Offshore Operations

Contango

Contango, through its wholly-owned subsidiary, COI and its partially-owned subsidiaries, REX and COE, conducts exploration activities in the Gulf of Mexico. As of June 2009, Contango, through COI, REX and COE, had an interest in 24 offshore leases.

As of September 30, 2008, Contango owned a 32.3% equity interest in REX and a 65.6% equity interest in COE, both of which were formed for the purpose of generating exploration opportunities in the Gulf of Mexico. These companies focus on identifying prospects, acquiring leases at federal and state lease sales and then selling the prospects to Contango, subject to timed drilling obligations plus retained reversionary interests in favor of REX and COE.

Impact of Hurricanes Gustav and Ike

In September 2008, Hurricanes Gustav and Ike moved through the Gulf of Mexico. Our offshore facilities sustained only minor damage from Hurricane Ike, affecting mainly SCADA control systems, helideck skirting, risers, and disrupted flowlines. The 8/8ths cost to repair the damage on all six wells is approximately $2.4 million, which is covered by the Company's insurance after an 8/8ths deductible of $500,000. However, the third-party processing and pipeline facilities on which we rely incurred significant damage from Hurricane Ike. This damage slowed reinstatement of production from a portion of our Gulf of Mexico assets. Our Gulf of Mexico production to came back online upon the restarting of the pipeline and other non-operated facilities.

Our corporate office sustained major damage and we temporarily relocated to an office approximately 200 yards away. We did not lose any paper files and all of our electronic files were backed up prior to the storm. We moved back to our corporate offices in March 2009.