Before it was acquired by BP (NYSE: BP) in 2000, there was an independent oil company named ARCO. ARCO was pretty good at finding oil and gas. This company drilled the 1968 discovery well at Prudhoe Bay in Alaska with partner ExxonMobil (NYSE: XOM) -- which was then just Exxon. Prudhoe Bay is the biggest oilfield in North America.

In 1976, ARCO agreed to purchase Anaconda Copper, which forced the folks at Dow Jones to seek a replacement in their benchmark index. They went with 3M (NYSE: MMM), which proved a great choice. ARCO's purchase of Anaconda, on the other hand, was a terrible choice. Copper prices soon tanked, and the company shut down all mining operations in the Butte, Montana area by the early 1980s.

Unocal (now part of Chevron (NYSE: CVX)) also dabbled in "earth resources" for the better part of 15 years, before acknowledging in 1992 that this activity "is really not our expertise." Chevron is now the largest producer of geothermal energy in the world, thanks in part to Unocal's adventures in the Pacific Basin.

Given the historical track record of oil and gas companies diversifying into metals and mining, you should probably cast a skeptical eye at any such move. What to make, then, of Monday's announcement by Contango Oil & Gas (AMEX: MCF) that the company is funding a gold exploration program in Alaska?

I think it's important to note that Contango's expertise is not finding oil and gas. CEO and Chairman Ken Peak, whom I interviewed last month, has said that he couldn't find oil at a gas station. There is no explorationist among Contango's staff of seven.

Contango's core competency, as I see it, is the allocation of risk capital. All past discoveries, such as major finds in the Gulf of Mexico and the Fayetteville shale, were made alongside partners who generated the prospects and shared in both the risk and the upside of these programs. The same structure is being employed in this new mineral exploration program.

Grassroots exploration for economic gold deposits is like looking for a needle in a haystack. The odds of success are extremely low. Majors like Barrick Gold (NYSE: ABX) spend next to nothing on early stage prospect generation. Generally it's a tiny company like Aurelian Resources that hits the big score, only to be bought out subsequently by a miner like Kinross Gold (NYSE: KGC). There are thousands of tiny companies out there looking for the next Fruta del Norte (Aurelian's huge find in Ecuador). The costs to map, sample, and drill a few core holes are not particularly high, and the potential reward is huge. This is what's known as an asymmetric payoff.

With an eye to this favorable "reward/risk ratio," Contango is committing up to $3 million for this initial exploration phase in Alaska. That's a fraction of the cost of drilling a single wildcat well offshore. A pair of recently "spudded" exploratory wells in the Gulf of Mexico are together expected to cost Contango $25 million.

This company is still directing the vast majority of its exploratory budget to these and other oil and gas-seeking efforts, so I don't believe shareholders should sweat a small side bet on hitting Alaskan gold.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter. 3M is a Motley Fool Inside Value choice. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.