Joe Grady - CFO Allan Keel - CEO Tommy Atkins - Senior VP of Exploration Steve Mengle - Senior VP of Engineering Carl Isaac - Senior VP of Operations.

Kyle Rhodes - RBC Capital Markets Patrick Rigamer - Seaport Global Securities Michael Glick - Johnson Rice.

Good day, and welcome to the Contango Oil & Gas Results for First Quarter 2015 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Joe Grady. Please go ahead, sir..

Thank you, [Adrienne]. First of all I’d like to welcome everyone to Contango’s quarterly earnings call for the quarter ending March 31, 2015.

On the call today are myself, Allan Keel, our President and CEO; Tommy Atkins, our Senior VP of Exploration; and joining shortly will be Steve Mengle, our Senior VP of Engineering; and Carl Isaac, our Senior VP of Operations.

The agenda for today is that I'll give a brief review of financial results, Allen Keel will then give a brief overview of current operations and then we'll open it up for Q&A, and on the Q&A as is typical for Contango as well as for mostly companies will limit our questions to those from analysts that follow our stock closely.

As we believe that, that most constructive and productive years of everyone's time.

Before we begin, I want to remind everyone that the earnings press release and the related discussion this morning may contain forward-looking statements as defined by the Securities and Exchange Commission, which may include comments and assumptions concerning Contango’s strategic plans, expectations and objectives for future operations.

Such statements are based on assumptions we believe to be appropriate under circumstances, however, those statements are just estimates, are not guarantees of future performance or results and therefore should be considered in that context.

Starting with the summary of financial results, we reported a net loss 18.6 million for the quarter or $0.98 per basic and diluted share, compared to a net loss of 10.2 million, or $0.53 per basic and diluted share, for the prior year quarter.

Included in the current quarter where explorations expenses of 4.5 million and non-cash pretax impairment charges of 2.3 million while the prior year quarter included 41.8 million and pretax charges related to a dry hole and Ship Shoal 255, all which we will discuss in little more detail a little bit of later.

Other major factors contributing to the quarter-over-quarter decline in net income were lower revenue from lower production and commodity prices offset on part by lower production and lower taxes and lower G&A.

Adjusted EBITDAX as defined in our release and which includes exploration expense -- sorry, which excludes exploration expense and impairment was approximately 14 million for the current quarter compared to approximately 58 million for the prior year quarter.

A decline attributable to pretax variances in revenue of approximately 18 million and 32 million due to lower production from the reduced capital program and lower commodity prices respectively that offset in part by the lower operating expenses and lower G&A.

Adjusted EBITDAX for basic share for the current quarter was $0.72 per share compared to $3.04 per share in the prior year quarter. Production for the current quarter was 8.7 Bcfe or 96.3 million cubic feet equivalent per day and within guidance previously provided compared to 117 million equivalent feet per day in the prior year quarter.

We reacted swiftly to the dramatically decline in commodity prices in the fourth quarter of 2014 and to-date in 2015 by significantly reducing our capital program, so that is considered necessary and strategic. Also for the drilling that we did continue with in our Madison and Grimes.

We pursued utilization a multi-well pad drilling strategy that provides recovery and cost advantages, but that also requires a deferral of initial production from any particular well until all wells are ready to be produced. Consequently new productions commencing in the quarter was not sufficient to offset field decline period-over-period.

We have provided guidance of 90 million to 100,000 million cubic feet equivalent per day for the second quarter as new production is expected to keep production flat with a nearly preceding quarter. Over the last three days our production is averaged approximately 100 million cubic feet equivalent per day.

We do not give formal production guidance beyond the upcoming quarter due to the uncertainty on timing and results on a reduced capital spending program that is structured primarily on testing concept on new plays and/or formations within exiting producing fields.

Commodity prices as everyone knows declined dramatically during the quarter as weighted average equivalent price declined to $3.54 per Mcfe compared to $7.59 per Mcfe in the prior year quarter, reflecting 55%, 43% and 64% declines in oil, natural gas and natural gas liquids prices respectively.

Since going to the end of the quarter and to take advantage of the recent increase oil prices, we entered into hedges on a substantial portion of our non-GOM our Gulf of Mexico forecasted PDP oil production for the remainder of 2015 utilizing [indiscernible], you can in our 10-Q added details of those are presented.

Total lease operating costs including direct LOE, transpiration and expense workovers excluding production and long taxes were 8.8 million for the first quarter compared to 8.1 million in the prior year quarter, an increase due primarily to the addition of compression of Eugene Island 11 and the addition of South Timbalier 17 both in mid-2014.

Total lease operating cost in the current quarter were $1 per Mcfe compared to $0.77 per Mcfe in the prior quarter, an increase resulting from the fact that a vast majority of lease operating cost or fixed cost and production was lower in the current year quarter.

