Forward Looking Information

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Forward Looking Information

• The following presentation contains
  forward-looking statements and is made pursuant
  to the safe harbor provision of the Private
  Securities Litigation Reform Act of 1995. Oil and
  gas activities are subject to risks and
  uncertainties inherent in the exploration for
  acquisition, development, operation and marketing
  of oil and natural gas. These risks include, but
  are not limited to, volatility of products,
  prices, uncertainties in reserve estimates,
  drilling risks, operations and production risks
  and environmental issues. Results could vary
  materially from the forward-looking information.
  You are cautioned that such forward-looking
  statements should be read in conjunction with the
  available company information, including the most
  recent Form 10-K/SB, 10-Q/SB.

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STRATEGY

• TWO CORE BELIEFS
• In a commodity business there are no
  competitive advantages. Only lowest cost
  producers survive and prosper.
• The industry's value creation event is the
  turning to the right of the exploration drill
  bit.
• We have moved from a world where the big eat the
  small, to a world where the fast eat the slow
• Klaus Schwab

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Value Creation/ Destruction

• What does Contango do to create value?
• Find and develop natural gas and oil at an
  economically attractive price In a 4 gas world
  1.50/mcfe finding cost plus 1 to get to
  wellhead is pretty good
• What can happen to destroy value?
• Drill a bunch of dry holes whos drawing the
  XYZs and how compensated is critical
• Run out of money
• Have too much debt/GA
• Big drop in natural gas prices NOT!
• Murphy

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How And What You Count Counts

• Accounting book value bears only a coincidental
  relationship to intrinsic value
• Full cost vs. successful efforts
• Never, never, never let accounting consequences
  influence a decision.
• If thought corrupts language, language can also
  corrupt thought
• George Orwell

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Incentives Drive Behavior

• Look for managements that have a major piece of
  net worth at risk
• Focus risk its very difficult to get even one
  thing right
• Only low cost supplier wins
• Its the EPS, stupid
• Dont forget about the denominator

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Corporate Governance

• Annual election of all Directors
• No loans to employees or directors
• No repricing of options / five year vesting
• No CEO bonus unless profitable.CEO base salary is
  150,000/year
• The Company plane is Southwest Airlines
• Sorry, no charitable giving
• CEO is the only inside director
• Transparent accounting
• Successful efforts accounting for oil gas
  activities
• Mark-to-Market accounting for hedges
• Stock options are expensed
• BOD management observers own 58 of fully
  diluted shares
• Incentives aligned

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MCFs Story
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PEER GROUP COMPSNINE MONTHS ENDED SEPTEMBER 30,
2002
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Comparison Analysis (1)
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MCFs Industry Leadership Role

• Accounting the information GAAP
• Incentives Alignment no play no pay
• GA no profit no bonus
• Hedging to win

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MCFs Easily Measurable Goals

• Profitable as a successful efforts exploration
  company in all commodity price environments
• Grow EPS and NAV/share annually
• Highest revenue and profit per employee in
  industry
• Lowest GA as of revenue in industry
• All in FD costs lt 1.50/mmbtue
• Debt no greater than 35 of PV10
• Never report a negative revision to reserve
  report
• Be the lowest cost producer womb to tomb - in
  the industry.
• Accounting transparency successful efforts/MTM
  accounting for derivatives/stock options expensed

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Conclusion

• By the way, any company worth buying will have
  to pay taxes
• Warren Buffet Berkshire Hathaway 2002 annual
  meeting
• What to look for in a small cap E P
• Major investment by management and BOD 58
• Right guys drawing the XYZs
• Bank debt leveraged balance sheet (4 interest
  rate)
• Low cost/Low burn rate
• Accounting transparency Economic reality Cash

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RIG UTILIZATION CONUNDRUM

• Rig rates are usually positively correlated with
  commodity prices? (R-square 89)
• Why not this time?
• Prospects are in short supply even with 5 gas
  and 30 oil
• Contangos Response
• 11.0 million in Seismic expenditures Q1/Q2 FY
  2003
• 17 million total Seismic expenditures
• Drill phase begins now !

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THE HIGH OIL PRICES ARE GOOD MYTH

• High oil prices in the long run are bad for
  natural gas producers
• Oil the last 100 years has been 20/barrel
• At 28/barrel last two years 100 billion tax
  increase in U.S. alone
• Natural gas growth market is electrical
  generation and new homes GNP
• Nat Gass real competition is coal, nuclear,
  Canada, China and easy money

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BUSH TAX PLAN

• Single most important piece of capital formation
  legislation in my 30 year career
• Rewards Companies that pay taxes i.e. are
  profitable
• This focus on profits and resulting transparency
  is a huge benefit to the Contangos of the world
• EDA Excludable Dividend Account declare a
  deemed dividend and shareholder is treated as
  if he or she received an (untaxed) dividend and
  reinvested that amount in the corporations
  stock

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Crude Oil Front Month (bbl) / Natural Gas Front
Month (Mcf) Trend Line
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Weve seen this movie before. Never underestimate
elasticity

• 6.00 Nat Gas not sustainable
• Supply down to flat at best
• Demand therefore must be destroyed
• Industrial America (31 of Nat Gas demand) will
  take the hit.

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CONCLUSIONS

• Vicious Volatility
• Buy Reserves at cycle bottoms
• Hedge at cycle tops
• LNG looks good
• Prospects Rule
• Both business success and business failure are
  ideally precise. Neither can be talked away.
• Joseph Schumpeter