Joe Grady - CFO Allan Keel - President and CEO Steve Mengle - SVP, Engineering Tommy Atkins - SVP, Exploration Carl Isaac - SVP, Operations.

Kyle Rhodes - RBC Neal Dingmann - SunTrust Sameer Uplenchwar - GMP Securities Ron Mills - Johnson Rice & Company.

Good day, and welcome to the Contango's Results for the Second 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. I'd like to welcome everyone to Contango's earnings call for the quarter ended June 30, 2015. On the call today are myself, Allan Keel, our President and CEO; Steve Mengle, our VP of Engineering; Tommy Atkins, our VP of Exploration; and Carl Isaac, our VP of Operations.

I’ll give you an overview of the financial results and then you’ll hear comments on our operations from Allen Keel and he will turn it back then to Q&A after Allen's comments. It is typical for most companies and our presidents, we will limit our questions to those from analysts who follow our stock closely.

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

But before we begin, I want to remind everyone that the earnings 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.

Under the financial results we reported a net loss of $19.5 million for the quarter or $1.3 per basic diluted share compared to net income of $4.6 million or $0.24 per share for the prior year quarter.

Contributing to this variance were lower revenues resulting from lower prices and production in the current period, offset impart by lower operating expenses in G&A and lower exploration expenses, each of which I’ll touch on briefly in a few minutes.

Adjusted EBITDAX as we defined in our release was approximately $19.9 million or $1.5 per basic share for the current quarter compared to approximately$57 million or $2.97 per share for the prior year quarter, a decline also attributable to the same factors I just mentioned for the change in net income and loss.

Production for the current quarter was approximately 9 Bcfe or 98.4 million cubic feet equivalent per day compared to 10.6 Bcfe or 116 million per day in the prior year quarter. This was toward the upper end of guidance previously given and slightly above analyst consensus estimates.

As discussed in our release, for the first quarter this year, we reacted quickly to the dramatic decline and uncertain outlook for commodity prices in the fourth quarter of 2014 and today even 2015 by significantly reducing our capital program to that which we consider strategic and are necessary.

We have focused our CapEx on testing new plays in our portfolio and new strategies on existing positions. All designed more for de-risking our inventory, of improved resource potential rather than emphasizing production growth in the slow price environment.

Most of these projects also contemplated that commencement of full production when not occur until the first half of 2015. Examples of that are the multi-well pad drilling in Madison and Grimes counties, and exploratory testing in Wyoming.

Accordingly, new production commencing over the last two quarters has not been sufficient to offset higher rate gas production from our GOM properties period over period.

We have provided guidance of 90 to 95 million cubic feet equivalent per day for the third quarter as new production added during the current quarter is again expected to fall a little short of offsetting the Gulf of Mexico production. During the month of July, our production has averaged approximately 98 million cubic feet a day equivalent.

Commodity prices during the quarter was significantly below prior year levels. Our weighted average equivalent price declined to Mcfe compared to $7.43 per Mcfe in the prior quarter due primarily to declines of 43%, 42%, and 53% in oil, natural gas, and natural gas liquids respectively.

Lower prices contributed to a $28 million price related revenue variance compared with the prior year quarter, which was 65% of the total decrease in revenue.

We have 35,000 barrels per month of oil production in hedge for the remainder of this year of - onshore production hedged remainder of this year to conference callers – cost of $55, about $65.15. We have no gas hedges in place and currently have no production hedge for 2016.

Total lease operating costs were $11 million for the quarter compared to a $11.6 million in the prior year quarter, excluding production and lower taxes operating costs were $9.2 million or $1.2 per Mcfe compared to $8.5 million or $0.80 per Mcfe for the prior year quarter.

Exclusive and expense workover cost, direct operating costs were flat with a 2014 quarter, despite incremental expenses from new fields and wells added since the 2014 quarter, which is approximately 18 more wells onshore. And also including new fields of operation in Wyoming, Elm Hill, and South Timbalier 17.

We also had increased operating cost associated with compression facilities added Eugene Island during the third quarter 2014. So despite all of that incremental cost coming from those new fields and new operations, we were still flat for the quarter.

So you can see we have been successful in reducing direct LOE on our legacy properties by an estimated 10%. A large portion of monthly lease operating expenses or fixed cost therefore the increase in per unit cost can be attributed primarily to the higher workover expenses and lower production.

Guidance for the second quarter is $9 million to $9.5 million, which is in line with the current quarter and also includes an estimated $1.1 million in total for a pipeline repair Eugene Island 11 and a number of onshore workover designed to improve production.