Guidance for the second year quarter is $8.5 million to $9 million which is in line with current quarter. Impairment expense in the current year quarter was 2.2 million and related primarily to the impairment of small conventional natural gas properties compared with 15 million in the prior year quarter.

Impairment in the prior year quarter resulted from lease and platform abandonment on our Ship Shoal 255 exploratory well. Depreciation expense or DD&A was approximately 35 million for the quarter or $4.05 per Mcfe compared to approximately 34 million or $3.21 per Mcfe for the prior year quarter.

A higher per unit rate for the current quarter relates to an increase in the overall rate due to the mostly oil weighted drilling and a higher rate for offshore properties due to lower GOM reserves.

Cash general and administrative expense was 6.7 million for the current quarter compared to 9.4 million for the prior year quarter including in the 2014 quarter was approximately 2.2 million a merger related cost. Our guidance of 6.7 to 7.2 for the second quarter of 2015 is in line with first quarter.

As of March 31st, we had approximately 104 million outstanding on our credit facility compared to a balance of approximately 63 million at the end of 2014, an increase resulting from the fact that 60% of our current CapEx budget for 2015 was incurred in the first quarter as planned and lower revenue and lower prices of production also which were expected.

We also reduced the deficient working capital during the quarter by approximately 20 million. Due to a more limited CapEx program plan for the remainder of the year, we expected at that level at year end 2015 we’ll be similar to what we current show and our deficient working capital will continue to decline due to lower capital spending.

Our borrowing base was recently determined at 225 million effective through November 1st a decrease from the prior level reflecting the dramatic decline in commodity prices. Despite the increase in our debt level and the re-determined borrowing base, we still maintained one of the healthiest balance sheets and liquidity profiles in our peer group.

At the end of the quarter we had a debt to total book cap ratio of 16%, debt and $0.39 per Mcfe proved reserves and at that last 12 months EBITDAX leverage ratio of 0.7:1 and 121 million of availability under our revolver. So you can see we still have a very strong financial position that we will continue to maintain throughout the year.

That concludes the financial review. I’ll now turn it over to Allan for an operations update..

Thanks Joe and good morning everyone. Thanks for being with us this morning. I like to share a few highlights and some information that we provided in our release today and provide a few comments as well.

We did have a busy first quarter although the first of our efforts didn’t necessarily show up in our results for the first quarter due to some timing issues. We completed six Woodbine wells drilled on pads over the last two quarter.

We expanded and needed gas takeaway capacity and got the wells online but we saw limited production benefit from those wells in the quarter, as the first three wells came on during the quarter on a restricted basis while the other three didn’t commenced production until April.

We have seen cost improvement there with wells being drilled and completed at $5 million or less per well so we have seen that benefit in our operations.

Moving to Wyoming, we drilled our first muddy well in our North Cheyenne prospect but we’re delayed in fracking that well due to some operational issues and in our Mowry well we had to delay fracking that until just recently and we’ll talk more about that just a few moments due to weather conditions out there.

In our Elm Hill play at Fayette and Gonzalez East Texas we continued our testing of multiple formations to position us to develop a going forward strategy in the near future.

As Joe mentioned, we’re on plan on our capital program for the year from a timing and total spend perspective and which is designed to maintain our conservative and strong financial condition. If prices improve and/or service costs continue to decline we’re positioned to increase our drilling program in a meaningful way.

We continue to look for other opportunities in our sector whether it’d be A&D or M&A type opportunities but due to slow process environment there has been a lot of activity there may be some beginning to break free now but there is a significant disparity between the bidding that’s gone on assets at this time.

Now going through few comments about the different areas. In Madison and Grimes as I say we start drilling our first three well pads late in the third quarter last year and finalize that drilling at the end of the fourth quarter. We completed those first three wells in the first quarter with good production results so far going on a restricted basis.

Due to higher gas content than expected we determined our gas takeaway capacity was not going to be sufficient to handle those three wells but the next pad had to be completed. So we had to delay our full production on the first pad and defer completion of second pad until expand of that takeaway capacity was completed.

All that was completed in flow back for the second pad commenced in later half of April. We have released average rates for the first 30 days of production from first pad which were limited we’ll have the results to report on second pad in our next release.

We still need to monitor those results and the impact on nearby wells before we can determine the effectiveness of this 500 foot down spacing strategy. We also completed the Norwood number one well on Grimes County during the quarter, testing the concept of longer laterals and more [profit] and have started flow back operations.

Results on that well have been less than anticipated so far but we will continue to evaluate those results for improvement.

