Contango Enters into Agreement to Purchase Southern Delaware Basin Acreage
Contango Oil & Gas Company (NYSE MKT:MCF) announced today that it has
entered into an agreement with a private oil and gas company to purchase
one-half of seller's interests in approximately 12,100 gross undeveloped
acres (~5,000 net acres) for up to $25 million in the Southern Delaware
Basin of Texas, currently one of the most active and economically
attractive oil and gas basins in the United States.
The purchase price is comprised of $10 million in cash at initial
closing and $10 million in carried well costs expected to be paid over
the next 14 months. Certain additional contingent payments upon success
would increase total consideration to $25 million. The purchase is
subject to finalization of title due diligence and customary closing
conditions and adjustments with an initial closing expected later this
month. Specifics of the purchased acreage are as follows:
Located in western Pecos County, Texas.
Primary focus is three benches (Wolfcamp A, Wolfcamp B and emerging
Bone Springs formations), all of which have proven to be productive in
the area by offset operators, thereby providing us with the equivalent
of 36,000 "effective" gross acres over the three formations.
Average Wolfcamp interval of approximately 400 feet and Bone Springs
interval of approximately 2,000 feet.
Acquiring operated average working interests of approximately 41% (32%
net revenue interest).
157 gross potential locations spread over the three potential
formations that are estimated to generate average individual well
returns of 54%, at current strip prices and current estimated drilling
and completion costs using internally estimated average production
type curves based on offset operations data and assuming drilling of
10,000 foot laterals.
Additional upside exists in future downspacing and additional zones
being delineated within the thick Bone Springs section and/or Middle
and Lower Wolfcamp intervals.
Acreage is adjacent to and surrounded by current horizontal Wolfcamp
Active offset operators included Samson Oil & Gas, J. Cleo Thompson,
Brigham Exploration, and Concho Resources, among others.
Existing infrastructure in place to service development of asset.
No significant near term expirations.
Drilling of initial wells is expected to commence as soon as practical
Allan D. Keel, the Company's President and Chief Executive Officer,
said, "We are pleased to be in one of the premier oil fields in North
America. This new Permian presence provides a multi-year inventory
across a stacked pay formation that we expect to commence drilling in
September or October of this year with our existing staff. The unique
deal structure of part cash, part carry and part success fee gives us
some financial flexibility and allows us to grow production, cash flow
and reserves through a capital program that is expected to be funded
with internally generated cash flow. As we grow and develop our Permian
asset, we will continue to focus on maintaining our strong balance sheet
and financial flexibility."
Contango Oil & Gas Company is a Houston, Texas-based, independent energy
company engaged in the acquisition, exploration, development,
exploitation and production of crude oil and natural gas offshore in the
shallow waters of the Gulf of Mexico and in the onshore Texas Gulf Coast
and Rocky Mountain regions of the United States. Additional information
is available on the Company's website at www.contango.com.
This press release contains forward-looking statements regarding
Contango that are intended to be covered by the safe harbor
"forward-looking statements" provided by the Private Securities
Litigation Reform Act of 1995, based on Contango's current expectations
and includes statements regarding acquisitions and divestitures,
estimates of future production, future results of operations, quality
and nature of the asset base, the assumptions upon which estimates are
based and other expectations, beliefs, plans, objectives, assumptions,
strategies or statements about future events or performance (often, but
not always, using words such as "expects," "projects," "anticipates,"
"plans," "estimates," "potential," "possible," "probable," or "intends,"
or stating that certain actions, events or results "may," "will,"
"should," or "could" be taken, occur or be achieved). Statements
concerning oil and gas reserves also may be deemed to be forward-looking
statements in that they reflect estimates based on certain assumptions
that the resources involved can be economically exploited.
Forward-looking statements are based on current expectations, estimates
and projections that involve a number of risks and uncertainties, which
could cause actual results to differ materially from those reflected in
the statements. These risks include, but are not limited to: the risks
of the oil and gas industry (for example, operational risks in exploring
for, developing and producing crude oil and natural gas; risks and
uncertainties involving geology of oil and gas deposits; the uncertainty
of reserve estimates; the uncertainty of estimates and projections
relating to future production, costs and expenses; potential delays or
changes in plans with respect to exploration or development projects or
capital expenditures; health, safety and environmental risks and risks
related to weather such as hurricanes and other natural disasters);
uncertainties as to the availability and cost of financing; fluctuations
in oil and gas prices; risks associated with derivative positions;
inability to realize expected value from acquisitions, inability of our
management team to execute its plans to meet its goals, shortages of
drilling equipment, oil field personnel and services, unavailability of
gathering systems, pipelines and processing facilities and the
possibility that government policies may change or governmental
approvals may be delayed or withheld. Additional information on these
and other factors which could affect Contango's operations or financial
results are included in Contango's other reports on file with the
Securities and Exchange Commission. Investors are cautioned that any
forward-looking statements are not guarantees of future performance and
actual results or developments may differ materially from the
projections in the forward-looking statements. Forward-looking
statements are based on the estimates and opinions of management at the
time the statements are made. Contango does not assume any obligation to
update forward-looking statements should circumstances or management's
estimates or opinions change. Initial production rates are subject to
decline over time and should not be regarded as reflective of sustained
We calculate our "effective acreage" as our total gross surface acreage
of leaseholds we may acquire pursuant to the exploration agreement
multiplied by the three prospective target zones we may encounter on our
acquired leasehold interests. We cannot assure you that (i) all 36,000
gross effective acres will be ultimately acquired by us, (ii) the
acreage we do acquire will be prospective in all or any of the targeted
zones, or (iii) such acquired acreage will ultimately be drilled or
included in drilling units. For purposes of estimates in this press
release, we have assumed 85% of the 36,000 gross effective acreage is
prospective and capable of being included in drilling units of
sufficient size to drill wells with 10,000 foot laterals.
For purposes of our internal rate of return and related estimates of
ultimate hydrocarbon recovery included in this press release, we have
used an internally developed preliminary estimate of average drilling
and completion costs of $8.2 million and a production type curve for
planned wells with 10,000 foot laterals. These cost and production
estimates were developed largely from extrapolating publicly available
realized data or estimates from third-party operators pertaining to
nearby productive horizontal wells. These nearby wells have shorter
laterals currently averaging 7,300 feet. Our actual returns on, and the
actual quantities of hydrocarbons that may be ultimately recovered from,
our interests in the Southern Delaware Basin may differ substantially
from the estimates in this press release. Factors affecting ultimate
returns and hydrocarbon recovery include the scope of our planned
drilling program in the Southern Delaware Basin (which will be directly
affected by commodity prices, the availability of capital, drilling and
production costs, availability of drilling services and equipment, our
actual drilling results, lease expirations, pooling and unitization
limitations, transportation constraints, regulatory approvals and other
factors) and actual drilling results, including geological and
mechanical factors affecting recovery rates.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160721006391/en/
Contango Oil & Gas Company
E. Joseph Grady, 713-236-7400
Vice President and Chief Financial Officer
Vice President and Treasurer
Source: Contango Oil & Gas Company
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