Explorations expense for the current quarter was approximately $7 million with $6.5 million of that attributable to the unsuccessful exploratory test of the Mowry Shale and our FRAMS prospect and Natrona County, Wyoming and approximately $11 million in 2014 quarter.

With substantially all of that attributable to the unsuccessful Ship Shoal 255 exploratory well. Exclusive of the Wyoming well, our per share results that I mentioned earlier for the current quarter would have been right on consents of estimates.

Total depreciation expense was slightly lower than the prior quarter due to lower production, however, the higher per unit rate for the current year quarter reflects specific field rates increases associated with price related year-end reserve revisions.

General and administrative expense was $7.4 million for the current year quarter or $0.82 per Mcfe compared to $9.2 million or $0.87 per Mcfe for the prior quarter.

Excluding non-cash stock compensation for both periods and merger related costs reflected in the 2014 quarter, cash G&A expense was $6 million for this quarter compared to $6.9 million for the prior year quarter, a decrease reflecting our efforts to reduce administrative costs.

On the liquidity side as of the end of the current quarter we had approximately $111 million outstanding on our credit facility and had an additional borrowing capacity of $112 million under our $225 million borrowing base.

Due to a less active CapEx program plan for the remainder of the year, we expect the year-end debt level will be similar to current levels but expect to reflect an overall reduction in total company obligations due to reductions in working capital deficit. Our next schedule the borrowing base redetermination is November 1.

Despite the slight increase in our debt level, we still maintain one of the healthiest balance sheets and liquidity profiles in our peer group. At the end of the quarter, we had a debt total book cap ratio of 17%, a debt last 12 months EBITDA. Leverage ratio of 1to 1 and 112 million of availability under our revolver.

So, we have a strong financial position that we will continue to maintain throughout 2015. And with that, we’ll switch over to comments from Allan on our operations..

Thanks Joe, and good morning to everyone and thank you for being with us today. I'd like to share a few highlights with you this morning about the progress we've made on a number of strategic goals we’ve set for ourselves at the beginning of the year. And very useful to elaborate on some of the related results mentioned in our release.

From a general perspective, as we specified at the beginning of the year, our priorities for 2015 in this low and uncertain commodity price environment would be warned to preserve our excellent financial condition including staying within cash flow on our CapEx program.

Two, to focus our drilling efforts on strategic projects that would enhance our portfolio and position us to quickly increase capital activity when process improve and or costs decline.

Three, to focus on reducing cost in each and every aspect of our business and four, where possible do so prudently take advantage of stress or distressed acquisition opportunities in the market. We believe that attaining these goals should provide a foundation for meaningful future value for appreciation for all shareholders.

Contango employees included as the industry rebalance. We feel pretty good about the progress we’ve made this year towards these goals. Specifically, we have preserved our financial condition by staying within the plan and schedule we set at the beginning of the year.

While our debt level is higher than it was the year end, the increase was not unexpected due to the front end loaded CapEx program and expected decrease in working capital that typically occurs as capital activity slows down. As Joe mentioned, our year-end financial profile is expected to be as good or little better than it is today.

Regarding our strategic project efforts, we feel very encourage by the initial results in Western County, Wyoming where we drilled a very nice exploratory success, tested our peak 24 hour rate of 907 barrels equivalent per day and that was 98% oil.

[Indiscernible] a 420 barrel equivalent per day for working through typical frontier areal adjustable issues.

We are experimenting with various lift mechanism to optimize production rate reviewing core data to optimize completions and other partner information that was now available at the time of the initial drilling and completion of the Elm Hill well. And we’re very excited about the prospects for our 35,000 net acre position.

We’re waiting on permits for multiple wells and expect to drill one to two additional wells this year thus far to delineate our leasehold, which would put us in good position to begin a development program in 2016 with one to two rigs given success and dependent on the oil price environment.

We believe that the play profile here is very similar to that of our Woodbine play in Madison, County. Based on 160 acre space 2 to 300 locations our possible owner acreage given the current oil price environment.

We’ll be disciplined in our development of this play given continued success folks focusing more on further delineating the exceed on the play rather than on maximizing production growth In our Elm Hill project in Fayette and Gonzalez County East Texas we and our partner have drilled five wells testing three formations the Nevada, the Austin Chalk, Buda.

We’re currently completing two wells one each in Buda and Austin Chalk after which we’ll have a good indication about how we’ll likely proceed with a long-term plan. Our results have been somewhat mix to-date within reservoirs and between reservoirs we feel like we have an economic play in at least one of the reservoirs mentioned.

