Contango Oil & Gas Co. announced Monday a successful well at its Nautilus prospect located at Offshore Gulf of Mexico block Ship Shoal 263.
The Company has a working interest of approximately 94% and a net revenue interest of approximately 74% in this well, inclusive of its investment in Contango Offshore Exploration LLC. Production is expected to begin by mid-summer 2010 at an estimated rate of 20 million cubic feet equivalent per day (Mmcfed), net to Contango. Costs net to Contango to lease, drill, complete, and bring this well to full production status are expected to be approximately $29 million.
The Companys drilling program with its joint venture partner, Patara Oil & Gas LLC, is proceeding as planned. We have spud our first two wells. The first well was successfully fraked with flow-back rates and pressure in line with average curves and is now on-line and flowing at an 8/8ths rate of 1.2 Mmcfed. We have reached total depth on the second well and logs indicate very good Cotton Valley pays. We expect to begin production by the end of January 2010 at a similar 8/8ths production rate. We have invested approximately $3.5 million in these two wells.
Contangos current production is 81 Mmcfed. We have no debt and approximately $70 million in cash and cash equivalents and $50 million of unused borrowing capacity. For the calendar year 2010, the Company has increased its capital expenditure budget to approximately $112 million. Of this $112 million:
Kenneth R. Peak, Contangos Chairman and Chief Executive Officer, said, We are pleased with the log on our Nautilus discovery which has over 70 net feet of pay with excellent porosity and have elected to move directly to platform construction and laying a pipeline to complete and begin production of this well.
Peak continued, We elected to expand our capex budget due to the high quality farm-in opportunities that have become available. The on-shore conventional prospect is an aberration from our Gulf of Mexico exploration strategy but is an outstanding prospect with an excellent reward/risk ratio.
Contango is a Houston-based, independent natural gas and oil company. The Companys core business is to explore, develop, produce and acquire natural gas and oil properties primarily offshore in the Gulf of Mexico.
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