##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-16317
 CONTANGO OIL & GAS COMPANY
  DELAWARE
    
    95-4079863(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer Identification No.)
 3700 BUFFALO SPEEDWAY, SUITE 960
HOUSTON, TEXAS 77098
 (713) 960-1901
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




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##### 



CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED DECEMBER 31, 2008
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsConsolidated Balance Sheets as of December 31, 2008 and June 30, 2008
    
    
    3Consolidated Statements of Operations for the three and six months ended
December 31, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows for the six months ended
December 31, 2008 and 2007
    
    
    6Consolidated Statement of Shareholders Equity for the six months ended
December 31, 2008
    
    
    7Notes to the Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
38PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
39Item 5. Other Information
    
    
39Item 6. Exhibits
    
    
40Exhibit 23.1Exhibit 31.1Exhibit 32.1
  All references in this Form 10-Q to the Company, Contango, we, us or our are to
Contango Oil & Gas Company and its wholly-owned Subsidiaries. Unless otherwise noted, all
information in this Form 10-Q relating to natural gas and oil reserves and the estimated future net
cash flows attributable to those reserves are based on estimates prepared by independent engineers
and are net to our interest.
  2




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##### Table of Contents



CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 ASSETS
 December 31,
    
    
    June 30,2008
    
    
    2008(Unaudited)CURRENT ASSETS:Cash and cash equivalents
    
    $
    77,046,546
    
    
    $
    59,884,574Inventory tubulars
    
    
    334,797
    
    
    
    334,797Accounts receivable:Trade receivables
    
    
    25,787,838
    
    
    
    72,343,761Advances to affiliates
    
    
    5,262,365
    
    
    
    5,754,516Joint interest billings receivable
    
    
    8,961,632
    
    
    
    18,019,847Prepaid capital costs
    
    
    1,264,278
    
    
    
    1,264,278Other
    
    
    1,200,250
    
    
    
    1,147,345Total current assets
    
    
    119,857,706
    
    
    
    158,749,118PROPERTY AND EQUIPMENT:Natural gas and oil properties, successful efforts method of accounting:Proved properties
    
    
    464,182,425
    
    
    
    442,630,193Unproved properties
    
    
    7,537,646
    
    
    
    7,591,447Furniture and equipment
    
    
    293,301
    
    
    
    278,737Accumulated depreciation, depletion and amortization
    
    
    (25,828,292
    )
    
    
    (13,134,511
    )Total property and equipment, net
    
    
    446,185,080
    
    
    
    437,365,866OTHER ASSETS:Cash and other assets held by affiliates
    
    
    3,879,470
    
    
    
    3,299,002Other
    
    
    424,986
    
    
    
    559,764Total other assets
    
    
    4,304,456
    
    
    
    3,858,766TOTAL ASSETS
    
    $
    570,347,242
    
    
    $
    599,973,750
   3




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##### Table of Contents



CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 LIABILITIES AND SHAREHOLDERS EQUITY
 December 31,
    
    
    June 30,2008
    
    
    2008(Unaudited)CURRENT LIABILITIES:Accounts payable
    
    $
    4,789,418
    
    
    $
    22,990,887Royalties and working interests payable
    
    
    40,454,570
    
    
    
    66,606,414Accrued liabilities
    
    
    3,201,965
    
    
    
    10,334,008Joint interest advances
    
    
    4,106,072
    
    
    
    15,666,389Accrued exploration and development
    
    
    4,866,990
    
    
    
    3,082,399Advances from affiliates
    
    
    
    
    
    
    2,965,022Debt of affiliates
    
    
    3,429,990
    
    
    
    3,261,177Income tax payable
    
    
    30,896,967
    
    
    
    3,463,176Other current liabilities
    
    
    3,689,163
    
    
    
    466,232Total current liabilities
    
    
    95,435,135
    
    
    
    128,835,704LONG-TERM DEBT
    
    
    
    
    
    
    15,000,000DEFERRED TAX LIABILITY
    
    
    111,807,161
    
    
    
    112,189,684ASSET RETIREMENT OBLIGATION
    
    
    2,347,861
    
    
    
    1,949,881SHAREHOLDERS EQUITY:Common stock, $0.04 par value, 50,000,000 shares authorized,
19,620,334 shares issued and 16,317,680 outstanding at December 31, 2008,
19,404,746 shares issued and 16,819,746 outstanding at June 30, 2008
    
    
    784,813
    
    
    
    776,189Additional paid-in capital
    
    
    75,585,707
    
    
    
    73,030,926Treasury stock at cost (3,302,654 shares at December 31,
2008; 2,585,000 shares at June 30, 2008)
    
    
    (40,485,660
    )
    
    
    (6,843,900
    )Retained earnings
    
    
    324,872,225
    
    
    
    275,035,266Total shareholders equity
    
    
    360,757,085
    
    
    
    341,998,481TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    570,347,242
    
    
    $
    599,973,750
   4




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CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUES:Natural gas, oil and liquids sales
    
    $
    45,516,589
    
    
    $
    16,595,383
    
    
    $
    118,237,396
    
    
    $
    25,691,126Total revenues
    
    
    45,516,589
    
    
    
    16,595,383
    
    
    
    118,237,396
    
    
    
    25,691,126EXPENSES:Operating expenses
    
    
    5,413,883
    
    
    
    808,076
    
    
    
    9,952,245
    
    
    
    1,531,922Exploration expenses (credit)
    
    
    (461,258
    )
    
    
    413,791
    
    
    
    7,630,882
    
    
    
    515,427Depreciation, depletion and amortization
    
    
    6,350,014
    
    
    
    947,665
    
    
    
    13,247,428
    
    
    
    1,547,905Lease expirations
    
    
    377,652
    
    
    
    
    
    
    
    446,417
    
    
    
    General and administrative expenses
    
    
    2,577,152
    
    
    
    1,755,181
    
    
    
    4,503,238
    
    
    
    3,097,642Total expenses
    
    
    14,257,443
    
    
    
    3,924,713
    
    
    
    35,780,210
    
    
    
    6,692,896NET INCOME FROM CONTINUING OPERATIONS
BEFORE OTHER INCOME AND INCOME TAXES
    
    
    31,259,146
    
    
    
    12,670,670
    
    
    
    82,457,186
    
    
    
    18,998,230OTHER INCOME (EXPENSE):Interest expense (net of interest capitalized)
    
    
    (146,263
    )
    
    
    (1,329,499
    )
    
    
    (442,421
    )
    
    
    (2,159,359
    )Interest income
    
    
    179,361
    
    
    
    484,195
    
    
    
    603,513
    
    
    
    848,509Other income (expense)
    
    
    
    
    
    
    (7,142
    )
    
