Contango Oil & Gas Acquires Mid-Con Energy Partners
NYSE American-listed Contango Oil & Gas Co. has entered into a merger agreement to acquire 100% of Tulsa-based Mid-Con Energy Partners LP, in an all-stock transaction valued at approximately US$108 million including debt. The transaction has been unanimously approved by the board of directors of both companies.
Under the terms of the agreement, Mid-Con unitholders will receive 1.75 shares of Contango common stock for each common unit held. Based on approximately 14 million units outstanding, Mid-Con unitholders will receive around 25 million Contango shares, which are currently valued at US$1.71 per share (based on the closing share price on October 23rd), representing a 5% premium based on a 15-day volume-weighted average price. The total equity offer amounts to approximately US$43 million. Including the assumption of Mid-Con’s reported working capital deficit of approximately US$65.1 million (as of June 30th, 2020), the total transaction value is approximately US$108 million on an enterprise value basis. Upon completion, the combined entity will have an enterprise value of over US$400 million.
The transaction will result in Contango shareholders holding approximately 87% of the combined company, with Mid-Con’s current unitholders owning the remaining 13%. Voting agreements have been signed by over 50% of shareholders of both companies, including Goff Capital Partners LP, which owns a 28% stake in Contango. Contango’s board of directors will remain intact, and its senior management team will run the combined company. The merged company will be headquartered in Fort Worth, Texas and will continue to maintain a presence in both the Houston and Oklahoma markets.
Mid-Con Energy is currently focus on Enhanced Oil Recovery (EOR) operations located primarily in Oklahoma and Wyoming. Contango owns offshore properties in the shallow waters of the Gulf of Mexico and onshore properties in Texas, Oklahoma, Louisiana and Wyoming. The combined entity will have pro forma proven (1P) reserves of 66.9 million barrels of oil equivalent (MMboe) (as of December 31st, 2019), of which 68% is liquids.
“This merger is exactly the type of transaction we look for to enhance value for our shareholders in the current market. We were able to substantially increase our reserve base and cash flow in an accretive transaction while meeting the needs of Mid-Con unitholders by further rationalizing their cost structure and mitigating their refinancing risk by combining our respective credit facilities,” said Wilkie Colyer, Contango’s CEO.
“This combination increases our exposure to long lived oil reserves and is accretive to Contango shareholders. Our definition of accretive, by the way, is that it increases the intrinsic value of Contango on a per share basis, and this transaction certainly fits that bill,” he added.
Intrepid Partners is serving as financial advisor to Contango, while Petrie Partners is advising Mid-Con on the deal.
The completion of the transaction remains subject to customary closing conditions, including the receipt of shareholder and unitholder approvals, and is expected to close in late 2020 or early 2021.