The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes and other information included elsewhere in this Form 10-Q and in our Form 10-K for the fiscal year ended June 30, 2009, previously filed with the SEC.

Cautionary Statement about Forward-Looking Statements

Some of the statements made in this report may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words and phrases "should be", "will be", "believe", "expect", "anticipate", "estimate", "forecast", "goal" and similar expressions identify forward-looking statements and express our expectations about future events. These include such matters as:

• Our financial position

• Business strategy, including outsourcing

• Meeting our forecasts and budgets

• Anticipated capital expenditures

• Drilling of wells

• Natural gas and oil production and reserves

• Timing and amount of future discoveries (if any) and production of natural gas and oil

• Operating costs and other expenses

• Cash flow and anticipated liquidity

• Prospect development

• Property acquisitions and sales

Although we believe the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will occur. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from actual future results expressed or implied by the forward-looking statements. These factors include:

• Low and/or declining prices for natural gas and oil

• Natural gas and oil price volatility

• Operational constraints, start-up delays and production shut-ins at both operated and non-operated production platforms, pipelines and gas processing facilities

• The risks associated with acting as the operator in drilling deep high pressure and temperature wells in the Gulf of Mexico

• The risks associated with exploration, including cost overruns and the drilling of non-economic wells or dry holes, especially in prospects in which the Company has made a large capital commitment relative to the size of the Company's capitalization structure

• The timing and successful drilling and completion of natural gas and oil wells

• Availability of capital and the ability to repay indebtedness when due

• Availability of rigs and other operating equipment

• Ability to raise capital to fund capital expenditures

• Timely and full receipt of sale proceeds from the sale of our production

• The ability to find, acquire, market, develop and produce new natural gas and oil properties

• Interest rate volatility

• Operating hazards attendant to the natural gas and oil business

• Downhole drilling and completion risks that are generally not recoverable from third parties or insurance

• Potential mechanical failure or under-performance of significant wells, production facilities, processing plants or pipeline mishaps

• Weather

• Availability and cost of material and equipment

• Delays in anticipated start-up dates

• Actions or inactions of third-party operators of our properties

• Actions or inactions of third-party operators of pipelines or processing facilities

• The ability to find and retain skilled personnel

• Strength and financial resources of competitors

• Federal and state regulatory developments and approvals

• Environmental risks

• Worldwide economic conditions

• The ability to construct and operate offshore infrastructure, including pipeline and production facilities

• The continued compliance by the Company with various pipeline and gas processing plant specifications for the gas and condensate produced by the Company

• Drilling and operating costs, production rates and ultimate reserve recoveries in our Eugene Island 10 ("Dutch") and State of Louisiana ("Mary Rose") acreage.

You should not unduly rely on these forward-looking statements in this report, as they speak only as of the date of this report. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events. See the information under the heading "Risk Factors" in this Form 10-Q for some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in forward-looking statements.

Overview

Contango is a Houston-based, independent natural gas and oil company. The Company's core business is to explore, develop, produce and acquire natural gas and oil properties primarily offshore in the Gulf of Mexico. Contango Operators, Inc. ("COI"), our wholly-owned subsidiary, acts as operator on certain offshore prospects.

Our Strategy

Our exploration strategy is predicated upon two core beliefs: (1) that the only competitive advantage in the commodity-based natural gas and oil business is to be among the lowest cost producers and (2) that virtually all the exploration and production industry's value creation occurs through the drilling of successful exploratory wells. As a result, our business strategy includes the following elements:

Funding exploration prospects generated by Juneau Exploration, L.P., our alliance partner. We depend primarily upon our alliance partner, Juneau Exploration, L.P. ("JEX"), for prospect generation expertise. JEX is experienced and has a successful track record in exploration.

Using our limited capital availability to increase our reward/risk potential on selective prospects. We have concentrated our risk investment capital in our offshore Gulf of Mexico prospects. Exploration prospects are inherently risky as they require large amounts of capital with no guarantee of success. COI drills and operates our offshore prospects. Should we be successful in any of our offshore prospects, we will have the opportunity to spend significantly more capital to complete development and bring the discovery to producing status.

Sale of proved properties. From time-to-time as part of our business strategy, we have sold and in the future expect to continue to sell some or a substantial portion of our proved reserves and assets to capture current value, using the sales proceeds to further our offshore exploration activities. Since its inception, the Company has sold approximately $484 million worth of natural gas and oil properties, and views periodic reserve sales as an opportunity to capture value, reduce reserve and price risk, and as a source of funds for potentially higher rate of return natural gas and oil exploration opportunities.

