Contango Oil & Gas Company (NYSE American: MCF)
(“Contango” or the “Company”) announced today that it has entered
into an asset purchase agreement to acquire assets in the Big Horn,
Permian, and Powder River Basins via a bank owned liquidation of
assets.
HIGHLIGHTS
- Acquisition of PDP heavy reserves
for $58 million in cash, subject to customary purchase price
adjustments, representing more than a 50% discount to producing
reserve value(1)
- Adds significant volumes of
low-decline liquids production requiring minimal maintenance
capital
- Pro forma for the Mid-Con Energy
merger and this acquisition, Contango’s net producing oil annual
decline rate to drop to approximately 11% during 2021
- Pro forma(2) for the Mid-Con Energy
merger, these assets are expected to increase Contango’s reserve
value by approximately 36%
- Unlevered payback period on these
assets estimated to be 2.7 years at 11/27/20 strip. Long-lived,
conventional asset package is expected to retain a majority of its
value and production volumes through payout and continue to produce
significant cash flow thereafter
- Significant potential for cash flow
optimization through Contango’s proven ability to cut costs on
acquired assets. Large scale assets will also provide future
inventory of low-risk capital projects that we are currently
evaluating
TRANSACTION DETAILS
The executed purchase and sale agreement provides that Contango
will acquire approximately 7.5 Mboe/d of production (as of 8/1/20),
approximately 18.3 Mmboe of PDP reserves (unaudited), and ~182,000
net acres (100% HBP) across the package for a total purchase price
of $58 million subject to customary purchase price
adjustments.
Production from the acquired assets is liquids weighted at
>55% oil and NGLs, and the acreage is 100%
held-by-production. The largest property in the package, the
Elk Basin Field (Big Horn Basin), is a conventional asset which has
been producing from multiple horizons for over 100 years. This
field has produced in excess of 500 million barrels of oil since
discovery with historic estimates of the OOIP in excess of 1.2
billion barrels. This field currently produces approximately 2
Mboe/d (87% oil and 100% liquids), having exhibited low single
digit decline rates for several decades. The second largest asset
in the portfolio, located on the Central Basin Platform and
Northwest Shelf areas of the Permian Basin, currently produces 3.8
Mboe/d (40% oil and 59% liquids).
The transaction is expected to close December 31, 2020, and the
effective date of the transaction will be August 1, 2020.
The closing of the transaction is subject to customary
conditions, due diligence, confirmation of title, and finalization
of documentation; however, closing is not conditioned upon
satisfaction of any financing contingency. The Company
intends to finance the purchase price with a combination of cash on
hand, borrowings under its revolving credit facility and capital
markets financing.
MANAGEMENT COMMENTARY
Wilkie S. Colyer, Contango’s Chief Executive Officer, said “We
are extremely excited to acquire these oily, low decline assets at
such an attractive valuation. This opportunity became
actionable as a result of our proprietary pipeline of assets owned
by non-natural owners, and our hope is that, as in this case,
sellers view us as a solution provider as much as they do a
counterparty in looking for a new home for stranded assets.
Contango has existing operations in the Big Horn, Permian, and
Powder River Basins, and we believe we have the expertise to
maximize the value of these mature conventional assets via our
technical staff formerly at Mid-Con Energy. This is another step
for us in consolidating upstream assets in a difficult environment
for the industry as a whole. We will continue to be on the lookout
for transactions accretive to our shareholders, defined as ones
which increase intrinsic value per share, whether they be cash
purchases, M&A, reorganizations, or distressed debt
acquisitions in what continues to be a target rich environment for
us.”
(1) Value of producing reserves as of November
1, 2020, as calculated by MCF using seller provided unaudited
reserves information and 8/4/2020 Nymex strip pricing.
(2) Pro forma proved reserves of $364.6mm after
the Mid-Con merger. These pro forma proved reserves for MCF
and MCEP Combined are as of 12/31/2019 using strip pricing as of
8/4/2020 and exclude reserves associated with MCF’s ~37% interest
in Exaro. The properties subject to this pending acquisition have
an estimated $130.3mm in proved reserves value, as set
forth in footnote 1 above, which results in an approximate 36%
increase in proved reserves value over pro forma Combined MCF and
MCEP.
Teleconference Call
Contango management will hold a conference call to discuss the
information described in this press release on Monday, November 30,
2020 at 3:30 pm Central Standard Time. A brief presentation related
to certain items to be discussed on the call will be posted to the
Company’s website at ir.contango.com prior to the call. Those
interested in participating in the conference call may do so by
clicking here to join and entering your information to be
connected. The link becomes active 15 minutes prior to the
scheduled start time, and the conference will call you. If you are
not at a computer, you can join by dialing 1-800-309-1256,
(International 1-323-347-3622) and entering participation code
538266. A replay of the call will be available Monday, November 30,
2020 at 6:30 pm CST through Monday, December 21, 2020 at 7:00 pm
CST by clicking here.
