Contango Oil & Gas Company and its 33.3%-owned subsidiary, Republic Exploration LLC, have entered into an agreement to sell all of their currently producing Gulf of Mexico leases to private interests for approximately $12.0 million. Contango will receive approximately $4.7 million in cash proceeds, representing $3.7 million from the sale of its direct interests in the properties, plus an additional $1.0 million distribution from its 33.3%-owned subsidiary, Republic Exploration. Republic Exploration will receive approximately $8.3 million cash proceeds from the sale of its interests in these properties from which it will pay a $1.0 million distribution to each of its three members. After payment of these distributions and including cash already on hand, Republic Exploration will have total cash of approximately $8.6 million. These funds will be available for future lease acquisitions and exploration drilling. Contango and Republic Exploration will receive payment prior to Dec. 31, 2003. In connection with this sale, Contango Oil & Gas Company will recognize an approximate $6.5 million gain on sale of assets on its income statement for the three months ending Dec. 31, 2003.
Kenneth R Peak, Contango's chairman and chief executive officer, said, "As a result of this sale, we have now recaptured our entire investment in Republic Exploration. This sale, together with our earlier property sale in July 2003, represents approximately $9.7 million in cash proceeds to Contango. We will use the proceeds of this most recent sale to reduce our bank debt to approximately $10.0 million. This compares to bank debt of approximately $22.4 million as recently as June 30, 2003. After debt repayment, our unused availability under our bank line will be approximately $11.0 million. Based on current product pricing, our monthly EBITDAX is projected to average around $1.5 million per month through our third fiscal quarter ending March 31, 2004."
Mr. Peak added, "We are completing our Queen City prospect in Jim Hogg County, Texas. It is too early to know the commercial viability of this well. Our other four onshore prospects are proceeding on schedule. Republic Exploration's Vermilion 73 deep shelf prospect in the Gulf of Mexico is currently drilling."