Contango to Merge with KKR-backed Independence Energy
NYSE-listed Contango Oil & Gas Co. has entered into an agreement with Independence Energy LLC, a company managed by KKR & Co. Inc.’s Energy Real Assets team, to combine in an all-stock merger valued at approximately US$5.7 billion. The combined entity will operate under a new name and will be headquartered in Houston, with operations across the Eagle Ford shale, Rocky mountains, Permian, and Mid-Continent regions of the United States.
Based on Contango’ closing share price on June 7th, 2021, the market capitalization of the combined entity is estimated at approximately US$4.8 billion. Adjusting for a combined reported net debt of approximately US$935 million as at March 31st, 2021, the implied transaction value is around US$5.7 billion on an enterprise value basis.
Upon completion, Independence Energy shareholders will own 76% of the combined company (including KKR holding 17%), and Contango shareholders will own 24%.
Houston-based Contango currently holds interests in approximately 1.6 million gross acres in Texas, Oklahoma, Wyoming, Montana, New Mexico, and Louisiana, along with additional offshore interests in the shallow Gulf of Mexico. The company reported proved (1P) reserves of approximately 84.3 million barrels of oil equivalent (MMboe) as of December 31st, 2020, with average daily production of approximately 23.5 thousand barrels of oil equivalent per day (Mboe/d) during 2020.
Independence Energy is currently holds a portfolio of low-decline, producing assets across the Eagle Ford, Rocky Mountains, Permian and Mid-Continent regions.
Pro-forma, the combined entity will be a premier, diversified and low leverage U.S. independent oil and gas company, with estimated average daily production of approximately 108 – 114 Mboe/d in 2022.
“This is a very compelling merger for Contango shareholders providing substantial value accretion, significant scale and lower cost of capital. KKR’s desire to position the combined company to be their long-term primary platform to focus on continued consolidation in the industry is a testament to what the team has created at Contango. As the largest shareholder of Contango and Chairman of the new combined company, I look
forward to working with David Rockecharlie and the KKR team in continuing our strategy of consolidation and industry-leading performance,” commented John Goff, Contango’s Chairman and largest shareholder.
Jefferies is acting as financial advisor to Contango for the transaction, while Wells Fargo Securities advising Independence Energy.
The transaction is subject to customary closing conditions, including the approval of Contango shareholders and regulatory approvals, and is expected to be completed by Q4-2021.