    
    
    
    
    
    2,184,023NET INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
    
    
    31,292,244
    
    
    
    11,818,224
    
    
    
    82,618,278
    
    
    
    19,871,403Provision for income taxes
    
    
    (12,375,657
    )
    
    
    (4,130,587
    )
    
    
    (32,781,319
    )
    
    
    (6,944,348
    )NET INCOME FROM CONTINUING OPERATIONS
    
    
    18,916,587
    
    
    
    7,687,637
    
    
    
    49,836,959
    
    
    
    12,927,055DISCONTINUED OPERATIONS (NOTE 8)Discontinued operations, net of income taxes
    
    
    
    
    
    
    104,036,104
    
    
    
    
    
    
    
    104,968,156NET INCOME
    
    
    18,916,587
    
    
    
    111,723,741
    
    
    
    49,836,959
    
    
    
    117,895,211Preferred stock dividends
    
    
    
    
    
    
    450,000
    
    
    
    
    
    
    
    900,000NET INCOME ATTRIBUTABLE TO COMMON STOCK
    
    $
    18,916,587
    
    
    $
    111,273,741
    
    
    $
    49,836,959
    
    
    $
    116,995,211NET INCOME PER SHARE:BasicContinuing operations
    
    $
    1.14
    
    
    $
    0.45
    
    
    $
    2.98
    
    
    $
    0.75Discontinued operations
    
    
    
    
    
    
    6.49
    
    
    
    
    
    
    
    6.56Total
    
    $
    1.14
    
    
    $
    6.94
    
    
    $
    2.98
    
    
    $
    7.31DilutedContinuing operations
    
    $
    1.12
    
    
    $
    0.45
    
    
    $
    2.92
    
    
    $
    0.75Discontinued operations
    
    
    
    
    
    
    6.02
    
    
    
    
    
    
    
    6.09Total
    
    $
    1.12
    
    
    $
    6.47
    
    
    $
    2.92
    
    
    $
    6.84WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    16,598,297
    
    
    
    16,023,002
    
    
    
    16,727,475
    
    
    
    16,007,091Diluted
    
    
    16,899,619
    
    
    
    17,277,392
    
    
    
    17,071,192
    
    
    
    17,245,483
   5




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CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months EndedDecember 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income from continuing operations
    
    $
    49,836,959
    
    
    $
    12,927,055Plus income from discontinued operations, net of income taxes
    
    
    
    
    
    
    104,968,156Net income
    
    
    49,836,959
    
    
    
    117,895,211Adjustments to reconcile net income to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    13,247,428
    
    
    
    4,711,779Lease expirations
    
    
    446,417
    
    
    
    Exploration expenditures
    
    
    7,123,043
    
    
    
    361,838Deferred income taxes
    
    
    (382,523
    )
    
    
    60,737,850Tax benefit from exercise/cancellation of stock options
    
    
    (229,761
    )
    
    
    (225,719
    )Stock-based compensation
    
    
    811,065
    
    
    
    864,712Gain on sale of assets and other
    
    
    
    
    
    
    (156,487,766
    )Changes in operating assets and liabilities:Decrease in accounts receivable and other
    
    
    45,676,247
    
    
    
    1,541,388Increase in notes receivable
    
    
    
    
    
    
    (250,000
    )Increase in prepaid insurance
    
    
    (64,221
    )
    
    
    (219,279
    )Decrease (increase) in interest receivable
    
    
    1,139,412
    
    
    
    (400,453
    )Increase (decrease) in accounts payable and advances from joint owners
    
    
    (29,761,786
    )
    
    
    8,363,805Increase (decrease) in other accrued liabilities
    
    
    (31,442,757
    )
    
    
    1,305,645Increase in income taxes payable
    
    
    27,663,552
    
    
    
    5,259,376Other
    
    
    
    
    
    
    (22,348
    )Net cash provided by operating activities
    
    
    84,063,075
    
    
    
    43,436,039CASH FLOWS FROM INVESTING ACTIVITIES:Natural gas and oil exploration and development expenditures
    
    
    (20,626,040
    )
    
    
    (37,809,764
    )Increase in restricted cash
    
    
    
    
    
    
    (199,183,422
    )Increase in net investment in affiliates
    
    
    (992,083
    )
    
    
    (21,372,343
    )Sale of short-term investments
    
    
    
    
    
    
    2,200,576Additions to furniture and equipment
    
    
    8,699
    
    
    
    (49,790
    )Proceeds from the sale of assets
    
    
    
    
    
    
    196,181,000Investment in Contango Venture Capital Corporation
    
    
    
    
    
    
    (1,166,624
    )Net cash used in investing activities
    
    
    (21,609,424
    )
    
    
    (61,200,367
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under credit facility
    
    
    
    
    
    
    5,000,000Repayments under credit facility
    
    
    (15,000,000
    )
    
    
    Borrowings by affiliates
    
    
    
    
    
    
    8,967,095Preferred stock dividends
    
    
    
    
    
    
    (900,000
    )Tax benefit from exercise/cancellation of stock options
    
    
    229,761
    
    
    
    225,719Purchase of common stock
    
    
    (31,794,019
    )
    
    
    Debt issuance costs
    
    
    (250,000
    )Proceeds from exercised options, warrants and others
    
    
    1,522,579
    
    
    
    580,760Net cash provided by (used in) financing activities
    
    
    (45,291,679
    )
    
    
    13,873,574NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    17,161,972
    
    
    
    (3,890,754
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    59,884,574
    
    
    
    6,177,618CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    77,046,546
    
    
    $
    2,286,864SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for taxes
    
    $
    
    
    
    $
    Cash paid for interest
    
    $
    273,608
    
    
    $
    2,413,364
   6




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CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 (Unaudited)
 TotalCommon Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    EquityBalance at June 30, 2008
    
    
    16,819,746
    
    
    $
    776,189
    
    
    $
    73,030,926
    
    
    $
    (6,843,900
    )
    
    $
    275,035,266
    
    
    $
    341,998,481Exercise of stock options
    
    
    204,500
    
    
    
    8,180
    
    
    
    1,413,615
    
    
    
    
    
    
    
    
    
    
    $
    1,421,795Tax benefit of exercising stock options
    
    
    
    
    
    
    
    
    
    
    120,540
    
    
    
    
    
    
    
    
    
    
    $
    120,540Issuance of restricted common stock
    
    
    
    
    
    
    
    
    
    
    78,375
    
    
    
    
    
    
    
    
    
    
    $
    78,375Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,920,372
    
    
    $
    30,920,372Treasury shares at cost
    
    
    (143,454
    )
    
    
    
    
    
    
    
    
    
    
    (7,906,442
    )
    
    
    
    
    
