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The Facts Change At Contango Oil & Gas

|Includes: CXPO, Contango Oil & Gas Company (MCF)

Published on May 8, 2013 at 5:12 pm

Over the past several months, Contango Oil & Gas Company shareholders have received a steady stream of bad news. The most significant development was the medical leave of absence and subsequent death of Kenneth R. Peak, the company's founder and longtime Chairman and CEO.

Mr. Peak was a unique figure within the oil and gas industry and was often referred to as the "Warren Buffett of oil and gas" based on his plain spoken manner, straight forward management style, and constant attention to the creation of shareholder value. In our limited interactions with Mr. Peak and his management team, it was clear that the company has been run in an unusually shareholder friendly manner. Mr. Peak's obituary in the Houston Chronicle provides further details regarding his many accomplishments.

We wrote about Contango several times over the past four years and published a bullish write-up on the company in September 2012 one month after Mr. Peak's leave of absence began. We encourage readers to review that write-up prior to proceeding since we will not repeat most of the financial details here. Although Mr. Peak's illness was obviously serious, we felt confident that the shares continued to provide good value due to the company's oil and gas reserves, our view of the management succession plan, significant insider buying, and an extremely conservative balance sheet. Unfortunately, several subsequent events have significantly chipped away at each of these pillars of the investment thesis. In this article, we will take a look at the most important changes that have taken place over the past few months and assess whether the shares still represent a conservative commitment of capital.

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