Good day and welcome to the Contango's Results for Fourth Quarter and Year-End 2015 Conference Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joe Grady. Please go ahead, sir.

Thank you, Keith, and good morning to everybody. I'd like to welcome everyone to Contango's earnings call for the quarter ended December 31, 2015. On the call today are myself; Allan Keel, our President and CEO; Steve Mengle, our Senior Vice President of Engineering; Tommy Atkins, our Senior Vice President of Exploration; and Carl Isaac, our Senior VP of Operations. I’ll give a brief overview of the financial results, then I’ll turn it over to Allan to give you a brief overview of our operations and then we’ll open it up for Q&A. And to remind everyone, as typical for most companies, we will limit questions to those from analysts that follow our stock closely as we believe that that is most constructive and productive use of everyone's time. Before we start, 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 the 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 financial results, our net financial results for the quarter reflected the continuing softness in commodity prices and the related reduction in our capital activity under our conservative CapEx strategy. We experienced lower revenue and producing property impairments, both of which were a function in large part to lower prices for oil commodities. As noted in our release, we also recognized the impact of an impairment by Exaro Energy, where we own at 37% stake and recognized a charge related to an unsuccessful acquisition effort. All of…

Thanks, Joe. Good morning, everyone, and thanks for being with us today. I'd like to give you a brief update on our operations during the quarter. As most of you know, it's a period that posed a lot of challenges within the industry as well as Contango. In general, we don't have a lot of operational information to share this morning. It was a pretty quiet fourth quarter from a capital perspective and will likely be very quiet here in the first quarter as well due to limited economics associated with most everyone's inventory during this low price environment. It's going to continue to be our strategy to preserve capital and keep our balance sheet in the good position. We continue to be impacted by these low prices just like everyone else. While we must continue to deal with it on existing operations, we do believe that those with a solid balance sheet, financial condition might be able to take advantage during this period if it continues to persist. As I said, we'll be conservative with our capital program and remain focused on utilizing our excess cash flow to reduce debt, both of which both allows us to maintain our flexibility to pursue growth through drilling our existing inventory of a process recover or potentially being able to capitalize on acquisition opportunities that may surface as the year progresses. Regarding our drilling program, during the quarter we completed Popham well, our second well in our North Cheyenne Muddy Sandstone play in Wyoming. We did utilize a more robust frac recipe than we used in the original well, the Elliott well that we drilled out there. The results today on the Popham have exceeded those of our initial Elliott well. We're currently completing the Christensen 1, which is our third well…

[Operator Instructions] We’ll take our first question from Neal Dingmann with SunTrust. Please go ahead.

Good morning, guys. I’m sure a question you and Joe get a lot, just you’ve prudently dialed back here, just your thoughts between looking at Madison, Wyoming, and Elm Hills and these areas, of what it would take. Is it a price that you enjoy looking forward to become a bit more active there? Is it a rate of return that you’re kind of shooting for? How should we think about what it would take to bring some activity back to one of these areas?

Yes. I think from my perspective, Neal, we would look at rate of return on – at the individual well level to determine whether or not we would want to put the money in the ground. We do look at production. At some point, we need to add to our production and reserves, but at this stage we just don’t see it being all that prudent to put capital in the ground. Joe, any other thoughts.

No, I think that’s a good assessment.

And then guys, let me just add, I just had one more, just I’m sure you get a lot of, Allan, today about M&A, but how do you compare, again, as far as thinking about adding and bringing more activity back versus M&A? It seems like the spread, as you pointed out, I think is still pretty wide out there. Again, M&A versus sort of ramping your organic production, how do you sort of think about those two things?

Well, I think that in the past year, as in 2015, still thought that there was a pretty big gap between the buyer and the seller. We think that narrowed. We think that there are going to be numerous opportunities in the market this year. It’s a question of, okay, how do you accomplish, get an acquisition done or what form of currency do you use. We think there is going to be plenty of opportunity for us to pursue this year and I think we’re focused on that. If prices were to continue to see improvement, we do have the inventory. We have stuff in Madison Grimes that we can go do. We have – our original budget for this year when we first proposed it was fairly substantial but things declined during the latter half of 2015 and into early 2016, we just said, hey, let’s continue to hold our line here and let’s just wait until things get – turn around. It may be some time before they do. We’ve seen some positive movement in prices lately, but at least on the oil side, not as much on gas, but most of our drilling opportunity is oil based. We don’t have that much in terms of gas. I would say that we’re anxious to get drilling and be active again because that’s what we do for a living, but I think the better opportunity’s going to be on the acquisition of assets side.