    $
    (7,906,442
    )Expense of stock options
    
    
    
    
    
    
    
    
    
    
    285,304
    
    
    
    
    
    
    
    
    
    
    $
    285,304Balance at September 30, 2008
    
    
    16,880,792
    
    
    $
    784,369
    
    
    $
    74,928,760
    
    
    $
    (14,750,342
    )
    
    $
    305,955,638
    
    
    $
    366,918,425Exercise of stock options
    
    
    8,000
    
    
    
    320
    
    
    
    100,340
    
    
    
    
    
    
    
    
    
    
    $
    100,660Tax benefit of exercising stock options
    
    
    
    
    
    
    
    
    
    
    109,221
    
    
    
    
    
    
    
    
    
    
    $
    109,221Issuance of restricted common stock
    
    
    3,088
    
    
    
    124
    
    
    
    162,082
    
    
    
    
    
    
    
    
    
    
    $
    162,206Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,916,587
    
    
    $
    18,916,587Treasury shares at cost
    
    
    (574,200
    )
    
    
    
    
    
    
    
    
    
    
    (25,735,318
    )
    
    
    
    
    
    $
    (25,735,318
    )Expense of stock options
    
    
    
    
    
    
    
    
    
    
    285,304
    
    
    
    
    
    
    
    
    
    
    $
    285,304Balance at December 31, 2008
    
    
    16,317,680
    
    
    $
    784,813
    
    
    $
    75,585,707
    
    
    $
    (40,485,660
    )
    
    $
    324,872,225
    
    
    $
    360,757,085
   7




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CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
 1. Basis of Presentation
  2. Summary of Significant Accounting Policies
  Successful Efforts Method of Accounting.
   Cash Equivalents.
  8




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CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Principles of Consolidation.
   Recent Accounting Pronouncements.
 Present Fairly in Conformity With
Generally Accepted Accounting Principles. .
    9




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CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Stock-Based Compensation.
   3. Natural Gas and Oil Exploration and Production Risk
    10




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CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 4. Customer Concentration Credit Risk
  5. Net Income per Common Share
  Three Months Ended
    
    
    Three Months EndedDecember 31, 2008
    
    
    December 31, 2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per
    
    
    
    
    
    
    Average
    
    
    PerIncome
    
    
    Shares
    
    
    Share
    
    
    Income
    
    
    Shares
    
    
    ShareIncome from continuing operations, including preferred dividends
    
    $
    18,916,587
    
    
    
    16,598,297
    
    
    $
    1.14
    
    
    $
    7,237,637
    
    
    
    16,023,002
    
    
    $
    0.45Discontinued operations, net of income taxes
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    104,036,104
    
    
    
    16,023,002
    
    
    $
    6.49Basic Earnings per Share:Net income attributable to common stock
    
    $
    18,916,587
    
    
    
    16,598,297
    
    
    $
    1.14
    
    
    $
    111,273,741
    
    
    
    16,023,002
    
    
    $
    6.94Effect of Potential Dilutive Securities:Stock options
    
    
    
    
    
    
    299,778
    
    
    
    
    
    
    
    
    
    
    
    464,922Series E preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    
    789,468
    
    
    $
    0.57Restricted shares
    
    
    
    
    
    
    1,544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    $
    18,916,587
    
    
    
    16,899,619
    
    
    $
    1.12
    
    
    $
    7,687,637
    
    
    
    17,277,392
    
    
    $
    0.45Discontinued operations, net of income taxes
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    104,036,104
    
    
    
    17,277,392
    
    
    $
    6.02Diluted Earnings per Share:Net income, attributable to common stock
    
    $
    18,916,587
    
    
    
    16,899,619
    
    
    $
    1.12
    
    
    $
    111,723,741
    
    
    
    17,277,392
    
    
    $
    6.47
  11




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##### Table of Contents



CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 5. Net Income per Common Share  Continued
 Six Months Ended
    
    
    Six Months EndedDecember 31, 2008
    
    
    December 31, 2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per
    
    
    
    
    
    
    Average
    
    
    PerIncome
    
    
    Shares
    
    
    Share
    
    
    Income
    
    
    Shares
    
    
    ShareIncome from continuing operations, including preferred dividends
    
    $
    49,836,959
    
    
    
    16,727,475
    
    
    $
    2.98
    
    
    $
    12,027,055
    
    
    
    16,007,091
    
    
    $
    0.75Discontinued operations, net of income taxes
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    104,968,156
    
    
    
    16,007,091
    
    
    $
    6.56Basic Earnings per Share:Net income attributable to common stock
    
    $
    49,836,959
    
    
    
    16,727,475
    
    
    $
    2.98
    
    
    $
    116,995,211
    
    
    
    16,007,091
    
    
    $
    7.31Effect of Potential Dilutive Securities:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448,924Shares assumed purchased
    
    
    
    
    
    
    342,173
    
    
    
    
    
    
    
    
    
    
    
    Series E preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    900,000
    
    
    
    789,468
    
    
    $
    1.14Restricted shares
    
    
    
    
    
    
    1,544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    $
    49,836,959
    
    
    
    17,071,192
    
    
    $
    2.92
    
    
    $
    12,927,055
    
    
    
    17,245,483
    
    
    $
    0.75Discontinued operations, net of income taxes
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    104,968,156
    
    
    
    17,245,483
    
    
    $
    6.09Diluted Earnings per Share:Net income, attributable to common stock
    
    $
    49,836,959
    
    
    $
    17,071,192
    
    
    $
    2.92
    
    
    $
    117,895,211
    
    
    
    17,245,483
    
    
    $
    6.84
 6. Long-Term Debt
   7. Other Income
   12




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##### Table of Contents



CONTANGO OIL & GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 8. Sale of Properties  Discontinued Operations
    Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2007Operating Results:Revenues
    
    $
    4,651,171
    
    
    $
    9,683,442Operating expenses
    
    
    (151,156
    )
    
    
    (1,101,955
    )Depletion expenses
    
    
    (894,587
    )
    
    
    (3,163,874
    )Exploration expenses
    
    
    (37,650
    )
    
    
    (347,403
    )Gain on sale of discontinued operations
    
    
    156,487,766
    
    
    
    156,419,261Gain before income taxes
    
    
    160,055,544
    
    
    
    161,489,471Provision for income taxes
    
    
    (56,019,440
    )
    
    
    (56,521,315
    )Gain from discontinued operations, net of income taxes
    
    $
    104,036,104
    
    
    $
    104,968,156
 9. Related Party Transactions
    Available Information
   13




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Cautionary Statement about Forward-Looking Statements
  
