HOUSTON Nov 4, 2015 (Thomson StreetEvents) -- Edited Transcript of Contango Oil & Gas Co earnings conference call or presentation Wednesday, November 4, 2015 at 3:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Joe Grady Contango Oil & Gas Company - SVP, CFO * Allan Keel Contango Oil & Gas Company - President, CEO * Carl Isaac Contango Oil & Gas Company - VP, Operations ================================================================================ Conference Call Participants ================================================================================ * Neal Dingmann SunTrust Robinson Humphrey - Analyst * Don Crist Johnson Rice & Company - Analyst * Kyle Rhodes RBC Capital Markets - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day everyone, and welcome to the Contango results for third quarter 2015 conference call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Joe Grady, Senior Vice President and Chief Financial Officer. Please go ahead, sir. -------------------------------------------------------------------------------- Joe Grady, Contango Oil & Gas Company - SVP, CFO [2] -------------------------------------------------------------------------------- Thank you. I would like to welcome everyone to Contango's earnings call for the quarter ended September 30th. On the call today are myself, Allan Keel, our President and CEO, Steve Mengle, our Senior VP of Engineering, Tom Atkins, our Senior VP of Exploration, and Carl Isaac, our Senior VP of Operations. I will give a brief overview of some of the financial results, then turn it over to Allan for an overview of the current operations, and then we'll follow that with a Q&A session. Just as a reminder, as is typical for most companies, we'll limit questions to those from analysts that follow our stock, as we believe that is the most constructive and productive use of everyone's time. But before we begin, I want to remind everyone that the earnings release and the related discussion this morning may contain forward-looking statements as defined by the Securities and Exchange Commission, which may include comments and assumptions concerning Contango's strategic plans, expectations and objectives for future operations. Such statements are based on assumptions we believe to be appropriate under the circumstances, however those statements are just estimates, and are not guarantees of future performance or results, and therefore should be considered in that context. Summarizing the financial results for the quarter, we reported a net loss of $185.7 million for the quarter, or $9.79 per basic diluted share, compared to net income of $3.7 million, or $0.19 per share for the prior year quarter. Included in this quarter's results was a pretax non-cash impairment charge of approximately $226 million as required by GAAP, and as a result of the decrease in the estimated risks, discounted future cash flows from certain of our properties. Relative to the balance sheet carrying value for those properties, with the decrease in those future cash flows as a result of traumatic decline in crude oil, natural gas, and natural gas liquids prices. Also impacting the current quarter was a $9 million pretax non-cash impairment of unproved prospect cost. Exclusive of these impairments in the current quarter, and a $6.7 impairment of undrilled offshore prospects and unproved acreage in the TMS in the prior year quarter, adjusted loss before income taxes for the current quarter would have been $21 million, compared to the adjusted income before tax of $13 million for the prior year quarter. Contributing to the decrease in adjusted results period over period, were lower revenues resulting from lower prices and production in the current period, offset in part by lower operating expenses. I'll touch briefly on each of those in a few minutes. Adjusted EBITDAX as we define it in our release was approximately $20.7 million, or $1.09 per basic share for the current quarter, compared to approximately $47.7 million, or $2.50 per share for the prior year quarter. The decline attributable to the lower revenues again offset by lower lease operating expenses and cash G&A expenses, and a $4.8 million settlement of a lawsuit during the quarter, that is reflected in other income expense. Cash flow per share on a recurring basis, meaning excluding the other income was approximately $0.83 a share, which was in line with Consensus estimates. To illustrate the benefit of our emphasis on cost improvement in this price environment, quarter-over-quarter we reduced controllable cash cost s by 20%. And that is almost $4 million quarter-over-quarter. And is notable is that our per unit production cost was also decreased by about 10%, despite lower production. So we stayed focused on further improvement in both the field, as well as the administrative side. Production for the quarter was approximately 8.4 Bcfe, or 91 million equivalents per day, compared to 9.4 Bcfe, or 102 million of natural gas equivalents per day in the prior year quarter. That 8.4 Bcfe or 9 million a day was within the guidance that the Company gave at our previous call. As discussed in our release for the quarter, due to the dramatic decline in and uncertain outlook for commodity prices in the last 1.5 years, we exercised discipline in our CapEx strategy by reducing our program to include only strategic drilling, de-risking new ideas, formations and/or plays, and have de-emphasized the expenditure of capital on what are marginally economic projects in this price environment, merely to reflect production growth. Consequently, new production from oil and liquids weighted drilling has not been sufficient enough to offset higher rate gas production from our GOM properties period over period. We have provided guidance of $85 million to $90 million equivalents per day for the fourth quarter, with roughly the same commodity mix as in the third quarter. During the month of October, our production has averaged approximately 91 million cubic feet of equivalents per day. On the price side, commodity prices during the quarter were significantly below prior year levels. No surprise to anyone. Our weighted average