We’ll not be ready articulate the strategy on a potential plan for another couple of months. In Madison Grimes counties in Texas our goals were to test down space in the Upper Lewisville in Chalktown perform an initial test of the Lower Lewisville net area and test a longer lateral strategy to improve performance in a Grimes county area.

You saw in the release that we’re experiencing nice production results from the down space pads drilled in Chalktown. However, due to the lower commodity price environment the overall results do not appear to support a 500 foot spacing strategy from a return perspective.

We’ll continue to develop the Upper Lewisville in Madison country area, but further drilling will be done at least at 1,000 foot spacing and in a better commodity price environment.

We drilled a dry hole in the lower Lewisville hole in our Chalk county area and we’re encouraged by log results for that analysis indicates that there is three times the amount of oil in place in the Upper Lewisville for which is currently been developed.

We’re currently waiting the final core analysis to work into our overall evaluation prior to drilling the lower Lewisville horizontal well in late 2015 and 2016. during the second quarter in Grimes county we tested a longer lateral with more frac stages and propane and the Upper Lewisville formation in the Norwood 1-H.

The production result there were disappointing. However, we’re still optimistic about the possibility of the Eagle Ford, Lower Lewisville and Middle Lewisville prospected ranch. During 2014 we drilled.

The [indiscernible] well on the Grimes county took whole cohort of several formations it’s on the Eagle Ford exhibited rock property similar to those in the Eagle Ford in Brazos county to the west for other industry operators are experiencing success.

In Natrona County, Wyoming over the course of the fourth and first quarters we drill completed and tested our initial exploratory test of the Mowry Shale prospect. Unfortunately we know how to – we’ll not likely spend anymore capital pursuant to Mowry Shale in this area.

However, we did on a 33% work and that’s in prospect 70,000 acreage by drilling the state number 1-H well under this drilled on arrangement and we’ll stay possibly testing other formations present in the area.

Our next objective to this year was cost reduction we have seen meaningful reductions in cost on the drilling and pleased with that and continue to analyze pursue cost saving and the production lease operating and administrative areas.

While it’s a bit difficult to give a 100 percentage reduction on drilling with a limited and sporadic rig schedule we have seen a 30% decrease in rig rates and approximate 35% decrease in completion cost per stage and estimated 10% savings on legacy field operating cost and have tightened our belt on G&A cost.

Regarding our acquisition I have said the beginning of the year we believe that our financial strength will position us to potentially capitalize on stress or distress of its medium to the best assets on JV capital or pursue other strategic alternatives.

Over the tremendous amount of private and public capital available to distress situations hot secondly in market that gives companies of temporary lifeline and wellness by banks to modify revolver covenant. However, the fewer than expected opportunities and for those actually in the market to a large – and bid as spread.

Consequently we’ve been frustrated in our efforts to find such an opportunity on a reasonable terms. We have been disappointed so far that we’ll continue to review opportunities.

In summary we believe that we have accomplished in the first two quarter that should be meaningful to our company when process rebound and when we return to development mode when and where it makes economic sense to do so.

Having said that we and most of our peers have not yet gotten credit and our strong performance for while we’ve accomplished this like the entire upspring sector we’ve suffered to a dramatic decline in our stock price.

We’ll stay focused on maintaining our financial strength potentially derisking our portfolio and adding to our drilling inventory so as to be positioned to accelerate activity in an improved commodity price environment. That concludes our prepared remarks this morning. With that operator please open the line for questions..

[Operator Instructions] And our first question comes from Kyle Rhodes with RBC. Please go ahead sir..

Hi, good morning guys. I know it's still a bit early for this, but I was just kind of curious of the types of sensitivities you are looking at with regards to a 2016 operating plan.

Is spending within cash flow is still kind of the key priority for next year at this point in time?.

Yes Kyle, there will be a priority for us it is early we’ll normally start this process in September, October, and this year won’t be any different. And to a large extent what we do in 2016 will be a function of prices as well as results that we see in the areas that we’re active in right now.

So it is a bit early but we’ll be moving in that direction in another month or two..

That make sense.

And I guess anything in the way of obligation wells required to hold equity in 2016?.

We don't have any issues that we can't manage through lease extensions or strategic drilling that would be incorporated in our budget. So we don't feel like we’re exposed lose anything with the reduced capital budget. For instance in Wyoming, we have the ability to exercise three to five extensions on that equity.