    
    Our financial position
    
    Business strategy, including outsourcing
    
    Meeting our forecasts and budgets
    
    Anticipated capital expenditures
    
    Drilling of wells
    
    Natural gas and oil production and reserves
    
    Timing and amount of future discoveries (if any) and production of
natural gas and oil
    
    Operating costs and other expenses
    
    Cash flow and anticipated liquidity
    
    Prospect development
    
    Property acquisitions and sales
  
    
    Low and/or declining prices for natural gas and oil
    
    Natural gas and oil price volatility
    
    Operational constraints, start-up delays and production shut-ins at
both operated and non-operated production platforms, pipelines and gas processing
facilities
    
    The risks associated with acting as the operator in drilling deep high
pressure wells in the Gulf of Mexico
    
    The risks associated with exploration, including cost overruns and the
drilling of non-economic wells or dry holes, especially in prospects in which the
Company has made a large capital commitment relative to the size of the Companys
capitalization structure
    
    The timing and successful drilling and completion of natural gas and
oil wells
    
    Availability of capital and the ability to repay indebtedness when due
    
    Availability of rigs and other operating equipment
    
    Ability to raise capital to fund capital expenditures
    
    Timely and full receipt of sale proceeds from the sale of our
production
    
    The ability to find, acquire, market, develop and produce new natural
gas and oil properties
    
    Interest rate volatility
  14




---



##### Table of Contents




    
    Uncertainties in the estimation of proved reserves and in the
projection of future rates of production and timing of development expenditures
    
    Operating hazards attendant to the natural gas and oil business
    
    Downhole drilling and completion risks that are generally not
recoverable from third parties or insurance
    
    Potential mechanical failure or under-performance of significant wells,
production facilities, processing plants or pipeline mishaps
    
    Weather
    
    Availability and cost of material and equipment
    
    Delays in anticipated start-up dates
    
    Actions or inactions of third-party operators of our properties
    
    Actions or inactions of third-party operators of pipelines or
processing facilities
    
    The ability to find and retain skilled personnel
    
    Strength and financial resources of competitors
    
    Federal and state regulatory developments and approvals
    
    Environmental risks
    
    Worldwide economic conditions
    
    The ability to construct and operate offshore infrastructure, including
pipeline and production facilities
    
    Drilling and operating costs, production rates and ultimate reserve
recoveries in our Eugene Island 10 (Dutch) and State of Louisiana (Mary Rose)
acreage.
  Overview
  Our Strategy
  Funding exploration prospects generated by Juneau Exploration, L.P., our alliance partner
 Using our limited capital availability to increase our reward/risk potential on selective
prospects.
  15




---



##### Table of Contents



Operating in the Gulf of Mexico.
 Sale of proved properties.
 Controlling general and administrative and geological and geophysical costs
 Structuring transactions to share risk
 Structuring incentives to drive behavior
 Exploration Alliance with JEX
  Offshore Gulf of Mexico Exploration Joint Ventures
   Impact of Hurricanes Gustav and Ike
   16




---



##### Table of Contents



Republic Exploration LLC
   Contango Offshore Exploration LLC
    Contango Operators, Inc
    17




---



##### Table of Contents



Contango
    
    NRIWell
    


    8/8ths DHC
    
    
    DHC WI
    
    (inclusive of REX and COE)
    
    DateEugene Island 56  West
    
    $
    12 million
    
    
    
    100.00
    %
    
    
    59.45
    %
    
    February 2009Eugene Island 56  East
    
    $
    12 million
    
    
    
    100.00
    %
    
    
    59.45
    %
    
    TBD (1)Ship Shoal 263
    
    $
    20 million
    
    
    
    100.00
    %
    
    
    72.78
    %
    
    June 2009$
    44 million
 (1)
    
    May not be drilled if Eugene Island 56 #1 is a dry hole  Contango Resources Company
  Current Activities.
     18




---



##### Table of Contents



Offshore Properties
 Producing Properties.
 Area/Block
    
    WI
    
    
    NRI
    
    
    Status
    
    NotesContango Resources Company:Eugene Island 10 #D-1 (Dutch #1)
    
    
    47.05
    %
    
    
    38.1
    %
    
    ProducingEugene Island 10 #E-1 (Dutch #2)
    
    
    47.05
    %
    
    
    38.1
    %
    
    ProducingEugene Island 10 #F-1 (Dutch #3)
    
    
    47.05
    %
    
    
    38.1
    %
    
    ProducingEugene Island 10 #G-1 (Dutch #4)
    
    
    47.05
    %
    
    
    38.1
    %
    
    ProducingS-L 18640 #1 (Mary Rose #1)
    
    
    53.21
    %
    
    
    40.5
    %
    
    Being worked overS-L 19266 #1 (Mary Rose #2)
    
    
    53.21
    %
    
    
    38.7
    %
    
    ProducingS-L 19266 #2 (Mary Rose #3)
    
    
    53.21
    %
    
    
    38.7
    %
    
    ProducingS-L 18860 #1 (Mary Rose #4)
    
    
    34.58
    %
    
    
    25.5
    %
    
    ProducingS-L 19266 #3 (Eloise North #1)
    
