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March 18, 2004

Deep gas draws big bids

Could offshore activity in the U.S. Gulf of Mexico start picking up?

The U.S. Minerals Management Service (MMS) reports that "strong competition that produced robust bidding" was a key factor in yesterday's Central Lease Sale 190.

Comments from some of the apparent high bidders indicates that they will start drilling on these leases in the fairly near future.

The sale attracted $368,763,482 in high bids on oil and natural gas leases in Federal waters in the Central Gulf of Mexico. The high bids came from 83 companies. The sale attracted 829 bids on 557 tracts.

"The fact that this was the highest number of bids received in a Central sale in the past six years is a clear indication of industry's continued confidence in the Gulf as a source of energy for the nation," said MMS Director Johnnie Burton.

While interest in the deepwater continues, the large number of tracts tracts receiving bids in the ultra-deepwater is of particular note, says MMS. The most noteworthy aspect is that 60% of bids were on the shelf. Burton says this "reflects definite industry interest in deep gas in shallow waters in response to royalty relief offered as part of MMS's Deep Gas Initiative."

Highest bid on a block was $35,290,892 submitted by Amerada Hess for Green Canyon Block 468. Second highest was $31,088,000 for Green Canyon Block 512, submitted by a group that included Nexen Petroleum Offshore U.S.A., Inc., Andarko Petroleum Corporation, Union Oil Company of California (Unocal) and BHP Billiton Petroleum (Deepwater) Inc.

In a statement issued today Unocal said it wasts the apparent high bidder for interests in four tracts in the sale No. 190 conducted Wednesday by the U.S. Minerals Management Service (MMS).

The company, either on its own or with co-bidders, submitted apparent high bids amounting to approximately $32.5 million on four deepwater leases.

Unocal currently holds an interest in 365 Gulf of Mexico leases including 230 deepwater exploratory leases, 72 shelf exploratory leases and 63 development leases.

"We're pleased to broaden Unocal's interests in two highly prospective areas," said Mike Bell, Unocal vice president, Gulf of Mexico exploration and appraisal. "We believe that these lease blocks will help us to build upon our recent exploratory successes at St. Malo in Walker Ridge and Puma in Green Canyon."

The results of Sale 190 bring Unocal's combined portfolio to 369 OCS leases in the Gulf of Mexico, if all bids are approved by the MMS.

Contango Oil & Gas Company said today that two affiliated companies bid on 37 blocks and were the apparent high bidders on 24 blocks offered at Lease Sale 190 held March 17, 2004 in New Orleans. Each of these blocks is located on the shelf of the Gulf of Mexico in water depths of less than 200 meters.

Contango's 33% owned affiliate, Republic Exploration LLC had the apparent high bid (AHB) on 16 lease blocks with bids totaling approximately $5.6 million. Contango's 67% owned affiliate, Contango Offshore Exploration LLC ("COE"), had the AHB on five lease blocks with bids totaling approximately $3.5 million. Republic and COE, bidding jointly, had the AHB on three lease blocks with bids totaling approximately $452,000. In addition, Contango's affiliates, Republic and COE, will share a reversionary carried working interest in Vermilion 154, which was an AHB at Lease Sale #190. If these blocks are awarded, Contango will own interests, both directly and indirectly vis-a-vis its affiliates, in 41 federal lease blocks in the Gulf of Mexico, covering approximately 202,200 acres.

Kenneth R Peak, Contango's chairman and chief executive officer, said, "The scarcest commodity in today's U.S. based natural gas and oil exploration business is quality drill ready prospects. The lease sale today is an important addition to our prospect inventory. We expect to drill approximately 20 exploration wells between now and year-end 2004. We expect approximately 4 to 6 of these wells will be offshore exploration wells in which we have a carried interest. The drilling of the first two of these offshore wells is planned for May and October 2004. Our current production rate is approximately 14,000 MMBtue per day, and at anticipated production levels and current commodity prices, we expect to have EBITDAX of approximately $1.5 to $2.0 million per month through June 2004. We have approximately $1.1 million of bank debt outstanding and currently have $21.4 million of available bank loan capacity."

Remington Oil and Gas Corporation says it submitted bids on a total of forty-one (41) federal offshore Gulf of Mexico blocks and was the apparent high bidder on twenty-five (25) blocks. The Company's net financial exposure, if all blocks are awarded, totals $4.6 million. Remington will operate twenty-four (24) of the high bid blocks with either a 50% or 60% working interest. All high bid blocks are located in water depths less than 350 feet.

At Vermillion 137, Remington's bid of $1.428 million was not the high bid. The Vermillion 136 #1 well adjacent to this lease was drilled to 18,439 feet. Tests on two zones within the wellbore were unsuccessful. The well will be temporarily abandoned for possible future use in evaluating the prospect. Remington is the operator of this well with a 60% working interest and Magnum Hunter Resources (NYSE: MHR) holds the remaining 40% working interest.

James A. Watt, President and Chief Executive Officer stated, "We are pleased to acquire 25 additional 3-D defined blocks in the offshore shelf. These blocks will complement our existing prospect inventory adding both low- risk, lower-potential prospects, along with deeper, higher-risk higher- potential prospects."

Pogo Producing Company says it bid on 20 tracts at yesterday's sale and was high bidder on 15 of them .

The total for the 15 lease blocks on which Pogo Producing Company ("Pogo") was the high bidder was $12,647,000. When they are officially awarded, Pogo will be the sole owner of each of these new lease blocks. T

Pogo's Chairman, Paul G. Van Wagenen, said, "We are extremely pleased with this lease sale. All of these outer continental shelf lease blocks are located in our core areas of interest. We have identified some exciting exploration prospects on these blocks using newly acquired 3-D seismic information and we look forward to an early award so that we might begin drilling on some of those prospects as early as the second half of this year."

Note: A federal court order issued March 15 has temporarily pulled the plug on the MMS website. You can get lease sale information by calling the Gulf of Mexico Region Public Affairs Office at 504 736 2589 or faxing 504 736 2432

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