equivalent price declined to $3.47 per Mcfe, compared to $7.17 per Mcfe in the prior year quarter. And that overall decrease can be attributable to declines of 54%, 25%, 59%, in crude oil, natural gas and natural gas liquids prices respectively. Lower prices contributed to a little more than half of the total decrease in revenue quarter-over-quarter. For the fourth quarter, we have 35,000 barrels per month of oil production hedged through costless collars, with a put call spread of $55-by-$65.15. On the expense side, total lease operating costs were approximately $9 million for the quarter, compared to $13.8 million in the prior year quarter. Excluding production and ad valorem taxes, operating costs were $8.2 million, or $0.98 per Mcfe, compared to $10.6 million, or $1.13 per Mcfe for the prior year quarter. Which is a 23% improvement over the prior year quarter, as our efforts to reduce field operating costs through efficiencies, as well as concessions from service providers are starting to filter into our reported results. Also notable is that a large portion of monthly lease operating costs are fixed costs, and despite lower production, we have been successful at reducing per unit cost period over period as well. Guidance for the second quarter is $8 million to $8.5 million, excluding production and ad valorem taxes. Impairment expense in the current quarter again was total of $235 million. $225 million of which related to proved producing properties, and approximately $10 million of which related to the impairment value of unproven prospects and expiring leases. As noted in our release, we were required under GAAP to reduce the carrying value of our assets on the balance sheet, because that carrying value exceeded the estimated risk, discounted future cash flows from certain of our properties. The recent decline in commodity prices resulted in that reduction in the estimated future cash flows, thereby triggering the need to impair that carrying value on our balance sheet. Other income expense was a credit of approximately $4.3 million for the fourth quarter, compared to a negligible amount to the prior year quarter. Included in the current quarter was $4.8 million in proceeds from the settlement of a lawsuit related to third party damage in our Gulf of Mexico facilities in 2010. General administrative expense was $7.5 million for the current quarter, compared to $6.8 million for the prior year. If you exclude non-cash compensation expense for both periods, and approximately $600,000 in severance costs related to a reduction in force in the current quarter, recurring cash G&A expense was approximately $4.5 million, compared to $5.6 million for the prior year quarter, a decrease of approximately 20%. Just as we've done in the field, we've emphasized internally the need to reduce administrative costs, and accordingly, in August of this year, we implemented a reduction in force in our corporate offices that reduced head count by about 30%. Guidance for the fourth quarter is $4.5 million to $5 million. As of the end of the current quarter, we had $114.6 million outstanding on our credit facility, and had additional borrowing capacity of $109 million under our $225 million borrowing base. Due to a less active CapEx program plans for the fourth quarter, we forecast that our year end debt level will be similar, probably even a little lower than the current balance. Our next regularly scheduled borrowing base redetermination is to be effective November 1. That redetermination is currently in process, and should be finished in a week or two. We do expect some reduction in the borrowing base, due to decline in commodity prices and a reduced drilling program since the last redetermination. But we do not expect any reduction without a meaningful adverse impact on our liquidity position. Despite the slight increase in our debt level from the second quarter, we still maintain one of the healthiest balance sheets and liquidity profiles of our peer group. At the end of the quarter, we had a debt to total book cap of 25%, a debt to last 12 months EBITDAX ratio of 1.3 to 1, and $109 million of availability on our revolver at the current borrowing base, so we have a strong financial position that we expect to maintain during the next quarter. Regarding our CapEx program, fourth quarter activity will consist of the completion of the [Popem] well and the Muddy formation in Weston county, which is our second well in this play and commencement of production, and the completion of drilling of the Christiansen well, our third well in the area. Our total CapEx program for 2015 is currently estimated to be in the $58 million to $60 million range, with approximately $52 million of that having been spent through the third quarter. We are currently developing our CapEx program for 2016, and will share that once completed, which is likely to be around the end of the year. That concludes the financial review, and I'll now turn it over to Allan for an operations update. -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [3] -------------------------------------------------------------------------------- Thanks Joe, and good morning to everyone, and thank you for being with us today. I would like to give you a brief update on our operations during the quarter, a quarter in a continued to be a challenge for the majority of the industry. Cue to the low price environment and the uncertainly near-term improvement, we stayed focused on committed to our strategy and goals that we set at the beginning of the year, which were to number one, maintain our strong and conservative balance sheet, limit our CapEx cash flow to only strategic projects, reduce costs and maintain the flexibility to pursue growth through capitalizing on acquisition opportunities that come up in an environment like this. Concerning our financial condition, we now forecast that our total CapEx program for the year will be around $58 million to $60 million, as Joe mentioned earlier, which is expected to be less than our forecasted discretionary cash flow for the year. While our debt at the end of the quarter is higher than the beginning of the