    
    36.90
    %
    
    
    26.9
    %
    
    Shut-inRepublic Exploration LLCEugene Island 113B
    
    
    0.0
    %
    
    
    3.3
    %
    
    Producing
    
    Farm outWest Delta 36
    
    
    25.0
    %
    
    
    20.0
    %
    
    Producing
    
    Farm outContango Offshore Exploration LLC:Grand Isle 72
    
    
    50.0
    %
    
    
    40.0
    %
    
    ProducingShip Shoal 358, A-3 well
    
    
    10.0
    %
    
    
    7.7
    %
    
    Producing
  19




---



##### Table of Contents



Leases.
 Area/Block
    
    WI
    
    
    Lease Date
    
    
    Expiration Date
    
    
    Status
    
    
    NotesContango Resources Company:S-L 19261
    
    
    53.21
    %
    
    Feb 07
    
    Feb 12S-L 19396
    
    
    53.21
    %
    
    Jun 07
    
    Jun 12Eugene Island 11
    
    
    53.21
    %
    
    Dec 07
    
    Dec-12Contango Operators, Inc.:Grand Isle 63
    
    
    25.00
    %
    
    May-04
    
    May-09Grand Isle 73
    
    
    25.00
    %
    
    May-04
    
    May-09West Delta 43
    
    
    35.00
    %
    
    May-04
    
    May-09
    
    Dry HoleShip Shoal 14
    
    
    50.00
    %
    
    May-06
    
    May-11Ship Shoal 25
    
    
    50.00
    %
    
    May-06
    
    May-11South Marsh Island 57
    
    
    50.00
    %
    
    May-06
    
    May-11South Marsh Island 59
    
    
    50.00
    %
    
    May-06
    
    May-11South Marsh Island 75
    
    
    50.00
    %
    
    May-06
    
    May-11South Marsh Island 282
    
    
    50.00
    %
    
    May-06
    
    May-11Ship Shoal 263
    
    
    25.00
    %
    
    Jan-06
    
    Jan-11Grand Isle 70
    
    
    3.65
    %
    
    Jun-06
    
    Jun-11West Delta 77
    
    
    50.00
    %
    
    Jun-06
    
    Jun-11
    
    Dry HoleVermilion 194
    
    
    50.00
    %
    
    Jul-06
    
    Jul-11Republic Exploration LLCSouth Timbalier 191
    
    
    50.00
    %
    
    May-04
    
    May-09Vermilion 36
    
    
    100.00
    %
    
    May-04
    
    May-09Vermilion 109
    
    
    100.00
    %
    
    May-04
    
    May-09Vermilion 134
    
    
    100.00
    %
    
    May-04
    
    May-09West Cameron 179
    
    
    100.00
    %
    
    May-04
    
    May-09West Cameron 185
    
    
    100.00
    %
    
    May-04
    
    May-09West Cameron 200
    
    
    100.00
    %
    
    May-04
    
    May-09West Delta 18
    
    
    100.00
    %
    
    May-04
    
    May-09West Delta 33
    
    
    100.00
    %
    
    May-04
    
    May-09West Delta 34
    
    
    100.00
    %
    
    May-04
    
    May-09West Delta 43
    
    
    30.00
    %
    
    May-04
    
    May-09
    
    Dry HoleShip Shoal 220
    
    
    50.00
    %
    
    Jun-04
    
    Jun-09South Timbalier 240
    
    
    50.00
    %
    
    Jun-04
    
    Jun-09West Cameron 133
    
    
    100.00
    %
    
    Jun-04
    
    Jun-09West Cameron 80
    
    
    100.00
    %
    
    Jun-04
    
    Jun-09West Cameron 167
    
    
    100.00
    %
    
    Jun-04
    
    Jun-09Eugene Island 76
    
    
    0.00
    %
    
    Jul-04
    
    Jul-09
    
    Depleted
    
    
    
    Farm outVermilion 130
    
    
    100.00
    %
    
    Jul-04
    
    Jul-09Vermilion 154
    
    
    
    (1)
    
    Jul-04
    
    Jul-09
    
    
    
    (2)
    
    
    Farm outWest Cameron 107
    
    
    100.00
    %
    
    May-05
    
    May-10Eugene Island 168
    
    
    50.00
    %
    
    Jun-05
    
    Jun-10Vermilion 73
    
    
    0.00
    %
    
    Jul-05
    
    Jul-10
    
    Dry Hole
    
    
    
    Farm outHigh Island A243
    
    
    75.00
    %
    
    Jan-06
    
    Jan-11
  20




---



##### Table of Contents



Area/Block
    
    WI
    
    
    Lease Date
    
    
    Expiration Date
    
    
    Status
    
    
    NotesRepublic Exploration LLC
(continued)South Marsh Island 57
    
    
    50.00
    %
    
    May-06
    
    May-11South Marsh Island 59
    
    
    50.00
    %
    
    May-06
    
    May-11South Marsh Island 75
    
    
    50.00
    %
    
    May-06
    
    May-11South Marsh Island 282
    
    
    50.00
    %
    
    May-06
    
    May-11Ship Shoal 14
    
    
    50.00
    %
    
    May-06
    
    May-11Ship Shoal 25
    
    
    50.00
    %
    
    May-06
    
    May-11West Delta 77
    
    
    50.00
    %
    
    Jun-06
    
    Jun-11
    
    Dry HoleVermilion 194
    
    
    50.00
    %
    
    Jul-06
    
    Jul-11High Island A196
    
    
    100.00
    %
    
    Nov-06
    
    Nov-11High Island A197
    
    
    100.00
    %
    
    Nov-06
    
    Nov-11High Island A198
    
    
    100.00
    %
    
    Nov-06
    
    Nov-11
    
    Dry HoleHigh Island 263
    
    
    100.00
    %
    
    Jan-08
    
    Jan-13High Island A38
    
    
    100.00
    %
    
    Jan-08
    
    Jan-13Eugene Island 56
    
    
    100.00
    %
    
    Jul-08
    
    Jul-13Contango Offshore Exploration LLC:South Timbalier 191
    
    
    50.00
    %
    
    May-04
    
    May-09Grand Isle 63
    
    
    50.00
    %
    
    May-04
    
    May-09Grand Isle 73
    
    
    50.00
    %
    
    May-04
    
    May-09Ship Shoal 220
    
    
    50.00
    %
    
    Jun-04
    
    Jun-09South Timbalier 240
    
    
    50.00
    %
    
    Jun-04
    
    Jun-09Viosca Knoll 118
    
    
    50.00
    %
    
    Jun-04
    
    Jun-09Vermilion 154
    
    
    
    (1)
    
    Jul-04
    
    Jul-09
    
    
    
    (2)
    
    
    Farm outViosca Knoll 475
    
    
    100.00
    %
    
    May-05
    
    May-10Eugene Island 168
    
    
    50.00
    %
    
    Jun-05
    
    Jun-10East Breaks 366
    
    
    100.00
    %
    
    Nov-05
    
    Nov-15East Breaks 410
    
    
    100.00
    %
    
    Nov-05
    
    Nov-15East Breaks 167
    
    
    75.00
    %
    
    Dec-05
    
    Dec-10High Island A311
    
    
    75.00
    %
    
    Dec-05
    
    Dec-10East Breaks 166
    
    
    75.00
    %
    
    Jan-06
    
    Jan-11High Island A342
    
    
    75.00
    %
    
    Jan-06
    
    Jan-11Ship Shoal 263
    
    
    75.00
    %
    
    Jan-06
    
    Jan-11Viosca Knoll 383
    
    
    100.00
    %
    
    Jan-06
    
    Jan-11Grand Isle 70
    
    
    45.10
    %
    
    Jun-06
    
    Jun-11Viosca Knoll 119
    
    
    50.00
    %
    
    Jun-06
    
    Jun-11
 (1)
    
    REX and COE will split a 25% back-in WI after payout(2)
    
    Not drilled. Lease is in the process of being assigned back to the Company Application of Critical Accounting Policies and Managements Estimates
   21




---



##### Table of Contents



Successful Efforts Method of Accounting.
 Reserve Estimates.
 Impairment of Natural Gas and Oil Properties.
  22




---



##### Table of Contents



Stock-Based Compensation.
 MD&A Summary Data
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change($000)
    
    
    ($000)Revenues:Natural gas, oil and liquids sales
    
    $
    45,517
    
    
    $
    16,595
    
    
    
