Crimson Exploration Announces First Quarter 2013 Financial Results and Provides an Operational Update

Crimson Exploration Inc. (NasdaqGM:CXPO) today announced financial results for the first quarter of 2013.

Highlights

• First quarter Revenue of $24.1 million and EBITDAX of $15.5 million
• Average production of 35,924 Mcfe per day exceeds guidance, current production of 39,750 Mcfe per day
• Crimson successfully drilled the Beeler #2H, its first well targeting the Buda formation
• Crimson Exploration Inc. and Contango Oil & Gas Company jointly announced the signing of a merger agreement for an all-stock transaction

Management Commentary

Allan D. Keel, President and Chief Executive Officer, commented, “In the first quarter of 2013, we continued to successfully execute our drilling program in the Woodbine formation having previously announced the Nevill-Mosley #1H and the Mosley B #1 wells and brought the Covington-Upchurch online in Grimes County. In Dimmit County, Texas, we successfully drilled our first well in the Buda formation an area that we believe will provide us with another high quality area of oil potential. Going forward, our goal is to further grow crude oil and liquids production by continued development in the Woodbine and Buda formations.”

Summary Financial Results

The Company reported Adjusted EBITDAX, as defined below, of $15.5 million in the first quarter of 2013 compared to Adjusted EBITDAX for the prior year quarter of $16.4 million. Net loss for the first quarter of 2013, exclusive of special non-cash charges discussed below, was $3.0 million, or ($0.07) per basic share, compared to a net loss of $3.6 million, or ($0.08) per basic share, in the first quarter of 2012. Net loss including those special charges was $4.7 million, or ($0.11) per basic share, for the first quarter of 2013 compared to a net loss of $4.4 million, or ($0.10) per basic share, for the first quarter of 2012. Special non-cash items impacting the first quarter of 2013 were a $0.8 million non-cash impairment of unproved leasehold costs and an unrealized pre-tax charge of $1.9 million related to the mark-to-market valuation requirement on commodity price hedges. In the first quarter of 2012, the Company recognized an unrealized pre-tax charge of $0.5 million related to the mark-to-market valuation on commodity price hedges and a $0.7 million impairment charge on unproved leases.

Revenues for the first quarter of 2013 were $24.1 million compared to revenue of $26.7 million in the prior year quarter. Revenues decreased as a result of a 7.4% decline in equivalent production volumes and a 2.5% decrease in realized equivalent prices. The decrease in equivalent production volumes was primarily from a 16% decrease in natural gas production while the decrease in equivalent realized prices was primarily from a 44% decrease in natural gas liquids realizations.

Production for the first quarter of 2013 was approximately 3.2 Bcfe, or 35,924 Mcfe per day, compared to production of approximately 3.5 Bcfe, or 38,364 Mcfe per day, in the first quarter of 2012. Crude oil and natural gas liquids production was 44% of total production in the 2013 quarter compared to 38% of total production in the prior year quarter. The performance of wells brought on line during the quarter, complimented by a successful workover program, positioned the Company to exceed its first quarter production guidance of 34,000 – 35,000 Mcfe per day. Daily production is currently approximately 39,750 Mcfe per day, 45% of which is oil and liquids.

The weighted average sales price in the first quarter 2013 (before the effects of realized gains/losses on commodity price hedges) was $7.47 per Mcfe compared to an average sales price of $7.25 for the first quarter of 2012. The weighted average price realized in the first quarter of 2013 (including the effects of realized gains/losses on commodity price hedges) was $7.45 per Mcfe compared to an average realized price of $7.64 per Mcfe for the first quarter of 2012. The decrease in realized prices in the first quarter of 2013 was due to the expiration in 2012 of more favorable natural gas hedges put in place during a higher commodity price environment in January 2011.

Lease operating expenses for the first quarter of 2013 were $3.3 million, or $1.01 per Mcfe, compared to $4.6 million, or $1.33 per Mcfe, in the first quarter of 2012, a decrease resulting from lower workover cost. In the first quarter of 2013, lease operating expenses were below guidance of $4.6 - $4.8 million as expense workovers were less than planned for the quarter.

Production and ad valorem taxes for the first quarter of 2013 were $1.7 million, or $0.52 per Mcfe, compared to $1.4 million, or $0.40 per Mcfe.

Depreciation, Depletion and Amortization (“DD&A”) expense for the first quarter of 2013 was $12.8 million, or $3.97 per Mcfe, compared to $14.5 million, or $4.14 per Mcfe, for the first quarter of 2012, a decrease resulting from a lower overall DD&A rate and lower production volumes.