year, we simultaneously reduced our working capital deficit by a similar amount, so our total obligations remained fairly constant. As Joe mentioned our year end financial profile is expected to be as good or even better than it as of today. Concerning our drilling program, during the quarter we continued to focus on strategic projects that would enhance our portfolio and position us to quickly increase capital activity when prices improve and/or costs decline. Specifically we focused primarily on our unproven north Cheyenne lay Sandstone play in Wyoming, and a number of formations in our new Elm Hill play in Fayette/Gonzales County, Texas and testing an exploratory prospect called FRAMS in Natrona County, Wyoming. We believe that the success at any one of these three plays could be very meaningful to the future growth of the Company, and based on the results of our first well in July, we believe that the north Cheyenne play could be one of those. We had a nice discovery there with two more delineation wells currently in process. The Elm Hill project or play in Texas has proven to be inconsistent so far, after drilling five test wells, and uneconomic due to current price environment that we're in, and then our first exploratory test in the FRAMS Mowry play was also a disappointment. On the cost side, during the quarter we continued our cost reduction efforts in each and every aspect of our business, in the drilling and completion phase of our operations, in our field activities, and in our corporate offices. It's a little bit difficult to give a sustainable kind of a trending percentage reduction in drilling completion costs under the limited and pretty sporadic rig schedule that we've had, but we've seen around a 30% decrease in rig rates, around a 30% to 40% decrease in completion costs per stage, even with more profit. We've achieved an estimated 23% savings on legacy field operating costs quarter-over-quarter, through identifying ways to manage field operations more cost-effectively, and on the G&A side we took the difficult step of implementing a reduction in force in our corporate offices where we can cut the head count by about 30%. As Joe mentioned, our recurring period over period costs for this quarter were down by approximately 20%. Our goal is to get our cash G&A costs down by 30% commensurate with the reduction in head count. We will continue to identify additional areas for cost improvement, and we will continue to press our vendors and suppliers for additional concessions. Regarding our acquisition efforts, we've reviewed and analyzed numerous activities, however a number of market forces has led us to fewer than expected opportunities, and for those actually the market to a large disparity in the bid/ask spread, we continue to look for opportunities that provide a good mix of producing reserves and a meaningful amount of resource upside that could provide a strong platform for growth when prices and costs improve. I will now update you on some of our strategic drilling activity that we're currently focused on. In the Madison Grimes County area, while we believe that a sizability amount of unproven potential still exists there for the taking, we don't believe that the current environment is such that we should go into development mode. Until we can get better returns on our investment capital. We do believe however that it does make sense strategically to test the concept on certain areas of potential upside in this area in 2016. As Joe mentioned we're now beginning to develop our 2016 budget, and that will likely include a strategic test at the lower Lewisville, the Eagle Ford, and certain areas containing upper Lewisville, than those previously drilled in the area. In our north Cheyenne project in Wyoming, in July as you may recall we released initial results in Weston county, where we drilled an nice exploratory success that tested at a peak 24 hour rate of 907 barrels equivalent per day, which was 98% oil and an IP30 of 420 Boes per day, while working through our typical logistical issues. The current rate on this well is approximately 140 barrels equivalent per day. We're still experimenting with various lift mechanisms to optimize production rates and decline profiles, reviewing core data to optimize completions and other pertinent information that was not available at the time of the initial drilling and completion of the Elliott well. We're still very excited about the prospects for our 35,000 net acre position, we are utilizing a different completion technique on our second well to Popem, Number 1-H, than what we used on the Elliot well, and have begun initial flowback just this past weekend, and already see a significant oil rates in the 650 BOE per day range, which happened much sooner than initial completion. Additionally on that well, we were able to drill a pilot log sidetrack and complete a 6,700 foot lateral with 40% more stages, for under $5 million, putting us in a good cost position going forward. We will observe production results on these two wells for a few months before we complete the third well in the spring. We'll also design our 2016 program for this year based on the results of these first few wells, and the price environment that we expect to see in 2016. We believe that this play profile here is very similar to that of our Woodbine play in Madison County, Texas, and based on 160-acre spacing, we believe we have somewhere between to 200 to 300 locations that are possible on our acreage. Going back to Elm Hill and our project at Fayette/Gonzales county, Texas, we and our partner drilled five wells, testing three formations the Navarro, the Austin Chalk, and the Buda. Two wells have produced in the Navarro sands but not at rates that provide acceptable returns at this price environment. The two wells in the Buda and Austin Chalk did produce at very high oil rate initially, but have since declined, and don't produce economic rates at this time. We and our partner are currently evaluating other opportunities across our leasehold block there in determining what our next steps will be. In summary, we believe that we made good strides on our goals