    174
    %
    
    $
    118,237
    
    
    $
    25,691
    
    
    
    360
    %Total revenues
    
    $
    45,517
    
    
    $
    16,595
    
    
    
    174
    %
    
    $
    118,237
    
    
    $
    25,691
    
    
    
    360
    %Production:Natural gas (million cubic feet)
    
    
    5,016
    
    
    
    1,754
    
    
    
    186
    %
    
    
    9,874
    
    
    
    3,023
    
    
    
    227
    %Oil and condensate (thousand barrels)
    
    
    98
    
    
    
    32
    
    
    
    206
    %
    
    
    216
    
    
    
    55
    
    
    
    293
    %Natural gas liquids (thousand gallons)
    
    
    335
    
    
    
    434
    
    
    
    -23
    %
    
    
    1,039
    
    
    
    814
    
    
    
    28
    %Total (million cubic feet equivalent)
    
    
    5,652
    
    
    
    2,008
    
    
    
    181
    %
    
    
    11,318
    
    
    
    3,469
    
    
    
    226
    %Natural gas (million cubic feet per day)
    
    
    54.5
    
    
    
    19.1
    
    
    
    185
    %
    
    
    53.7
    
    
    
    16.4
    
    
    
    227
    %Oil and condensate (thousand barrels per day)
    
    
    1.1
    
    
    
    0.3
    
    
    
    267
    %
    
    
    1.2
    
    
    
    0.3
    
    
    
    300
    %Natural gas liquids (thousand gallons per day)
    
    
    3.6
    
    
    
    4.7
    
    
    
    -23
    %
    
    
    5.6
    
    
    
    4.4
    
    
    
    27
    %Total (million cubic feet equivalent per day)
    
    
    61.6
    
    
    
    21.6
    
    
    
    185
    %
    
    
    61.7
    
    
    
    18.8
    
    
    
    228
    %Average Sales Price:Natural gas (per thousand cubic feet)
    
    $
    7.89
    
    
    $
    7.55
    
    
    
    5
    %
    
    $
    9.72
    
    
    $
    6.73
    
    
    
    44
    %Oil and condensate (per barrel)
    
    $
    56.88
    
    
    $
    86.85
    
    
    
    -35
    %
    
    $
    94.58
    
    
    $
    78.38
    
    
    
    21
    %Natural gas liquids (per gallon)
    
    $
    1.08
    
    
    $
    1.34
    
    
    
    -19
    %
    
    $
    1.82
    
    
    $
    1.26
    
    
    
    44
    %Operating expenses
    
    $
    5,414
    
    
    $
    808
    
    
    
    570
    %
    
    $
    9,952
    
    
    $
    1,532
    
    
    
    550
    %Exploration expenses (credit)
    
    $
    (461
    )
    
    $
    414
    
    
    
    -211
    %
    
    $
    7,631
    
    
    $
    515
    
    
    
    1382
    %Depreciation, depletion and amortization
    
    $
    6,350
    
    
    $
    948
    
    
    
    570
    %
    
    $
    13,247
    
    
    $
    1,548
    
    
    
    756
    %Impairment of natural gas and oil properties
    
    $
    378
    
    
    $
    
    
    
    
    100
    %
    
    $
    446
    
    
    $
    
    
    
    
    100
    %General and administrative expenses
    
    $
    2,577
    
    
    $
    1,755
    
    
    
    47
    %
    
    $
    4,503
    
    
    $
    3,098
    
    
    
    45
    %Interest expense, net of interest capitalized
    
    $
    146
    
    
    $
    1,329
    
    
    
    -89
    %
    
    $
    442
    
    
    $
    2,159
    
    
    
    -80
    %Interest income
    
    $
    179
    
    
    $
    484
    
    
    
    -63
    %
    
    $
    603
    
    
    $
    849
    
    
    
    -29
    %Other income (expense)
    
    $
    
    
    
    $
    (7
    )
    
    
    -100
    %
    
    $
    
    
    
    $
    2,184
    
    
    
    -100
    %
  23




---



##### Table of Contents



Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007
 Natural Gas, Oil and Natural Gas Liquids (NGL) Sales.
  Natural Gas, Oil and NGL Production and Average Sales Prices.
 Operating Expenses.
 Exploration Expense.
 Depreciation, Depletion and Amortization.
 Lease Expiration Expense.
  24




---



##### Table of Contents



General and Administrative Expenses.
   Interest Expense.
 Interest Income.
 Six Months Ended December 31, 2008 Compared to Six Months Ended December 31, 2007
 Natural Gas, Oil and NGL Sales.
  Natural Gas, Oil and NGL Production and Average Sales Prices.
  25




---



##### Table of Contents



Operating Expenses.
 Exploration Expense.
 Depreciation, Depletion and Amortization.
 Lease Expiration Expense.
 General and Administrative Expenses.
   Interest Expense.
 Interest Income.
 Other Income.
  26




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Production, Prices, Operating Expenses, and Other
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollar amounts in 000s,
    
    
    (Dollar amounts in 000s,except per Mcfe amounts)
    
    
    except per Mcfe amounts)Production Data:Natural gas (million cubic feet)
    
    
    5,016
    
    
    
    1,754
    
    
    
    9,874
    
    
    
    3,023Oil and condensate (thousand barrels)
    
    
    98
    
    
    
    32
    
    
    
    216
    
    
    
    55Natural gas liquids (thousand gallons)
    
    
    335
    
    
    
    434
    
    
    
    1,039
    
    
    
    814Total (million cubic feet equivalent)
    
    
    5,652
    
    
    
    2,008
    
    
    
    11,318
    
    
    
    3,469Natural gas (million cubic feet per day)
    
    
    54.5
    
    
    
    19.1
    
    
    
    53.7
    
    
    
    16.4Oil and condensate (thousand barrels per day)
    
    
    1.1
    
    
    
    0.3
    
    
    
    1.2
    
    
    
    0.3Natural gas liquids (thousand gallons per day)
    
    
    3.6
    
    
    
    4.7
    
    
    
    5.6
    
    
    
    4.4Total (million cubic feet equivalent per day)
    
    
    61.6
    
    
    
    21.6
    
    
    
    61.7
    
    
    
    18.8Average Sales Price:Natural gas (per thousand cubic feet)
    
    $
    7.89
    
    
    $
    7.55
    
    
    $
    9.72
    
    
    $
    6.73Oil and condensate (per barrel)
    
    $
    56.88
    
    
    $
    86.85
    
    
    $
    94.58
    
    
    $
    78.38Natural gas liquids (per gallon)
    
    $
    1.08
    
    
    $
    1.34
    
    
    $
    1.82
    
    
    $
    1.26Selected data per Mcfe:Lease operating expenses (including severence taxes)
    
