2010-01-07-2009-10-22-2009-10-22

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Close Date
Estimated Price
23MM
Description

JV to explore E. Texas Cotton Valley acreage in Panola Co.

Gulf of Mexico explorer Contango Oil & Gas Co., Houston, (NYSE Amex: MCF) via subsidiary Conterra Co. has entered into a joint-venture agreement with privately held, Houston-based Patara Oil & Gas LLC to develop proved undeveloped Cotton Valley gas reserves in Panola County, Texas, for approximately $22.5 million in drilling and completion costs. Conterra will fund 100% of the drilling and completion costs for up to 15 wells at an estimated cost of approximately $1.5 million per well in exchange for 90% of the net revenues. The average reserves per well are expected to be approximately 1.5 billion cubic feet equivalent (1.125 billion net after a 25% royalty) with an estimated five-year payout assuming a Nymex gas price of $6 per Mcf. Patara will be operator. After achieving a 15% annual cash-on-cash rate of return on a "basket" of 15 wells, Conterra's net revenue interest converts into a 5% overriding royalty interest. Conterra then has the option to enter into two additional 15-well baskets to drill up to a total of 45 wells. Drilling is expected to begin by year end. Contango chairman and chief executive Kenneth R. Peak says, "This is an excellent investment opportunity for Contango with an extremely attractive reward/risk ratio. Our cash position, which is projected to reach approximately $50 million by the end of October 2009, is currently being invested at a rate of less than 0.5% in U.S. Treasury bills. With this transaction we will be developing relatively low-risk Cotton Valley proved undeveloped gas reserves, and expect to earn a 15% rate of return on our cash investment of approximately $20- to $25 million per 15-well basket." In addition, Contango has spud its Ship Shoal 263 (Nautilus) prospect and expects to drill at least two more Gulf of Mexico wildcat exploration wells; Matagorda Island 617 (Dude) and a Galveston Area prospect (His Dudeness) by June 30, 2010. Patara is backed by private-equity management firm Jefferies Capital Partners and is led by former Rosetta Resources Inc. CEO Bill Berilgen and other former Rosetta executives including Charles Richardson, Lane Kincannon and Edward Seeman. It acquired assets in East Texas in August 2008 from private sellers for $116 million and holds assets in Carthage Field. As of July 1, 2008, Patara has total estimated proved reserves in excess of 80 billion cubic feet equivalent.