Got it. Thanks very much. Thanks for the details.

We can take our next questions from Kyle Rhodes with RBC.

Hey, good morning, guys.

Good morning, Kyle.

Any more color you can provide on the acquisition you decided not to pursue in the fourth quarter, just maybe in terms of location, size or HPP commitments, just to give us a flavor of what you guys were looking at and then maybe what ultimately led you not to execute the deal?

Sure. The opportunity we were pursuing was in West Texas. It was oil. It was a very attractive opportunity. Just disconnect between us and the seller, which was surprising to us at the end but nonetheless it didn’t happen. We felt like it would provide us with a runway of drilling inventory that was economic at substantially lower prices. So yes, it was a very – we thought a very nice opportunity but couldn’t get there with the seller at the end. Joe, any other comments on that?

No, I think that was a good overview of it. It was – the important thing for us it was a good combination of producing properties as well as upside that we would have drilled in this price environment. That’s why it was so attractive to us.

Got it. That’s very helpful. I guess just you mentioned on your 2016 hedge book coverage roughly 60% of the forecasted PDP gas production. How should we be thinking about your base kind of oil production decline in 2016? Should we expect kind of – should we model kind of similar to the implied 18%, 20% year-over-year decline you’re sitting on the gas side, or how should we think about that?

I think on the oil side, it’s probably pretty flat. On the gas side, offshore is maybe 15% in total, 15% to maybe a little bit of a decline on oil. Steve?

I was going to say we grew sort of core Bcf last year and it’s our budget year, so it’s 20%.

Okay. [indiscernible] About 20%. We don’t give formal guidance, but that’s – for the year, but that’s probably good soft guidance.

Okay. Got it. That’s helpful. Any update you can give on the Popham well in Wyoming? Maybe just kind of a current production rate there and how it’s tracking versus your type curve?

Well, at the moment it’s shut in. As we speak, it’s shut in. We had some part of rods we’re fixing. It was shut in while we were fracking the Christensen well. So far, it’s still on our type curve and keep in mind, the Christensen’s our third well so we’re still – we still look at the type curve every day. We’re somewhere – we think ultimately we’ll end up somewhere in the 300,000 to 350,000 barrel range today and maybe better. But we’ll see. The Christensen is going to be an important well. The Popham seems to be holding up pretty well.

Got it. Can you remind me the AFE on the Christensen?

The AFE on the Christensen well?

Yes.

I think the way to answer that question is, we’ve done our projections kind of going back up the oil curve including where we are today and right now we’re projecting about a $5.5 million all-in drill complete facility cost at roughly a $45 oil market. We’ve been spending a lot of time trying to understand what the capital requirements will look like as we come out of this – these low oil markets so we have a clearer understanding of what the economic performance of these wells will be.

Thanks, guys.

We can take our next question from Noel Parks with Ladenburg Thalmann. Please go ahead.

Good morning.

Good morning, Noel.

Just a couple things. Wondering about at North Cheyenne, I know you’re going to be doing a little bit of paying for maintaining leases. Is there any additional lease availability to speak of in that area?

Not really, no. From our perspective, we’ve got plenty to keep us busy once we get re-engaged in drilling, once prices improve. So leasing anything in addition to that at this point is probably a little premature given where – we’ve only got two wells under our belt and the third one about to come here on before long.

Sure, sure. On the CapEx side, the amounts you’ve talked about being in view so far, do you have any sense of kind of what a baseline of sort of maintenance CapEx might be even if you don’t really have any drill bid activity later in the year?

Well, we’ve got that all included in the number, if you will, that I quoted as being minimal. Our total CapEx for the year is less than $10 million.

Okay. Great. Great. You’ve had – a housekeeping item, just a number I was trying to work out between the full-year and quarter numbers. The tax item in fourth quarter, was that – the tax provision, was that all deferred or was some of that cash?

It’s all deferred.

Okay, great.

And will be going forward.

Okay. Great. I guess one last thing about the acquisition you were working on in fourth quarter. Was that an opportunity that was brought to you by a broker or an intermediary or was it something that happened out of direct contact?

