2,836 | 3,098 | ||||||
Accretion of discount on asset retirement obligations | 399 | 328 | ||||||
General and administrative | 3,052 | 2,662 | ||||||
Total operating costs and expenses | 34,411 | 14,673 | ||||||
Gain on sales of oil and natural gas properties, net | — | 9,469 | ||||||
Income (loss) from operations | 4,044 | (2,186 | ) | |||||
Other (expense) income | ||||||||
Interest income | 1 | 8 | ||||||
Interest expense | (1,274 | ) | (1,615 | ) | ||||
Other income | 12 | 5 | ||||||
Total other expense | (1,261 | ) | (1,602 | ) | ||||
Net income (loss) | 2,783 | (3,788 | ) | |||||
Less: Distributions to preferred unitholders | 1,172 | 1,149 | ||||||
Less: General partner's interest in net income (loss) | 31 | (45 | ) | |||||
Limited partners' interest in net income (loss) | $ | 1,580 | $ | (4,892 | ) | |||
Limited partners' interest in net income (loss) per unit | ||||||||
Basic | $ | 1.02 | $ | (3.19 | ) | |||
Diluted | $ | 0.07 | $ | (3.19 | ) | |||
Weighted average limited partner units outstanding | ||||||||
Limited partner units (basic) | 1,550 | 1,532 | ||||||
Limited partner units (diluted) | 23,020 | 1,532 |
Condensed Consolidated Statements of Cash Flows | ||||||||
(in thousands) | ||||||||
(Unaudited) | ||||||||
Three Months Ended |
||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 2,783 | $ | (3,788 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
Depreciation, depletion and amortization | 2,836 | 3,098 | ||||||
Debt issuance costs amortization | 150 | 178 | ||||||
Accretion of discount on asset retirement obligations | 399 | 328 | ||||||
Impairment of proved oil and natural gas properties | 18,332 | — | ||||||
Mark to market on derivatives | ||||||||
(Gain) loss on derivatives, net | (24,952 | ) | 12,198 | |||||
Cash settlements received for matured derivatives, net | 1,783 | 143 | ||||||
Gain on sales of oil and natural gas properties | — | (9,469 | ) | |||||
Non-cash equity-based compensation | 78 | 334 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 2,072 | (1,217 | ) | |||||
Prepaid expenses and other assets | (115 | ) | (369 | ) | ||||
Accounts payable - trade and accrued liabilities | (304 | ) | 432 | |||||
Accounts payable - related parties | (3,818 | ) | (2,999 | ) | ||||
Net cash used in operating activities | (756 | ) | (1,131 | ) | ||||
Cash flows from investing activities | ||||||||
Acquisitions of oil and natural gas properties | (111 | ) | (2,796 | ) | ||||
Additions to oil and natural gas properties | (4,682 | ) | (3,057 | ) | ||||
Additions to other property and equipment | (58 | ) | — | |||||
Proceeds from sales of oil and natural gas properties | — | 32,502 | ||||||
Proceeds from sale of other assets | 365 | — | ||||||
Net cash (used in) provided by investing activities | (4,486 | ) | 26,649 | |||||
Cash flows from financing activities | ||||||||
Proceeds from line of credit | 6,000 | 7,000 | ||||||
Payments on line of credit | — | (32,000 | ) | |||||
Distributions to Class A convertible preferred units | (500 | ) | (500 | ) | ||||
Distributions to Class B convertible preferred units | (300 | ) | (300 | ) | ||||
Net cash provided by (used in) financing activities | 5,200 | (25,800 | ) | |||||
Net decrease in cash and cash equivalents | (42 | ) | (282 | ) | ||||
Beginning cash and cash equivalents | 255 | 467 | ||||||
Ending cash and cash equivalents | $ | 213 | $ | 185 | ||||
Production Volumes, Prices, and Unit Costs per Boe | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended |
|||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||
Production Volumes | |||||||||||||||
Oil (MBbls) | 296 | 292 | 4 | 1% | |||||||||||
