A&D Intelligence

Flamboyant Contango Oil & Gas owner Ken Peak is trying to catch lightning in a bottle and then hope it strikes again. Reminiscent of action-actor Lee Marvin and more prone to wearing a tight T-shirt than coat and tie, Peak has rolled up working interest owners in his shallow-water Gulf of Mexico Dutch and Mary Rose discoveries to about 50% (39% NRI) and put them on the block. He’s waiting for an international company to cut in.

Contango’s interests hold 254 Bcfe proved, and proved plus probable stands at 280 Bcfe. Mary Rose #1 and #3 wells will produce by the end of May, and Mary Rose #4 is now spudded and due for completion by the end of May. He said they would open the data room as soon as it is down and proven, mid-June at best.

He’s looking for an Asian or European company playing monopoly with U.S. dollars. “I think we’ll see a lot of interest from foreign companies,” he said. “With the weakness of the dollar, I hope they’ll see it as strategic.”

Even though Contango owns roughly half, Peak doesn’t see that as a detriment because Contango is operator. “They can’t pick off our partners and get control.”

Contango recently sold off its LNG and Fayetteville shale operations, and now Dutch and Mary Rose are the only assets left in the company. Because of a low tax basis, Peak is selling common stock rather than the assets and will then spin off a new company, appropriately named Contango Energy, that will retain undeveloped acreage. He hopes lightning strikes twice.

“We’ll never find another Dutch and Mary Rose. By definition, the largest discovery in 25 years ain’t going to happen two years after the first one.”

At the completion of Mary Rose #4, Contango will drill a wildcat called Eloise into a deeper horizon at a cost of about $20 million which, if successful, will become the basis for Contango Energy. “The new company is going to come out swinging for some big stuff,” he said.

But GOM only, no resource plays, he swears. “That’s not our gig. They are an enormous amount of work, you spend a lot of money on acreage, and you can’t know what’s going on with one well. Not to imply the Gulf of Mexico is a walk in the park. Drilling a $20 million dry hole is painful, but you know in three minutes.”

Steve Toon, Editor, A&D Watch, Contributing Editor, Oil and Gas Investor, stoon@hartenergy.com

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