Contango Apparent High Bidder at Central Gulf of Mexico Lease Sale 216/222 and Updates Operations
Published on Monday, 25 June 2012 08:41 Written by TradersHuddle StaffHOUSTON-( Business Wire )-
Contango Oil & Gas Company (NYSE Amex: MCF) announced today that the Company’s wholly-owned subsidiary, Contango Operators, Inc., was the apparent high bidder on six lease blocks at the Central Gulf of Mexico Lease Sale 216/222 held on June 20, 2012. The Company bid a total of approximately $11 million on the following blocks:
- East Cameron 124
- Eugene Island 31
- Eugene Island 260
- Ship Shoal 83
- Ship Shoal 255
- South Timbalier 110
An apparent high bid (“AHB”) is subject to Outer Continental Shelf (“OCS”) Bid Adequacy Review, notwithstanding the fact that the Bureau of Ocean Energy Management (“BOEM”) may reject all bids for a given tract. The BOEM review process can take up to 90 days. Upon approval from the BOEM, our plan is to move immediately to get these prospects permitted and to drill them in 2013 and 2014.
Assuming all six of our high bids are awarded, we will have a total of eight offshore prospects to drill. These eight Gulf of Mexico prospects will cost approximately $17 million in leasehold acquisition costs and we project they will require another $150 million in dry hole costs. If we assume we are successful on four of our eight prospects, we project another $125 million in completion and platform costs might be required for a total capital outlay of approximately $292 million.
The range of potential reserves from these prospects varies widely but for planning purposes we have assumed these eight prospects have an unrisked reserve potential of approximately 185 billion cubic feet equivalent (“Bcfe”), net to Contango, using 6 Mcf equal to one barrel of oil/condensate. We have also assumed these reservoirs to be typical Gulf of Mexico reservoirs with high BTU gas with significant natural gas liquids and high quality condensate. We have prepared our estimated drilling economics and finding and development (“F&D”) costs for these eight prospects assuming one barrel of oil/condensate is the “economic equivalent” of 30 Mcf (“Mcfee”). Based on our projected gas/condensate ratios, the “economic equivalent” of these eight prospects is approximately 450 Bcfee.
If we risk our probability of success assuming one in two prospects work, a 50% success rate, we project we will find approximately 225 Bcfee, net to Contango, for a projected F&D cost in the range of $1.00 to $1.50 per Mcfee.
Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said “I caution everyone to keep in mind that these assumptions may be completely wrong. We may spend $167 million of our funds and find no reserves. Furthermore, our cost estimates could be substantially higher if we encounter hurricanes, drilling problems or mechanical problems. Drilling oil and gas wells in the Gulf of Mexico involves a high degree of risk. Please review our “Risk Factors” on Form 10-Q for the nine months ended March 31, 2012 filed with the Securities and Exchange Commission (“SEC”).”
We anticipate the Hercules 205 rig to be on location by the first week in July 2012 to spud our Ship Shoal 134 (“Eagle”) prospect and the Spartan 303 rig to be on location by mid-July 2012 to spud our South Timbalier 75 (“Fang”) prospect. We should know the results of both wells in the November time frame.
In addition to our planned activities in the Gulf of Mexico, we have invested approximately $5 million to lease approximately 14,000 acres in the Tuscaloosa Marine Shale (“TMS”), a shale play in Louisiana and Mississippi, with an option to purchase approximately 10,000 additional acres. The TMS is an oil focused play and we intend to watch the play develop before we commit to drilling any exploratory wells.
Our current production is approximately 83 million cubic feet equivalent per day (“MMcfed”). In addition, we have approximately $11.6 million invested with Alta in the liquids rich Kaybob area of the Duvernay Shale in Alberta, Canada, and $41.3 million invested with Exaro Energy III, LLC to further develop the Jonah Field in Wyoming. We remain debt-free and have approximately $115 million of cash on hand after having already paid approximately $50 million in Federal and State of Louisiana income taxes during our fiscal year that ends June 30. We have $40.0 million of unused borrowing capacity.
Thus far during the three months ended June 30, 2012, we have purchased 64,718 shares of our common stock under our $50 million share repurchase program, for approximately $3.4 million, or $52.83 per share. In total, under our existing $50 million share repurchase program and our previously completed $100 million share repurchase program, we have purchased approximately 2.3 million shares of our common stock for $105.8 million, or $46.73 per share. Our outstanding number of shares now stands at 15.3 million shares of common stock outstanding and we have no options outstanding or planned to be issued.
Contango is a Houston-based, independent natural gas and oil company. The Company’s business is to explore, develop, produce and acquire natural gas and oil properties onshore and 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 SEC. 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 CompanyKenneth R. Peak, (713) 960-1901www.contango.com
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