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Contango Oil & Gas Company
Contango Oil & Gas Company
Contango
Oil & Gas Company
Contango Oil & Gas Company
Lawyer Stuff The future is unknowable. We have good intentions but all of our projections and

Lawyer Stuff

The future is unknowable. We have good intentions but all of our projections and estimates will be wrong, and could be materially wrong. Wildcat exploration is expensive, speculative and potentially dangerous. An offshore spill or explosion would be enormously expensive. We have insurance but it may not be enough. You could lose your entire investment. Don’t be lazy – read our 10-Q’s, 10-K’s and press releases, and if you lose money - please no tears.

“Don’t forget about risk-free T-bills in your portfolio…After inflation and taxes you’ll likely only lose 5-10% of your investment.”

- Contango V.P. Investor Relations

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Contango’s Core Beliefs From Inception    The only competitive advantage in the natural gas and

Contango’s Core Beliefs From Inception

The only competitive advantage in the natural gas and oil business is to be among the LOWEST COST producers

Virtually all the exploration and production industry’s VALUE CREATION occurs through the drilling of successful exploration wells

The whole point of a business is only and always to increase SHAREHOLDER WEALTH – PER SHARE…with conditions

Beliefs are optional, Results are mandatory and the only result that matters is long term – 3-5-10 year return to shareholder

Contango is Low Cost But Apples to Oranges Problem CONTANGO Fiscal Year Ended 6/30/11 DD &
Contango is Low Cost But Apples to Oranges Problem CONTANGO Fiscal Year Ended 6/30/11 DD &

Contango is Low Cost

But Apples to Oranges Problem

CONTANGO

Fiscal Year Ended

 

6/30/11

DD & A

$1.68

LOE

$0.80

G&A

$0.38

Interest $0.00

TOTAL

$2.86 / Mcfe

Contango is among the lowest cost producers in the industry

Most independents use full cost accounting

Massive “Full Cost Pool” write-downs = Lower DD & A Capitalize portion G & A = Lower G & A Capitalize portion interest = Lower interest

Successful efforts companies “benefit” DD & A rate by immediately expensing dry holes and seismic

By definition – low cost producers should be profitable. Hedging gains are the icing, not the cake.

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Contango Quarterly Costs ($/Mcfe) vs 41 Independents * Total Cost Structure includes Operating Costs (including Production

Contango Quarterly Costs ($/Mcfe) vs 41 Independents

Contango Quarterly Costs ($/Mcfe) vs 41 Independents * Total Cost Structure includes Operating Costs (including Production

* Total Cost Structure includes Operating Costs (including Production Taxes) Interest and G&A Plus DD&A Source: ISI Group Inc. * 41 Independent Oil & Gas Companies

“It’s only when the tide goes out that you will learn who’s been swimming naked”

– Warren Buffet

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Contango Quarterly Sales Price and Margin Rise in Liquids Prices Supporting Margins 5

Contango Quarterly Sales Price and Margin

Contango Quarterly Sales Price and Margin Rise in Liquids Prices Supporting Margins 5

Rise in Liquids Prices Supporting Margins

5

Condensate & NGL’s as Percentage of Production & Revenue Our condensate is priced similarly to Brent

Condensate & NGL’s as Percentage of Production & Revenue

Condensate & NGL’s as Percentage of Production & Revenue Our condensate is priced similarly to Brent

Our condensate is priced similarly to Brent

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Taxes - Our Biggest Expense    We are profitable for both GAAP and IRS Accounting

Taxes - Our Biggest Expense

We are profitable for both GAAP and IRS Accounting

Our IRS taxes can be deferred due to the immediate expensing of “Intangible drilling costs” (IDC’s) for taxes

Even though IDC’s have been part of the tax code since 1919, there is talk in Congress and the Obama Administration to require these costs to be capitalized and then amortized over some time frame (3-5-7 years?)

