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Dianne Tordillo
Dianne Tordillo
Articles (179)  | Author's Website |

Ariel Fund’s John Rogers Stocks Up on Contango Oil

December 06, 2012 | About:

As of Nov. 30, small-to-mid-cap investment Guru John Rogers of Illinois-based Ariel Capital Management reported to increasing his stake in independent natural gas and oil company Contango Oil (MCF) by 52.55 percent, according to GuruFocus Real Time Picks.

Rogers first acquired Contango in the second quarter of 2011, starting off with 281,520 shares. More recently, Rogers reported to owning about 1.5 million shares of the company in the third quarter. After this latest transaction, Rogers now has a total of 2,377,140 shares.

Houston-based Contango Oil has a market cap of $622.8 million. Its enterprise value is $485.02 million, and it has a P/E (ttm) of 37.03, a P/B of 1.4 and a P/S of 1.4. The company is primarily involved in exploring, developing, producing and acquiring natural gas and oil properties offshore in the Gulf of Mexico. The company approximates its offshore production to total 78 million cubic feet per day.

In October, the company broke the news that its exploration initiative in its Ship Shoal 134 prospect (Eagle) failed to detect any hydrocarbons on the site, incurring a $29.5 million expense to drill, plug and abandon the well, not including leasehold costs.

“While we are certainly disappointed with the results of Eagle, we fully intend to continue drilling our inventory of offshore prospects, which has been the foundation of our growth over the past several years,” Brad Juneau, Contango president and acting CEO, said in a release.

Juneau said the company has sufficient cash on hand, combined with expected revenues from operations, to continue drilling in the rest of its offshore locations, as scheduled.

According to 10-Year Financials, Contango has had a 52.08 percent annual growth trendline in operational cash flow. Its revenue, although declining in the past 12 months by 10.7 percent, has an annual growth trendline of 48.65 percent.

Contango Oil remains debt free and expects to have about $100 million of available cash on hand after paying the costs for its failed Eagle venture.

Contango’s price is close to its three-year low, along with its P/B and P/S ratios. Interestingly, one of its Warning Signs reveals a very active insider trade activity, with members of the company reported to selling about $13 million worth of stocks in the past three months, while another sign warns about a possible financial manipulation in Contango’s end, based on the company’s Beneish M-Score.

Making up 1.6 percent of Rogers’ portfolio in the third quarter, Contango appeared in Ariel’s Investment Trust Annual Report. According to the document, Contango contributed negatively in Ariel Discovery Fund’s third quarter, falling by 16.99 percent during the three months and slipping 15.54 percent for its year-to-date data.

The financials sector remains the majority of Rogers’ holdings, along with consumer services and industrials. His top five holdings out of his 126 stocks are currently: First American Financial Corp. (NYSE:FAF), Lazard Ltd. (NYSE:LAZ), Gannett Co. Inc. (NYSE:GCI), Interpublic Group of Cos Inc. (NYSE:IPG) and Janus Capital Group Inc. (NYSE:JNS).

Contango stock is currently down almost 6 percent for this afternoon’s trading, at $38.21 per share. It has a Business Predictability of one star, Financial Strength of 7 out of 10 and Profitability and Growth of 9 out of 10.

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About the author:

Dianne Tordillo
Dianne Tordillo is staff writer for GuruFocus.com. She reports on a variety of financial news, primarily dealing with investor portfolios and stock trades. Her articles also highlight insider trades, as well as the many useful features of GuruFocus.

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