Contango Apparent High Bidder for 6 Blocks in U.S. Gulf of Mexico

Contango Oil & Gas Company announced today that the Company’s wholly-owned subsidiary, Contango Operators, Inc., was the apparent high bidder on six lease blocks at the Central Gulf of Mexico Lease Sale 216/222 held on June 20, 2012.

The Company bid a total of approximately $11 million on the following blocks: East Cameron 124; Eugene Island 31; Eugene Island 260 ; Ship Shoal 83; Ship Shoal 255; South Timbalier 110

An apparent high bid (“AHB”) is subject to Outer Continental Shelf (“OCS”) Bid Adequacy Review, notwithstanding the fact that the Bureau of Ocean Energy Management (“BOEM”) may reject all bids for a given tract. The BOEM review process can take up to 90 days. Upon approval from the BOEM, our plan is to move immediately to get these prospects permitted and to drill them in 2013 and 2014.

Assuming all six of our high bids are awarded, the company will have a total of eight offshore prospects to drill. These eight Gulf of Mexico prospects will cost approximately $17 million in leasehold acquisition costs and Contango estimates they will require another $150 million in dry hole costs.

“If we assume we are successful on four of our eight prospects, we project another $125 million in completion and platform costs might be required for a total capital outlay of approximately $292 million,” said Contango in a statement.

“The range of potential reserves from these prospects varies widely but for planning purposes we have assumed these eight prospects have an unrisked reserve potential of approximately 185 billion cubic feet equivalent (“Bcfe”), net to Contango, using 6 Mcf equal to one barrel of oil/condensate. We have also assumed these reservoirs to be typical Gulf of Mexico reservoirs with high BTU gas with significant natural gas liquids and high quality condensate. We have prepared our estimated drilling economics and finding and development (“F&D”) costs for these eight prospects assuming one barrel of oil/condensate is the “economic equivalent” of 30 Mcf (“Mcfee”). Based on our projected gas/condensate ratios, the “economic equivalent” of these eight prospects is approximately 450 Bcfee.

 If we risk our probability of success assuming one in two prospects work, a 50% success rate, we project we will find approximately 225 Bcfee, net to Contango, for a projected F&D cost in the range of $1.00 to $1.50 per Mcfee.” writes the company in a press release.

Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said “I caution everyone to keep in mind that these assumptions may be completely wrong. We may spend $167 million of our funds and find no reserves. Furthermore, our cost estimates could be substantially higher if we encounter hurricanes, drilling problems or mechanical problems. Drilling oil and gas wells in the Gulf of Mexico involves a high degree of risk. Please review our “Risk Factors” on Form 10-Q for the nine months ended March 31, 2012 filed with the Securities and Exchange Commission (“SEC”).”

We anticipate the Hercules 205 rig to be on location by the first week in July 2012 to spud our Ship Shoal 134 (“Eagle”) prospect and the Spartan 303 rig to be on location by mid-July 2012 to spud our South Timbalier 75 (“Fang”) prospect. We should know the results of both wells in the November time frame.

In addition to our planned activities in the Gulf of Mexico, we have invested approximately $5 million to lease approximately 14,000 acres in the Tuscaloosa Marine Shale (“TMS”), a shale play in Louisiana and Mississippi, with an option to purchase approximately 10,000 additional acres. The TMS is an oil focused play and we intend to watch the play develop before we commit to drilling any exploratory wells.

 Our current production is approximately 83 million cubic feet equivalent per day (“MMcfed”). In addition, we have approximately $11.6 million invested with Alta in the liquids rich Kaybob area of the Duvernay Shale in Alberta, Canada, and $41.3 million invested with Exaro Energy III, LLC to further develop the Jonah Field in Wyoming. We remain debt-free and have approximately $115 million of cash on hand after having already paid approximately $50 million in Federal and State of Louisiana income taxes during our fiscal year that ends June 30. We have $40.0 million of unused borrowing capacity.

 Thus far during the three months ended June 30, 2012, we have purchased 64,718 shares of our common stock under our $50 million share repurchase program, for approximately $3.4 million, or $52.83 per share. In total, under our existing $50 million share repurchase program and our previously completed $100 million share repurchase program, we have purchased approximately 2.3 million shares of our common stock for $105.8 million, or $46.73 per share. Our outstanding number of shares now stands at 15.3 million shares of common stock outstanding and we have no options outstanding or planned to be issued.

Contango is a Houston-based, independent natural gas and oil company. The Company’s business is to explore, develop, produce and acquire natural gas and oil properties onshore and offshore in the Gulf of Mexico.

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Press Release, June 25, 2012