Operations Update
Contango Oil & Gas Company (NYSE Amex: MCF) announced today that the Company’s Eugene Island 56 #1 prospect was a dry hole. The Company will expense the approximate $12.0 million in drilling costs and $0.5 million in leasehold costs for this well in the quarter ended March 31, 2009. Our current net production is approximately 90.0 million cubic feet equivalent per day (“Mmcfed”) with our Mary Rose #2 well shut-in for workover operations which are scheduled to begin in early May.
Guaranty Bank Credit Agreement
Guaranty Bank, the Company’s lender under its $50.0 million revolving credit facility, has completed its borrowing base redetermination and confirmed that the Company’s line of credit remains at $50.0 million. We remain debt-free and have approximately $31.0 million of cash on hand, invested in U.S. Treasury obligations.
Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said, “In addition to expensing the $12.5 million of associated dry hole costs at Eugene Island 56, we also returned 40 Gulf of Mexico leases this quarter to the MMS with a book value of approximately $3.7 million. About half of these leases were about to expire and about half are being relinquished early. Further, we impaired our Grand Isle 70 well for approximately $2.7 million as required under successful efforts accounting. We have not yet completed our financials, but are projecting a break-even quarter after the above mentioned expenses.”
Mr. Peak continued, “The dry hole expense and surrender of leases to the MMS will reduce the amount of income taxes we have to pay this fiscal year. Further, we have no significant capital expenditures planned until November 2009 when we plan to spud our Ship Shoal 263 prospect (“Nautilus”). Our plan is to continue to build our cash reserves and use our liquidity to repurchase our shares in the open market at opportune times. Since the implementation of our share repurchase program in September 2008 we have repurchased approximately 1.2 million shares for $51.8 million. Our fully diluted shares now stand at 16.5 million, or an approximate 7% reduction since September 2008.”
Mr. Peak continued, “I became Chairman and CEO of Contango on July 29, 1999. In the intervening 10 years we have raised a total of $60.5 million of equity at various times. We have also from time to time purchased our common stock, both in private transactions, and more recently in the public markets. We have now expended a total of $64.7 million to purchase 3,945,187 shares over this same ten year time frame. I believe Contango is one of just a few public companies with a “negative” net equity invested.”
Contango is a Houston-based, independent natural gas and oil company. The Company’s core business is to explore, develop, produce and acquire natural gas and oil properties primarily offshore in the Gulf of Mexico. Additional information can be found on our web page at www.contango.com.
This press release contains forward-looking statements regarding Contango that are intended to be covered by the safe harbor "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995, based on Contango’s current expectations and includes statements regarding acquisitions and divestitures, estimates of future production, future results of operations, quality and nature of the asset base, the assumptions upon which estimates are based and other expectations, beliefs, plans, objectives, assumptions, strategies or statements about future events or performance (often, but not always, using words such as "expects", “projects”, "anticipates", "plans", "estimates", "potential", "possible", "probable", or "intends", or stating that certain actions, events or results "may", "will", "should", or "could" be taken, occur or be achieved). Statements concerning oil and gas reserves also may be deemed to be forward looking statements in that they reflect estimates based on certain assumptions that the resources involved can be economically exploited. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those, reflected in the statements. These risks include, but are not limited to: the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather such as hurricanes and other natural disasters); uncertainties as to the availability and cost of financing; fluctuations in oil and gas prices; risks associated with derivative positions; inability to realize expected value from acquisitions, inability of our management team to execute its plans to meet its goals, shortages of drilling equipment, oil field personnel and services, unavailability of gathering systems, pipelines and processing facilities and the possibility that government policies may change or governmental approvals may be delayed or withheld. Additional information on these and other factors which could affect Contango’s operations or financial results are included in Contango’s other reports on file with the Securities and Exchange Commission. Investors are cautioned that any forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from the projections in the forward-looking statements. Forward-looking statements are based on the estimates and opinions of management at the time the statements are made. Contango does not assume any obligation to update forward-looking statements should circumstances or management's estimates or opinions change.
Contango Oil & Gas Company, Houston
Kenneth R. Peak,
713-960-1901
www.contango.com
