Contango Offshore Facilities Sustain Minor Damage

Contango Oil & Gas Company reports that its offshore facilities sustained only minor damage from Hurricane Ike. Our Dutch #2 well, our Mary Rose #1 - #4 wells and our production platform at Eugene Island 11 have no damage. Our Dutch #1 and #3 wells suffered damage to their SCADA control systems and we expect to have them repaired within two weeks. The downstream gas processing facilities for our Dutch production was flooded and we are unable to provide an estimate as to a projected start-up time for production from our Dutch wells.

We are ready to begin producing from our four Mary Rose wells and are only awaiting the go-ahead from our downstream pipeline operator. The related ancillary downstream processing facilities are ready to process our gas and condensate. Prior to the two hurricanes, our Mary Rose production was approximately 200 million cubic feet equivalent per day (“Mmcfed”) 8/8ths or approximately 75 Mmcfed net to Contango. We anticipate we will begin production within a week or less. Our drilling rig is moving today to drill our Dutch #4 rate acceleration well and upon completion will move to our Mary Rose #5 rate acceleration well.

Our corporate office sustained major damage and we are temporarily relocating to an office approximately 200 yards away. Our e-mail and telephone are working and remain the same. We have not lost any paper files and all of our electronic files were backed up prior to the storm.

Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said, “We are fortunate that all of our employees and partners are fine. The temporary move is only an inconvenience, and our offshore facilities are either ready or soon will be, to begin producing.”

Mr. Peak continued, “Our stock, like many others, has dropped dramatically over the past two weeks. Natural gas and oil prices are down significantly, and our production has been shut-in for all of September, so some decline is to be expected. We have run an economic case for our proved reserves, assuming we drill five rate acceleration wells and assuming $7.00 per Mmbtu natural gas and $70.00 per barrel of oil, NYMEX prices flat forever. We then subtracted 35% from pre-tax income for projected federal income taxes. The PV-10 of this case is approximately $1.3 billion or $78.00 per share, assuming 16.9 million shares outstanding. Our reserves have been in place for about 50 million years and aren’t going away because of a storm. We have no debt and only six employees and thus our ongoing financial commitments are minimal. Contango has now purchased approximately 100,000 shares. We have approximately $40.0 million in cash and are continuing to purchase shares.”


Read more on the aftermath of Hurricane Ike in Rigzone's Special Coverage After the Storm.