Contango Oil & Gas Company reported a net loss attributable to common stock for the three months ended September 30, 2006 of approximately $0.4 million, or $.03 per basic and diluted share, compared to net income attributable to common stock for the three months ended September 30, 2005 of $0.06 million, or $.01 per basic and diluted share. EBITDAX for the three months ended September 30, 2006 was $.04 million compared to $0.7 million for the three months ended September 30, 2005.
Cash Inflow
During the three months ended September 30, 2006, we had $16.3 million of cash inflow consisting of internally generated after-tax net cash flow from operations of $6.8 million and $9.5 million from the sale of short term investments.
Cash Outflow
During the three months ended September 30, 2006, we used a total of $22.9 million of cash consisting of $22.0 million in exploration and development activities (approximately $13.0 million offshore and $9.0 million onshore), $0.6 million in alternative energy companies and $0.3 million in financing activities.
Capital Budget
For the remaining nine months of fiscal year 2007, our capital expenditure budget calls for us to invest a total of $54.4 million ($4.4 million of this was invested in October 2006), as we continue to invest in our Arkansas Fayetteville Shale play, bring our Grand Isle 72 (“Liberty”) and Eugene Island 10 (“Dutch”) discoveries to production and spud a second exploration well at our Dutch prospect in December 2006.
Of the $54.4 million in capital expenditures budgeted for the remaining nine months of fiscal year 2007, $13.8 million is anticipated to be invested in offshore activities. Our budget calls for us to invest approximately $2.2 million for production and pipeline facilities for developing Grand Isle 72, approximately $4.4 million for completion, production and pipeline facilities for developing our first well at Eugene Island 10 ($2.2 million was invested in October 2006), approximately $3.7 million for drilling our second well at Eugene Island 10, $3.0 million in other exploratory wells and $0.5 million in projected future exploration costs, seismic and delay rentals.
Of the $54.4 million in capital expenditures budgeted for the remaining nine months of fiscal year 2007, $40.1 million is expected to be invested in onshore activities. In the Arkansas Fayetteville Shale, our partners and we have acquired or received commitments on approximately 44,300 net mineral acres and we have committed to a total of 87 wells in this play as of October 31, 2006. We have an average working interest of 15% and a net revenue interest of 12% in these 87 wells. Of these 87 wells, 19 are operated by Alta and 68 are operated by a third party independent oil and gas exploration company (these 68 wells are referred to as “Integrated Wells”).
Of the 19 Alta wells, two were drilled in fiscal year 2006 and five have been drilled thus far during fiscal year 2007. We estimate an additional $6.3 million, net to Contango, will be required for remaining drilling, frac, completion and hook-up costs of these seven wells ($1.6 million of this was invested in October 2006). We are budgeting to drill an additional ten new Alta wells during fiscal year 2007 at a cost of $14.4 million. This includes drilling, frac, completion and hookup costs for the wells. Additionally, we expect to invest $7.6 million in pipeline infrastructure, seismic and additional leasehold costs for the Arkansas Fayetteville Shale. We estimate we will have an average working interest of 42% and a net revenue interest of 33% in these 19 Alta wells.
Of the 68 Integrated Wells for which we have received AFEs, 22 wells are producing, 20 wells have already been spud, and 26 wells have yet to be drilled. In addition to these 68 Integrated Wells, we are budgeting to receive 56 additional AFEs for Integrated Wells during the remainder of fiscal year 2007 for a total of 124 Integrated Wells. We anticipate having approximately 40 producing Integrated Wells by December 2006. Our capital budget for Integrated Wells assumes we will invest $10.8 million in Integrated Wells during the remainder of fiscal year 2007 ($0.6 million of this was invested in October 2006). We estimate we will have an average working interest of 6% and a net revenue interest of 5% in these 124 Integrated Wells.
As of November 7, 2006, we have approximately $12.8 million in cash, cash equivalents, and short term investments. The Company had estimated production during October 2006 of approximately 1.5 million cubic feet equivalent per day (“MMcfe/d”).
Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said, “We expect to test our first Alta operated Fayetteville Shale well, the Alta-Thines 1-30H, and our Dutch exploration discovery well by the end of November 2006. We anticipate our production and cash flow will increase significantly as we begin producing our Grand Isle 72 discovery by mid December at an estimated 8 MMcfe/d (approximately 4 MMcfe/d net to Contango) and our Dutch well at an estimated 30 MMcfe/d (approximately 10 MMcfe/d net to Contango), in January 2007.”
Mr. Peak continued, “Our proved reserves, as estimated by our independent reserve engineers as of September 30, 2006, were 33.3 billion cubic feet equivalent. The SEC PV-10 pre-tax net present value of these reserves, using quarter end prices of $4.18 per MMbtu and $62.91 per barrel was $102.4 million. We are continuing to consider a variety of financing solutions to fund our fiscal year 2007 capital expenditure budget, but are primarily focused on funding the majority of our capital needs with hydrocarbon borrowing base secured debt.”