From Contango’s perspective this may not be a bad thing if overall corporate tax rates are also reduced as part of a “grand compromise” – in fact this could be a good thing

Natural Gas prices would almost certainly rise because industry F&D costs would rise – this is not necessarily a bad thing – especially for a low cost producer

“There is only one way to kill capitalism: by taxes, taxes and even more taxes.” –
“There is only one way to kill capitalism: by taxes, taxes and even more taxes.”
– Karl Marx
Return on Capital Incentives Drive Behavior    Our first priority is to always put the

Return on Capital Incentives Drive Behavior

Our first priority is to always put the safety of our employees, partners and contractors first.

Our second priority is to protect the environment where we work and live.

 

Our third priority is to maximize “Shareholder earnings” which we define as retained earnings plus dividends and share purchases. Since inception we have repurchased $114.8 million worth of our shares.

Peak Ratio Defined:

Shareholder Earnings Invested Capital

R/E + Dividends + Share Purchases (Common and Preferred Stock Raised)

=

Contango’s Peak Ratio Calculated as at 9/30/11: =

$453.2 + 5.4 + 105.3

= 7.14X

($ millions)

$79.0

Share purchases that offset option dilution are not a return on capital

 

“Investing is only and always about return on capital”

Negative Dilution Share Repurchases's *The shareholders that didn’t sell now own 15.5% more of Contango than
Negative Dilution
Share Repurchases's
*The shareholders that didn’t sell now
own 15.5% more of Contango than
they did in June 2007
Average price under our $100 mm
program is $46.35/share

If Contango only had one share and I owned it – that would be great.

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Contango Owners Institution September 30, 2011 Shares Held % S/O Cumulative % International Value Advisers, LLC

Contango Owners

Institution

September 30, 2011 Shares Held

% S/O

Cumulative %

International Value Advisers, LLC

1,422,938

9.23%

9.23%

T. Rowe Price Associates, Inc.

1,329,490

8.62%

17.85%

BlackRock Institutional Trust Company, N.A.

922,608

5.98%

23.83%

Vanguard Group, Inc.

741,596

4.81%

28.64%

Ariel Investments, LLC

637,416

4.13%

32.77%

Keeley Asset Management Corp.

604,600

3.92%

36.69%

State Street Global Advisors (US)

446,358

2.89%

39.59%

TAMRO Capital Partners, LLC

417,115

2.70%

42.29%

Dreman Value Management, L.L.C.

384,990

2.50%

44.79%

Deutsche Investment Management Americas, Inc.

308,134

2.00%

46.79%

Dimensional Fund Advisors, LP

296,149

1.92%

48.71%

GWL Investment Management Ltd.

246,001

1.60%

50.30%

Opus Capital Management, Inc.

231,212

1.50%

51.80%

Thomson Horstmann & Bryant, Inc.

210,500

1.37%

53.17%

Conestoga Capital Advisors, LLC

166,022

1.08%

54.25%

TIAA-CREF

162,330

1.05%

55.30%

Numeric Investors LLC

150,937

0.98%

56.28%

Palo Alto Investors, LLC

135,000

0.88%

57.15%

Northern Trust Investments, N.A.

125,338

0.81%

57.96%

Invesco PowerShares Capital Management LLC

118,731

0.77%

58.73%

River Road Asset Management, LLC

111,317

0.72%

59.46%

Norges Bank Investment Management (NBIM)

101,650

0.66%

60.12%

Contango Management and BOD

2,603,236

16.88%

77.00%

“23 investors own 77% of our stock”

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Contango Doesn’t Have    Lots of shares: 15.4 million outstanding and fully diluted   

Contango Doesn’t Have

Lots of shares: 15.4 million outstanding and fully diluted

Lots of options: 45,000 and shrinking

Lots of PUD’s

Lots of employees: 8

Lots of wells – 12 offshore

Lots of landowners - 2

Lots of regulators – 4

Winner’s curse – We were the sole bidder at last 4 offshore lease sales

Near term leases expiring

L-T rig contracts

Debt: $0

Severance taxes (in Federal offshore) $0

Hedges: $0

Our objective is not to do “more with less,” it’s – in fact – just to do less.