General and administrative expense in the first quarter of 2013 was $4.3 million, or $1.33 per Mcfe, compared to $4.8 million, or $1.37 per Mcfe, in the first quarter of 2012. Cash general and administrative expenses for the first quarter of 2013, exclusive of non-cash stock option expense recognized, was $3.7 million, or $1.13 per Mcfe, compared to $4.2 million, or $1.21 per Mcfe, for the first quarter 2012, a decrease resulting from lower personnel and facility costs.

Capital expenditures for the first quarter of 2013 were $11.2 million consisting primarily of approximately $10.5 million in Madison and Grimes counties, Texas and $0.5 million in South Texas. Crimson continues to execute an oil and liquids-rich focused drilling program with current and future activity targeting the Woodbine formation in Madison and Grimes counties and the Buda formation in South Texas.

Drilling Update

Buda formation

In Dimmit County, Texas, Crimson successfully drilled the Beeler #2H, its first well targeting the Buda formation, and anticipates full flowback operations to commence by mid-May. The well was drilled to a total measured depth of 11,013 feet, including an approximate 3,700 foot lateral, and will be completed naturally without fracture stimulation. The total cost to drill and complete the Beeler #2H was below the Company’s initial estimates of $4 million.

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 8,475 gross acres. Crimson plans to spud its second well targeting the Buda formation in early third quarter 2013.

Woodbine formation

In Madison County, Texas, the Payne B #1H (84.1% WI) well, targeting the Woodbine formation, was drilled to a total measured depth of 15,900 feet, including a 6,700 foot lateral. Crimson is currently completing the well with first production expected by the end of May. The well is anticipated to be completed with 24 stages of fracture stimulation.

Approximately one mile northwest, the Grace Hall C (Allocation) Unit #1H (62.6% WI) well, targeting the Woodbine formation, is currently drilling at 8,899 feet toward a total measured depth of 15,259 feet, including a 6,000 foot lateral. The Grace Hall C (Allocation) Unit #1H is approximately 2,500 feet away from the Mosley B #1H (82.8% WI) well which came online in April 2013 at an initial production rate of 1,143 boepd. The well is anticipated to be completed with 22 stages of fracture stimulation with first production expected by the end of June. Upon completion of drilling operations, the rig will move approximately 9 miles southeast to begin drilling the Stuckey-Upchurch #1H well in Crimson’s Iola-Grimes Area.

In Grimes County, Texas, Crimson was notified by its midstream provider that the Central NGL Refrigeration Unit is fully operational and able to process hydrocarbons from the Covington-Upchurch #1H (67.8% WI) well drilled and completed in the fourth quarter of 2012. The well had been producing from the Woodbine-Lewisville Sand at a restricted rate of 2,500 Mcfepd (1,900 Mcfpd and 100 barrels of oil) on a 14/64^th inch choke through-out the delay of plant start-up and was recently increased to 5,881 Mcfepd, or 4,021 Mcf, 183 barrels of condensate and 127 barrels of natural gas liquids, on a 27/64^th choke, with 1,400 psi of flowing tubing pressure.

Subsequent Event

In an 8-K dated April 30, 2013, Crimson Exploration Inc. ("Crimson") and Contango Oil & Gas Company ("Contango") jointly announced that they have signed a merger agreement for an all-stock transaction pursuant to which Crimson would become a wholly-owned subsidiary of Contango. Upon consummation of the merger, each share of Crimson stock will be converted into 0.08288 shares of Contango stock resulting in Crimson stockholders owning 20.3% of the post-merger Contango.

Following the merger, the combined company will be a premier Houston-based independent oil and gas company with a balanced offshore Gulf of Mexico ("GoM") and onshore Texas profile. The combined company will offer a deep inventory of high-impact GoM prospects complemented by Crimson's onshore oil and natural gas liquids-focused, lower-risk unconventional resource positions in several prolific plays.

Pro forma for the merger, net daily production for the combined company for the quarter ending March 31, 2013 would be approximately 101 Mmcfe (31% oil and natural gas liquids) and total proved reserves are estimated to be approximately 312 Bcfe (31% oil and natural gas liquids), based on SEC pricing at March 31, 2013. Pro forma PV-10 of the estimated proved reserves of the combined company would be approximately $932.5 million. The enhanced size and scale of the combined company and its conservatively capitalized balance sheet will position it to implement an accelerated oil and natural gas liquids-focused drilling program.

The merger is subject to the approval of the stockholders of both Contango and Crimson as well as customary closing conditions. The Estate of Kenneth R. Peak, Brad Juneau, members of the management teams of Contango and Crimson, and affiliates of Oaktree Capital Management (Crimson’s largest stockholder) have all entered into voting agreements in support of the transaction. The merger is expected to close in the third quarter of 2013.