Natural gas (MMcf) | 156 | 121 | 35 | 29% | |||||||||||
Total (MBoe) | 322 | 312 | 10 | 3% | |||||||||||
Average daily net production (Boe/d) | 3,538 | 3,467 | 71 | 2% | |||||||||||
Average sales prices | |||||||||||||||
Oil (per Bbl) | |||||||||||||||
Sales price | $ | 43.86 | $ | 49.98 | $ | (6.12 | ) | (12%) | |||||||
Effect of net settlements on matured derivative instruments | $ | 6.02 | $ | 0.49 | $ | 5.53 | 1129% | ||||||||
Realized oil price after derivatives | $ | 49.88 | $ | 50.47 | $ | (0.59 | ) | (1%) | |||||||
Natural gas (per Mcf) | $ | 1.81 | $ | 2.07 | $ | (0.26 | ) | (13%) | |||||||
Average unit costs per Boe | |||||||||||||||
Lease operating expenses | $ | 25.27 | $ | 21.89 | $ | 3.38 | 15% | ||||||||
Production and ad valorem taxes | $ | 3.32 | $ | 4.11 | $ | (0.79 | ) | (19%) | |||||||
Depreciation, depletion and amortization | $ | 8.81 | $ | 9.93 | $ | (1.12 | ) | (11%) | |||||||
General and administrative expenses | $ | 9.48 | $ | 8.53 | $ | 0.95 | 11% |
NON-GAAP FINANCIAL MEASURE
This press release, the financial tables and other supplemental information include “Adjusted EBITDA” which is a non-generally accepted accounting principles (“Non-GAAP”) measure used by our management to describe financial performance with external users of our financial statements. The Partnership believes the Non-GAAP financial measure described above is useful to investors because this measurement is used by many companies in its industry as a measurement of financial performance and is commonly employed by financial analysts and others to evaluate the financial performance of the Partnership and to compare the financial performance of the Partnership with the performance of other publicly traded partnerships within its industry. Adjusted EBITDA should not be considered an alternative to net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.
Adjusted EBITDA is defined as net income (loss) plus (minus):
- Interest expense, net;
- Depreciation, depletion and amortization;
- Accretion of discount on asset retirement obligations;
- (Gain) loss on derivatives, net;
- Cash settlements received (paid) for matured derivatives, net;
- Cash premiums received (paid) for derivatives, net;
- Impairment of proved oil and natural gas properties;
- Impairment of assets held for sale;
- Non-cash equity-based compensation;
- (Gain) loss on sale of other assets;
- (Gain) loss on sales of oil and natural gas properties, net; and
- Dry holes and abandonments of unproved properties.
Reconciliation of Net Income (Loss) to Adjusted EBITDA | ||||||||||||
(in thousands) | ||||||||||||
(Unaudited) | ||||||||||||
Three Months Ended | ||||||||||||
March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||
Net income (loss) | $ | 2,783 | $ | (7,869 | ) | $ | (3,788 | ) | ||||
Interest expense, net | 1,273 | 1,147 | 1,607 | |||||||||
Depreciation, depletion and amortization | 2,836 | 2,595 | 3,098 | |||||||||
Accretion of discount on asset retirement obligations | 399 | 428 | 328 | |||||||||
Impairment of proved oil and natural gas properties | 18,332 | — | — | |||||||||
Impairment of assets held for sale | — | 65 | — | |||||||||
(Gain) loss on derivatives, net | (24,952 | ) | 7,174 | 12,198 | ||||||||
Cash settlements received (paid) for matured derivatives, net | 1,783 | (199 | ) | 143 | ||||||||
Non-cash equity-based compensation | 78 | 119 | 334 | |||||||||
(Gain) loss on sales of oil and natural gas properties, net | — | 21 | (9,469 | ) | ||||||||
Adjusted EBITDA | $ | 2,532 | $ | 3,481 | $ | 4,451 | ||||||
INVESTOR RELATIONS CONTACT
IR@midcon-energy.com
(918) 743-7575
Source: Mid-Con Energy Partners, LP