Contango Provides Operational Update

Source: www.gulfoilandgas.com 2/11/2014, Location: North America

Contango Oil & Gas Company announced its fourth quarter production results and year-end reserves, announced its preliminary 2014 capital program and provided an operational update on recent activity in the Gulf of Mexico and its Woodbine, Buda and James Lime plays.

Fourth Quarter Production Results
Production for the fourth quarter of 2013 was approximately 10.1 Bcfe, or 110 Mcfe per day. This represents a 51% increase over production for the fourth quarter of 2012, and is attributable to our merger with Crimson Exploration, Inc. ("Crimson") that was completed on October 1, 2013. This is the first quarter we are reporting on a combined basis. Crude oil and natural gas liquids production during the fourth quarter of 2013 was approximately 6,240 barrels per day, or 34% of total production, up from approximately 2,900 barrels per day, or 24% of total production, in the fourth quarter of 2012. For the first quarter of 2014, we estimate our production to be 110 - 118 Mcfe per day.

2014 Capital Program
Our capital expenditure budget for 2014 is currently forecasted at approximately $216 million, and is expected to be funded primarily from internally generated cash flow. Our plans include the drilling of 47 gross wells (28 net), compared to $109 million in capital expenditures (excluding producing property acquisitions) and 20 gross wells, (12 net) drilled in calendar year 2013 on an as-combined basis. Expenditures planned for 2014 include:

Woodbine - We forecast capital expenditures of approximately $89 million in Madison and Grimes counties to drill 19-20 wells. We currently anticipate 11 wells in our Force area, six wells in our Chalktown area and two wells in our Iola / Grimes area, all of which will target the Woodbine formation. Additionally, we will drill one or more additional wells to test other reservoir-maximization strategies in the area. By comparison, we drilled 12 wells on our Woodbine acreage in 2013, with a 100% success rate and an initial thirty day average production rate of 859 boed for the first 11 wells for which we have reported results.

Drilling Activity Update
Southeast Texas (Woodbine)
Chalktown Area, Madison County, Texas
We recently drilled a potentially significant discovery in our Chalktown area approximately 5 miles east of our Force Area. The Vick Trust B #1H (70% WI) well was successfully drilled to a total measured depth of 15,076 feet, including a 5,492 foot lateral, and completed with 20 stages of fracture stimulation. The well commenced production in December 2013 with an initial thirty day average production rate of 1,341 boed (79% oil) and has averaged 1,254 boed (80% oil) over the initial sixty days. These comparative production rates represent our best well in the horizontal Woodbine play to date and with early performance, appears to exceed our average type curve for the area of 400 - 450 Mboe EUR. Our initial well in this area, the Vick Trust #1H drilled in 2012, was hindered by an extraneous water source and thus did not allow for a full evaluation of the areas potential. We expect a rig to be back in the Chalktown area in May 2014 with six wells planned to delineate our approximate 6,000 net acres.

Force Area, Madison County, Texas
The Mosley #2H (78% WI) well was successfully drilled to a total measured depth of 15,534 feet, including a 6,186 foot lateral, and completed with 23 stages of fracture stimulation. The well commenced production in November at an initial thirty day average production rate of 810 barrels of oil equivalent per day ("boed") (90% oil). The Mosley #3H (78% WI) well was successfully drilled to a total measured depth of 15,484 feet, including a 6,296 foot lateral, and completed with 23 stages of fracture stimulation. This well also commenced production in November with an initial thirty day average production rate of 507 boed (88% oil).

The Mosley #2H and #3H were our first wells drilled on 500 foot spacing, compared to 2,000 foot spacing for our other wells drilled to date in the area. We will monitor the results from these two wells over the next several months to determine whether the down-space strategy provides an attractive development approach for the Woodbine formation in the area. The Grace Hall B #1H (69% WI) well was successfully drilled to a total measured depth of 16,266 feet, including a 7,171 foot lateral, and completed with 26 stages of fracture stimulation. This well commenced production in January with an initial thirty day average production rate of 463 boed (85% oil).

The Payne B #2H (78% WI) well was successfully drilled to a total measured depth of 14,207 feet, including a 4,952 foot lateral, and completed with 18 stages of fracture stimulation. The well commenced production in January 2014. Initial flow rates have been positive, and we will announce our thirty day average production rate in our next operational release. The Crow A-2H (69% WI) well was successfully drilled to a total measured depth of 15,417 feet, including a 6,186 foot lateral. The well will begin completion operations in February 2014 with an anticipated 22 stage fracture stimulation and should be online in March 2014. The Payne A #2H (86% WI) well in our Force area is currently drilling at a depth of 2,270 feet, with a planned measured depth of 16,600 feet, and a planned lateral of 7,400 feet with 26 stages of fracture stimulation.

These five recently-completed wells bring our total number of operated producing wells in the horizontal Woodbine play in Madison and Grimes Counties to 17 as of January 31, 2014, with an initial thirty day average production rate of 755 boed for the 16 wells for which we have reported results. As of January 31, 2014, the seven day average in the Madison/Grimes area was 4,980 boed (65% oil), and expect that to increase during 2014 as we drill the 11 wells planned for the year.

Not only have we experienced excellent production performance in our Woodbine area, we have also been successful in increasing our overall well returns by reducing our well costs. We have optimized our Woodbine drilling and completion practices realizing greater than a 30 % improvement in time and dollars, reducing drilling and completion costs from an average of $9.2 million per well on our first six wells in 2012, to our current average of $5.6 to $6.2 million per well over the last six wells of 2013, depending on the number of frac stages. While the average lateral length of our wells has been consistent at 6,000 feet, our rig days from spud to rig release have dropped from 40 days to 22 days and our days from spud to initial production have decreased from 73 days to 46 days. As noted above, we plan to drill 20 additional Woodbine wells during 2014 on our 19,000 net acre position.

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