Contango Oil & Gas Company (NYSE Amex:MCF) announced today that it has drilled a successful exploratory well at its Swimmy prospect located Offshore Gulf of Mexico on Vermilion block 170. The Company’s independent third party engineer estimates this well to have 8/8ths proved reserves of 48 billion cubic feet of natural gas and 1.2 million barrels of condensate, approximately 55 billion cubic feet equivalent (“Bcfe”), or 37.5 Bcfe net to Contango’s 68% net revenue interest. Production is expected to begin this fall at an estimated rate of 15 million cubic feet equivalent per day (“Mmcfed”), net to Contango. Estimated net costs to Contango, to acquire, drill, complete, and bring this well to full production status are approximately $26.5 million. Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said, “We expect this discovery will replace our production for the fiscal year ended June 30, 2011. Production for the six months ended December 31, 2010 was approximately 18.7 Bcfe. As a result of this well, our all-in estimated offshore Gulf of Mexico finding and development (F&D) costs for fiscal year 2011 are now estimated to be about $1.20/mcfe. The costs used in this calculation include $8.7 million for a potential second well at Vermilion 170; $9.5 million from our earlier dry hole at Galveston Area 277 (His Dudeness); and the $26.5 million outlined above, all net to Contango.” Mr. Peak continued, “Currently, our two Eloise wells are both shut-in for remedial work. Prior to being shut-in, they were producing at a combined rate of 5.0 Mmcfed, net to Contango. Our plan is to recomplete our Eloise South well uphole in the CibOp section as our Dutch #5 well. This recompletion is estimated to cost approximately $6 million, with an estimated initial production rate of approximately 8.5 Mmcfed, both net to Contango. Our Eloise North well recently sanded up and we are currently attempting to repair the well to restore production. If we are unsuccessful, our plan is to recomplete the well uphole in an upper Rob-L section at a net cost of approximately $0.5 million and an estimated initial production rate of approximately 1.5 Mmcfed, both net to Contango. We plan to have both of these wells on-line by mid-summer.”
“We submitted our permit to the BOEM to drill our Vermilion 170 well on September 29, 2010, received permission to spud the well on February 16, 2011 and began drilling on February 24, 2011. We estimate this one well will help sustain dozens of jobs and pay royalties to the federal government in excess of $50 million. On March 3, 2011, we submitted an exploration permit to drill our Eagle prospect at Ship Shoal 134. We are hopeful that we will receive a permit to drill this prospect sometime this summer, but due to hurricane season, we may not spud the well until the October/November 2011 time frame.”Mr. Peak will meet with investors in New Orleans, Louisiana on Tuesday, March 29, 2011. A copy of the presentation will be available on the Company’s website at www.contango.com. Contango’s current production is approximately 86 Mmcfed. We have no debt and approximately $60 million in cash and $40 million of unused borrowing capacity. 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 primarily 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.