Contango Oil & Gas Co (Texas) (NYSEAMERICAN: MCF) announced they had signed an agreement to acquire conventional gas assets from ConocoPhillips in the Wind River Basin of Wyoming.
Acquisition at an attractive price: As per the press release, it is indicated that the acquisition of PDP assets, which is heavy in reserves, cost $67 million. The company will fund the acquisition through cash. As per the company, acquisition prices are at a significant discount compared to the proven producing reserve of the asset. On July 1, 2021, the net production run rate stood at 78 Mmcfe/d, 100% gas. Management expects the production run rate to increase by 53% by the end of Q3 of 2021. Given Contango’s track record, the acquisition will help the company optimize the cash flow and reserves of the assets acquired.
Transaction details: Contango will purchase around 446 Bcfe of PPE reserves for a total price consideration of $67 million. As per the agreement, the transaction is expected to be consummated in the third quarter of the current year (2021). Management stated they would use the cash on handing and expected revolving credit facility to fund the acquisition. It also indicates the company’s balance sheet is unlikely to expand, and leverage would be at quite comfortable levels.
The company said that the acquisition of Wind River Basin fits their existing asset profile and a step towards the corporate consolidation strategy. The asset is the conventional gas field coming at a reasonable price, and the company says that they are pretty comfortable and expertise in this low decline and conventional properties. Given its strong balance sheet, the company is scouting for various assets, which fit its portfolio and move further with consolidation in the industry. This acquisition is the right example for the company strategy and will continue with seller stewardship of Wind River Basin assets. Higher profitability results in a stronger company’s position to acquire more assets through cash on hand without expanding its balance sheet.