Contango Announces Investment in On-Shore Assets

HOUSTON--()--Contango Oil & Gas Company (NYSE Amex: MCF) announced today that as of March 31, 2012, the Company, through its wholly-owned subsidiary, Contaro Company, entered into a Limited Liability Company Agreement (the “LLC Agreement”) to form Exaro Energy III LLC (“Exaro”). Other major members of Exaro include Sageview Capital LP and Exaro II Jonah, a wholly owned subsidiary of Exaro Energy II LLC and an affiliate of Jefferies Capital Partners. Pursuant to the LLC Agreement, the Company has committed to invest up to $82.5 million in Exaro over the next five years together with other parties for an aggregate commitment of $182.5 million. The Company owns approximately a 45% interest in Exaro, subject to terms allowing another party to acquire up to $15 million of the Company’s commitment, which would decrease the Company’s interest in Exaro to approximately 34%. The Company anticipates funding approximately $41.3 million in April 2012.

Exaro has entered into an Earning and Development Agreement (the “EDA Agreement”) with Encana Oil & Gas (USA) Inc. (“Encana”) to provide funding of up to $380 million to continue the development drilling program in a defined area of Encana’s Jonah field asset located in Sublette County, Wyoming. This funding will be comprised of the $182.5 million investment detailed above, debt, and cash flow from operations. Encana will continue to be the operator of the field and upon investing the $380 million, Exaro will have earned 32.5% of Encana’s working interest in a defined joint venture area that comprises approximately 5,760 gross acres.

The Jonah field is the third largest oil producing field in Wyoming and one of the largest single gas fields in the United States with an average gross pay section of approximately 3,500 feet (1,000 feet of net pay).

Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said, “We are pleased to be partners with our investment group and Encana in one of the premier gas fields in North America. The hydrocarbons produced from the Jonah field consist of high BTU gas (1,150 BTU/mcf) and 50 API grade condensate. The condensate yield ranges from 10 bbls/mmcfg in the upper Lance to 45 bbls/mmcfg in the lower Lance formation. Under the terms of our EDA Agreement, virtually all of our capital is directed towards “turning a drill bit to the right” which is an extremely tax efficient way for Contango to invest. Further, we believe that the partnership between Encana and Exaro will benefit from the utilization of the very latest in shale gas completion technology as it is applied in these tight sandstones, that, together with an emphasis on liquids production, will drive significant value accretion for both companies.”

As of April 4, 2012, Contango had no debt, approximately $135 million in net available cash, $40.0 million of unused borrowing capacity, and was producing at a rate of approximately 90 Mmcfed, net to Contango.

Contango is a Houston-based, independent natural gas and oil company. The Company’s core business is to explore, develop, produce and acquire natural gas and oil properties onshore and offshore in the Gulf of Mexico. Additional information can be found on our web page at www.contango.com.

This press release contains forward-looking statements regarding Contango that are intended to be covered by the safe harbor "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995, based on Contango’s current expectations and includes statements regarding acquisitions and divestitures, estimates of future production, future results of operations, quality and nature of the asset base, the assumptions upon which estimates are based and other expectations, beliefs, plans, objectives, assumptions, strategies or statements about future events or performance (often, but not always, using words such as "expects", “projects”, "anticipates", "plans", "estimates", "potential", "possible", "probable", or "intends", or stating that certain actions, events or results "may", "will", "should", or "could" be taken, occur or be achieved). Statements concerning oil and gas reserves also may be deemed to be forward looking statements in that they reflect estimates based on certain assumptions that the resources involved can be economically exploited. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those, reflected in the statements. These risks include, but are not limited to: the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather such as hurricanes and other natural disasters); uncertainties as to the availability and cost of financing; fluctuations in oil and gas prices; risks associated with derivative positions; inability to realize expected value from acquisitions, inability of our management team to execute its plans to meet its goals, shortages of drilling equipment, oil field personnel and services, unavailability of gathering systems, pipelines and processing facilities and the possibility that government policies may change or governmental approvals may be delayed or withheld. Additional information on these and other factors which could affect Contango’s operations or financial results are included in Contango’s other reports on file with the Securities and Exchange Commission. Investors are cautioned that any forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from the projections in the forward-looking statements. Forward-looking statements are based on the estimates and opinions of management at the time the statements are made. Contango does not assume any obligation to update forward-looking statements should circumstances or management's estimates or opinions change.

Contacts

Contango Oil & Gas Company
Kenneth R. Peak, 713-960-1901
www.contango.com

Contacts

Contango Oil & Gas Company
Kenneth R. Peak, 713-960-1901
www.contango.com