For the remainder of the year in Madison grounds were still planning the lower Lewisville test that if successful can provide estimated 20 to 40 total numbers of wells that would be de-risked in that area in a zone that we have previously not tested.

We have approximately 16,000 net acres in the Madison and Grimes area that we have been delineating for the Woodbine and in Upper Lewisville, and still believe that the acreage maybe prospective for other formations including the Lower Lewisville, Eagle Ford, Georgetown, Buda and others.

However future time on the testing of those formations will be approximately of oil price service cost and cash flow availability.

Moving to Elm Hill, we have assembled with our 50-50 partner there of mostly solid bock of 55,000 gross acres our objective there include multiple formations that have produced extensively across Texas and ranging depths from 6,000 to 9,500 feet.

We have drilled five wells in the three different formations thus far, testing different stereographic and structural settings as well as different completion [styles].

When we are slowing on our pre-drilled type curve although it may be productive on a portion of our acreage only about the last year completions in two different formations showed extremely positive and significant flow characteristics but new additional testing to determine the proper locations and completion stall who will continue to enhance our acreage that look to add additional formations and combinations of completion [styles] throughout the year.

Moving to Wyoming, in our FRAMS Project in the Natrona County as you might know from our past discussions we acquired in mid-2014 the right to own up to approximately 119,000 of gross acres 95,000 net, where we target the Mowry Shale other formations that was horizontal drilling.

In the fourth quarter of 2014 we also acquired the right to earn approximately 49,000 gross acres; 44,000 net in western county Wyoming which slides between two sizeable vertical muddy fields.

Late in the fourth quarter of last year we load our risk on these two projects by selling 20% work ventures into a private company, we drilled the Mowry well in the fourth quarter, we drilled the muddy well during the first quarter and waited until weather got better in late April to commence completion operations on those two wells.

We just finish the completion of Mowry well and are early in the flow back process, we’re fallen back our load water now and fracking on the muddy well in Western County to commence in the very new future.

We report results on both of these wells on our next earnings release and we evaluate results for a number of months to develop our future strategy. As we have discussed previously given success in these two places we can add quite a few locations to our portfolio depend on spacing.

Other activity that we might pursue during the year down in South Texas in the Eagle Ford we've been watching our neighbors there and gathered more information from some competitors to retest the Eagle Ford down in South Texas in our in our Zavala and Dimmit County acreage but the important factor there is the completion strategy, so will be watching that and even [playing] that, but we have to drill a well there later this year to test our Eagle Ford acreage which is roughly 8,000 acres down to that area.

While our capital spending likely to be lower for the rest of the year we believe that results of what we have accomplish in the fourth quarter and first quarters can be meaningful as it relates to testing of concepts and illustrate being upside potential to our portfolio it's a primary important to us to maintain our strong financial position that's can be priority for us as we can navigate through this the challenging commodity price environment but we are going to continue to try to attempt identify and pursue and our capitalize or an opportunities for growth that might arise through acquisitions in this lower price environment that we are in.

That's just a quick update of our operations Joe gave you our financial results, now we would be happy to take any questions that you might have at this time..

Thank you. [Operator Instructions], we will go first to Kyle Rhodes at RBC Capital Markets..

I was hoping you guys could talk a little bit about the oil cuts of your latest ground at Chalktown well and how those compared to prior results? And then maybe the oil cut on the current production number of 102 million a day that you guys gave as well?.

We're still early in the flow back and these things take a little while to come back, but we're 50% of oil and liquids I think at the moments is what we're seeing. So GOR is a little than we or similar actually to first when we drilled out there..

And just to be clear that's in the [Vick Trust] pad?.

Yes and the Barrs are lower -- is lower GOR, always has been and we're early in the flow back, so it's verdicts still little bit out on it, but it looks like it's going to be consistent with the original Barr well as well which is probably a GOR closer to -- what a 1,000 to 1,500 which is going to be what closer to 90%; I think, 80% to 90%..

Okay great that's helpful and then on the current production number, any kind of rough ballpark on the oil cut there?.

The current production as I would say it's probably similar to what we've experienced in the quarter..

Okay and then I guess you've mentioned that if prices improved, you could increase activity in the meaningful way given that you guys have layered on hedges for a significant portion of our your oil production with $65 fillings, shall we view this as more of a 2016 increase in activity or is that actually reconcile that?.

Well, I would say to the extent that we see what we like in some well we're doing today, prices continue to show strength and cost continue to come down. It's possible we could reengage in the later part of the year.

We don’t currently have plans to do that but that's what we've talked about in the past it's certain things, certain positive things all come past in the quarter than we might gear up again. Otherwise we'll just reviewing and evaluating the results on the wells if we currently have in our plan..

