Contango has completed the arrangement of a $40 million Hydrocarbon Borrowing Base secured revolving credit agreement with Amegy Bank (the Credit Agreement). The Credit Agreement will be available to fund the Company's offshore Gulf of Mexico exploration and development activities, as well as repurchase shares of common stock, pay dividends, and to fund working capital as needed. Borrowings under the Credit Agreement bear interest at LIBOR plus 2.5%, subject to a LIBOR floor of 0.75%. The principal is due October 1, 2014, and may be prepaid at any time with no prepayment penalty. An arrangement fee of 0.75%, or $300,000, was paid in connection with the facility and a commitment fee of 0.375% will be paid on unused borrowing capacity.
We are drilling ahead on our Galveston Area 277L prospect (His Dudeness), and have submitted an exploration permit with the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) to drill our next wildcat exploration well in the Gulf of Mexico. We hope to be approved to drill Vermillion Island 170 (Swimmy) prior to December 31, 2010.
Our offshore production is currently approximately 89 million cubic feet equivalent per day (Mmcfed), net to Contango, while our onshore production is currently approximately 11 Mmcfed, net to Contango. As of October 21, 2010, we had no debt, approximately $60 million in net cash and cash equivalents and $40 million of unused borrowing capacity.
Kenneth R. Peak, the Company's Chairman and Chief Executive Officer, said, "We are very pleased to be with Amegy Bank and reunited with bankers we've known for 20 years. All is going well with our business - except for the price of natural gas. Our industry is cyclical and in my view, the price pain throughout the industry is now palpable, and natural gas focused rigs are now going to be laid down. I believe it is up from here – but it could easily be another 6 – 12 months or longer before we see enough supply fall off to begin moving prices north of $5.00/Mcf which is what I think the industry needs to earn for a 10% rate of return."
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