Contango Oil & Gas Reports Year-End Results

Contango Oil & Gas reported natural gas and oil sales from continuing operations for the fiscal year ended June 30, 2009 of approximately $190.7 million, compared to $116.5 million for the same period last year. The Company reported net income attributable to common stock for the year ended June 30, 2009 of approximately $55.9 million, or $3.41 per basic share and $3.35 per diluted share. This compares to net income attributable to common stock for the year ended June 30, 2008 of approximately $255.4 million, or $15.78 per basic and $14.88 per diluted share, which included a gain of approximately $63.4 million related to the sale of our 10% limited partnership interest in Freeport LNG Development LP and approximately $173.7 million of discontinued operations related to the sale of our Arkansas Fayetteville Shale properties.

For the three months ended June 30, 2009, natural gas and oil sales from continuing operations were approximately $36.3 million, down from $70.2 million for the three months ended June 30, 2008. Contango had net income attributable to common stock of approximately $5.2 million, or $0.33 per basic share and $0.32 per diluted share, compared to net income attributable to common stock for the three months ended June 30, 2008 of approximately $26.0 million, or $1.58 per basic and $1.52 per diluted share.

For fiscal year 2010, Contango's capital expenditure budget calls for us to invest a total of $60 million as we plan to drill up to four wildcat exploration wells, at an estimated dry hole cost of approximately $15 million each, net to Contango. The Company will own approximately a 72% NRI in all four wells. We plan to spud our Ship Shoal 263 prospect ("Nautilus") around November 2009, and our Matagorda Island 617 prospect ("Dude") in early 2010. Our Matagorda Island 607/616 prospect ("El Duderino") may not be drilled, depending on the results from our Dude well. Contango's fourth prospect has yet to be identified. Assuming we were to drill four prospects by our fiscal year-end of June 30, 2010, and all four wells were dry, the Company would be able to defer an estimated $20 million in income taxes that would otherwise be owed and thus reduce our projected after-tax capital outlay to approximately $40 million.

Contango's production is currently 75.0 Mmcfed, net to Contango. As of September 1, 2009, the Company had no debt and approximately $39.0 million in cash and cash equivalents.

Kenneth R. Peak, the Company's Chairman and Chief Executive Officer said, "Despite the prolonged shut-in of our production this past fall and losing our offices due to Hurricane Ike together with the collapse in natural gas prices, we had a profitable and successful year. We repurchased 7% of our common stock and ended the year with 22 Mcfe of proved developed reserves per fully diluted share. We are debt free and have a $50.0 million unused line of credit."

Mr. Peak continued, "Income taxes are our biggest expense, but it is better to have a tax problem than it is to have an income problem. I have been surprised that on-shore U.S. natural gas production hasn't fallen off more quickly. The industry is not earning a positive rate of return at anywhere near current natural gas price levels and sooner or later, the industry must earn a profit if it is to continue to attract capital to drill. We will continue to be stingy with our common stock. Our fully diluted share count now stands at 16.5 million shares, as compared to 16.7 million shares at June 30, 2001. In the past two years we have issued a combined total of 67,559 shares and options to management and the board of directors and this fiscal year we plan to issue zero stock and options."
 

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