Controlling general and administrative and geological and geophysical costs. Our goal is to be among the most efficient in the industry in revenue and profit per employee and among the lowest in general and administrative costs. We plan to continue outsourcing our geological, geophysical, and reservoir engineering and land functions. We have seven employees.

Structuring incentives to drive behavior. We believe that equity ownership aligns the interests of our employees and stockholders. Our directors and executive officers beneficially own or have voting control over approximately 24% of our common stock.

Exploration Alliance with JEX

JEX is a private company formed for the purpose of assembling domestic natural gas and oil prospects. Under our agreement with JEX, JEX generates natural gas and oil prospects and evaluates exploration prospects generated by others. JEX focuses on the Gulf of Mexico, and generates offshore exploration prospects via our affiliated companies, Republic Exploration LLC ("REX") and Contango Offshore Exploration LLC ("COE") (see "Offshore Gulf of Mexico Exploration Joint Ventures" below). We do not have a written agreement with JEX which contractually obligates them to provide us with their services.

Offshore Gulf of Mexico Exploration Joint Ventures

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 October 31, 2009, Contango, through COI, REX and COE, had an interest in 33 offshore leases. See "Offshore Properties" below for additional information on our offshore properties.

As of September 30, 2009, 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.

Republic Exploration LLC

West Delta 36, a REX prospect, is operated by a third party. The Company depends on a third-party operator for the operation and maintenance of this production platform. As of October 31, 2009, the well was producing at an 8/8ths rate of approximately 4.3 million cubic feet equivalent per day ("Mmcfed"). REX has a 25.0% working interest ("WI"), and a 20.0% net revenue interest ("NRI"), in this well.

Contango Offshore Exploration LLC

Ship Shoal 263 ("Nautilus"), a COE prospect, was spud by COI in October 2009. Contango has a 100% WI before casing point in this well.

Grand Isle 72 ("Liberty"), another COE prospect, is operated by COI. COE has a 50% WI and a 40% NRI in this well. As of September 30, 2009, COE had borrowed $4.3 million from the Company under a promissory note (the "Note") to fund a portion of its share of development costs at Grand Isle 72. The Note bears interest at a per annum rate of 10% and is payable upon demand. As of September 30, 2009, accrued and unpaid interest on the Note was $1.3 million.

Contango Operators, Inc

COI, a wholly-owned subsidiary of the Company, was formed for the purpose of drilling and operating exploration and development wells in the Gulf of Mexico. Additionally, COI expects to acquire significant working interests in offshore exploration and development opportunities in the Gulf of Mexico, usually under a farm-out agreement, or similar agreement, with either REX or COE. COI may also operate and acquire significant working interests in offshore exploration and development opportunities under farm-in agreements with third parties.

Nearly all of the Company's production is from its four Dutch wells, four Mary Rose wells, and Eloise North well (located in Louisiana State Lease No. 19266#3). These nine wells produce via two platforms: the Company-owned and operated platform at Eugene Island 11 and a third-party owned and operated platform at Eugene Island 24.

Eugene Island 11 Platform

The Company's platform at Eugene Island 11 is currently processing approximately
55.6 Mmcfed net to Contango. This platform was designed with a capacity of 500 million cubic feet per day ("Mmcfd") and 6,000 barrels of oil per day ("bopd"). This platform services production from the Company's four Mary Rose wells, our Eloise North well, and our Dutch #4 well. From the Eugene Island 11 platform, the gas and condensate flow to Eugene Island 63 via our pipeline, which has been designed with a capacity of 330 Mmcfd and 6,000 bopd, and then to on-shore processing facilities near Patterson, Louisiana.

Eugene Island 24 Platform

The third-party owned and operated production platform at Eugene Island 24 is currently processing approximately 36.1 Mmcfed net to Contango. This platform was designed with a capacity of 100 Mmcfd and 3,000 bopd. This platform services production from the Company's Dutch #1, #2 and #3 wells.

Other Activities

Effective November 1, 2009, COI was awarded three lease blocks from the Western Gulf of Mexico Lease Sale No. 210 held on August 19, 2009. The Company was awarded Matagorda Island Blocks 607 and 616 (collectively, "El Duderino") and Matagorda Island Block 617 ("Dude").

Effective October 6, 2009, COI was awarded five leases that were bid on at the State of Texas Lease Sale held on October 6, 2009. The Company was awarded Galveston Area 248L, 276L, 277L (N/2 of NE/4), 277L (S/2 of NE/4) and 338S (collectively, "His Dudeness").