It was a competitive bid process.

Okay. So the properties actually did – there actually was a transaction at the end of the process?

Not that we’re aware of, no.

Oh, there was not. Okay. So they took it off. Okay.

Yes, right.

Okay. Great. That’s all from me.

Thanks, Noel.

And our next question comes from Ron Mills with Johnson Rice.

Morning, guys.

Hey, Ron.

Good job on the cost side. Question, particularly the G&A is going to be pretty sticky because of the reductions. On the LOE side, talk about some of the things that you have done to improve the LOE and how much of those are – would be sustainable in a higher cost environment?

This is Carl Isaac. I guess the place to start is that we’ve always managed our LOE pretty closely and kept a very close eye on it. It’s one of our drivers. Regardless of the price of oil or gas, it’s something we’ve continually done. What we’ve done a lot of is we’ve made sure we understand what the markets are, whether it’s for compression services or maintenance contracts, chemicals, obviously, salt water disposal, marketing, repairs and maintenance, all of these things we’ve gone back and visited on a routine basis historically and as the price of oil has declined, we’ve stayed in the market and understood kind of what the service markets were offering and made sure that we were benefiting from those reductions on the LOE side. I think by and large we’ve seen the biggest reductions and I think those will start to taper off but even at that, we feel like we can safely expect to reduce our LOE another 10% this year on an apples-to-apples basis. The one thing that I would point out that the 20% reduction that we’ve been talking about was really not apples-to-apples because we added LOEs, so to speak, onshore both in Texas and Wyoming but still experienced a 20% reduction overall.

Okay. In Wyoming, you said less than $10 million, Joe, but where is the majority of your lease maintenance capital? Is it in Wyoming this year? Is it in Madison Grimes? I guess another way, how much leases kind of are coming up this year for extension/renewal?

It’s a total of probably $3 million, little over $3 million, Ron, and two-thirds of that is in Wyoming and that extends for three to five years a large portion of our acreage.

And can you just talk about, in a more normalized environment, you talk about being able to get back to work and having a deep inventory, just a reminder of inventory by area. I think in Wyoming potentially 200 or 300 locations. A, is that correct and B, how about in East Texas?

Well, the 200 to 300 in Wyoming is right. Southeast Texas, Madison and Grimes, on all – for all formations, 100. Maybe a little more than that.

Ron, I would say that in the Madison, Grimes County area we broke it down between the Woodbine, the Lewisville and then the Eagle Ford, which we, as you know, we haven’t drilled yet and that activity has kind of come closer to our acreage now and feel like that’s something that’s – we haven’t really outlined in detail. We have a general view on what the number of locations are there, but as that activity has encroached upon us, we now see where we do have quite a bit of potential, both in our Northern tier of acreage, up and around the Chalktown area and Force area, but also down in the Grimes County acreage as well, where Apache and others are nearby. So I would say that the overall – in terms of overall locations, it’s well over 100 if you include all formations and could be double that with the Eagle Ford.

Great. And then a clarification on the deposit forfeiture. What does the process work? If the seller goes through a bid process, someone makes a bid, the transaction doesn’t close, was there a particular reason the transaction didn’t close or if – because if they pulled the package, I would assume that, that charge wouldn’t have been made. Is that a fair assessment?

Yes, Ron, it was – we, at the end of the day in the face of falling oil prices and a dramatic increase in the financing markets, we were not comfortable with proceeding at the price that we originally bid and the seller was not receptive to any reduction that would give us comfort in going forward.

Understood. Lastly, just on the balance sheet, the $115 million of borrowings on your revolver, what are some of the covenants there? I assume with the plan to pay down some of the revolver with free cash flow that you shouldn’t have any issues there.

Well, the covenants are the standard leverage ratio and the current ratio are about it. Leverage ratio is 3.5 times. I think we’re a little less than 2 at this point. And in good shape on the current ratio, so we don’t have any covenant issues.

All right, guys. Hey, thank you so much.

Thank you.

It appears we have no further questions. I’ll return the program to Allan Keel for closing comments.

We’d like to thank everybody for joining us today and look forward to catching up with you next quarter to give you updates on our Christensen well and any other activity that we may have between now and then and thanks again for your interest. That concludes our remarks.

Ladies and gentlemen, this does conclude today’s program. Thanks for your participation. You may now disconnect. Have a great day.