during the first three quarters that will pay off when prices rebound, and we return to development mode when and where it makes economic sense to do so. Similar to the entire upstream sector, we have suffered through a dramatic decline in our share price. We'll stay focused on maintaining and improving our financial strength, prudently de-risking our portfolio, and adding to our drilling inventory, so as to be positioned to be accelerate activity and improved commodity priced environment. With that, that concludes our remarks, and we will now ask the operator to open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [2] -------------------------------------------------------------------------------- (Operator Instructions). -------------------------------------------------------------------------------- Operator [3] -------------------------------------------------------------------------------- We will take our first question today from Neal Dingmann with SunTrust. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [4] -------------------------------------------------------------------------------- Good morning, guys. Just a quick question on the Muddy sandstone area. After these next two wells, and these three wells on. Let's say there is prospective is that first one, will that give you confidence in most of that 35,000 net that you all have, or is there still an area on the east there that you have to delineate? -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [5] -------------------------------------------------------------------------------- Yes, we're still delineating the play, but we think that after these first three wells, we'll have a pretty good geographical area, derisk but we want to do a little bit more of the that. But yes, I think the majority of our acreage we would feel very confident about the potential there. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [6] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [7] -------------------------------------------------------------------------------- The big thing there for us is to continue to find a way to drive down the cost to drill and complete, and our operations team did a very outstanding job driving that cost down further from our first well to the second well to the third well. And I would say that's going to be a key factor for us. We think the resources there, we have just got to find a way to get it out economically. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [8] -------------------------------------------------------------------------------- Okay. That leads to my next question. Is it more when you think about, obviously your plan, I think you're doing to the right thing cutting back due to the environment, is it more under well economics, rather than a set price obviously it depends on what costs do, and a lot of other factors on these wells, in order to step up your program, is it just a sort of a hurdle rate that you and Joe have established to decide, when you want to sort of accelerate that drilling, or given that you're looking more at acquisitions, I guess let me just ask that first. Is it just a hurdle rate that you're rate that you're looking at before deciding organically to increase? -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [9] -------------------------------------------------------------------------------- Yes. I think it's definitely a hurdle rate. That's certainly number one for us. I think in this environment, I mean you've got to weigh what your different alternatives are. I think that there are, we believe there are opportunities out there to, whether it's asset or corporate-type activity, we think that does exist. We're focused on that. We think size and scale are extremely important, but also for us, needing more inventory in the price environment that we're in, so we're equally focused on that. I would say that it is rate of return driven, and so therefore, we're trying to drive down our cost, and at the same time try to be as efficient as we can be, and we're still in the early stages. We're still learning as we go out there, and so far we're pleased with what we've seen. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [10] -------------------------------------------------------------------------------- Okay. And then lastly, just offshore, are things recompletes or anything that you are looking at early next year, or how should we look at sort of that production? -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [11] -------------------------------------------------------------------------------- No, we did a recompletion earlier this year, and it worked out well. But this is really not much left to do there. It's all PDP. So we're just hanging in there with that. And again, we're pleased with the decline that we have so far out there. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [12] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [13] -------------------------------------------------------------------------------- Thanks, Neal. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- And the next question, comes from Don Crist with Johnson Rice. -------------------------------------------------------------------------------- Don Crist, Johnson Rice & Company - Analyst [15] -------------------------------------------------------------------------------- Good morning guys. Just starting in the Muddy, can you talk about the differences in pumps that you did on the Elliot well, and how that 140 BOE a day that it's producing currently translates to your EUR type curve? -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [16] -------------------------------------------------------------------------------- I'll turn that over to Carl in terms of the pumps that we've used, and then Tommy and Steve can comment regarding our, it's still very early in the process in terms of trying to even determine what type curve would be. It's just very early stages, but Carl, why don't you start? -------------------------------------------------------------------------------- Joe Grady, Contango Oil & Gas Company - SVP, CFO [17] -------------------------------------------------------------------------------- Don, can you get a little closer to the phone, please. -------------------------------------------------------------------------------- Don Crist, Johnson Rice & Company - Analyst [18] -------------------------------------------------------------------------------- Yes, I'm sorry. I was just curious, I know you started on jet pump, and I thought you went to a rod pump on that. I was just curious on what you learned through the process? -------------------------------------------------------------------------------- Carl Isaac, Contango Oil & Gas Company - VP, Operations [19] -------------------------------------------------------------------------------- Well, actually on the first well, we started out with a gas lift system, and quickly transitioned to a pump. And then we transitioned to a rod pump after that. And starting out on the second well, we'll commence with a rod pump. As soon as the well is at a point where it requires artificial lift. So I think lessons learned, which I think is what your question was guided toward, was based on the GORs that we have in the field, the rod pump is the most efficient way starting out, based on our experience with the jet pumps and our gas lift system. -------------------------------------------------------------------------------- Don Crist, Johnson Rice & Company - Analyst [20] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Carl Isaac, Contango Oil & Gas Company - VP, Operations [21] -------------------------------------------------------------------------------- I'm sorry? -------------------------------------------------------------------------------- Don Crist, Johnson Rice & Company - Analyst [22] -------------------------------------------------------------------------------- Go ahead, I'm sorry. -------------------------------------------------------------------------------- Carl Isaac, Contango Oil & Gas Company - VP, Operations [23] -------------------------------------------------------------------------------- I think the second part of your question was related to how the performance fits the type curves, and my response to that would be that we just haven't seen enough data yet to confirm or deny a type curve. -------------------------------------------------------------------------------- Don Crist, Johnson Rice & Company - Analyst [24] -------------------------------------------------------------------------------- Okay. And just as it relates to the early flowback on the second well, I know it's very early days, but how does that translate to what you saw on the Elliot well?Is it kind of in line with the Elliot well, or is it trending ahead of what you saw at the same stage? -------------------------------------------------------------------------------- Carl Isaac, Contango Oil & Gas Company - VP, Operations [25] -------------------------------------------------------------------------------- I would echo exactly what Allan said a few moments ago. That we're more encouraged at this point in this well, than perhaps we were in the first well. I think the way I described this week is that we haven't had anything that dampens our optimism. -------------------------------------------------------------------------------- Don Crist, Johnson Rice & Company - Analyst [26] -------------------------------------------------------------------------------- And Allan, I know a lot of people are going through bank redeterminations now, especially on the private side. What does the M&A market look like right now compared to what it looked like, two or three months ago, and do you think the M&A market look as little better now from a transaction standpoint? -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [27] -------------------------------------------------------------------------------- I would say that it's slightly better, but I think I think probably in the first quarter of next year is when you're going to see more activity. I think there's limited activity now. I think there's some of this is beginning to hit home with people, but I don't think you'll see as much at the end of this year as you will next year. When I think it becomes more real to some people. I anticipate next year to be a pretty active year for M&A. -------------------------------------------------------------------------------- Don Crist, Johnson Rice & Company - Analyst [28] -------------------------------------------------------------------------------- Okay. I appreciate the answers. Thank you. I'll get back in queue. -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [29] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- And we will now go to Kyle Rhodes with RBC. -------------------------------------------------------------------------------- Kyle Rhodes, RBC Capital Markets - Analyst [31] -------------------------------------------------------------------------------- Hey guys. Certainly sounds encouraging on that second Muddy result early on. Is that oil cut on the well still increasing? -------------------------------------------------------------------------------- Carl Isaac, Contango Oil & Gas Company - VP, Operations [32] -------------------------------------------------------------------------------- Yes, it is increasing and at this point, we've had a flip on the bias to oil relative to the water. So we expect that trend will continue. We are just going to keep an eye on things. -------------------------------------------------------------------------------- Kyle Rhodes, RBC Capital Markets - Analyst [33] -------------------------------------------------------------------------------- Great. And then just kind of tying that into your fourth quarter guidance, just curious what you baked in from the Muddy in that guidance number? -------------------------------------------------------------------------------- Joe Grady, Contango Oil & Gas Company - SVP, CFO [34] -------------------------------------------------------------------------------- We didn't bake very much in there, Kyle. It's just come on now which is in November, and as Carl mentioned, it's going up and it's only one