Offshore Properties

Producing Properties. The following table sets forth the interests owned by
Contango through its related entities in the Gulf of Mexico which were producing
natural gas or oil as of October 31, 2009:



          Area/Block                            WI        NRI        Status
          Contango Operators, Inc.:
          Eugene Island 10 #D-1 (Dutch #1)     47.05 %    38.1 %    Producing
          Eugene Island 10 #E-1 (Dutch #2)     47.05 %    38.1 %    Producing
          Eugene Island 10 #F-1 (Dutch #3)     47.05 %    38.1 %    Producing
          Eugene Island 10 #G-1 (Dutch #4)     47.05 %    38.1 %    Producing
          S-L 18640 #1 (Mary Rose #1)          53.21 %    40.5 %    Producing
          S-L 19266 #1 (Mary Rose #2)          53.21 %    38.7 %    Producing
          S-L 19266 #2 (Mary Rose #3)          53.21 %    38.7 %    Producing
          S-L 18860 #1 (Mary Rose #4)          34.58 %    25.5 %    Producing
          S-L 19266 #3 (Eloise North #1)       36.90 %    26.9 %    Producing

          Republic Exploration LLC
          Eugene Island 113B                     0.0 %     3.3 %    Producing
          West Delta 36                         25.0 %    20.0 %    Producing

          Contango Offshore Exploration LLC:
          Grand Isle 72                         50.0 %    40.0 %      Shut-In
          Ship Shoal 358, A-3 well              10.0 %     7.7 %    Producing

Leases. The following table sets forth the working interests owned by Contango and related entities in leases in the Gulf of Mexico as of October 31, 2009.

                                                          Lease    Expiration
         Area/Block                             WI         Date       Date
         Contango Operators, Inc.:
         Ship Shoal 14                         50.00 %    May-06       May-11
         South Marsh Island 57                 50.00 %    May-06       May-11
         South Marsh Island 59                 50.00 %    May-06       May-11
         South Marsh Island 75                 50.00 %    May-06       May-11
         Ship Shoal 263                        25.00 %    Jun-06       Jun-11
         Grand Isle 70                          3.65 %    Jun-06       Jun-11
         S-L 19261                             53.21 %    Feb 07       Feb 12
         S-L 19396                             53.21 %    Jun 07       Jun 12
         Eugene Island 11                      53.21 %    Dec 07       Dec-12
         Eugene Island 56 (1)                 100.00 %    Jul-08       Jul-13
         Galveston Area 248L                  100.00 %    Oct-09       Oct-14
         Galveston Area 276L                  100.00 %    Oct-09       Oct-14
         Galveston Area 277L (N/2 of NE/4)    100.00 %    Oct-09       Oct-14
         Galveston Area 277L (S/2 of NE/4)    100.00 %    Oct-09       Oct-14
         Galveston Area 338S                  100.00 %    Oct-09       Oct-14
         Matagorda Island 607                 100.00 %    Nov-09       Nov-14
         Matagorda Island 616                 100.00 %    Nov-09       Nov-14
         Matagorda Island 617                 100.00 %    Nov-09       Nov-14

         Republic Exploration LLC
         South Marsh Island 57                 50.00 %    May-06       May-11
         South Marsh Island 59                 50.00 %    May-06       May-11
         South Marsh Island 75                 50.00 %    May-06       May-11
         Ship Shoal 14                         50.00 %    May-06       May-11
         East Cameron 210                     100.00 %    Jun-09       Jun-14
         South Timbalier 97                   100.00 %    Jun-09       Jun-14

         Contango Offshore Exploration LLC:
         Ship Shoal 263                        75.00 %    Jun-06       Jun-11
         Viosca Knoll 383                     100.00 %    Jun-06       Jun-11
         Grand Isle 70                         45.13 %    Jun-06       Jun-11
         East Breaks 369                          (2 )    Dec-03       Dec-13
         East Breaks 370                      100.00 %    Dec-03       Dec-13
         East Breaks 366                      100.00 %    Nov-05       Nov-15
         East Breaks 410                      100.00 %    Nov-05       Nov-15

(1) Dry Hole

(2) Farm out. COE will receive a 3.67% ORRI before project payout and a 6.67% ORRI after project payout

Onshore Exploration and Properties

Effective October 1, 2009, the Company's wholly-owned subsidiary, Conterra Company ("Conterra"), entered into a joint venture with Patara Oil & Gas LLC ("Patara"), a privately held oil and gas company, to develop proved undeveloped Cotton Valley gas reserves in Panola County, Texas. B.A. Berilgen, a member of the Company's board of directors, is the Chief Executive Officer of Patara.