About Contango Oil & Gas Company
Contango Oil & Gas Company is a Houston, Texas based,
independent oil and natural gas company whose business is to
maximize production and cash flow from its offshore properties in
the shallow waters of the Gulf of Mexico and onshore properties in
Texas, Oklahoma, Louisiana and Wyoming and, when determined
appropriate, to use that cash flow to explore, develop, and
increase production from its existing properties, to acquire
additional PDP-heavy crude oil and natural gas properties or to pay
down debt. Additional information is available on the Company's
website at http://contango.com. Information on our website is not
part of this release.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication may be deemed to be solicitation material in
respect of the proposed merger (the “Proposed Merger”). The
Proposed Merger will be submitted to Contango’s shareholders and
Mid-Con’s unitholders for their consideration. Contango and Mid-Con
intend to file a preliminary consent statement/proxy
statement/prospectus (the “Consent Statement/Proxy
Statement/Prospectus”) with the Securities and Exchange Commission
(the “SEC”) in connection with the Partnership Unitholder Approval
and the Contango Shareholder Approval (each as defined in the
Merger Agreement) in connection with the Proposed Merger. Contango
intends to file a registration statement on Form S-4 (the “Form
S-4”) with the SEC, in which the Consent Statement/Proxy
Statement/Prospectus will be included as a prospectus. Contango and
Mid-Con also intend to file other relevant documents with the SEC
regarding the Proposed Merger. After the Form S-4 is declared
effective by the SEC, the definitive Consent Statement/Proxy
Statement/Prospectus will be mailed to Contango’s shareholders and
Mid-Con’s unitholders. BEFORE MAKING ANY VOTING OR INVESTMENT
DECISION WITH RESPECT TO THE PROPOSED MERGER, INVESTORS AND
SHAREHOLDERS OF CONTANGO AND INVESTORS AND UNITHOLDERS OF MID-CON
ARE URGED TO READ THE DEFINITIVE CONSENT STATEMENT/PROXY
STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER (INCLUDING ANY
AMENDMENTS OR SUPPLEMENTS THERETO) AND OTHER RELEVANT MATERIALS
CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
MERGER.
The Consent Statement/Proxy Statement/Prospectus, any amendments
or supplements thereto and other relevant materials, and any other
documents filed by Contango or Mid-Con with the SEC, may be
obtained once such documents are filed with the SEC free of charge
at the SEC’s website at www.sec.gov or free of charge from
Contango at www.contango.com or by directing a request to
Contango’s Investor Relations Department at
investorrelations@contango.com or free of charge from Mid-Con at
www.mceplp.com or by directing a request to Mid-Con’s Investor
Relations Department at MSA.OwnerRelations@Contango.com.
NO OFFER OR SOLICITATION
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities, or a solicitation
of any vote or approval, nor shall there be any sale of securities
in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
PARTICIPANTS IN THE SOLICITATION
Contango, Mid-Con and certain of their respective executive
officers, directors, other members of management and employees may,
under the rules of the SEC, be deemed to be “participants” in the
solicitation of proxies in connection with the Mid-Con Acquisition.
Information regarding Contango’s directors and executive officers
is available in its Proxy Statement on Schedule 14A for its 2020
Annual Meeting of Shareholders, filed with the SEC on April 28,
2020 and in its Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the SEC on March 20, 2020.
Information regarding Mid-Con’s directors and executive officers is
available in its Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the SEC on March 12, 2020 and its
Current Reports on Form 8-K, filed with the SEC on June 10, 2020
and August 6, 2020. These documents may be obtained free of charge
from the sources indicated above. Other information regarding the
participants in the proxy solicitation and a description of their
direct and indirect interests, by security holdings or otherwise,
will be contained in the Form S-4, the Consent Statement/Proxy
Statement/Prospectus and other relevant materials relating to the
Mid-Con Acquisition to be filed with the SEC when they become
available. Shareholders, unitholders, potential investors and other
readers should read the Consent Statement/Proxy
Statement/Prospectus carefully when it becomes available before
making any voting or investment decisions.
Forward-Looking Statements and Cautionary Statements
This press release contains 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.
