FORT WORTH, Texas, Nov. 30, 2020 (GLOBE NEWSWIRE) -- Contango Oil & Gas Company (NYSE American: MCF) 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.

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.