So, if the price environment doesn't - isn't to encourage us to drill, then we'll handle it through extensions..

Makes sense. And I guess just in Wyoming, maybe you guys give us more color on anything potential thing you might doing differently on your upcoming one to two wells given what you saw on the first, any changes to frack job, are you going to put on, just kind curious of your thoughts and plans for those next year wells..

I'll let Carl, handle it..

Good morning. As far as our efforts in Western County, Wyoming, I think we did learn a few lessons with our first well mostly related to GOR. We started out lifting the initial well with gas and are planning to lift up with gas and realize that the GOR is not going to support that.

We moved to hydraulic pump and the interim period while we got our right pumps equipment ready. That equipment is actually being installed today. So we have a good feel for the performance and are optimum setup going forward.

As far as the drilling and completion of the initial well in Western County goes, we'll do the same thing that we've done in the other place that we've entered over the last four five years, in terms of optimizing based on lessons learned and putting ourselves in the best position to succeed.

One of the thing that we definitely have a strong appreciation is the weather and we're looking forward to getting out there while the weather hasn't deteriorated and getting a well or two drilled in the near future.

Frack design, we're still looking at alternatives but we're pretty comfortable from our key standpoint and looking at things particularly from the shape of a curve standpoint as it relates to completion. It's very, very early. And a lot of that will be informed by how we see our well perform.

Our first well performed, we get it on rock next week or so..

Got it.

And have you guys picked out a location kind of for that second well?.

We do have multiple locations picked and we have specific location picked for the second well, and generally speaking, from a planning standpoint, we're approaching this project planning for and but in Wyoming, if you want to wait till you think you want to drove well, you're probably going to six to nine months, if not longer before you can actually learn drill it.

So, we're trying to fit ourselves in a position to do exactly what Allan said, which is if we see a commodity price for February, we'll be ready to respond rather quickly with permits in hand in 2016 to go out and pursue successful development plan..

Got it. Thanks for the time, guys..

And from SunTrust, we’ll take Neal Dingmann. Please go ahead sir..

Hi, good morning, guys.

The success you've seen in the muddy, I guess I'm just looking for slides, I saw the Elliot being kind of in that southeast corner, as you come back and start developing in that, how do you kind of what's your plan to attack there?.

I think what we'll do Neil is we'll, we're going to drill this next two wells, get the results in those two wells, produce them for a while and see what the results are - see how it looks and then from there make our plan.

As Carl, just mentioned we are planning for success, permitting multiple locations, so it's really, we've got to find the entire recipe not just the completion but permitting and building locations and determining what the overall scope of this project is.

We plan to drill two more wells before the end of the year, put those online, as Carl just mentioned, try some different things with our frac mythology and then just see how the completions work. And then we'll take it from there..

Got it.

And the I guess just lastly, how do we think just from the offshore standpoint, I assume no new - any thoughts of coming back to in any type of recompletion anything to think of there and if not just do we just kind of assume the same kind of typical depletion we've seen there?.

Yes, we're not planning on - certainly we're not planning on doing any drilling out there but we do a work over not too long ago, Carl, you may just want to reference that quickly..

We had an issue with well producing sand in North Cheyenne, and we went to sand operation and successfully – wells back online. We got an incremental production gain out of it, so that was something I would put in the category of maintenance or road for compliance based on the sand that the world is making prior to the work over..

Makes sense. Thanks guys..

And next we'll take Sameer Uplenchwar from GMP Securities..

Good morning, guys. You had about $4.5 billion on lease acquisition in Q1. Was that all in one area or whether its' spread out across.

Could you give us some color on that?.

Sameer, most of that was related to our Wyoming flights..

Got it, okay..

Elm Hill..

And sorry and then I'm just trying to understand like you were when we had like earlier you had said that the idea was coming into the share that you wanted use a strong balance sheet to get into an onshore play, get an anchor asset kind of and build around it.

So you have the Gulf of Mexico cash flow reinvested onshore so you get the long-term visibility everything else but the bid ask spread was wide in the first half. Could you give us more clarity like what you’re seeing with the fall redetermination with the fall in the commodity pricing.

How that has changed and then if you’re looking onshore where all you’re looking onshore oil versus gas agnostic location wise just some color on that?.

When we started the year we were cautiously optimistic. We over time stressed or distressed situation where we could use our financial strength to add something to our portfolio. But because the reasons that Allan articulated it didn’t happen but we looked at lot of deals. We’re still looking at deals.