Under the terms of the joint venture agreement (the "Joint Venture Agreement"), Conterra will fund 100% of the drilling and completion costs in exchange for 90% of the net revenues. The Joint Venture Agreement contemplates drilling up to 15 wells, at an estimated 8/8ths cost of approximately $1.5 million per well. The average 8/8ths reserves per well are expected to be approximately 1.5 Bcfe (1.125 net Bcfe after a 25% royalty).

By paying all of the drilling and completion costs, the Company will be able to benefit from the associated tax deductions which are estimated to be about 75% of total drilling costs, or approximately $1.1 million per well. Upon the Company achieving a 15% per annum cash-on-cash rate of return on a basket of 15 wells, the Company's net revenue interest converts into a 5% overriding royalty interest. The Company has the option to enter into two additional 15 well baskets to drill up to a total of 45 wells. Drilling is expected to begin prior to the end of the year.

Application of Critical Accounting Policies and Management's Estimates

The discussion and analysis of the Company's financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company's significant accounting policies are described in Note 2 to the consolidated financial statements included in this Quarterly Report on Form 10-Q. We have identified below the policies that are of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment by management. The Company analyzes its estimates, including those related to its natural gas and oil reserve estimates, on a periodic basis and bases its estimates on historical experience, independent third party reservoir engineers and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the Company's consolidated financial statements:

Successful Efforts Method of Accounting. Our application of the successful efforts method of accounting for our natural gas and oil business activities requires judgments as to whether particular wells are developmental or exploratory, since exploratory costs and the costs related to exploratory wells that are determined to not have proved reserves must be expensed whereas developmental costs are capitalized. The results from a drilling operation can take considerable time to analyze, and the determination that commercial reserves have been discovered requires both judgment and application of industry experience. Wells may be completed that are assumed to be productive and actually deliver natural gas and oil in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. On occasion, wells are drilled which have targeted geologic structures that are both developmental and exploratory in nature, and in such instances an allocation of costs is required to properly account for the results. Delineation seismic costs incurred to select development locations within a productive natural gas and oil field are typically treated as development costs and capitalized, but often these seismic programs extend beyond the proved reserve areas and therefore management must estimate the portion of seismic costs to expense as exploratory. The evaluation of natural gas and oil leasehold acquisition costs included in unproved properties requires management's judgment to estimate the fair value of exploratory costs related to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

Reserve Estimates. While we are reasonably certain of recovering our reported reserves, the Company's estimates of natural gas and oil reserves are, by necessity, projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of natural gas and oil that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. Estimates of economically recoverable natural gas and oil reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future

natural gas and oil prices, future operating costs, severance taxes, development costs and workover costs, all of which may in fact vary considerably from actual results. The future drilling costs associated with reserves assigned to proved undeveloped locations may ultimately increase to the extent that these reserves are later determined to be uneconomic. For these reasons, estimates of the economically recoverable quantities of expected natural gas and oil attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of the Company's natural gas and oil properties and/or the rate of depletion of such natural gas and oil properties. Actual production, revenues and expenditures with respect to the Company's reserves will likely vary from estimates, and such variances may be material. Holding all other factors constant, a reduction in the Company's proved reserve estimate at September 30, 2009 of 1% would not have a material effect on depreciation, depletion and amortization expense. Holding all other factors constant, a reduction in the Company's proved reserve estimate at September 30, 2009 of 5%, 10% and 15% would affect depreciation, depletion and amortization expense by approximately $0.5 million, $1.0 million and $1.5 million, respectively.

Impairment of Natural Gas and Oil Properties. The Company reviews its proved natural gas and oil properties for impairment on an annual basis or whenever events and circumstances indicate a potential decline in the recoverability of their carrying value. The Company compares expected undiscounted future net cash flows on a cost center basis to the unamortized capitalized cost of the asset. If the future undiscounted net cash flows, based on the Company's estimate of future natural gas and oil prices and operating costs and anticipated production from proved reserves, are lower than the unamortized capitalized cost, then the capitalized cost is reduced to fair market value. The factors used to determine fair value include, but are not limited to, estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected. Unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value, with any such impairment charged to expense in the period. Given the complexities associated with natural gas and oil reserve estimates and the history of price volatility in the natural gas and oil markets, events may arise that will require the Company to record an impairment of its natural gas and oil properties and there can be no assurance that such impairments will not be required in the future nor that they will not be material.

Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based payments at fair value. Management makes assumptions including stock price volatility and employee turnover that are utilized to measure compensation expense. The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, which are set forth in Note 2 to our consolidated financial statements.

MD&A Summary Data

The table below sets forth revenue, expense and production data for continuing
operations for the three months ended September 30, 2009 and 2008.



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