well. So the third well won't be completed probably until the spring, because we'll watch both and compare how they both perform. With the first two and compare performance on those before we decide how to complete the third one. So there's not a whole lot in that fourth quarter related to that well. -------------------------------------------------------------------------------- Kyle Rhodes, RBC Capital Markets - Analyst [35] -------------------------------------------------------------------------------- That make sense. I guess are you guys, do you need to see the completion of the third well before you would think about adding a dedicated rig there in 2016, or is two kind of results enough, as you're kind of putting your budget together around year end?Would that be enough to kind of go and allocate a full rig there for 2016? -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [36] -------------------------------------------------------------------------------- No, I mean we're going to test this well. I think we're going to make our budget, we'll have some contingencies in there. We'll see how it well and that first well continued to produce for a period of time, if we could get costs to the point where we felt like we could get the type of return that we need, we would certainly want to do that. That's something that we're continuing to focus on, and work on, but it is going to take a little bit more time before we will be in a position to do that. But it is something that's on our minds. -------------------------------------------------------------------------------- Joe Grady, Contango Oil & Gas Company - SVP, CFO [37] -------------------------------------------------------------------------------- And Kyle, when we go out with our budget, at the end of the year we'll have a better idea hopefully of what the price environment might be for 2016, so that will play into it as well. -------------------------------------------------------------------------------- Kyle Rhodes, RBC Capital Markets - Analyst [38] -------------------------------------------------------------------------------- Got it. And then just kind of on the M&A front, can you guys give us a sense for kind of the flavor of deals you guys are looking at these days, and then how would you think about funding a deal, and are you willing to do equity at these level, or is there more of a creative type of funding that you guys are looking at? -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [39] -------------------------------------------------------------------------------- We were looking at opportunities kind of in and around our existing areas of operations, but also in areas that are very similar to where we operate. But we need, as you can appreciate, it's pretty difficult finding plays that work today, unless you're in the core of a particular play. So we've been active, again both on the asset side and on the corporate side as well. There hasn't been anything that really has been a great fit. From a financing standpoint, I think that, we look at whatever our cheapest cost of capital is going to be, and how we can best structure it going forward. As you recognize, the market's gotten pretty choppy, and we were looking at a deal not long ago, and the market increased like 200 basis points over like a 30 or 40-day period while we were working on the deal. So it's challenging environment for sure. But with our balance sheet, we feel like we can get some things done. -------------------------------------------------------------------------------- Joe Grady, Contango Oil & Gas Company - SVP, CFO [40] -------------------------------------------------------------------------------- And certainly the profile of whatever we're looking at would dictate how we might proceed on the financing side as well. So it's sort of different for every deal we look at actually. -------------------------------------------------------------------------------- Kyle Rhodes, RBC Capital Markets - Analyst [41] -------------------------------------------------------------------------------- Got it. And then just one final one from me. Do you guys have an estimate for kind of a one-year base decline for your onshore assets assuming no new drilling? -------------------------------------------------------------------------------- Joe Grady, Contango Oil & Gas Company - SVP, CFO [42] -------------------------------------------------------------------------------- Probably 10% to 15% Steve said. Exclusive of new drilling. -------------------------------------------------------------------------------- Kyle Rhodes, RBC Capital Markets - Analyst [43] -------------------------------------------------------------------------------- Sure. -------------------------------------------------------------------------------- Joe Grady, Contango Oil & Gas Company - SVP, CFO [44] -------------------------------------------------------------------------------- Just what we already have, yes. -------------------------------------------------------------------------------- Kyle Rhodes, RBC Capital Markets - Analyst [45] -------------------------------------------------------------------------------- Great. I appreciate all of the color. -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [46] -------------------------------------------------------------------------------- Thanks, Kyle. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- And that will conclude our question-and-answer session. I would like to turn the call back to Mr. Allan Keel for any additional or closing remarks. -------------------------------------------------------------------------------- Allan Keel, Contango Oil & Gas Company - President, CEO [48] -------------------------------------------------------------------------------- We would like to thank everybody for participating today, and we'll look forward to updating you at our next call, so thanks so much. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Thank you very much. That does conclude our conference for today. I would like to thank everyone for your participation.
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