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Wildcat Exploration Budget through December 31, 2013 “I don’t want to swim in a roped off

Wildcat Exploration Budget through December 31, 2013

Wildcat Exploration Budget through December 31, 2013 “I don’t want to swim in a roped off

“I don’t want to swim in a roped off sea” Cowboy in the Jungle – Jimmy Buffet

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Let’s talk about Shale’s growing importance and how it has turned the growth prospects for manufacturing

Let’s talk about Shale’s growing importance and how it has turned the growth prospects for manufacturing in the U.S. upside down and America’s ability to tell the Ven’s and Iranians to go “Drink It”

“The Shale revolution is great for America, and thus great for our industry” 14

Source: ISI

“The Shale revolution is great for America, and thus great for our industry”

14

NatGas at $3.00/Mcf in Mid –Winter 2012 “I felt the earth move under my feet” -

NatGas at $3.00/Mcf in Mid –Winter 2012

NatGas at $3.00/Mcf in Mid –Winter 2012 “I felt the earth move under my feet” -

“I felt the earth move under my feet” - Carole King

15

“Stand back baby – no telling how big this thing could get” -Adam’s first words to

“Stand back baby – no telling how big this thing could get” -Adam’s first words to Eve

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In Just Five Shale Plays 4.5 Bcfd has grown to 18 Bcfd in 4 years “A

In Just Five Shale Plays 4.5 Bcfd has grown to 18 Bcfd in 4 years

In Just Five Shale Plays 4.5 Bcfd has grown to 18 Bcfd in 4 years “A

“A picture is worth a thousand words”

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Shelf or Shale? Economics    Acreage, G & G and seismic costs last 4 years

Shelf or Shale?

Economics

Acreage, G & G and seismic costs last 4 years combined:

$16 million

NRI to Contango AFTER landowner ORRI and

AFTER G & G Promote:

65% ±

Severance Tax (1):

0%

Ad Valorem Tax (1) :

0%

Sales & Use Tax (1) :

0%

State Income Tax (1) :

0%

If NAT GAS @ $4.39/Mcf – Contango Receives (2)

$6.24/Mcfe

If Contango produces 67.8 Mmcfd – Contango Sells (2)

89.1 Mmcfed

Contango is a Taxpayer: We have no NOL Carry Forwards

40% Risk Partner

Intangibles

Rig costs are less than 3 year ago levels

One Landowner – BOEM

Lot’s of nearby infrastructure

No Nimby’s to deal with

Yes, we will drill dry holes – The E in E&P stands for Exploration

(1)

Federal Waters

(2)

FY 2011

Less competition, lower costs, better margins, premium markets, one landowner/regulator – what’s not to like?

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Contango Investment Thesis    300 Bcfe – 22 Mcfe per “net debt adjusted fully diluted”

Contango Investment Thesis

300 Bcfe – 22 Mcfe per “net debt adjusted fully diluted” share

$120 million cash - $7.50/share

$0 Debt

12 wells

7 prospect ideas - $135 million projected wildcat dry hole risk ($85 million of after tax risk)

Outstanding shares = Fully Diluted Shares = 15.4 million

8 Employees

In Golf it’s NOT HOW - It’s HOW MANY? N.B. Debt adjusted Mcfe’s/ share have grown

In Golf it’s NOT HOW - It’s HOW MANY?

N.B. Debt adjusted Mcfe’s/ share have grown at a 6% p.a. rate over last 3 years
N.B. Debt adjusted Mcfe’s/
share have grown at a 6%
p.a. rate over last 3 years
N.B. 90% of our reserves are
proved developed as of
12/31/11

In Investing it’s NOT HOW MANY– but HOW MANY DO I OWN?

Note: Dutch and Mary Rose reserves for 6/30/2008 and 6/30/2009 adjusted downward by 48.5 Bcfe due to reserves revision.

20

America’s Energy Company 21

America’s Energy Company

America’s Energy Company 21