Benzinga | Nov 30, 2020 06:31AM EST

Contango Announces Signing of Agreement to Acquire Oily, Low Decline Assets in Big Horn, Permian, and Powder River Basins

Contango Oil & Gas Company (NYSE: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.