HOUSTON, Dec. 20, 2019 (GLOBE NEWSWIRE) -- Contango Oil & Gas Company (NYSE American: MCF) announced today that the Company entered into a Joint Development Agreement with Juneau Oil & Gas, LLC to develop certain exploration prospects in the offshore Gulf of Mexico shelf.
The Joint Development Agreement provides that the Company will have the right to acquire an interest in all of Juneau’s prospects located in the Gulf of Mexico for aggregate consideration of $6.0 million, consisting of $1.69 million in cash and $4.31 million in stock consideration. The first such prospect to be acquired by the Company, the Iron Flea, is located in the Grand Isle Block 45 Area, which management currently estimates could have an expected reserve potential of approximately 19 MMBoe (86% oil) net to Contango’s interest. The Company has elected to acquire approximately 85-90% of Juneau’s working interest in such prospect, and we expect the dry hole cost of the exploration well, net to Contango’s interest after project payout, to be $6.3 million. More information on the Iron Flea, which we anticipate drilling in the second quarter of 2020, can be found in our most recent corporate presentation on our website. During the term of the Joint Development Agreement, Contango will also have the right to acquire an interest in all future Juneau-generated prospects located in the Gulf of Mexico, on similar terms and conditions, subject to the execution of an Advisory Services Agreement, after the first well has been drilled. Juneau will deliver to the Company no less than an 80% net revenue interest (proportionately reduced to Juneau’s interest) on all acquired prospects, excluding the Iron Flea prospect to be acquired by the Company.
Wilkie S. Colyer, the Company’s President and Chief Executive Officer, said, “We are delighted to announce that we are partnering again with Brad and his team at Juneau Oil and Gas. They have a long history of successful prospect generation, including discovering the Dutch and Mary Rose Field which continues to be an important contributor to Contango’s reserves and cash flow even today. This will not distract or deter us from continuing to look for distressed, onshore, PDP and cash flow heavy assets to acquire, but it instead complements that strategy quite well in our opinion. Given the discount rate at which we are able to acquire these lower risk, onshore assets, we expect our returns for exploratory wells will be higher. Of course, investors should recognize that exploratory drilling is inherently risky, and the Iron Flea well could be unsuccessful. Should our initial test well prove successful and the production levels reach what we currently expect, we believe the Iron Flea economics rival any play in the onshore United States.”
Brad Juneau, the President of Juneau Oil and Gas, said, “Our entire team could not be more excited to reconnect with our original partner Contango Oil & Gas, which Ken Peak and I started back in 1999. Contango and Juneau made several notable discoveries from inception, highlighted by the discovery of the Gulf of Mexico field Dutch Mary Rose that Wilkie referenced. I’m honored to have the opportunity to work with Wilkie and his management team as they grow the Company, and as a demonstration of our faith in his team we have taken most of our upfront reimbursement in Contango stock and not cash.”
Willkie Farr & Gallagher LLP acted as legal advisor to the Company in connection with the Joint Development Agreement.
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 and Wyoming and to use that cash flow to explore, develop, exploit, increase production from its existing properties, and to acquire crude oil and natural gas properties in the United States.