We think that there might similar opportunities and a better chance of finding one that we can do in latter half of the year, prices stay low the banking regulators are more active in reviewing loans. And companies hedges start to fall off and there are lot of things you could contribute to and increase amount of deals that they get done.

So we're still out there looking. We’re looking in higher areas of current focus. We’re looking in areas that could become an another area concentration for us. We’re not looking too for north, it’s mostly down sort in our area and we'll just see how it goes as it relates to a borrowing based redetermination we don’t do that until November.

So a lot can happen price wise between now and November. Price will have a dramatic impact on where we end up, I guess the way I would answer that as I don’t know now, but I can’t imagine that if there is any changes going to have any meaningful impact on our liquidity.

And as it relates to be able to carry out our capital program or any aspect of our operations..

Yes Sameer, I would add that, with our Wyoming project that we’re focused on that, we think that could be a game changer for us for the company. And we’re going to drill two more wells later this year and see how those results come out.

And then in terms of just managing our balance sheet, we feel like and we have felt since the end last year that increasing our CapEx or trying to get production growth in this commodity price environment just does make lot of sense. We think there are lot of other companies that are envious of our financial position.

So we’re going to continue to wait and see what happens with the market and try to take advantage of the opportunities when they come available..

Perfect. Thank you..

And our next question comes from Ron Mills with Johnson Rice & Company. Please go ahead..

Good morning, Allen.

Just one follow-up on Sameer's question in terms of - given your balance sheet is there any particular appetite that you would have in terms of acquisition size or how would you approach it from that standpoint to make sure you continue to have that differentiated balance sheet?.

Well I think what we would have to do is we have to find an opportunity that just within our operational area or something similar to operational footprint and then be able to make sure that cost - lowering out that where we can go out and pursue drilling activity in that certain area.

It’s difficult to - in the past been difficult to buy or acquire anything without having a very active drilling program.

But it’s going to be cost driven, as well as fast driven, but I would say that it was - we’ll continue to look in and around the areas where we’re active because that’s where we think we can bring the most of the table in terms of economies of scale..

Okay, good. And I may have missed some of your comments on the muddy in terms of the inconsistent first quarter pressure et cetera. In terms of the right lift in your opinion, may this is for Carl, is that really something that can fix..

Ron, speak up a little louder please..

I guess what I was asking was on in the muddy give that well performance, have you seen this before, is the right lift - is it likely to kind of fix that reservoir pressure, inconsistencies and then the second one up there Carl. What are you looking for out of the next one or two wells.

You're obviously planning for success, so, are there some boogies to - that you want to hit before, to go full steam ahead next year?.

If I understand your question based on the Elm Hill well things that we're concerned about in terms of the reservoir and - I guess I would respond as - the unit that we're installing how the capacity of over 700 barrels of fluid a day, if that gives you any kind of idea in terms of how we're getting rigged up to defend or support the decline curve that we've modeled.

So, as far as boogies, I think it was boogies, I don't know we were born up long her to seeing them yet. The only thing that that was in line was the low GOR. But most of you will be happy to have more oil and gas..

The question was on the next two wells. Are there any, what are you looking for out those next two wells to continue along your - and execute on your full development plans for next year - boogies may have been a bad word..

Right. Speaking for the change you guys, in here I think we're looking delineation of the formation and performance of the wells that support the same decline curve that I referred to a minute ago..

Okay, great. And then Allan just strategically if you look ahead to next year obviously, if you paint the picture today you would have full development program in the muddy and then would Elm Hill probably be the second area or where would the buying fit in there in terms of just strategically given your current asset base..

Yes, I would say that behind the Wyoming project, Madison and Grimes would continue to be top of our list not to discount Elm Hill but we still have a lot to do in Madison and Grimes, we waited a little bit on the development of the Eagle Ford that we think in this commodity price environment certainly don't make sense to try to develop that this year but if we get any kind of encouragement whether be cost reductions or price improvement, we would probably go back out there, we got chalked down, we have multiple locations we could go through and then like I said Eagle Ford.

Elm Hill is continuing to develop, we feel very confident with some of the things that we've seen yet out there but we've just had some mechanical issues, these couple of wells last wells that we've drilled. And that would be the kind of the bad in order as I would say it today..

Great, all right. Thank you, guys..

And this time there are no further questions in our queue. I'd like to turn the conference over to Allan Keel for closing and additional remarks..

Well, thanks everybody joining our call today. I hope it was informative to everyone and we look forward to updating you as we progress throughout the year. So, thanks again for your participation..

Ladies and gentlemen that does conclude today's conference and we appreciate everyone's participation..