In yet another indication that Enron Corp.’s bankruptcy is continuing to wreak havoc in the energy business, Houston-based junior independent Contour Energy said Tuesday that a bankruptcy filing is likely after a trustee for its senior notes called for the immediate and full payment of $105 million in principal and interest of its debt in an acceleration notice. In April, Contour began to evaluate its options after losing its natural gas price hedges as a result of Enron’s bankruptcy.

Contour’s reserves, production and exploration interests are located primarily in Louisiana, South Texas and the shallow waters of the Gulf of Mexico. At the end of 2000, natural gas represented approximately 76% of the company’s proved reserve base and about 90% of its equivalent daily production. The company’s 20.6 Bcfe in 2000 was spread across northern Louisiana, with 44% of the total; southern Louisiana, 19%; and the Gulf of Mexico, 35%. About 2% of the volumes were contributed from its other assets.

The company began restructuring discussions two months ago, engaging an investment banking firm to evaluate its strategic corporate options and to provide advice. “As previously disclosed, the loss of our natural gas price hedges…has eliminated our downside price protection in an environment of highly volatile and uncertain commodity prices,” the company said in a written statement in April. “This has reduced our ability to fund our targeted capital expenditure program while concurrently servicing our outstanding debt obligations.”

In its first quarter 2002 filing on May 20, Contour reported a net loss of $4.4 million, or $0.26 per common share, and cash flows from operations before working capital changes of $0.2 million, or $0.01 per common share. This compares to a net income of $5.7 million, or $0.43 per common share, and cash flows of $17.5 million, or $1.32 per common share, for the first quarter of 2001. Natural gas production also declined from a year earlier, mostly because of a scheduled reduction in production from the company’s volumetric overriding royalty interest of about 5 MMcf/d.

Contour also reported $12.3 million in other comprehensive income (OCI) on its balance sheet at Dec. 31, 2001 related to derivative hedge contracts. Approximately $4.4 million of the OCI valuation was reclassified to natural gas revenues in the first quarter 2002. Approximately $7.9 million remained in OCI at March 31, 2002 and will be reclassified to earnings monthly during the remainder of 2002 as the hedge transactions were originally scheduled to occur.

“These items are non-cash in nature and reflect the…handling of the company’s derivative contracts with a subsidiary of Enron Corp.,” Contour said. “Excluding these items, the company’ s net loss for the quarter would have been $8.9 million, or $0.51 per common share.”

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