Selected Financial and Operating Data

The following table reflects certain comparative financial and operating data for the three month periods ending March 31, 2013 and 2012:

Non-GAAP Financial Measures

EBITDAX represents net income (loss) before interest expense, taxes, and depreciation, amortization and exploration expenses. Adjusted EBITDAX represents EBITDAX as further adjusted to reflect the items set forth in the table below, all of which will be required in determining our compliance with financial covenants under the credit agreements representing our senior credit facility and our second lien credit facility.

We have included EBITDAX and Adjusted EBITDAX in this release to provide investors with a supplemental measure of our operating performance and information about the calculation of some of the financial covenants that are contained in our credit agreements. We believe EBITDAX is an important supplemental measure of operating performance because it eliminates items that have less bearing on our operating performance and so highlights trends in our core business that may not otherwise be apparent when relying solely on GAAP financial measures. We also believe that securities analysts, investors and other interested parties frequently use EBITDAX in the evaluation of companies, many of which present EBITDAX when reporting their results. Adjusted EBITDAX is a material component of the covenants that are imposed on us by our credit agreements. We are subject to financial covenant ratios that are calculated by reference to Adjusted EBITDAX. Non-compliance with the financial covenants contained in these credit agreements could result in a default, an acceleration in the repayment of amounts outstanding, and a termination of lending commitments. Our management and external users of our financial statements, such as investors, commercial banks, research analysts and others, also use EBITDAX and Adjusted EBITDAX to assess:

• the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
• the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness;
• our operating performance and return on capital as compared to those of other companies in our industry, without regard to financing or capital structure; and
• the feasibility of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

EBITDAX and Adjusted EBITDAX are not presentations made in accordance with generally accepted accounting principles, or GAAP. As discussed above, we believe that the presentation of EBITDAX and Adjusted EBITDAX in this release is appropriate. However, when evaluating our results, you should not consider EBITDAX and Adjusted EBITDAX in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as net income (loss). EBITDAX and Adjusted EBITDAX have material limitations as performance measures because they exclude items that are necessary elements of our costs and operations. Because other companies may calculate EBITDAX and Adjusted EBITDAX differently than we do, EBITDAX may not be, and Adjusted EBITDAX as presented in this release is not, comparable to similarly-titled measures reported by other companies.

The following table reconciles net income to EBITDAX and Adjusted EBITDAX for the periods presented:

Guidance for Second Quarter 2013

The Company is providing the following updated guidance for the second calendar quarter of 2013. Figures for lease operating expenses, production and ad valorem taxes, cash general and administrative expenses and DD&A are based on the midpoint of the production guidance range.

Teleconference Call

Crimson management will hold a conference call to discuss the information described in this press release on May 8, 2013 at 9:30am CDT. Those interested in participating in the earnings conference call may do so by calling the following phone number: 888-417-8533, (International 719-325-2376) and entering the following participation code 1826926. A replay of the call will be available from Wednesday, May 8, 2013 at 12:30pm CDT through Wednesday, May 15, 2013 at 12:30pm CDT by dialing toll free 888-203-1112, (International 719-457-0820) and asking for replay ID code 1826926.

Crimson Exploration is a Houston, TX-based independent energy company engaged in the exploitation, exploration, development and acquisition of crude oil and natural gas, primarily in the onshore Gulf Coast regions of the United States. The Company currently owns approximately 95,000 net acres onshore in Texas, Louisiana, Colorado and Mississippi, including approximately 19,000 net acres in Madison and Grimes counties in Southeast Texas, approximately 8,600 net acres in the Eagle Ford Shale in South Texas, approximately 10,000 net acres in the DJ Basin of Colorado, and approximately 4,800 net acres in the Haynesville Shale and Mid-Bossier gas plays and James Lime gas/liquids play in East Texas.

Additional information on Crimson Exploration Inc. is available on the Company's website at http://crimsonexploration.com.

This press release includes “forward-looking statements” as defined by the Securities and Exchange Commission (“SEC”) and applicable securities laws. Such statements include those concerning Crimson’s strategic plans, expectations and objectives for future operations. All statements included in this press release that address activities, events or developments that Crimson expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions Crimson made based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond Crimson’s control. Statements regarding future production, revenue, cash flow operating results, leverage, drilling rigs operating, drilling locations, funding, derivative transactions, pricing, operating costs and capital spending, tax rates, and descriptions of our development plans are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, commodity price changes, inflation or lack of availability of goods and services, environmental risks, the proximity to and capacity of transportation facilities, the timing of planned capital expenditures, uncertainties in estimating reserves and forecasting production results, operating and drilling risks, regulatory changes and the potential lack of capital resources. All forward-looking statements are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. Please refer to our filings with the SEC, including our Form 10-K for the year ended December 31, 2012, and subsequent filings for a further discussion of these risks. Existing and prospective investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.