These statements are based on Contango’s current expectations and
include statements regarding our estimates of future production and
other guidance (including information regarding production, asset
potential and cost reductions), the Company’s pending acquisition
of the oil and gas properties and the timing and benefits
therefrom, the Company’s pending acquisition of Mid-Con, the pro
forma profile of the Company after giving effect to both
acquisitions, the Company’s drilling program and capital
expenditures, our liquidity and access to capital, expected
reduction in overall drilling costs, the potential impact of the
COVID-19 pandemic including reduced demand for oil and natural gas,
the low and volatile commodity price environment, the impact of our
derivative instruments, the accuracy and use of technical
information and staff, the accuracy of our projections of future
production, future results of operations, ability to identify and
complete acquisitions and other strategic opportunities, ability to
realize expected benefits of acquisitions the quality and nature of
the asset base, our outlook in the current industry downturn, the
assumptions upon which estimates are based (including those
regarding assets we do not yet own), beliefs, plans, objectives,
assumptions, strategies or statements about future events or
performance. Words and phrases used to identify our forward-looking
statements include terms such as “guidance”, “expects”, “projects”,
“anticipates”, “believes”, “plans”, “estimates”, “potential”,
“possible”, “probable”, “intends”, “forecasts”, “view”, “efforts”,
“goal”, “positions” or words and phrases stating that certain
actions, events or results “may”, “will”, “should”, or “could” be
taken, occur or be achieved. Statements concerning oil and gas
reserves also may be deemed to be forward-looking statements in
that they reflect estimates based on certain assumptions that the
resources involved can be economically exploited. Forward-looking
statements are based on current expectations, estimates and
projections that involve a number of risks and uncertainties, which
could cause actual results to differ materially from those
reflected in the statements. These risks include, but are not
limited to: the risks of the oil and gas industry (for example,
operational risks in exploring for, developing and producing crude
oil and natural gas; risks and uncertainties involving geology of
oil and gas deposits; the uncertainty of reserve estimates; the
uncertainty of estimates and projections relating to future
production, costs and expenses; potential delays or changes in
plans with respect to exploration or development projects or
capital expenditures; health, safety and environmental risks and
risks related to weather such as hurricanes and other natural
disasters); risks relating to the Company’s pending acquisitions of
oil and gas properties and of Mid-Con, including the risk that the
acquisitions will not be completed on the timeline or terms
currently contemplated, that the businesses will not be integrated
successfully, that the cost savings, synergies and growth from the
acquisitions may not be fully realized or may take longer to
realize than expected, and that management attention will be
diverted to transaction-related issues; potential liability
resulting from litigation related to the Mid-Con acquisition; the
risk that transaction costs for the acquisitions may be higher than
anticipated; the effect of our pending acquisitions (or
announcement thereof) or financing thereof on our stock price or
Mid-Con’s unit price; uncertainties as to the availability and cost
of financing; our relationships with lenders; our ability to comply
with financial covenants in our debt instruments, repay
indebtedness and access new sources of indebtedness and/or provide
additional liquidity for future capital expenditures; any reduction
in our borrowing base and our ability to avoid or repay excess
borrowings as a result of such reduction; our ability to execute on
our strategy, including execution of acquisitions, any changes in
our strategy or our fee for service offering; fluctuations in or
sustained low commodity prices; availability and effect of storage
of production; expected benefits of and risks associated with
derivative positions; our ability to realize cost savings; our
ability to execute on and realize expected value from acquisitions
and to complete strategic dispositions of assets and realize the
benefits of such dispositions; the need to take impairments on
properties due to lower commodity prices; the limited trading
volume of our common stock and general trading market volatility;
outbreaks and pandemics, even outside our areas of operation,
including COVID-19 and the resulting economic slowdown,
governmental actions, stay-at-home orders, and other interruptions
to our operations; the ability of our management team to execute
its plans or to meet its goals; shortages of drilling equipment,
oil field personnel and services; unavailability of gathering
systems, pipelines and processing facilities; the possibility that
government policies may change or governmental approvals may be
delayed or withheld; and the other factors discussed in our reports
filed or furnished with the SEC, including under the “Risk Factors”
heading in our annual report on Form 10-K for the year ended
December 31, 2019 and our quarterly reports on Form 10-Q filed with
the SEC. Additional information on these and other factors, many of
which may be unknown or unpredictable at this time, which could
affect Contango’s operations or financial results are included in
Contango’s reports on file with the SEC. Investors are cautioned
that any forward-looking statements are not guarantees of future
performance and actual results or developments may differ
materially from the projections in the forward-looking statements.
Forward-looking statements speak only as of the date they were made
and are based on the estimates and opinions of management at the
time the statements are made. Contango does not assume any
obligation to update forward-looking statements should
circumstances or management’s estimates or opinions change, except
as required by law. Production rates are subject to decline over
time and should not be regarded as reflective of sustained
production levels. Pro forma information represents expectations
based on current information and expected benefits of any
transaction are not necessarily indicative of future or long-term
results. Original oil in place, producing reserves, past production
performance and PV-10 are not necessarily representative of future
cash flows and production, which may be materially less. This
release shall not constitute an offer to sell, or a solicitation of
an offer to buy, any securities.
Contact:
Contango Oil & Gas Company Farley Dakan – 817-502-6254
President
Contango Oil and Gas (AMEX:MCF)
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