    $
    0.96
    
    
    $
    0.40
    
    
    $
    0.88
    
    
    $
    0.44General and administrative expenses
    
    $
    0.46
    
    
    $
    0.87
    
    
    $
    0.40
    
    
    $
    0.89Depreciation, depletion and amortization of
natural gas and oil properties
    
    $
    1.10
    
    
    $
    0.39
    
    
    $
    1.12
    
    
    $
    0.36
 Capital Resources and Liquidity
 Cash From Operating Activities.
 Cash From Investing Activities.
  27




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Cash From Financing Activities.
 Capital Budget.
    Natural Gas and Oil Reserves
   ProvedReserves as ofDecember 31, 2008Natural Gas (MMcf)
    
    
    287,835Oil, Condensate and Natural Gas Liquids (MBbls)
    
    
    12,712Total proved reserves (Mmcfe)
    
    
    364,107Pre-tax net present value, SEC guidelines ($000)
    
    $
    1,221,330
  28




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Share Repurchase Program
   Credit Facility
   29




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##### Table of Contents



Risk Factors
 In addition to the other information set forth elsewhere in this Form 10-Q and in our annual
report on Form 10-K , you should carefully consider the following factors when evaluating the
Company. An investment in the Company is subject to risks inherent in our business. The trading
price of the shares of the Company is affected by the performance of our business relative to,
among other things, competition, market conditions and general economic and industry conditions.
The value of an investment in the Company may decrease, resulting in a loss. The risk factors
listed below are not all inclusive.
 We have no ability to control the prices that we receive for natural gas and oil. Natural gas and
oil prices fluctuate widely, and a substantial or extended decline in natural gas and oil prices
would adversely affect our revenues, profitability and growth and could have a material adverse
effect on the business, the results of operations and financial condition of the Company.
  
    
    The domestic and foreign supply of natural gas and oil.
    
    Overall economic conditions.
    
    The level of consumer product demand.
    
    Adverse weather conditions and natural disasters.
    
    The price and availability of competitive fuels such as heating oil and
coal.
    
    Political conditions in the Middle East and other natural gas and oil
producing regions.
    
    The level of LNG imports.
    
    Domestic and foreign governmental regulations.
    
    Potential price controls and special taxes.
    
    Access to pipelines and gas processing plants.
  We depend on the services of our chairman, chief executive officer and chief financial
officer, and implementation of our business plan could be seriously harmed if we lost his services.
  We are highly dependent on the technical services provided by JEX and could be seriously harmed if
JEX terminated its services with us or became otherwise unavailable.
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##### Table of Contents



Our ability to successfully execute our business plan is dependent on our ability to obtain
adequate financing.
   
    
    Our financial condition.
    
    The prevailing market price of natural gas and oil.
    
    The type of projects in which we are engaging.
    
    The lead time required to bring any discoveries to production.
 We frequently obtain capital through the sale of our producing properties.
  We assume additional risk as Operator in drilling high pressure wells in the Gulf of Mexico.
    31




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##### Table of Contents



We rely on third-party operators to operate and maintain some of our production pipelines and
processing facilities and, as a result, we have limited control over the operations of such
facilities. The interests of an operator may even differ from our interests.
  Repeated production shut-ins can possibly damage our well bores.
  Concentrating our capital investment in the Gulf of Mexico increases our exposure to risk.
  Natural gas and oil reserves are depleting assets and the failure to replace our reserves would
adversely affect our production and cash flows.
  Reserve estimates depend on many assumptions that may turn out to be inaccurate. Any material
inaccuracies in these reserve estimates or underlying assumptions could materially affect the
quantities and present values of our reserves.
   32




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##### Table of Contents



The Companys revenue activities are significantly concentrated in one field.
  We rely on the accuracy of the estimates in the reservoir engineering reports provided to us by our
outside engineers.
   33




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##### Table of Contents



Exploration is a high risk activity, and our participation in drilling activities may not be
successful.
  
    
    Unexpected drilling conditions.
    
    Blowouts, fires or explosions with resultant injury, death or
environmental damage.
    
    Pressure or irregularities in formations.
    
    Equipment failures or accidents.
    
    Tropical storms, hurricanes and other adverse weather conditions.
    
    Compliance with governmental requirements and laws, present and future.
    
    Shortages or delays in the availability of drilling rigs and the
delivery of equipment.
    
    Our turnkey drilling contracts reverting to a day rate contract which
would significantly increase the cost and risk to the Company.
    
    Problems at third-party operated platforms, pipelines and gas
processing facilities over which we have no control.
   The natural gas and oil business involves many operating risks that can cause substantial losses.
  
    
    Blowouts, fires and explosions.
 
    
    Surface cratering.
 
    
    Uncontrollable flows of underground natural gas, oil or formation
water.
 
    
    Natural disasters.
 
    
    Pipe and cement failures.
 
    
    Casing collapses.
 
    
    Stuck drilling and service tools.
 
    
    Abnormal pressure formations.
 
    
    Environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures or discharges of toxic gases.
 
    
    Capacity constraints, equipment malfunctions and other problems at
third-party operated platforms, pipelines and gas processing plants over which we
have no control.
 
    
    Repeated shut-ins of our well bores could significantly damage our well
bores.
 
    
    Required workovers of existing wells that may not be successful.
  34




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##### Table of Contents




    
    Injury or loss of life.
 
    
    Reservoir damage.
 
    
    Severe damage to and destruction of property or equipment.
 
    
    Pollution and other environmental damage.
 
    
    Clean-up responsibilities.
 
    
    Regulatory investigations and penalties.
 
    
    Suspension of our operations or repairs necessary to resume operations.
   Not hedging our production may result in losses.
  Our ability to market our natural gas and oil may be impaired by capacity constraints and equipment
malfunctions on the platforms, gathering systems, pipelines and gas plants that transport and
process our natural gas and oil.
  We may not have title to our leased interests and if any lease is later rendered invalid, we may
not be able to proceed with our exploration and development of the lease site.
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##### Table of Contents



Competition in the natural gas and oil industry is intense, and we are smaller and have a more
limited operating history than many of our competitors.
  We are subject to complex laws and regulations, including environmental regulations that can
adversely affect the cost, manner or feasibility of doing business.
  
    
    Require that we obtain permits before commencing drilling.
 
    
    Restrict the substances that can be released into the environment in
connection with drilling and production activities.
 
    
    Limit or prohibit drilling activities on protected areas, such as
wetlands or wilderness areas.
 
    
    Require remedial measures to mitigate pollution from former operations,
such as plugging abandoned wells.
  We cannot control the activities on properties we do not operate.
  