Okay and then I guess just on the M&A market, any update you guys you guys can provide there just given the flattening of the forward strip if you've seen the bid ask spread narrower at all or just maybe an update on what you guys are seeing out there?.

I'd say that you had things that we've looked at, people -- there is obviously with plenty of capital out there about looking for opportunities as well as to financing to extend people's runway, so they don't have to face some of the issues that they might have to fact otherwise in the lower price environment.

So we would say it's a pretty challenging environment to try to get deals done in, but we're actively -- continue to be active and looking at opportunities..

And we'll go next to Neal Dingmann of SunTrust..

Hi, guys, good morning, this is [Will] for Neal.

I guess first of in the Mowry and the Muddy what would you all need to see or what do you looking for to have confidence to allocate additional capital there?.

Well, we like to see a meaningful amount of all what that is the expense on the price point, but I think we would like to a few hundred barrels of liquids out of those formation to give us encouragement and then just what kind of decline that might have, what the pressures might, so I would say those are the primary factors..

Okay thanks and then Joe for you hedging, you all added some stuff in the after first quarter recently here in April, would you continue to add where oil is now and maybe look out in the 16?.

Well, I would say that we're not ready to ’16 at this point, but as far as the remainder of the year we've got a substantial portion of the non-Gulf of Mexico production hedged to the extent we still have some room, we might put some more on, but it wouldn't be a meaningful number.

We don’t hedge the Gulf of Mexico volumes because the uncertainty associated with hurricanes and shut-in’s that come with that.

And the way we look at it is that we really consider the hurricane season to that July time frame but we’ve refrained from hedging anything through December because the expectation is if we did have a problem in July or August it would probably extend through the latter months of the year as well..

And we’ll go next to Patrick Rigamer at Seaport Global Securities..

I guess to follow up on some earlier questions with regard to potential for increased activity later this year, is there a specific price point or commodity price that you’re targeting to maybe add some dollars back into the budget?.

I think I would say it’s more of a functions of the combination of price plus results on what we’re drilling and then thirdly cost -- service cost and what we might see then coming down to in the later part of the year. So the short term there is no concrete answer to that it would be a combination of things..

And if -- I guess I don’t know if you can answer this one.

But if we do get to a point where you’re comfortable increasing activity do you think its more development dollars that you add to the budget or would you kind of continue with some of these exploration efforts?.

No I would say the combination of both, probably more development oriented, but we would also continue to try to further delineate the plays that we’re pursuing right now and to the extent that it’s [warranted] based on early results..

And then I guess on the M&A front, you kind of got through the first quarter which was the bulk of the spending and we’re passed the borrowing base redetermination. So I guess you have a little bit better visibility on kind of free cash flow and what your liquidity position is.

What sort of I guess can you frame the size of deals that you would be looking to do or how larger the deal would you be comfortable looking at this point or any comments there?.

No, we’re looking at things kind of all across the board. It all depends on the area where the assets are located, the profile of the company, the debt levels a number of different things strategic potential new areas from a strategic standpoint as well as in our current areas of operation..

And then is there a preference for PDP or more exploration weighted or is it just entirely opportunity driven?.

Well, I would say it’s opportunity driven but normally we would like to have some production but our biggest focus is trying to continue to build our inventory of things to do going forward..

And we’ll go next Michael Glick at Johnson Rice..

Just a question on Elm Hill you mentioned you were encouraged with the couple of zones out there, couple of the horizontals thus far.

Maybe you just expand on and what you seen and what you plan to do next?.

This is Allan, we’re going to continue testing the wells that we’ve drilled, we’re working with our partner on our strategy going forward on exactly what formations we’re going to continue to test and we’re on our acreage we’re going to drill so we’re developing that strategy right now..

And can you say what zones have been encouraging thus far?.

Well, they all been encouraging in different forms so we’ve tested the [Navero], we’ve tested the [Budem] and we’ve tested the Austin Chalk; so they’ve all been pretty encouraging thus far. We haven’t had a formation not test all of them yet..

And then maybe for Joe just how should we think about working capital over the next few quarters, where should that trend?.

Well, you know we have a deficit which is not unusual for a small company with an active program, but since activity level will be a lot lower going forward that will decline as we pay venders for the stuff that was done -- that was done in first quarter.

So that is we're trying to describe in the [queue] while our debt level is up now relative to where it was a year end and part of that because is because we did have about $20 million reduction in the invested and working capital during the quarter and that will continue to be the case through the end of the year.

So our estimate at this point is debt level probably similar to where it is now, but the deficit within the work capital will continue to decline..

And that does conclude today's question-and-answer session. At this time, I will turn the conference back over to management for any closing remarks..

That's all we had today and thanks for your attendance and interest and talk to you next time. Thank you..

And that does conclude today's conference. Again, thank you for participation..