    
    Timing and amount of capital expenditures.
 
    
    The operators expertise and financial resources.
 
    
    Approval of other participants in drilling wells.
 
    
    Selection of technology.
  36




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##### Table of Contents



We are highly dependent on our management team, JEX, exploration partners and third-party
consultants and any failure to retain the services of such parties could adversely affect our
ability to effectively manage our overall operations or successfully execute current or future
business strategies.
  Acquisition prospects are difficult to assess and may pose additional risks to our operations.
  
    
    Recoverable reserves.
 
    
    Exploration potential.
 
    
    Future natural gas and oil prices.
 
    
    Operating costs.
 
    
    Potential environmental and other liabilities and other factors.
 
    
    Permitting and other environmental authorizations required for our
operations.
   
    
    Problems integrating the purchased operations, personnel or
technologies.
 
    
    Unanticipated costs.
 
    
    Diversion of resources and management attention from our exploration
business.
 
    
    Entry into regions or markets in which we have limited or no prior
experience.
 
    
    Potential loss of key employees, particularly those of the acquired
organization.
 Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law could
adversely effect a potential acquisition by third-parties that may ultimately be in the financial
interests of our stockholders.
  
    
    Designate the terms of and issue new series of preferred stock.
 
    
    Limit the personal liability of directors.
 
    
    Limit the persons who may call special meetings of stockholders.
 
    
    Prohibit stockholder action by written consent.
 
    
    Establish advance notice requirements for nominations for election of
the board of directors and for proposing matters to be acted on by stockholders at
stockholder meetings.
 
    
    Require us to indemnify directors and officers to the fullest extent
permitted by applicable law.
 
    
    Impose restrictions on business combinations with some interested
parties.
  37




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##### Table of Contents



Our common stock is thinly traded.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate and Credit Rating Risks.
  Commodity Risk
 
 Item 4. Controls and Procedures
   38




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 5.Other Information
       39




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##### Table of Contents



Item 6. Exhibits
 (a) Exhibits:
  ExhibitNumber
    
    Description3.1
    
    
    Certificate of Incorporation of Contango Oil & Gas Company. (1)3.2
    
    
    Bylaws of Contango Oil & Gas Company. (1)3.3
    
    
    Agreement of Plan of Merger of Contango Oil & Gas Company, a Delaware corporation, and
Contango Oil & Gas Company, a Nevada corporation. (1)3.4
    
    
    Amendment to the Certificate of Incorporation of Contango Oil & Gas Company. (2)4.1
    
    
    Facsimile of common stock certificate of Contango Oil & Gas Company. (3)4.2
    
    
    Certificate of Designation of Series F Junior Preferred Stock of Contango Oil & Gas Company
dated September 30, 2008. (4)4.3
    
    
    Rights Agreement, dated as of September 30, 2008, between Contango Oil & Gas Company and
Computershare Trust Company, N.A., as Rights Agent. (4)10.1
    
    
    $50,000,000 Credit Agreement dated as of October 3, 2008 between Contango Oil
& Gas Company and Contango Resources Company, as Borrowers, Guaranty Bank, as administrative
agent and as issuing lender, and the lenders party thereto from time to time. (5)23.1
    
    
    Consent of William M. Cobb & Associates, Inc. 31.1
    
    

Certification required by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.32.1
    
    
    Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 
 
 
    
    Filed herewith.1.
    
    Filed as an exhibit to the Companys report on Form 8-K, dated December 1, 2000, as
filed with the Securities and Exchange Commission on December 15, 2000.2.
    
    Filed as an exhibit to the Companys report on Form 10-QSB for the quarter ended
December 31, 2002, dated November 14, 2002, as filed with the Securities and Exchange
Commission.3.
    
    Filed as an exhibit to the Companys Form 10-SB Registration Statement, as filed with
the Securities and Exchange Commission on October 16, 1998.4.
    
    Filed as an exhibit to the Companys report on Form 8-K, dated September 30, 2008, as
filed with the Securities and Exchange Commission on October 1, 2008.5.
    
    Filed as an exhibit to the Companys report on Form 8-K, dated October 3, 2008, as
filed with the Securities and Exchange Commission on October 8, 2008.  40




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##### Table of Contents



SIGNATURES
  CONTANGO OIL & GAS COMPANYDate:  February 9, 2009
    By:
    /s/  KENNETH R. PEAKKenneth R. PeakChairman, Chief Executive Officer and
Chief Financial Officer
(Principal Executive and Financial Officer)Date:  February 9, 2009
    By:
    /s/  LESIA BAUTINALesia BautinaSenior Vice President and Controller
(Principal Accounting Officer)  41




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    
    Certificate of Incorporation of Contango Oil & Gas Company. (1)3.2
    
    
    Bylaws of Contango Oil & Gas Company. (1)3.3
    
    
    Agreement of Plan of Merger of Contango Oil & Gas Company, a Delaware corporation, and
Contango Oil & Gas Company, a Nevada corporation. (1)3.4
    
    
    Amendment to the Certificate of Incorporation of Contango Oil & Gas Company. (2)4.1
    
    
    Facsimile of common stock certificate of Contango Oil & Gas Company. (3)4.2
    
    
    Certificate of Designation of Series F Junior Preferred Stock of Contango Oil & Gas Company
dated September 30, 2008. (4)4.3
    
    
    Rights Agreement, dated as of September 30, 2008, between Contango Oil & Gas Company and
Computershare Trust Company, N.A., as Rights Agent. (4)10.1
    
    
    $50,000,000 Credit Agreement dated as of October 3, 2008 between Contango Oil
& Gas Company and Contango Resources Company, as Borrowers, Guaranty Bank, as administrative
agent and as issuing lender, and the lenders party thereto from time to time. (5)23.1
    
    
    Consent of William M. Cobb & Associates, Inc. 31.1
    
    

Certification required by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.32.1
    
    
    Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 
 
 
    
    Filed herewith.1.
    
    Filed as an exhibit to the Companys report on Form 8-K, dated December 1, 2000, as
filed with the Securities and Exchange Commission on December 15, 2000.2.
    
    Filed as an exhibit to the Companys report on Form 10-QSB for the quarter ended
December 31, 2002, dated November 14, 2002, as filed with the Securities and Exchange
Commission.3.
    
    Filed as an exhibit to the Companys Form 10-SB Registration Statement, as filed with
the Securities and Exchange Commission on October 16, 1998.4.
    
    Filed as an exhibit to the Companys report on Form 8-K, dated September 30, 2008, as
filed with the Securities and Exchange Commission on October 1, 2008.5.
    
    Filed as an exhibit to the Companys report on Form 8-K, dated October 3, 2008, as
filed with the Securities and Exchange Commission on October 8, 2008.  42